[Senate Hearing 111-147]
[From the U.S. Government Publishing Office]
S. Hrg. 111-147
ELIMINATING WASTE AND FRAUD IN MEDICARE AND MEDICAID
=======================================================================
HEARING
before the
FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, FEDERAL SERVICES,
AND INTERNATIONAL SECURITY SUBCOMMITTEE
of the
COMMITTEE ON
HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
of the
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
APRIL 22, 2009
__________
Available via http://www.gpoaccess.gov/congress/index.html
Printed for the use of the
Committee on Homeland Security and Governmental Affairs
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COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii TOM COBURN, Oklahoma
THOMAS R. CARPER, Delaware JOHN McCAIN, Arizona
MARK PRYOR, Arkansas GEORGE V. VOINOVICH, Ohio
MARY L. LANDRIEU, Louisiana JOHN ENSIGN, Nevada
CLAIRE McCASKILL, Missouri LINDSEY GRAHAM, South Carolina
JON TESTER, Montana
ROLAND W. BURRIS, Illinois
MICHAEL F. BENNET, Colorado
Michael L. Alexander, Staff Director
Brandon L. Milhorn, Minority Staff Director and Chief Counsel
Trina Driessnack Tyrer, Chief Clerk
------
SUBCOMMITTEE ON FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION,
FEDERAL SERVICES, AND INTERNATIONAL SECURITY
THOMAS R. CARPER, Delaware, Chairman
CARL LEVIN, Michigan JOHN McCAIN, Arizona
DANIEL K. AKAKA, Hawaii TOM COBURN, Oklahoma
MARK L. PRYOR, Arkansas GEORGE V. VOINOVICH, Ohio
CLAIRE McCASKILL, Missouri JOHN ENSIGN, Nevada
ROLAND W. BURRIS, Illinois
John Kilvington, Staff Director
Bryan Parker, Staff Director and General Counsel to the Minority
Deirdre G. Armstrong, Chief Clerk
C O N T E N T S
------
Opening statements:
Page
Senator Carper............................................... 1
Senator Coburn............................................... 3
Senator McCain............................................... 5
WITNESSES
Wednesday, April 22, 2009
Kay L. Daly, Director, Financial Management and Assurance, U.S.
Government Accountability Office............................... 7
Deborah Taylor, Acting Director and Chief Financial Officer,
Office of Financial Management, Centers for Medicare and
Medicaid Services, U.S. Department of Health and Human Services 9
Lewis Morris, Chief Counsel, Office of Inspector General, U.S.
Department of Health and Human Services........................ 10
James G. Sheehan, Medicaid Inspector General, New York State
Office of the Medicaid Inspector General....................... 13
Alphabetical List of Witnesses
Daly, Kay L.:
Testimony.................................................... 7
Prepared statement........................................... 35
Morris, Lewis:
Testimony.................................................... 10
Prepared statement........................................... 78
Sheehan, James:
Testimony.................................................... 13
Prepared statement........................................... 87
Taylor, Deborah:
Testimony.................................................... 9
Prepared statement........................................... 58
APPENDIX
Information submitted for the Record from Senator McCaskill...... 94
Jack Holt, CEO/COO, S3 Matching Technologies, prepared statement. 98
Qustions and Responses for the Record from:
Ms. Daly..................................................... 102
Ms. Taylor................................................... 108
Mr. Morris................................................... 121
ELIMINATING WASTE AND FRAUD IN MEDICARE AND MEDICAID
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WEDNESDAY, APRIL 22, 2009
U.S. Senate,
Subcommittee on Federal Financial Management,
Government Information, Federal Services,
and International Security,
of the Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 3:02 p.m., in
room SD-342, Dirksen Senate Office Building, Hon. Thomas R.
Carper, Chairman of the Subcommittee, presiding.
Present: Senators Carper, McCaskill, McCain, and Coburn.
OPENING STATEMENT OF SENATOR CARPER
Senator Carper. The Subcommittee will come to order.
Senator Coburn and I welcome each of you today. We will be
joined, I think, by several other of our colleagues, including
Senator McCain, somewhere along the line. We are just
concluding a vote. And I checked on the floor before I came
over here and they told me we are likely to have some more
later this afternoon. One or two might be Coburn amendments.
You never know.
Senator Coburn. You can count on it.
Senator Carper. OK. I am going to give a brief opening
statement and call on Dr. Coburn to do that if he would like
and others, if they show up before we start, or I will ask for
our witnesses to begin.
Over the last couple of months, President Obama and those
who are privileged to serve here in the Congress have been
tasked with responding to any number of challenges that are not
likely to be solved overnight. Near the top of that list has
been the budget crisis that we find ourselves in.
On the day that President Bush took office, the Federal
Government enjoyed, as I recall--that was literally the day I
stepped down as governor and came over here--but we enjoyed
billion-dollar budget surpluses literally as far as the eye
could see, and we were on our way to pay down the national
debt. At the time, I think it was about $6 trillion.
It didn't work out that way, and since then, we have seen
the budget surpluses disappear, as we know, replaced by some of
the biggest budget deficits in our history, and the one we are
facing this year is even bigger than those.
In January, when President Bush left office, our Nation and
our new President were left to face the cost of two wars,
dealing with tax cuts that were previously adopted, an increase
of more than 50 percent in government spending to try to
revitalize our economy and jolt it back to life, and some $10.6
trillion in national debt, which is roughly twice the national
debt we had in January 2001.
Getting our budget deficit under control is not going to be
an easy task. It will require tough choices and discipline. It
will also require that we make certain to the greatest extent
possible that every dollar that we collect from taxpayers is
spent wisely and effectively. All too often, however, agencies
are failing to meet their responsibilities in this regard.
According to the most recent data from agency financial
statements, the Federal Government made more than $72 billion
in avoidable improper payments in 2008, up from about $42
billion in the previous year. Some of those improper payments
were overpayments. In fact, most of them were. Some were
underpayments. But improper payments occur when the Federal
funds go to the wrong recipient, when a recipient receives an
incorrect amount of funds, when funds are used in an improper
manner, or when documentation is not available to explain why a
payment was made in the first place.
So, in essence, agencies potentially took tens of billions
of dollars in taxpayers' money and may have ended up just
wasting it. Those dollars could have been spent to promote
energy independence or to invest in education or health care.
They could have even been given back to middle-class families,
andr small businesses through tax cuts. Instead, we can't be
certain that we got anything useful at all out of some of those
outlays or improper payments.
The major focus of this hearing today is fraud and abuse in
two areas-- Medicare and Medicaid. Strikingly, improper
payments in these two programs alone made up almost half of the
Federal Government's $72 billion total of improper payments.
Right now, Medicare and Medicaid account for about 5
percent of GDP. When you add in Social Security, these three
entitlement programs currently add up to about 9 percent of our
GDP. In about 40 years, I am told, Medicare, Medicaid, and
Social Security, if we don't do anything about it, may end up
accounting for some 19 percent of GDP, which is roughly what we
now currently spend to run the entire Federal Government.
As we look to reform our health care system this year,
reining in health care costs must be one of our top priorities.
And right now, the trajectory that we are on is unsustainable.
The United States spends more than $2 trillion on health
care every year. Conservative estimates assert that at least 3
percent is lost to fraud each year. Three percent of $2
trillion, if I have my math right here, is about $60 billion
per year. Other estimates are as high as 10 percent, which is
over $220 billion per year.
We look forward to hearing from our witnesses today on what
I hope will be an informative discussion on fraud and abuse in
Medicare and in Medicaid. We hope to hear from all of you about
what we are doing well to prevent fraud, waste, and abuse. We
want to hear from you about what we can do to improve. And we
want to hear from you about what Congress can do to help.
I would also note before closing that I intend in the
coming days to introduce legislation with a handful of our
colleagues, and I certainly hope Dr. Coburn is among those, but
legislation that I believe will help Medicare, Medicaid, and
programs throughout government to deal with improper payment
problems.
Our bill, the Improper Payments Elimination and Recovery
Act, would improve transparency so that government and the
public have a better sense of the scale of the problem agencies
are facing. It would also hold agencies accountable for their
progress in reducing and eventually eliminating improper
payments. And finally, our bill would significantly expand the
use of recovery auditing within the Federal Government.
Medicare, as many of us know--we have talked about it here
before--Medicare is in the process of setting up recovery
auditing programs in all 50 States. They have already tested
recovery auditing in three States. I am told they recovered
close to $700 million in just three States. We are encouraged
that they are now going to do that in the other 47 States. Who
knows, maybe if we can have great success in recoveries in
Medicare in 50 States, maybe we can do the same thing in
Medicaid.
We look forward to working with our witnesses and with the
rest of our colleagues on this Subcommittee. This is an issue
that is near and dear to the heart of Dr. Coburn and myself and
I am pleased to have been his partner when he sat in this seat
and I sat over there. I hope we can continue to be partners on
this and a bunch of other issues as we go forward.
Dr. Coburn.
OPENING STATEMENT OF SENATOR COBURN
Senator Coburn. Thank you, Senator Carper. I welcome all of
you.
Hard problem. One of the reasons it is a hard problem is
Medicare and Medicaid are designed, by their very design,
designed to be defrauded. The idea of post-payment review and
recovery audits are all sensible approaches, but one of the
things that we are not doing is payment reform because if we
had payment reform by the Congress, what we would see is a less
defraudable system.
The other thing we are not doing is putting enough people
in jail. If, in fact, you defraud the Federal Government,
consequently, there ought to be a harsh penalty for that, and
we have not gone to the length that there is a deterrent, even
under the terrible system that we have today, there is still no
deterrent. There are fines and penalties and paying back money,
but you all know how bad the problems are.
The other problem with recovery audits is they are really
pretty one-sided, so you could have done everything wrong and
examiners see that in a different light, and yet you have
limited options on that. What I am afraid is we are going to be
3 years behind on the recovery audits and we are going to be
taking money from people that may or may not deserve it.
So my goal would be today to get from this hearing is to
find out how bad the problem is. I think Senator Carper's
numbers are way under what the real world is on fraud, in
Medicare, for sure, and Medicaid, for sure. We know it is at
least three times the average of other Federal departments,
which is somewhere around 3 to 5 percent. How do we approach
that? Should we keep working on the details of auditing and
evaluating, or should we go for something bigger like payment
reform, where it is much more transparent, it is much more
clear whether somebody did or did not. We can't even get
contracting through the Congress on durable medical equipment
(DME) payments--competitive contracting, which is one of the
biggest areas of abuse.
So my hope is that we can hear your thoughts, how big you
think the problem really is, and what we do about it, and start
thinking out of the box a little bit. We know recovery audits
are going to be work, that they are expensive. They are painful
for both sides, and maybe we set up a system that doesn't
require that, or requires much less.
I have a statement I would like to be added to the record,
if I may.
And with that, I notice that the Ranking Member is here and
I will yield.
[The prepared statement of Senator Coburn follows:]
PREPARED STATEMENT OF SENATOR COBURN
As our Nation prepares for a historic debate over the direction of
health care policy, hearings on waste and fraud in Medicare and
Medicaid are vitally important. They provide an opportunity to improve
these enormous Federal programs and play a vital role in giving us a
glimpse under the hood of government-run health care. Unfortunately,
what we find is that we need a new mechanic.
