[Senate Hearing 111-120]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 111-120
 
                          CATCH ME IF YOU CAN:
SOLUTIONS TO STOP MEDICARE AND MEDICAID FRAUD FROM HURTING SENIORS AND 
                               TAXPAYERS

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

                                HEARING

                               before the

                       SPECIAL COMMITTEE ON AGING
                          UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             WASHINGTON, DC

                               __________

                              MAY 6, 2009

                               __________

                            Serial No. 111-5

         Printed for the use of the Special Committee on Aging



  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                               index.html


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                       SPECIAL COMMITTEE ON AGING

                     HERB KOHL, Wisconsin, Chairman
RON WYDEN, Oregon                    MEL MARTINEZ, Florida
BLANCHE L. LINCOLN, Arkansas         RICHARD SHELBY, Alabama
EVAN BAYH, Indiana                   SUSAN COLLINS, Maine
BILL NELSON, Florida                 BOB CORKER, Tennessee
ROBERT P. CASEY, Jr., Pennsylvania   ORRIN HATCH, Utah
CLAIRE McCASKILL, Missouri           SAM BROWNBACK, Kansas
SHELDON WHITEHOUSE, Rhode Island     LINDSEY GRAHAM, South Carolina
MARK UDALL, Colorado
KIRSTEN GILLIBRAND, New York
MICHAEL BENNET, Colorado
ARLEN SPECTER, Pennsylvania
                 Debra Whitman, Majority Staff Director
             Michael Bassett, Ranking Member Staff Director

                                  (ii)

  
?

                            C O N T E N T S

                              ----------                              
                                                                   Page
Opening Statement of Senator Mel Martinez........................     1
Opening Statement of Senator Herb Kohl...........................     3

                           Panel of Witnesses

Statement of R. Alexander Acosta, United States Attorney, 
  Southern District of Florida, U.S. Department of Justice, 
  Miami, FL......................................................     4
Statement of Daniel R. Levinson, Inspector General, U.S. 
  Department of Health and Human Services, Washington, DC........    35
Statement of James Frogue, State Project Director, Center for 
  Health Transformation, Washington, DC..........................    48
Statement of Robert A. Hussar, First Deputy Medicaid Inspector 
  General, Office of the Medicaid Inspector General, State of New 
  York, Hauppauge, NY............................................    69
Statement of Stephen C. Horne, Vice President, Master Data 
  Management and Integration Services, Dow Jones Enterprise Media 
  Group, Edgewater, NJ...........................................    77

                                APPENDIX

Daniel Levinson's Response to Senator Martinez Question..........    93
Statement of S3 Matching Technologies............................    94
Statement from the American Association for Homecare.............    97
Statement of William A. Dombi, Vice President for Law, The 
  National Association for Home Care and Hospice.................   102

                                 (iii)

  


CATCH ME IF YOU CAN: SOLUTIONS TO STOP MEDICARE AND MEDICAID FRAUD FROM 
                     HURTING SENIORS AND TAXPAYERS

                              ----------                              --



                         WEDNESDAY, MAY 6, 2009

                                       U.S. Senate,
                                Special Committee on Aging,
                                                    Washington, DC.
    The Committee met at 3:12 p.m., in room SD-216, Hart Senate 
Office Building, Hon. Mel Martinez, presiding.
    Present: Senators Kohl, Martinez, and Graham.

   OPENING STATEMENT OF SENATOR MEL MARTINEZ, RANKING MEMBER

    Senator Martinez. Good afternoon, everyone. I am, at the 
request of Chairman Kohl, going to begin the hearing since we 
are already running a little bit late. He will be here very, 
very shortly, and when he comes, I am sure he will want to make 
some opening comments.
    Let me begin by welcoming all of you here today to a very 
important hearing, and I want to thank my chairman, Chairman 
Kohl, for agreeing to hold this very, very important hearing.
    This issue of fraud and abuse in our Medicare and Medicaid 
system is something that has become a national scandal, and as 
we talk about ways in which we might improve our overall health 
care system in our country, there is no question that 
addressing this issue is at the cornerstone of improving the 
health care system for all Americans.
    Americans expect their Government to be good stewards of 
the dollars that they pay in taxes. Since almost all of us in 
this room will some day rely on Medicare for our health care, 
it is something in which all of us have, indeed, a very 
personal stake if not only a governmental stake.
    One of the greatest threats to our Nation's health care 
safety net programs like Medicare and Medicaid is fraud and 
abuse, and both programs have seen more than their share of 
this. Authorities estimate that health care fraud costs 
taxpayers more than $60 billion a year. This fraud perpetrated 
against Medicare diverts resources that are supposed to finance 
health care for 43 million American seniors and disabled. This 
fact hurts Medicare beneficiaries, the legitimate businesses 
that serve these patients, and really every taxpayer.
    I regret to say that my home State of Florida has a large 
number of criminals involved in Medicare fraud, and some of the 
most egregious cases are in south Florida, as I know we will 
hear from one of our witnesses. Just two weeks ago, the 
Department of Health and Human Services' Office of the 
Inspector General issued a report and that report revealed that 
while 2 percent of the Nation's Medicare beneficiaries reside 
in south Florida, that region accounts for 17 percent of 
Medicare expenditures on durable medical equipment and related 
items such an inhalation drugs. The Inspector General found 
that two-thirds of south Florida Medicare beneficiaries with 
Medicare claims for these inhalation drugs had not seen a 
doctor in over three years. This raises suspicion that durable 
medical equipment suppliers are fraudulently billing Medicare 
for inhalation drugs that doctors have not prescribed.
    Another Inspector General review revealed that 8 percent of 
the Nation's AIDS patients live in south Florida. Yet, 72 
percent of Federal AIDS medication payments are sent to that 
area. In that area alone, there is an estimated $2 billion in 
fraud. These are just a couple of examples of the systemic 
fraud and abuse perpetrated against Medicare and the taxpayers.
    An example that Mr. Acosta, the U.S. Attorney for the 
Southern District, who is one of our four witnesses, recounted 
to me is that of a woman who noticed on her Medicare statement 
a series of $10,000 Medicare payments for artificial knees, 
ankles, a glass eye, and a wheelchair, among other things. The 
truth is that she was completely healthy and, in fact, someone 
was billing Medicare using her stolen Medicare number.
    This is why Senator John Cornyn and I introduced the 
Seniors and Taxpayers Obligation Protection, or STOP, Act. I am 
pleased to say that Senator Collins has also joined this bill, 
and I believe there are a few other Senators who have joined 
with us on that as well.
    Our bill safeguards Medicare beneficiaries from those who 
use it to fraudulently bill Medicare, helps providers assure 
that Medicare is not billed for items that they did not 
prescribe, and focuses on real-time fraud prevention and 
detection. This legislation will help stop Medicare fraud 
before it starts rather than continue the current practice of 
pay and chase.
    I want to ask other colleagues of mine on the Aging 
Committee to join in taking some of these common sense steps to 
prevent Medicare fraud, save taxpayer dollars, and restore 
peace of mind to physicians, as well as beneficiaries.
    Medicaid also has fraud problems. There are often-cited 
examples of Medicaid paying for hysterectomies or for birth 
control for a male patient, things as crazy as that. To address 
this, I recently introduced the Medicaid Accountability Through 
Transparency Act, or the MATT Act, which sheds a light on 
Medicaid claims by posting claims information on the Web while 
maintaining the privacy of the patient. This will help us all 
to see where and how taxpayer dollars are being spent. This 
would reveal crime trends that will help us weed out fraudulent 
spending.
    Of course, this does not solve all the problems, but it 
would be an easy step forward that would reveal information 
that has not been revealed before. This is modeled on the 
Coburn-Obama Earmark Transparency Legislation passed by 
Congress last session. It is, in essence, a taxpayers' right-
to-know issue.
    With that, I appreciate, Chairman Kohl, you agreeing to 
this hearing, which I think is terribly important, and I would 
call on you to make any opening remarks you care to make.

