[Senate Hearing 111-322]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 111-322
 
        CRIMINAL PROSECUTION AS A DETERRENT TO HEALTH CARE FRAUD

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

                                HEARING

                               before the

                    SUBCOMMITTEE ON CRIME AND DRUGS

                                 of the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 20, 2009

                               __________

                          Serial No. J-111-26

                               __________

         Printed for the use of the Committee on the Judiciary



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                  PATRICK J. LEAHY, Vermont, Chairman
HERB KOHL, Wisconsin                 JEFF SESSIONS, Alabama
DIANNE FEINSTEIN, California         ORRIN G. HATCH, Utah
RUSSELL D. FEINGOLD, Wisconsin       CHARLES E. GRASSLEY, Iowa
CHARLES E. SCHUMER, New York         JON KYL, Arizona
RICHARD J. DURBIN, Illinois          LINDSEY O. GRAHAM, South Carolina
BENJAMIN L. CARDIN, Maryland         JOHN CORNYN, Texas
SHELDON WHITEHOUSE, Rhode Island     TOM COBURN, Oklahoma
RON WYDEN, Oregon
AMY KLOBUCHAR, Minnesota
EDWARD E. KAUFMAN, Delaware
ARLEN SPECTER, Pennsylvania
            Bruce A. Cohen, Chief Counsel and Staff Director
                  Matt Miner, Republican Chief Counsel
                                 ------                                

                    Subcommittee on Crime and Drugs

                 ARLEN SPECTER, Pennsylvania, Chairman
HERB KOHL, Wisconsin                 LINDSEY O. GRAHAM, South Carolina
DIANNE FEINSTEIN, California         ORRIN G. HATCH, Utah
RUSSELL D. FEINGOLD, Wisconsin       CHARLES E. GRASSLEY, Iowa
CHARLES E. SCHUMER, New York         JEFF SESSIONS, Alabama
RICHARD J. DURBIN, Illinois          TOM COBURN, Oklahoma
BENJAMIN L. CARDIN, Maryland
AMY KLOBUCHAR, Minnesota
EDWARD E. KAUFMAN, Delaware
               Hanibal Kemerer, Democratic Chief Counsel
                  Walt Kuhn, Republican Chief Counsel


                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

Kaufman, Hon. Edward E., a U.S. Senator from the State of 
  Pennsylvania...................................................     2
Klobuchar, Hon. Amy, a U.S. Senator from the State of Minnesota..     5
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont, 
  prepared statement.............................................    62
Specter, Hon. Arlen, a U.S. Senator from the State of 
  Pennsylvania...................................................     1

                               WITNESSES

Breuer, Lanny A., Assistant Attorney General, Criminal Division, 
  U.S. Department of Justice, Washington, D.C....................     3
Dilweg, Sean, Commissioner of Insurance, State of Wisconsin, 
  Madison, Wisconsin.............................................    18
Farrar, Sheri, Executive Director, Special Investigations 
  Department, Health Care Service Corporation, Chicago, Illinois.    15
Sparrow, Malcolm, Professor of Practice of Public Management, 
  Malcolm Wiener Center for Social Policy, John F. Kennedy School 
  of Government, Harvard University, Cambridge, Massachusetts....    12

                         QUESTIONS AND ANSWERS

Responses of Sheri Farrar to questions submitted by Senator Wyden    22
Responses of Malcom Sparrow to questions submitted by Senator 
  Wyden..........................................................    24
Question submitted by Senator Wyden to Sean Dilweg (Note: 
  Responses to questions were not received as of the time of 
  printing, March 30, 2010.).....................................    25

                       SUBMISSIONS FOR THE RECORD

Breuer, Lanny A., Assistant Attorney General, Criminal Division, 
  U.S. Department of Justice, Washington, D.C., statement........    26
Dilweg, Sean, Commissioner of Insurance, State of Wisconsin, 
  Madison, Wisconsin, statement and attachment...................    40
Farrar, Sheri, Executive Director, Special Investigations 
  Department, Health Care Service Corporation, Chicago, Illinois, 
  statement......................................................    48
Sparrow, Malcolm, Professor of Practice of Public Management, 
  Malcolm Wiener Center for Social Policy, John F. Kennedy School 
  of Government, Harvard University, Cambridge, Massachusetts:
    Statement....................................................    64
    Fraud in the U.S. Health-Care System: Exposing the 
      Vulnerabilities of Automated Payments Systems, report......    73


        CRIMINAL PROSECUTION AS A DETERRENT TO HEALTH CARE FRAUD

                              ----------                              


                        WEDNESDAY, MAY 20, 2009

                                       U.S. Senate,
                           Subcommittee on Crime and Drugs,
                                Committee on the Judiciary,
                                                   Washington, D.C.
    The Subcommittee met, pursuant to notice, at 2:30 p.m., in 
room SD-226, Dirksen Senate Office Building, Hon. Arlen 
Specter, Chairman of the Subcommittee, presiding.
    Present: Senators Specter, Klobuchar, Kaufman, and 
Sessions.

 OPENING STATEMENT OF HON. ARLEN SPECTER, A U.S. SENATOR FROM 
                   THE STATE OF PENNSYLVANIA

    Chairman Specter. The hour of 2:30 having arrived, we will 
proceed with this hearing of the Subcommittee on Crime and 
Drugs of the Committee on the Judiciary of the U.S. Senate.
    The subject today focuses on the use of tough sanctions, 
criminal penalties instead of fines, to hold down costs on 
Medicare and Medicaid fraud as a key part of the effort to have 
health care reform this year. President Obama has identified 
health care reform as the No. 1 item on his agenda for the year 
2009. There is no doubt of the need for reform, with some 47 
million-plus Americans either uninsured or underinsured. One of 
the big issues is going to be how we are going to pay for it.
    In an extended floor statement earlier this week, I 
outlined a number of lines to accomplish that. One is increased 
funding for the National Institutes of Health. What better way 
to hold down the costs than to prevent illness? The increase 
from $12 to $30 billion through the leadership of Senator 
Harkin and myself has provided, I think, a causal relationship 
on reducing fatalities in strokes and various forms of cancer 
and heart disease. The issue of exercise and diet offers the 
prospect for holding down health care costs. Early 
intervention, with coverage for all Americans, offers the 
prospect for holding down costs of chronic illness by 
interceding at an early date. The use of advance directives is 
an item which will be very, very helpful with very substantial 
Medicare costs in the last few hours, few days, few weeks of a 
person's life. And today's focus, as I said, is on the use of 
jail sentences, tough criminal sanctions to reduce the 
incidence of Medicaid fraud and Medicare fraud.
    From my own experience as District Attorney of 
Philadelphia, I saw firsthand the assistance of jail sentences 
holding down white-collar crime. If you deal with a domestic 
dispute or you deal with a barroom knifing, that kind of an 
emotional matter, spur of the moment, unaffected really by 
sentencing. But white-collar criminals are thoughtful, and that 
has real potential.
    Let me thank Senator Kaufman for coming and yield to him 
for an opening statement.

