[Senate Hearing 111-322]
[From the U.S. Government Publishing Office]
S. Hrg. 111-322
CRIMINAL PROSECUTION AS A DETERRENT TO HEALTH CARE FRAUD
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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
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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
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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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