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



 
     ACCOUNTABILITY AND OVERSIGHT IN THE MEDICARE ADVANTAGE PROGRAM

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

                                HEARING

                               before the

                        SUBCOMMITTEE ON HEALTH,
                  JOINT WITH SUBCOMMITTEE ON OVERSIGHT

                                 of the

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

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 16, 2007

                               __________

                           Serial No. 110-62

                               __________

         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       DAVE CAMP, Michigan
SANDER M. LEVIN, Michigan            JIM RAMSTAD, Minnesota
JIM MCDERMOTT, Washington            SAM JOHNSON, Texas
JOHN LEWIS, Georgia                  PHIL ENGLISH, Pennsylvania
RICHARD E. NEAL, Massachusetts       JERRY WELLER, Illinois
MICHAEL R. McNULTY, New York         KENNY HULSHOF, Missouri
JOHN S. TANNER, Tennessee            RON LEWIS, Kentucky
XAVIER BECERRA, California           KEVIN BRADY, Texas
LLOYD DOGGETT, Texas                 THOMAS M. REYNOLDS, New York
EARL POMEROY, North Dakota           PAUL RYAN, Wisconsin
STEPHANIE TUBBS JONES, Ohio          ERIC CANTOR, Virginia
MIKE THOMPSON, California            JOHN LINDER, Georgia
JOHN B. LARSON, Connecticut          DEVIN NUNES, California
RAHM EMANUEL, Illinois               PAT TIBERI, Ohio
EARL BLUMENAUER, Oregon              JON PORTER, Nevada
RON KIND, Wisconsin
BILL PASCRELL, Jr., New Jersey
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

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
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                            C O N T E N T S

                               __________

                                                                   Page
Advisory of October 16, 2007, announcing the hearing.............     2

                               WITNESSES

Jeffery Steinhoff, Managing Director, Financial Management and 
  Assistance, U.S. Government Accountability Office..............     7
James Cosgrove, Acting Director, Health Care, U.S. Government 
  Accountability Office..........................................    23
Timothy B. Hill, Chief Financial Officer, Centers for Medicare 
  and Medicaid Services..........................................    36
Paul Precht, Policy Coordinator, Medicare Rights Center..........    77
Harry Hotchkiss, Senior Products Actuarial Director, Humana Inc, 
  Louisville, Kentucky...........................................   109
Cindy Polich, Senior Vice President, Secure Horizons, 
  UnitedHealth Group, Minneapolis, Minnesota.....................   127
Bart Asner, MD, Chief Executive Officer, Monarch Healthcare, 
  Irvine, California.............................................   132

                       SUBMISSION FOR THE RECORD

Questions for the Record.........................................   155


     ACCOUNTABILITY AND OVERSIGHT IN THE MEDICARE ADVANTAGE PROGRAM

                              ----------                              


                       TUESDAY, OCTOBER 16, 2007

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                    Subcommittee on Health,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 10:07 p.m., in 
Room 1100, Longworth House Office Building, the Honorable 
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
October 04, 2007
HL-17

    Stark and Lewis announced today that the Subcommittees will hold a 
joint hearing on statutorily required audits of Medicare Advantage plan 
bids, specifically focusing on the report by the Government 
Accountability Office entitled ``Medicare Advantage: Required Audits of 
Limited Value''
      
    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 statutorily 
required audits of Medicare Advantage plan bids, specifically focusing 
on the report by the Government Accountability Office entitled 
``Medicare Advantage: Required Audits of Limited Value'' (GAO-07-945). 
The hearing will take place at 10:00 a.m. on Thursday, October 11, 
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.
      

BACKGROUND:

      
    In 2006, the Centers for Medicare and Medicaid Services (CMS) spent 
nearly $56 billion on Medicare parts A and B benefits in the Medicare 
Advantage program, which covered approximately 6.7 million (nearly 16 
percent) of the 43 million Medicare enrollees.
      
    Under the program, CMS approves private companies to offer health 
plan options to Medicare enrollees. These companies are required to 
submit yearly bids of the costs and benefits package of each Medicare 
Advantage plan they intend to offer. CMS compares these bids to 
geographic-specific benchmarks. If higher, a plan must require 
enrollees to pay the difference as a premium. If lower, 75% of the 
difference must be provided to enrollees as additional services or cost 
savings, while 25% is retained by the Treasury. CMS pays plans based on 
this formula, per enrollee, on a monthly basis, before services are 
rendered.
      
    The 1997 Balanced Budget Act (BBA) (P.L. 105-33) requires CMS to 
annually audit the supporting financial records of at least one-third 
of participating organizations. The BBA also requires the Government 
Accountability Office (GAO) to monitor this audit activity.
      
    In July 2007, GAO released a report on audits of the Medicare 
Advantage program and found that CMS did not meet the statutory audit 
requirement for the years 2001-2006. CMS selects organizations to meet 
the statutory audit requirement based on the number of organizations 
and not the total number of plans. GAO reported that, in 2006, CMS 
audited only 13.9 percent of the participating organizations (down from 
a high of 22.3 percent in 2003). GAO also found that, in 2006, only 159 
(or 3.2 percent) of the total 4,920 Medicare Advantage plans were 
examined.
      
    Some audits revealed errors in the bids. CMS does not sanction or 
seek to recover funds from providers that audits reveal are in 
violation of the bid requirements. A CMS contractor estimated that, for 
2003, bid errors cost beneficiaries a net loss of $59 million in 
additional benefits, lower co-payments, or lower premiums.
      
    ``The GAO report raises serious questions about the management and 
oversight of the Medicare Advantage program. Mandated audits are not 
performed, and those that are performed are not used to make needed 
changes, costing beneficiaries and taxpayers millions in overpayments 
and lost benefits,'' said Health Subcommittee Chairman Stark. ``The 
report again shows that Medicare Advantage does not live up to the 
service and cost savings promises that were made at its inception. Lack 
of oversight makes this bad idea even worse.''
      
    ``The integrity of the Medicare Advantage program is important to 
everyone,'' said Oversight Subcommittee Chairman, John Lewis. ``GAO 
reported that, based on 2003 audits, beneficiaries could have received 
at least $34 million and possibly up to $59 million in additional 
benefits, lower co-payments, and lower premiums. Enrollees place their 
trust in their Medicare Advantage plans and I am committed to ensuring 
that the Medicare Advantage program gives enrollees what they 
deserve.''
      

FOCUS OF THE HEARING:

      
    The hearing will examine the value and accuracy of payments to 
Medicare Advantage plans, specifically focusing on the report by the 
Government Accountability Office entitled ``Medicare Advantage: 
Required Audits of Limited Value'' (GAO-07-945).
      

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    Chairman STARK. I want to thank Chairman Lewis and Mr. Camp 
for joining us to discuss the lack of oversight on Medicare 
Advantage plans. It is the third Ways and Means hearing this 
year to discuss the Medicare Advantage industry.
    The focus of our hearing is the issue of private government 
contractors receiving billions of dollars to administer a 
government program with no oversight or control by the 
administration.
    The Government Accountability Office will review for us 
their first oversight in six years on private Medicare plans, 
whether they have been known as: Medicare Part C; Medicare Plus 
Choice; Medicare Advantage. During that time, the 
administration has never--or we, Congress, have never asked the 
administration to report or review these programs. We spent $56 
billion on these plans in 2006, and we will spend north of $75 
billion this year. We have got 8 million beneficiaries 
enrolled. And yet, for 6 years, nobody has thought that the 
plans require any oversight.
    When the plans formally asked to join Medicare in 1982, we 
heard the tired refrain that private industry does everything 
better and cheaper than government. So the payment was set at 
95 percent of fee for service. Then, the plans came back a few 
years later, and said they could do it better, but only if they 
got paid as much as Medicare. Then, in 2003, they said, well, 
they could provide choice, or an advantage, but only if they 
got paid more than Medicare.
    The Medicare Payment Advisory Commission, CMS's own 
actuary, and the Congressional Budget Office, each estimate 
that Medicare Advantage plans are overpaid. MedPAC estimates 
that the average overpayment is 112 percent of Medicare's cost, 
with plans in some areas exceeding 150 percent of Medicare's 
rates.
    It is no secret that many of us find this wrong, as do many 
of America's taxpayers. These overpayments increase premiums 
for all Medicare beneficiaries. And the so-called additional 
benefits to Medicare enrollees are elusive, often designed to 
weed out the less healthy, more expensive beneficiaries.
    CMS's actuary estimates that the overpayments to Medicare 
Advantage reduce the viability of the Medicare trust fund by 3 
years. Those who wish to see Medicare Advantage continue must 
accept that we demand transparency. We will hear claims today 
that Medicare Advantage provides increases in benefits to 
enrollees. And, at a 12 to 20 percent premium over traditional 
Medicare, they ought to. But even these claims aren't 
substantiated by any factual reporting or detail. Those who 
sing the praises of Medicare Advantage must accept responsible 
oversight.
    If you think this program is helping beneficiaries and the 
integrity of the Medicare system, you should be able to provide 
detailed accounting of what is promised and delivered, and 
explain how much is paid for these services. GAO reports that 
CMS audits only a small percentage of the bids that plans 
submit, even though the law requires them to audit one-third of 
the plans.
    What is even more disturbing is that, while they have 
failed to meet the terms of the law, even the small percentage 
reveals large discrepancies with millions of dollars in lost 
benefits and incorrect accounting. The few audits that are 
actually performed only show us what plans offer, not the 
benefits that they actually deliver. In a $73 billion program, 
we have no idea what benefits are being delivered. That's not 
good government; it is dereliction of duty.
    I hope today we can dispense with the sales pitches, and 
get some facts and figures that will help us determine the 
value of Medicare Advantage to anyone other than the 
stockholders and the providers.
    Mr. Camp could go next, then Mr. Lewis. Is that all right?
    Mr. LEWIS. Yes, that is fine.
    Mr. CAMP. Well, thank you, Mr. Chairman. I don't think 
anyone sitting up here will argue that the Medicare program is 
perfect. For example, we have learned that some Medicare 
Advantage plans have engaged in misleading marketing practices, 
overly aggressive sales tactics, and questionable denials. But 
then I have seen that in more than a few campaigns, as well.
    But, however, this is a serious issue, and we simply cannot 
turn a blind eye to it. And I commend the chairman for using 
our oversight authority to improve this program.
    I am concerned that the GAO found that CMS is not auditing 
Medicare Advantage plans, consistent with the law. Congress 
enacted the audit requirements because we recognized how 
important it is to review and verify the data that these plans 
submit. CMS's failure to meet this requirement is unacceptable, 
and I expect to hear what steps they are going to take to 
address this problem.
    It is also unacceptable that some plans are being paid, and 
not providing the benefits they promised to Medicare 
beneficiaries. I look forward to learning what CMS is doing to 
ensure that Medicare Advantage plans are providing these 
benefits, and whether they need any additional authority to 
recoup these inappropriate payments to Medicare Advantage 
plans. I am sure this congress will be more than happy to grant 
them such authority, if it is needed.
    However, this is far from the only area we need to be 
pursuing. We are seemingly focused on the Medicare Advantage 
program, which deserves our scrutiny. But it is clear that 
there are bad apples sprinkled throughout Medicare. Recent 
press reports have detailed shocking examples of fraud within 
the fee-for-service Medicare program that have cost the 
Medicare program and its beneficiaries billions of dollars.
    Just one recent case involving durable medical equipment 
providers in south Florida saw the Medicare fee-for-service 
program bilked out of hundreds of millions of dollars for 
services and equipment that were never provided. Similarly, the 
GAO reported that thousands of physicians who received federal 
Medicare payments failed to pay their federal taxes.
    Despite the committee's clear jurisdiction in this area, we 
have yet to explore ways to ensure that these abuses do not 
continue, and I hope we do so. I say this to provide 
suggestions for future hearings, as well as to put the issues 
surrounding Medicare Advantage into perspective.
    While we have heard witnesses question the Medicare 
Advantage program, one such witness also agreed that the 
problems he found within the Medicare Advantage program 
affected only .3 percent of the Medicare Advantage enrollees in 
his state. Again, putting these issues in context is important.
    There is no question that Medicare Advantage payment rates 
should be re-examined. The challenge is finding the balance 
between trimming the fat and cutting the bone. We don't want 
seniors in rural areas to lose their health coverage, nor do we 
want benefits slashed.
    Also, we don't want plans to reap such excessive profits 
that they are unable to invest in and add supporting a massive 
expansion of government-run health care--they are able to 
invest and supporting a massive expansion of government-run 
health care.
    I look forward to working with the chairman, and I hope he 
will take me up on my offer and engage in a constructive debate 
to craft a reasonable Medicare package that could be signed 
into law. And with that, I yield back the balance of my time.
    Chairman STARK. The co-chairman.
    Mr. LEWIS. Thank you, Mr. Chairman. This morning, the 
oversight and health subcommittees will hold a joint hearing to 
review the Medicare Advantage program. It is a pleasure to co-
chair this hearing with my good friend from California, 
Chairman Stark.
    Over eight million Americans rely on Medicare Advantage. 
They enroll in this program because they believed that the 
premiums they were paying would be fair for the benefits they 
receive. But this is not always the case. Private insurance 
companies make huge profits by offering these plans. The 
Federal Government pays, on average, 12 to 19 percent more for 
each senior in a Medicare Advantage plan than for a senior in 
traditional Medicare.
    This overpayment does not buy any additional benefits, or 
reduce copayments. It is going directly into the pockets of the 
insurance companies. The waste in the Medicare Advantage 
program is shameful. The lack of CMS oversight is a disgrace. 
And the treatment of beneficiaries is just unacceptable.
    Current law requires CMS to audit at least one-third of the 
organization participating in Medicare Advantage each year. The 
GAO found that CMS has not met this goal. The audits that were 
performed reveal large overpayments to Medicare Advantage 
plans. For 2003, the audits showed overpayments of up to $96 
million--$96 million. That is unbelievable.
    What is more amazing is that CMS did nothing, absolutely 
nothing, to get this money back, or to sanction these private 
plans. Large overpayments, huge profits and commissions have 
led to scandals in MA plans. Eleven states have reported 
seniors, who thought they were signing an information form, 
were suddenly enrolled in an MA plan. Fifteen states reported 
mass enrollment at senior centers, nursing homes, and senior 
housing.
    In Georgia, insurance agents asked to visit patients alone 
in their rooms, and not in the common areas. One agent switched 
a mentally disabled patient to an MA plan without anyone's 
knowledge.
    We must protect the beneficiaries. Senior must have a 
voice. If CMS will not properly oversee this program, and 
provide seniors with a voice, then the Congress will. Mr. 
Chairman, I yield back.
    Chairman STARK. Thank you. And I think the staff is going 
to pass out--unless your eyes are a lot better than mine, the 
chart that we are looking at over there, the blue chart, we are 
going to hand out a reprint of it, if it will help those of us 
who are sight-challenged.
    This morning our first panel consists of: Mr. Jeff 
Steinhoff, who is the managing director of Financial Management 
and Assistance at the U.S. Government Accountability Office--
GAO, as I like to call it; Mr. James Cosgrove, who is the 
acting director of health care at the GAO; and Mr. Timothy B. 
Hill, the chief financial officer for the Centers for Medicare 
and Medicaid Services--once HCFA and now CMS.
    I would like to welcome all of you here. We sort of run a 
clock, but if you really get us fascinated, we may let you 
scoot over a few minutes. We have your prepared testimony. 
Without objection, all of it will appear in the record in its 
entirety. And I would welcome you to enlighten the committee in 
any manner you choose.
    Mr. Steinhoff, would you like to lead off?
    Mr. STEINHOFF. By all means.