 STATEMENT OF HON. EDWARD E. KAUFMAN, A U.S. SENATOR FROM THE 
                       STATE OF DELAWARE

    Senator Kaufman. Thank you, Mr. Chairman. I am finding this 
job--you know, change is always hard in dealing with it, and I 
am still getting used to being a Senator, and I am getting very 
used to and very, very happy about having our Chairman be our 
Chairman. And talk about hit the ground running in terms of 
getting right on to the business of the people, and I think 
this is a great hearing, Mr. Chairman, and I want to thank you 
for holding it.
    Chairman Specter. Thank you, Senator Kaufman, and my thanks 
to Senator Durbin, who generously yielded his gavel for me to 
chair this Subcommittee, and my thanks to Senator Reid, the 
Majority Leader, for the approval and Senator Leahy, the 
Chairman, for his acquiescence in my taking on the 
chairmanship.
    Mr. Breuer, if you would stand to be sworn. Do you solemnly 
swear that the testimony you will give before this Subcommittee 
will be the truth, the whole truth, and nothing but the truth, 
so help you God?
    Mr. Breuer. I do.
    Senator Specter. I begin by thanking you for rearranging 
your schedule to come here on short notice. We know you have a 
signing ceremony in the White House, and we will get you to the 
White House, also known as the ``church,'' on time.
    Mr. Breuer comes to this position after undergoing rigorous 
confirmation hearings in that chair, questioning by the probing 
members of this Judiciary Committee. He began his career as an 
assistant district attorney in Manhattan, where he prosecuted a 
wide variety of cases. My own personal view is that is the best 
experience of all. People ask me what the best job I ever had 
was--Senator or district attorney. I say assistant district 
attorney. That is where you get to question witnesses and 
really dig into the tough trial work, which is great to 
experience.
    In 1989, he joined Covington & Burling, becoming a partner 
in 1995, co-chair of the white-collar defense and 
investigations practice group, specialized in white-collar 
crime, complex civil litigation, internal corporate 
investigations, congressional investigations, and antitrust 
cartel proceedings. From 1997 to 1999, he served as special 
counsel to President Clinton. He has been recognized by 
numerous publications as a leading litigator and a fellow of 
the American College of Trial Lawyers. Excellent academic 
background with a bachelor's degree from Columbia and a law 
degree from Columbia.
    Thank you for coming, Mr. Breuer, and the floor is yours.

   STATEMENT OF LANNY A. BREUER, ASSISTANT ATTORNEY GENERAL, 
CRIMINAL DIVISION, U.S. DEPARTMENT OF JUSTICE, WASHINGTON, D.C.

    Mr. Breuer. Thank you so much, Mr. Chairman, for having me, 
and Senator Kaufman. Thank you for giving the Department of 
Justice the opportunity to appear before you today to discuss 
the Department's efforts to fight and deter health care fraud.
    Health care fraud is one of the Department's top 
enforcement priorities, as the Chairman just noted. We firmly 
believe that greater investment in enforcement will pay 
significant dividends in our efforts to deter fraud and 
safeguard the billions of dollars in Federal health care 
spending each year.
    As you know, health care fraud is an enormous problem. 
Federal and State spending on Medicare and Medicaid exceeds 
$800 billion per year and is expected to double in the next 10 
years. According to various estimates, somewhere between 3 and 
10 percent of this spending is lost to waste, fraud, and abuse. 
Even at the low end, that amounts to $25 billion lost in 2008 
alone. We must--must--staunch the bleeding, and we are 
committed to doing so.
    Indeed, the Department has been vigorously fighting health 
care fraud for years. Since 1997, working with our enforcement 
partners in the Department of Health and Human Services, the 
Department's civil and criminal enforcement efforts have 
returned more than $14 billion to the Federal Government, and 
resulted in more than 5,000 criminal convictions and exclusions 
from Federal health care programs.
    In just the first 8 months of the fiscal year, we have 
recovered almost $1 billion under the civil False Claims Act. 
In addition, in 2008 alone, Department prosecutors obtained 
over 500 convictions in health care fraud cases, an all-time 
high for the Department.
    In part, this success in our criminal enforcement efforts 
is due to a new strategic approach to health care fraud 
prosecutions: our Medicare Fraud Strike Forces. In May of 2007, 
the Departments of Justice and Health and Human Services 
announced an interagency effort to prosecute durable medical 
equipment suppliers, infusion clinics, pharmacies, and other 
individuals and entities who blatantly steal from Medicare by 
billing unnecessary or non-existent services.
    The Medicare Fraud Strike Forces represent an innovative 
approach to health care fraud prosecutions. They are data-
driven, community-based, real-time prosecutions. Coordinated 
teams of investigators and prosecutors analyze Medicare claims 
data to target specific geographic areas showing unusually high 
levels of Medicare billing, all in an effort to combat ongoing 
crime by the worst offenders.
    This approach to health care fraud prosecutions has proven 
to be a powerful weapon in the fight against fraud in our 
Federal health care programs. To date, Medicare Fraud Strike 
Forces in Miami and Los Angeles have obtained 129 guilty pleas 
and 18 trial convictions, resulting in 113 sentences with an 
average length of 45 months in jail, approximately 1 year 
longer than the national average for health care fraud 
prosecutions. Seven of those sentences were 10 years or more, 
including one sentence of 30 years for a doctor in Miami who 
fraudulently billed Medicare for $11 million in unnecessary 
HIV/AIDS infusion therapy.
    We are seeing tangible results from these efforts. The work 
of the Medicare Strike Force in Miami alone contributed in the 
task force's very first year of operation to a $1.75 billion 
drop in claims submitted and a $334 million decrease in claims 
paid by Medicare. These results were achieved in a single 
county in South Florida, proving that targeted enforcement 
works and that investment in health care fraud enforcement is 
worth every penny.
    Indeed, our combined civil and criminal enforcement efforts 
have returned almost $4 to the Medicare Trust Fund for every 
dollar of funding that Congress has provided to Federal law 
enforcement agencies.
    Of course, despite these accomplishments, there is always 
much more to be done, and just today, the Departments of 
Justice and Health and Human Services took some additional 
significant steps to ramp up our prevention and enforcement 
efforts even further.
    Approximately an hour ago, the Attorney General and 
Secretary Sebelius announced the formation of a senior-level 
task force designed to bring together the leadership of their 
Departments to tackle health care fraud across the country. 
This task force, to be named the Health Care Fraud Prevention 
and Enforcement Action Team, or HEAT, will increase 
coordination, intelligence sharing, and training among our 
investigators, agents, and prosecutors.
    As a top priority, the task force will look at how we can 
better share real-time intelligence data on suspected fraud by 
closely monitoring claims payment data, identifying problematic 
billing patterns immediately, and investigating those suspected 
of stealing. This enhanced coordination between the two 
agencies will provide a vital link in our ongoing efforts. The 
Attorney General also announced today that we have expanded our 
strike force operations into Detroit and Houston.
    As we saw in the example from Miami that I described a few 
minutes ago, targeted enforcement, now also aimed at Detroit 
and Houston, offers immediate and sustained benefits. We urge 
Congress to support the administration's request for additional 
funding to support these efforts. With additional funding, we 
can deploy additional strike forces to target emerging and 
migrating fraud schemes in other areas across the country.
    In closing, let me assure you that the Department of 
Justice will remain steadfast in its pursuit of health care 
fraudsters. We look forward in the months and years ahead to 
working with Congress to identify and pursue legislative and 
regulatory reforms focused on the prevention, deterrence, and 
prosecution of health care fraud.
    Mr. Chairman, thank you for allowing me to share the 
Department's views today on this important issue, and I welcome 
any questions.
    [The prepared statement of Mr. Breuer appears as a 
submission for the record.]
    Chairman Specter. Thank you very much, Mr. Breuer.
    We have been joined by Senator Klobuchar. Would you care to 
make an opening statement?