        OPENING STATEMENT OF SENATOR HERB KOHL, CHAIRMAN

    The Chairman. Thank you very much, Senator Martinez.
    I appreciate serving on this panel with you as the ranking 
member, and I appreciate your holding today's hearing on the 
topic of Medicare and Medicaid fraud.
    The high cost of health care is rapidly depleting the 
Medicare trust fund, crushing State Medicare budgets, and 
bankrupting working families who cannot afford health 
insurance. Health care fraud robs patients and providers of the 
precious resources they need.
    According to one estimate, Medicare and Medicaid fraud cost 
the Government $72 billion last year. So clearly, we need to 
make sure that every dollar spent by a public or private health 
plan does, indeed, go to quality health care and not to line 
the pockets of a scam artist or even a criminal.
    So we are eager to hear from today's witnesses about how we 
can best put a stop to these types of fraud, and we are 
especially interested in innovative ideas that will put us 
ahead of the curve in terms of detecting fraudulent schemes 
before they are carried out. We can detect improper claims 
before they are paid and address weaknesses in our system more 
effectively. We can save time and money that is currently spent 
on chasing down bad payments that have already been made.
    Senator Martinez and I have been working closely with the 
Finance and the HELP Committees as part of a bipartisan group 
on this issue. Specifically, we are drafting proposals to 
address the problem of health care fraud as an essential 
component of health care reform, including measures to improve 
the detection and prevention of waste, fraud, and abuse and to 
provide law enforcement with sufficient tools to investigate 
and prosecute criminal schemes. We believe it is our obligation 
to protect the integrity of Medicare and Medicaid and ensure 
that our Government's resources are defended against dishonesty 
and abuse.
    Thank you so much, Senator Martinez.
    Senator Martinez. Thank you, sir.
    Today we have with us five witnesses to speak about the 
rampant fraud and abuse in Medicare and Medicaid, and we look 
forward to hearing your thoughts on combating fraud and your 
recommendations for reducing this fraud while maintaining 
quality of care for all the beneficiaries of this system.
    First, we have with us the Honorable Alexander Acosta. Mr. 
Acosta is the United States Attorney for the Southern District 
of Florida. Mr. Acosta has placed special emphasis on health 
care fraud prosecutions, hosting the first health care fraud 
strike force in the Nation, and he has also presided over a 30 
percent increase in prosecutions during his tenure there in the 
Southern District of Florida.
    Prior to his appointment as United States Attorney, Mr. 
Acosta served as the Senate-confirmed Assistant Attorney 
General for the Civil Rights Division of the United States 
Department of Justice. Mr. Acosta was the first Hispanic to 
serve as an Assistant Attorney General at the Department of 
Justice.
    Next is the Honorable Daniel Levinson, Inspector General of 
the United States Department of Health and Human Services. As 
Inspector General, Mr. Levinson is the senior official 
responsible for audits, evaluations, investigations, and law 
enforcement efforts with one of the largest Departments in the 
Federal Government.
    We have Jim Frogue, who serves as the Center for Health 
Transformation's chief liaison to State policy projects. His 
primary areas of focus are on Medicaid and health savings 
accounts.
    Robert Hussar, who is the first Deputy Medicaid Inspector 
General in the State of New York's Office of the Medicaid 
Inspector General. He works with the Inspector General to 
oversee investigations of Medicaid fraud in State agencies and 
private providers.
    Finally, we have with us Stephen Horne, Vice President of 
Master Data Management and Integration Services for Dow Jones 
Business and Relationship Intelligence. Mr. Horne has over 30 
years' experience in large-scale data integration and data 
utilization.
    Gentlemen, we welcome all of you. We thank you for taking 
the time to be with us today, and Mr. Acosta, we will begin 
with you for your opening remarks.

   STATEMENT OF R. ALEXANDER ACOSTA, UNITED STATES ATTORNEY, 
   SOUTHERN DISTRICT OF FLORIDA, U.S. DEPARTMENT OF JUSTICE, 
                           MIAMI, FL

    Mr. Acosta. Thank you, Senator. Mr. Chairman, Ranking 
Member Martinez, members of the committee, thank you very much 
for holding today's hearing.
    As you both mentioned, Americans enjoy one of the world's 
best health care systems. A challenge to that system is the 
increasing costs of health care. One reason for this is health 
care fraud. There are various estimates regarding the size of 
this fraud. One number that is often repeated is $60 billion. 
It could be even greater. I am certain you hear many estimates, 
however. So what I wanted to do in my opening remarks is to 
present a few facts based on my own experiences in South 
Florida.
    Now, in 2006, I organized a health care fraud prosecution 
initiative in the Southern District of Florida, and we did this 
in partnership with the FBI and the Office of Inspector 
General. The following year, our efforts were substantially 
energized as the Criminal Division's Fraud Section contributed 
their attorneys and their resources through the strike force.
    The results have been both sad and spectacular. We have 
charged in South Florida more than 700 individuals responsible 
for billing Medicare more than $2 billion. Those are actual 
cases that have now been brought. We have collected more than 
$350 million that has been returned to the Federal Treasury, 
both civilly and criminally. We have prevented an estimated, at 
least--or contributed to the prevention of $1.75 billion in 
additional expenditures and billings to DMEs. We have done this 
with a local budget of $2.5 million annually spent by the 
United States Attorney's Office, and we could do more. 
Resources are our primary limitation.
    Senators, that billions are being wasted each year should 
come as absolutely no surprise. The problems are well known. 
Allow me to describe, if I could, an operation that we call 
Operation Whac-a-Mole, the old video game. In this operation 
Federal agents visited 1,581 durable medical equipment 
suppliers. They visited them and inspected them for basic 
criteria. Were the businesses there? Were they open? Did they 
have regular business hours? Four hundred ninety-one of the 
durable medical equipment companies failed that inspection, one 
out of three. Instead of a durable medical equipment company, 
Federal agents found flower shops, a real estate company, 
locations with mail stacked outside the door, pharmacy closed 
signs, for rent signs. In less than one year, those 491 
nonexistent companies had billed Medicare $237 million and 
Medicare had actually paid them $97 million, $97 million 
wasted. That is just one example.
    I should add that many of the civil matters that we do are 
an important part of our effort and account for a large part of 
our collections.
    I began this health care fraud effort in 2006 because I was 
absolutely disgusted by the levels of health care fraud that I 
found in South Florida, and we will continue to prosecute these 
cases and will continue these efforts. But I want to make some 
important points.
    First, this is not just a South Florida problem. Senator 
Martinez pointed to some numbers regarding South Florida, but 
in part, because we are doing so much, the problems have been 
identified in South Florida. The strike forces are being set up 
based on the South Florida model in other cities around the 
Nation. Two cities are or will be hosting strike forces. So 
whatever changes should be made should be systemic and go 
beyond South Florida.
    Secondly, as a prosecutor, I want to put emphasis on a 
point that is, to some extent, contrary to my interests as a 
prosecutor but is important to the Nation. Prosecutions are not 
the solution. Let me explain what I mean.
    If one wants to prevent traffic accidents, one puts up red 
lights. One puts up stop signs. One has good rules of the road 
that prevent accidents in the first place. Tickets given after 
an accident occurs rarely prevent accidents in the first place, 
not to mention we do not have enough law enforcement to watch 
every intersection. So what we do is we have good rules of the 
road.
    The same applies for health care fraud. With additional 
resources, my office could easily double and triple the 
prosecutions. We could go from $2 billion to $3 billion to $4 
billion in fraud prosecuting, but the best way by far to 
prevent fraud in the first place is to improve the rules of the 
road, in other words, to implement systemic changes at CMS that 
are designed to ensure rapid payment as is appropriate, yet at 
the same time identify and deny fraudulent bills.
    One final point and an important one. Our prosecutions did 
not second guess medical judgment, and this is important to 
both physicians and to industry. We do not look over 
physicians' shoulders. The frauds that I speak about are 
blatant, people billing for services that have never been 
provided, an individual billing for the same wheelchair time 
after time after time after time when not a single patient 
receives that wheelchair. This is not second guessing medical 
judgment, and that is important to understand.
    We will continue to do our part, but it is important that 
we address systemic changes in the system in my opinion. To put 
this in perspective, it is easy to throw around numbers like 
$60 billion in fraud, $2 billion in fraud prosecuted. So far, 
in our district in South Florida, if you look at and assume 
approximately 500,000 beneficiaries, we have prosecuted $4,000 
in fraud per capita. So my question is this. What could be done 
with the savings of $4,000 per Medicare beneficiary? That is 
money that is currently going to line the pockets of criminals. 
Those are precious health care dollars that could, instead, be 
used where they need to be used to help those in need. That is 
why I thank you for holding this hearing.
    [The prepared statement of Mr. Acosta follows:]