 STATEMENT OF JEFFERY STEINHOFF, MANAGING DIRECTOR, FINANCIAL 
MANAGEMENT AND ASSURANCE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. STEINHOFF. Mr. Chairman, Members of the Subcommittees, 
we are pleased to be here today to discuss our July 2007 report 
on Medicare Advantage audits. Our work covered audits for 2001 
to 2006. For 2001 to 2005, the audits covered the adjusted 
community rate submissions. And beginning in 2006, shifted to 
bid submissions under MMA.
    The Balanced Budget Act of 1997 requires that CMS annually 
audit the financial records supporting the submissions of at 
least one-third of the Medicare Advantage organizations. The 
law requires that GAO monitor these audits.
    Now, what did we find when we most recently reviewed CMS's 
audit process? The bottom line: the audit process was of 
limited value. We identified three fundamental problems.
    First, as shown on page four of my statement today, as well 
as the sheets that were just passed out to you all, and on the 
blue chart over here on the side, CMS did not come close to 
meeting the one-third requirement in any of the 5 years of the 
ACR audits. The highest rate was 23.6 percent for 2001.
    For the 2006 bid audits, the audit rate dropped to 13.9 
percent. CMS told us that it plans to perform additional 
procedures for 2006. The nature of this work had not been 
finalized at the time of our review. But the stated time frame 
for completion was 3 years, which will limit the use of any 
results.
    Second, the audits were not designed to provide information 
on the impact of audit findings on beneficiaries. The ACR 
auditors reported findings ranging from the lack of supporting 
documentation to overstating and understating certain costs, 
but were not required by CMS to determine the impact on 
benefits, copayments, or premiums. So you knew something was 
wrong, but you didn't know really what it meant in dollar 
terms, or in benefits delivered.
    CMS subsequently hired a contractor to do so for the 2003 
ACR audits, and ultimately, quantified the impact as $35 
million. Chairman Lewis mentioned an earlier figure. the 
contractor found that there were overstatements of $96 million, 
as Chairman Lewis said, and understatements in other areas. And 
then, CMS reviewed this, and reduced the total to a net $35 
million.
    Reviews of the impact of errors identified by the 2004 and 
2005 audits were not completed when we finished our review. And 
the work for 2005 was somewhat suspended because of the bid 
audits for 2006. Similarly, the bid audits did not require a 
determination of the impact of findings on beneficiaries. The 
type of finding was laid out. The fact it would be material in 
some way was stated. But the dollar effects were not 
quantified.
    Third, although information on the impact on beneficiaries 
eventually became available for 2003, you had the $59 million 
and the $35 million net numbers, CMS plans to close out the 
2003 audits without pursuing financial recoveries, or taking 
other remedial actions, and does not plan to take actions for 
the other years.
    CMS's position is that it has neither the legal authority 
nor the contractual right to pursue recoveries based on audit 
results. We view this problem as being self-imposed. Our 
reading of the law is that CMS has the authority to amend its 
regulations to provide that all Medicare Advantage contracts 
give CMS the ability to address audit findings, including 
pursuing financial recoveries and other remedial actions.
    We agree that CMS's regulations and contracts did not 
include such provisions for 2001 to 2006, which is why we 
recommended CMS remedy the situation going forward, either 
administratively, by changing its regulations--which we believe 
it has the authority to do--or by seeking legislation.
    In closing, when CMS falls short in meeting the statutory 
audit requirement, opportunities to determine if participant 
organizations have reasonably estimated the cost to provide 
benefits to Medicare Advantage enrollees are lost. Inaction or 
untimely audit resolution undermines the presumed effective 
audit efforts.
    Finally, the oversight that Congress called for when it 
mandated the audit requirement 10 years ago is not being 
achieved. Today's hearing provides a good starting point for 
re-evaluating what the congress expects out of the audit 
process, and determining how audits can be turned into a tool 
that provide value and accountability--trust, but verify 
through the audit process--for a program that is $60 billion 
today and growing rapidly, and touches the lives of millions of 
Americans each and every day.
    Mr. Chairman, this completes my summary remarks. We would 
be pleased to respond to any questions that you or Members of 
the Subcommittees may have at this time.
    [The prepared statement of Mr. Steinhoff follows:]

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    Chairman STARK. Thank you. Mr. Cosgrove.
    Mr. COSGROVE. Mr. Chairman, I don't have any prepared 
remarks. I am available to answer any questions that you may 
have.
    Chairman STARK. Okay. Mr. Hill.
    [The prepared statement of Mr. Cosgrove follows:]
         Prepared Statement of James Cosgrove, Acting Director,
           Health Care, U.S. Government Accountability Office

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STATEMENT OF TIMOTHY B. HILL, CHIEF FINANCIAL OFFICER, CENTERS 
               FOR MEDICARE AND MEDICAID SERVICES

    Mr. HILL. Good morning, Chairmen Stark, Lewis, Ranking 
Member Camp, and distinguished Members of the Committee, thank 
you for inviting me here to discuss our audit efforts for the 
Medicare private health care plans.
    This is the second appearance I have made before this 
committee to discuss how CMS meets our fiduciary obligations to 
beneficiaries and to taxpayers. I remain steadfast in my 
commitment to maintaining the highest level of accountability 
for the agency's financial resources, and reiterate the 
commitment that our acting administrator has made to you for a 
transparent and robust compliance effort for all the programs 
we administer, including Medicare Advantage.
    I would like to use my time this morning to briefly 
summarize our response to the GAO report, and discuss the steps 
that we are taking to ensure the accuracy and the integrity of 
the payments we make to Medicare Advantage plans, including how 
we are complying with the one-third financial audit requirement 
of the MMA.
    As you know, the GAO study focused on ACR and bid audits of 
Medicare Advantage organizations, and made five specific 
recommendations. I am pleased to inform you that, as noted in 
our response to the GAO, we have already begun implementing the 
five recommendations.
    GAO also describes our bid audit process as insufficient to 
comply with the statutory requirement to conduct a financial 
audit of one-third of plans each year. We agree. It is 
important to note, however, that the scope of the GAO review 
was limited to CMS's bid audits. In other words, the reviews we 
conduct are after we sign contracts with plans, but before the 
plan year is complete. The reviews are conducted to gather 
information on, and assess needed changes to, the bidding 
process for future years, which would lead to more complete and 
accurate bids from plans.
    I want to clarify for the committee that we have never 
intended the bid audits to be the mechanism by which we would 
comply with this important statutory requirement. Rather, they 
are one piece of a larger strategy to ensure the accuracy and 
integrity of payments and protect beneficiaries.
    The components of our strategy include: ensuring that bids 
are accurate up front, before the plan year begins, and before 
we sign contracts with plans; ongoing compliance monitoring 
throughout the plan year; and, a full-scale financial audit of 
one-third of the plans, once the plan year ends.
    The first element of our strategy begins with reviews we 
conduct of bids before we sign contracts with plans. Using 
contracted actuaries and accounting firms, we thoroughly review 
each bid and its data and underlying assumptions before we sign 
contracts with plans. This process ensures that, to the maximum 
extent practicable, each contract we sign results in the 
maximum benefit to beneficiaries, and accurate payments from 
Medicare. To fall back on a fee-for-service concept, we focus 
our efforts on paying correctly up front, rather than relying 
solely on a pay-and-chase scenario.
    The second element of our strategy includes ongoing 
compliance audits. These audits, while not financial in nature, 
occur throughout the plan year, and are designed to ensure that 
plans are complying with the various beneficiary protection 
requirements in our regulations. The audits are conducted 
largely by CMS staff on an ongoing basis, and are supplemented 
by ongoing data collection, ad hoc reporting, and complaint 
tracking mechanisms, to ensure that we identify and mitigate 
any compliance issues before they have an impact on our 
beneficiaries.
    The final element of our strategy is a full-scale financial 
audit of one-third of the plans, once the plan year ends, per 
the requirements of the MMA. CMS has a specific plan in place 
to meet this requirement, the elements of which have been in 
place since last year. We will be contracting with CPA firms to 
review plan information and data regarding all elements of 
payments, including validating risk scores, claim submissions, 
and beneficiary out-of-pocket costs.
    We are currently reviewing the results of a small audit 
pilot, and will be refining our audit criteria in the coming 
weeks, so that auditing firms can build on these findings as 
they begin their work. We have selected, and have begun 
notifying, the first 81 plans from contact year 2006 that will 
be audited.
    These comprehensive first-round audits will examine, in 
detail, the approved components of the plan bids, as well as 
data supporting payments made during the year, to ensure that 
Medicare beneficiaries in the Federal Government received what 
the contract specified and the plan promised. And, to the 
extent that we identify overpayments or underpayments as part 
of those audits, we will be recouping money from the plans.
    We are on schedule to audit the first 81 plans this fall. 
But, we have a way to go to reach the 165 audits that would be 
required to meet the statutory one-third requirement. We have 
identified funds to begin the audits from within our ongoing 
operations, but do not believe we can meet the full statutory 
requirement, absent enactment of the President's budget request 
for 2008.
    I want to emphasize that this administrative funding is a 
critical component of the Medicare program, and very much 
appreciate Congress support of the President's budget levels 
for these important oversight activities.
    In conclusion, CMS takes our auditing responsibilities 
seriously, and has plans in place and in effect to meet our 
statutory and fiduciary responsibilities to beneficiaries and 
taxpayers. I appreciate the committee's ongoing interest in 
monitoring CMS's efforts on this front, and believe that, by 
working together, we can support Medicare beneficiaries, and 
ensure that they can maintain access to the Medicare plans that 
meet their individualized health care needs.
    This concludes my opening remarks, and I would be happy to 
answer any questions that you may have. Thank you.
    [The prepared statement of Mr. Hill follows:]