STATEMENT OF HON. AMY KLOBUCHAR, A U.S. SENATOR FROM THE STATE 
                          OF MINNESOTA

    Senator Klobuchar. Well, Mr. Chairman, I want to welcome 
you as our new Chair.
    Chairman Specter. Thank you.
    Senator Klobuchar. And thank you for having your first 
hearing on this very important topic. As a former prosecutor 
that also in my civil role as a county attorney represented the 
biggest emergency care hospital in our State, I have always 
been especially interested in this issue of waste and abuse in 
our health care system. I think we all know the figures about 
our rising health care costs, and we know it is not all 
attributable to fraud and abuse. But if we can do anything to 
weed out the fraud and abuse with some estimates being that it 
is at least 3 to 10 percent of the total amount of money that 
we spend on health care, I think we should do it.
    So I want to thank Mr. Breuer and Attorney General Holder 
and the HHS Secretary for setting up this new group that is 
going to pursue these fraud cases. I think it is a very 
important endeavor, and I look forward to talking with you more 
about it.
    Chairman Specter. Thank you very much, Senator Klobuchar.
    Mr. Breuer, later this afternoon, as I mentioned earlier, 
you are going to a legislation signing ceremony at the White 
House on the Fraud Enforcement and Recovery Act of 2009. That 
legislation provides for an additional $165 million for fiscal 
years 2010 and 2011 for the FBI, U.S. Attorneys, and the 
Criminal Division of the Department of Justice. What do you 
expect to do with that money focused specifically on the 
subject of today's hearing, and that is, to get tough on health 
care fraud with jail sentences?
    Mr. Breuer. Mr. Chairman, the FERA legislation--and I want 
to thank you and your colleagues for passing that legislation--
will enable us in the Criminal Division and the United States 
Attorneys to have more prosecutors. What our goal is, 
specifically with respect to the topic of today, that we will 
have, we hope, more strike forces throughout the country, and 
we are going to dedicate our lawyers from the Criminal Division 
in greater numbers----
    Chairman Specter. Well, where you say ``hope,'' what do you 
expect to do specifically?
    Mr. Breuer. Well, today what we have said is in Houston and 
Detroit, we are expanding already into Houston and Detroit, Mr. 
Chairman, and there specifically what we are going to do is, 
working with the data that we receive from CMS, our goal is 
very quickly to identify aberrant billing patterns and to go 
after providers very quickly and bring cases very quickly. And 
the goal here is not to have long investigations, but to 
identify those who are abusing the system, to shut them down 
immediately, to take their past conduct for sentencing purposes 
and increased enhancements; and then after Houston and Detroit, 
to continue as much as we can to go into other cities in the 
way that we have already done it in Miami and Los Angeles.
    Chairman Specter. What are the practices of your Division 
with respect to making recommendations to the court on 
sentencing?
    Mr. Breuer. Well, what we will do is we are going to take 
all of the conduct that is involved in these cases and make 
that available to the court. So, for instance, what we will do 
is we will bring the case, and then we will look at the past 
conduct of the person and make that available to the court.
    In a situation, for instance, where there was a significant 
sentence that I mentioned before, where there was unnecessary 
HIV infusions, if we think that risks--if there are health 
risks involved, we are going to make sure the court knows that, 
and we are going to bring that so that the sentences will be--
--
    Chairman Specter. Aside from information, do you make it a 
practice to make recommendations on sentencing?
    Mr. Breuer. We do. We do, Mr. Chairman.
    Chairman Specter. Do you meet with any resistance as a 
generalization from judges thinking it is their sole province 
as opposed to standing for a prosecutor to make a 
recommendation?
    Mr. Breuer. Mr. Chairman, I have not, in all candor, in my 
first month taken a national poll. I think candidly from my 1 
month, the judiciary runs the gamut, and there are some courts 
that are more receptive to our recommendations, and there are 
some that are probably less. On the whole, though, I do not 
think that has been a significant issue, and we----
    Chairman Specter. May I make a suggestion to you? When I 
became District Attorney of Philadelphia, the standard 
procedure was leaving it to the discretion of the court. That 
is what was said by the assistant. And I changed the policy to 
specific recommendations. And for a while, the judges were very 
unreceptive.
    There has been a very different view of victims' rights in 
the intervening years, and when the victim is the U.S. 
Government, and when we know the cost of health care fraud, I 
think we have real standing.
    I would urge you to give consideration to a policy in the 
Department of Justice. You are the man. The Attorney General is 
going to have to sign off on a policy of this sort. But it 
would be your recommendation as to what would be done. And I 
would urge you to adopt a policy of recommending sentences. And 
after a while, the judges became used to it, but it was tough 
for a time.
    I would petition for reconsideration of sentences. I was 
once held in contempt of court when a dealer in a case called 
Commonwealth of Pennsylvania v. Arnold Marks, 6 ounces of pure 
uncut heroin worth several hundred thousand dollars--this is a 
long time ago--got 6 months in jail. And I petitioned for 
reconsideration of sentencing and pressed very hard. But I 
think if it is a uniform policy, if it comes out of Main 
Justice, has the sanction of the Attorney General, implemented 
by the Assistant Attorney General in the Criminal Division, it 
would carry a lot of weight.
    There are a lot of sentences that I could reference here, 
but picking out just one case, there was a prosecution against 
Lutz and Health Visions, defrauded TRICARE of over $100 
million. The sentence was 5 years in jail. How do you respond 
to that kind of a sentence with that kind of money involved?
    Mr. Breuer. Well, Senator, I absolutely agree that it is 
essential that those who are defrauding the Medicare or 
Medicaid systems and defrauding the taxpayers need to have 
harsh sentences, and we are going to seek harsh sentences.
    I agree that viscerally sometimes some of these sentences 
appear, without knowing more, to seem somewhat low, and I do 
not know the specific facts of that case so I cannot comment. 
But I am in complete agreement that we need to have prison 
sentences for those who are responsible. They need to be 
substantial because it goes to the very foundation of 
deterrence, and we are committed to doing that.
    Chairman Specter. Well, I request that you report back to 
the Subcommittee within 3 months as to what you intend to do 
about a policy of recommending sentences and some indication as 
to guidelines that you are going to instruct your Assistant 
United States Attorneys and to what extent the amount of the 
dollar figure is calculated in the sentencing recommendation so 
that the Subcommittee and the full Committee will have an idea 
as to how you are treating this subject, and let us see it on 
health care fraud. But this is something we are going to be 
taking a look at on other lines. It is a common practice, which 
I have seen in the past, where the fines, while they appear to 
be substantial, are not really substantial compared to what 
dollar figure is involved, and they really amount to a license 
to do business; whereas, if you put people in jail, that is a 
big, big difference. So we will look forward to your report 
there, and we will have oversight not only on health care fraud 
but on other cases as well. But we will ask you, as I say, in 
