[Senate Hearing 111-727]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 111-727
 
     OVERSIGHT CHALLENGES IN THE MEDICARE PRESCRIPTION DRUG PROGRAM

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


                                HEARING

                               before the

                FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT
                   INFORMATION, FEDERAL SERVICES, AND
                  INTERNATIONAL SECURITY SUBCOMMITTEE

                                 of the

                              COMMITTEE ON
               HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                                 of the

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 3, 2010

                               __________

       Available via http://www.gpoaccess.gov/congress/index.html

                       Printed for the use of the
        Committee on Homeland Security and Governmental Affairs



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        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

               JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan                 SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii              TOM COBURN, Oklahoma
THOMAS R. CARPER, Delaware           JOHN McCAIN, Arizona
MARK L. PRYOR, Arkansas              GEORGE V. VOINOVICH, Ohio
MARY L. LANDRIEU, Louisiana          JOHN ENSIGN, Nevada
CLAIRE McCASKILL, Missouri           LINDSEY GRAHAM, South Carolina
JON TESTER, Montana                  ROBERT F. BENNETT, Utah
ROLAND W. BURRIS, Illinois
PAUL G. KIRK, JR., Massachusetts

                  Michael L. Alexander, Staff Director
     Brandon L. Milhorn, Minority Staff Director and Chief Counsel
                  Trina Driessnack Tyrer, Chief Clerk
                                 ------                                

 SUBCOMMITTEE ON FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, 
              FEDERAL SERVICES, AND INTERNATIONAL SECURITY

                  THOMAS R. CARPER, Delaware, Chairman
CARL LEVIN, Michigan                 JOHN McCAIN, Arizona
DANIEL K. AKAKA, Hawaii              TOM COBURN, Oklahoma
MARK L. PRYOR, Arkansas              GEORGE V. VOINOVICH, Ohio
CLAIRE McCASKILL, Missouri           JOHN ENSIGN, Nevada
ROLAND W. BURRIS, Illinois

                    John Kilvington, Staff Director
                 Peter Tyler, Professional Staff Member
    Bryan Parker, Staff Director and General Counsel to the Minority
                   Deirdre G. Armstrong, Chief Clerk


                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Carper...............................................     1
    Senator McCaskill............................................     5
    Senator McCain...............................................    15
Prepared statements:
    Senator Carper...............................................    39
    Senator McCain...............................................    42

                               WITNESSES
                        Wednesday, March 3, 2010

Hon. Amy Klobuchar, a U.S. Senator from the State of Minnesota...     6
Kathleen M. King, Director, Health Care, U.S. Government 
  Accountability Office..........................................     7
Robert Vito, Regional Inspector General for Evaluation and 
  Inspections, Office of Inspector General, U.S. Department of 
  Health and Human Services......................................     8
Jonathan Blum, Director, Center for Drug and Health Plan Choice, 
  U.S. Department of Health and Human Services...................    11
Howard B. Apple, President, SafeGuard Services, LLC, accompanied 
  by Doug Quave, Program Director, Compliance and Enforcement 
  MEDIC..........................................................    29
Christian Jensen, M.D., MPH, dent and Chief Executive Officer, 
  Quality Health Strategies, and Member, Board of Directors, 
  Health Integrity, LLC..........................................    31

                     Alphabetical List of Witnesses

Apple, Howard B.:
    Testimony....................................................    29
    Prepared statement...........................................    77
Blum, Jonathan:
    Testimony....................................................    11
    Prepared statement...........................................    63
Jensen, Christian, M.D., MPH:
    Testimony....................................................    31
    Prepared statement...........................................    82
King, Kathleen M.:
    Testimony....................................................     7
    Prepared statement...........................................    44
Klobuchar, Hon. Amy:
    Testimony....................................................     6
Vito, Robert:
    Testimony....................................................     8
    Prepared statement...........................................    52

                                APPENDIX

Chart on ``Rates of Growth'' submitted by Senator Carper.........    85
Senior Citizens League, Shannon Benton, Executive Director, 
  prepared statement.............................................    86
National Association of Chain Drug Stores, prepared statement....    92
Questions and Responses for the Record:
    Ms. King.....................................................    95
    Mr. Vito.....................................................   102
    Mr. Blum.....................................................   116
    Mr. Apple....................................................   129
    Dr. Jensen...................................................   134


     OVERSIGHT CHALLENGES IN THE MEDICARE PRESCRIPTION DRUG PROGRAM

                              ----------                              


                        WEDNESDAY, MARCH 3, 2010

                                 U.S. Senate,      
        Subcommittee on Federal Financial Management,      
              Government Information, Federal Services,    
                               and International Security  
                      of the Committee on Homeland Security
                                        and Governmental Affairs,  
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 2:34 p.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Thomas R. 
Carper, Chairman of the Subcommittee, presiding.
    Present: Senators Carper, McCaskill, and McCain.
    Also Present: Senator Klobuchar.

              OPENING STATEMENT OF SENATOR CARPER

    Senator Carper. Let me call this hearing to order, if I 
could. Welcome, one and all, especially to our witnesses who 
have joined us, those who went to high school in Delaware and 
those who did not. [Laughter.]
    To those whose last name rhymes with the word that 
legislators fear, that is, ``veto,'' whether in the Congress or 
State legislatures, and to those that are in our audience, 
welcome. We are glad that you are here.
    Today we are going to hear from several witnesses about the 
Medicare prescription drug program, something I actually voted 
to create, and we want to hear about not just the good that it 
is doing. I understand that it is a program that roughly 85 
percent of the folks who use it think is a good program, and it 
is a program that is coming in at or under budget, I think, for 
the last 4 years. And that is all well and good. It is not a 
perfect program. It has a certain vulnerability to waste, 
fraud, and abuse, as do other programs of this nature.
    The witnesses today will tell an important story. I was 
surprised when I first heard about the Government 
Accountability Office (GAO) and Inspector General reports 
showing that the critical and basic anti-fraud safeguards for 
the Medicare prescription drug program were not in place, at 
least not yet, putting the program at a higher risk to waste 
and fraud.
    Let me just say one of the interesting things about being 
on this Committee, the Homeland Security and Governmental 
Affairs Committee, is the opportunity to delve into literally 
every corner of the Federal Government. We look at programs 
where we are doing an especially good job for our taxpayers, 
the people who we work for, put a spotlight on those, and look 
for programs where we can do a better job, and sometimes look 
at programs we ought to end because they are not serving the 
purpose for which we are actually paying for them to serve.
    This is a program that we are going to talk about today, 
the Medicare prescription drug program, that actually helps 
keep a lot of people out of hospitals, saves lives, and it is a 
very good thing for our citizens. It is also a program that, as 
I said earlier, is susceptible to waste. And while we do not 
want to diminish the very positive aspects of the program, we 
want to focus on what we can do better. And as my staff here 
has heard me say time and again, everything I do I know I can 
do better. And one of my favorite sayings is if it is not 
perfect, make it better. And as good as this program is, it is 
not perfect, and we can make it better, and we want to do that. 
And it is especially important that we have that kind of focus 
in a day and age when as a Nation, just in the last 8 years, we 
have basically doubled our Nation's debt. Think about that. In 
8 years, we have increased our debt by as much as we did in the 
first roughly 208 years of our Nation's history. That is pretty 
amazing, isn't it? And we are on track to do that again in less 
than 8 years, so it is important for us to do a variety of 
things. The President has called for a freeze on discretionary 
spending starting this October 1. He has called for creating--
he has already appointed folks to serve on a bipartisan, I will 
call it, blue-ribbon commission to focus on entitlement 
programs, entitlement spending, and revenues. And it is 
important that we look at other spending to see how we can 
provide benefits and do so maybe for not much more money, or 
maybe for even less money.
    The safeguards that we have in place are important. And the 
safeguards that we need to have in place are not only important 
to protect taxpayer money, but they are important for us to 
avoid diversion of prescription drugs for criminal activity and 
to support drug addiction. Medicare, as you know, is a critical 
component of the health care of our Nation. I am told that 
almost 45 million seniors participate in Medicare. Think about 
that, 45 million folks in this country participate in Medicare.
    The prescription drug program, which is known 
affectionately as Medicare Part D, began in January 2006. We 
are now into our fifth year. The overall reviews of the program 
have been positive. Again, roughly 85 percent of the people who 
are in the program like the program, about 27 million seniors 
participating, and the program has come in basically at or 
under budget for 4 years in a row.
    As I said before, no program is perfect. During its first 
few years, the prescription drug program went through some 
serious growing pains. There are still many seniors that 
experience problems. However, Medicare Part D is here to stay. 
Congress must ensure that the $49 billion, almost $50 billion a 
year that we are spending works effectively and cost-
effectively.
    As we are all aware, Congress and the American people are 
in the midst of an important conversation about our Nation's 
health care system. There has been some disagreement about 
exactly what needs to be done. Wasn't that a nice way to 
understate it? There has been some disagreement about exactly 
what needs to be done. But almost everyone agrees that the cost 
of our system must get under control.
    I met with a bunch of students, high school students from 
across the world. They were in Dover, Delaware, the other day, 
and I had a chance to spend some time with them. Several of 
them were from Japan. They were asking me questions, and one of 
the questions they asked is: How did your health care system 
get so screwed up? And by that, they meant: Why is it that you 
spend roughly twice as much as the rest of the world, get worse 
results, and have all these people that are not covered? I 
thought it was a pretty good question. That is really the case 
in Japan. They spend half of what we do for health care 
coverage, they get better results, I think, objectively 
measured, and they cover everybody, and we do not. I like to 
think they cannot be that smart and we cannot be that dumb. We 
have to figure out how to do this and how to compete better 
against them globally and in Europe and here at home.
    Well, there has been a lot of talk around here about trying 
to ``bend the cost curve'' of health care. I have used that 
term once or twice myself. There are a number of reasons for 
the rise in health care costs over the past few decades, and it 
is clear that prescription drugs are one of the drivers of that 
increase.
    The benefits of modern pharmaceuticals are evident, but so 
are the costs. In 1985, I am told, the average American spent 
about $90 a year for prescription medicines. Today we spend 
over $700 a year. That is an increase of about 740 percent.
    Having said that, there are a lot of medicines that we can 
take today that save lives, keep people out of hospitals, keep 
people from having to be in clinics on a regular basis. So for 
those who would say is the cost really worth it, well, I think 
we could arguably say it probably in many cases is.
    But, of course, eliminating fraud is an important and 
straightforward way of lowering costs for prescription drugs. 
Unfortunately, health care is too often the focus of criminals 
who wish to take advantage of our system. And whether the care 
is provided through government programs or through the private 
sector, attempts to defraud the system are, unfortunately, on 
the rise.
    U.S. Attorney General Eric Holder estimates that Medicare 
fraud totals around $60 billion a year, an estimate echoed by 
others in law enforcement. In Medicare, $60 billion a year. 
That is not all in the prescription drug program, but some of 
it is.
    A second estimate of waste and fraud in the Federal program 
is the level of improper payments. Each year, the Federal 
Government lists the estimates of overpayments, underpayments, 
undocumented expenditures, and other kinds of mistakes and 
fraud experienced by each agency. The total for the last fiscal 
year, fiscal year 2009, was almost $100 billion in improper 
payments--$100 billion--and Medicare has the largest reported 
share of that total at about $36 billion. So roughly a third of 
the improper payments emanate from Medicare.
    Unfortunately, the Department of Health and Human Services 
(HHS) has not been able to determine the level for the 
prescription drug program, so the amount wasted in Part D is 
still largely unknown, and that is something we are anxious to 
get under control.
    Why the rise in Medicare fraud? Well, when Willie Sutton, 
an infamous 20th Century bank robber, was asked why he robbed 
banks, he always replied, ``Well, because that is where the 
money is.'' And there is a lot of money in Medicare, and that 
attracts, unfortunately, a fair amount of criminal activity.
    However, there is another reason, and it is the drugs 
themselves and the growing problem of addiction to over-the-
counter medications. The problem of Medicare prescription drug 
fraud is more than just a loss of taxpayer money. It is also 
about harm to our citizens when fraud results in drugs diverted 
to illegal use. I think we have a chart here that demonstrates 
the impact.\1\
---------------------------------------------------------------------------
    \1\ The chart referred to by Senator Carper appears in the Appendix 
on page 85.
---------------------------------------------------------------------------
    Senator McCaskill, welcome. It is good to see you.
    Senator McCaskill. Thank you.
    Senator Carper. You are just in time to see this chart. Our 
first chart of the day.
    We are looking here at growth from 1994 to 2004, and the 
prescription drug abuse up by about 80 percent, and at a time 
when the use of drugs looks like it is up by about 68 percent. 
Our population is not growing by 80 percent or 68 percent. It 
is growing by about 12 percent. So that is a good picture for 
us to keep in mind.
    The only thing that has outpaced this figure is the rate of 
abuse among those drugs, and they have grown about 80 percent.
    In fact, more Americans abuse prescription drugs than the 
number who abuse cocaine, heroin, hallucinogens, Ecstasy, and 
inhalants combined. In fact, one out of five teenagers in 
America has abused or is abusing a prescription drug.
    Aside from our financial responsibility, though, we have a 
social responsibility to ensure that our public health care 
system is not used to further intensify and subsidize a public 
health crisis.
    In a previous report focused on a similar problem with 
Medicaid, the GAO reported to this Subcommittee some major 
sources of fraud and abuse involving controlled substances. I 
understand that some of these same fraud techniques are used 
with Medicare.
    The first fraud technique included beneficiaries engaged in 
a practice commonly known as ``doctor shopping,'' in which 
recipients go to six or more doctors for the same type of drug. 
In these cases, beneficiaries are either feeding their 
addiction or selling the extra pills on the street. Drug 
dealers make the profit while the Federal Government--
unfortunately, the taxpayers, foot the bill.
    Fraud and abuse of prescription drugs also appears to be 
going on beyond the grave when prescriptions are ``received'' 
by dead beneficiaries or ``written'' by dead doctors.
    The Department of Health and Human Services--specifically, 
the Centers for Medicare & Medicaid Services (CMS)--has 
established a set of oversight schemes to protect the Medicare 
prescription drug program and its beneficiaries from fraud and 
abuse. Sometimes called program integrity, protecting the 
program from fraud is a team effort involving Federal workers 
in Medicare, involving law enforcement at both the State, the 
Federal, and local levels, Medicare prescription drug plans, 
pharmacies and doctors, and the beneficiaries themselves.
    As a recovering governor, I understand the unique 
challenges that come along with running a major program like 
Medicare. But as many of us have heard, including in this room 
even today, if it is not perfect, let us make it better. We all 
share the responsibility to do just that with the Medicare 
prescription drug program.
    Our witnesses are going to report to us today not only on 
the current challenges of waste, fraud, and abuse in the 
Medicare prescription drug program, but are going to help us to 
identify some solutions. And before they do that, let me yield 
to Senator McCaskill for whatever she would like to say, and 
say thank you very much for your commitment to ferreting out 
waste, fraud, and abuse wherever it occurs, including in the 
Medicare prescription drug program. Thank you.