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    Chairman STARK. Well, I want to thank the witnesses. I am 
just going to ask, Mr. Steinhoff, if--I guess all my colleagues 
have a copy, or can see the chart. Can you just briefly explain 
to us what----
    Mr. STEINHOFF. Okay. By all means.
    Chairman STARK.--what the chart was designed to----
    Mr. STEINHOFF. It is really to show the degree of audit 
coverage here. And we have gone through, for each of the 6 
years, 5 years of ACR audits, 1 year of bid audits, and 
determined the percentage of the organizations--and by 
organizations, we mean contracts--that were audited.
    As you can see, the percentage of audits has declined. We 
will caveat that 2006 was not, in fact, complete. These were 
the bid audits. And Mr. Hill mentioned the other component, 
which was not really in place when we were performing our work.
    As you can see, the percentage of contracts audited has 
stayed around 20 percent for several years, then dropped down 
to 18.6 percent for 2005. And, as of today, for 2006, it rests 
at 13.9 percent. I will say that, in contract year 2000, which 
we covered in our 2001 report, CMS did meet the 33 percent 
requirement. But the bulk of those audits were done by the 
inspector general. The inspector general did 53 of 80 audits. 
So CMS did, in fact, meet the requirements then, and it has 
gone down since.
    If you go to the second chart, it gives you an idea of what 
this means, in terms of plans. Maybe I have jumped ahead here 
on this, if you all haven't got that chart. But when we're 
speaking about auditing, and we're speaking about auditing 
contracts typically, contracts have multiple plans, ranging 
from 1 plan to 170 plans on 1 contract. The average is about 
eight plans per contract.
    So, for the 2006 bid audits, which are at the bottom of 
that chart, there were 4,920 plans. If you look at the previous 
chart, there were 80 organizations audited. Of those 80 
organizations, they had almost 1,200 plans, and CMS audited 159 
of those plans, giving you an audit rate of 3.2 percent of the 
plans.
    Now, CMS is measured based on organizations. But just to be 
clear what the magnitude of the auditing is, CMS audited 
roughly 3.2 percent of the plans, so far, for 2006. And you 
will see for the other years, it declined each year, from 22 
percent of the plans in 2001, down to 5.3 percent of the plans 
in 2005.
    Mr. Hill mentioned the resource issue. If you go back to 
the first chart--hope I am not going too fast on this--you will 
see that audit resources are not high, and that, in fact, they 
went down for 2006. So you've got a program that was 
dramatically growing, more beneficiaries, more cost, less being 
spent on the audits, and you're talking about audit costs in 
the range of $3 million per year for a program that is now $60 
billion to $70 billion.
    So, that is, in a nutshell, what we found. CMS didn't meet 
the audit requirement in any year. And, depending on how you 
slice and dice it, the audit rate for plans was about 3.2 
percent, to date, for 2006.
    Chairman STARK. Thank you. You mentioned--and I'm just 
going to run through a couple of items here, Mr. Steinhoff--you 
mentioned that you performed audits, or that--I am sorry, that 
the inspector general has performed audits, the HHS inspector 
general has performed some audits, of additional MA payments.
    And the--you might, in response, let us know what the 
inspector general found, and whether or not the inspector 
general should be involved in this auditing process, and 
whether, if they found money owing, there was any effort to 
recover it. That is one issue.
    There has been some difference of opinion between you and 
CMS as to whether there is legal authority to seek financial 
recoveries. You believe it does. You might want to comment on 
whatever----
    Mr. STEINHOFF. Okay----
    Chairman STARK. Well, let me finish. Any statutory changes 
that you think might be made that will clarify this matter, if 
it is needed, I think we would all be interested in your 
opinion as to not only what might be wrong, but what we might 
do to correct this in the future.
    And you might also--for those of us for whom audit is 
something that ends up at the end of a corporate annual report, 
or what we have to do for the IRS if we don't do our tax 
returns right--I think these audits are somewhat different than 
the financial audit that many of us--you might enlighten the 
committee a little bit as to what is in the audit.
    So, that is a broad range of topics. If you could briefly 
address those, I think it would be helpful to the members.
    Mr. STEINHOFF. Okay. Let me start, Mr. Chairman, with your 
first question. And I think you are referring to the Benefit 
Improvement Protection Act audits. There were 6 such audits 
done of the 2001 payments. This is where the organizations were 
entitled to receive additional funds.
    The IG covered six different plans, amounting to $88 
million in additional payments, and questioned $29 million of 
the $88 million. Basically, their findings zeroed in on what 
they thought was a lack of documentation that the capitation 
payment increase was justified, or that additional direct 
medical care had been provided. No action was taken to recover 
any amounts. The IG did recommend that amounts be paid back to 
CMS by the carriers. One of the companies audited is here 
today, Humana. They were one of the six. Humana of Texas was 
audited.
    The audited $14.4 million of additional payments to Humana 
under that Act, and the IG questioned $10.5 million of those 
amounts. But as we found for any audit where a number was tied 
back to the audit, CMS did not act to recover or require 
anything to be done.
    Getting to your second question on statutory changes, I 
believe that we and CMS are at a stalemate here. We believe 
that there is nothing in the law that precludes them----
    Chairman STARK. We have been in a stalemate with them for 
years.
    Mr. STEINHOFF. Well, we believe there is nothing in the law 
that precludes CMS from placing in their regulations, and then 
in their contracts, provisions that would say, ``This is what 
we are going to do if we find something wrong.''
    They believe they don't have the authority to do it. So, 
when you get in that position, I think it is probably best for 
it to be resolved by the congress through a specific provision 
that would say yes or no. I have noted that the IG, when does 
the work to identify the impact of a problem, it does call on 
either the plan to return the money, or CMS to collect 
something. And that's the same position that GAO is taking. 
You're doing an audit, you're finding something. This isn't 
just an academic exercise to help the company prepare a better 
bid later on. There has to be more to it.
    But I think it would be very important to really resolve 
this and I think, this hearing is perhaps a good starting point 
for beginning a dialogue on exactly what the congress wishes to 
get out of this.
    With regard to your third question, for the ACR audits--
those were the ones for 2001 to 2005--CMS had CPA firms apply 
agreed-upon procedures. This is a complex academic--American 
Institute of CPA's jargon and Government Auditing Standards 
terminology, but these audits were done under what are called 
the attestation standards. They are not a financial audit, but 
they are a professional audit under professional standards.
    What the auditor is doing is auditing what you have asked 
them to audit, and nothing more. So the auditors were asked to 
find whether there were any problems in the preparation of the 
bids. They were not asked to make a determination for 2001 
through 2004 or 2006, as to what is the dollar impact of what 
they found. So, they are agreed-upon procedures.
    For 2006, CMS shifted to the bid audits. And Mr. Hill makes 
the point that CMS has plans for additional at some time in the 
future. But, to date, what CMS has done what they call bid 
audits. And those bid audits are actually actuarial reviews. 
There is a lot of in-depth requirements that are placed on the 
organizations in preparing bids. It looks like there is quite a 
bit of rigor.
    I am not an actuary myself, but Medicare Advantage 
Organizations have got to really provide a lot of information 
to CMS. CMS makes a bid review, which is a desk-type review, 
and for 13.9 percent of the contracts, and they made an 
actuarial review. These are not audits in the same sense as you 
know audits, and everyone knows audits from financial auditing. 
But there was some rigor to them, and they are an actuarial 
study. I hope that answers all your points.
    Chairman STARK. Thank you. And I would just briefly ask Mr. 
Hill--and I apologize to my colleagues, but perhaps this will 
set the stage for future questions--do you agree, Mr. Hill, 
that, in whatever manner we do it, either you all do it at CMS 
by regulation, or we write into the legislation that you do it, 
that it would be a good thing for CMS to recover funds that 
somebody determines were paid in error?
    Mr. HILL. It is more than a good thing, sir. It is the 
thing that we need to do to fulfill our fiduciary obligations.
    And I would just note for a moment, just to--I am not quite 
sure we are at stalemate, I am not sure that is the word I 
would use.
    Chairman STARK. Okay.
    Mr. HILL. I think the issue here is where do we begin to 
take that money back. And the issue is, do you take it back on 
a bid review during the middle of a plan year, or do you do it 
once--a full-scale financial audit at the end of the year, when 
all the records are settled, and you could do a full review, as 
you said, of the benefits that have been delivered, and the 
records that we have gotten from the plans, do you take it back 
then?
    I think it is our contention that it is best to take it at 
the end of the audit, than in the midst of the plan year, when 
there would probably be an impact on beneficiaries.
    Chairman STARK. The other question that I would direct 
you--and at least my interest, I do not know about my 
colleagues--but in all of the--if we cut through a good bit of 
the plans' sales pitches and the audit actuarial language, we 
are supposed to believe that paying some amount in excess of 
fee-for-service rates to these plans results in additional 
benefits to the members of the plans, to the beneficiaries.
    Many cases, there are lower premiums. That is easy to 
figure. I mean, if I am paying $30 a month for Part B, or 40 or 
90, and somebody offers to give it to me for 10, I have saved 
some money. I think I can understand that. The problem is, we 
find that many of the plans, they kick up the copays 
subsequently, so that the first cost may not be the last.
    But we have been unable, whether you know or not, to 
determine with any accuracy how much--first of all, what 
benefits are actually provided by these plans. They tell us 
what benefits are offered, but they don't tell us whether any 
of the beneficiaries actually take up their offer. I mean, you 
know, they may be offering Viagra to every member, but if 
people don't line up to get the pills, it doesn't cost the plan 
anything.
    So, it would seem to me that it would help us--and perhaps 
even you--to know what each plan actually spends, relative to 
the amount over 100 percent we are paying, and whether these 
benefits were used or not used.
    That all seems to be hidden, or buried under the idea that 
it is proprietary and secret. And--but basically, we have not 
been able to find out. I don't even know if you can find out. I 
hope so.
    But do you think that it would be reasonable for us to have 
that information in some detail with each plan, so that we know 
what actual extra benefits, other than the standard Medicare 
health benefits, are being offered and used, and how much the 
plans are paying for them, so we have some idea whether we are 
paying the plans appropriate amounts?
    Mr. HILL. I----
    Chairman STARK. Does that trouble CMS in any way?
    Mr. HILL. I think the issue here is not so much 
understanding what plans are providing to beneficiaries. The 
question is reasonable, sort of taken on its face.
    From my perspective, not getting into a discussion of 
whether or not we should be paying plans what we are paying, 
and how are they using their benefits, the one thing I can tell 
you--we can say, and we will be able to say with some 
definitiveness--is, to the extent that a plan has told a 
beneficiary, ``These are the services that I offer, and this is 
the benefit that you are getting for the premium that you 
pay,'' at the conclusion of these audits we are going to be 
able to say if the plan has provided those benefits, or if they 
have not.
    Now, that, I do not believe, gets to your question of, you 
know, that marginal percentage above the fee-for-service 
payments, how does that work, and I think that is another level 
of sophistication to the analysis that the audits will tell 
you. So, an audit, yes, will be able to say, ``Did they deliver 
what they said they would deliver?''
    The other issue, just to keep in mind, is, to the extent 
that during the year, if there is a beneficiary who says, you 
know, ``I have signed up for this plan, and it is offering a 
copay of $5, and they are charging me $10,'' that is an action 
we would take during the year. I mean, if a beneficiary were to 
call up, say, ``They are charging me the wrong premium, they 
are charging the wrong copay,'' that is a compliance action we 
would take immediately.
    Chairman STARK. I want to talk about getting in touch with 
that compliance----
    Mr. HILL. I understand. There is more coming----
    Chairman STARK. Well, I have overstayed my welcome here, 
and I would like to give Mr. Camp a chance to get into this. 
Thank you both.
    Mr. CAMP. Well, thank you very much, Mr. Chairman. 
Obviously, Mr. Hill, with the GAO's report that CMS has failed 
to meet this one-third requirement--and your testimony confirms 
that--I guess what I would like to try to understand is why CMS 
has failed to meet the statutory requirement.
    And, from what I understand of your testimony, you do not 
believe you have the legal authority to recoup funds once 
determined. Is that correct?
    Mr. HILL. No. Well, sort of correct. I think the area of 
disagreement here between us and the GAO is when we do an audit 
of a bid during the middle of a plan year--so we have looked at 
the bid, we have already signed a contract, and we have looked 
at the bid, and we find that some underlying assumption there, 
either it accretes to the benefit of the government, or 
accretes to the benefit of a plan, should be somehow--make that 
adjustment, either pay more money to the plan, or take money 
back from the plan in the midst of the plan year.
    Mr. CAMP. Well, I am not interested. I know the timing 
issue. Let us assume this is done at the end of the year.
    Mr. HILL. We have no----
    Mr. CAMP. What authority do you need, or resources do you 
need, to comply with this statutory requirement?
    Mr. HILL. In terms of recouping the money, I do not believe 
we need additional authority. We believe that the statute is 
fairly clear, in terms of the requirement for the audits, and 
the fact that we can recoup money, to the extent that the 
audits show there is an issue.
    With respect to actually carrying out the audits, to do--
you know, to spend the money--and I respect the GAO's analysis 
here--the one-third financial audits that we are going to 
undertake as part of MA and MAPD post-MMA are quite more 
expensive than what we have done in the ACR side. And the 
President's budget has made a request for the last 2 years 
above our amounts, and it is quite substantial, but it is one I 
know that Congress is----
    Mr. CAMP. So you are telling us the type of bid review 
required is more complex than what was required under previous 
law.
    Mr. HILL. Oh, absolutely. The one-third financial audits 
are much more----
    Mr. CAMP. And tell me how the resources have grown as that 
complexity has increased, and, in fact, as it looks as though 
the number of organizations offering Medicare advantage plans 
has increased.
    Mr. HILL. Right. I mean, and I think it is a fair 
assessment that, to do the ACR audits that we conducted, in the 
limited capacity that we did them, was a $3 million to $5 
million exercise.
    When we are talking about auditing one-third of the MA and 
MAPD plans, we are talking about a $30 million exercise to get 
into the level of detail that we need to get into to validate 
risk scores, to validate the claims data that we are getting 
into, to look at all the information that the plan has 
provided. It is a much higher level of rigor that we need to 
do.
    Mr. CAMP. Have the number of auditors grown at your 
disposal, or are these bid out?
    Mr. HILL. It is bid out.
    Mr. CAMP. And has that ability--obviously, with the 
resources remaining fairly constant over the last 5 years, that 
ability to increase the number of auditors has not been there.
    Mr. HILL. Right. I mean, we have found money within our 
base to be able to fund the things that we have funded to date. 
But we recognized, sort of on a going forward basis, we are 
going to need more resources.
    Mr. CAMP. Now, the $34 million from 2003 has not been 
recouped. It is unclear to me why that has not been recouped. 
Because you say that there is really no problem there.
    Mr. HILL. Well, again, this gets to the issue of--and this 
is complicated enough that it gives me headaches sometimes--
prior to the MMA, when we are looking at the ACR audits----
    Mr. CAMP. Yes.
    Mr. HILL [continuing]. And the audits of the adjusted 
rates, and how the plans told us they were going to spend the 
money on the extra benefits, on those issues, for the ACR 
audits, we do not believe we have the authority to go back and 
recoup that money. This is why there has been no action taken 
on plans in the $34 million that is there. We do believe, 
however----
    Mr. CAMP. So you feel you need statutory authority from 
Congress to go back and recoup the money, pre-MMA?
    Mr. HILL. If it was Congress's intention for us to do that, 
we would need----
    Mr. CAMP. Okay. But post-MMA, you feel you have the legal 
authority to conduct the bid reviews, if you have the resources 
to do it, and recoup those funds?
    Mr. HILL. Correct.
    Mr. CAMP. All right. Thank you. And it is your sense that, 
because the complexity of the audit process has increased, that 
you need more resources in order to adequately perform your 
statutory obligations?
    Mr. HILL. Yes, sir.
    Mr. CAMP. All right. Thank you. Thank you, Mr. Chairman.
    Chairman STARK. I was not being facetious when I suggested 
to the ranking member that, if you collected this money, 
perhaps you could use it to hire additional resources, or 
charge the plans a fee to audit them. That would be----
    Mr. CAMP. I think there are requirements as to where the 
recouped money goes.
    Mr. HILL. The money goes back to the Medicare trust fund, 
sir.
    Chairman STARK. Well, it comes out of there----
    Mr. HILL. I understand.
    Mr. CAMP. That could be a statutory change, also.
    Chairman STARK. Sure. Chairman Lewis.
    Mr. LEWIS. Thank you, Mr. Chairman. Mr. Cosgrove, in 2003, 
is it correct that CMS estimated that there were $96 million in 
overpayments to the organization? Is that correct?
    Mr. COSGROVE. Yes it is, Mr. Chairman.
    Mr. LEWIS. Could you tell Members of the Committee, is 
there similar data for other years?
    Mr. COSGROVE. No. When we conducted this review, it was in 
terms of a comprehensive look at 1 year. That was what CMS had 
completed.
    Mr. LEWIS. Well, should CMS be required to provide 
information, this data, for each year? What is the position of 
GAO? Should that information be forthcoming?
    Mr. COSGROVE. Yes, it should be part of the audits. When we 
issued our report in 2001, we recommended that CMS require the 
auditors to quantify what the impact would be on beneficiaries 
and the program. And, at that time, CMS said that it would do 
so. In fact, CMS did not, for several years, amend the 
instructions for the auditors, to require them to do that kind 
of quantification. It was for 2003 that CMS hired a separate 
contractor to go back and look at all the individual auditing 
reports. And at that time, the contractor came up with that 
amount of money for 2003.
    Mr. LEWIS. Do you think it should be the responsibility of 
CMS, or should there be an attempt to recover some of this $96 
million?
    Mr. COSGROVE. Certainly the auditors identified 
overstatements, that CMS should have tried to recover. So, yes.
    Mr. LEWIS. Mr. Hill, how does CMS decide which law it will 
or will not comply with?
    Mr. HILL. Sir, we make every effort to comply with every 
law.
    Mr. LEWIS. Do you think you have complied with the law?
    Mr. HILL. I mean, I do not think there is any way I can say 
to you that we have complied with the one-third audit 
requirement from 2001 to 2005.
    Mr. LEWIS. Mr. Hill, let me ask you. Has CMS ever 
sanctioned a plan in the Medicare Advantage program?
    Mr. HILL. Yes----
    Mr. LEWIS [continuing]. For a payment issue or improper 
bid? Have you ever sanctioned one organization, just one?
    Mr. HILL. For an improper bid?
    Mr. LEWIS. Improper bid, or overpayment. For a payment 
issue.
    Mr. HILL. Not for a payment issue, no.
    Mr. LEWIS. What about an improper bid?
    Mr. HILL. Well, the sanctions that we have imposed, whether 
they be some monetary penalties, or suspending enrollment, or 
up to termination, have been largely due to larger scale 
contract violations, either not delivering the services that 
they said they were going to deliver, or denying access to 
beneficiaries, or being insolvent, marketing violations such as 
the private fee-for-service issues that we have talked about 
here before.
    But specifically to a payment issue, I think it would be 
hard to articulate just a payment issue.
    Mr. LEWIS. Well, just so we are clear, just over three 
percent of the plans are audited. Audits are not completed 
until a year after they are conducted. CMS apparently does not 
even look at the audits that are conducted. And not one 
sanction action or any other penalty has ever been issued for 
an improper bid.
    Can you honestly say that you think these audits serve as a 
deterrent? Or look like an invitation for big trouble, real 
trouble?
    Mr. HILL. I understand your question, sir. And, based on 
the numbers that are up there from the GAO, I can appreciate 
your frustration.
    I think the issue for me is to be able to articulate for 
2006, for this plan year, post-MMA, now that the MMA is in full 
operation, that the audit and the oversight activities that we 
have ongoing encompass more than just the bid reviews that are 