the next 3 months just to look to health care.
    We have been joined by the distinguished Ranking Member of 
the full Committee. That has always been an important position, 
and our practice is to alternate. You just sat down. Would you 
care to exercise your time now?
    Senator Sessions. Thank you, Mr. Chairman.
    Chairman Specter. I take it this is an election to exercise 
your time now.
    Senator Sessions. All things considered, Chairman is better 
than Ranking Member. It is great to be with you----
    Chairman Specter. It depends on whether it is the full 
Committee or the Subcommittee where you are.
    [Laughter.]
    Chairman Specter. But we will work seniority out.
    Senator Sessions. I appreciate your questions, Senator 
Specter, because you understand these issues very well as a 
proven prosecutor.
    Mr. Breuer, I would just like to ask a few things, and I am 
going to look at this because when I was a United States 
Attorney, I tried to make sure we were earning the taxpayers 
money.
    Now, for the health care fraud abuse, the Department of 
Justice gets $50 million a year just for that, outside your 
normal DOJ budget. Is that correct?
    Mr. Breuer. Yes, the entire Department, that is correct, 
Senator.
    Senator Sessions. And I remember--it started in 1996, this 
official account, but I remember, gosh, around the early 1990's 
that we were encouraged to form health care fraud task forces, 
and every time this has been done--I guess that was 7 or 8 
years later--we had this $50 million. And everybody promises to 
do better. But just looking at the Administrative Office of the 
Court's statistics, which I think are pretty accurate--a lot of 
times agencies put forward cases that they recommended 
prosecution, and if they do not get prosecuted, they count it 
as a case of something. So you have got to watch data. But in 
2003, the Department of Justice commenced 238 health care fraud 
cases, and in 2007, it had edged up to 261. I do not know 
exactly what the funding levels are, what kind of increases you 
got. But that is not a whole lot of cases nationwide. Some of 
them may be very expensive and very prominent and time-
consuming, and some could be a guilty plea right off the bat.
    Have you looked at those numbers? Do you have any feel for 
what kind of cases are being brought and whether or not for 
your basic budget plus the $50 million this is sufficient 
production for the taxpayers?
    Mr. Breuer. Senator, I think that we have done well, but we 
need to do better. And by that, one of the examples I give is 
the strike forces, those that, for instance, have been already 
very successful in Miami and Los Angeles. There in a very 
limited time, Senator, we really have provided a good number of 
convictions. I think just since 2007, if you look at Miami and 
Los Angeles, there have been some 125 or so guilty pleas. There 
have been people going to jail, perhaps on average not as long 
as the Chairman thinks but, still, at least a year more than 
had traditionally been the case for health care fraud.
    And what we are doing in those, of course, is targeting in 
very real time with the data, while people are doing it, and we 
are bringing those cases. And if----
    Senator Sessions. Well, wait a minute. I like that. Now, 
that should tell you something, which is a focused team 
approach in which you have interagency commitment, computer 
information for rapid sharing from the HCFC, whoever the 
Federal health department agency is, can help identify fraud 
early and move forward on it.
    Are you satisfied that you have that kind of sophisticated, 
coordinated effort in all your districts? And wouldn't that be 
a good idea?
    Mr. Breuer. It would be a great idea. I do not want to 
represent to you that we have it yet. What I can tell you is 
just today the Attorney General and the Secretary of Health and 
Human Services together announced the formation of a new 
commitment. We understand that CMS will be sharing its data in 
very real time with our prosecutors, and so the commitment from 
the very top of the Cabinet and from the President suggests to 
me that, as we go forward, you will see a very dynamic 
approach.
    We are very committed to addressing and stopping the fraud 
that we think is obviously far too great.
    Senator Sessions. Well, that is what they have been saying 
for 20 years, everyone that sat in that chair, wouldn't you 
say, Senator Specter? We are going to step it up. But there are 
still pretty weak numbers, if you ask me, considering the 
hundreds of billions of dollars spent on health care in 
America. But I am not arguing. I am just warning you that 
everybody has said that. But with your kind of leadership, I 
believe you can produce a little more.
    Now, there is another thing that we have had, and I had a 
number of meetings with health care providers over the years, 
and I think for the most part they were too nervous, and I have 
told them that. But running a big hospital is a big thing, and 
every error in some billing code that occurred is not 
necessarily a crime. And while we want you to aggressively 
pursue those who are willfully acting to violate the law and 
defraud the taxpayers, would you recognize that when you have 
on a yearly basis thousands and thousands of claims coming 
through, many by young clerks who may have miscoded this or 
that, it does not necessarily mean that the hospital lacks 
integrity. Maybe they need to tighten up. Maybe they are 
civilly liable. But do you see the concern there that some good 
physicians and hospitals and providers have when we talk about 
health care prosecutions?
    Mr. Breuer. Absolutely, Senator. I actually think that 
Secretary Sebelius today talked about simplifying some of these 
methods, and let me be clear here. We are not going to be 
targeting those who make mistakes. But if you look at, for 
instance, the Medicare Task Force, what it does is it looks for 
extraordinary aberrations in the numbers. So if in Miami we see 
certain providers who in certain areas are billing at 
astronomical numbers compared to what should be the norm around 
the country, those are the people we are going to go after. And 
we are not just going to go after them criminally; we are going 
to go after them civilly. And really, the Department of Justice 
has shown great success in that. Through our civil colleagues 
right now, I think it is fair to say that for every dollar that 
has been appropriated, we have returned $4, much of it through, 
of course, the False Claims Act, which has been an 
extraordinary civil hammer. But for those doctors out there who 
are doing their best, the 90 or 99 percent of the people 
involved, of course, who are acting in good faith, we want them 
to continue to provide their medical care.
    Senator Sessions. Well, thank you. I appreciate your 
approach. I believe you have the ability to make this happen 
and count me a supporter.
    Mr. Breuer. Thank you, Senator.
    Chairman Specter. Thank you, Senator Sessions.
    Mr. Breuer, you are surrounded by ex-prosecutors.
    Mr. Breuer. I know.
    Chairman Specter. Maybe I should not say ``ex-
prosecutors,'' just surrounded by prosecutors. But you are one 
of the clan, so you know what we are looking for. Now I yield 
to a Senator, instead of an ex-prosecutor, Senator Klobuchar.
    Senator Klobuchar. Thank you very much, Mr. Chairman. And 
good to see you again, Mr. Breuer. I was interested in your 
focus, the mention of Miami, and I was reading this article 
about the task force today about how estimates in Miami alone 
might have saved $334 million in fraudulent medical equipment 
claims and more than $1.7 billion in phony Medicare billings. 
And the reason I bring that up is I have often used the 
statistic about geographic disparity in Medicare spending that 
the studies have shown that the same Medicare services in 
Minnesota, in the Twin Cities, cost about $7,000 and they are 