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    Senator Martinez. Thank you very much, sir. I appreciate 
that very clear testimony.
    Mr. Levinson.

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

    Mr. Levinson. Mr. Chairman Kohl, Ranking Member Martinez, 
and Senator Graham, thank you and good afternoon.
    This is a great opportunity for us to discuss the Office of 
Inspector General's experience in fighting fraud, waste, and 
abuse in the Medicare and Medicaid programs and OIG's strategy 
and recommendations for ensuring the integrity of these vital 
health care programs.
    The Office of Inspector General is committed to promoting 
the efficiency and effectiveness of the Medicare and Medicaid 
programs and protecting these programs and their beneficiaries 
from fraud and abuse. Our work demonstrates that for Medicare 
and Medicaid to serve the needs of beneficiaries and remain 
solvent for future generations, the Government must pursue a 
comprehensive strategy to combat waste, fraud, and abuse. Based 
on our audit, evaluation, investigative, enforcement, and 
compliance work, we have identified the following five 
principles of an effective health care integrity strategy.
    First, 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 that they can easily exploit. As my written testimony 
describes in more detail, criminals too easily enroll in 
Medicare and steal millions before detection. Medicare and 
Medicaid provider enrollment standards and screening should be 
strengthened. Heightened screening measures for high-risk items 
and services could include requiring providers to meet 
accreditation standards, requiring proof of business integrity 
or surety bonds, periodic recertification and on-site 
verification that conditions of participation have been met, 
and full disclosure of ownership and control interests.
    Second, establish payment methodologies that are reasonable 
and responsive to changes in the marketplace. Our office has 
conducted extensive reviews of payment and pricing 
methodologies and has determined that the programs pay too much 
for certain items and services. When pricing policies are not 
aligned with the marketplace, the programs and their 
beneficiaries bear the additional costs. In addition to wasting 
health care dollars, these excessive payments are a lucrative 
target for unethical and dishonest individuals. These criminals 
can reinvest some of their profit in kickbacks, thus using the 
programs' funds to perpetuate fraud schemes. Medicare and 
Medicaid payments should be sufficient to ensure access to care 
without wasteful overspending. Payment methodologies should 
also be responsive to changes in the marketplace, medical 
practice, and technologies. Although CMS has the authority to 
make certain adjustments to fee schedules and other payment 
methodologies, some changes require congressional action.
    Third, assist health care providers in adopting practices 
that promote compliance with program requirements. Health care 
providers can be our partners in ensuring the integrity of our 
health care programs 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 curb waste, 
fraud, and abuse in the health care system. The importance of 
health care compliance programs is well recognized. Over 90 
percent of hospitals have integrated compliance measures into 
their systems. New York requires providers and suppliers to 
implement an effective compliance program as defined by our 
office as a condition of participation in its Medicaid program. 
Medicare Part D prescription drug plan sponsors are also 
required to have compliance plans. 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, vigilantly monitor the programs for evidence of 
fraud, waste, and abuse. The health care system compiles an 
enormous amount of data on patients, providers, and the 
delivery of health care items and services. However, Federal 
health care programs often fail to use claims-processing edits 
and other information technology effectively to identify 
improper claims before they are paid and to uncover fraud 
schemes. For example, Medicare should not pay a clinic for HIV 
infusion when the beneficiary has not been diagnosed with the 
illness, pay twice for the same service, or routinely process 
claims that rely on the provider identifiers of deceased 
physicians. Better collection, monitoring, and coordination of 
data would allow Medicare and Medicaid to detect these problems 
earlier and avoid making improper payments. Moreover, this 
would enhance the Government's ability to detect fraud schemes 
more quickly.
    In addition to improving the programs' 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 far more difficult to detect 
and thwart new scams.
    We also recommend the consolidation and expansion of the 
various adverse action databases. Providing a centralized, 
comprehensive public database of sanctions taken against 
individuals and entities would strengthen program integrity.
    Last, 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 those for other criminal offenses. 
There are low barriers to entry. Schemes are easily replicated. 
There is a perception of a low risk of detection. We need to 
alter the criminal's 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-strike force, as detailed by Mr. Acosta, it is a powerful 
tool and represents a tremendous return on the investment.
    In conclusion, our office and its law enforcement partners 
are implementing a comprehensive strategy to combat waste, 
fraud, and abuse in Federal health care programs. But 
sophisticated fraud schemes increasingly rely on falsified 
records, elaborate business structures, and the participation 
of health care providers, suppliers, and even beneficiaries to 
create the false impression that the Government is paying for 
legitimate health care services. In addition, improper payments 
and misaligned reimbursement rates waste scarce health care 
resources. The principles that I have described provide the 
framework to identify new ways to protect the integrity of the 
programs, meet the needs of the beneficiaries, and keep Federal 
health care programs solvent for future generations.
    Thank you and I will welcome your questions later.
    [The prepared statement of Mr. Levinson follows:]

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    Senator Martinez. Thank you, Mr. Levinson.
    Mr. Frogue.