If this seems like an exaggeration, look no further than the plans
being offered to expand health care coverage simply by enlarging
Medicare and Medicaid. Serious proposals coming out of the White House
and congress aim to use these programs as a jumping off point for
increasing the reach of Federal health insurance. Before this Nation
takes that giant step, it should have all of the facts.
Consider the fact that Medicare costs consumed 3.2 percent of the
entire U.S. GDP in 2007 to cover nearly 40 million older Americans. And
yet, even this is not enough to cover the program's costs--the Medicare
Trust Fund is projected to go bankrupt as soon as 2016. It is easy to
imagine that adding tens of millions of additional beneficiaries to the
Medicare program would only hasten the coming insolvency.
Making Medicare an even less attractive model for nationalized
health care is that the program is rife with fraud, waste, and abuse.
According to some estimates, the annual amount of fraudulent payments
made by Medicare approaches $60 billion. That is a staggering $500 per
year per family in this country. As one who treats patients in the
lowest income brackets, I know first-hand how valuable that amount of
money could be. By failing to eliminate waste and fraud, we are robbing
these same people of opportunity.
Since 1990, the Government Accountability Office (GAO) has
designated the Medicare program as high-risk because of its size,
complexity, and vulnerability to mismanagement and improper payments.
Last summer, the Permanent Subcommittee on Investigations conducted an
investigation and found that close to $100 million had been paid for
claims that used the identification numbers of physicians that had died
at least 2 years before the claims were filed.
In another example, a 2008 investigation by the inspector general
at the Department of Health and Human Services found that a woman
operating out of her townhome submitted more than $170 million worth of
fake claims to Medicare, of which more than $100 million was paid out.
While the sheer size of her scheme led to her downfall, there are
thousands of such cases every year on a smaller scale.
Sadly, this is not an isolated incident. Hundreds of millions of
dollars have been paid by Medicare to companies who submitted claims
for medical equipment they never provided, didn't exist at the
addresses listed, or providing supplies and equipment to patients who
didn't need them for any medical reason. These are just a few of the
identified problems with Medicare.
Turning to Medicaid, the outlook is even worse. The current cost of
the program is more than $333 billion annually. However, Medicaid's
costs are growing by 8 percent a year, a pace that will cause costs to
explode to more than $670 billion by 2017. That is a doubling of the
cost in only 8 years.
One of the most disturbing findings about the Medicare budget
according to HHS is that the improper payment rate is above 10
percent--triple the government-wide average. In New York the problem is
even worse, with improper payments reaching an estimated 40 percent of
the State program budget.
As a member of this Subcommittee, and as Ranking Member on the
Permanent Subcommittee on Investigations, I plan on taking an active
role in rooting out waste and fraud in these programs.
Unfortunately, until we put market discipline into the health care
system, waste and fraud will continue to be a reality in Medicare and
Medicaid. Our health care system is in dire need of a tune up. That's
why I am glad to tell you that in the very near future I will be
offering a comprehensive health care reform bill which saves us
billions of dollars, harnesses market forces, and puts patients first.
I appreciate the witnesses who have joined us today, and look
forward to their testimony.
Senator Carper. Welcome, Senator McCain. Thanks, Dr.
Coburn.
OPENING STATEMENT OF SENATOR MCCAIN
Senator McCain. Thank you very much, Mr. Chairman. I want
to apologize for being a few minutes late. In this very heavy
tourist season, it is hard to get on an elevator nowadays.
Senator Coburn. Especially when you are known.
Senator McCain. I am glad all of our constituents are here
representing their various interests.
I would just like to follow up a bit on Dr. Coburn's
comments.
Our information is that in fiscal year 2008, there was $19
billion in improper payments from the Medicaid program and $17
billion from Medicare--I would just be interested if the
witnesses are in agreement with that. We get that, I think,
from the Office of Management and Budget. Last year, nearly
500,000 payments estimated somewhere between $76 million and
$92 million were made to durable medical equipment supplies, or
DMEs as the insiders say, that submitted claims using
identification numbers of doctors who had been dead.
Most Americans, and I will ask that my prepared statement
be made part of the record--think that we understand cost
overruns. We understand why something might end up costing more
to treat a patient that has unforseen complications, a staph
infection, something like that. I don't think Americans are
aware of the outright fraud that exists, and so waste is
important, but shouldn't we place the highest priority on the
fraudulent practices that have already been uncovered by you
all as witnesses?
So I want to thank you, Mr. Chairman. Some of these
numbers, when we get into it, some of these cases are really
astonishing. So I think this hearing is important and I want to
thank the witnesses for being here today and for all of their
hard work. I know it is not easy.
Thank you, Mr. Chairman.
[The prepared statement of Senator McCain follows:]
PREPARED STATEMENT OF SENATOR MCCAIN
Senator Carper, thank you for holding this hearing today. With
Medicare costs rising to $454 billion in fiscal year 2008 and Medicaid
expenditures topping $352 billion, it is important for us to continue
to exercise robust oversight of these programs.
For the past 20 years, the government Accountability Office has
placed the Medicare program on its ``high risk'' list. the Medicaid
program has been on the ``high risk'' list since 2003. Things appear to
be getting worse, not better. Just a few months ago, the Office of
Management and Budget reported that, in fiscal year 2008, nearly $19
billion in improper payments were made from the Medicaid program and
over $17 billion from Medicare. That is astounding, especially when you
consider that roughly 50 percent of the government's total reported
improper payments in 2008 came from these two programs alone.
The problem is not simply one of waste, but also of fraud. Last
summer, the Permanent Subcommittee on Investigations reported that over
an 8-year period, nearly 500,000 payments, estimated somewhere between
$76 million and $92 million, were made to durable medical equipment
suppliers that submitted claims using the identification numbers of
doctors who had been dead for years. This is only one small segment of
the Medicare and Medicaid universe; one can only imagine how much more
fraud is out there that remains undiscovered.
America is enduring a monumental economic crisis, with soaring
deficits from bailouts de jour and escalating government misspending.
We cannot afford to squander billions of taxpayer dollars on
administrative errors and deceitful practices in the Medicare and
Medicaid programs. And, if this Congress is going to embark on major
health care reform, we need to fully understand the complexities and
weaknesses of the Medicare and Medicaid programs.
In closing, I want to thank the witnesses for their participation.
I know they work hard in eliminating waste and fraud in Medicare and
Medicaid, and I look forward to hearing their testimony.
Thank you again, Mr. Chairman.
Senator Carper. Senator McCain, thank you so much for being
with us and for being a part of this.
Before I recognize and introduce our first witness, I would
simply say I think one of the better initiatives that came out
of the George W. Bush Administration was the idea of the
Improper Payments Information Act so that we would actually
call on agencies to identify their improper payments or
overpayments and their underpayments, and over time in this
decade, more and more agencies have begun to do that so we have
some idea how big the problem is.
A couple of pieces of the puzzle are still to be filled in.
I think Medicare Part D, the prescription drug program is not
covered yet under improper payments. And I think a good deal of
the Homeland Security Department does not report yet. Those
need to be done.
So the idea of having an improper payments law that the
agencies actually comply with that is all well and good. And
the fact that more and more of them are complying with the law,
that is good. But now that we find out how big the problem is
or have some idea how big the problem is, the key is to go out
and get the money, as much of it back as we can. Where people
have defrauded the government, the taxpayers, there has to be a
price to pay for that, not just paying back the money, but a
greater price than that.
We have been working on this for a while. We are going to
continue to work on it. And given the kind of budget deficits
we face, we need to work even harder.
Let me introduce our first witness, Kay Daly. You look so
familiar. Have we seen you before? Tell our Senators, how do we
know you?
Ms. Daly. I was very fortunate to have been detailed to the
Subcommittee staff when I worked at GAO, and still do work at
GAO.
Senator McCain. You are probably glad we made so little
progress. [Laughter.]
Senator Carper. No, she was a keeper, but she went back and
got a big promotion and we are happy and proud of you. She
joined GAO in 1989 and has participated in a number of key
oversight efforts there, including the response to Hurricane
Katrina and work related to fraud and abuse in health care
programs at the Department of Health and Human Services. Kay
Daly is a Certified Public Accountant and a Certified
Government Financial Manager with a degree in business
administration from Old Dominion University. She has graduated
from the Senior Executive Fellows program at Harvard
University's Kennedy School of Government. Welcome. Nice to see
you again, Ms. Daly.
Deborah Taylor is the Acting Chief Financial Officer and
Acting Director of the Office of Financial Management at the
Center for Medicare and Medicaid Services. It's actually known
as CMS. Before assuming these positions, Ms. Taylor served for
5 years as Deputy Director at the Office of Financial
Management. She has also served as the Deputy CFO and Director
of the Accounting Management Group at CMS. Before joining CMS,
she was the Assistant Director for Health and Human Services
audits at GAO. She is a Certified Public Accountant, as well,
and has a degree in accounting from George Mason University.
Welcome. Thanks, Ms. Taylor.
Lewis Morris, Chief Counsel of the Department of Health and
Human Services, Office of Inspector General, where he has
worked for 25 years in a number of roles. He has also served as
Special Assistant U.S. Attorney for the Middle District of
Florida, the Eastern District of Pennsylvania, and the District
of Columbia. He serves on the Board of Directors of the
American Health Lawyers Association.
Finally, James Sheehan joins us from New York, where he
works as his State's Medicaid Inspector General. Before taking
on that role in April 2007, he was the Associate U.S. Attorney
for Civil Programs at the Eastern District of Pennsylvania in
Philadelphia. He tells me he knows Joe Biden's oldest son,
actually worked with him there when Beau was in the U.S.
Attorney's office. Mr. Sheehan had worked in the U.S.
Attorney's Office in Philadelphia, I think since 1980. He
focused on health care fraud during his career there and he has
supervised more than 500 fraud cases. He has degrees from
Swarthmore College and Harvard Law School.
For my youngest son, one of the schools we visited was
Swarthmore. He is now a freshman down at William and Mary. But
when we went to Swarthmore and visited that campus, they said
to my son then, ``Here at Swarthmore, we have a saying. If you
can't get into Swarthmore, try Harvard.'' And you are one of
those people who not only got into Swarthmore, but also tried
Harvard. That is a pretty good combination.
Ms. Daly, you are up first. Welcome. Your whole statement
will be part of the record and you can summarize as you see
fit. Try to keep it within 5 minutes, if you would. Thanks.
TESTIMONY OF KAY L. DALY,\1\ DIRECTOR, FINANCIAL MANAGEMENT AND
ASSURANCE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE
Ms. Daly. Thank you very much for the opportunity to be
here today to discuss the government-wide problem of improper
payments in Federal programs. I want to also talk about
agencies' efforts to address the key requirements of the
Improper Payments Information Act of 2002, which is commonly
referred to as IPIA.
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\1\ The prepared statement of Ms. Daly appears in the Appendix on
page 35.
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For fiscal year 2008, 22 agencies reported improper payment
estimates for 78 programs that totaled about $72 billion. This
is an increase from the fiscal year 2007 estimate, primarily
due to a $12 billion increase in the Medicaid program's
estimate and to newly-reported programs with improper payment
estimates totaling about $10 billion.