$15,000 in Miami. And it is startling to me, and it is 
nothing--the cost of living is a very small fraction of that. 
And so perhaps some of it is this fraud, so I appreciate your 
efforts.
    The FBI's Financial Crimes Report for fiscal year 2007 said 
that one of the most significant trends observed in recent 
health care fraud cases includes the willingness of medical 
professionals to risk patient harm in their schemes, and they 
focused on unnecessary surgeries, prescribing dangerous drugs, 
and engaging in abusive care practices.
    I have to tell you, being from my State where we have one 
of the highest quality rankings for health care in the country, 
I know those 99 percent, 99.59 percent, whatever it could be, 
of doctors who would never do anything like this. But this 
trend that we are seeing, I have always thought about this as a 
rip-off of taxpayers when you have medical fraud, and if it 
goes unchecked, really you can create a culture where people 
are lying on billings and things like that. But I have never 
thought of it as much in terms of patient risk. Do you want to 
comment on this trend at all?
    Mr. Breuer. Absolutely. And, Senator, for that minority of 
fraudsters out there, first, it is completely unacceptable to 
defraud the taxpayers, and we are going to go after those 
people. But for those who are so greedy that they are actually 
willing to put people's lives at risk by either providing them 
with medical care that they do not need or what is even more 
dastardly, knowing exactly what they do need but not giving it 
to them and convincing them to do something else, we are just 
going to have to prosecute them to the full extent of the law. 
It is completely unacceptable, and those people are going to 
face extraordinarily long sentences.
    Senator Klobuchar. You mentioned to Senator Sessions using 
civil remedies sometimes instead of criminal. How do you make 
those determinations? As you and I both know, there is a 
different burden of proof in proving these things.
    Mr. Breuer. Sure. Well, in some cases, I do not think we 
have to make the choice. I have talked a lot with my 
counterpart, the Assistant Attorney General in the Civil 
Division, Tony West, and I know the Deputy and the Attorney 
General agree that what we are going to do is we are going to 
have a comprehensive approach, and we are going to use the full 
force of the Department of Justice. So for entities or for 
those who do this, we are going to pursue it criminally. But 
given that there is a different standard of proof and, of 
course, in False Claims Act cases, there are treble damages, we 
will do whatever we need. I do not think we are going to have 
to decide, necessarily. Instead, I think we may use both 
remedies.
    Senator Klobuchar. Okay. Another trend that we are seeing 
is more technological issues and tools of technology that are 
meant to be very good, used for ill-begotten gain. And 
certainly we actually--I remember when I was a prosecutor, we 
saw identity theft going on in hospitals, things like that. 
And, obviously, one of our big pushes right now is to 
computerize medical records. But one of the thing that comes 
with that is that sometimes the crooks are able to use more 
sophisticated systems than those of us who are trying to catch 
them.
    Could you comment on the role technology will play in the 
work that you are going to be doing in the health care area?
    Mr. Breuer. Well, clearly, obviously, to the degree we can 
have more and more state-of-the-art technology, it will help 
our ability. I think our friends at HHS are, I am hopeful, at 
the cutting edge and understand it well. With our own Medicare 
Task Force and the leadership of one of the people in the 
Division, Kirk Ogrosky, we have been able to look at data, and 
sometimes it frankly has not required the most sophisticated of 
means. We have just looked at the data and gone with it.
    And so I want to be clear, even with what we have, we can 
do more, and we will. But you are absolutely right that 
fraudsters out there are more and more using more sophisticated 
means, and one of our goals is going to be to keep up with 
them. And to do that, I think we just need to have dedicated 
prosecutors and dedicated investigators and those at CMS 
following this as closely as we can.
    Senator Klobuchar. Have you thought about, as you go ahead 
here and try to prevent this as well as prosecute it, 
developing some best practices? And maybe the American Hospital 
Association does that, or others. But I just remember some 
cases where no one would have waned this to happen, but, you 
know, patient's Social Security numbers, while locked in a 
computer appropriately, someone had written them on a card and 
put them in a filing cabinet that someone who went to work 
there then just simply got these cards and used them to apply 
for credit cards. This is very different from what you are 
talking about, the Medicare billing, necessarily. But it just 
made me think at that time if there must be some best practices 
that could be developed across the board for health care 
providers.
    Mr. Breuer. Senator, I agree, and I think that is really 
why today having the Attorney General and the Secretary of 
Health and Human Services together is so special: one, it shows 
their commitment from the top, but, second, it really shows 
that partnership, because HHS are the real experts in the best 
practices, and I think they can really provide that kind of 
education. I think they are doing that and will continue to do 
that.
    And then, of course, by providing us the data, we can take 
care of that law enforcement piece by pursuing it both civilly 
and criminally. So I think you are absolutely right. With our 
renewed law enforcement commitment has to be a renewed effort 
in teaching and ensuring that best practices go forward.
    Senator Klobuchar. Finally, the FBI report said that the 
FBI provides assistance to various regulatory and State 
agencies that may seek exclusion of convicted medical providers 
from further participation in the Medicare and Medicaid health 
system. This seems incredibly important to me that we do not 
let these same providers abuse the system again. Has there been 
a problem of this in the past of not keeping the bad apples out 
after they have been prosecuted the first time?
    Mr. Breuer. I think there have been challenges in keeping 
the data, and, of course, anytime you have a Federal-State-
local partnership, there are going to be gaps.
    I think one of the goals for us is to ensure that that does 
not happen, that there is swift and certainty of punishment, 
and that exclusion is much more likely to occur. I think it has 
occurred a lot, but I think probably we can always improve it, 
and we are going to have to.
    Senator Klobuchar. Thank you very much.
    Mr. Breuer. Thank you, Senator.
    Chairman Specter. Thank you very much, Senator Klobuchar. 
And thank you, Mr. Breuer. We got you out on time to make your 
bill signing. Thank you for taking on this very important 
public job, and thank you for your testimony.
    Mr. Breuer. Thank you for the hearing, Mr. Chairman.
    Chairman Specter. We will now call Professor Sparrow, Ms. 
Farrar, and Commissioner Dilweg. Would the three of you take 
your positions and raise your right hands, please. Do you 
solemnly swear that the testimony you will give before this 
Committee will be the truth, the whole truth, and nothing but 
the truth, so help you God?
    Mr. Sparrow. I do.
    Ms. Farrar. I do.
    Mr. Dilweg. I do.
    Chairman Specter. Thank you. You may be seated.
    We will start with you, Professor Sparrow, Professor of the 
Practice of Public Management at Harvard's Kennedy School, 10 
years with the British Police Service, a master's degree in 
mathematics from Cambridge, a Ph.D. in applied mathematics from 
Kent University at Canterbury. Thank you very much for joining 
us, and the floor is yours.