articulated here by the GAO.
    So, my answer to your question is, yes, I do think that the 
infrastructure that we have put in place, from the bid reviews 
to the one-third audits, to the ongoing compliance reviews we 
do with plans, do put in place a deterrent effect, if you will, 
for plans, to be sure that they are bidding appropriately.
    Mr. LEWIS. Who is protecting the beneficiaries?
    Mr. HILL. We are, sir. We are trying.
    Mr. LEWIS. Do you have an agency? Do you have a person? Do 
you have an office within CMS that is protecting and looking 
out for the beneficiaries?
    Mr. HILL. There are a couple of ways to answer that. I 
mean, there are two ways to answer that question. The first, 
and the most direct, is the MMA required us to have--and we do 
have--a Medicare beneficiary ombudsman, if you will----
    Mr. LEWIS. What is the size of that office?
    Mr. HILL. I have those facts, I don't have them at my 
fingertips----
    Mr. LEWIS. What is the personnel make-up? What is the 
budget?
    Mr. HILL. I can get you that information for the record----
    Mr. LEWIS. You are telling me you don't know the staff 
make-up of that office?
    Mr. HILL. I don't have----
    Mr. LEWIS. The budget for that office? Can someone at GAO 
tell me?
    Mr. STEINHOFF. No.
    Mr. LEWIS. It is my understanding that the staff is about 
34 people, and to represent 43 million disabled people, senior 
citizens. Only 34 people? That is nonsense. And the budget is 
only, what, $1.6 million? You should be able to do better, much 
better.
    Mr. HILL. If I might, Congressman, the second part of that 
equation is not just the ombudsman office, but the ongoing 
compliance and oversight activity that is taking place by the 
plan managers in the regions, by the separate program integrity 
contractors that we have contracted with to oversee these 
plans, the----
    Mr. LEWIS. Are you telling us that you have enough 
resources to look out for our seniors, to look out for the 
people that are taking part in this program?
    Mr. HILL. I believe that we have enough resources to watch 
out for the seniors in this program.
    Mr. LEWIS. Thank you, Mr. Chairman.
    Chairman STARK. Mr. Becerra.
    Mr. BECERRA. Thank you, Mr. Chairman. Thank you for your 
testimony today.
    Mr. Hill, I am not sure if there is any other way to put it 
but to say that CMS should be embarrassed by what we are 
hearing today. I do not know if any senior who is trying to 
figure out whether to make a payment for a copay, or figure out 
how to take care of a premium payment for his or her Medicare 
benefits to which he or she contributed years worth of taxpayer 
dollars while they were working, could sit and watch this and 
say, ``I am struggling to figure out how to pay for that 
prescription drug or for that next doctor visit, and here I 
hear that CMS has failed to collect millions upon millions of 
dollars that were overpaid,'' for which they received nothing.
    I hope that you are sufficiently impressed by the questions 
and the concern expressed by members on this panel, that the 
next time we have a chance to talk with CMS, that we will see 
some significant change.
    You have mentioned that you need more resources. Is your 
2008 budget request going to reflect that need for more 
resources to do the auditing oversight responsibilities that 
CMS has?
    Mr. HILL. It absolutely does, and both the House and Senate 
appropriations committees have considered that request. And, to 
the extent they go through and get enacted, we should be okay.
    Mr. BECERRA. With regard to the statutory authority that 
you possess, according to CMS's opinion, to collect monies 
for--in the particular case of pre-MMA overpayments, that is 
pre-2003 overpayments, are you proposing to the administration 
that it seek, through this Congress, the authority to go after 
any overpayments prior to 2003?
    Mr. HILL. No, sir, we are not.
    Mr. BECERRA. Are you planning to ask the Congress----
    Mr. HILL. I am not aware that we are. We can go back and 
consider that. But from----
    Mr. BECERRA. Would you support this Congress giving you the 
authority to go after overpayments dating before 2003?
    Mr. HILL. I think it is something we would need to talk 
about, because, quite frankly, some of those plans are no 
longer in the program.
    Mr. BECERRA. For those that are?
    Mr. HILL. Right.
    Mr. BECERRA. Do you support it?
    Mr. HILL. I need to defer, sir. I would need to go back 
and----
    Mr. BECERRA. Is there a reason why you wouldn't want to 
support a repayment of taxpayer dollars that went to plans that 
did not provide a service?
    Mr. HILL. If it is true that plans have not provided 
services that they said they were going to provide, we would 
absolutely want to go back and recoup that money.
    Mr. BECERRA. So, you would support having the authority 
given to you by Congress to go ahead and review pre-2003 plans 
that may have--may have--overcharged?
    Mr. HILL. To the extent that they have delivered benefits--
or not delivered benefits they said they were, absolutely.
    Mr. BECERRA. So you would----
    Mr. HILL. I don't mean to be----
    Mr. BECERRA [continuing]. Support having the authority to 
do pre-2003 audits? Yes or no?
    Mr. HILL. I would--I don't know that I can make that 
commitment, sir.
    Mr. BECERRA. Okay. That is why I think you should be 
sufficiently embarrassed. Because if you can't tell the 
American taxpayers, American seniors, that you believe that the 
government should have the authority to recoup monies that were 
overpaid, it is----
    Mr. HILL. I think that is the issue, that there is the 
notion of whether or not it is a strict overpayment.
    Mr. BECERRA. Well, wait a minute. If you don't request the 
authority to audit and recoup, how can you ever get the money 
back? If you don't ask us to give you the authority to go after 
that money, you are telling the taxpayers, ``It is okay,'' 
that, ``We know that we overpaid using your taxpayer dollars, 
but we don't want to go after it.''
    Mr. HILL. I can appreciate what you are saying, sir. I 
just--there is some disagreement as to whether or not the 
nature of those audits, and what they found, that they 
represented any true overpayment.
    Mr. BECERRA. And I understand that point. I don't want to 
be overzealous in my questions. I do understand that point. But 
my question is very simple. It is a very innocent question.
    Mr. HILL. Well, let me answer it very simply, and sort of--
you know, I am the CFO for the agency, I am not the program 
manager for Medicare Advantage, I don't sign those contracts.
    I will tell you, as the CFO, to the extent that there is an 
overpayment, I want to go back and collect that overpayment.
    Mr. BECERRA. That is fair. And I think many of us can 
interpret that as saying that we should give you the authority, 
then, to go after anything that was overpaid back before 2003.
    Now, let me ask this. Going forward, is there any reason 
why we should hear you say that--CMS say--that it does not have 
the authority, statutory authority, to do a full audit, and any 
subsequent actions to recoup overpaid dollars?
    Mr. HILL. No, sir. I believe we have that authority.
    Mr. BECERRA. Okay. Mr. Steinhoff, at one point you seemed 
to have heartburn at one of Mr. Hill's responses. I think it 
had to do with the 2003--pre-2003--overpayments. And maybe it 
was on something else.
    Let me ask this. Do you believe that you are--and I will 
end with this, Mr. Chairman, because I know my time has 
expired--do you believe that you are receiving the cooperation 
from CMS that you need in order to be able to conduct 
sufficient oversight of CMS, and also then to make the 
appropriate recommendations to CMS on how to proceed, in making 
sure we are preserving taxpayer dollars?
    Mr. STEINHOFF. Yes. In looking at this particular issue, 
let me go back to our first review of this program, which 
covered 2000.
    At that time, we were told by CMS that it planned, as part 
of the audit process, to quantify the effect of any audit 
findings. And we recommended that it do exactly that. In our 
view, the intent of quantifying the impact was to do something 
with the result.
    CMS did not act, did nothing for 2001, 2002, 2003, 2004, or 
2005 to ever change its regulations, to ever change its 
contracts. Went back for 2003, and did some work, but didn't 
take any action, other than telling the organizations that were 
audited, ``We found these problems.'' Didn't do anything with 
the six audits by the IG, and showed no intention, during our 
review, of ever doing anything with the results.
    I would agree fully with Mr. Hill, in his earlier response 
to you, when he said, ``If we find an overpayment, based on 
benefits delivered or costs not incurred, we will go back and 
recoup it.'' Well, if you look at the audits done between 2001 
and 2005, none of those audits were directed at determining 
whether there was an over payment. They were directed at 
looking at a bid, or a proposal. And when they found problems 
with the proposal. They did not know whether or not the actual 
results were better or worse than the proposal.
    So, you have to, one, design the audit in a proper manner 
to get a result, and to, in fact, hold the plans accountable to 
the American taxpayer. And then, two, have a very clear set of 
actions to go back and follow up. And that is really, I think, 
the differences that we and CMS have had all along.
    Mr. BECERRA. Thank you. Thank you, Mr. Chairman. I yield 
back the time.
    I do want to make the point, Mr. Chairman, that this is a--
we hope to be able to do oversight over all of Medicare, not 
just Medicare Advantage; Medicare fee-for-service as well. This 
is not an attack on one type of plan or another. It is to 
preserve Medicare for seniors who are on Medicare. Thank you, 
Mr. Chairman.
    Chairman STARK. My distinguished friend from Texas, would 
you like to inquire?
    Mr. JOHNSON. Thank you, Mr. Chairman. I appreciate that.
    I am wondering. It is my understanding that the GAO report 
found that Medicare Advantage audits conducted in 2003 yielded 
a net overpayment of roughly $35 million. Did you find any 
instances where the plans were, in fact, underpaid, resulting 
in enrollees receiving additional benefits they wouldn't have 
otherwise received, if the bid were calculated correctly?
    Mr. STEINHOFF. Yes. What the audits showed were that there 
were overstatements and understatements. The $35 million number 
that was computed by CMS was made up of $64 million of 
overstatements, and $29 million of understatements.
    If you shift to the work that was done by CMS's contractor, 
who CMS had come in to review the audits, they found--and Mr. 
Lewis used this number--$96 million of overcharges, $37 million 
of undercharges. And this contractor was looking at, in this 
case, the adjusted community rate proposal. None of this is 
actual cost, getting back to Chairman Stark's initial 
questions. This is based on the rate proposal.
    So, there were both overcharges and undercharges, based on 
the audits.
    Mr. JOHNSON. So your 35 net is net out.
    Mr. STEINHOFF. If a net number, yes. Correct.
    Mr. JOHNSON. Okay. Do you know if those companies were ever 
coming back for the----
    Mr. STEINHOFF. Nothing was done to collect, or to provide 
for or to require any additional benefits.
    Mr. JOHNSON. Earlier this year, GAO reported 21,000 Part B 
providers, many of them physicians, are collecting federal 
Medicare payments while owing billions. What is CMS doing to 
address that issue?
    Mr. HILL. We have--after the GAO report, we have been now 
working with the Department of the Treasury and Financial 
Management Service, as well as the IRS, to implement the tax 
levy offset program for Medicare, so that we are sharing our 
data on an ongoing basis with the Treasury Department, so that, 
before we make payment, or as we make payment, we are being 
sure to offset payments to the extent that physicians, owe 
taxes, or--physicians, or any other provider, I would say.
    Also, back to the Medicare Advantage issue, those plans 
already are subject to the tax offset process. So, to the 
extent that Medicare Advantage, or a Part D plan has tax debt 
to the IRS, those monies are recouped before we make payments.
    Mr. JOHNSON. Well, you know, following up with what Mr. 
Becerra was talking about, you've got from 2001 to 2005, 
really, overpayments that haven't been recouped. What are you 
all going to do about it?
    Mr. HILL. Well, as we have discussed here, I think the 
Agency's position--or I know the Agency's position--at this 
point is that the audits are going to be closed out. We are 
going to look at each of the individual audits, and are looking 
at each of the individual audits, to be sure that, to the 
extent a plan misrepresented the information that had been 
provided, or was somehow trying to game us, as opposed to just 
an honest error in the system, we are going to make the 
appropriate referrals to the OIG, or to others, to the extent 
that we want to pursue action that way.
    But we are--it is not our intent, right now, to go back and 
try and recoup those overpayments, because----
    Mr. JOHNSON. Well, what are you going to do about this 
year, then?
    Mr. HILL. For 2006, for the plan year beginning the first 
year of the MMA, if you will, the Medicare Advantage and Part D 
programs, we have put in place a process to be sure the bids--
unlike the proposals we got in the ACRs, we are now reviewing 
bids as they come in, before we sign a contract, to be sure 
that they are appropriate.
    And at the end of the plan year, as the GAO has indicated, 
we are going to look at actually the benefits that had been 
provided, the services that the plans provided, the information 
that they gave us to support their risk scores and other 
payments, do a full scale audit of those, and recoup 
overpayments, to the extent that we find them.
    Mr. JOHNSON. So, you will take care of the people who were 
underpaid, and you will take care of the people who were 
overpaid?
    Mr. HILL. Yes, sir. It is a symmetrical----
    Mr. JOHNSON. Guaranteed?
    Mr. HILL. Well, that is the approach now. I--hopefully----
    Mr. JOHNSON. Okay, thank you very much. Thank you, Mr. 
Chairman.
    Chairman STARK. Thank you, sir. Mr. Doggett.
    Mr. DOGGETT. Thank you. Thank you for the audit that you 
conducted. I think it is very helpful.
    And, Mr. Hill, if I understand the answer that you just 
gave my colleague from Texas, what is it that you're not going 
to go back and recoup now, for the taxpayers?
    Mr. HILL. I think that the OIG has identified an amount 
that we now agree, about $34 million----
    Mr. DOGGETT. We can just write that off?
    Mr. HILL. We don't believe that it is a debt that is owed.
    Mr. DOGGETT. You don't believe it's a debt that is owed?
    Mr. HILL. That is correct.
    Mr. DOGGETT. Well, in addition to the tens of millions of 
dollars pointed out in this audit, the CMS attitude has been, 
``We might not have authority, but we are not going to bother 
asking for any authority.''
    I asked back at the July hearing about the $100 million 
that CMS paid to these Part D plans for retroactive coverage 
for dual-eligibles who were never told that they--in a timely 
way--that they had the coverage. And I have been asking for 
documents about that $100 million that may well have been 
wasted, in addition to all these tens of millions of dollars, 
ever since.
    The CMS reply was that there was a reconciliation in 
August. As is usually the case, CMS isn't returning calls or e-
mails. Is the reconciliation complete?
    Mr. HILL. Yes, sir.
    Mr. DOGGETT. Why don't we have the answers that I have 
asked for since July?
    Mr. HILL. I don't know why you don't have those answers, 
but I will----
    Mr. DOGGETT. Well, sir, that seems to be typical of CMS.
    Let me ask you, with regard to the material that I have 
been provided from CMS, a big stack of materials concerning 
CMS's decision-making on abusive marketing practices, if, in 
your work, you ever have occasion to communicate with Abby 
Block at the Center for Beneficiary Choices that administers 
Medicare Advantage?
    Mr. HILL. Do I? Yes, sir, I do.
    Mr. DOGGETT. Do you do any of that by e-mail?
    Mr. HILL. Yes.
    Mr. DOGGETT. Do you have any idea why, in all of the 
documents that I have been provided, there is not a single e-
mail back or forth with Abby Block, who runs the program?
    Mr. HILL. No, sir. I do not.
    Mr. DOGGETT. Well, would you go back and try to get me an 
answer on that? Because that is another of the----
    Mr. HILL. Is there a particular----
    Mr. DOGGETT [continuing]. Answer questions.
    Mr. HILL. We will find out.
    Mr. DOGGETT. Okay. Now, much of the focus has, of course, 
been with regard to marketing practices. But, as I look through 
this audit, it is not only--you know, as you look through all 
this audit, to me, I have a slightly different impression than 
my colleague. Because I don't see just a few bad apples, I see 
an entire orchard. And it is a very expensive and unproductive 
one.
    Every time someone gets sucked into these Medicare 
Advantage programs, the taxpayer is out about $1,000 a year 
that it wouldn't have to pay unless--if they were in 
traditional Medicare.
    But in addition to those marketing abuses, there are 
outlined in here a significant number of what are called 
chapter 13 abuses, where there have been corrective action 
plans. And those are when a person wants in, then has a 
grievance or can't get coverage, and then calls to try to get 
help.
    My question to you about those corrective action plans is 
whether any Medicare Advantage plan has ever been sanctioned in 
any of these corrective action plans for not having a 
sufficient grievance and appeals process.
    Mr. HILL. I can tell you that we have sanctioned plans for 
multiple contract violations.
    Mr. DOGGETT. Well, I am just asking about grievance and 
appeal processes, since it appears, from my analysis of the 
audit, that there were more corrective action plans that were 
issued with regard to plans not the way they declined 
grievances and didn't handle the appeal process--there were 
more appeals process corrective action plans than there are 
marketing abuse action plans.
    Mr. HILL. Right. And I know that a significant amount of 
the CMP activity, civil monetary penalty activity, we did last 
year was around the annual notice of change, which is a 
grievance process, but it is the notice that plans are required 
to give to beneficiaries, as we transition from one plan year 
to the next, outlining what the benefits are going to be or not 
be.
    And we did issue CMPs on a number of plans last year on 
that issue.
    Mr. DOGGETT. And does--do you require bids to include a 
line item in the bid, demonstrating that the plan has 
sufficient funds in their budget to handle appeals?
    Mr. HILL. Well, their bid includes the administrative cost, 
which includes the administrative cost of meeting our 
regulations.
    Mr. DOGGETT. Well, I understand it includes administrative 
costs. But how do you determine whether they have a sufficient 
amount to cover appeals?
    Mr. HILL. I would need to get back to you exactly on how 
they make that determination.
    Mr. DOGGETT. Okay. It appears to me that these plans get 
through deceptive marketing practices, in many cases at a cost 
of $1,000 to the taxpayer. Once they get in, they have great 
difficulty getting their grievances processed. And then I note 
if a care giver wanted to look at the website that CMS has to 
find out if they are getting in a good plan, great inflation at 
CMS seems to be rampant.
    And in Texas, at least, when I looked at it, it looked like 
everybody was, you know, on the dean's list on these plans. 
They all got three-star, very good, ratings, except for one. I 
noticed that one Humana plan had 18 corrective action plans 
pending for appeals process violations at the same time it got 
a 3-star rating.
    Is there ever any attempt to inform the consumer, relative 
to what is happening with the corrective action plans?
    Mr. HILL. Well, yes, actually. The corrective action plans, 
as you know, are now posted on the web, and folks have access 
to that information.
    I think, with respect to the rankings--take the Humana 
example for a minute--the 18 corrective actions that are on the 
web for Humana may relate to Humana as an organization. And it 
is the same violation, but it runs through all their contracts. 
So it is not like it is 18 separate----
    Mr. DOGGETT. Have you ever taken a star off one of these 
all-star Medicare Advantage plans because they were doing such 
a sorry job with their marketing practices and their grievance 
processes, that they got one corrective action plan after 
another?
    Mr. HILL. Well, this is the first year we have done the 
rankings the way we're doing them. But I can imagine that we 
are going to be removing stars from folks. Yes, sir.
    Mr. DOGGETT. Okay. Thank you.
    Chairman STARK. Mr. Emanuel.
    Mr. EMANUEL. I will take the time. What I would--more of a 
statement, here. I mean, a lot of focus has been on the 
percentage on the reports, how many reports have actually been 
done, et cetera.
    I know we had a hearing earlier on a lot of the state 
insurance commissioners, who said they would like to have the 
authority to do not only the investigations, but also the 
enforcement. And one of the--you know, CMS argues that they 
don't have the authority to do the proper type of--not just 
investigations, but then pursue those investigations. And my 
own sense here, Mr. Chairman, is that we can either have CMS do 
what they're supposed to do--they do it now on the supplemental 
Medicare--or give it to 50 different state commissioners, and 
then we can watch what they do on the oversight of these plans.
    But somebody has to be a police on the beat who is 
overlooking these plans. And if it was up to me, I don't think 
the insurance companies would want to see this happen, but I 
would be more than willing to become a convert to the new sense 
of federalism here, and let 50 state insurance commissioners 
all of a sudden regulate and prosecute where they think there 
has been some violations here. But somebody has to be on the 
job to see, not only if--not only auditing, but then 
prosecuting, if there are any violations here.
    And, to anyone who wants to pick up on this, I mean, which 
would you think would be more effective in overseeing this 
marketplace insurance plan? Would it be 50 different state 
insurance commissioners? Or would it be, in fact, CMS actually 
exercising what I think they have the authority to do? Mr. 
Hill?
    Mr. HILL. Speaking for CMS, clearly, we believe that CMS 
has the authority, the wherewithal, and the obligation to be 