             OPENING STATEMENT OF SENATOR MCCASKILL

    Senator McCaskill. Well, thank you, Mr. Chairman, for 
holding this hearing. I was particularly interested in your 
comments about prescription drugs and the abuse of prescription 
drugs. It has become a common fact that in many communities in 
this country, heroin is now cheaper than Oxycontin on the 
streets, which gives you some idea of what is going on with 
Oxycontin. It is a serious and significant opiate that is 
highly addictive, that has been widely prescribed--in lay 
opinion, inappropriately prescribed. And right now for kids 
that are on heroin, it is cheaper for them to get the heroin 
than Oxycontin, which, by the way, Oxycontin feels very similar 
to heroin.
    So it is a serious issue, and the oversight of prescription 
drugs is incredibly important. I look forward to drilling down 
about our oversight of this program. Medicare Part D is a 
wildly expensive program for this country. By 2018, we are 
going to be spending $3,000 per recipient. Ninety percent of 
all the money that is spent on this program comes right out of 
the Federal Treasury. And, of course, there has never been an 
attempt to pay for that with any kind of offsets or pay-fors. 
It was all put on the credit card when it was passed, which I 
find highly ironic some of the righteous indignation from my 
friends on the other side of the aisle about ``how dare the 
Federal Government enter into a new entitlement program run by 
the government without paying for it?'' Or that it is 
expensive, when that is exactly what Medicare D was.
    So I think it is time we take a very hard look at this 
program as to whether or not the taxpayers are getting a bang 
for their buck, whether they are requiring the kind of 
competition that brings value to the taxpayers for this, and 
whether we are doing an aggressive enough job of finding the 
cheaters--because we all know they are out there--or are we 
investing enough to find the cheaters and the abusers that are 
taking advantage of this very generous government program.
    Thank you, Mr. Chairman.
    Senator Carper. Thank you, Senator McCaskill.
    Senator Klobuchar, welcome. Thank you for joining us. A 
special guest appearance.

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

    Senator Klobuchar. Well, thank you, Mr. Chairman, and thank 
you for allowing me as a special guest to join this 
Subcommittee for one hour, like Cinderella, but I am very 
pleased to be here. I am actually a member of the Judiciary 
Committee and have taken a particular interest in Medicare and 
Medicaid fraud just because when dollars are so tight and 
people can hardly afford to pay their premiums, it is just 
outrageous that we are losing about $60 billion going out of 
the system to places that it should never go.
    Senator Carper. Was this an issue that you had some 
interest in in your previous work back in Minnesota?
    Senator Klobuchar. I did. As a prosecutor, we really beefed 
up our white-collar fraud area, and we did a lot in this kind 
of Medicaid/Medicare fraud, and it was always the most 
vulnerable people that were getting ripped off and the monies 
going to, storefronts with names that do not even provide any 
services.
    The other thing I learned since coming to the Senate and 
being on the Judiciary Committee is that a lot of this fraud 
sometimes takes place in certain hot spots, they call them in 
the Department of Justice, certain areas that have the least 
efficient health care systems where not only is the government 
not checking on them, but private companies do not work 
together well enough, and so there is just no check on this 
kind of fraud. They basically are robbing the American 
taxpayers of money.
    I have introduced a bill called the IMPROVE Act, which 
would deter fraud by requiring direct deposit of all payments 
made to providers under Medicare and Medicaid. Medicare 
regulations already require direct depositing or electronic 
fund transfer, but these regulations have not been uniformly 
enforced and lack verification and identification requirements 
that check-cashing stores make it easy for scammers to commit 
fraud and disappear without a trace. And so this bill would 
start it off with Medicaid and then codify the existing 
Medicare regulations. It has been endorsed by AARP, the 
National Association of District Attorneys, and the Credit 
Union National Association.
    To really make this health care system work, we are going 
to have to root out the fraud, to deter the fraud from 
happening in the first place. So thank you very much for 
holding this hearing and allowing me to sit in.
    Senator Carper. We are delighted that you are here. Thanks 
for your previous work in these venues and for bringing that 
experience to bear here with us today.
    All right. I am going to briefly introduce our witnesses. 
We will be joined by some other Members of our Subcommittee. I 
am told we are going to have a series of votes that starts any 
minute now, and we will have two votes, and what we will do is 
probably go for about 10 minutes or so after the votes begin, 
and we will recess very briefly. We do two votes back to back 
and come right back.
    Our first witness today is Kathleen King, Director of the 
Health Care team at GAO, where she is responsible for leading 
various studies of the health care system, specializing in 
Medicare management and prescription drug coverage. Ms. King 
has over 25 years of experience in health policy and 
administration. We thank her for being here today, and I 
learned just during our introductions earlier that she grew up 
in Wilmington, Delaware, and is a graduate of Ursuline Academy, 
one of the finest schools around. So we are glad that you are 
here.
    Our next witness is Robert Vito, Regional Inspector General 
for Evaluation and Inspections at the Department of Health and 
Human Services. Mr. Vito works in the Inspector General's 
Philadelphia office which under his leadership has been 
credited with identifying billions in savings for the Medicare 
program. Thank you for that.
    Our final witness here on this panel is Jonathan Blum, 
Director of the Center for Medicare Management and the Acting 
Director of the Center for Drug and Health Plan Choice. These 
two centers have budgets in the hundreds of billions of dollars 
and are responsible for the regulation and payment of Medicare 
fee-for-service providers and the Medicare prescription drug 
program. We thank Mr. Blum for being with us today and look 
forward to his testimony.
    All right. Ms. King, why don't you go right ahead? Try to 
stick to close to 5 minutes, if you will. If you go well beyond 
that, we may have to leave and vote.
    Ms. King. I see the light.
    Senator Carper. But we want to get to each of your 
testimony, and thanks.