 STATEMENT OF MALCOLM SPARROW, PH.D., PROFESSOR OF PRACTICE OF 
  PUBLIC MANAGEMENT, MALCOLM WIENER CENTER FOR SOCIAL POLICY, 
   JOHN F. KENNEDY SCHOOL OF GOVERNMENT, HARVARD UNIVERSITY, 
                    CAMBRIDGE, MASSACHUSETTS

    Mr. Sparrow. Good afternoon, Chairman Specter, Senator 
Sessions, and distinguished members of the Committee. My name 
is Malcolm Sparrow, and I teach regulatory and enforcement 
policy at Harvard's John F. Kennedy School of Government. I 
have worked on the practical challenges of fraud control in a 
number of different industries. With your permission, my 
prepared written testimony, which I would like introduced----
    Chairman Specter. Without objection, that will be made a 
part of the record.
    Mr. Sparrow. If I could just highlight a few key points 
from that testimony.
    Chairman Specter. Thank you.
    Mr. Sparrow. In 1993, I was working with the IRS on a tax 
fraud problem, and the Commissioner introduced me to Attorney 
General Janet Reno. It was about the time that the Attorney 
General had named health care fraud the No. 2 crime problem in 
America, which is an extraordinary status for a white-collar 
crime. There was little academic research on the subject at the 
time, and after my conversation with her, I took a research 
grant from the National Institute of Justice, and my job was to 
assess the state-of-the-art in health care fraud controls and 
try to explain why this was such a persistent and pernicious 
problem.
    My first book on the subject, which is now out of print, I 
can summarize it for you in a sentence or two. It said that the 
controls in the health care industry are weakest with respect 
to the most outrageous crimes. Outright criminal fraud requires 
a verification, not just processing accuracy. And the systems 
in place did relatively well on the grayer, middle-ground 
issues such as policy coverage and pricing and processing 
accuracy. But criminals who are prepared to lie need only to 
learn how to bill their lies correctly, and they will on the 
whole be paid automatically, without any human involvement, by 
computers, and without a hiccup.
    Deterrence theory says that the magnitude of a deterrent 
effect will depend on three things in the mind of a would-be 
perpetrator: first of all, their perception of the likelihood 
of being caught; second, their perception of the probability of 
being convicted if their activities are once detected; and, 
third, the severity of the punishment if they are eventually 
convicted.
    I appreciate that this Committee is very much interested in 
the effects of the third, severe punishment. I would urge you 
to consider the situation with respect to the first two as 
well, because I think the most visible weaknesses in health 
care fraud control may lie in these areas.
    To emphasize two points about the current situation, I 
believe that resources available for fraud detection and 
control in the health care industry are not only inadequate, 
they are of the wrong scale. We do not know how much we are 
losing in these programs, and in the absence of clear knowledge 
about loss rates, investments in control remain pitifully 
small.
    Spending on program integrity functions across the industry 
as a whole runs on the order of one-tenth of 1 percent of funds 
paid out. Medicare is slightly ahead of that at the moment. But 
with estimates of the loss rate of 3 percent, 10 percent, 20 
percent, 40 percent in some segments, one-tenth of 1 percent 
seems like a drop in the ocean. Meanwhile, the small 
investments that are made pay off handsomely. The Inspector 
General has just reported a return ratio of $17 for every $1 
spent. That can be interpreted as evidence of an efficient 
investigative system. But an economist would say that is also 
an indication that investments are nowhere near optimal, and 
that a system should continue adding marginal dollars until the 
marginal return comes much closer to 1:1. If investment 
resources are terribly small and the problem is huge, it is a 
little bit like standing in a lake. It is a very easy thing to 
scoop up a bucket of water and show everybody what you found.
    I believe it is possible that 10 percent or even 20 percent 
could be saved from the Medicare and Medicaid budgets, but it 
would take spending of a different order to do that, maybe 1 
percent of the funds paid out, not one-tenth of 1 percent.
    I realize that it is politically inconceivable that you 
would have a tenfold increase in the level of attention to this 
problem, at least politically inconceivable while the loss rate 
remains uncertain. And that is why I put a lot of emphasis in 
my writings and today in my testimony on the importance of 
adequate and reliable measurement of the loss rate.
    Chairman Specter. Professor Sparrow, your time is up so let 
me interrupt you with a question or two.
    Mr. Sparrow. Yes, please do.
    [The prepared statement of Mr. Sparrow appears as a 
submission for the record.]
    Chairman Specter. Where would you direct that additional 
spending?
    Mr. Sparrow. The additional spending would be spread all 
across the board: first in improved detection technology; 
second, in a much greater willingness to take cases to court. 
The reviews of control operations that I have conducted reveal, 
for instance, post-payment utilization review units----
    Chairman Specter. Well, I agree with you--I agree with you 
that certainty of apprehension is a big factor in sentencing 
because if you do not think you are going to get caught, you do 
not worry as much about the sentence. I did not quite follow 
all your statistics. How do you make your computation of what 
the return is on expenditures? Would you repeat that?
    Mr. Sparrow. The Office of Inspector General in their 
annual report has reported that they----
    Chairman Specter. The Inspector General of HHS?
    Mr. Sparrow. Yes, sir.
    Chairman Specter. OK.
    Mr. Sparrow. Returned $17 for every $1 spent. They report 
the trend over time that that ratio has been increasing, even 
while--and they also report that the number of cases and the 
number of complaints at the same time is increasing.
    Chairman Specter. $17 returned for every $1 which is spent.
    Mr. Sparrow. Yes. Yes, sir. One of the areas that I feel is 
of great concern at the moment is we have fake billing scams 
all around the country, in some regions concentrated. I believe 
that the response that CMS and the OIG are recommending when 
these fake billing scams are discovered does not end up in 
criminal prosecution. In fact, I believe that the response 
recommended at the moment actually makes life easier for those 
that would just bill these programs. I can give you some 
examples of that.
    Chairman Specter. How do they make life easier?
    Mr. Sparrow. Well, I have a big pile in my office of 
reports talking about categories of patients that ought not to 
show up in Medicare claims data, paid Medicare claims data. I 
have a few of them here: Medicare payments for patients that 
were already dead at the time when the services were delivered, 
and it is not just rentals that ran on past death but new 
diagnoses and entirely new----
    Chairman Specter. And there is knowledge that there were 
charges for those who had already died?
    Mr. Sparrow. Yes, and the Office of Inspector----
    Chairman Specter. And nothing was done?
    Mr. Sparrow. No, something is done. The Office of Inspector 
General, through analysis, is able to identify by cross-
matching with Social Security records Medicare claims paid----
    Chairman Specter. Was there any enforcement action taken?
    Mr. Sparrow. No. The approach that they recommend, not only 
with respect to dead patients but deported patients who ought 
not be in the country, imprisoned patients who should be 
covered by different health care insurance. And the final 
insult which came to light last year through the work of----
    Chairman Specter. So what was done, Professor Sparrow?
    Mr. Sparrow. They recommend that CMS----
    Chairman Specter. What was done by way of enforcement?
    Mr. Sparrow. Very little in most cases.
    Chairman Specter. Anything?
    Mr. Sparrow. I am sure something was done in a few cases, 
but----
    Chairman Specter. Well, it sounds like Philadelphia voting 
the graveyard.
    Mr. Sparrow. So the general strategy is to treat it as a 
processing error. In other words, get the information about 
dead patients and deportations into CMS' processing systems and 
bounce those claims back to the people that submit it, auto-
rejection----
    Chairman Specter. Well, we will pursue that. Do you have 
anything else that juicy?
    Mr. Sparrow. Well, the only thing that would make that a 
little more juicy is what it might indicate. If you ask the 
question what kind of business practices could produce bills 
that are completely implausible--dead patients, dead doctors, 
people not in the country--the most obvious answer is that 
these are fake billing scams and that somebody is billing off a 
Medicare list without providing any medical treatment at all. 
And in that case, what is happening is that there are just a 
few patients on the list who might be dead, very small numbers 
compared with----
    Chairman Specter. Well, we have covered the dead patients. 
How do you make the determination that they did not treat those 
patients if they are alive? If they are dead, it is pretty 
conclusive.
    Mr. Sparrow. And my view is that if you submit 100 claims 
and one of your patients happens to be dead and the other 99 
are alive, the chances are your claims for the 99 are no 
better.
    Chairman Specter. Okay. You fulfilled the requirement. We 
are going to pursue that further, and we will take it up with 
the agency.
    Mr. Sparrow. Thank you, Senator.
    Chairman Specter. We will now turn to you, Ms. Farrar. Born 
in McCook, Nebraska--was Senator Nelson born in McCook? You do 
not know all the people who were born in McCook. You probably 
do not even know all the people who died in McCook, even those 
who have Medicare payments. Well, you have had a very 
distinguished career, Ms. Farrar: a special agent with the FBI, 
February 1992, Assistant Special Agent in Charge of the Detroit 
office; in 1994, lots of crime in Detroit; and since June of 
2004, working for the Health Care Service Corporation in 
Chicago.
    Thank you for coming in to testify, and we look forward to 
your testimony. Your full statement will be made a part of the 
record.