 STATEMENT OF JAMES FROGUE, STATE PROJECT DIRECTOR, CENTER FOR 
             HEALTH TRANSFORMATION, WASHINGTON, DC

    Mr. Frogue. Chairman Kohl, Senator Martinez, and Senator 
Graham, thank you very much for the opportunity to share some 
thoughts with you today.
    Think for a moment how other large businesses operate. 
Federal Express and UPS have 23 million packages a day that 
they ship. You can go online and track in real time for free 
with your $12 fee.
    Large, sophisticated retailers in the supermarket, 
clothing, or auto parts industry can tell you every night how 
many cans of soup, pairs of pants, or spark plugs they sold 
anywhere in the world.
    The American credit card industry involves over $2 trillion 
in transactions a year, almost the size of health care. There 
are over 700 million credit cards in existence, millions of 
vendors, and countless items that can be purchased. Yet, total 
credit card fraud is less than 1 percent.
    Now look at health care. A GAO study in January 2009 
estimated that a full 10 percent of Medicaid claims paid in 
2007 were improper. It is a total of $32.7 billion. These GAO 
reports are consistent with OIG and State-level investigations 
too. I will not go through a list of examples of fraud. The 
other witnesses have done a good job and there are many to go 
through.
    But Miami-Dade County, for example, presently has 897 
licensed home health agencies which is more than the entire 
State of California.
    I spoke with Jim Sheehan, the Medicaid Inspector General of 
New York, and he corrected something that is in my written 
testimony. There are actually only 55 men who received 
maternity benefits in New York State Medicaid over a 2-year 
period.
    The Medicare and Medicaid systems we have in place today, 
in particular fee-for-service, which account for the majority 
of enrollees and dollars, simply beg for waste, fraud, and 
abuse. They cheat taxpayers, honest doctors, and hospitals, but 
most importantly, 100 million Americans who are elderly or low-
income who depend on these vital programs.
    My purpose today, however, is not to dwell on examples of 
fraud but, instead, to give some specific solutions. I want to 
agree with something Mr. Acosta pointed out. Law enforcement is 
only a very small part of the answer here. Even successful 
prosecutions tend to be expensive, take years, and end up only 
capturing a small amount of money lost, not to mention their 
deterrent effect appears to be negligible.
    The No. 1 most important thing that the Congress or States 
can do is put all Medicare and Medicaid claims and patient 
encounter data online for public access. This is similar to the 
idea, Senator Martinez, that you have in your piece of 
legislation.
    Selected academics have had access to Medicare claims data, 
for example, for years. The Dartmouth Health Atlas, which comes 
out annually, is a fantastic publication. More importantly than 
where the dollars go, it tracks health outcomes. For example, 
one of the key findings of the Dartmouth Health Atlas is that 
per capita Medicare spending by locality is inversely 
correlated with the likelihood of receiving recommended care. A 
look at another State's Medicaid claims data last year found 
out, for example, that only 17 percent of women over age 50 
were getting annual mammograms who were on Medicaid. These 
records are appalling, but nobody knew this because nobody has 
access to the data. It is like taking a test and you have the 
answers right here, but you are not allowed to look at them.
    Simply put, patients and taxpayers have the right to know 
the quality produced and where the dollars are going.
    Among the couple ideas I would like to walk through, one of 
them is--this would cost Congress absolutely not a penny--allow 
seniors on Medicare the option, just the option, of traveling 
to another city to receive major, nonemergency surgeries if it 
is something they chose to do. If a particular set of 
procedures was thousands of dollars less in Des Moines than it 
was in Chicago, and if patients opted for it, why not split the 
difference with them?
    The commercial insurer Wellpoint just launched a 
demonstration project that allows customers the option of 
traveling to India, as in India next to China, for services 
that are less expensive but the quality is equally as good. 
Surely taking advantage of arbitrage opportunities in our own 
Medicare system is not too radical.
    Another is enhanced discovery of third party liability in 
Medicaid. There is a GAO study a couple years back that showed 
13 percent of people on Medicaid actually had third party 
coverage. There was another private study recently that found 
that. One to two percent of every State's Medicaid spending is 
on people who are already covered by another. That is simply 
reported coverage. If you add unreported to that, the numbers 
go up dramatically.
    Use unique ID numbers for Medicare beneficiaries instead of 
their Social Security numbers. A Social Security number makes 
people particularly vulnerable to fraud.
    Consider moving to or biometric ID for Medicare and 
Medicaid beneficiaries, which is much harder to be stolen, 
copied, or forged.
    Recognize the recommendations of MedPAC, which is the 
shortcomings of fee-for-service, uncoordinated care, and fraud 
is much higher in fee-for-service than it is in managed care 
options. Move rapidly toward a medical home model which has 
shown a lot of success in many places.
    Encourage better data analytics across programs. This is 
much like law enforcement. Sex offenders, for example--if they 
move to a different State, they have a couple days to register, 
and if they do not, they are tracked instantly using public 
documents. If you are a bad doctor or a bad DME provider in 
Miami and you move to a different State, no one may ever know. 
So this technology is not crazy or nonexistent. It exists in 
law enforcement right now.
    Durable medical equipment. The fraud in DME is almost 
laughable. Instead of trying to have CMS fix their forms and 
their culture, you might as well just outsource the whole thing 
to Visa or Mastercard. They have 700 million cards in existence 
right now and could do a much better job. They certainly could 
not do worse than CMS and studies prove it.
    Medi-Cal, the Medicaid program in California, has done a 
very good job of rooting out DME fraud. They are one of the 
best and do a much better job than Medicare fee-for-service and 
others state Medicaid programs.
    One other is allow Medicare and Medicaid to auto-enroll 
patients with outlier behaviors into managed care. This is a 
very tiny percent. It is just 1 to 2 percent. Individuals who 
are excessively billing at, say, emergency rooms or DME 
providers, are probably getting poor, uncoordinated care. It 
may not even necessarily be them. It might be fraudulent 
providers doing it without the knowledge of the patient.
    But there are several other recommendations, and I look 
forward to your questions, Chairman Kohl. Thank you and, 
Senator Martinez, thank you.
    [The prepared statement of Mr. Frogue follows:]

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    Senator Martinez. Thank you.
    Mr. Hussar.

STATEMENT OF ROBERT A. HUSSAR, FIRST DEPUTY MEDICAID INSPECTOR 
GENERAL, OFFICE OF THE MEDICAID INSPECTOR GENERAL, STATE OF NEW 
                        YORK, ALBANY, NY