Although overall improper payments rose by about $23
billion, we view this as a positive step because it indicates
that agencies have increased their efforts to identify and
report on improper payments, and that will ultimately improve
the transparency over the full magnitude of improper payments.
Given the increase in funding from any of these programs under
the Improper Payments Elimination and Recovery Act, I think
establishing the effective accountability measures is going to
be critical for many of these programs, too.
Now, many agencies did report last year that they had made
progress to reduce improper payments in their programs since
the initial IPIA implementation in 2004. For agencies that have
reported for every year from 2004 to 2008, they reported they
had reduced their error rates in 24 programs. Thirty-five
programs reported reduced error rates in 2008 compared to their
2007 estimates. And while this can be viewed as a positive
sign, and it is promising, there are some major challenges
remaining with those programs.
For example, we found that the $72 billion improper payment
estimate did not reflect the full scope of improper payments
across all agencies, just as the Senator pointed out. There
were 10 programs that were identified as susceptible to
improper payments with outlays of over $60 billion that did not
report an estimate.
We further found that IPIA noncompliance issues continue to
exist at several agencies. Specifically, independent auditors
for four agencies reported IPIA noncompliance issues related to
areas such as their risk assessments, testing of payment
transactions, and development of corrective action plans to
reduce those improper payments. And we also found that agencies
are facing challenges in implementing internal controls to
identify improper payments, but more importantly, to safeguard
against them. That is what, I think, the Act is ultimately
getting at. Over half of the agency Inspector Generals had
identified management or performance challenges, including
internal control deficiencies that could increase the risk of
improper payments.
Now, the focus of the hearing today is on Medicare and
Medicaid programs. Both of those programs have been on GAO's
High-Risk List because they are highly susceptible to fraud,
waste, and abuse. CMS, the agency responsible for administering
and overseeing them, was only able to provide improper payment
estimates for the Medicare fee-for-service program, Medicare
Advantage, and the Medicaid programs. Those three estimates, as
Senator Carper pointed out, are roughly about 50 percent of
that $72 billion in improper payments. CMS did not provide an
estimate for the Medicare Prescription Drug Benefit program
that had outlays of over $46 billion.
I also want to point out that Medicaid was at the top of
the list of all Federal programs when it comes to the size of
their improper payment estimates. That is particularly alarming
because additional funds are going to this program under the
Recovery Act.
So in closing, I think it is important that we recognize
that measuring improper payments and taking actions to reduce
them aren't simple tasks. The ultimate success of the
government-wide effort to reduce them will hinge on every
Federal agency's diligence and commitment to identifying,
estimating, determining the causes of, and taking corrective
actions to reduce improper payments.
So this concludes my statement, Mr. Chairman, and I would
like to thank you and the other Members of the Subcommittee for
your continuing commitment to addressing this problem. I think
it will take such a sustained commitment for there to be real
progress in this area and we, at GAO, stand ready to help you
in any way we can.
Senator Carper. Great. Thank you so much. Ms. Taylor, you
are recognized.
TESTIMONY OF DEBORAH TAYLOR,\1\ ACTING DIRECTOR AND CHIEF
FINANCIAL OFFICER, OFFICE OF FINANCIAL MANAGEMENT, CENTERS FOR
MEDICARE AND MEDICAID SERVICES, U.S. DEPARTMENT OF HEALTH AND
HUMAN SERVICES
Ms. Taylor. Thank you. Good afternoon, Chairman Carper,
Senator McCain, and Senator Coburn. I am honored to be here
today to discuss with you CMS's efforts to measure and reduce
improper payments in the Medicare, Medicaid, and the Children's
Health Insurance Program (CHIP) programs, as well as discuss
some of our efforts to oversee these programs and combat fraud.
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\1\ The prepared statement of Ms. Taylor appears in the Appendix on
page 58.
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On the measurement front, much has been accomplished since
the last time CMS appeared before this Subcommittee. For
Medicare last year, we reported an error rate of 3.6 percent, a
significant decrease from the 4.4 percent reported in 2006, and
a reduction of greater than 50 percent from the 10 percent rate
reported in 2004. This is a cumulative savings to the Medicare
and taxpayers of over $10 billion.
For the first time ever, in fiscal year 2008, CMS issued a
partial error rate for the Medicare Advantage program. That
error rate, unfortunately, was 10.6 percent, and although that
rate is high, we had a similar experience in the first years of
the Medicare program. We are hopeful that we can also
significantly reduce this rate by working with the plans to
improve their ability to respond to audits and submit the
required documentation.
CMS also issued the first complete error rate for the
Medicaid and CHIP programs in fiscal year 2007. The rates for
the Medicaid program included for the first time managed care
and eligibility determinations. The Medicaid rate, again, was
10.5 percent and the CHIP rate was 14.7 percent. We are working
with States currently to develop State-specific corrective
action plans, which we hope will address the root causes of
these errors and should ultimately be able to reduce the
overall error rate in these programs.
Another important tool that CMS has is in the process of
expanding the Recovery Act program, and thanks to the passage
of the Tax Relief in Health Care Act of 2006, which mandates
the use of recovery audit contractors in all States by 2010,
CMS awarded contracts to four recovery auditors for the
national program. The Recovery Act during the 3-year
demonstration returned over $990 million in gross overpayments
to the Medicare Trust Fund.
Senator Carper. Would you say that number again, that last
sentence.
Ms. Taylor. Sure.
Senator Carper. The full sentence, please.
Ms. Taylor. Sure. The Recovery Act during the 3-year
demonstration that we had on the Recovery Act program, we were
able to return $990 million in overpayments.
Senator Carper. Good. Thank you.
Ms. Taylor. We are currently doing a phased-in approach of
the Recovery Act program. Phase one began in February of this
year in 24 States and phase two will begin in February for the
remaining 26 States. We are currently working closely with
national and State health care associations to ensure that
providers have a complete understanding of the national
expansion.
And last, CMS has focused significant efforts over the past
2 years to strengthen oversight of one of the most vulnerable
programs, the durable medical equipment benefit. The majority
of the fraud which occurs in that benefit is perpetrated by
unscrupulous providers and suppliers who have been able to
obtain Medicare enrollment numbers and take advantage of the
program vulnerabilities, thereby costing the program billions
each year.
Specifically, CMS is implementing more front-end safeguards
to ensure that fraudulent suppliers of DME cannot participate
in the Medicare program. We are using a three-pronged approach
in this area. The first is accreditation standards. Second is
surety bond efforts, which will begin October 1 of this year.
And we are currently phasing in competitive bidding. All of
these efforts are designed to keep unscrupulous suppliers from
participating in and billing the Medicare program.
We continue to set standards for measuring and reducing--
recovering improper payments in Medicare, Medicaid, and CHIP
programs. And while we are proud of our efforts, we recognize
there is still room for improvement. Increased funding to
reduce fraud and abuse in these critical programs is a priority
and we look forward to your continued support in this area. We
are committed to thoroughly analyzing the results of all our
efforts to further reduce improper payments in these programs
and assure that this funding is focused towards the most
productive activities. We look forward to continuing to work
cooperatively with you on this effort and I will take any
questions.
Senator Carper. Thank you, Ms. Taylor. Mr. Morris, you are
recognized.
TESTIMONY OF LEWIS MORRIS,\1\ CHIEF COUNSEL, OFFICE OF
INSPECTOR GENERAL, U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES
Mr. Morris. On behalf of the Office of Inspector General,
thank you for the opportunity to discuss the OIG's health care
anti-fraud strategy and suggest measures that may help
strengthen the integrity of the Federal health care programs.
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\1\ The prepared statement of Mr. Morris appears in the Appendix on
page 78.
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The United States spends more than $2 trillion on health
care every year. The National Health Care Anti-Fraud
Association estimates that of that amount, at least 3 percent,
or more than $60 billion each year, is lost to fraud. Improper
payments for unallowable, miscoded, or undocumented services,
and excessive payment rates for certain items and services also
wastes scarce Medicare and Medicaid resources. For Medicare and
Medicaid to serve the needs of the beneficiaries and remain
solvent for future generations, the government must pursue a
comprehensive strategy to combat waste, fraud, and abuse.
Based on OIG's investigations as well as our audits and
evaluations of the Medicare and Medicaid programs, we believe
an effective health care integrity strategy must embrace five
principles. These principles are equally applicable to our
oversight, CMS's program integrity efforts, and Congress's
legislative agenda. Let me go through those five principles.
First, we must scrutinize those who want to participate as
providers and suppliers prior to their enrollment in the
Federal health care programs. A lack of effective enrollment
screening gives dishonest and unethical individuals access to a
system they can easily exploit. As my written testimony
describes in more detail, criminals too easily enroll in
Medicare and steal millions before detection. We advocate
strengthening enrollment standards and making participation in
the Federal health care programs a privilege, not a right.
Senator Carper. A question. You said criminals enroll in
Medicare. As providers, or as participants receiving care?
Mr. Morris. As providers and suppliers.
Senator Carper. All right. Thank you.
Mr. Morris. I would also add that, regrettably,
beneficiaries are now becoming involved in some of these fraud
schemes, but largely we are concerned about screening at the
enrollment stage of providers and suppliers.
The second principle we believe is important to consider is
establishing payment methodologies that are reasonable and
responsive to changes in the marketplace. OIG has conducted
extensive reviews of payment and pricing methodologies and has
determined that the payments pay too much for certain items and
services. When pricing policies are not aligned with the
marketplace, the programs and their beneficiaries bear
additional costs. In addition to wasting health care dollars,
these excessive payments are a lucrative target for the
unethical and the dishonest. These criminals also can reinvest
some of their profits in kickbacks, thus using the fraud funds
to perpetrate the fraud scheme.
Medicare and Medicaid reimbursement systems should be
designed to ensure that payments are reasonable and responsive
to the market. Although CMS has the authority to make certain
adjustments to fee schedules and other payment methodologies,
some changes require Congressional action.
Third, we need to assist health care providers to adopt
practices that promote compliance with program requirements.
Health care providers can be our partners in fighting fraud by
adopting measures that promote compliance with program
requirements. Although compliance programs alone will not solve
the problem, they are an important component of a comprehensive
strategy to combat waste, fraud, and abuse in the health care
system.
The importance of health care compliance programs is well
recognized. Based on a recent survey by the Health Care
Compliance Association, over 90 percent of hospital systems add
integrated compliance measures into their systems. New York
requires providers and suppliers to implement an effective
compliance program as defined by the OIG as a condition of
participation in its Medicaid program. Accordingly, we
recommend that providers and suppliers should be required to
adopt compliance programs as a condition of participating in
the Medicare and Medicaid programs.
Fourth, we believe we must vigilantly monitor the programs
for evidence of fraud, waste, and abuse. The Federal health
care programs contain an enormous amount of data related to the
delivery of health care services. Unfortunately, they often
fail to use these claim processing edits and other information
and technology to identify improper claims. To state the
obvious, Medicare should not pay an HIV clinic for infusion
when the beneficiary has not been diagnosed with that illness,
or paid twice for the same service, or process a claim that
relies on the identification number of a deceased physician.