 TESTIMONY OF KATHLEEN M. KING,\1\ DIRECTOR, HEALTH CARE, U.S. 
                GOVERNMENT ACCOUNTABILITY OFFICE

    Ms. King. Mr. Chairman, Members of the Subcommittee, thank 
you so much for having me appear today to talk about GAO's work 
on Medicare Part D, especially work on fraud, waste, and abuse 
in Medicare Part D.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. King appears in the Appendix on 
page 44.
---------------------------------------------------------------------------
    As you know, Medicare Part D is a voluntary outpatient 
prescription drug program that is administered by CMS with 
contracts to private health insurers and pharmacy benefit 
managers. In 2009, there were over 27 million enrollees and $51 
billion in expenditures. GAO has considered Medicare to be high 
risk since 1990 due to its greater vulnerability to fraud and 
abuse.
    The Medicare Modernization Act (MMA), which created Part D, 
required all sponsors--those who provide Part D benefits--to 
have programs in place to safeguard Part D from fraud, waste, 
and abuse. And CMS issued regulations requiring sponsors to 
have compliance plans detailing their plans to prevent and 
detect fraud, waste, and abuse. Those plans have seven required 
elements that reflect industry best practices. I am not going 
to name all of those elements here today. They are in my 
written statement. But they include things like having written 
policies, effective lines of communication, and a compliance 
officer that reports to senior management.
    After the implementation of Medicare Part D, we were asked 
to look at the compliance plans offered by the sponsors and 
CMS's oversight of those plans, and we issued a report in July 
2008 that is the basis for my statement today, although we did 
speak to CMS recently to update it.
    As part of our work, we looked at five sponsors that 
provided Part D benefits to more than one-third of 
beneficiaries, and our team went on site, spoke to individuals, 
reviewed documents, kicked the tires, if you will. And what we 
found in that study is that none of the five sponsors had 
implemented all of the seven elements of the required plans. 
Five sponsors had completely implemented three of the elements, 
and from there it varied downward.
    We also found at that time that CMS's oversight of the 
process was limited. For example, in 2008, we found that 
oversight was limited to review of the initial plans that 
sponsors submitted as part of their application, and in 2006, 
CMS issued what is called Chapter 9, which is their guidance to 
plans on how to implement their compliance plans, and plans 
were not required to update their compliance plans after that 
date, nor were they required to update them for the 2007 and 
2008 years.
    Turning to audits, we found that CMS did not do the audits 
that it specified in its 2005 oversight strategy. There were a 
number of audits supposed to be done, 10 by Medicare drug 
integrity contracts (MEDICs)--and I think you are going to hear 
from MEDICs later--in 2005 and 2006, and 35 in 2006 and 2007. 
At that point, in 2006, CMS said that resource constraints, due 
in part to an increase in the number of plans participating in 
Part D, did not enable them to do all the audits that they had 
planned and to switch some audits from on-site audits to desk 
audits, which involve reviewing documents and papers sent by 
the Part D plans.
    To update our report for this presentation today, we spoke 
to CMS again, and they told us that recently, between 2008 and 
2009, the MEDICs had conducted 16 audits, desk audits, of the 
Part D compliance plans, and after that decided to change their 
audit strategy to on-site audits. And as part of that, they 
have conducted two on-site audits as part of a pilot program 
and they found some deficiencies. CMS plans to do more on-site 
audits. As of today, they have not decided exactly how many 
they should do.
    CMS also issued a proposed regulation in 2009 to update its 
instructions to plans on how to develop effective compliance 
plans because they found that not all the sponsors understood 
them, and they told us recently that they expect this 
regulation to be made final very shortly.
    That concludes my prepared statement. I am happy to answer 
any questions.
    Senator Carper. Great. Thanks so much. Mr. Vito, please. 
And, again, all of your statements, full statements, will be 
made part of the record. Just feel free to summarize as you 
wish. Thank you.

  TESTIMONY OF ROBERT VITO,\1\ REGIONAL INSPECTOR GENERAL FOR 
 EVALUATION AND INSPECTIONS, OFFICE OF INSPECTOR GENERAL, U.S. 
            DEPARTMENT OF HEALTH AND HUMAN SERVICES

    Mr. Vito. Good afternoon, Mr. Chairman and Members of the 
Subcommittee. I am Robert Vito, Regional Inspector General for 
Evaluation and Inspections at the Department of Health and 
Human Services' Office of Inspector General (OIG). I would like 
to thank you, Mr. Chairman, for holding this hearing on the 
important topic of Part D oversight.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Vito appears in the Appendix on 
page 52.
---------------------------------------------------------------------------
    Fraud, waste, and abuse have long been recognized as 
significant problems in the Medicare program, resulting in 
perhaps billions of dollars in losses to taxpayers each year. 
Fraud, waste, and abuse also negatively impact Medicare 
beneficiaries by causing them to pay more for their health care 
through higher premiums and rising copayments.
    The complexity of the Part D program as well as its short 
implementation timeline makes it vulnerable to fraud, waste, 
and abuse. However, the creation of the Part D benefit also 
provides an opportunity to use the knowledge we gained in all 
the years of fighting fraud in the Medicare and Medicaid 
programs. To that end, we should use this opportunity to design 
a system that works to prevent fraud and improper payments 
before they occur rather than trying to recover the funds after 
the money has been spent. CMS plan sponsors and Medicare drug 
integrity contractors, known as MEDICs, all play key roles in 
this effort.
    Since the inception of the Part D benefit, OIG has 
developed a body of work that assesses the program integrity 
and payment accuracies that each of these groups has in place. 
In short, we found that while some safeguards have been in 
place since the benefit's inception, others have been employed 
in a limited capacity, and some remain unimplemented.
    To put it simply, there is more work to be done by CMS, the 
plan sponsors, and the MEDICs. As the administrator of the 
benefit, CMS plays a primary role in preventing and detecting 
fraud, waste, and abuse. Although CMS has developed a safeguard 
strategy, the strategy did not address the coordination that is 
needed between the different groups within CMS and lacks the 
details that would turn it from a broad strategic concept into 
a useful management tool. Furthermore, although CMS required 
Part D plan sponsors to have compliance plans and had provided 
guidance on their development, it has yet to finalize any 
audits to ensure the plans are comprehensive and effective--
this despite the fact that OIG found that sponsors' compliance 
plans did not fully address all the CMS requirements.
    Specifically, OIG found that compliance plans from certain 
sponsors contained only broad outlines of a fraud and abuse 
strategy or were missing one or more of CMS's required 
elements, including the development of internal auditing and 
monitoring procedures.
    Further, although CMS required sponsors to initiate 
corrective action where evidence of fraud exists, we found that 
many plan sponsors that identified potential fraud did not do 
so. Even more disturbing is the fact that 28 percent of the 
sponsors did not identify a single incident of fraud or abuse. 
If there really was no fraud, that would be remarkable. But 
given our experience, it seems highly unlikely.
    In addition to relying on the plans to target fraud and 
inappropriate payments, CMS has publicly stated that by using 
state-of-the-art systems and expertise, the agency and the 
MEDICs would prevent problems before they occur, which is the 
optimal goal. Yet we found that rather than using the advanced 
data techniques, CMS and MEDICs relied largely on complaints. 
While complaints have their place in fraud detection efforts, 
they are, by their definition, reactive rather than proactive. 
Unfortunately, the MEDICs were unable to engage in more 
proactive measures in large part because they did not gain 
access to the Part D pharmacy data until the second year of the 
program and did not get the data on the physician services 
until the third year.
    Furthermore, when the MEDICs investigated potential fraud 
and abuse incidents, they did not have the authority to 
directly obtain information such as prescriptions and related 
medical information from pharmacies, pharmacy benefit managers, 
and prescribing physicians. Finally, while the MEDICs were 
prepared to audit sponsors in an effort to evaluate their 
compliance plans, the MEDICs were not given the approval to do 
so.
    Again, it is up to CMS to address the issues we found with 
the sponsors and the MEDICs. To accomplish this task, we 
recommend that CMS develop a comprehensive program integrity 
plan that includes specific action items, target dates, and 
staff assignments. CMS also needs to conduct audits of sponsors 
in a timely manner and establish mechanisms to hold sponsors 
accountable for problems identified. CMS should also address 
the issues that prevent the MEDICs from directly obtaining 
information they need from pharmacies, pharmacy benefit 
managers, and physicians.
    Finally, and perhaps most importantly, we recommend that 
all key players perform more innovative data analysis of claims 
and payment information and embrace proactive methods of fraud 
detection.
    In closing, I can assure you that the Part D issues will 
continue to be a major focus of the OIG work. We are currently 
performing additional reviews, some of which will likely 
identify improper Part D payments that might have been 
prevented if there were strong detection and prevention 
programs. Clearly, there is more to be done by CMS and its 
partners to ensure the integrity of the Part D program, and we 
stand ready to assist them in their efforts.
    I would be happy to answer any questions you may have.
    Senator Carper. Well, you are going to have to wait just a 
few minutes because we are going to recess and come back in 
about 20 minutes and ask Mr. Blum to make his statement, so you 
are on deck. And we thank you for your patience. We will be 
back in about 20 minutes. Thank you.
    The Subcommittee stands in recess.
    [Recess.]
    Senator Carper. All right. That is enough fun. [Laughter.]
    We have concluded at least these first two votes, and we 
may have some more later on. But, Mr. Blum, thanks for your 
patience. We welcome your testimony. Thanks for joining us 
today. You are recognized.