    Mr. Hussar. Thank you, Chairman Kohl and Ranking Member 
Martinez and all committee members present. On behalf of New 
York's Medicaid Inspector General, James Sheehan, and the New 
York State Office of the Medicaid Inspector General, known as 
OMIG, I thank you for the opportunity to describe our efforts 
at preventing and detecting Medicaid fraud, waste, and abuse in 
New York's program.
    The OMIG was created to coordinate and improve the State's 
process of combating Medicaid fraud, waste, and abuse. We do 
this by collaborating with our fellow State and Federal 
partners and with providers and their representatives to 
prevent or detect and recoup overpayments in the Medicaid 
program. We pursue this mission in the framework of Governor 
Patterson's commitment to ensuring a patient-centered approach 
to health care, and we carefully consider the effect that each 
and every enforcement action has on the quality and 
availability of care in the community.
    Measured by fraud and abuse recoveries reported to CMS, New 
York was the most successful State in the Nation in Medicaid 
program integrity over the past year, identifying recoveries of 
more than $551 million. This success results from the 
commitment of State elected officials and State agencies, as 
well as the support of Federal agencies. While recovering 
overpayments is an essential part of our efforts and although 
we have been successful in identifying significant recoveries, 
New York's long-term program integrity goal is to prevent or 
minimize improper payments. This is a daunting task, given the 
approximately $48 billion we spend on Medicaid, which covers 
approximately 60,000 providers and over 4 million enrollees.
    Even at a time of enacting our enabling legislation, the 
New York State legislature fully appreciated that a pay-and-
chase approach is neither effective nor efficient and that 
providers have a responsibility and are in a prime position to 
identify instances of noncompliance and to correct billing and 
payment mistakes. Through bipartisan legislation, New York now 
requires Medicaid providers to implement effective compliance 
programs. As a former in-house compliance officer for a 
comprehensive health care system, I have seen firsthand what 
works and what does not in terms of provider efforts to assure 
program integrity.
    With this in mind, in developing our compliance guidance 
documents, in addition to addressing the typical billing and 
coding issues, we have raised the bar for accountability of 
board members, senior executives, and front-line staff related 
to governance and oversight of ethical business conduct and the 
expectation that all providers will ensure access to high-
quality care.
    To complement our compliance initiatives, we also support 
the use of administrative tools related to provider enrollment 
review, payment suspension, prepayment review, audits, and 
individual and entity exclusions when improper payments are 
discovered. These remedies should not be deterred pending the 
outcome of an extended criminal investigation with the result 
of keeping those providers in the program who are most likely 
to be collecting the improper payments.
    Recognizing that we will never eliminate all overpayments, 
we have and continue to develop ways to integrate technology 
into our audit and investigatory practices. Every OMIG auditor, 
investigator, clinical staff, and data analyst has access to 
our claims data that consists of over $200 billion in claims 
data covering the past 5 years, and they incorporate data 
mining into their daily activities.
    Examples of recent findings resulting from the use of one 
and sometimes multiple applications in our data mining toolbox 
include: fees paid to managed care companies after a Medicaid 
recipient has been admitted to an assisted living or a nursing 
home; multiple client identification numbers used for the same 
recipient; the pharmacies which reportedly provided home-
delivered prescriptions to patients who died weeks or months 
before; managed care plans and hospitals that bill Medicaid for 
prenatal services, as Jim already mentioned; the transportation 
company that bills Medicaid for patients who are dead, 
hospitalized, or incarcerated at the time the outpatient 
services were allegedly provided; and finally, those providers 
who do refund money when an agency review identifies an 
overpayment, but then rebills for those same claims 6 months or 
a year down the road.
    We need to move to a system which makes program integrity a 
major goal of oversight, investigative, and prosecutive efforts 
through the following principles.
    First, require and support effective corporate compliance 
programs and professional compliance officers. This can be 
done, in part, by holding senior executive board members 
accountable for failing to have systems in place to prevent 
improper billing. The Office of the Inspector General has done 
a great job of articulating its expectations for board members 
of hospitals and nursing homes. We need now to expand that 
effort.
    Literature has shown that frequent and predictable 
communication and interventions with providers are more 
effective than occasional severe sanctions.
    Next, as I mentioned earlier, we need to evaluate, support, 
and use administrative tools of payment suspension, prepayment 
review, audit, sanctions, and exclusions when appropriate.
    We also need to have regular discussions with providers, 
and we are regularly engaged in outreach with the provider 
community.
    We are finding fraud, waste, and abuse in recovering 
overpayments, but our ultimate goal, as I said, is to prevent 
those payments from being made in the first place. Toward that 
end, we are committed to educating the provider communities on 
ways to incorporate compliance into their day-to-day activities 
and to build integrity in on the front end of the program. Our 
efforts have contributed significantly to the integrity of the 
Medicaid program in New York and beyond, and we hope that our 
ideas will be replicated in other States as we as a Nation seek 
to improve the quality of health care for all citizens.
    Again, on behalf of the OMIG and New York, I thank you 
again for the opportunity to share these thoughts.
    [The prepared statement of Mr. Hussar follows:]

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    Senator Martinez. Thank you, sir, very much.
    Mr. Horne.

  STATEMENT OF STEPHEN C. HORNE, VICE PRESIDENT, MASTER DATA 
MANAGEMENT AND INTEGRATION SERVICES, DOW JONES ENTERPRISE MEDIA 
                      GROUP, EDGEWATER, NJ

    Mr. Horne. Good afternoon, Chairman Kohl, Ranking Member 
Martinez, Senator Graham.
    I have spent about 30 years working on building very 
complex databases, and as I am listening to the people here on 
the panel, it sounds like we have got an information problem.
    It has been well documented that there is a tremendous 
amount of waste, fraud, and abuse within the Medicare system. 
According to the recent Government Accountability Office 
report, the Centers for Medicare and Medicaid Services is now 
estimating there are about $10.4 billion improper payments made 
for just fee-for-service providers alone. That is out of the 
over $70 billion I understand is part of the overall waste, 
fraud, and abuse number.
    The Medicare system is made up of hundreds of processors, 
hundreds of thousands of providers, millions of recipients, all 
of whom can independently contribute to abuse. In the past, it 
was thought to be prohibitively expensive to rebuild the 
infrastructure to provide the information necessary to assert 
the proper controls over the Medicare system.
    The original computer systems that were designed to process 
Medicare claims were mostly based on older mainframe-based 
technology that were designed to efficiently process data at 
the lowest cost possible at the time of implementation. These 
systems are not very effective at creating useful analysis that 
could lead to a reduction in abuse.
    Today, it is cost-effective to extract the data from the 
current computer systems in near real time. Using specialized 
methods, data can be transformed into actionable information 
that can be analyzed by applying potentially hundreds of 
thousands of ``rule'' combinations to create true transparency 
and oversight of the Medicare system, capture those parts of 
the process that are susceptible, and provide the appropriate 
analysis to correct the problem.
    For example, you heard in the IG's report for inhalation 
therapy drugs in South Florida where 2 percent of the Medicare 
beneficiaries live. I believe, Senator Martinez, you also 
brought this up. The area accounted for 17 percent of the 
Medicare spending in 2007. Medicare paid almost $143 million, 
about 20 times greater than any other county except for Cook, 
which was the next largest county in total payments. Cook 
County is home to almost twice as many Medicare beneficiaries 
as in Miami-Dade.
    With today's technology, data mining, and analysis tools, 
the data that was found by the IG's audit would set off a 
series of alarms as soon of the thresholds of reasonable 
volumes were breached. This would create two possible 
opportunities for managing waste, fraud, and abuse.
    The first was we would be able to deny claims that were 
outside the bounds of reasonable norms as soon as they were 
identified and allow HHS and the IG to recover those claims 
paid that fell into the categories identified in near real 
time.
    Second, it would enable the IG's office to identify and act 
on problems as they occur rather than having to react to 
problems after the fact. Technology would not only reduce the 
amount of funds lost through waste, fraud, and abuse, but it 
would serve as a traffic cop for the Medicare system to deter 
misuse.
    The processes an individual claim may go through from 
submission through final disposition can sometimes be called a 
Rube Goldberg combination of procedures that no one can easily 
figure out, particularly when Medicare and Medicaid 
transactions intersect with each other.
    Databases, when programmed correctly, are much better at 
figuring out what we call ``tree logic'' that these claims 
follow and may branch off into multiple directions. We try to 
capture the information between the various rules and 
jurisdictions of each claim of the agencies and processes 
indicated on an individual claim. Although these claims my 
represent a fraction of the total claims processed by the 
system, they probably take up the majority of the expense of 
the processing cost because the amount of human interaction 
required to get them right. This is where there probably is the 
highest significant potential for pure waste.
    There is also a substantial what we call ``Pareto Factor'' 
in the system. Pareto's Law, also known as the 80-20 rule, 
applies in the case where 80 percent of instances of waste, 
fraud, and abuse occur in 20 percent of the total cases. I 
believe that further analysis will find that the numbers are 
more likely 90-10. Reducing the percentage of instances of 
problems and segmenting these problems into manageable groups 
will allow the system to manage the problems on a more cost-
effective basis. The present system is not capable of achieving 
comparable results because it cannot identify the 10 percent of 
the specific possibilities for waste, fraud, and abuse. I 
believe if you look at the CERT program, you will see that that 
is a 120,000-record sample out of millions of transactions. You 
cannot figure it out that way.
    According to the IG's office, the Government paid more than 
$1 billion in questionable Medicare claims for medical supplies 
just in 2007 that showed little relation to a patient's 
condition, including blood glucose strips for sexual impotence, 
special diabetic shoes for leg amputees, wheelchairs or 
wheelchair accessories for patients listed as having a deformed 
nose and sprained wrist. In cases such as these, the line 
between waste, fraud, and abuse are blurred because these 
errors, regardless of intent, would have been prevented if a 
codification validation system were in place.
    We can extend the life of the existing Medicare computer 
systems if they are used for the purposes that they were 
originally intended for, which is to process claims. Do not 
force them to do anything else. Outliers can be identified by a 
separate but connected computer system that incorporates 
technology-based data mining and analysis tools to enable CMS 
and the IG's office to effectively act in cases of fraud and 
abuse, and process management techniques can be initiated to 
counteract waste.
    Thank you, Mr. Chairman, Ranking Member Martinez, Senator 
Graham for your time and your attention.
    [The prepared statement of Mr. Horne follows:]