overseeing the plans, and their marketing practices, and how 
they are dealing with beneficiaries, and believe that is in the 
best interest of our beneficiaries, to have a single, 
consistent set of oversight activities and corrective actions 
being put in place.
    Mr. EMANUEL. Well----
    Mr. HILL. As opposed to having 50 different states. Now, 
the states have a role here, their----
    Mr. EMANUEL. Well, Mr. Hill, let me just say this. As 
Abraham Lincoln once said to McClellan, ``If you aren't going 
to use that army, do you mind if I borrow it for a time?''
    Mr. HILL. I----
    Mr. EMANUEL. And so, my question to you is, since you are 
woefully short on the audits, on the prosecution side, or, in 
fact, enforcing what is in the interest of the beneficiaries 
there, I don't think you have been fully exercising what we 
believe is in your authority and capacity.
    Mr. HILL. I can appreciate the frustration that you are 
exhibiting, with respect to CMS in the past. I can only tell 
you, as I mentioned in my opening statement, that we are going 
to use the army. As you may have heard from Kerry Weems, the 
new acting administrator, that the start-up period here for 
Medicare Advantage is over. We are beyond the initial phase of 
getting plans in. And the focus now is on accountability, 
oversight, and access for our beneficiaries.
    Mr. POMEROY. Will the gentleman yield?
    Mr. EMANUEL. Yes, I yield to my colleague from North 
Dakota.
    Mr. POMEROY. Thank you. Mr. Hill, there is no army. I 
believe you testified earlier your entire staffing was 34. Is 
that correct?
    Mr. HILL. That is not correct, no.
    Mr. POMEROY. Help me with the number. We have had different 
testimony from CMS over the time. How many people do you have 
all ready to go to sign with this new much-belated imperative 
of CMS?
    Mr. HILL. A little bit over 500 staff, sir, and a budget 
of, right now, roughly $30 million, but that will grow to 
roughly 120, to the extent that the Congress enacts the 
President's fiscal year 2008 budget proposal.
    Mr. POMEROY. You've got 500 staff people. What are they 
doing today, if they are not doing this today?
    Mr. HILL. I believe they are doing this today, sir.
    Mr. POMEROY. They are doing this today?
    Mr. EMANUEL. Mr. Chairman.
    Mr. POMEROY. I yield back.
    Mr. EMANUEL. No, it's okay. Mr. Chairman, I would like to 
suggest, though, that if there is not a change--and not to--you 
know, beyond audits, if you are not going to oversee the 
marketplace correctly--and there is no numerical sense of what 
is hitting a certain number.
    But the leverage is here, in fact, that either CMS does its 
job--and if the committee, as a whole, does not think it is, 
then in six months, nine months' worth of time, we take a look 
back of the performance. And if not, then we move on 
legislation, as it relates to the state insurance 
commissioners.
    Mr. HILL. I think----
    Mr. EMANUEL. There are many roads to take to enforcement.
    Chairman STARK. The distinguished gentleman from North 
Dakota, when he was an insurance commissioner, made that deal 
with us some years back. And found that, eventually, in the 
case of supplemental insurance, that is just what he had to do.
    Mr. EMANUEL. I mean, they have done a good job there. And 
so, the question is how you pursue that. And my colleague from 
Wisconsin, I do not know if he would like to add on this.
    But I would like to thank you for both holding this 
hearing, and talking about it. But, Mr. Hill, we may have cut 
you off from----
    Mr. POMEROY. May I just have a second more?
    Chairman STARK. Sure.
    Mr. POMEROY. I think that this 500 representation really 
does need some scrutiny. And if you have had 500 people waiting 
around to do this, they should have been doing it. If they had 
been doing it, we wouldn't have had the audit report that we 
have got.
    The reality is, you have got these people, they have got 
all their jobs to do. We have heard testimony about them 
loosely dispersed through the regions, no clear business plan 
offered by the Agency, in terms of how they are suddenly 
providing new measures of consumer protection, reflecting, 
basically, what has been taking place in state insurance 
departments.
    I believe the chairman's suggestions that we ought to look 
at--we ought to assess the failure of the Federal Government--
--
    Mr. CAMP. Mr. Chairman, could we have regular order?
    Mr. POMEROY.--and look at an expanded role for states that 
already have the capacity to do it. I yield back.
    Chairman STARK. Thank you. The time for the gentleman from 
Illinois has expired.
    Mr. Tiberi.
    Mr. TIBERI. Thank you, Mr. Chairman and Mr. Hill. In 
talking to my Medicare case worker in my office, he tells me 
that most of the complaints that we get from seniors are 
seniors that are in the Medicare fee-for-service program. I 
know most of the focus has been on Medicare Advantage today, 
and the audit, and I know some of my colleagues are skeptical 
of the private sector's involvement in providing health care 
benefits to beneficiaries, Medicare beneficiaries.
    From your perspective at CMS, what have you seen the 
benefit for those Medicare beneficiaries with this new market-
oriented benefit called Medicare Advantage? What do you see 
today?
    Mr. HILL. I think if you were to talk to the folks at the 
Agency, and tried to understand how Medicare Advantage and Part 
D has changed the landscape----
    Mr. TIBERI. Right.
    Mr. HILL.--you will see beneficiaries who are generally 
satisfied with the coverage that they have, in terms of drug 
coverage that they have now that they have not had in the past. 
You are generally seeing savings, relative to what they had had 
prior to BBA--prior to me, prior to the MMA.
    For me, as the CFO's standpoint, the overall cost of the 
program is lower than we had originally projected, which is----
    Mr. TIBERI. Can you say that again?
    Mr. HILL. The overall cost of the program is lower than we 
had originally projected, both in terms of premiums and the 
absolute outlay for Part D and MA. So that is--from my 
perspective, that was a good thing, and which generally relates 
to lower overall Part D costs for taxpayers, generally.
    Mr. TIBERI. We all acknowledge that there is a one-third 
audit requirement for the Medicare Advantage oversight. We have 
gone over that today on numerous times. Is there any comparable 
requirement for the regular fee-for-service program?
    Mr. HILL. In terms of a requirement to look at a standard 
set? The only sets of requirements that exist are on the 
quality side for the state agencies who do survey and 
certification who go into nursing homes, home health agencies, 
other institutional settings, to be sure they are meeting our 
levels of care for quality.
    But on the payment side, there are no statutory 
requirements for the level of payments that----
    Mr. TIBERI. Is there anything that you have done, 
comparably, on the audit side, on the payment side?
    Mr. HILL. On the payment side, we use a performance metric 
to ensure that we are paying appropriately.
    As many of you know, and as I have testified before on this 
committee, we are measured by a fee-for-service error rate over 
time. And at one point that error rate was in double digits. We 
spent a lot of time and effort over the past 4 or 5 years to 
get it down, and now it is at roughly 4.5 percent, 4.4 percent, 
which has, I think--you know, using a risk-based approach to 
how we devote our resources to get that error rate down.
    Mr. TIBERI. Well, let me just go over this again, and see 
if I am missing something that I cannot quite understand.
    In the September CMS--you posted a list of current 
corrective action plans, CAPs, to your website.
    Mr. HILL. Correct.
    Mr. TIBERI. Do you believe this is a fair representation of 
the Agency's Medicare Advantage oversight activities, or does 
it represent just one aspect of a much broader, or larger 
picture?
    Mr. HILL. Oh, I think it is one aspect of a much broader 
picture.
    Mr. TIBERI. Can you expand on that?
    Mr. HILL. It is a planned time estimate, as of that day, of 
the open caps that were in place. It doesn't reflect action 
that has taken place since before--corrective action plans that 
had been open and closed, subsequently closed out since prior 
to that date.
    Nor does it represent the amount of work that is ongoing 
with beneficiaries and providers and plans on a day-to-day 
basis, both centrally, in our central office, as well as with 
the regions, to be sure that beneficiary complaints are being 
dealt with, and that plan compliance issues are being dealt 
with on a daily basis.
    Mr. TIBERI. Anything comparable on the fee-for-service 
program?
    Mr. HILL. In terms of reporting----
    Mr. TIBERI. Yes.
    Mr. HILL.--compliance issues? Other than the error rate, no 
sir.
    Mr. TIBERI. Would that be helpful, to compare apples to 
apples, rather than apples to oranges, as we seem to be doing?
    Mr. HILL. I--given the absolute level of providers in the 
Medicare fee-for-service program--you are talking about more 
than a million, versus the plan side--it would be very 
difficult, other than the aggregate, you know, sort of 
hospitals have these sorts of issues, physicians have these 
sorts of issues, to have a comparable sort of set of metrics.
    Mr. TIBERI. Final question. Assuming that you have 49 
organizations representative of the Medicare Advantage program 
that were part of this audit that has been talked about today. 
If you take the $35 million in overpayments, divide it by the 
total amount paid of the plans, you will find that the 
overpayment represents .4 percent, if my math is correct here.
    What would be the error rate for payments under the fee-
for-service Medicare plan?
    Mr. HILL. 4.4 percent right now.
    Mr. TIBERI. Say it again.
    Mr. HILL. The error rate in Medicare fee-for-service is 4.4 
percent.
    Mr. TIBERI. So, the error rate for Medicare fee-for-service 
is 4.4 percent, versus the Medicare Advantage rate for error 
under your--under the GAO study, is .4 percent?
    Mr. HILL. And----
    Mr. TIBERI. That would be a good headline to see in 
tomorrow's paper. Thank you, Mr. Hill.
    Chairman STARK. I am going to ask Mr. Steinhoff to comment 
on that. I think there is some--I think we have got some apples 
and oranges. If----
    Mr. STEINHOFF. Yes, correct. We did not project an error 
rate. What our audits showed were, that CMS' audit rate for 
2003 was around 22 percent. And for those audits that were 
done, they were done of the adjusted community rate proposal. 
This is the proposal, not what actually happened. This is what 
was actually paid.
    So, you had less than 100 percent coverage, and you had a 
net of $35 million per CMS. You did not have, though, a review 
of every payment that is being made. So, I don't think it is 
even apples and oranges, I think it is more like apples and 
something else.
    Chairman STARK. I would say, to CMS's credit, the 4 
percent, or 4.5 percent----
    Mr. STEINHOFF. Yes.
    Chairman STARK.--used to be 14, I believe.
    Mr. STEINHOFF. That is right.
    Chairman STARK. And, in those days, it was half--and I 
don't know whether it still is--half was theft, fraud, and half 
was just mistakes, you know, processing 80 million pieces of 
paper a day, there are just mistakes.
    But I think, if that is correct, I think that CMS is 
entitled to a real round of applause, because they have cut 
that error rate by at least two-thirds that I have known over 
the past 15 years, and that is--I don't mean to diminish that, 
that is a hell of a record. But I just wanted to add that.
    I thank the gentleman. You have completed your inquiry, 
sir? All right. Mr. Kind?
    Mr. KIND. Thank you, Mr. Chairman. I want to thank you and 
Mr. Lewis for offering this hearing today, and also to our 
witnesses for your testimony.
    And as someone who reviewed the GAO report, and has been 
sitting here listening to the testimony so far this morning, I 
will guarantee you there wouldn't be a taxpayer in America that 
wouldn't be horrified by what is taking place with this 
program. And I also guarantee that most of the seniors in MA 
plans today would be shocked and dismayed with the lack of 
oversight.
    This--it really strikes you as the Blackwater of health 
care in this country today. You know, no oversight, no 
accountability, no consequences. And, just as the 
administration was quick to privatize our security needs in 
Iraq, in this experiment to try to privatize the Medicare 
program, this is the type of oversight that we are getting. And 
it is just clearly not acceptable.
    Mr. Steinhoff, let me ask you. In preparing your report, 
and the investigation that the GAO did, is the lack of the 
audits being accomplished, not meeting the one-third 
requirement, due to a lack of will within CMS, or a lack of 
resources?
    Mr. STEINHOFF. When one steps back and looks at the audit 
rate, when one looks at the fact that CMS didn't really have 
any program in place to even determine what the audit rate was, 
when one looks at the fact that CMS did not require the auditor 
to determine the impact, when one looks at the fact that CMS 
never looked at what actually happened, what benefits were 
delivered, what costs were incurred, it looked like CMS was 
going through just a minimal compliance effort. There wasn't 
much value to it, wasn't much coming out of it. And one could 
really question CMS's will to really aggressively pursue this.
    Mr. KIND. Well, you hear of 35 people in CMS that's in 
charge of the audit department here, which just smacks as 
severely insufficient. And then, not only do we have a lack of 
the audits being conducted, but even a lack of the quality 
information that we need in order to make policy decisions 
based on the audits aren't even getting accomplished.
    So, my question again, Mr. Steinhoff, to you, is what do we 
need to do to try to fix this? I mean, do we have to do a 
separate line item with specific instructions to CMS with 
specific resources? Because it is my understanding right now 
that the audit budget comes out of the overall administrative 
fund at CMS, and there is no specific line item from the 
appropriate bill that goes to CMS.
    Do we need to look at that? Do we need to explore the 
possibility of user fees to help pay for the audits, to ramp up 
the army that we need here to conduct and to meet these 
requirements that----
    Mr. STEINHOFF. Okay. I think certainly people should sit 
down with a clean sheet. Mr. Hill outlined some plans that CMS 
has, going forward, following the MMA. And--going forward, he 
said they CMS is going to do X, Y, and Z. I think that is, at 
least, a starting point.
    If one looks back at the 1997 law, there was a provision 
requiring audits. It mentioned looking at the financial books. 
It mentioned one-third audits coverage annually. But there 
wasn't much, other than that, in the law. There was no clear 
legislative history, no clear committee report on it, and no 
real clear commitment or understanding on CMS's part as to what 
it was, in fact, to be.
    So, I think, stepping back, taking a hard look at whether 
or not this new plan that Mr. Hill has mentioned today will, in 
fact, get us where we want to be. And, again, this plan was 
emerging and evolving as we were doing our work. But is this 
truly a post-audit? Is this truly going back and determining, 
did we get what we were paying for? Did our beneficiaries get a 
fair break? Were providers offering services but they weren't 
being used? What were the profit margins, et cetera, et cetera.
    Mr. KIND. Well, Mr. Steinhoff, on that point, let me ask 
you. Does CMS right now have the authority or the discretion to 
look into executive compensation with these MA providers in the 
course of the audit, and report back to us what is taking 
place?
    Mr. STEINHOFF. I don't know of any limits they have, as to 
what they can and can't look at. And certainly that is 
something CMS can explore. But I know of no legal limits--I 
will caveat I am not a lawyer, but I know of no legal limits.
    But the time is really here today to rethink Medicare 
Advantage oversight, as I was kind of hopeful, as Mr. Hill laid 
out the future, that while perhaps the last 6 or 7 years will 
be a very expensive lesson learned, that the lack of oversight 
during that period will be rectified, going forward.
    But there is going to have to be a real change in culture 
here. And whether it is a $35 million oversight program as Mr. 
Hill mentioned, or much more expensive, you are talking about 
$60 billion, $70 billion being spent annually on the Medicare 
Advantage Program, a lot of money, a lot of complexity, a lot 
of plans, over 4,000 plans. And you are going to have to have a 
very good strategy, and a strategy that is enforced, a strategy 
with metrics, and a strategy that you can hold CMS accountable 
for meeting.
    Mr. KIND. Mr. Hill, may I quickly ask you? Are you familiar 
with Humana's second quarter profit report that came out in 
August of this year?
    Mr. HILL. I am not.
    Mr. KIND. It is the second largest provider of MA, $217 
million profit, doubling their profit. The analysts on Wall 
Street said Humana reported its strongest quarterly result in 
recent memory on the back of stronger-than-expected performance 
in the government segment. In line with the company's recently 
updated forecasts, and indicative of continued strong Medicare 
performance, how can you not look at that profit in the last--
in the second quarter of this year, and not view it as a huge 
profit at taxpayer expense?
    Mr. HILL. I----
    Mr. KIND. Because it appears to be directly related with 
the MA compensation.
    Mr. HILL. There is no evidence that Humana is making profit 
at the expense of taxpayers--based on what they have told us, 
and what they have told us in their bid, and what we are paying 
them. If what we are paying them is leading them to make money 
in the market, I think that is the purpose of the program, is 
for private plans to come in and deliver the program.
    Mr. KIND. Thank you, Mr. Chairman.
    Mr. LEWIS. [Presiding] Thank you. Mr. Pascrell is 
recognized.
    Mr. PASCRELL. My good friend from Wisconsin, whatever the 
market can bear. Because it is very, very interesting that 
the--while reporting huge profits, the outgoing CEO of United, 
he had a $400 million bonus. I feel sorry for the guy. And he 
had a total retirement package worth a reported $1.5 billion.
    You know, I am outraged. And I know you could care less, 
but I am still outraged. And I am outraged about these windfall 
profits, because they go back to the debates of 2003, when we 
discussed the Medicare Modernization Act, plan D, which is now 
pretty famous.
    And to hear what I am hearing today, hard working Americans 
are facing increased premiums and decreased quality of care, I 
am disappointed by the unwillingness to provide any 
accountability or oversight to ensure our tax dollars--and I 
know we're talking about civil situations, we're not talking 
about criminal. Are we? Are we, Mr. Hill? We are not talking 
about criminal actions, we are talking about civil actions. 
Some of these are pretty close, though. The difference between 
one and the other, many times, is very questionable.
    It means that private insurance companies are free to 
determine a substantial portion of the services that are 
covered by Medicare. There is 43 million people on Medicare, 7 
million of those people are in the Medicare Advantage. This is 
a big deal. This is pretty significant, as to what is 
happening.
    And if you read the last issue of AARP Magazine, which I 
get because of obvious reasons, very clear about a couple of 
examples they give in that magazine. Bobby Boxer, a retired 
construction worker, he was very content with the regular 
Medicare. But--he was content, but last December a sales woman 
comes to his house and sells him a plan of Medicare, a Medicare 
HMO, when he thought he was buying a medigap policy. She lied. 
All MA plans are obliged to cover emergency care, as you well 
know. But what happened was he wound up with a bill of $16,000. 
Now, CMS is telling him, ``Don't worry about that, we will get 
you back into regular Medicare.''
    This is baloney. This is not the way to deal with what is 
going on with these people, day in and day out. You confuse the 
senior community enough, and darn it, you better stop. You 
better end it right now. You confuse them. With all of these 
plans, how could they make sense of what is going on? How can 
they make sense?
    I want to ask you a question, Mr. Hill, if I may. According 
to the GAO's assessment of the statutes, that CMS had the 
authority to pursue financial recoveries. But its rights under 
contracts for 2001 to 2005 are limited, because it is 
implementing regulations that are not required, that each 
contract include provisions to inform organizations about the 
audits and about the steps that CMS would take to address--
identify deficiencies, including the pursuit of financial 
recoveries, which many have asked about.
    Why would your agency write regulations for the MA 
contracts that did not include the recovery authority? Why 
would you do that?
    Mr. HILL. I cannot speak to the ACR process that was in 
place from 2001 to 2005, and why those requirements are not in 
there, or why the Agency chose not to pursue that.
    I can speak to the MAPD and the Part D plans that are in 
place now, post-MMA, and can tell you and assure you that it is 
very clear for the plans that, to the extent that we find 
overpayments on an audit, we have the authority to go back and 
recoup those funds.
    Mr. PASCRELL. Now, the National Association of Insurance 
Commissioners, when they were asked what can be done, they 
advocate a stronger role for the states. The states play a 
stronger role in the Medicaid program. In many of the states, 
the attorney general's office oversees it. You administer the 
MA program. You administer it. Am I correct in saying that? 
When we talk about administering the program, that means very 
specific things.
    So, the states would have more authority and oversight of 
the MA marketing, especially in the regulation of agents and 
brokers, which is a state law issue in the first place. The 
language in the CHAMP bill, which the President said we should 
not vote on, because it would throw seniors off of Medicare--
that is what he said, I know what he said--CMS had argued that 
state laws are pre-empted by this Medicare Modernization Act. 
That is what you said.
    On September 28, 2007, an Alabama district court judge held 
that the state could sue for Medicare Advantage marketing 
abuses in state court under state insurance law. What is your 
reaction to that, Mr. Hill?
    Mr. HILL. I am not familiar with the lawsuit, and I would 