 TESTIMONY OF JONATHAN BLUM,\1\ DIRECTOR, CENTER FOR DRUG AND 
    HEALTH PLAN CHOICE, U.S. DEPARTMENT OF HEALTH AND HUMAN 
                            SERVICES

    Mr. Blum. Great. Thank you very much, Chairman Carper, and 
thank you for the opportunity to come here today to talk about 
CMS's efforts, CMS's strategies to improve the performance, to 
improve the quality, to elevate the overall accountability of 
the Part D program.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Blum appears in the Appendix on 
page 63.
---------------------------------------------------------------------------
    The administration, CMS, is very much committed to ensure 
that we have the best program possible, the strongest program 
possible. We understand that we have a tremendous 
responsibility and a tremendous obligation to ensure that we 
provide benefits consistent with the law, protect taxpayers' 
dollars, and ensure beneficiaries have the high-quality program 
that they expect.
    I want to highlight just a few points from my testimony, 
but I would be happy to answer any questions that you may have.
    The first point that I want to highlight is that the Part D 
program is tremendously complex. We have 4,000 different 
contracts that provide Part D benefits. These are plans that 
are stand-alone drug plans, comprehensive HMOs, but the Part D 
benefit is delivered by 4,000 different private entities. That 
requires CMS to develop many different strategies, many 
different ways to oversee the program and to ensure that all 
4,000 contracts have the same consistent values, the same 
consistent goals that CMS has.
    The second point that I want to emphasize is that CMS 
uses--in order to manage this very large program delivered by 
4,000 different contracts, we use a range of different data to 
ensure that we are monitoring the program, we are understanding 
issues, we are acting on issues, we are being as proactive as 
possible. CMS collects quality metrics. CMS collects and 
analyzes prescription drug claims. We monitor beneficiary 
complaints, physician complaints, and CMS responds very 
quickly, very proactively, to any issues these different data 
sources tell us.
    CMS also has a very aggressive, a very robust audit 
strategy. In 2009, CMS conducted 348 different targeted and 
routine audits. We ensure that bids submitted to CMS are 
accurate. We ensure that plans follow our rules. We ensure that 
plans understand our rules. We ensure that our payments are 
accurate. We ensure that beneficiaries receive the services 
they are entitled to. But, again, given the breadth, given the 
scope, given the complexity, CMS has to dedicate our resources 
as prudently as possible. We have to target our resources as 
prudently as possible. But we are committed to overseeing 
through audits, both desk audits and on-site audits, a strategy 
to make sure we have the best possible program.
    CMS has shifted to a more performance-based auditing 
system, meaning that we target our audit resources to those 
Part D plans that present the highest probability for 
vulnerability. We do not just do random audits, but we target 
those audits to those plans that present the biggest 
vulnerability to the program.
    CMS has undertaken several new initiatives to further 
strengthen our ability to oversee the program. As Ms. King 
mentioned, CMS in the fall proposed 70 new regulations to 
improve oversight of the Part D program. We expect to finalize 
those regulations. Our goal is to make the Part D benefit 
simpler for beneficiaries to understand, to ensure that CMS has 
more tools, to hold plans more accountable to the Part D 
program, and also to make sure we have the strongest possible 
compliance strategies, both operated by our Part D contractors 
but also by CMS. Again, CMS intends to finalize these rules 
this month to be effective for the 2011 contract year.
    We have heard loud and clear the concerns regarding our 
contractors, the so-called MEDICs. CMS has changed the way that 
we contract with the MEDICs. We have a new strategy; we have a 
new focus. And I am confident that we will see even better 
results from these MEDIC contractors.
    Last, we are working very hard to complete a composite 
error rate for the Part D program. We understand this is a high 
priority for you, this is a high priority for the Congress. We 
understand this is a high priority for the President. We have 
completed three components to this five-part composite error 
rate, and we expect to produce all five components to produce a 
composite Part D error rate by the end of next year.
    Last, the President has made fraud and abuse program 
integrity one of his highest priorities for the Medicare 
program. He has proposed historic new resources to root out, to 
fight Medicare fraud and abuse for the traditional fee-for-
service program, but also the Part C and Part D programs. It is 
true that in the past CMS lacked the resources to do sufficient 
oversight, to do sufficient auditing. But I am confident that 
with the resources we have that the Congress has given CMS, we 
have sufficient resources to address concerns of the past.
    CMS has more work to do. We have made tremendous progress, 
but we have more work to do. We have several concerns that we 
are working very hard to address. We have concerns about 
marketing practices by our Part D plans, and we are working 
very hard to ensure that when Part D plans market their plans 
to beneficiaries, those communications are accurate, are 
responsible, and are appropriate.
    We have concerns about plans providing appropriate clinical 
access to drugs. We also have concerns about plans that have 
very aggressive growth strategies. Those plans that grow the 
fastest seem to us to present the highest vulnerability to the 
Part D program, so CMS will be targeting more of its resources 
towards those plans that seem to be growing the fastest.
    With that, I will stop, and I would be happy to answer any 
questions you may have.
    Senator Carper. All right. Thank you, Mr. Blum.
    Let me just, if I can, throw out a question to you, but I 
would invite our other witnesses to respond, too. When I was an 
undergrad and later as a graduate student, I studied some 
economics, and I have always been intrigued. My professors at 
Ohio State would say, ``Well, he did not study enough.'' I 
finally got the hang of it. But one thing that has always 
intrigued me is how do we harness market forces in order to 
help shape good public policy behavior. I will give you a 
couple of examples.
    We have a hard time with Federal agencies actually selling 
the surplus property that is within their purview. They just 
hold on to it. We pay the utility bills. We pay security costs 
and so forth. And we find out that for the most part agencies, 
if they go to the trouble and expense of fixing up a property 
so they can sell the property, they do not get anything out of 
it. The money goes back to the Treasury. None of it stays 
within that agency. It cannot be used to help pay for the fix-
up costs. Veterans Affairs is different. We let the VA keep 
maybe about 20 percent of the sale proceeds to use it for their 
program, to pay for the fix-up costs to sell that property.
    Another example where we actually try to harness market 
forces is the health care bill that has passed the Senate, that 
is pending action in the House right now, but trying to 
incentivize people, employees of companies too, if they are 
overweight, lose weight; if they smoke, stop smoking; if they 
have high blood pressure, high cholesterol, bringing it down 
and keeping it down. And how do we do that? One of the ideas is 
to allow the employees who stop smoking, lose weight, control 
their cholesterol, control their blood pressure to actually 
receive premium discounts for up to 30 percent if they do the 
right thing for themselves and for the group under which they 
are insured.
    Another example we have under Federal law--let us say you 
are a whistleblower. You work for Mr. Vito, and the work that 
Mr. Vito's company does for the Federal Government, they are 
crooks. That is a big leap of faith, I know. But they 
improperly bill us. They take money that they do not deserve--
and you are an employee. You know about it. You report it. You 
blow the whistle. And it used to be Mr. Vito would turn around 
and fire you. You are history, you are out of here. That was 
pretty much it. And then we got involved and said, no, if we 
want to incentivize people to be whistleblowers, why don't we 
at least try to protect them so that they can get their job 
back and recover lost wages? So we did that.
    Then we decided to take it a step further and say if you 
are a whistleblower, not only will your job rights be 
protected, not only will you get your wages back, but if there 
is a recovery for the Federal Government, you can participate 
and receive anywhere from, I think, 15 to 30 percent of the 
recovery for the Federal Treasury.
    And I am told that the IRS may have a similar kind of 
arrangement where folks reporting tax fraud, tax evasion, if 
there is money recovered, some participation, some reward, if 
you will, can be provided to those who do the reporting.
    We can have all this stuff we are talking about here in 
terms of Federal agency oversight and so forth and trying to 
make sure people are doing their job and all. Part of me says 
one of the ways to make sure that is happening is to actually 
incentivize folks, if they are aware of fraud, to report it, 
and with the knowledge that if they do, not only will they feel 
good as citizens that they have done the right thing, but they 
will also actually improve and enhance their own financial or 
economic situation by participating in the recovery.
    Is this something that might work here? And if so, in fact, 
all of you, just be thinking how that kind of approach might be 
implemented with respect to identifying fraud in Medicare Part 
D and help reduce the huge deficits that we face; strengthen 
the Medicare trust fund; and try to do this in a way where we 
harness market forces in an effective way to do the policing 
for us. Go ahead, please. Mr. Blum, you take the first shot at 
that, and then I will ask Mr. Vito and Ms. King.
    Mr. Blum. Well, thank you for the question, Senator.
    Senator Carper. It was a long question, wasn't it? 
[Laughter.]
    But a good one.
    Mr. Blum. Very good question. I think the greatest 
challenge that CMS has with the Part D benefit is to ensure 
that all the contractors that have contracts with the program 
share consistent goals and share consistent values with CMS, 
and those values are to ensure the beneficiaries receive the 
benefits in the best possible way, but that also taxpayer 
dollars are used as prudently as possible.
    CMS has more work to do. We have to create a stronger 
culture of accountability. We have to ensure that our Part D 
contractors understand that they should have the same 
responsibilities as CMS does. And we are open to every idea to 
promote that accountability with our Part D contracts.
    I understand that you have legislation to require Part D 
plans to report fraud. That is a very interesting idea. To our 
minds, that requires Congress to give CMS that authority. But I 
think any tool that CMS can add through regulation or that 
Congress can provide to ensure that our contractors, who are 
the front lines for the Part D benefit, share the same values 
that you have and also share the same values that CMS has.
    Senator Carper. OK. I am going to come back to you for a 
follow-up, but I want to hear a more specific response on the 
idea of sharing in the recovery. Just think about it.
    Go ahead.
    Mr. Vito. I believe that is happening in the Medicare 
program already, also in the Medicaid program. Some of our 
largest settlements have come from qui tams in which----
    Senator Carper. I am sorry. I do not like acronyms. What 
are qui tams?
    Mr. Vito. That is when a whistleblower, someone who works 
in a company, realizes that the company has done something 
wrong, and then they come and--either they come to the 
government or they submit it and say that there is a problem 
here, we would like you, the government, to be aware of it, and 
see if you would like to join with us in going after this case. 
And some of the largest settlements that we have ever achieved 
have come from those actions.
    So what you are suggesting is something that is working and 
can work very well.
    Senator Carper. All right. Thank you. Ms. King.
    Ms. King. Senator, I think one of the most effective 
strategies on fraud and abuse is to prevent it from occurring 
in the first place, and so I think that we would really 
encourage the front-end things, like having effective 
compliance plans in place and having CMS oversee them carefully 
as a sentinel effect, because it is much more effective to 
prevent fraud from occurring than paying and chasing.
    Senator Carper. OK. Well, I would suggest maybe we need all 
the above.
    We have been joined by Senator McCain. What I am pursuing 
here, Senator McCain, is trying to figure out how do we 
incentivize folks to actually go out and help us identify the 
fraud that is occurring, and I pointed to what we do with 
whistleblowers when whistleblowers actually lead to a financial 
recovery for the government, they get to participate in the 
recovery anywhere from 15 to 30 percent. I think IRS has a 
similar kind of approach where we recover monies that have 
been, frankly, recovered because of tax evasion. And we have 
some other programs where we incentivize, I think, for the sale 
of government property, the VA actually gets to keep part of 
the proceeds of the abandoned properties or the excess 
properties that they do not need. Just looking for ways to use 
financial forces, economic forces to do a better job, and we 
are not doing a great job in this area, as you probably know. 
Let me yield to you. If you have a statement, go ahead. If you 
just want to jump into questions, feel free.