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    Senator Martinez. Thank you very much. Chairman Kohl had to 
be excused.
    Senator Graham has a couple of questions, and then I have 
some myself. So we will call on Senator Graham.
    Senator Graham. Well, thank you, Senator Martinez. To you 
and the chairman, I really appreciate having this hearing, and 
I know people are busy, but I cannot think of a more important 
topic than waste, fraud, and abuse when it comes to Medicare 
and Medicaid. If you are serious about health care reform, you 
have to be serious about this topic. If you asked any audience 
in America how many people in this room believe that waste, 
fraud, and abuse is a problem with Medicare and Medicaid, and 
you have experienced some of it, everybody raises their hands. 
The numbers are staggering.
    But one observation, Mr. Frogue--is that how you pronounce 
your name? Mr. Horne. You have given some examples of a lot of 
abuse that really was not caught in the example of a 
wheelchair. You talked about American Express and credit card 
companies and FedEx being able to do a better job tracking the 
flow of inventory and finding out where the dollars are.
    To me the big difference is that in a private sector 
enterprise, if you allow people to rip you off, you go out of 
business. When it is my money, I am a lot more concerned about 
being ripped off if I got to pay my credit card bill 
fraudulently or somebody ripped my credit card bill off or they 
did something that affects my pocket. The problem here is that 
we are not stealing money from individual pockets, and there is 
no bottom-line effect. We just print more money.
    Do you not think that is a basic problem, Mr. Frogue? A big 
difference?
    Mr. Frogue. I think you hit the nail right on the head, 
Senator Graham. That is exactly right. We also recognize the 
problem of a third party payor system where if a third person 
is paying the bill and you are in a transaction, the purchasers 
does not spend money as wisely. Medicaid is actually a fourth 
party payor system where there is yet another entity, which is 
the Federal Government, paying the bill. So people care even 
less.
    Senator Graham. We have got to fix that somehow. We have 
got to make people care. Senator Martinez mentioned that an 
insurance adjustor in a worker's comp--you have people 
following around false claims all the time because it puts the 
insurance company out of business if I pay too many false 
claims.
    So we have got to somehow get people caring more because it 
is bankrupting future generations. The amount of money we are 
spending on Medicare and Medicaid alone in 20 years is going to 
equal the entire discretionary budget. So this may not be 
coming directly out of a pocket and it does not affect the 
bottom line of a business. It affects your kids and your 
grandkids.
    So I would like, if you could, to me or the committee--you 
have all given a lot of input. Could you in one or two pages 
put down a consensus among yourselves, talk among yourselves, 
as to the things that this committee and this Congress could do 
to deal with fraud? Because you have given a lot of 
information, but if you sat down in a room, I bet you could 
find the top four or five things we need to do.
    Second, as to caring, I know that prosecution alone is not 
going to work. It is like the horse is out of the barn deal. 
You want to prevent it. But I have found, being a military 
officer, that when the military got very serious about DUIs--if 
you had a DUI as a senior NCO or an officer, your career was 
over. The culture in the military was to drink every Friday and 
people got home the best they could. When we got serious about 
cracking down on driving under the influence, it really did 
change because people realized that if I get caught with a DUI, 
my career is over.
    So I would urge you--is it Mr. Acosta?
    Mr. Acosta. Yes.
    Senator Graham. To not discount so much--I want to work 
with Senator Martinez and Senator Kohl to increase penalties 
dramatically. I really do want to send a signal that if you are 
robbing the system, you are cheating the system, you are 
hurting the country. We are going to look at dramatically 
increasing the penalties.
    Senator Martinez. Would you comment on that, Mr. Acosta, 
because I think you probably have some ideas of how we could do 
that?
    Mr. Acosta. Well, certainly, Senator. Let me emphasize when 
I say that prosecution is not the solution, in no way, shape, 
or form--
    Senator Graham. I totally agree with that.
    Mr. Acosta [continuing]. Am I discounting the value of 
prosecution. Since beginning the initiative in 2006, we went 
from prosecuting $186 million in fraud a year to nearly $800 
million in fraud a year. My only point is with the limited 
prosecutorial resources, there is a limit to how many cases can 
be brought.
    One thing that I think is worth noting is we are seeing--
and some patterns that we see are, I think, quite interesting. 
We see individuals that used to engage in drug dealing, for 
example, that will say quite openly--and these are individuals 
that have now been convicted.
    Senator Graham. The cost of doing business is lower.
    Mr. Acosta. The cost of doing business is safer to engage 
in Medicare fraud and it is more profitable to engage in 
Medicare fraud, and so we are now engaging in Medicare fraud.
    Senator Graham. I have to go here. With your help, give us 
some idea, not now but later on, about how we could increase 
the penalty scheme to make the cost of doing business here 
unacceptable for a large percentage. There will always be 
people trying to cheat. But you go where it is easiest to cheat 
and where the penalties are the least. I think Senator Martinez 
and myself are convinced that if we increase penalties, the 
cost of doing business would be harder and it might, at least 
on the margins, affect the people involved.
    So thank you all for what you are doing for our country.
    Senator Martinez, this is a great hearing. Let us stay on 
this topic because I think this is one place for 
bipartisanship.
    Senator Martinez. Thank you, Senator Graham. I appreciate 
it.
    I wanted to follow up with a few questions of my own. Mr. 
Acosta, I wanted to ask you because it is so embarrassing that 
the State of Florida seems to be absolutely in the lead here, 
even beyond Cook County, which I find astounding. Why do you 
think Florida has such a problem with this fraud?
    Mr. Acosta. Well, Senator, it is difficult to say with 
specificity. South Florida is, unfortunately, a leader in many 
types of fraud from Medicare fraud to mortgage fraud. So South 
Florida has one of the largest U.S. Attorney's offices because 
we have one of the largest law enforcement challenges.
    All that said, because we are focusing so much on health 
care fraud and because we are working so closely with the 
Inspector General's Office, we are the subject of heightened 
scrutiny. I think that is great, but that does focus the eye on 
South Florida. In the same way that in South Florida, whether 
it is HIV infusion or inhalers or now where we are putting our 
focus is home health care, we see those particular types of 
fraud in other parts of the country. I am certain that other 
types of fraud are sort of the fraud du jour.
    Different regions have different payor systems, and as a 
result there are different frauds that we see in different 
parts of the country. I say that because a solution to this 
would not simply be to begin demonstration programs in South 
Florida. That does not address the issue. It really has to be a 
nationwide set of solutions.
    Senator Martinez. Well, I can also imagine if prosecutions 
continue like you have done them in south Florida, the problem 
will only move elsewhere because it will be easier to do it 
someplace else.
    Mr. Acosta. I have spoken with my colleague in the Central 
District of Florida, in the Tampa-Orlando region, that has 
noticed an increase in frauds, and I have also been told that 
Atlanta is now seeing an increase in frauds as people leave 
South Florida and set up shop, unfortunately, elsewhere.
    Senator Martinez. Mr. Levinson, one of the durable medical 
equipment issues that I have noticed is how can we look at that 
problem, which seems to be so flagrant, and create some 
safeguards that might prevent some of that from occurring as we 
go forward? Do you have any suggestions there?
    Mr. Levinson. Mr. Martinez, I think it would be especially 
valuable to focus on enrollment, on who gets into the program. 
Historically Medicare has been very, very concerned with 
access, understandably so especially in the early years of the 
program. But as the program has matured over the years and as 
the population affected has truly exploded in growth, the 
paperwork, the filtering, the need to focus on who should be in 
the program has not kept pace. Rather than have enrollment in 
Medicare as a privilege, in effect a special opportunity, it is 
simply treated too much as ``fill out the form''. If you have 
the form right, you get the number and you are in the Medicare 
program. We need to do a much better job of controlling 
enrollment because it is a whole lot easier, if possible, to 
keep the fraudster out of the program in the first instance 
than to try to catch up later to do what often is a pay-and-
chase.
    Senator Martinez. What about the fraudulent billing part of 
the business, if you will? Do you have any recommendations?
    Mr. Levinson. Well, we in the course of our studies, 
certainly have identified excessive reimbursement for a variety 
of DME equipment. We think that getting prices better aligned 
with the market would make DME fraud a less attractive target 
over time. So it is important to make sure that as CMS looks at 
its reimbursement policies, that we get a better alignment with 
real marketplace pricing.
    Senator Martinez. Mr. Frogue, have any States begun to 
place Medicaid data online while, at the same time, protecting 
the identity of patients?
    Mr. Frogue. Senator Martinez, that is a great question. 
Governor Sanford in South Carolina has a version of this where 
you can search any provider in the State and get the amount of 
money they receive and the number of patients they treat. It is 
a good first step. I think the next step after that is more 
along the lines of where you are trying to go, which is to get 
all the claims online in a usable fashion so not only can you 
track all the dollars, but track the health outcomes of every 
provider because there are very, very wide discrepancies in 
which hospital is most likely to kill you. That is good 
information to have. It does not matter where you are in the 
political spectrum. You want to know which hospital is more 
likely to kill you. The data--it is all there and we just have 
to access it.
    As Mr. Horne said, it is just an information problem. If we 
use better tools--and again, these tools are all in the private 
sector, FedEx, UPS, any large retailer. Everywhere else it 
exists. This is not theory. We just need to apply the best 
practices to health care.
    Senator Martinez. Explain to me, if you could, the 
difference in the Medicare and Medicaid fraud?
    Mr. Frogue. I think it is substantial in both. Again, the 
data explains it better than anything. There are a lot of 
examples of fraud all over the country and not only in South 
Florida but in every region of the entire United States. It is 
different but it is substantial in every program and in every 
State, but it is difficult to track because the information 
technology is so poor and the incentives, as Senator Graham 
pointed out, are not there to actually not have it occur in the 
first place.
    Senator Martinez. Mr. Hussar, what has the State of New 
York done to focus more on the investigation of Medicaid fraud?
    Mr. Hussar. We have taken essentially three approaches. No. 
1, as some of the other witnesses have testified to, we have 