like to take a look at it before I offer----
    Mr. PASCRELL. Well, what do you think about the idea of 
states assuming a greater responsibility in going after the 
very abuses and deficiencies that you have heard questions 
about from this panel?
    Mr. HILL. I don't think that we disagree that the states 
are our partner here. They are on the ground. The state 
insurance----
    Mr. PASCRELL. Well, what do you mean by being a partner, 
Mr. Hill?
    Mr. HILL. I think this is--they have their regulatory 
authority for brokers and----
    Mr. PASCRELL. So you feel they have the ability, then, to 
pursue these civil complaints?
    Mr. HILL. No, sir. I think they are our partners in this, 
and we work with them closely. We have entered----
    Mr. PASCRELL. So you have no problems with this?
    Mr. HILL. With?
    Mr. PASCRELL. You have no problems with the states 
pursuing, as Alabama has?
    Mr. HILL. As I said, I would need to take a look at that 
suit, to know exactly what it is they have pursued.
    Mr. PASCRELL. Thank you, Mr. Chairman.
    Chairman STARK. [Presiding] Thank you.
    Mr. Nunes.
    Mr. NUNES. No.
    Chairman STARK. No? Mr. Hulshof.
    Mr. HULSHOF. Thank you, Mr. Chairman. Let me try to put 
things in perspective. I do this at my own peril, Mr. Chairman. 
At a previous hearing in front of the full committee on income 
and equality, I pointed out that the 4.6 percent national 
unemployment rate was considered by most mainstream economists 
to be full employment, and my friend from California, a 
gentleman from Los Angeles, took me to task and chided me that 
every American deserves a job. I guess 0.0 percent unemployment 
is our goal.
    But let me put things in perspective. The fact is that 
there are many on the majority side who have shown disdain for 
Medicare Advantage. I am not saying that is the genesis of this 
hearing, but I think that needs to be spoken.
    The gentleman from Texas says that seniors have been 
``sucked in''--his words--to the Medicare Advantage program. I 
would like to quote specifically what the chairman of the 
oversight subcommittee has said, and I agree with him, where he 
says in his written statement, ``Over 8 million Americans rely 
on Medicare Advantage, and there are 15,000 of those 9th 
congressional district of Missouri.''
    I am a small business owner. I pay Medicare taxes for the 
workers I hire. Every employer and every employee alike, every 
taxpayer in America deserves the comfort, or knowledge, or 
confidence that they are getting the bang for the buck, whether 
they are on Medicare Advantage, or whether they are helping 
fund the program.
    So, with that in mind, at the end of Mr. Tiberi's 
questioning--I want to go back to that, because I think that 
has been glossed over to some degree. Now, I acknowledge, Mr. 
Steinhoff, that you take issue with the assumptions that Mr. 
Hill made regarding this error rate. So I take that as a given. 
My most famous constituent, Mark Twain, once said that there 
are lies, there are damn lies, and then there are statistics. 
So allow me, then, to talk about statistics.
    Mr. Hill, let me flesh out a little further what Mr. Tiberi 
inquired of you. Because I think he asked, trying to put this 
in perspective again, there were audits of 49 organizations, 
which is about a 22 percent of those participating 
organizations, is that right, Mr. Hill?
    Mr. HILL. That is correct.
    Mr. HULSHOF. And as I also understand--again, I took this 
figure from Mr. Tiberi--in 2003, we spent--we taxpayers spent 
roughly $36,800,000,000 on Medicare Advantage. Is that number 
correct?
    Mr. HILL. That is roughly correct.
    Mr. HULSHOF. And we have learned, through this hearing, a 
net overpayment of about $35 million in overpayments?
    Mr. HILL. That is correct.
    Mr. HULSHOF. And that is a net, because, in addition to 
overpayments, there are also underpayments. Is that true?
    Mr. HILL. That is correct.
    Mr. HULSHOF. So, in other words, again, making sure that 
every taxpayer gets what they are entitled to--so, in other 
words, some on Medicare Advantage plans were getting benefits 
that they weren't paying for. Is that a fair assessment?
    Mr. HILL. It would be implied, yes, sir.
    Mr. HULSHOF. So, you calculated that, given all of that, 
the amount of money going to Medicare Advantage--and if we were 
to extrapolate those participating organizations, the error 
rate is what, for Medicare Advantage?
    Mr. HILL. I think that is--I think, as Mr. Steinhoff 
indicated, we did not extrapolate that $35 million. I think if 
you did the math, the $35 million as a proportion of the total 
Medicare Advantage payments, it is a tiny fraction, a very tiny 
fraction. But it is not the extrapolated error rate for 
Medicare Advantage.
    Mr. HULSHOF. Mr. Tiberi--and again, I know him to be a 
knowledgeable, reputable man--a .4 percent error rate, which 
again, I--every dollar should be legitimately spent or 
collected. So that--in my mind, again, I accept Mr. Tiberi's 
math--99.6 percent correct, .4 percent incorrect, as opposed to 
you have calculated the fee-for-service error rate, and that is 
significantly higher. True?
    Mr. HILL. Correct. It is 4.4 percent.
    Mr. HULSHOF. So, I acknowledge this is useful, I think. You 
know, I know the righteous indignation by some, talking about 
profits and whatever, I mean, that is great political speech.
    But I think, as far as making sure that the taxpayer gets 
the bang for their buck--and I hope, Mr. Chairman--I am not 
privileged to serve on the oversight subcommittee, but I hope 
that there is equal righteous indignation or aggressiveness 
looking at other areas of the Tax Code. For instance, the 25 to 
30 percent error and fraud rate on the income supplement 
program called the earned income tax credit. I think every 
dollar that we allocate should be a dollar well spent. And I 
appreciate you having this hearing.
    Mr. PASCRELL. Mr. Chairman, can I have a moment to speak 
out of turn for one minute? For 30 seconds?
    Chairman STARK. Sure.
    Mr. PASCRELL. Thank you. Chairman, I listened very 
carefully to my good friend, economics 101. This whole program 
is so efficient that is has been paid for by deficit financing. 
Thank you Mr. Chairman.
    Chairman STARK. Okay, I----
    Mr. PASCRELL. They have not paid for this program.
    Chairman STARK. I was just--I suppose, as one of the two 
here who had asked for these hearings, I stipulate to my good 
friend that I happen to think that Medicare Advantage plans 
offer good medical care. Half of the residents--not half of the 
insured, but half of the people--who live in my district belong 
to one plan alone, Kaiser Permanente, and they are probably as 
good as any managed care plan in the country, and I happen to 
think that managed care is perhaps a better way for all of us 
to receive our medical care.
    But the issue before us, the basic issue, is that we are 
overpaying by--according to MedPAC. And CBO and OMB all agree 
that we are overpaying these plans by about $40 billion over 5 
years. That is the issue. Now, out of that $40 billion in 
overpayment, we can argue about what kind of inefficiencies 
there are, and how we collect that money.
    But the basic problem is that, as compared to fee-for-
service, which has no control over utilization, so you may 
actually find that we're actually paying more in fee-for-
service than to say we are paying anywhere from 12 to 40 
percent more is the issue.
    Now, if we could somehow find out how to fairly pay the 
Medicare Advantage plans and recoup a good bit of that $40 
billion, we would have a double win. We would have perhaps more 
efficient delivery of medical care, and we would save $40 
billion for the taxpayers. And that, I think, would be an 
objective that we could all be proud to work toward on this 
committee.
    So, I--the gentleman is right, we may be picking at small 
nits here, but let us not forget there is a big chunk of change 
out there that we have to distribute. Ms. Tubbs Jones is next.
    Ms. JONES. Mr. Chairman, I thank you for holding the 
hearing. You know, today is Tuesday. And in two days, we are 
going to be voting to override the President's veto. And it is 
just hard for me to believe that we are arguing over $35 
million to cover health care for children. And I keep trying to 
read this correctly to figure out how many dollars we are 
concerned about here, with CMS.
    I am interested, Mr. Hill. What did you do before you came 
to CMS?
    Mr. HILL. I worked at the Office of Management and Budget.
    Ms. JONES. And what did you do there?
    Mr. HILL. I worked on the Medicare----
    Ms. JONES. I am asking for your curriculum vitae, so you 
aren't concerned about the question. I am just wondering what 
your skill set is.
    Mr. HILL. I was a budget examiner, working on Medicare and 
Medicaid issues.
    Ms. JONES. And how long did you do that?
    Mr. HILL. I was there for about 4 years.
    Ms. JONES. Four?
    Mr. HILL. Yes.
    Ms. JONES. And what did you do before that?
    Mr. HILL. Before that, I was a legislative analyst at the 
then-HCFA.
    Ms. JONES. At what?
    Mr. HILL. HCFA. What was then--I was a legislative analyst 
at the Centers for Medicare & Medicaid Services before I was at 
OMB.
    Ms. JONES. In your responses, you said you have no idea 
what happened between 2001 and 2005 on the contract for 
Medicare Advantage, but you know what has happened since 2005, 
because you have been in charge. Is that a fair statement?
    Mr. HILL. I think that is a fair statement, yes.
    Ms. JONES. But when you looked at 2001 and 2005, did you 
say to anybody, ``Let's look at the contract, we're having a 
problem here, we need to go back and reassess them''?
    Mr. HILL. I can only tell you, ma'am, that there were some 
full and frank conversations between me and our Office of 
General Counsel about what we could or could not do with those 
overpayments from----
    Ms. JONES. And the good lawyers that you have in the office 
of general counsel, didn't they have some idea that--I am sure, 
if they were great lawyers, and I am confident that they were--
there had to be some provision in these contracts for them to 
address some of the issues that you raise.
    Mr. HILL. Right. And the provisions in the contracts that 
allow us to address those issues are, to the extent there was 
misrepresentation by the plans. So, some of the plans on that 
$35 million disagreement----
    Ms. JONES. Say that number again.
    Mr. HILL. $35 million.
    Ms. JONES. Okay, go ahead.
    Mr. HILL. Disagreement--were misrepresenting what they told 
us. And that is what led to that discrepancy. Then we have 
authority under the statute to either pursue a civil monetary 
penalty, or to pursue a referral to the Office of the Inspector 
General.
    Ms. JONES. So, now that you have received this GAO study 
that says something about why audit, or whatever----
    Mr. HILL. Right.
    Ms. JONES. What are you doing to make some changes?
    Mr. HILL. I can tell you that, for 2006, we are not going 
to ignore the one-third audit requirement, as laid out in the 
MMA. We have put in place what I characterize as a sort of 
three-prong strategy here.
    We make sure that, before we sign contracts with plans--as 
you know, they bid, we spend the summer looking at bids, and 
then we sign contracts in the fall. Before we sign those 
contracts, we look very clearly--in detail--at these bids, to 
be sure they accurately reflect the benefits and the 
assumptions that need to go into making a reasonable bid. To 
the extent that they don't, we ask plans to make changes, yes, 
ma'am.
    Ms. JONES. So, consistent with your oath, as an employee of 
the U.S. government, and a representative of the people of 
America, you are saying that we made a commitment that we won't 
be in a position, on the contracts that you negotiate that we 
are in today?
    Mr. HILL. That is correct.
    Ms. JONES. Mr. Steinhoff, how are you, sir?
    Mr. STEINHOFF. Real fine.
    Ms. JONES. How long have you been in your job?
    Mr. STEINHOFF. I have been with the Government 
Accountability Office since 1973, my current job probably for 
the last 8 or 9 years.
    Ms. JONES. So, when you make or issue a report like you 
have issued with regard to Medicare Advantage to CMS, I mean, 
here we are, 2007. Your report speaks to--what years did this 
last report cover?
    Mr. STEINHOFF. We are talking about 2001 through 2006, as 
of the end of the May/June 2007 time frame.
    Ms. JONES. Let me ask you this. The report for 2001--okay, 
I am an official in the government, you are my auditor.
    Mr. STEINHOFF. Yes.
    Ms. JONES. Something happened bad in 2001. How soon do I 
know after that, that I made mistakes in my conduct?
    Mr. STEINHOFF. Actually, you would have expected that CMS 
itself would have had the rate of audit, and the selection of 
audit, and the results of audit every year.
    GAO----
    Ms. JONES. Hold on a minute. I would have expected. They do 
not?
    Mr. STEINHOFF. You would have expected that they would have 
had that information.
    Ms. JONES. My question is, do they?
    Mr. STEINHOFF. They did not have that kind of information.
    Ms. JONES. 2001?
    Mr. STEINHOFF. They didn't have--it.
    Ms. JONES. 2002?
    Mr. STEINHOFF. They didn't have it.
    Ms. JONES. 2003?
    Mr. STEINHOFF. They didn't have it.
    Ms. JONES. 2004?
    Mr. STEINHOFF. They didn't have it.
    Ms. JONES. 2005?
    Mr. STEINHOFF. They didn't have it.
    Ms. JONES. 2006? Come on.
    Mr. STEINHOFF. 2006 was----
    Ms. JONES. You are joking me, right?
    Mr. STEINHOFF. 2006 was not completed yet. But no, they 
didn't have it.
    Ms. JONES. I am out of time.
    Chairman STARK. Mr. McDermott.
    Mr. MCDERMOTT. Thank you, Mr. Chairman. I want to commend 
you on having this hearing. And I think, particularly when you 
read the article in the October 7th New York Times by Robert 
Pear, you realize that there are some audit problems.
    But I think that one of the things that is troublesome to 
me is that there is a growing concern that the Medicare 
administration contracting, the macro form, in Section 911 of 
the Part D bill, is being implemented in a way that is setting 
up Medicare for failure.
    And I think that the chairman and members should be looking 
to the future of what it is going to do when you take 49 
contractors across the country and reduce it to 15, and put 
those contracts out purely on the basis of cost. Because you 
are going to have everybody talking about cutting offices.
    Now, I had the--when you ride from Seattle on the airplane, 
you have a long time. And sometimes you have a seat mate who 
actually has something that is important to learn about. I sat 
next to a medical administrator for one of the national 
contracting organizations and talked to him about what is 
happening.
    And right now when a doctor has billing, and you have 
auditing and you are doing--and you have what are called LDCs, 
local determinations, where you help the doctor try and figure 
out how to put his information in correctly, you try and pick 
up everything in advance. What is being set in place is a way 
to destroy Medicare fee-for-service because there is going to 
be a great reduction in the LDCs. The doctors won't get any 
help at the front end.
    So everything will be paid, and then the contracts go out 
to the folks who are sitting there doing the payment safeguard, 
and recovery audit contractors will be going out into doctors' 
offices saying, ah-hah. We have got a fraud here.
    Now, if you don't help people up front and then you hit 
them at the back end, it is going to set the place for a 
hearing in this room where people are going to come in and say, 
see all the fraud in the doctors. It will have been created by 
the way we set it up.
    I came to Congress in 1989 when we were going through the 
savings & loan crisis. We said to the savings & loan, you can 
lend the money anywhere you want. You can lend swimming pools 
or golf courses or whatever. And the second thing they did was 
they cut down the number of auditors so that many of those 
savings & loans never had anybody coming in and saying, hey, 
let's look at your portfolio. Let's see what you are actually 
doing here, and stop it up front. We waited until the whole 
thing collapsed, and then we had hearings in the banking 
committee on endless days. We sat and listened to one folly 
after another that could have been prevented if we had decent 
auditing.
    Now, I see us in this effort. We are going to put together 
North Dakota, South Dakota, Nebraska, Kansas, Arizona, New 
Mexico, and Wyoming, I think are all in one. And it is going to 
have one office. One office for six or seven states.
    Now, how is a doctor going to get any information 
whatsoever under that kind of system? And it is supposed to be 
reform. It is going from 46--each state has their own now. So 
we are going to cram them all together. Alaska, Washington, 
Idaho, and Oregon will all be one office. Right? California and 
Nevada will be one office. Now, you tell me how any doctor 
practicing is going to have any chance whatsoever to get any 
help up front.
    And I think I would like to hear your ideas because those 
regulations are being written right now, and they are being put 
in place, and they are letting the contracts. I would like to 
hear you talk about what you think will happen in three or four 
or 5 years in this regard.
    Mr. HILL. Right. I mean, I have to tell you, if I had heard 
sort of this laid out as the way the medical director or 
whoever it was you were sitting next to on the plane had 
described it, I too would be concerned. But I think it is safe 
to say that it is not quite as advertised.
    So yes. For example, for the five states that you 
mentioned, there will be one contract and one entity that will 
be responsible for processing those claims. But it is also the 
case that contractor has to have an office and a medical 
director in every state. And that contract has to make its 
local coverage decisions based on what is going on in any 
individual state or geographic area to account for the 
variations that we see from region-to-region in the way that 
medicine is practiced differently.
    And so the intent here isn't to sort of nationalize the way 
we process claims and nationalize where physicians or home 
health agencies or DME suppliers have to go to get the 
information. It is more for us to get economies of scale on the 
back end for the people who stuff the envelopes and the people 
who process the claims or answer the phones for more routine 
issues.
    We would be shooting ourselves in the foot and being penny 
wise and pound foolish to not maintain that education and 
communication up front because, quite frankly, as we talked 
about the Medicare error rate earlier, the way we got that rate 
down was by communicating very aggressively with the providers 
who provide services.
    Mr. MCDERMOTT. It is your testimony today that there will 
not be a reduction in the educational effort for physicians in 
this country who are in fee-for-service medicine taking care of 
Medicare patients?
    Mr. HILL. Absolutely. That is my testimony.
    Mr. MCDERMOTT. That is your testimony?
    Mr. HILL. Yes, sir.
    Mr. MCDERMOTT. Well, we will mark it down and we will see 
because I intend to be here a couple years from now when this 
whole thing begins to play out. Because my belief is if you are 
rushing through payment, you are going to ultimately wind up 
catching people in the net down there that are not necessarily 
fraudulent physicians.
    Mr. HILL. Right.
    Mr. MCDERMOTT. I think that is what makes doctors the most 
angry, is when they can't figure out the system, and then 
somebody comes in and treats them like they are a fraudulent 
doc. That isn't fair. And I think we ought to look at it up 
front. You say it is not going to happen. I hope you are--maybe 
you won't even be in the office. That will be the problem. I 
won't be able to find you. But we will bring up your quote.
    Mr. HILL. If I can get out of this hearing, I think I may--
--
    Mr. MCDERMOTT. Thank you, Mr. Chairman.
    Chairman STARK. Well, you will be happy to learn we are 
winding up. I just wanted to ask Mr. Steinhoff, finally, 
regarding the $29 million that wasn't returned to Medicare, was 
any of that--maybe you can summarize whether that came and 
whether any of that is owed to us from United and Humana, and 
maybe in the next panel I can help you collect some of that, 
Mr. Hill.
    Mr. STEINHOFF. With respect to the $29 million that the IG 
found on the six audits of the supplemental payments, 10.5 
million of that related to Humana. They audited 14.4 million of 
costs reimbursed to Humana, and questioned 10.5 of that.
    Chairman STARK. And with United?
    Mr. STEINHOFF. I don't believe they were one of the six, 
but I would have to check on that for you. But I do not believe 
they were one of the six.
    Chairman STARK. Well, Mr. Camp, do you have any further 
inquiry? If not, I want to--Mr. Chairman?
    Chairman LEWIS. No, sir.
    Mr. CAMP. I just have one quick question.
    Chairman STARK. Please.
    Mr. CAMP. We heard some comments about salaries. But does 
CMS have the authority to review the salaries of hospital 
administrators, for example, with the result to Medicare 
payments?
    Mr. HILL. No, sir.
    Mr. CAMP. All right. And many of them have fairly 
significant salaries as well. So it is not just managers of 
Medicare Advantage plans.
    Thank you, Mr. Chairman.
    Chairman STARK. Thank you. And I want to thank the panel, 
all of the staff from GAO, and Mr. Hill's staff, who have been 
sitting there trembling all morning for fear he would make a 
mistake. And see, he didn't, so your worries were in vain. 
Thank you all for being here. And we will proceed with our next 
panel.
    And I will introduce them as they make their way to the 
witness table: Mr. Paul Precht, the Policy Coordinator of the 
Medicare Rights Center; Mr. Harry Hotchkiss, who is the Senior 
Products Actuarial Director of Humana of Louisville, Kentucky; 
Ms. Cindy Polich, the Senior Vice President of Secure Horizons, 
UnitedHealth Group of Minneapolis, Minnesota; Dr. Bart Asner, 
the Chief Executive Officer of Monarch Healthcare of Irvine, 
California.
    I want to welcome the panel. My guess is in the next 15 
minutes or so, they will call a series of votes. Perhaps we can 
get through the summation of your testimony, and then we will 
recess. We are not sure yet how many votes there will be, but I 
suspect it will be about at least a half an hour.
    And so I will ask Mr. Precht to summarize, as with the 
previous witnesses. Your prepared testimony will appear in the 
record in its entirety. If you would like to summarize it any 
way you are comfortable. And we will start with Mr. Precht.