              OPENING STATEMENT OF SENATOR MCCAIN

    Senator McCain. Thank you, Mr. Chairman. I apologize to the 
witnesses. As you know, we had a vote. We were interrupted by a 
vote, and I thank all of you for taking the time here and 
helping us with this very important issue. I would ask that my 
statement be made part of the record.\1\
---------------------------------------------------------------------------
    \1\ The prepared statement of Senator McCain appears in the 
Appendix on page 42.
---------------------------------------------------------------------------
    Senator Carper. Without objection.
    Senator McCain. Mr. Blum, as I understand it, the Medicare 
Prescription Drug Improvement and Modernization Act requires 
that all Part D sponsors have a program to detect and prevent 
fraud, waste, and abuse. CMS regulations establish the 
requirements for comprehensive compliance plans for Part D plan 
sponsors. CMS contracted, as you know, with medical drug 
integrity contractors, from now on MEDICs, to audit the 
compliance grants. Sixteen desk review compliance plan audits 
were conducted in late 2008 and 2009. CMS determined their 
value in monitoring and oversight efforts was limited. CMS is 
now engaging the MEDICs to conduct comprehensive on-site 
compliance plan audits and expects to have 20 or 30 of them 
completed this year.
    We are in agreement so far, Mr. Blum?
    Mr. Blum. Yes, Senator.
    Senator McCain. OK. According to the HHS Inspector General, 
however, although MEDICs were given task orders to conduct 
compliance plan audits, they were not given the authorization 
to proceed. Why weren't they given the authorization? And does 
this mean that CMS paid for audits that were never done?
    Mr. Blum. Thank you for the question, Senator. It is my 
understanding that in the past CMS, through its contractors, 
its MEDICs, undertook these audits through desk audits, meaning 
that the audits focused on reviewing plans, papers, documents, 
do they have compliance plans in place.
    CMS found those audits to have very limited value. To our 
minds, it is one thing to check documentation, but it is 
another thing to go on-site to a Part D plan to ensure they 
have the programs in place, they have the education processes 
in place. And so the agency completed 16 audits in the past, 
but decided not to issue final reports.
    We have changed that process, and we have changed the 
process to be more on-site audits to ensure that our Part D 
contractors share the same values that CMS does.
    Senator McCain. Now, when is this going to start?
    Mr. Blum. The process has started. Now we are finalizing 
our plans going forward, and I expect us to fulfill our 
obligation and also to make sure that our contractors, the 
MEDICs, also share in that as well.
    Second, CMS is in the process of finalizing new regulations 
to give us more oversight on these compliance plans, to further 
define what plans have to follow, and part of our strategy, 
too, is to have a tighter regulatory process to have stronger 
processes in place.
    Senator McCain. Part D is currently in its fifth year of 
operations.
    Mr. Blum. Well, I cannot speak to the past, but I can speak 
to the present, and it is our--we are very much committed to 
fulfill the----
    Senator McCain. Who does speak for the past? If you do not, 
who does?
    Mr. Blum. Well, again----
    Senator McCain. Your predecessor? Is that what you are 
saying?
    Mr. Blum. Correct.
    Senator McCain. Ms. King, do you have a comment on this?
    Ms. King. Senator, I think that we recommended in 2008 that 
CMS conduct these audits, and they have started them, we 
believe that audits and on-site audits, as we conducted when we 
did our work, are really helpful and have a strong sentinel 
effect.
    Senator McCain. Do you have confidence that now in the 
fifth year of operations we will get it right?
    Ms. King. Well, Senator, we are an evidence-based 
operation. [Laughter.]
    We do not speculate about the future, but we do look at the 
evidence before us.
    Senator McCain. And the evidence before you indicates?
    Ms. King. We have spoken to CMS about their plans to do on-
site audits, and they are in the process of making final a 
regulation that will clarify what constitutes an effective 
plan. So I have no reason to think that they are not going to 
do what they say they are going to do, but we cannot make a 
judgment about its completion or effectiveness until after it 
has happened.
    Senator McCain. Well, could I suggest, Mr. Chairman, that 
maybe 6 months from now we could get a report from the 
Government Accountability Office. And maybe you can tell us 
what the evidence is then?
    Ms. King. Yes, sir.
    Senator McCain. Mr. Vito, do you have a comment on this?
    Mr. Vito. Yes, sir. I want to tell you that we have been 
doing this work. We believe that prevention is the best way to 
make the program run, so----
    Senator McCain. Prevention of what?
    Mr. Vito. Fraud, waste, and abuse. And the way you prevent 
it is you set up systems that prevent the payments that are 
problematic from going out before they occur.
    Senator McCain. OK. I say with great respect I understand 
that prevention is vital, but finding out whether the 
prevention has been carried out is----
    Mr. Vito. Yes, we agree with you. We started doing the 
audits in 2006 to see if the compliance plans--if the plans had 
compliance plans.
    Senator McCain. And what did you find out?
    Mr. Vito. We found that they had them, but they did not 
have all the elements, and we were not certain that they were 
there protecting the program. We recommended at that time that 
CMS do audits in 2006. We continued to follow up through 2009 
to see if they have done that.
    Senator McCain. What did you see?
    Mr. Vito. We saw that they had not been successful in 
meeting what we have asked them to do. That is why we continue 
to follow up to make sure that happens. We are interested, just 
like you.
    Senator McCain. Mr. Chairman, the reason why I am focusing 
a lot of attention on this is because, as you know, at Blair 
House this issue was discussed and agreed upon by the President 
and all Members who were there. And I guess my only point is 
that in the fifth year of operation, I think we have the right 
to expect a little bit of something more than what we are 
finding out here today. And I am not, Mr. Blum, blaming you 
personally or anyone else, but it seems to me in the fifth year 
of operations, given the acceptance on all sides that there is 
significant fraud, abuse, and waste that can be eliminated, the 
President's plan is talking about eliminating $500 billion in 
fraud, abuse, and waste, that I right now do not have a lot of 
confidence that we have the procedures in place to really 
significantly impact it. I hope that I am incorrect in that 
impression, at least up to date, but I am encouraged by the 
comments of the witnesses.
    There are a lot of other areas to discuss, but I see 
Senator McCaskill is here also, so I thank you for the time, 
and I thank the witnesses.
    Senator Carper. I think your idea of asking GAO to come 
back to us in about 6 months is a good one. And I think the 
idea of us having a hearing, maybe with these same witnesses, 
maybe with others, to see what kind of progress is being made--
because in the last 4 or 5 years, what we have made is not 
enough. And I think I hear our witnesses--what I try to focus 
on is how do we incentivize--when fraud has occurred, how do we 
incentivize folks financially to help identify that fraud, to 
report it, and make sure we recover money.
    What I think I hear our witnesses saying is that is maybe 
all well and good, but we also need to focus at the front end 
on the prevention side. So we start on the prevention, and you 
do the cost recovery at the end, but everything in between--and 
we need everything in between, given the amount of money that 
we are talking about.
    Senator McCaskill.
    Senator McCaskill. Thank you, Mr. Chairman.
    I was reading my materials for this hearing, and, I had one 
of those moments where I read a sentence, and I went, ``Huh?'' 
And then I read it again, and I went, ``Huh? Are you kidding?'' 
Twenty-four of the 86 Medicare D sponsors, in 2008, did not 
report one incident of fraud. OK. And I believe in Santa Claus 
and the Tooth Fairy. If you have that many of these sponsors 
that are saying there are no incidents of fraud, then the 
auditor in me goes, ``OK, there is high risk, we are on that.'' 
And I know, Mr. Vito, that the IG's report is what talked about 
this. And one of the things in the IG's report that I noticed 
was that we do not even require them, we suggest that they 
report fraud. Are you kidding me? We are giving them 90 percent 
of the money for this program right out of the general 
Treasury, and we are not even requiring that these people 
report fraud?
    Mr. Blum, is that a regulation that has been proposed? Is 
there something we need to do to say that they are required to 
report every incident of fraud that they believe is occurring?
    Senator Carper. Mr. Blum, before you respond, we have 
offered legislation. Our hope is it is going to be in the--if 
we end up taking a sidecar approach in terms of adding to the 
Senate-passed health care bill, one of the elements of that 
would be to require that the fraud be reported. I do not think 
we have the ability in that legislation to also provide the 
incentives, the kind of financial incentives we do for 
whistleblowers at the IRS. I am very much interested in doing 
that. I am sorry to interrupt.
    Senator McCaskill. Well, I am just curious if you have the 
ability to require people that we give that much Federal money 
to, to report fraud without a law. It seems to me that we ought 
to be able to do that by regulation without a law. If we cannot 
require them to report fraud, we might as well give them a gun 
and tell them to hold up the bank.
    Mr. Blum. Senator, our current regulations have voluntary 
reporting requirements. But it seems to me very awkward to have 
something through regulation that is voluntary. To me, a 
regulation should be required.
    We have concluded, CMS has concluded that CMS could change 
its regulations to have mandatory reporting requirements, but 
CMS would not have the authority to enforce it. So to our 
conclusion, Congress would have to give us the authority to 
enforce that would make this change meaningful. CMS could 
change the regulation, but we could not enforce it, which says 
to us Congress would have to give us that authority.
    Senator McCaskill. That is depressing to me that we would 
have to--that is something that would take a law to require 
people that we are giving money to, to tell us if they think 
that there is fraud going on. I do not want to argue the point 
with you, but if we are going to try to get it fixed, that is 
terrific.
    We have talked a lot about fraud and abuse. I would like to 
for a minute get the reaction of GAO and the IG on the issue of 
waste. We have a mind-numbing number of choices out there for 
seniors, and if someone has to take Lipitor, maybe plan 42 is 
the best for them. If they have to take Aggrenox, maybe plan 21 
is the best for them. And there can be a real difference in 
cost savings depending on which plan has negotiated the best 
price for which drug is covered in each of these mind-numbing 
number of choices.
    Do we have any data systems in place--and if we do not, 
shouldn't we--that track whether or not the seniors have made 
the best choice based on what their prescription needs are?
    Now, let me preface this question, and I will look forward 
to your answers. It is not that I am interested in what seniors 
are taking. But if they have not made the best choice, guess 
who is paying for it? We are paying for it. So if they are in 
completely the wrong plan and they could save 50 percent by 
switching a plan, up to 45 percent of that money they could 
save is coming directly out of the U.S. Treasury. So what 
attempts have there been made to identify by data points that 
kind of massive amount of waste that has to be in this system 
that is enriching the profits of these pharmaceutical 