In addition to improving program data systems, it is
critical that law enforcement have real-time access to all
relevant data. Currently, we receive data weeks or months after
claims have been filed, making it more difficult to detect and
thwart new scams.
We also recommend the consolidation and expansion of
various adverse action databases. Providing centralized,
comprehensive databases of sanctions taken against individuals
and entities would strengthen program integrity.
Fifth, we need to respond swiftly to detected fraud, impose
sufficient punishment to deter others, and promptly remedy
program vulnerabilities. Health care fraud attracts criminals
because the penalties are lower than other organized crime-
related offenses, there are low barriers to entity, schemes are
easily replicated, and there is a perception of a low risk of
detection. We need to alter the criminals' cost-benefit
analysis by increasing the risk of swift detection and the
certainty of punishment.
As part of this strategy, law enforcement must accelerate
the response to fraud schemes. Although resource-intensive, the
Anti-Fraud Strike Force is a powerful tool and represents a
tremendous return on the investment. As my written testimony
describes in more detail, the HHS-DOJ strike force in South
Florida has proven highly effective in attacking DME and
infusion fraud and stopping the hemorrhaging of program
dollars.
In conclusion, the OIG and its law enforcement partners
have a comprehensive strategy to combat waste, fraud, and abuse
in the Federal health care programs. However, sophisticated
fraud schemes increasingly rely on falsified records, elaborate
business structures, and the participation of doctors and
patients to create the false impression that government is
paying for legitimate health care services. Applying the
principles described above can help protect the integrity of
the programs and keep them solvent for future generations.
Thank you.
Senator Carper. Thank you for that excellent testimony.
Mr. Sheehan, we are anxious to hear about what you have
done in New York. I am very encouraged. Sometimes Senator
Coburn and I like to bring agencies before this Subcommittee
that have done a very good job to hold them up as an example.
Other times, we bring them before us because they need to do a
much better job. I think in your case in New York, what has
happened under your leadership could be an example for the rest
of us, so we are happy to hear about it and anxious to hear
what you have done.
TESTIMONY OF JAMES G. SHEEHAN,\1\ MEDICAID INSPECTOR GENERAL,
NEW YORK STATE OFFICE OF THE MEDICAID INSPECTOR GENERAL
Mr. Sheehan. Chairman Carper, thank you very much, Senator
Coburn. We, the Medicaid Inspector General's Office of New
York, really appreciate the opportunity to be the only State
representative at the table today.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Sheehan appears in the Appendix
on page 87.
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Senator Coburn. You are the biggest State.
Mr. Sheehan. One-sixth of the national program, and we
recognize that. If you look at our anti-fraud effort in New
York, we have 600 people actually working on anti-fraud efforts
in New York State, which is the second biggest agency of that
type in the country.
In the last fiscal year, identified recoveries of over $550
million in the New York State, and also from the Medicaid
program. I tell people I owe my job to the New York Times
because the New York Times and Senator Grassley paid a lot of
attention to New York back in 2005 and 2006, and as a result,
the agency that I am the head of was created and the governor
invited me to come up and run it.
I want to talk a little bit about different things than
some of my colleagues at the table today. The issues that we
face in health care are--especially in health care fraud are
complex and I want to talk a little bit about the kinds of
cases that we are seeing come up. And we talk about improper
payments and we talk about fraud, and there is obviously a
continuum, but in a lot of these cases, although it is clear
the payment is improper, the question is how do you allocate
individual responsibility, which is what the enforcement
mechanism is all about.
So, for example, we have a laboratory company which bills
the program for an unreliable test which causes patients to get
unnecessary surgery. We have pharmacies which home deliver
prescriptions to patients who died weeks or months before. We
have nursing home owners that bill the Medicaid program for
their Lexus or their Mercedes on the theory that occasionally
they drive patients to the hospital in the car. We have managed
care plans in New York State that billed Medicaid for prenatal
services for males. And here in the New York Post, there is one
of those that did happen, but in general, even in New York, it
is not a major event. We also have providers who we send out a
letter saying, ``Pay us back.'' They credit a refund. Then 6
months later, they send us a bill for another--for the same
claim for the same service.
And all these things reflect the issue of identifying
responsibility in large organizations and making them take
responsibility, and I have worked on a lot of these cases and
they follow a predictable course. They are investigated for a
number of years. They eventually result in either a criminal
declination or an indictment which has a relatively limited
effect on the provider. There is a large amount of money in
civil settlements. By the time the settlement occurs, the
individuals who were in charge of the company at the time the
bad stuff happened have moved on to other enterprises. They are
not there anymore.
The government issues a press release stating, ``Providers
that attempt to defraud Federal insurance programs will be held
accountable to the full extent of the law.'' The defendant
issues a press release announcing, ``This settlement resolves a
5-year-old government investigation and puts it behind us.''
The stock goes up.
I know this happens because I worked on a number of these
cases in my career. It is not a reflection of anybody that does
the work to say this is how it works.
We, in New York, think there is a better way to address
these issues. We need to move from a system which encourages
some providers to look for excuses to a system which requires
and supports having effective and appropriate billing and
compliance systems in place. Too often, law enforcement
agencies describe their work as combatting fraud. I think we
have to look and say, how are we going to get providers to do
what they know they need to do?
So like Mr. Morris, I have a five-point plan, which even
though we didn't collaborate in advance is remarkably close.
The first one is requiring and supporting effective
compliance programs and professional compliance officers. New
York, by law, requires it, as Mr. Morris said. The Medicare
program suggests model compliance programs. We want the health
care providers to identify and resolve issues themselves, and
the best of them already do that, so we want to spread that to
the rest.
Second, we want to hold the senior executives and board
members in large organizations accountable for failing to have
systems that prevent improper billing. So it is not the issue
of, did you order this improper billing, because most of them
don't do that. The issue is, do you have a system in place that
is reasonably designed to detect and prevent improper payments,
all right, so that is--and the Inspector General's Office has
done a great job of articulating standards and making
suggestions and getting consensus statements and we think that
is a great idea.
Third, we think it is important to elevate support and use
the administrative tools and payment suspension, prepayment
review, audits, sanctions, individual entity exclusion when
improper payments are discovered. All too often, these remedies
are postponed while other things go on, but the key to us is
not just the severity of the sanctions. It is making sure the
response is prompt and it addresses the money that is going out
the door.
Fourth, recognizing the most effective deterrence requires
regulator communication to and persuasion of those whose
behavior we want to influence, and most health care providers
are risk averse. You don't go to medical school for 20 years of
education to do something you know is going to get you in
trouble. There are a few that do, but CMS has historically
advised individual providers of their rankings on issues of
concern. Frequent and predictable interventions, we think are
more effective than occasional severe sanctions.
And fifth, develop and communicate consistent measures of
effectiveness of program integrity, which capture cost
avoidance and reduction as well as recoveries and minimize the
cost imposed by reviews and investigations. You are much more
likely to get cooperation if people know what the rule is on
the front end and know that there is going to be a follow-up
than if they have had it for 3 years--I guess Senator Coburn is
used to that--and then say, give it back to us.
So that is our five-point program. We really appreciate the
opportunity to speak to the Subcommittee today.
Senator Carper. Thank you very much for that testimony.
We have been joined by Senator McCaskill. Before we get
into questions, would you have a short statement you would like
to give, and then we will get right into the questions.
Senator McCaskill. I will wait for questions.
Senator Carper. All right. Fair enough. We are delighted
that you are here.
In the time that I spent in my last job as governor, we
were active in the National Governors Association trying to
learn from one another. In fact, we actually created a
clearinghouse of best practices. It sounds to me like maybe
what you have created in New York is a best practice that other
States might emulate. Is that going on?
Mr. Sheehan. What, is the best practice----
Senator Carper. Yes. And is what you are doing in New York
regarded as a best practice among States?
Mr. Sheehan. I would like to think that some of the things
we are doing in New York are regarded as best practice. CMS has
actually done a very good job with the money they have been
given over the last 3 years, creating a Medicaid Integrity
Institute, bringing us together in program integrity across the
country, training, sharing ideas, regular conference calls, all
those things that the National Governors Association has done,
as well.
One of the things that has happened in the last 3 years
that I think is really good is the process of communication
internally so that people know what works in other States, and
we have been trying to do our share of that.
Senator Carper. When you think about what could a State
like Delaware or Oklahoma learn from what you are doing? And
then my next follow-up is going to be, and what can we, the
Federal Government, learn from what you are doing? I used to
say as governor, whatever problem or issue we are dealing with
in Delaware, some other State had already dealt with it and
successfully, and our challenge was to find them and figure out
how we could replicate that in our State.
Mr. Sheehan. We are very fortunate in New York in having a
really robust data system which allows us to do very effective
data mining, and it is tough to build that if you don't have
both a lot of claims and a lot of resources to support it.
But one of the things we have done in New York that other
States are starting to pick up on, every year, we issue a
comprehensive workplan, an idea we stole from the Federal
Inspector General's Office, that identifies for each kind of
provider, these are the issues we are going to focus on. These
are the issues your compliance function ought to pay special
attention to this year. Our first one was last year. Other
States have started to pick up on it and use it as a basis for
their plans. Our next one comes out, I think at the end of this
week. And again, it is a matter of communicating to people,
this is what we think is important. Please pay attention. And
then you have given people fair notice.
And what is impressive to me is people do conform their
behavior to the message that they receive. So that is a major
one, and then there are some other cost control and reporting
mechanisms that we have developed that I think other States
have picked up.
And on the Federal side, Mr. Morris talked about the issue
of access to data on a real-time basis and I cannot tell you
how important that is in our effort. One of the things that I
love about the staff that I have in New York, I will get e-
mails at 10 o'clock on a Saturday night. They so much enjoy the
work of data analysis and data mining, and they have access to
it for purposes of their work, that they will be working on
weekends and come in with great ideas and sharing them with
other people. It is impressive to watch.
Remember, I talked about the billing for pregnancy care for
males. That was discovered by a nurse who was one of our data
miners. She went to the computer and was talking at lunch. She
said, there are certain things we know don't happen, so let us
test our computer system and see if it is really working the
way we think it is. And so she went in and she put males,
prenatal care, and what you should see is, ``no information
found.'' What she found is 300 claims. And so she went through
and said, OK, 120 of these sound like female names, probably a
data entry error. But even after she was finished, there were
over 100 male persons who had, according to the billing system,
received payment for prenatal care. That is the kind of thing,
not only do you need the systems and the real-time access to
data, you need people to get excited about working on it, and I
think law enforcement would benefit from that kind of tool.
Senator Carper. All right. Thank you.
Senator Coburn and I worked on changes to the Improper
Payments Act. I think we are going to reintroduce some
legislation in the next couple of weeks that will seek to
improve on what we have done before, better ensure that
agencies are actually complying with the law, try to make sure
that we go after money that has been misspent, improperly
spent, and sometimes spent wastefully, and not just to go after
it but recover, to actually provide an incentive for agencies
to go out and recover this money, maybe even by allowing them
to keep a portion of it themselves to help pay for, among other
things, their investigative work and to help actually use a
little bit of it for their programmatic expenses, too. So that
actually incentivizes them to want to get in the game.