 STATEMENT OF PAUL PRECHT, POLICY COORDINATOR, MEDICARE RIGHTS 
                             CENTER

    Mr. PRECHT. Chairman Stark, Ranking Member Camp, members of 
the health and oversight subcommittees, thank you for this 
opportunity to testify. I am Paul Precht, Deputy Policy 
Director for the Medicare Rights Center.
    For the past 2 years, the staff and volunteer counselors at 
the Medicare Rights Center have been preoccupied with two types 
of cases: helping victims of deceptive, fraudulent, and abusive 
marketing by private Medicare plans; and helping people 
enrolled in those plans obtain coverage for their medical care 
and prescription drugs.
    The subject of today's hearings, the oversight of private 
Medicare Advantage plans by the Centers for Medicare and 
Medicaid Services, goes to the heart of this work. In short, 
the laxer CMS's oversight of these MA plans is, the more 
problems we see. The looser the rules CMS sets for MA and drug 
plans, the harder it is for our clients to get the medical care 
they need.
    Earlier today, GAO reported how CMS had failed to conduct 
the audits of MA plans mandated by law, and when it did audit 
plans, failed to recoup subsidies that the audits showed should 
have funded additional benefits for plan members. In my 
testimony, I would like to touch on three different aspects of 
CMS's oversight of MA plans: CMS's review of plan benefit 
packages, CMS's review of the plan appeals and grievance 
procedures, and CMS oversight and enforcement of marketing 
guidelines.
    MA plans and private fee-for-service plans in particular 
are being marketed as low cost alternatives to supplemental 
insurance, yet they often fail to provide the protection 
against catastrophic medical expenses that people receive under 
any of the standard supplemental Medigap plans. Individuals who 
enroll in Medicare Advantage plans cannot purchase supplemental 
coverage to cover the gaps in the benefits like they can under 
original Medicare.
    Health insurance that works when you are healthy but cuts 
out when you are sick is not what Medicare has offered for over 
40 years. In my written testimony, I describe how a client of 
ours from Long Island was hit with $3,000 in copays from her 
Medicare Advantage plan for the treatment of ovarian cancer 
after she had been told before enrolling that all of the costs 
associated with her chemotherapy would be covered.
    Unfortunately, our review of the benefit packages offered 
by MA plans shows that coverage of chemotherapy is one of a 
number of areas where plan coverage is often inadequate. Plans 
charge more for chemotherapy and other Part B drugs than the 20 
percent coinsurance charged under original Medicare.
    More commonly, plans carve out chemotherapy and the other 
Part B drugs from the annual caps they place on enrollees' out-
of-pocket spending, if they have a cap at all. Some plans do 
both, charge more for chemotherapy and carve this service out 
of their out-of-pocket cap. In our view, these practices are 
unacceptable. They discriminate against people with cancer and 
other illnesses that require treatment with high cost drugs 
administered by their doctor.
    CMS has the authority to prohibit such plan designs as 
discriminatory. Such plans continue to be approved by CMS, 
however, because the agency takes an overly restrictive view of 
its legal authority to prohibit discriminatory benefit 
packages. In 2004, MedPAC recommended that CMS exercise its 
full authority to reject plans that have benefit designs and 
cost-sharing structures that discriminate on the basis of 
health status. Still, CMS has not acted.
    The Medicare Rights Center has a small team of lawyers and 
counselors who help people appeal when their private Medicare 
plan denies coverage for a drug or medical procedure they need. 
Often people come to us after they were stonewalled by their 
plan.
    We know now, from a review of CMS audits of plan appeals 
and grievance procedures, that a failure to abide by the 
timelines, notice requirements, and procedures for appeals 
seems to be the rule, not the exception, among MA and drug 
plans. A full 94 percent of the plans audited failed to meet 
CMS requirements on handling appeals and grievances, 
requirements that are fundamental to ensuring that plan members 
know their appeal rights and can pursue them effectively.
    For the benefits offered by MA plans to become real for 
people with Medicare, plan enrollees must actually be allowed 
to fill the prescriptions and obtain the medical services that 
they need. I began this testimony by recounting how one of our 
clients was charged high copayments for chemotherapy. The other 
aspect of the story, the false promise she received from plan 
representatives that her chemo would be covered, illustrates 
the deception that is too often used in the marketing of MA 
plans.
    There are many much more egregious examples. Agents go door 
to door, pretending they are from Medicare. Agents threaten 
people under that pretense that they will lose their Medicare 
or Medicaid coverage if they do not sign up. Agents 
fraudulently obtain signatures for plan enrollment by having 
people sign up to receive more information, or for a raffle.
    A CMS official recently told a conference of health plans 
that the reports of deceptive and fraudulent marketing were not 
abating, but were growing in intensity and volume. We know from 
the corrective action plans released by CMS that such marketing 
misconduct is widespread in large part because the Medicare 
advantage plans do not have the systems in place to prevent it. 
For example, audits consistently find that agents are 
inadequately trained and supervised and are not properly 
licensed.
    Faced with the absence of these basic safeguards, CMS's 
response is to insist, at some future date listed in the 
corrective action plan, that the company actually do what is 
already required of it. The pattern is clear, whether it 
concerns marketing violations, denial of appeal rights, or the 
inflated bids discovered upon audit: The response by CMS is not 
to punish the plans for misbehavior, not to recover for 
taxpayers the money we have paid for services not delivered, 
but to wag their finger at the plans.
    When oversight is lax and enforcement is absent, enrollees 
in Medicare Advantage plans are shortchanged on their benefits 
and their access to care is compromised. We applaud this 
committee for holding this hearing and urge you to do what you 
can to ensure that CMS makes all Medicare private plans play by 
the rules.
    Thank you again for this opportunity.
    [The prepared statement of Mr. Precht follows:]

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    Chairman STARK. Thank you.
    Mr. Hotchkiss.

    STATEMENT OF HARRY HOTCHKISS, SENIOR PRODUCTS ACTUARIAL 
          DIRECTOR, HUMANA INC., LOUISVILLE, KENTUCKY

    Mr. HOTCHKISS. Chairman Stark, Chairman Lewis, 
Representative Camp, and distinguished Members of the 
Subcommittees, thank you for inviting me to testify about 
Humana's Medicare Advantage or MA bid process. As an actuarial 
director for senior products for Humana, my responsibility is 
limited to working on the team that develops and submits bids 
and responds to CMS MA bid audits.
    Humana has served Medicare beneficiaries for many years. We 
currently offer prescription drug and MA plans in all states. 
Today I will discuss Humana's compliance with the regulatory 
requirements for bid submission following the enactment of the 
Medicare Modernization Act. My written testimony also describes 
how this worked prior to MMA.
    The MMA changed the way plans develop and submit bids and 
how they determine the value of the premium and benefit 
structure for their MA plans. Humana has detailed structures 
and controls in place to meet bidding, process, and audit 
requirements.
    The MMA changed the timing and submission rules for premium 
and benefit filings. CMS's 45-day notice of rates comes out in 
mid-February, and the final rate book containing the benchmarks 
comes out the first Monday in April. CMS issues bid 
instructions soon after, and bids are due the first Monday in 
June.
    As you can see from this chart off to my right, we begin 
our bid and pricing modeling in January. The bids represent 
Humana's expected average cost for the Medicare-covered 
benefits for each plan. The expected average costs for 
Medicare-covered benefits are then compared to the CMS MA 
benchmark. If the plan's bid is below the benchmark, the plan 
must use 75 percent of the savings to increase members' 
benefits, decrease members' premiums, or cost-sharing. The 
remaining 25 percent of savings is returned to the federal 
treasury.
    Bids are completed by the first week of May and are peer-
reviewed by a team of internal qualified actuaries. Revisions 
are made, and bids are then processed through an internal audit 
program that checks for outliers based on preestablished 
parameters.
    CMS uses a similar process. Each outlier is reviewed, and 
adjustments are made where necessary. We then develop the 
actual documentation required by CMS, including 2-year look-
back claim cost forms. We upload this information to CMS's 
system by the filing deadline. We then correct any 
discrepancies identified by CMS in their validation tests. By 
mid-June, we submit actuarial bid certifications.
    For the next 45 days, CMS's audit firms conduct a thorough 
review of all bids and benefit packages. When issues arise, we 
generally respond within 48 hours. The auditors sign off on our 
bids. In mid-August, CMS releases the final PDP and RPPO 
benchmarks. We reconcile these final benchmarks with our 
earlier expected benchmarks and resubmit affected bids. In 
early September, CMS approves our bids.
    CMS's auditors then evaluate the reasonableness and 
consistency of our assumptions with applicable actuarial 
standards of practice and CMS's instructions for completing the 
bid forms. Auditors conduct a desk audit, followed by a one-
week onsite visit. We then respond to an initial draft of their 
findings and/or observations. Auditors then issue a final 
agree/disagree letter, to which we provide a final response.
    For contract year 2006, CMS audited two contracts, 
resulting in no material findings. For contract year 2007, CMS 
audited two contracts, yielding one finding and two 
observations. We inadvertently used a rate development factor 
for provider expenses that didn't reflect all provider 
reimbursement structures for the plans. This resulted in 
beneficiaries in the two affected plans receiving a slightly 
better benefit. For 2008, we improved our methodologies based 
on this finding.
    As you evaluate improving this process, we respectfully 
suggest that final audit reports be issued in March of the 
contract year in order to impact the following year's bids. 
Humana has mechanisms and controls in place to internally and 
externally audit our processes to comply with statutory, 
regulatory, and contractual MA program requirements.
    My written testimony also describes actions related to 
other areas of the MA program, including corrective action 
plans and site audits. I am part of the bid and audit team, and 
our processes are vigorous in all areas.
    We take seriously the trust that the government has placed 
in us to offer coverage to Medicare beneficiaries and 
understand the vulnerability of this population. We seek to 
cure any issues brought to our attention, whether by external 
or internal sources. Thank you.
    [The prepared statement of Mr. Hotchkiss follows:]

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    Chairman STARK. Thank you.
    Ms. Polich.