companies?
    Ms. King. Senator, if I may, and I can give you a long 
answer that I hope answers your question, but I am not aware of 
any data systems that actually capture whether seniors are 
making the best choices. CMS does have something called a Plan 
Finder which enables people to go on a website and figure out 
which drug plan best meet their needs. And we do not know how 
many do that. But there is also a provision in law that has to 
do with people who are dually eligible for Medicare and 
Medicaid. And in some cases--and they are in subsidized plans, 
so they are not paying a premium.
    Year to year, a number of those people----
    Senator McCaskill. So we are paying 100 percent of those 
costs.
    Ms. King. We are. Basically, yes. Year to year, if those 
plans go above the average, then the people in those plans are 
randomly assigned to other plans. And there is something--it is 
called intelligent assignment--where you can figure out what 
would be the best plan for them, but the law actually requires 
random assignment.
    Senator McCaskill. So the law is saying it is OK if we 
placed Mrs. Jones in the plan that is going to make her plan 
twice as expensive because you are required to do it randomly?
    Ms. King. The plan is not twice as expensive, because they 
are reassigned to plans that are all below a certain level. But 
that person might be reassigned to a plan that does not best 
meet their drug needs.
    Senator McCaskill. Well, what I am saying is that they 
could be reassigned to a plan that is going to cost the U.S. 
Government more than it should because that particular plan has 
not negotiated a good deal with a given drug company that 
particular recipient might need more of.
    Ms. King. Yes. And I think there are provisions in some of 
the health reform bills that would address this issue.
    Senator McCaskill. Thank you, Mr. Chairman.
    Senator Carper. You bet. Thank you so much.
    Senator Klobuchar, again, we are delighted you are here. 
Welcome.
    Senator Klobuchar. Well, thank you very much. Thank you for 
allowing me to be here, and as I mentioned, I have focused on 
this issue a lot on the Judiciary Committee, and I just 
continue to be astounded that we lose so much money when 
budgets are tight and people can hardly afford their premiums 
and we are losing $60 billion every year on Medicare or 
Medicaid fraud.
    And I was thinking, as Senator McCaskill was talking about 
someone robbing a bank with a gun, one of my favorite bank 
stories out of Minnesota was when a guy did come in and rob a 
bank with a gun, and then he passed the note to the teller, and 
the note he wrote on, on the back was his own check with his 
address and name on it. And that is what I was thinking is 
basically happening here. A lot of these people, when you look 
at the 90 percent of fraud cases that Senator McCaskill was 
referring to, Mr. Vito, in your agency's October 2008 report, 
they are associated with just seven companies. I mean, some of 
this is like not just low-hanging fruit; it is falling and 
rolling around on the ground.
    So based on these findings, it would appear that the 
resources at CMS might be best utilized by focusing on, to use 
the fruit analogy, a few bad apples. So does CMS have the 
ability to focus its fraud prevention efforts on companies who 
appear to have an increased incidence of fraud?
    Mr. Vito. Well, thank you for the question. I believe a lot 
of things play into this question. First of all, CMS does not 
get those statistics so they would never know. We got them 
because we wanted to find out.
    What we were trying to learn about, we knew that the 
compliance plans, nobody was doing the reviews of those, so 
that we knew that CMS had no idea how effective compliance 
plans they were in detecting fraud, waste, and abuse. And we 
tried to get that to be done, but that was not done. So another 
way of us attacking it was to go and get the information from 
the plan sponsors to find out how much they have detected.
    There are a lot of things that go into that, but when you 
look and then you do not know how well the plan's compliance 
plans are working and then you see those statistics, then it 
makes you really wonder what needs to be done here and how--do 
you focus on the ones that are reporting the large numbers, or 
do you focus on the ones that are not reporting any numbers?
    But you see what I am trying to say? When you get both of 
those pieces together, then you are able to target exactly what 
you are saying, because when you see a compliance plan that is 
not identifying fraud, waste, and abuse, that does not have 
internal monitoring, and then you see the plan has no reported 
incidents or investigations, then you know that is a place to 
look.
    Senator Klobuchar. And are we targeting them now? Because, 
I mean, I know we are trying with this health care bill to put 
a bunch of tools in place, and we want to get it 
electronically. But what are we doing right now? Because I 
guess, Ms. King, are you aware of any enforcement action being 
taken against these sponsors that are found to not be 
compliant? Is that going on right now?
    Ms. King. That was not in the scope of our work, and I 
cannot answer that directly. Mr. Blum may be able to answer 
that.
    Mr. Blum. CMS has a range of tools that it uses to enforce 
our requirements. We have corrective action plans. We have 
enrollment suspensions. We have termination, kind of worst-case 
scenario. I am not personally satisfied with the information 
that was reported. CMS needs to do better. We need to identify 
plans that present the highest risk to the program. We are 
targeting our audit resources towards those plans that have the 
highest risk, and I think one factor that CMS should consider 
is plans not reporting fraud may give us an indication as to 
that is where audit resources need to be applied.
    We are moving to a strategy to apply resources, to apply 
audit resources towards those plans that present the greatest 
vulnerability. We collect a range of different data to help us 
identify those vulnerabilities. But I think this is an area CMS 
should explore to do more with.
    Senator Klobuchar. Well, I would hope so when we are 
talking about so much money. I think people would be outraged. 
When Bill Corr at your agency came and testified in front of 
the Judiciarym Committee, he described hot spots for fraud, 
specifically focusing on the durable medical equipment program. 
Have you looked at that for what these hot spots are for 
certain types, not just plans but types of provision of 
services?
    Mr. Blum. CMS agreed that we have geographic areas of the 
country that seems to be higher-fraud areas. We have certain 
services that tend to be higher-fraud services. We are 
dedicating more of our resources towards those hot spots. 
Deputy Secretary Corr talked about Operation HEAT, a whole new 
partnership, how we are working with the IG's office, with the 
Department of Justice, to target those parts of the country 
that present the greatest vulnerability to the Medicare 
program, writ large.
    Senator Klobuchar. Because it does seem to me, if you could 
get some wins and get some major people prosecuted and get some 
major money in, it sends a message to the whole system. And 
right now we do not have that. People just think they can rip 
people off. And we need those kinds of wins, and we need those 
kinds of examples. And I know people are--it feels like people 
are just trying to diagnose the symptoms and not treating them 
yet.
    Mr. Blum. We agree. The Administration, I believe, has 
taken unprecedented action in the past year to dedicate more 
resources, to require more resources from the Congress, and to 
take a historic new investment in Operation HEAT. It has proven 
successful. We have more convictions. CMS, I think, in the past 
did not share information with law enforcement partners. We 
have broken down those communication barriers, and the 
Secretary and the Deputy Secretary have been very clear that 
CMS needs to work in partnership with the IG's office, with the 
Department of Justice, to address the concerns that you are 
raising.
    Senator Klobuchar. Last year, an investigation found that 
Medicare claims contained the identification numbers of an 
estimated 16,500 to 18,200 deceased physicians involving 
approximately 385,000 to 572,000 claims for medical equipment. 
In every case study cited, these deceased physicians were 
obviously unwitting instruments, since they were not alive, in 
transactions that meant easy money for unscrupulous crooks.
    What are you doing to combat criminals using the identity 
of deceased providers? Have you seen this type of fraud with 
Medicare Part D?
    Mr. Blum. I am not aware of this kind of fraud with 
deceased providers in Part D. But we do acknowledge that it is 
an issue for our traditional fee-for-service program.
    Again, I think part of our strategy is to use data and to 
use data analysis in much different ways, not focusing on the 
back end but focusing on the front end. CMS needs to do more 
with pre-payment review, with claims processing, data sharing.
    Senator Klobuchar. And making sure that everything is 
electronically deposited and that it is going to the right 
place?
    Mr. Blum. Absolutely. And CMS in the past has had various 
barriers to data sharing, data analysis. We are working as hard 
as we can to break those down and to be as transparent as we 
can with our data resources.
    Senator Klobuchar. Thank you.
    Senator Carper. Again, thanks for joining us and for your 
questions.
    I want to stick to this issue or return to the notion again 
that if we want to recover these monies, in some cases prevent 
the fraud from occurring but recover monies that have been 
defrauded or taken from the Medicare trust fund or monies 
really from the taxpayers' pockets, we need to incentivize 
somebody to help recover the money.
    One of the things we do in the Medicare program, in maybe 
the last 3 years or so, I think we have been using recovery 
audit contractors. We have deputized them and put them to work 
initially in three States--I think California, New York, and 
Florida--to go out and try to track down fraud and recover 
money where we can.
    I am told the first year that we did that, we recovered 
almost nothing. The second year they recovered a little bit. 
Last year they recovered about, I think, a total of almost $700 
million for the three years. And I believe the idea is to 
extent that to all 50 States, and, Mr. Blum, can you tell us 
what kind of timetable we are looking at for the extension of 
that kind of effort in all 50 States?
    I would also add that I think the recovery audit 
contractors get to keep anywhere from around 10 percent of the 
monies that they recover, anywhere from 9 to 12.5 percent. Can 
you confirm that for us?
    Mr. Blum. We agree that the RAC program has been very 
successful----
    Senator Carper. And the RAC program refers to?
    Mr. Blum. Recovery audit contractors.
    Senator Carper. Thank you.
    Mr. Blum. They are contractors; they are allowed to keep a 
share of recoveries. They are right now primarily focused on 
fee-for-service claims, Part A and Part B claims, in the 
traditional fee-for-service program. It is my understanding 
that we are implementing this program on a nationwide basis. 
CMS agrees that the 3-year pilot has been successful, and that 
it is appropriate to bring the program nationwide.
    To date, we have not applied the RAC contractors to the 
Part D program. I think that is a very interesting idea and 
something that Congress should consider, CMS should consider. 
But to date, the RAC contractors have been focused on the 
traditional fee-for-service program.
    Senator Carper. Do you need congressional authorization, do 
you need legislation to allow the recovery audit contractors to 
work in the Medicare Part D vineyards?
    Mr. Blum. I believe we need authorization to extend the RAC 
program to the Part D----
    Senator Carper. Can you just come back to us on the record 
on that, please, if you would?
    Mr. Blum. Yes.
    [The information for the record submitted by Mr. Blum 
follows:]