But let me just ask you, if you are in our shoes and you
are trying to fashion legislation to further improve, to
strengthen the improper payments law, any of you, I don't care
who wants to go first, but just talk to us about some things
that we definitely should include in the legislation.
Mr. Morris. If I could offer one thought, and this relates
to the Recovery Audit Contractors as well as the unintended
consequence of incentives. From the perspective of law
enforcement, we always want to be very mindful not to have it
appear that we are operating on a bounty system. We all have
the belief that the parking ticket we got at the end of the
month was because someone was trying to make their quota. If we
are going to preserve the integrity of the law enforcement
effort so the citizenry believes we go after a bad guy because
they are bad, not because we have a quota, I think we always
have to be mindful of those incentives.
I would tell you that--and we are working with CMS
constructively on this issue--we have had concerns that the
Recovery Audit Contractors have a powerful incentive to
identify issues as overpayments because they recover and retain
a portion of those funds more readily than when reported as a
fraud. If they are identified as frauds, that matter is then
referred to law enforcement and it could be some time before
they would see, if any, recovery from their audit work.
Based on the pilot project, I believe it is the case that
we received no referrals based on the Recovery Audit
Contractor's work. I must tell you, although I have no
empirical evidence, it strikes me as implausible that based on
all of those millions of dollars recovered, not any of them
triggered fraud.
Senator Carper. You said none of them were attributable to
fraud? Is that what----
Mr. Morris. None of them were referred to us to develop as
fraud matters. They were all resolved, I believe, as
overpayments. And Ms. Taylor, you could probably speak more
specifically to that.
Ms. Taylor. Right. Mr. Morris is correct. I don't believe
we had any cases that were referred to law enforcement for
fraud types of activities. The recovery audit program really
was focused initially in what I would call payment kinds of
issues, where either it was the setting of the service was not
appropriate or it was more or less looking at issues related to
perhaps too much of one thing being prescribed for an
individual. So it wasn't necessarily fraud, but it was things
where it did look like an improper payment was being done, but
we certainly are willing to work with the IG in the future to
ensure that if our recovery auditors have any evidence that
this might be fraudulent, that we do refer it over to them.
Senator Coburn. The problem is, being a provider, they know
how to skirt the individual definition of fraud. But we don't
come back and look at repetitive skirting of that, which is
fraud. And when you have a system on recovery audits that
doesn't look at that, you are not going to find it. And I will
guarantee you find the same guys, same gals doing exactly the
same thing--they are upcoding one or they are doing this and it
is fraud. It is intended fraud. But they know, if you look at
the record on that one, you really can't go after them for
fraud, just overpayment. So looking at the pattern of behavior
rather than the actual behavior becomes important to the fraud
definition.
Senator Carper. Let me just yield to Dr. Coburn and then we
will bounce it over to Senator McCaskill. You are recognized,
so please proceed.
Senator Coburn. Thank you, Mr. Chairman.
I have some questions that I have prepared that I would
like to enter into the record and have you all answer them
through writing.
Senator Carper. Without objection.
Senator Coburn. I want to spend my time, if I can,
especially with Mr. Sheehan, but I would like all of you to
answer this. If we were to start over, and the predicate for my
question is when I go and talk to the insurance companies in
this country, their improper payment rate and their fraud rate
is about 0.4 of 1 percent and we are sitting at 25 times that.
So there has got to be something with our system, either the
way we have designed it or the way we manage it that makes it
completely different than everybody else that is paying medical
bills.
So what would you change? If you could tomorrow tell us,
start over, what would we give you that would lessen the
ability for you to have to have your job? How would you
describe it? I wouldn't want to take your job away from you,
but it is a serious question. I am convinced, if everybody
works as hard as they can and everybody has the same goal, that
we are going to get down to 3 or 4 percent of a trillion--well,
it is $2.4 trillion, of which 61 percent now is Federal
Government. That is a ton of money. So how do we change? How do
we think out of the box to get to where we are not chasing our
tail?
Mr. Sheehan. I think one of the advantages that private
companies have over the government, whether it is Federal or
State, is they can pick their contract partners. They can use
their ability to evaluate the prior performance and the bona
fides and the background to see if this is someone they want in
their organization or network. And for a variety of reasons,
that is much harder for a public entity to do.
But I think the issue of who do you let in and who do you
let stay in the program is really important, and that is one
area where CMS is focused on, the Federal Inspector General is
focused on, and we are focusing on. We let people in because
they have a license or a degree or a business----
Senator Coburn. Well, they have to apply. They have to get
Medicaid certified or Medicare certified.
Mr. Sheehan. That is right.
Senator Coburn. They have to get a number.
Mr. Sheehan. In New York, for example, we go out and
inspect every single new DME provider. We inspect every new
transportation provider. We inspect every new pharmacy in the
southern part of the State, which is New York City. Expensive
and time consuming. We think it has a big effect in reducing
bad claims on the front end.
And the second piece of that is, who do you let stay in? Do
you re-review that provider? Because it may be a pharmacy that
is Mr. Morris's pharmacy today. It is somebody else's pharmacy
tomorrow, but his name is still on the paper because no one has
ever looked at it. So we think you need to have a robust
enrollment process that does a look-back further down the road
to make sure we know who these people are.
And just as you have credentialing activities within
hospitals, one of the concerns that we have in New York State
is we exclude lots of people from the Medicaid program. What
happens to them next? And the assumption, well, they all went
to Texas or Florida, right. There is some merit to that, but I
suspect there are quite a few that are still working here.
Senator Coburn. They renamed themselves.
Mr. Sheehan. Exactly. So the idea of identifying the bad
players and also focusing on the front end of who you let in is
really----
Senator Coburn. Why do they rename themselves? Because it
is a honey pot easy to take the honey out of. That is where I
am trying to go with this. How do we change the system in terms
of payment reform so it is not a honey pot?
Mr. Sheehan. The difficulty, I think, and I have looked at
a number of systems around the world for this. The Germans for
a long time had a pot of money and they said, we will base
payment on the number of services you provide. So what happened
is the number of services went way up and they brought the
patients back 20 times for backaches and headaches.
In Quebec, they cut off the payments, that when you reach a
certain peak, whether it is in November or August, they don't
pay anymore. So what people do is bill the system through
August and then they leave Quebec as the winter is coming and
then return in January.
And managed care, we felt, would--in fact, those two--the
problem is, every payment system which tries to be fair, that
is to recognize the effort and input of the providers, also can
be gamed as long as we have human beings playing with it. I do
think that the entry and control process is a significant part
of it, and the essence of third-party payment is that you are
going to have situations where for Medicaid we can't really
charge people because they don't have any money. And so the
question is, where do they fit in that picture?
Senator Coburn. OK. Mr. Morris.
Mr. Morris. If I could supplement that, I absolutely agree
that keeping the bad guys out and then throwing them out for
good is critically important. This is why ideas like databases,
adverse action databases are so important so that it is easier
to obtain Medicaid, Medicare, and provider information. In
addition, shouldn't a nursing home be able to know what the
track record is of someone who is about to be giving direct
care to a senior citizen? That is all part of it.
But I think even more critical is being able to adjust
payment systems as we discover that they are being abused. To
follow on Mr. Sheehan's point, whatever payment system you set
in play, there will be opportunities to exploit it. Fee-for-
service, overutilized. Capitated payment, underutilized. What
you need is to be able to use data and market surveys and other
resources to affirmatively go out and see whether payment
practices are changing to respond to the market place.
If I could give you an example, when we started paying on a
capitated or a DRG basis for hospital services, we bundled lab
services into that payment. Initially, they were performed
within 24 hours. Well, everybody shoved those tests out beyond
24 hours. Then we made it 72 hours and the tests were done
beyond 72 hours because the hospital system responded to that
parameter.
Senator Coburn. Yes. They are treating the system instead
of the patient.
Mr. Morris. Exactly. And so one of the things we need to
recognize is that is going to be, regrettably, part of the
nature of the system. A lot of money, a lot of opportunities, a
lot of consultants, and rather than try to legislate every
opportunity for mischief, give CMS greater flexibility to be
more responsive, to update fee schedules, to impose competitive
bidding practices, and let them get to that mischief early on.
So part of this is having a payment methodology and payment
systems which are much more responsive so we aren't that pot of
honey that attracts the criminals.
Senator Coburn. I have one question for CMS. We know there
is a disparity in both outcomes and cost. Where we have better
outcomes, we actually see lower costs. Have you all tracked
your fraud records with the areas where you see better outcomes
and lower costs?
Ms. Taylor. That is not something we have----
Senator Coburn. To me, that would tell me where to work,
because if there is a correlation, you don't need to be
spending your time in Minnesota or Iowa, where we know we have
lower costs and better outcomes. You need to be working in
areas, which we know, like Florida, which have poor outcomes
and higher cost. It is almost a ratio of the providers to the
number of beneficiaries and you will know where to go.
But it would be interesting for you all to put that out to
us, here is where we see greater outcomes at lower costs and
better long-term viability of the patients, and we know that
fits with a lower cost to Medicare, not a higher. Actually, we
spent less money to spend that. And then correlate that with
where you are seeing the highest fraud and improper payments.
Ms. Taylor. We certainly can do that.
Senator Coburn. That is the data mining that Mr. Sheehan is
talking about because that is going to tell you where to go and
that is going to tell you where the priority is. It is not
necessarily the most populous States. It is where you can go by
the quality and cost parameters we are seeing now, that is
where not to go, the places where it is highest.
I have several other questions, but my time is up. Thank
you, Mr. Chairman.
Senator Carper. There will be another round, if you would
like.
Senator McCaskill. Thank you, Mr. Chairman.
Senator Carper. Senator McCaskill has great interest in
issues like this.
Senator McCaskill. Yes, and I want to compliment Dr. Coburn
for thinking like an auditor.
Senator Carper. He has been doing it for a while.
Senator Coburn. I have a degree in accounting.
Senator McCaskill. There you go.
I sent a letter to CMS in January and I want to not be
cynical about this. I haven't been here long enough to be
cynical. But I sent the letter January 16, 2009, and I got the
response by fax machine at 5 o'clock last night.\1\ It feels a
little more than coincidental to me. I am not, frankly,
understanding the responses I got. And my questions are on
Medicare D and what we have done in regards to the required
financial audits.
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\1\ The letter submitted by Senator McCaskill appears in the
Appendix on page 95.
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But more importantly, what I am most upset about in the
response I got, we know from work done by the IG's Office that
25 percent of these bids have errors in them. Now, these are
the bids that we sign off on for Medicare D plans. And half of
those, they made unreasonable assumptions or errors that
resulted in them making too much money.
Now, there are ways that we can reconcile that with these
various companies that are offering Medicare D plans as it
relates to the government. But these seniors are being
overcharged. And I want to put into the record the response I
got from CMS about the seniors that are being overcharged.\1\
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\1\ The letter from the Centers for Medicare and Medicaid Services
appears in the Appendix on page 94.
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They are being overcharged because these plans have done it
wrong, not because of some vagaries in the market, but because
they have done it wrong.
And here is what the response says. The beneficiary knows
the premium cost before enrolling in the plan. Furthermore,
beneficiaries have access to detailed plan information.