   STATEMENT OF CINDY POLICH, SENIOR VICE PRESIDENT, SECURE 
      HORIZONS, UNITEDHEALTH GROUP, MINNEAPOLIS, MINNESOTA

    Ms. POLICH. Thank you, Mr. Chairman, and thank you to the 
committees for giving me an opportunity to testify today. I am 
Cindy Polich, Senior Vice President of Secure Horizons, which 
is a part of UnitedHealth Group, and I help lead the company's 
efforts in the areas of geriatric health and long-term care.
    I have spent the last three decades working in the field of 
managed care and aging, am co-author of a book called 
``Managing Health Care for the Elderly,'' which has been used 
as a college textbook, and I have done extensive research and 
teaching in gerontology and health care.
    At UnitedHealth Group, we take our role as partner with the 
Federal Government very seriously. We are committed to working 
with Congress and regulators to make sure that CMS has the 
information it needs to provide timely, impartial, and 
effective oversight.
    Our participation in the Medicare program is fundamental to 
UnitedHealth Group's mission: to support the health and well-
being of individuals, families, and communities. We are proud 
to serve the 1.3 million members who have chosen our Medicare 
Advantage plans. These plans provide integrated benefits, 
enhanced coverage, lower out-of-pocket costs, and coordinated 
care.
    Medicare Advantage plans are a health care success story 
for millions of Americans. Fully 90 percent of Medicare 
Advantage beneficiaries say they are satisfied with their 
coverage. We also know that over the past 4 years, the pace of 
change in the Medicare program has created a steep learning 
curve for insurers, for regulators, and for beneficiaries 
alike. However, we believe that the new bidding and oversight 
provisions that recently took effect should greatly improve the 
ability of CMS to audit and monitor plans effectively.
    The recent GAO report focused largely on CMS auditing of 
the old adjusted community rate process, a process that no 
longer exists. The new bid process that went into effect in 
2006 is a significant improvement. While the old process was 
based on the costs and assumptions for a plan's commercial 
business, the new bid process is focused specifically on 
Medicare. It is more in line with the way the business is 
actually managed, which means that CMS will now have more 
relevant processes and data to audit. Also new in 2006 was a 
requirement for actuarial certification of bids before they are 
submitted to CMS. This provides a higher level of rigor in bid 
development.
    CMS also has an important role in operational oversight. We 
take a diligent and aggressive approach to implementing any 
action plan that is requested by and developed with the agency. 
Often we find that issues raised by CMS already have been 
identified through our own internal audit process, and work to 
implement improvements is already well under way.
    UnitedHealth Group is also a strong supporter of rigorous 
oversight of the sales and distribution of Medicare Advantage 
products, particularly private fee-for-service plans. That is 
why we backed CMS and the industry this summer in accelerating 
adoption of marketing guidelines that had been planned for 
2008.
    Medicare Advantage was created in part to give Medicare 
beneficiaries additional health coverage choices because all of 
us understand that a one-size-fits-all approach cannot possibly 
meet the needs, the individual needs, of every Medicare 
beneficiary.
    Medicare Advantage plans provide benefits that do go beyond 
original Medicare and Medicare supplement. These benefits can 
include integrated prescription drug coverage at no additional 
cost, preventive and wellness services, vision and hearing 
benefits, and caregiver support.
    Moreover, Medicare Advantage plans can cover all of a 
person's health care needs in one integrated benefit package. 
This means more than just convenience. It means better health. 
Medicare Advantage plans encourage members to access primary 
and preventive care, which reduces acute episodes and 
hospitalization, providing better outcomes at lower costs.
    An integrated benefit plan reduces fragmentation that can 
occur when a patient has multiple chronic conditions and 
multiple health care providers. This integration allows for 
better coordination and attention to individual needs across 
the continuum of care.
    Medicare Advantage plan sponsors have pioneered care and 
disease management programs to support managers with serious 
chronic conditions and who are nearing end of life. Besides 
providing great value to the individuals who need them, these 
programs are also critical to the long-term financial health of 
Medicare, since 20 percent of beneficiaries with five or more 
chronic conditions consume more than two-thirds of Medicare 
spending.
    At UnitedHealth Group, we believe that smart and effective 
government regulation is good for beneficiaries, and we firmly 
believe that what is good for beneficiaries will be good for 
our company as well. We are committed to continuing to work in 
cooperation and in a collaborative manner with CMS and all 
Members of Congress to further this goal.
    Thank you.
    [The prepared statement of Ms. Polich follows:]

           Statement of Cindy Polich, Senior Vice President,
      Secure Horizons, UnitedHealth Group, Minneapolis, Minnesota

    Good morning, Chairman Stark, Chairman Lewis, Representative Camp, 
Representative Ramstad, and other distinguished members of the 
Subcommittees on Health and Oversight. I am Cindy Polich, Senior Vice 
President, Secure Horizons, which is a UnitedHealth Group business unit 
dedicated to serving the needs of Medicare beneficiaries.
    I have spent the past three decades working in the fields of 
gerontology and managed care. I am co-author of a book called Managing 
Healthcare for the Elderly, which has been used as a college textbook, 
and have done extensive research and teaching in gerontology and aging. 
At UnitedHealth Group, I have helped lead the company's efforts in the 
areas of geriatric health and long-term care, including work with 
PacifiCare, UnitedHealthcare, and in the 1990s with the Evercare 
nursing home demonstration project, which became one of the models for 
Special Needs Plans in the Medicare Modernization Act of 2003 (MMA).
    My personal focus and commitment on improving health care for 
elderly Americans is one of the reasons that I came to work at 
UnitedHealth Group. UnitedHealth Group has long been committed to 
meeting the health care needs of older Americans. In fact, we serve one 
out of every five Medicare beneficiaries through Part D, Medicare 
Advantage, Special Needs and Medicare Supplement Plans. We offer such a 
comprehensive range of Medicare products and services because we 
believe fundamentally in enabling beneficiaries to make choices based 
on their individual healthcare needs and preferences. We are proud to 
serve 1.3 million Medicare Advantage members in over 1,500 counties 
nationwide.
    For more than 20 years, private Medicare plans have been a health 
coverage option for beneficiaries. Today, more than eight million 
Americans have chosen this option through a variety of Medicare 
Advantage plans offered nationally.\1\ When asked why they chose 
Medicare Advantage, members tell us they value the integrated benefits, 
enhanced coverage, lower out-of-pocket costs and coordinated care.
---------------------------------------------------------------------------
    \1\ Kaiser Family Foundation, June 2007 fact sheet, http://
www.kff.org/medicare/upload/2052-10.pdf.
---------------------------------------------------------------------------
    The overwhelming majority of beneficiaries are satisfied with their 
Medicare Advantage plan. According to a survey conducted earlier this 
year for America's Health Insurance Plans, 90 percent of Medicare 
Advantage beneficiaries expressed satisfaction with their coverage, an 
increase over the 84 percent who were satisfied in a similar 2003 
survey. For millions of Americans, Medicare Advantage plans are a 
health care success story.
    Our participation in the Medicare program is fundamental to 
UnitedHealth Group's core mission: to support the health and well-being 
of individuals, families, and communities. And we know that our role in 
caring for seniors and the disabled brings with it heightened 
responsibility. With that in mind, I appreciate the opportunity to 
testify today and offer perspective about Medicare Advantage and the 
important role it plays in our health care system.
    Let me state at the outset that as one of the nation's largest 
providers of Medicare Advantage plans, UnitedHealth Group and its 
Secure Horizons business unit support the need for the Centers for 
Medicare & Medicaid Services (CMS) to gather, through audits and other 
means, the information it needs to provide timely, impartial and 
effective oversight of these programs.
    We take our role as a partner with the federal government very 
seriously, and want to continue to work with the Congress, CMS and 
other key stakeholders to address issues in a constructive way. We take 
very seriously the important role of Congress, and these Subcommittees, 
as stewards of the Medicare program.

The Real Advantages of Medicare Advantage

    Medicare Advantage (as well as its predecessors, including Medicare 
+ Choice) was created, in part, to give Medicare beneficiaries 
additional health coverage choices. Because health care requirements 
and preferences vary greatly and are very personal, a ``one-size-fits-
all'' approach cannot possibly meet the individual needs of every 
Medicare beneficiary.
    Medicare Advantage members expect their plans to provide them with 
more value than they could receive from Original Medicare and at a 
lower cost than they would pay for a Medicare Supplement plan. Medicare 
Advantage plans accomplish this by providing:
     Integrated Benefits and Care Coordination: Medicare 
Advantage plans are often the most cost-effective and convenient way 
for Medicare beneficiaries to cover all their healthcare needs in one 
integrated benefit package--rather than, for example, enrolling 
separately in a Part D plan, purchasing a Medicare Supplement policy, 
calling multiple phone numbers for service, and managing the entire 
process themselves.
    But convenience and seamless customer experience is only a small 
part of the value of an integrated benefit plan. A comprehensive and 
integrated benefit plan reduces the fragmentation that can occur when a 
patient is treated by a number of physicians and other health care 
providers, and allows us to manage across the continuum of care. This 
care coordination is critically important for Medicare beneficiaries, 
especially those with multiple chronic conditions.
    Medicare Advantage plans offer a range of programs and services to 
help beneficiaries navigate the fragmented health care system, and 
ensure they receive the care most appropriate to their health 
condition. Medicare Advantage plan sponsors have pioneered programs 
that focus on pro-active clinical support for members with serious 
chronic diseases, such as diabetes, congestive heart failure or chronic 
obstructive pulmonary disease. Offerings vary by plan, but can include 
care management, disease management and enhanced preventive and 
screening programs. These programs are particularly valuable to members 
with multiple chronic conditions and those nearing the end of life. 
These programs are critical to the future financial health of the 
Medicare program, since the 20 percent of Medicare beneficiaries with 
five or more chronic conditions consume more than two-thirds of 
Medicare spending.\2\
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    \2\ ``Chronic Conditions: Making the Case for Ongoing Care,'' 
Partnership for Solutions, 2004.
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    The Medicare Advantage program also includes Special Needs Plans, 
which provide coordinated care and benefits that are uniquely 
appropriate and tailored to people with complex health care needs and 
chronic illnesses.
     For example, when one of our Rhode Island members was 
hospitalized for serious health problems including hypoglycemia, 
coupled with Type 2 Diabetes, her physician recommended that she move 
to a nursing home or assisted living facility after discharge, since 
she could not take care of herself. But instead she enrolled in one of 
our Special Needs Medicare Advantage plans. A Care Manager came to her 
house, did an assessment and worked with her physician, social workers 
and home- and community-based service providers to develop a care plan 
that would allow her to live at home. Today, our member--who just over 
a year ago could not leave the apartment without assistance--lives in 
an independent living apartment complex for the elderly. She is thirty 
pounds lighter and goes out for walks every day.
     Enhanced Coverage and Reduced Out-of-Pocket Costs: 
Medicare Advantage members tell us that what they value most from their 
plan are the extra benefits, lower costs and catastrophic protection 
provided by Medicare Advantage. Medicare Advantage plans provide 
benefits that go beyond Original Medicare and Medicare Supplement, 
including in many cases: integrated prescription drug coverage at no 
additional cost, which in some cases includes coverage in the gap; 
preventive/wellness services; vision and hearing benefits; and 
caregiver support, to name a few. Obtaining comparable coverage from 
Medicare Supplement and Part D plans could cost hundreds of dollars 
more per month.
    Moreover, Medicare Advantage plans have designed benefit structures 
that not only appeal to beneficiaries, but encourage them to access 
primary and preventive care. This is very important when managing 
chronic illness, as it reduces the probability of an acute episode, 
lowers the incidence of hospitalizations, and improves the overall cost 
and quality outcome for beneficiaries.
      Medicare Advantage makes a real difference in the lives 
of real people. For example, when a 78-year-old Secure Horizons member 
from Fort Worth suffered a heart attack and kidney failure, he had a 
quadruple bypass and months of rehabilitative therapy. The total bill 
was $1.3 million--but with his Secure Horizons Medicare Advantage plan, 
he paid only $2,300 in out-of-pocket costs for the year.

Regulatory Oversight

    Over the past four years, the rapid pace of change in the Medicare 
program has created a steep learning curve for insurers, regulators and 
consumers alike. After all, the Medicare Advantage program in its 
current form was approved in 2003--just four years ago--and implemented 
less than 22 months ago.
    New bidding and oversight provisions implemented with contract year 
2006 should greatly improve the ability of CMS to audit plans 
effectively going forward. Two improvements that should have a 
materially positive impact include replacing the Adjusted Community 
Rate (ACR) proposal process with a new bid process, and requiring 
actuarial certification.
    In prior years, the rules governing the ACR proposal process 
required Medicare Advantage organizations to estimate the cost of 
providing benefits based on trend data related to how much they would 
charge commercial customers to provide the same benefit package. The 
projected Medicare costs were then adjusted to reflect expanded 
variations in trend or other factors. The recent GAO report focused 
primarily on CMS auditing of this old ACR process--which no longer 
exists.
    The new bid process is a significant improvement, because it 
recognizes that the Medicare business and the commercial business are 
not the same. The new bid process focuses on actual costs, trends, and 
projections for providing coverage for the expected mix of Medicare 
beneficiaries served by the plan. The shift away from the commercial 
standard means that the rate-setting process now more accurately 
reflects the requirements for serving Medicare beneficiaries and is 
more in line with the way the business is actually managed. This means 
CMS will be evaluating more relevant data and information.
    Also new in 2006 was the requirement that Medicare Advantage bids 
be actuarially certified before submission to CMS. This provides a 
higher level of rigor to bid development and ensures that the bids meet 
standards of actuarial practice.
    Finally, additional oversight provisions were implemented in 2006. 
Bids receive multiple levels of review: from outside auditors hired by 
CMS and the CMS Office of the Actuary before bids are approved, through 
post-contract-year audits; and from the CMS two-year ``look-back'' 
process.
    We support CMS in its continuing efforts to improve the Medicare 
program and its process of regulatory oversight. We are committed to 
doing our part to improve all areas of our Medicare Advantage programs. 
The GAO has made a number of recommendations for improving the 
contracting and auditing process of Medicare Advantage programs. CMS 
has concurred with the GAO's recommendations and UnitedHealth Group 
strongly supports this position.
    As a further area of consideration, we recommend that as the 
financial audit process evolves that it focus on a company's 
methodology for developing Medicare Advantage bids across the range of 
plans the company offers. Ultimately, this might allow for a refinement 
of the current standard--which emphasizes the number of audits 
conducted--freeing up resources to focus more on the underlying 
approaches a company uses to create its bids and the consistency with 
which these approaches are applied.
    In addition to its financial oversight, CMS has an important role 
in the operational oversight of the Medicare Advantage program.
    With respect to our action plans, we take a diligent and aggressive 
approach to implementation, including conducting our own internal 
reviews and checks to ensure that issues are resolved quickly and 
thoroughly. And, often, in areas that CMS highlights for further 
improvement, we have already engaged in activity, reflecting the work 
of our internal quality audits.
    Beneficiaries indicate they are highly satisfied with our 
offerings, and we are committed to continuous improvement.

Conclusion

    For millions of elderly Americans, Medicare Advantage plans provide 
not only needed flexibility, but also a wide range of benefits for 
meeting their unique health care needs. Smart and effective regulation 
is good for consumers, and we firmly believe that what's good for 
consumers will be good for our company as well. We are committed to 
continue working in a cooperative and collaborative manner with CMS and 
all members of Congress to further this goal.
    Thank you, Mr. Chairman and other distinguished members of the 
Subcommittees on Health and Oversight, for the opportunity to speak 
today on behalf of UnitedHealth Group.
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