put in mandatory compliance programs. So we put some of the 
onus on providers to adopt effective compliance programs to 
really build integrity in on the front end of the program and 
self identify and report internet problems.
    No. 2, we have engaged in effective measurement of program 
integrity. We believe that that measurement has to go beyond 
just the amount of--I am sorry--rather, the amount of 
recoveries or the number of prosecutions. We need to look also 
at cost avoidance to make sure that we have a consistent, well-
publicized process to evaluate our effectiveness. I think there 
is a common saying that we manage what we measure, and we need 
to make sure that we are measuring the right thing.
    Third, we publicize and utilize, to a great extent, our 
exclusion and other administrative tools. We want to make sure 
that we get people out of the program who do not deserve to be 
in there, people who are billing the program inappropriately, 
people who are unable on who fail to come into compliance with 
established professional standards.
    Again, a lot of this is done through data mining. We have 
data mining that goes on throughout our organization. We have 
virtually real-time access to our claims data, and that ensures 
that all of our individuals, whether they be clinicians, 
auditors, or investigators, can look at what the latest trends 
are and address concerns as they arise.
    If I may, Senator Martinez--
    Senator Martinez. Yes, please.
    Mr. Hussar [continuing]. Just to follow up on Inspector 
General Levinson's remarks on DME. I think there are three 
areas that New York has engaged in that have been effective, 
that do relate to the pre-enrollment process.
    First, we have a density analysis that we perform by 
geographical location to make sure that we do not have an 
oversupply of providers within a particular community. 
Obviously, if there are too many providers, it may lead to 
inappropriate billing.
    Second, we ensure that the entities need to be viable 
beyond just the Medicaid reimbursement, that they can survive 
on Medicare and other third party insurance, lest they be 
forced to focus on inappropriate alternatives.
    Finally, we conduct pre-enrollment site visits to make sure 
that they actually stock the appropriate items, that they are 
not just a storefront--
    Senator Martinez. It seems pretty basic. I mean, you go see 
if they really are in business before you start sending them 
checks.
    Mr. Hussar. Right, and we do see a number of times where 
they do have a storefront setup where the mail is piled up 
outside and clearly no one has been there.
    Senator Martinez. Mr. Acosta showed me a picture of a 
closet with some half-used cans of paint that acted as the 
storefront or the supposed place of business for one of these 
entities.
    Mr. Frogue.
    Mr. Frogue. Senator, if I might--
    Senator Martinez. It would be really funny if it was not so 
sad and if it was not our taxpayer dollars and the future of 
our children.
    Mr. Hussar. Well, and if they were not trying to pass 
Reeboks off as medical shoes.
    Senator Martinez. Yes.
    Mr. Frogue. To add to either a sad or funny quotient, there 
is a State representative who I spoke to in preparation for 
this, Julio Robaino, in Miami who said right next to his 
district office he watches busloads of people pull up, walk 
into a fake DME provider, and walk out counting their cash. 
This is literally right underneath his nose. So this is so 
obvious and so apparent.
    Again, there are tools in the private that are very common 
which are not applied to health care.
    Senator Martinez. We did this Whack-a-Mole operation. How 
many of these 491 durable medical equipment companies were 
expelled from billing Medicare after Operation Whack-a-Mole, 
Mr. Acosta, Mr. Levinson?
    Mr. Acosta. Well, I believe the majority were recommended 
that they be de-licensed, but that then went into the CMS 
administrative process, and I believe Mr. Levinson might be in 
a better position to--
    Senator Martinez. It went into the CMS administrative 
process. I do not think I like where this is going.
    Mr. Levinson. It, nevertheless, has a reasonably happy 
ending in terms of enforcement because many of those who had 
appealed were ultimately denied readmission to the program. 
This was an exercise that I think is worth reminding everyone 
concerned that this involved is a very small number of the 
basic requirements for enrollment in the program. Investigators 
and inspectors were only looking at some of the bare minimum 
requirements, you know such as, do you have an office? Do you 
have office hours? Are you open during office hours--not even 
getting to the admittedly more complicated requirements of 
running a business. So this was really a threshold effort that 
unexpectedly resulted in scores of DME providers being thrown 
out of the program and who remain out of the program.
    Mr. Acosta. Senator, if I may. I was just provided some 
numbers. Of the 491, 243 appealed and received hearings before 
CMS. Those hearings traditionally are one-sided in that the 
provider has the hearing before the CMS administrative agent, 
but the Government is not necessarily there. Of those, 222 were 
reinstated. We subsequently prosecuted several of those. Upon 
conviction, they then were finally brought out of the Medicare 
system. So I can provide further details.
    Senator Martinez. It would be nice if you would provide 
those details for the record.
    Mr. Acosta. But certainly the way it proceeds, the CMS 
administrative process reinstated their numbers until they were 
not just charged but then subsequently convicted.
    Senator Martinez. Mr. Horne, a computer system, it would 
seem to me--and I am not a computer person, but I can just see 
how it would be so easy to have a system that would analyze the 
data to provide minimal sorts of checks. We are talking about a 
$60 billion fraud bill. I would bet it is higher. What do you 
think could be done in terms of providing a system that would 
be effective and also at what cost?
    Mr. Horne. Well, I think you have to look at it in a couple 
of different ways.
    First, I want to sort of congratulate you, Senator, on the 
fact that you and your staff, you being an original sponsor of 
the TARP transparency bill, and your staff looked at me and 
said, if you could do TARP transparency, could you also do 
Medicare transparency? Data is data. So the reality is that 
yes, not that it is simple because nothing from this is simple. 
It takes grunt work, but from a logic standpoint, it is very 
straightforward. It is take the data, put it into a structured, 
normalized format, examine it, analyze where the anomalies are, 
process the claims through that should be processed through, 
flag the ones that should not, and put actions in place to stop 
those behaviors. It is straightforward.
    You heard members of this panel say over and over again 
part of issue was in terms of prosecution and the actual CMS 
review process. These are all processes. Processes can be 
fixed. Processes can be changed. But if you do not identify 
where the issues are in the first place--and what is happening 
now is in most cases, the IG's Office, the special prosecutor's 
office have to go and find the problem. Systems will bring 
those problems to the surface.
    Senator Martinez. Well, maybe it would prevent them from 
ever becoming a problem in the first place.
    Mr. Horne. Prevent them from ever happening in the first 
place because you would know that somebody is actually in 
violation at the point of violation, not at the point 6 months 
down the road where you show up at the doorstep and there is 
paint in the closet, if you get my drift. That is kind of the 
way that this happens.
    What happens is that these people do migrate. They will 
become sort of like a migratory bird flying around the country 
going from place to place where they can set up new shops. They 
can be identified. They can be identified and thwarted before 
they ever get to the point of setting up shop.
    Senator Martinez. Right.
    Mr. Acosta. If I may comment on the systems, as well, with 
a specific example. One of the things that we did through our 
initiative--I do not know if it is still the case, but we were 
the first U.S. Attorney's Office in the Nation to interface 
with and collocate with the Office of Inspector General so that 
we now have agents with the Bureau and OIG and prosecutors 
working side by side. What that has also done is give us access 
to data which is very important.
    One of the ways that we have identified many of our cases 
is I have directed our prosecutors and Federal agents to look 
for suppliers that are billing for providing medical services 
to a substantial number of patients that live more than X miles 
from where that provider is located on the theory that most 
people do not travel a few hundred miles to receive their 
inhaler or to get their wheelchair. These companies are getting 
individuals' numbers from around the Nation and they are 
billing Medicare for providing those services.
    Senator Martinez. It is common sense stuff.
    Mr. Acosta. Very, very common sense, and what is so painful 
about this is that there are very common sense algorithms that 
can be used that we run on a manual basis because we have to do 
it that way. But there are a number of common sense solutions 
that credit card companies do all the time that could be 
applied to that data. That is how we identify so many of those 
cases.
    Mr. Horne. Senator Martinez, just as a comment on what the 
prosecutor was saying, I have built or been involved with 
building systems such as the UPS tracking system, such as the 
American Express system. I was involved in some of the original 
on their business cards, working with IBM in terms of their 
global customer management system.
    These are processes that are exactly the same from company 
to company. It does not change. Your staff saw so clearly that 
the TARP process and this process--it is data. What inhibits 
the people who are responsible for tracking these things from 
getting the job done as easily as they could is because they 
have to go find the data. If you just gave them information, 
which is the transformation of data into usable knowledge that 
they can act upon, then we can limit this process, a lot of the 
exercise up front dramatically, and put them in the position 
where they can go after the worst offenders in order and 
literally get them out of the way, categorize them, and then 
build all the flags and alarms into the system that set off as 
soon as a problem has occurred.
    Senator Martinez. Understood.
    Well, thank you all very, very much for participating on 
the panel. To those of you who are fighting this every day, I 
appreciate what you are doing and thank you. We look forward to 
perhaps having you put together some of the answers that 
Senator Graham requested because I think it would help us to 
have some of your specific recommendations on how we can help 
alleviate the problem. It is obvious that there is need for 
legislation. There is a need for more resources and a common 
sense approach.
    As we look at the future of health care in America--and we 
are about to have a big debate in the Congress about perhaps 
enlarging the role of Government in health care. It is 
frightening to think that what is being done today with the 
money that is being spent on Medicare and Medicaid would apply 
tenfold, and the fraud that is happening in this program would 
be no different than any other. If we are talking about 10 
percent of the money being wasted basically by criminality and 
waste and fraud, imagine 17 percent of GDP being treated the 
same way. It would bankrupt our Nation. So this is important. 
It is timely.
    I thank you for being with us. I thank you for your work.
    At this point, I will declare the hearing adjourned.
    [Whereupon, at 4:20 p.m., the hearing was adjourned.]