                       INFORMATION FOR THE RECORD

    When the Recovery Audit Contractor (RAC) program was first created, 
it focused on FFS Medicare claims. With the enactment of the Patient 
Protection and Affordable Care Act of 2010, CMS now has the statutory 
authority to expand the RAC program to Medicare Parts C and D.

    Senator Carper. Let me come back to, I think, Ms. King and 
also Mr. Blum on the next question. Your testimony described, I 
think, that only 16 audits had been performed, I think during 
the last 2 years, out of, I understand--is it 86 sponsors? Are 
we talking about audits of sponsors? Is that it? I think you 
also referred to about 4,000 plans. What I would like to 
understand is the 16 audits involving 86 sponsors, so if we had 
audited everybody, there would be 85 audits. Just help me 
explain that.
    Ms. King. I think I might be able to help bring--I am going 
to give you some numbers that I think are right, but I can 
confirm them for the record.
    Senator Carper. If it is like 16 out of 4,000, that is not 
so good. If it is 16 out of 86, that is better. If there are 16 
audits that are not worth the paper they are written on, that 
is not so good either. So I am trying to get to the bottom of 
this.
    Ms. King. The sponsors are at the corporate level, so the 
sponsors have contracts, and then they have plans. So there are 
a relatively small number of sponsors, and I think the 86 is 
about that number.
    Senator Carper. Does that sound right, Mr. Blum?
    Mr. Blum. That sounds correct.
    Senator Carper. OK. Thanks.
    Ms. King. But when you get down to Mr. Blum, it is like 
there are sponsors and then there are contracts, and contracts 
can have multiple plans. And then, that is how you get down to 
4,000.
    But most of the compliance programs I believe are at the 
corporate level, so they would be at the sponsor level. So the 
right comparison I believe would be to the 86.
    Senator Carper. All right. So 16 out of 86, and I think 
this was after at least one false start when the original plan 
to start out I guess just never happened. Now we are hearing 
that CMS will redo the first 16 audits. I think that is what we 
have heard here today, and it looks to me that the new 
administration is making a stronger, a more serious effort to 
audit these anti-fraud compliance plans. But I think we are 
really still at the starting gate. It really sounds to me like 
we are back at the starting gate. Is that a correct 
characterization?
    Mr. Blum. I think it is fair to characterize it that we are 
creating and implementing a new strategy for our audits of 
these compliance plans. I think it is fair to say that in the 
past CMS dedicated limited resources towards these audits. We 
have changed that. Thanks to the Congress, we have new 
resources for Part C, Part D oversight, and we have dedicated 
adequate resources for these compliance audits.
    It is also true that in the past CMS conducted these audits 
through desk reviews, and----
    Senator Carper. You say through desk reviews?
    Mr. Blum. Through desk reviews, and we found those desk 
reviews to be of very limited value. And through our work with 
the MEDICs and through criticism and very good suggestions by 
the GAO and the IG, CMS believes these audits should be 
conducted on site. We need to make sure that plans just do not 
have the documentation in place but that they have the 
processes, they have the systems, they have the education 
programs, their executives understand these rules. And to our 
minds, we have to do these on site. We have put in place 
processes and plans to do on-site audits, and that is our 
current strategy for these compliance plans.
    Senator Carper. One last question, and I will yield to 
Senator McCain. I understand that Health and Human Services 
reported about $36 billion in improper payments for 2009. I 
think we had almost $100 billion in improper payments 
reported--the good news is we are thinking about improper 
payments; agencies are starting to identify it, report it. The 
next step is to go out and recover the money that has been 
improperly paid if there is a recovery to be had.
    But that $36 billion figure of improper payments for 
Medicare in 2009 did not include improper payments for the 
prescription drug program of Medicare. When will the Centers 
for Medicare & Medicaid Services have improper payments for 
Medicare Part D? And what I have heard before anecdotally is 
2012, you are always saying 2012, and that just seems a long 
way in the future. And I would just say if that is indeed what 
you are going to tell us, I hope you can work with our 
Subcommittee, work with the Congress, and others to find a way 
to speed up that process. But is 2012 what you are looking at?
    Mr. Blum. We are on track to complete the five-part 
composite error rate for the Part D program by the end of next 
year, so before 2012, by the end of 2011. We are placing a very 
high priority on completing the Part D error work. We 
understand that the Congress and the Administration, in order 
to correct issues, need to understand what the issues are. We 
have completed three of the components, and we are working very 
hard to finish the last two components to have a five-part 
composite error rate reported by the end of next year.
    Senator Carper. All right. So that means by the end of next 
calendar year?
    Mr. Blum. Correct.
    Senator Carper. And just tell us in very simple terms, when 
you complete the five components, what will that actually mean? 
They are actually reporting systemwide for Medicare Part D all 
the improper payments? It does not mean that we are going out 
and getting the money, but it means at least what, it is being 
all reported?
    Mr. Blum. Well, the way that CMS currently is proceeding is 
a five-part error rate. The first part that has been completed 
is an error rate regarding how well CMS's systems pay the 
claims. We have a very low error rate for that, less than 1 
percent.
    The second component is to measure how accurately CMS pays 
low-income subsidies. Again, that error rate is less than 1 
percent--0.25 percent.
    The third component is to measure how accurately CMS makes 
payments for dual-eligible beneficiaries, those that qualify 
for Medicaid status. That error rate currently hovers about 1 
percent.
    Relative to fee-for-service error rates, those three 
components have very low error rates. But that is not the full 
picture. The full picture also has to be how accurately do Part 
D plans pay claims and how accurately do Part D plans report 
rebates they collect from pharmaceutical manufacturers. That is 
a much more data-intensive process, and to be frank, again, CMS 
did not dedicate the resources in the past to complete those 
two components timely. We have dedicated those errors. They are 
a priority----
    Senator Carper. Dedicated those errors or dedicated the 
resources? You said ``dedicated those errors,'' but you mean 
dedicated resources.
    Mr. Blum. Yes, thank you, Senator. We have dedicated those 
resources to completing those last two components. I do not 
have an estimate--I cannot tell you what range they will be in. 
But we are very much committed to providing the Congress that 
five-part composite error rate.
    Senator Carper. Good. Thanks very much. Senator McCain.
    Senator McCain. Well, very briefly, if I could try to put 
this in perspective, Mr. Blum, my information is that in 2009 
CMS estimated $24.1 billion in improper payments for Medicare 
fee-for-service and $12 billion for Medicare Advantage. That is 
a little over $36 billion. And what is the total payments that 
were made in Medicare fee-for-service and Medicare Advantage?
    In other words, what I am trying to get, what is the 
percentage here of improper payments?
    Mr. Blum. I will get you accurate figures for the record.
    [The information for the record submitted by Mr. Blum 
follows:]

                       INFORMATION FOR THE RECORD

    Here are the accurate figures for the record. For 2009, CMS 
improved how it reviews Medicare claims for inpatient hospital services 
and eliminated the use of past billing records as part of a complex 
medical review. As a result of this heightened scrutiny, increased 
oversight, and more complete accounting of Medicare FFS claims, CMS is 
reporting a 2009 FFS error rate of 7.8 percent, or $24.1 billion of 
$308.4 billion total dollars paid, compared to 3.6 percent in 2008.
    Meanwhile, the baseline composite Medicare Advantage, or Part C, 
error rate, based on payment year 2007, is 15.4 percent, or $12.0 
billion of $77.8 billion total dollars paid. The Medicare Part D 
composite error rate is under development with three components being 
reported this year: A payment system error of 0.59 percent, the low-
income subsidy payment error of 0.25 percent, and payment error related 
to Medicaid status for dual eligible Part D enrollees of 1.06 percent. 
Part D spent a total of approximately $49.5 billion in FY 2007.