Therefore, if a beneficiary is not satisfied with a plan's
premium, they may enroll in a less expensive plan for the
coming year.
Are you kidding me? I mean, seriously, do you think my
mother is supposed to go through her plan and figure out
somehow that she has been overcharged and that all she has to
do the next year is pick a cheaper plan? I want to know what
you all plan on doing to get the money back to these seniors
who have been overcharged on these premiums, overcharged in
terms of what they are paying for these prescriptions, and what
mechanism are we going to put in place so they get their money
back. They are very ill-equipped to be able to recover this
money and I was shocked at this answer because it basically
said, tough. We are not worried about them. I would like some
response, Ms. Taylor.
Ms. Taylor. I will apologize. I am not the expert in our
Part C and D programs. I do know that when we review the bids,
we do ask them to rebase the next year so their bids should
either go down so that their premiums would go down for the
beneficiaries, but I don't know all the ins and outs. I would
have to get you an answer for that on the record.
[The information provided by Ms. Taylor follows:]
The statute specifies the extent to which plans and the government
share risk, and places limits on the extent to which CMS recoups
discrepancies between anticipated and actual costs. Under current law,
once a bid is accepted and used to set plan premiums and payment levels
for Medicare beneficiaries, there is no legal authority for CMS to
revise the accepted bid amount for any purpose, including adjusting
beneficiary premiums. CMS has implemented the reconciliation process in
accordance with the statute and has made adjustments to plan payments
to reflect differences between plans' anticipated costs reported in the
bids and their actual experience.
If the structure of the program were changed to allow beneficiaries
to request a refund of premiums paid when a plan sponsor performs
better than expected, there would be a payment system built on a shared
risk bidding system. The bid has to be low enough to attract customers
but high enough to cover their operating costs. Studies have shown that
competitive bidding produces cost effective prices.
In addition, if changes in premiums (refunds or additional
payments) would be made, new administrative systems would need to be
developed so that CMS could retroactively adjust premium payments. Such
an administrative system would be costly to construct and difficult to
administer.
Finally, the reverse situation could also be true as well. If a
plan sponsor did not perform as well as it expected, then beneficiaries
might receive a bill from an under-performing plan for added premiums
after reconciliation. Such a result would be contrary to CMS' goal of
promoting a system that establishes beneficiary protection and program
stability.
Senator McCaskill. Can't we require them to pay back their
beneficiaries? Can't they cut them a check? We have done the
numbers on this now and profits went up for the drug companies.
After we put Medicare D in, they went up about $6 billion a
year on the backs of the U.S. taxpayer. And they stayed that
high since we put Medicare D in. I mean, can't we force them to
make refunds to these seniors? Isn't that a reasonable thing to
do, before they are allowed to participate again?
Ms. Taylor. I honestly don't know the answer to that. I
don't know if we can ask them to reimburse beneficiaries.
Senator McCaskill. Well, I just know that the most
vulnerable population we have in this country is being taken
advantage of, and if we are not going to be their champion, if
the Federal Government is not going to bat for them, nobody is.
And I am just concerned that after months of waiting for an
answer to this, the answer I get from CMS is, well they just
need to pick a cheaper plan next year--it won't make any
difference if it is a cheaper plan if it is still wrong. They
are going to be paying more than they should.
The IG recommended that if, in fact, we discover there are
errors in the bid plan, that they be required to have an
independent outside actuary certify their plans for the
following year. Is that something that makes sense? And I don't
know, Mr. Morris or Ms. Taylor, if you are in a position to
comment on that, but that seems like, at minimum, a reasonable
requirement, that they would be penalized by requiring an
outside actuarial analysis of their bids once it is discovered
that they have that overcharged.
Ms. Taylor. We do some review of the bids. Our actuarial
contracts do look at bids. But to the extent that we would have
them required to do an outside independent review of those
bids, I don't believe we are doing that at this time.
Senator McCaskill. Well, I would. I know it is a time of
transition in government and I know that many positions are
changing and so forth. I don't mean to be unreasonable, but it
is just hard to understand this response in light of what it
represents in a practical standpoint.
Ms. Taylor. I understand.
Senator McCaskill. It is just somebody who is not paying
attention to the practicalities of the situation.
Yes, Mr. Morris.
Mr. Morris. Senator, to answer your question, in part, and
I am also not an in-depth expert in Part D, but I can tell you
two things. One, we have been very concerned about the
inadequacies in some of these bids and the inability through
the year-end reconciliation process to get a level playing
field. Not only do we think that it is important to have good
data coming in on the Part D side, but this applies across the
board. There are so many places where we are relying on self-
reported information, for example, wage index reports from
hospitals, which affect how we then build our Part A
reimbursement system. The idea that if providers have submitted
flawed data repeatedly, to force them to bring in an outside
actuary to validate the data, has a lot of appeal to it. We
would be pleased to provide you whatever technical assistance
you would like.
I would offer one other thought along these lines. There is
within the current law the authority to impose, I believe, a
penalty for erroneous information provided as part of a Part D
bid. The problem is that if you don't also have an assessment
that is tied to the volume of the error, the penalty is going
to be well overtaken by the profit you make in the error. So
including in the current law an assessment that allows you to
collect back more than the profit realized by this knowing
error would create a disincentive to putting together bad bid
proposals.
Senator McCaskill. And they don't have the ability to do
that now? Do we need a change in the law for that to happen?
Mr. Morris. That is my understanding, yes. There is
currently a penalty, but there is not an assessment.
Senator McCaskill. OK. It did go on to say that--which in
some ways make it worse--well, if we did that, then when they
didn't make as much money as they should, they would have to
pay them more. Excuse me. The companies are taking the risk,
not the seniors. The companies are doing business with the
government. If they get it wrong to their detriment, tough. If
they get it wrong to the detriment of the seniors, they need to
pay and they need to pay the seniors, and that is not occurring
now and we have to get that fixed, Mr. Chairman. I think it is
just outrageous. We are talking billions of dollars over the
period of time that seniors are paying to these companies.
False profit, but it spins the same way for these companies.
Also, I was curious about the audit situation. We had a
handful of audits. There is a requirement that 165 financial
audits should have been done for contract year 2007 and I think
there was a handful that have begun in November of last year.
Now, we have a bunch of them done. I am curious. Does that mean
that money has shown up that you didn't have before--are you in
good shape now in terms of having the resources to do the
audits the law dictates?
Ms. Taylor. We are in better shape. I wouldn't say we have
all the money, but we certainly are in better shape than we
were at the beginning. Certainly for the 2006 audits, we had to
straddle them over two fiscal years because we did not have the
resources at the time. But we currently are in the process. I
believe almost all of those 2006 audits have begun except for
maybe a handful. We do have 50 audits in-house that we are
looking at currently and we have begun to start 2007 audits.
Senator McCaskill. I am curious. Your productivity since
January has skyrocketed. Did you add audit personnel, during
that period of time, or are these being done by contracts?
Ms. Taylor. Part of the reason was these are contracts.
These are accounting firms that we hired to do these audits.
And part of it was them getting up to speed on the C and D
payments and the audits and the programs. So a lot of the up-
front was getting them trained on the audit protocols that we
were requiring them to do.
Senator McCaskill. And so I am going to be much less
frustrated, you are telling me, going forward, that these
audits that we have mandated in the law are being done on a
timely basis?
Ms. Taylor. I hope so.
Senator McCaskill. OK. Well, I will get another set of
questions to you. I particularly am going to be interested in
how we get money back for seniors. I hope the next answer is we
are thinking about the people the program is supposed to
benefit----
Ms. Taylor. Yes.
Senator McCaskill [continuing]. Instead of the companies
that are getting fabulously wealthy off the backs of these
seniors.
Thank you, Mr. Chairman.
Senator Carper. You bet. Thank you very much.
I want to go back to a question that I asked, and I don't
think we ever fully answered it. The question I asked is if you
were advising us on changes to make to the Improper Payments
Act, what might they be? Among the changes that I mentioned, I
think under current law, when post-audit recovery is done,
agencies, I don't believe they are allowed to keep a portion of
the recoveries to pay for their recovery activities. I don't
believe they are able to use that money to strengthen their
financial management. I don't think they are able to use any of
that money to use for programmatic purposes. Notwithstanding
the caution flag that Mr. Morris raised about the bounty
situation emerging, those are some changes that we are
contemplating making, and I think probably will make.
One of the things that intrigues me in public policy is how
do we harness market forces in order to compel good behavior,
encourage and incentivize good behavior. We have seen in the
case of surplus properties, Federal properties, that we have a
lot of Federal properties that aren't used. We pay money to
keep them secure. We pay money for their utilities and so
forth. A lot of properties we don't use, we will never use. And
one of the reasons why that happens is because agencies, if
they sell them, they have to pay the costs related to upgrading
them, repairing them, rehabbing them, knowing they are not
going to get anything back out of those properties. They don't
have any money to help pay for that stuff. So they aren't going
to keep anything for programmatic purposes so they just hold
onto the properties.
We are trying to figure out how to incentivize agencies to
unload surplus properties and hopefully to get a decent amount
of money back for the taxpayers and also something for them,
too.
We are looking to be able to provide a similar kind of
incentive here so that we are going to have to ride herd on
every one of the agencies. They don't want to be out there
looking for opportunities and not making them up, but looking
for opportunities to recover these dollars that are being
literally pilfered away from us, not just as a government, but
as a country.
What are some of the changes we ought to make in the
Improper Payments Act? Are there any cautions you would raise
about any of those? Please, Ms. Daly, why don't you go first.
Ms. Daly. Well, thank you, Senator Carper. I think we have
been working with your staff for some time now in trying to
develop provisions for improving the IPIA, and one of the key
points that we talked about, and I believe we sent you a letter
on last year, is about strengthening management accountability
in that Act. I think it is one of the areas that has been
talked about a lot, but we are not sure how much accountability
is actually going on for the people responsible for running
these programs. If we have more personal accountability for
improper payments, that might be something that would be very
helpful.
Senator Carper. I think one of the things we did in
Sarbanes-Oxley is literally the CEO of the company, when a
company verifies or certifies that they have scrubbed their
books, they have done the right thing. Tthe CEO has to sign his
or her name on the dotted line. Some of them don't like that
very much, but that is what they have to do.
Ms. Daly. That is right. It makes it personal. You take it
much more seriously, other than just as an institution.
One of the other areas we think might be important, too,
and we have seen some Inspector Generals and agency auditors do
this, is look and see how well each agency is complying with
IPIA from an agency and program perspective. That way it
provides a good snapshot on the ground level on what is going
on at each one of those agencies. That is something else we
think might be very important that would be useful.
Senator Carper. OK. Mr. Sheehan.
Mr. Sheehan. I spoke about a five-point plan, but I have
six points, which matches your----
Senator Carper. So this is a five-point plan with six
points?
Mr. Sheehan. Six points, that is going to do it.
Senator Carper. A bonus.
Mr. Sheehan. I am going to sound the same way as Mr. Morris
on the issue of bounty because both of us have been in
courtrooms and both of us have been before trade groups on that
issue and it is an emotional and visceral issue that goes
beyond rationality because people expect their government to be
fair and straightforward, and once you have the bounty piece,
that is cross-examination in every case. It just raises that
specter of doubt.