                            A P P E N D I X

                              ----------                              


         Daniel Levinson Response to Senator Martinez Question

    Question. You testified that of the 1,581 durable medical 
equipment suppliers that DOJ, HHS-OIG, and CMS visited in 2007 
in South Florida, 491 failed to maintain a physical facility or 
were not open for business and staffed. How many of the 491 
durable medical equipment suppliers were referred for 
revocation of billing privileges? How many suppliers' billing 
privileges were actually revoked? How many appealed the 
revocation? How many were reinstated after appeal? Of those 
that were reinstated, how many were ultimately convicted or 
agreed to settle?
    Answer. As set forth in our report entitled ``South Florida 
Durable Medical Equipment Suppliers: Results of Appeals 
(October 2008),'' OIG and CMS staff conducted unannounced site 
visits to 1,581 suppliers located in Miami-Dade, Broward, and 
Palm Beach Counties. OIG found that 491 of these suppliers 
failed to maintain physical facilities or were not open and 
staffed during the unannounced site visits as required.
    All the 491 suppliers were referred to CMS so that CMS 
could consider revoking their billing privileges. CMS 
subsequently revoked these suppliers' billing privileges. 
Nearly half of the suppliers appealed and received hearings; 
hearing officers conducted hearings for 243 of the 491 revoked 
suppliers. Billing privileges were reinstated for 222 of the 
243 suppliers. As of March 2008, the billing privileges of half 
of the suppliers (111 of 222) that were reinstated by hearing 
officers have subsequently been revoked as a result of National 
Supplier Clearinghouse's follow-up project and its continuing 
efforts to identify suppliers that do not meet Medicare 
standards. In addition, 17 percent of the suppliers (37 of 222) 
have had their billing privileges inactivated. As a result, 
two-thirds of suppliers whose billing privileges were 
reinstated by hearing officers (148 of 222) had their 
privileges revoked again or inactivated by CMS.
    Between April and September 2007, the U.S. Attorney's 
Office indicted 18 individuals connected to 15 of the 222 
reinstated suppliers. As of April 2008, 10 of the 18 
individuals had been convicted, sentenced to jail terms, and 
ordered to pay restitution. Six of the eight remaining 
individuals have since been sentenced to jail terms and ordered 
to pay restitution. Two of the eight individuals are currently 
fugitives.

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