    STATEMENT OF SHERI FARRAR, EXECUTIVE DIRECTOR, SPECIAL 
  INVESTIGATIONS DEPARTMENT, HEALTH CARE SERVICE CORPORATION, 
                       CHICAGO, ILLINOIS

    Ms. Farrar. Thank you. Mr. Chairman, on behalf of the 
National Health Care Anti-Fraud Association and Health Care 
Service Corporation, thank you for providing this opportunity 
to share our views on the important role of criminal 
prosecution as a deterrent to health care fraud and 
specifically the role that information sharing plays in fraud 
investigations.
    Health Care Service Corporation is the largest customer-
owned health insurance company in the Nation, serving more than 
12.4 million members through our Blue Cross/Blue Shield plans 
in Illinois, New Mexico, Oklahoma, and Texas. As a non-
investor-owned company, we view anti-fraud efforts as vital to 
protecting our members and the communities we serve.
    In my role as the Executive Director in the Special 
Investigations Department, I oversee the anti-fraud program for 
all four of our Blue Cross/Blue Shield plans. In addition to 
that position, I serve on the Board of Directors of the 
National Health Care Anti-Fraud Association, the only national 
association devoted exclusively to the fight against health 
care fraud.
    The highest priorities of our Investigative Division are to 
identify and investigate high-impact health care fraud schemes 
and refer for criminal prosecution individuals and companies 
who defraud or attempt to defraud our company and its 
customers. Our primary means of identifying the most costly 
health care fraud cases are through effective data analysis and 
liaison with law enforcement and other health plans.
    Our staff participate in all of the federally sponsored 
health care fraud task forces and working groups in our 
respective States. Through these associations, we routinely 
discuss new and emerging health care fraud schemes and share 
information concerning known perpetrators of health care fraud.
    By sharing information, the losses attributed to the 
activities of one subject can be aggregated to enhance the 
prosecutorial potential of the case. On average, we refer 
approximately 40 percent of our cases to law enforcement, to 
include Federal, State, and local agencies. Three of these 
cases are detailed in my written testimony.
    Health care fraud cases are some of the most complex white-
collar crime cases handled by prosecutors, necessitating 
dedicated staff who develop an expertise in understanding how 
health claims are processed and understanding the intricacies 
of proving the necessary criminal intent. In many 
jurisdictions, limited prosecutorial resources impact the 
ability to dedicate staff accordingly. Additionally, health 
care fraud cases compete with other investigative programs that 
are deemed higher priority.
    Staying one step ahead of those who are intent on 
committing health care fraud requires continual information 
sharing and collaboration among the various law enforcement and 
prosecutorial agencies, regulatory agencies, and private health 
insurers. As a result, in addition to our ongoing liaison with 
law enforcement in our respective States, we maintain effective 
information-sharing relationships with law enforcement in other 
States and with other private insurance plans through our 
corporate membership in the National Health Care Anti-Fraud 
Association.
    The NHCAA, which has 81 corporate members representing 200 
health plans and 70 Federal, State, and local law enforcement 
and regulatory agencies, routinely and voluntarily shares 
information through a variety of methods. Those perpetrating 
fraud against the health care system do so indiscriminately 
across the range of Government health care programs and private 
health plans.
    Too often, however, information sharing in health care 
fraud cases is a one-way street with the private sector 
regularly sharing vital information with the public sector--
either voluntarily or through mandate--without reciprocal 
information sharing to bolster our fraud-fighting efforts.
    In many circumstances, the Government representatives 
believe that they do not have the authority to share 
information about fraud investigations with private insurers. 
However, guidelines developed for the operation of the 
Coordinated Health Care Fraud Program established by HIPAA 
provide a strong basis for information sharing. Those 
principles outlined in the program recognize the importance of 
a coordinated program, and we believe that they should be 
reemphasized or reincorporated and clarified in new legislation 
to ensure that the goal of an effective and coordinated health 
care fraud program can be developed.
    We also encourage the Government to incorporate the losses 
of private insurers into integrated settlement agreements 
involving health care providers who have defrauded both public 
and private programs.
    My written testimony expands on our recommendations to 
enhance the collaboration between Government and private 
insurers that I hope you will consider. The NHCAA and the 
Health Care Service Corporation are committed to working with 
Congress to address health care fraud, and we hope that you 
will consider us resources and partners in this fight.
    Thank you for the opportunity to appear before you today, 
and I look forward to answering your questions.
    [The prepared statement of Ms. Farrar appears as a 
submission for the record.]
    Chairman Specter. Well, Ms. Farrar, after you have gotten 
all that information, what prosecutions have worked out?
    Ms. Farrar. Well, I did describe three of them in my 
testimony. As I said, we refer about 40 percent of our cases 
for prosecution. Not all of them get prosecuted due to----
    Chairman Specter. Do many of them get prosecuted? How many?
    Ms. Farrar. It is very difficult to give you an exact 
answer on that because we just really started in our company to 
focus on prosecution----
    Chairman Specter. Well, I am not interested in an exact 
answer. I would just like an answer. What I am looking for here 
is what response you are getting when you go to the district 
attorney or the U.S. Attorney and say there is fraud here. And 
what I am looking for are instances where nothing happens, 
because we could exert a little pressure.
    Ms. Farrar. Well, we do have a problem with delayed 
prosecutions. We get excellent response from the law 
enforcement agencies.
    Chairman Specter. Well, can you give us some specific cases 
so we could take a look at it and press somebody? Those 
generalizations do not do a whole lot of good. We knew that 
before you said it.
    Ms. Farrar. Well, I will tell you that of the cases we have 
referred in 2005 and 2006, only a handful have yet been 
prosecuted.
    Chairman Specter. That does not tell much. How big is your 
hand? See if you can provide the Subcommittee with more 
specific information. When you talk about information sharing, 
sure, we are all for information sharing. But what are we going 
to do with it?
    In some jurisdictions, I hear that the insurance companies 
get together and subsidize assistant DAs. I do not think that 
is particularly, necessarily a good idea because a DA is quasi-
judicial. But they ought to do their job without the subsidy.
    Ms. Farrar. We do not do any of those subsidizing 
arrangements in our State.
    Chairman Specter. Well, what do you do by pressing the 
public prosecutors to act?
    Ms. Farrar. Well, we meet with them on a regular basis to 
review the cases and offer to do whatever additional 
investigation we can do. The difficulty is in the lack of 
prosecutors who get the cases before the grand jury. They seem 
to stall out.
    To give you exact numbers, we have had three cases 
prosecuted in Chicago this year. Those were cases that were 
referred about 18 months ago to law enforcement, and that is 
relatively quick.
    We just finished a case in Chicago involving ten defendants 
that had been on the docket for 6 years.
    Chairman Specter. Well, when you talk about Chicago, you 
are talking about a lot of competition for prosecutions.
    Ms. Farrar. That is exactly right. You are right, sir.
    Chairman Specter. They did not even put your cases ahead of 
the Governor's prosecution?
    Ms. Farrar. Probably not.
    Chairman Specter. Thank you very much, Ms. Farrar.
    We turn now to Commissioner Sean Dilweg, State of 
Wisconsin; he has been in that position since January 1st of 
2007, holds a Master's in Public Administration from Lafollette 
Institute of Public Affairs at the University of Wisconsin and 
a B.A. in English from Lawrence University in Appleton.
    Thank you for coming in, Commissioner Dilweg, and we look 
forward to your testimony.