But I have an incentive plan for you. The incentive plan
is, as it stands now in Medicaid, for all the 50 States plus
the District of Columbia and Puerto Rico, if I identify an
improper payment, if I identify a fraud as the Medicaid
program, I then have to give back to the Federal Government its
percentage share, which makes sense from one perspective,
right, because this is Federal money on the front end.
But let us talk about what that incentive creates. Let us
suppose I am looking at two hospitals. One is in very bad
financial shape but is incapable of submitting a straight bill.
One is in very good----
Senator Carper. I am sorry. They are in very bad shape but
they are what?
Mr. Sheehan. They are in very bad shape, but they can't get
their act together to submit bills properly, and as they get
deeper and deeper, they start doing things that are more and
more problematic.
Senator Carper. When you say problematic, do you mean
unlawful or----
Mr. Sheehan. Well, it is somewhere in that range between
improper and fraudulent----
Senator Carper. OK.
Mr. Sheehan [continuing]. Because desperate people do
desperate things. Second is hospital, very solvent, has some
billing issues that are straightforward improper payments.
What the statute does now is say, if I go to hospital B and
I collect the money, I give back the Federal share. Away we go.
We are done. If I go to hospital A, which has much greater
risks, and I know I can't get the money back, essentially the
State is then going to have to pay back the Federal Government
its share going forward.
And what we would like to be is partners at risk on the
recovery side. So if we go look at a hospital and say, we have
got these problems, here is where we are, they need to change
it, we are not being penalized as a State because we then are
paying back the Federal Government their 50 percent share and
eating it in our program.
I will tell you that in State government, I have heard
those conversations. If we change our audit plan and look at
the most vulnerable but also the most problematic, we are going
to end up eating that on the State budget side. So the
incentive is not for us as an agency, but the incentive is for
the States to say, let us either elevate the percentage or let
us make the State and the Federal Government's partners on the
recovery. So if we get the money back, then we take our
respective shares. But don't make us pay you back and then--
because it changes the direction that the audit and enforcement
program focuses on.
Senator Carper. Fair enough. Thank you. Mr. Morris.
Mr. Morris. This may not be directly on point, but maybe
some of this thinking will inform your question. The Inspector
General's Office has a robust self-disclosure protocol. We
encourage providers to find problems themselves and come tell
us about them. Mr. Sheehan has a comparable program in the New
York Medicaid program, the thinking being that many of the
problems, from simple overpayments to abuse to out-and-out
fraud, are not going to get detected by us. They are either too
buried in the system, and our resources aren't expansive enough
to find them. So we have been thinking about ways to create
incentives for those providers to come forward to reduce their
error rate.
If they are going to have to pay doubles plus potential
sanction in the form of exclusion from our program or the like,
they are not going to come forward. They will take the risk of
sweeping it under the carpet and hoping they don't get caught.
We like to make the argument that we will catch you, but the
more sophisticated of their lawyers will tell you otherwise.
As we have developed the self-disclosure protocol, we have
come to realize that collecting back singles, you have got to
do that. This is our money. But when it comes to those
multiples, this added-on penalty, if we take a much more modest
sanction, 0.2 percent, 0.5 percent, it is attractive to the
provider because they put this problem to bed. It is great for
our program because we get money back into the trust fund that
we would not otherwise have had.
And so the suggestion I would have is as we are thinking
about ways to reduce error rates, we need to marshall the
commitment of not just the Federal programs who should be
looking at their own systems to ensure that we are paying
accurately the first time, but think about how to also align,
for example, in the health care system, the providers, the
suppliers, the practitioners, whose money--they are really
holding the vast majority of all these erroneous payments. We
need to find ways to have them actually come forward and tell
us they found a problem. They are giving the money back. They
are fixing the problem. But knowing they are going to be
treated fairly, so they work with us as partners.
Senator Carper. OK. Good. Ms. Taylor, anything you want to
add to that on this question, please?
Ms. Taylor. I would certainly echo the compliance piece of
that, and certainly from a CMS perspective, Ms. Daly mentioned
having it in managers' plans that they are responsible for
these error rates. It is in my plan. It is in my managers'
plans. And we work very closely with our Medicare contractors
to ensure that their contracts are built on what the error
rates are for the providers that they serve and pay in those
areas. So to the extent that the error rate is high in a
certain State, that contractor knows they need to do better
outreach and education of providers.
Senator Carper. All right. Anybody else on my question?
I have a series of questions I am going to read through.
Some of these, you have already spoken to, a couple of you
have, directly or indirectly. But I am going to go through them
anyway and ask you to see if you want to add anything.
The first one was, what are the biggest challenges facing
CMS, OIG, New York State in combatting fraud, waste, and abuse
in our Medicare and, in your case, Medicaid programs,
respectively? Again, the biggest challenges facing CMS, OIG,
New York State.
Ms. Taylor. I would say the biggest challenge facing us is
resources. We administer huge programs, very complex programs
with very little administrative resources to do the oversight
that we need to do.
Second, we have systems barriers that we need----
Senator Carper. Let me interrupt.
Ms. Taylor. Sure.
Senator Carper. If we amend our law so that it allows some
portion of the recoveries to be used to strengthen those kinds
of systems, does that make sense?
Ms. Taylor. That would certainly help, yes.
Senator Carper. OK.
Ms. Taylor. Second is our systems, and we have talked about
real-time access to systems. For us, our systems were built as
the programs were developed, so we have Part A, we have Part B
systems, we have Part C, we have Part D systems. We right now
are looking at ways to be able to put those systems together to
be able to look across the benefits on a provider and an
individual basis so that for us it is a big challenge in being
able to get real-time data and data that talks to each other.
The last item I guess I would say is certainly being able
to partner more with our folks in the States and law
enforcement and being able to have a little more mechanisms to
be able to share information across.
Senator Carper. OK. Thanks.
Mr. Morris, what are some of the biggest challenges facing
OIG with respect to fraud, waste, and abuse?
Mr. Morris. First, I echo Ms. Taylor's statement about
data, access to reliable data. This is both data from CMS as
well as I had mentioned the notice of adverse action databases
so we know who it is we are dealing with and we can work with
our State partners to make sure perpetrators aren't crossing
State lines to prey on a different program.
And then resources. If we have great data but don't have
the foot soldiers to interpret it and we don't have the agents
to go out and conduct the investigations, it is all for naught.
I would also mention, although I am not a member of the
Department of Justice, if we have great auditors and great
investigators but we don't have great prosecutors to carry that
ball across the line, it is also for naught. When we are
thinking about an effective law enforcement strategy, we have
to have the data, recognize the problem, engage the foot
soldiers to quantify the problem, and then the prosecutors to
stop the problem.
Senator Carper. That is a good point. Thank you. Mr.
Sheehan.
Mr. Sheehan. I will do the rule of three here with only
three. The first one is the real challenge for law enforcement,
I think, and for program integrity over the next 5 years is--
and we are already seeing this--as we move to the world of
electronic medical records, one of our old ways to figure out
what actually happened between a patient and a physician was to
look at the paper record with the paper entries.
I walked into a doctor's office about a week ago. He had a
template that showed--it had every finding normal, right. So
the template had every finding normal. Before he took my pulse,
he had a number in there. Before he did blood pressure, he had
a number in there. I said, ``What are you doing?'' He said,
``Well, it is a template and as I go through and I find
different findings, I enter a different one.''
But think about that as an electronic medical record issue
and so many electronic medical records and billing systems we
are seeing now already populate fields. So the kinds of proof
we did 5 or 10 years ago to find out what is going wrong and
the training we gave our people is going to be less and less
relevant and you have these proprietary systems that we have to
figure how to make work.
We are going to see, I think, a significant amount of fraud
that is based upon electronic medical records, electronic
claims records, electronic systems that are proprietary and
difficult for the Federal Government and the State governments
to figure out, and we have discussed this internally. We don't
know what the answer is, but it is a huge challenge.
The second one is information. How do we let the public
know what the issues are, what kinds of conduct, when they go
to see their doctor, when they get an explanation of benefits,
when they hear about a problem from a friend or a colleague,
what information is useful to them and what should they do with
it? If you look in this country at explanations of medical
benefits, whether private insurance or public, I mean, I have
been doing this work for 27 years. I can't read them. One of
our greatest resources in the electronic age is having people
communicate to us directly about what they see, what they find,
what they know, and we haven't figured out how to go beyond
telephone hotlines to using the information that is out there
in the social world to tell us, here is what you should know.
And the third thing is to communicate to the good guys that
are compliance officers, working large organizations, or board
members. What questions do you ask and what should people be
telling you and what should you ask for because our best allies
in this whole process, to me, are the beneficiaries and the
providers who want to do the right thing. In every case, the
reason we win our cases is because there are good people
saying, this is the truth. This is what happened. This is the
right thing to do. And we need to find a way to support them,
encourage them, and bring them in.
Mr. Morris. If I could just echo that one point about
boards of directors and upper management being held
accountable. We have been working very closely with the
American Health Lawyers Association and others to inform boards
of directors of health care systems how critically important it
is that they understand not just the bottom line financially,
but the quality of the care being provided by their
institutions and be able to ask management, how do you know we
billed it right? How do you know that we are a system of
integrity? What internal controls are in place? If a board is
providing that kind of oversight of its organization--as it
should, as is its fiduciary duty--we have a tremendous ally in
the fight against waste, fraud, and abuse.
And so thinking about ways, like Sarbanes-Oxley, to say to
boards of directors, your job is to ensure the mission of this
organization and it is to deliver quality health care. That is
what you are all about if you are the board of a health care
system. How are you doing that? We have some products out
there, I think, that we could make huge inroads into corporate
responsibility by thinking more about how boards of directors
should be part of this effort to ensure compliance.
Senator Carper. All right. The next question I am going to
ask is one that I think you have spoken to in several
instances. I am going to ask it again and see if it jogs your
memories or your minds to add to what has already been said. We
have heard from several of you on the panel about
vulnerabilities in Medicaid that foster waste, fraud, and
abuse. What can we do at the Congressional level, this
Subcommittee, this Committee, the Senate, the House, to address
some of those vulnerabilities? Does anything further come to
mind?
Mr. Morris. It looks like I draw the straw.
Senator Carper. Sure.
Mr. Morris. In the time we have left this afternoon, I
can't really begin. I could tell you this. First of all, we
will be delighted to provide you with a great deal of
information----
Senator Carper. Do you want to answer that on the record?
Mr. Morris. That would probably be the most efficient. I
would just tell you that we do an enormous amount of audits and
evaluations, program inspections, with a wide range of
recommendations to strengthen these two programs. Some of those
are recommendations we make to CMS and they can implement them.
Others do require legislative change. So we would be pleased to
respond on the record.
Senator Carper. If you would, that would be great. Thank
you.
Mr. Sheehan. Senator, if we could take the same
opportunity.
Senator Carper. You may.
My next question, as part of a 3-year demonstration project
that we have been talking about, CMS used recovery audits by
contractors in three States--California, Florida, and Texas--to
identify and to recoup overpayments in the Medicare program.
The demonstration project has been seen by many, including by
me, as a real success with, as I said earlier, nearly $700
million being recouped, recovered by the Federal Government.