 STATEMENT OF SEAN DILWEG, COMMISSIONER OF INSURANCE, STATE OF 
                 WISCONSIN, MADISON, WISCONSIN

    Mr. Dilweg. Thank you for the opportunity, Chairman 
Specter. I commend you and the Committee for taking the lead in 
examining fraudulent activity in the health care marketplace.
    Health care consumers have in the past and continue today 
to be harmed by health care fraud and regulatory gaming. State 
insurance regulators have fought a decades-long battle against 
fraudulent and near-fraudulent health care plan schemes. Such 
Ponzi-like schemes range from bogus health care plans that 
leave millions in unpaid claims to more sophisticated schemes 
designed to circumvent rating and other restrictions to protect 
less healthy, less fortunate consumers.
    As you examine and study the prevention of billing and 
provider and other fraud that increase the costs of health care 
delivery affecting Medicare and Medicaid, it is just as 
critical that Federal legislative proposals include measures to 
prevent schemes designed to directly harm consumers. I urge you 
to examine and look at what we see occurring in our 
marketplace. As we look at health care reform, we advocate for 
areas that allow confidential coordination of inquiries and 
investigations among State and Federal regulatory and law 
enforcement agencies, create a coordinating council in the U.S. 
Department of Justice, and give regulatory flexibility to adapt 
to the changing face of fraudulent and regulatory gaming 
schemes.
    This congressional session may be a turning point in the 
history of our country's health care financing system. Great 
care must be taken to ensure that these proposals do not 
inadvertently expose consumers, our families and friends, to 
fraud or leave them unprotected from unscrupulous schemes. Now 
is the time to enact measures that encourage communication and 
coordination among Federal and State regulatory and law 
enforcement jurisdictions, as well as set firm boundaries in 
the law to prevent schemes that abuse consumers.
    There have been other such turning points in our history. 
The enactment of the Federal Employee Retirement Income 
Security Act of 1974 is an example. ERISA was a major step 
toward protecting workers against fraud and abuse in the 
private pension system. It also was the unintended door opener 
to fraudulent health care insurance schemes. After enactment, 
unscrupulous and innovative operators set up multiple employer 
trusts to provide bogus health care coverage. These operators 
used the cover of ERISA's preemption of State regulatory 
authority over insurance to set up such fraudulent health 
insurance plans.
    The history of this criminal health coverage fraud is 
documented extensively in congressional records and studies. A 
2004 GAO study reported that in the period from 2000 to 2002, 
144 unauthorized entities provided bogus health plan coverage 
to 15,000 employers----
    Chairman Specter. Commissioner Dilweg, let me interrupt 
you. What was done with that information? Were there any 
prosecutions?
    Mr. Dilweg. There was, and you are dealing--what you are 
dealing with is quite a connection between the State regulator, 
the Federal Department of Justice, Health and Family Services, 
and what we have done since then to address these what I term 
kind of Ponzi-like schemes is to try and provide the 
information ahead of time, to try and educate consumers. I have 
some specific recommendations that I assume will be put into 
the record that would also enhance some of the criminal 
penalties on these activities.
    I know this gets--I was asked to respond to these issues. I 
know it gets outside of Medicaid provider billing issues, but 
it does get into a serious area as you look at national health 
care reform issues.
    Chairman Specter. Well, when you mention the criminal 
conduct, the question that comes to my mind----
    Mr. Dilweg. It is forwarded on--from my perspective, as we 
see something like that, it is my role to forward it on to 
either my Attorney General or my U.S. Attorney.
    Chairman Specter. What has happened with it?
    Mr. Dilweg. We have had cases in the Wisconsin Western 
District that have been taken to court, and people have been 
put in jail because of it. In that GAO report, it shows a 
specific survey of the States, and reflects the activities 
where there was criminal prosecutions carried forth.
    Chairman Specter. Do you think it has had any deterrent 
effect?
    Mr. Dilweg. It has. This tends to be a problem as you have 
increasing health care costs that we are seeing today and that 
you had in the late 1990's and early 2000.
    Chairman Specter. Well, but has it dissuaded people from 
engaging in that kind of criminal conduct?
    Mr. Dilweg. It has in the past. We lay out seven areas that 
could help further coordinate the agencies and directly 
prosecute these criminal entities as we see them, to give the 
tools so that we can take the confidential information that we 
are seeing and convey it to the U.S. Attorneys or the----
    Chairman Specter. Well, I interrupted your testimony when 
you had 2 minutes left.
    Mr. Dilweg. We are covering basically the issues that I 
would have touched upon.
    [The prepared statement of Mr. Dilweg appears as a 
submission for the record.]
    Chairman Specter. So often these hearings tend to be a 
little sterile with witnesses testifying and not a whole lot of 
interaction. It is like the old story of the lecture passing 
from the notes of the professor to the notes of the student 
without going through the minds of either. So that is why I 
interrupted you.
    Mr. Dilweg. I appreciate the questions. Senator Kohl is not 
always so inquisitive. So those were really----
    Chairman Specter. How about Senator Feingold?
    Mr. Dilweg. Senator Feingold is very inquisitive.
    Chairman Specter. How about Senator Proxmire?
    Mr. Dilweg. I have a good Proxmire story, but I can----
    Chairman Specter. Go ahead.
    [Laughter.]
    Mr. Dilweg. Well, Senator Proxmire, as you know, was a very 
active campaigner throughout Wisconsin, and the trick that he--
--
    Chairman Specter. He spent $163 on one of his 6-year 
campaigns.
    Mr. Dilweg. The trick that he learned, he would go to every 
State fair, every summerfest, and he would stand at the gate. 
And then when he would run into somebody, they would say, ``Oh, 
I remember seeing you last year at the State fair.'' And he 
said, ``Oh, yes, that is right. At the gate.''
    [Laughter.]
    Mr. Dilweg. So that was one of his tricks, Senator.
    Chairman Specter. Senator Proxmire made a speech every day 
on genocide. Every day. He had a seat at the rear row on the 
aisle, and every day he went over and made a speech. This is 
before television. And he repeatedly collected for going home 
to Wisconsin, saying his residence was Washington. Senator 
Stevens found out about that 1 day and just blew up that any 
Senator would stoop so low as to say Washington was his home so 
that he could collect for travel going back to his home State.
    So we have covered Kohl. You brought Senator Kohl up. I 
brought Senator Feingold up. I brought Senator Proxmire up. 
Now, let's see, I guess that takes us to Senator Joe McCarthy. 
You have to have more than just a big smile.
    Mr. Dilweg. I was not a fan of Senator McCarthy's, Senator.
    Chairman Specter. Anybody in the room a fan of Senator Joe 
McCarthy?
    [Laughter.]
    Chairman Specter. I wonder if he operated out of this 
Judiciary Committee room. That brings to mind the Army-McCarthy 
hearings. He was against the Army, 1954. I listened to those 
hearings on the radio driving back and forth from law school.
    Do you have further testimony, Commissioner?
    Mr. Dilweg. I really had just three points on this area 
that I would like to conclude with. It is really 
recommendations that, as health care reform is looked at, you 
consider.
    Chairman Specter. The show has gotten dull. People are 
leaving. Go ahead.
    Mr. Dilweg. I know. Establish a privilege and statutory 
structure for the confidential coordination and exchange of 
information among Federal agencies and State insurance 
regulators; provisions reaffirming State insurance regulators' 
authority to protect consumers under any Federal health care 
reform legislation; provisions establishing a coordinating body 
in the Federal Department of Justice to focus on health 
insurance fraud schemes and schemes to exploit regulatory gaps 
that will pull in all the various State and Federal entities; 
and then criminal and civil penalties for operators, and those 
who assist operators of a health plan that falsely represents 
itself as exempt from State insurance regulation.
    Thank you, Senator.
    Chairman Specter. Thank you very much. Without objection, 
we will put into the record Senator Leahy's statement and the 
excellent opening statement prepared by my staff, which I did 
not read.
    Anybody have anything they would like to add?
    [No response.]
    Chairman Specter. Thank you all very much.
    [Whereupon, at 3:39 p.m., the Subcommittee was adjourned.]
    [Questions and answers and submissions for the record.]

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