And I understand maybe more has been recovered at the end of
the day. Some of that is actually still under contention. But
clearly, $700 million or so has been recovered or is being
recovered.
It is my understanding that the plans is to roll this
program out to all 50 States. I would just be interested to
hear the thoughts from any of our panel of witnesses on
recovery audit contracting and if this is something that could
also work in our Medicaid program.
Mr. Sheehan. The Medicaid program actually has already
started what are called Medicaid Integrity Contractors, which
are employed by CMS, or retained by CMS, and as I understand
it, in New York, they are rolling it out in October 2009, but
they have already been rolled out in various parts of the
country.
Senator Carper. What are they called?
Mr. Sheehan. Medicaid Integrity Contractors.
Senator Carper. And when did the rollout start?
Mr. Sheehan. Ms. Brandt, do you know when was the start of
those? I think it was the beginning of this year.
Senator Carper. What did she say?
Mr. Sheehan. I am sorry. It is the beginning of this year,
the beginning of 2009. So those contractors are just beginning
to be rolled out, and obviously there is the coordination issue
with each State and how they are going to do their work and
that is going to be hard work on both sides to make it work.
I think the key for us in looking at these contractors is--
I have difficulties with the bounty issue once again, but I
think there are ways to design those audits so that you
identify stuff that is relatively straightforward and you give
people an audit plan that is going to work and they can find
things that you wouldn't find otherwise.
Senator Carper. Let me say to our staff, just make sure we
ask on the record for some advice and guidance on addressing
the concerns on the bounty issue.
Mr. Sheehan. The second issue, though, is it seems to me it
is really critical when we send out audit contractors to make
sure that we communicate to the health care community at each
stage what it is we are looking for, what it is we are finding,
what they can do to fix the problem going forward, and that is
why I have concerns about that bounty issue again. It seems to
me that the interest of the auditors is making sure that bad
stuff continues so they get their 10 percent. What we really
should be focused on is telling people how to do it right and
reminding them and saying the government is going to come
around. And for those who show up three or four times in
audits, to say it is not just a payment issue. You have got a
control issue here that you need to address and we are going to
take a different approach.
Senator Carper. OK. Thank you.
Ms. Daly. Senator Carper, I would like to add that GAO has
long been an advocate of recovery auditing. I think it is
something that has been proven to work well, and certainly in
the Medicare program, the demonstration projects have become
more successful. And as it rolls out to the rest of the States,
I think there is a lot they could probably learn from the
rollout of Medicare that could be applicable to Medicaid. So
while Medicaid is still in the demonstration phase, they could
use those lessons learned from Medicare and move that over. So
that might be something that could be very useful.
Senator Carper. OK.
Ms. Taylor. And certainly, Senator Carper, just to sort of
clarify the contracting, we do certainly right now have
Medicaid Integrity Contractors in 24 States, including the
District of Columbia.
Senator Carper. Do you have the list of the States there?
Ms. Taylor. I don't have them with me, but I certainly can
get that to you.
Senator Carper. Yes, please provide that. I am especially
interested to see if the first State that ratified the
Constitution, might be on that list.
[The information provided by Ms. Taylor follows:]
The States (24) and DC, which makes 25 total are: Delaware,
Maryland, Pennsylvania, Virginia, West Virginia, Alabama, Florida,
Georgia, Kentucky, Mississippi, North Carolina, South Carolina,
Tennessee, Arkansas, Louisiana, New Mexico, Oklahoma, Texas, Colorado,
Montana, North Dakota, South Dakota, Utah, Wyoming, and the District of
Columbia.
Ms. Taylor. OK. And in all 50 States by the end of this
fiscal year. So we are in the process of rolling that out, and
certainly I think we would want to look and see what the
contractors' success rates are there before we would make any
kind of decision about recovery auditing in the States.
Senator Carper. I was talking aside here a couple of
minutes ago with members of my staff and saying that one of the
ideas of a future hearing not far down the road would be one
where we invite CMS to come in and talk with us about the
success that we have enjoyed the last 3 years, the work in
three States, maybe bring in some of the folks actually doing
the recoveries and talk about it.
I serve on the Finance Committee, as well, and we have
jurisdiction over Treasury as well as CMS. For the last several
years, Treasury has been allowed to use private sector firms to
go out and do recoveries for taxes that were owed but not paid.
After several years' experience, the IRS has decided the more
cost effective way to do those recoveries would be not to hire
folks in the private sector but to hire more people to work in
IRS. I think they have asked in the budget to provide another
1,000 people to do that work and they suggest that the return
on investment could be very substantial.
So that is interesting. I have been watching with some
interest what is going on at IRS on trying to recover monies
and to have seen the experience of CMS, I think is basically
pretty encouraging in the three States. The idea that occurs to
me that it might be interesting to have a panel where we would
have CMS and the recovery auditors saying, this is why we think
this is working. This is maybe how we can do it better. And
then to have IRS come in, maybe on the same panel, and say, why
don't we try this? This is why it didn't work and this is why
we are going to go in-house. That might be informative for all
of us.
Anyone else on this question before I move to our next
question?
Mr. Morris, I think you stated that compliance programs are
prevalent in hospitals but are lacking in other health care
sectors. Which health care sectors in general have not adopted
internal compliance programs and practices?
Mr. Morris. I would like to get back to you with a more
specific answer, but once I learned of that question this
morning, I called up the Executive Director of the Health Care
Compliance Association and asked him the question. He said,
based on his membership, the lower participating industries
include home health, not surprisingly, DME, and some small
physician practices.
I would also tell you that our Office of Evaluation and
Inspections would be pleased to do some work in this area. We
could actually go out and survey a group of participating
Medicare and Medicaid providers and find out what percentage of
them have compliance programs and what they look like. We could
get you a very precise sense of what part of the industry is
embracing voluntary compliance programs and what could use some
more encouragement.
Senator Carper. All right. Thank you. Mr. Sheehan.
Mr. Sheehan. We just completed, in New York, a review of
the two industry areas, the hospitals, and most of the
hospitals in New York State actually have fairly concrete
compliance programs. It is a question whether they work well.
That depends on the hospital.
But the biggest weakness we saw in compliance was managed
care, and the issue is not just what systems they had in place,
but is the industry focusing on this issue and are they getting
guidance from CMS and from the Inspector General on what that
should look like. And I think there is a real opportunity here
for us and for the IG and CMS to say, here is what a compliance
program looks like at a managed care entity. The questions are
more complicated. The guidance that is out there is ancient. I
guess for IG, it is 1999 or 1998.
Mr. Morris. Yes.
Mr. Sheehan. For CMS, it is like the early 2000s, and the
business models are very different. So of all the areas that
need compliance, I think it is the managed care entities that
are providing care both in the State Medicaid programs to most
of our patients and in Medicare Part C.
Senator Carper. All right. Thank you.
Our vote has just started, but I want to finish with
another question or two and then we will wrap it up.
Ms. Daly, I think you said at one point in your testimony
that while the error rate in Medicare's fee-for-service program
has declined over the years, some believe that the estimates we
currently have may understate the problem in several areas.
Could you elaborate on that? And Ms. Taylor, maybe you or Mr.
Morris can jump in and share your thoughts on this, as well.
Ms. Daly, would you go first?
Ms. Daly. Yes. I think over the years, they have refined
the Medicare fee-for-service error rate. When originally
started, the Inspector General's Office was doing that error
rate, and then recently, the Office of Inspector General has
done some more work to identify what the issues were with it.
With that, I would like to defer to Mr. Morris then to
provide you more details on that analysis, but at the same
time, I did want to point out again that the Medicare
Prescription Drug Benefit still doesn't have an estimate for
their errors.
Senator Carper. Ms. Taylor, do you want to jump in here
before we go to Mr. Morris?
Ms. Taylor. Absolutely. The IG did do a review of our CERT,
which is the comprehensive error rate for Medicare fee-for-
service. They did find that there were some concerns about the
way we were looking at the DME portion of the error rate. We
did enter into a re-review of our CERT claims related to DME.
We found that our policies could be interpreted by different
folks performing medical review, or complex medical review on
medical records, differently, meaning someone might interpret
it as you have to have every piece of the medical record to be
able to pay the claim or others were interpreting it as if I
had enough information in the medical records, I could use my
clinical judgment and allow the claim.
What we found was we had inconsistencies. We agreed with
the IG that we need to clarify our instructions, that clinical
judgment is not appropriate where it is required to have
medical records on hand. So we will be applying that and I
think we already are starting to do that now for this year's
error rate.
The other thing that was critical for the IG's review on
improper payments when they looked at the CERT rate was they
actually took some set of those high-risk DME claims and went
and visited the providers and the beneficiaries. And so this
year, we will begin looking at some of those high-risk areas
and going out and talking to the provider and talking to the
beneficiary.
Senator Carper. All right. Thank you.
Mr. Morris, the last word on this one.
Mr. Morris. I think Ms. Taylor has summarized it just
right. I would tell you that we believe in the OIG that it is
important to actually--we think you need to look past what it
is that the DME company is offering you. As Mr. Sheehan
referenced, the sophisticated criminal knows how to doctor up
the record to make it look good. You need to actually get out
there and talk to the beneficiary. It is more labor intensive.
It is more resource intensive. But I think it also gives you a
much more accurate snapshot of what is going on.
Senator Carper. All right. Well, folks, we have run out of
time here. I hoped we could complete our hearing before the
voting began and it looks like we are just coming in right
under the wire.
I want to thank each of you for preparing for the hearing
today and I want to thank you for appearing today and
testifying, responding to our questions. The hearing record
will stay open for a while, I am not sure exactly how long--5
days? A couple of weeks? As you receive follow-up questions--
people are obviously going to submit those, including me--we
would ask that you respond promptly, please.
The other thing I would say in conclusion, we are going to
run out of money in the Medicare Trust Fund. We are literally
running out of money. There is a problem long-term with respect
to Social Security, it is one that we need to act on that, but
the need for action for Medicare is more pressing. There are a
lot of things that we need to do in order to restore the
integrity of the Medicare Trust Fund.
But one of those is what we are talking about here today
and figuring out where we are spending money inappropriately,
figure out how to go after that money and to recover it in ways
that don't spark some kind of bounty system here with some
unintended consequences.
I am grateful for the efforts that you are all doing. I
especially want to say to Mr. Sheehan and folks up in New York
State, thank you very much for being a good role model for the
other States and for those of us in the Federal Government. I
like to sometimes say I would rather see a sermon than hear
one, and I think maybe in your case we see the sermon and that
is good. Today, we heard from the preacher. That is not bad,
either. But thank you all for a most illuminating hearing.
The other thing I would say is this is not an easy problem.
It is not an easy problem to solve, to get our heads around and
our arms around and to deal with. We obviously can't do it with
our Subcommittee or even the full Committee or the full Senate.
This is one that we need just a real collective effort, a
cooperative effort, a partnership, and I think that we have
that going for us and we just have to build on it.
With that having been said, thank you all very much for
joining us today and we will look forward to working with you
going forward. Thank you.
The hearing is adjourned.
[Whereupon, at 4:40 p.m., the Subcommittee was adjourned.]
A P P E N D I X
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