    Mr. Blum. Currently I believe Medicare spends about $450 
billion on the traditional fee-for-service program, the Part A 
and the Part B program. Medicare Advantage, CMS pays about $130 
billion to private Part C plans. And on the Part D side, we 
spend about $50 billion for Part D contractors.
    The fee-for-service error rate that was reported this past 
fall was 7.8 percent. The Part C error rate is higher, 15.6 
percent.
    Senator McCain. Why would there be that disparity between 
7.8 and 15.6 percent?
    Mr. Blum. We used different measures because the fee-for-
service program and the Part C program are so different: For 
fee-for-service we pay on a claims basis, per claim basis. For 
Part C plans, we pay on a capitated basis. So we use different 
processes, different measures to calculate the error rate.
    For the fee-for-service program, in essence, contractors 
audit the claims to make sure there is documentation to support 
those claims. The error rate is not a fraud rate, but it is a 
rate of how accurately, according to CMS's fee-for-service 
rules, the claims were paid.
    On the Part C side, that is a capitated payment per member 
per month, but Part C plans report health status data to CMS 
because their payments vary by the health status of their 
enrollees. And what CMS has found is that the health status 
reported by plans does not match the documentation they provide 
to support those health status claims.
    Senator McCain. And my understanding is that 87 percent of 
potential fraud and abuse were identified through external 
sources. Is that a little disturbing, that 87 percent should be 
identified by people who were doing their duty?
    Mr. Blum. CMS has used contractors in the past for the 
majority of the reviews, sort of the back-end reviews, to 
measure and to identify fraud. We, as an agency, believe that 
our role is to prevent fraud before it happens. We have 
dedicated----
    Senator McCain. I want to emphasize again, Mr. Blum, there 
is no one who would disagree with trying to eliminate fraud 
before it happens. But it is obviously happening, and it is 
obviously not being detected when only 13 percent of the 
detections are done by the agency itself and 87 percent are 
done by other citizens. Mr. Blum, there is no one that 
disagrees that we should try to prevent it, but we know it 
occurs. So don't you think you should be focusing more 
attention on that side of the equation rather than relying on 
patriotic citizens to identify this fraud and abuse?
    Mr. Blum. I agree with you, Senator, that the agency has a 
responsibility and a role to make sure that every claim, to the 
extent possible, is paid accurately. Congress has given CMS new 
resources. The President has requested new resources, and we 
have changed the way that CMS interacts with law enforcement 
agencies to ensure that they also have access to the same 
information we have. And I agree with you, the agency can do 
more, has done more, and will continue to do more.
    Senator McCain. Well, just finally, Ms. King, are you 
satisfied that we are taking the necessary steps to at least 
address this problem seriously?
    Ms. King. We will be interested to see with respect to Part 
D what CMS's revised audit strategy looks like, because they 
are still revising it. We believe a strong and effective audit 
strategy is essential. So we are in the trust but verify 
position.
    Senator McCain. Thank you very much.
    Thank you, Mr. Chairman. I thank the witnesses, and I know 
that this is very difficult when we are talking about these 
sums of money there. But because we are talking about these 
sums of money there is a reason for us to continue to pursue 
this effort.
    Thank you, Mr. Chairman.
    Senator Carper. You bet.
    We know we have these huge budget deficits. We know the 
Medicare trust fund is running out of money, and we are trying 
to pass legislation that would sort of extend the life of the 
Medicare trust fund from maybe 7 or 8 years to at least double 
that. Hopefully, we will be able to get that done this year.
    All that notwithstanding, there is work to be done on the 
prevention side. That is clear. We have an obligation to help 
you, provide and make sure you have the resources and also the 
encouragement to do the good work that is needed there.
    There is, I think, good work that can be done by the 
recovery audit contractors, just like they are working in other 
parts of Medicare. I think those resources can be brought to 
bear here, and it is almost an incentive system. They get 9 to 
12 percent of the monies they recover. That is a pretty good 
incentive. And I want us to look long and hard at what we are 
doing with whistleblowers to compensate them for blowing 
whistles and being willing to take a risk to make sure we 
cannot--hopefully, we are going to pass legislation this year, 
maybe even this month, that says rather than we encourage folks 
to report fraud in the case of Medicare Part D or Medicare, we 
are going to require them to, and then come back later on this 
year with some way to incentivize them to do that, not just 
because it is something they ought to do.
    One last question I have for Mr. Vito. Your testimony 
described the importance of proactive data analysis, what some 
call data mining, and Medicare drug integrity contractors are 
tasked with proactively analyzing the purchases, cost, and 
distribution of medications to root out waste, fraud, and 
abuse. MEDICs did very little, I am told, according to your 
audits and testimony. Could you comment more on the situation 
and why this work is critical? And I think we are going to soon 
hear from the MEDICs, and they are going to testify that they 
have increased their proactive data analysis. Does this 
indicate an improvement? Should more be accomplished? Can more 
be accomplished? Thank you.
    Mr. Vito. Well, largely their efforts of identifying fraud 
were based on the complaints, which, in fact, is something that 
happened already. Their strategy at CMS and the MEDICs was to 
use proactive data analysis to identify the problems and 
prevent them before they occurred. That largely did not happen 
because the MEDICs who were tasked to do that did not have the 
data to do that analysis.
    Senator Carper. And can you tell us why they did not have 
the data?
    Mr. Vito. I cannot tell you specifically why they did not. 
That would be a question for CMS. But when we went to them and 
asked them to tell us what you are----
    Senator Carper. When you say ``them,'' them being CMS or 
the MEDICs?
    Mr. Vito. I am sorry. When we went to the MEDICs as part of 
our MEDIC review, we said, let us see the proactive data 
analysis, let us see what you are doing to prevent and detect 
fraud, waste, and abuse, because, for example, you put up 
information today about people who are abusing drugs. If you 
had proactive data analysis, you might be able to find that. 
You might be able to see that happening. And when you see that 
happening, then you could prevent it at that time rather than 
waiting until after the fact when something bad might happen 
besides just paying the money. So there are significant 
benefits.
    CMS recognized how important it is to do that proactive 
data analysis, and they wanted to get it done, but they just 
had problems implementing it and making it happen. Now we are 
told that the MEDICs have the data, and they are actually 
utilizing that data to do proactive data analysis.
    We are also in the trust but verification work as well, so 
our goal will always be to find out if exactly that is 
happening. What you need now is you have the data; now they 
have to start utilizing the data to the best way that they 
would be able to get the best benefit out of it. And CMS has to 
be monitoring them to make sure and helping them to make sure 
that they are able to get that done. And we will as well.
    Senator Carper. This is the last question before we excuse 
this panel. Every now and then I ask witnesses--as we try to 
drill down and find out where we can save some money, I ask the 
witnesses to just say what can the Legislative Branch of our 
government be doing better. I talked about the agencies. 
Everything we do we can do better. I know that is true for me, 
and I suspect it is for all of us. What more, or what less, 
should the Legislative Branch be doing here, this Subcommittee 
in particular, to make sure that, one, we are preventing fraud 
from occurring, and in the second place, to the extent that it 
is occurring, that we identify it; three, make sure that we 
stop it; and, four, that we go out there and recover as much of 
this money as we can for the trust funds and for the taxpayers? 
What more should we be doing, Ms. King?
    Ms. King. Senator, I think oversight hearings such as this 
draw attention to these issues and point out where improvements 
can be made. We are always available to do further 
investigation into issues like this, so we would be happy to 
assist you in that.
    Senator Carper. Good. Thanks. Senator McCain alluded to 
that, and we would like to follow that up with you. Mr. Vito.
    Mr. Vito. As it relates specifically to this hearing and 
this work, one of the areas that we saw is that the MEDICs did 
not have the opportunity to directly go to the pharmacies, the 
plan benefit managers (PBMs), and did not have the opportunity 
to go to the physicians directly. If you would provide some 
legislation in that area, that would help them accomplish that 
and help them.
    Senator Carper. All right. Thanks. Thanks for that.
    Mr. Blum, would you comment on the point that Mr. Vito just 
made and then add to that whatever you would like?
    Mr. Blum. I agree that Congress can help CMS share 
information, give access to information, both with CMS staff 
and also with the various partners that we use to help us 
oversee the program.
    But I think there are some very important provisions 
pending now in health reform that will give CMS more tools to 
oversee and to strengthen the Part D program. One provision 
that is pending both in the Senate-passed and the House-passed 
bills would give CMS more authority to reject plan bids. Today 
we have very limited authority. Plans have to meet certain 
screens, have to meet certain checks. But at the end of the 
day, CMS has few opportunities to reject Part D plan bids 
altogether. Having that tool will give CMS more ability to 
promote the best possible Part D contractors. I think that is 
one area that Congress can help CMS.
    Senator Carper. Good. All right. We appreciate your being 
here. We appreciate your preparation for the testimony, and we 
realize we are making some progress. But we are not making 
enough, as you know, and I feel and I think my colleagues feel 
there is a certain passion to want to step this up, take this 
up to the next level, from our end and from your end as well. 
And this is one that we are going to continue to follow up on, 
see how we are doing, and to see if we are making progress, and 
to find out what more you all need to be doing, and 
particularly CMS, to find out what we need to be doing, too, to 
support those efforts and encourage those efforts.
    Thank you very much for joining us today.
    Ms. King. Thank you.
    Senator Carper. With that, we will invite our second panel 
to the table. Thank you.
    [Pause.]
    Senator Carper. All right. I will ask the Subcommittee to 
come back to order, and the audience. Welcome to our second 
panel, Mr. Apple and Dr. Jensen.
    Our first witness is Howard Apple, President of SafeGuard 
Services. SafeGuard Services, I am told, is one of the 
contractors who provide compliance fraud, waste, and abuse 
services for the Center for Medicare & Medicaid Services.
    Our second witness today is Dr. Christian Jensen, who is 
the chief executive officer of Quality Health Strategies. And 
Quality Health Strategies, I understand, is another of our 
contractors that provide fraud analysis and oversight for the 
Medicare Part D program.
    Welcome. You are both recognized, and I would ask you to 
try to give us your statement in about 5 minutes apiece, 
roughly. If you go a few minutes over that, that will be fine. 
But if you go much over that, I will have to rein you in. I 
have a meeting at about 5 o'clock that starts with the Finance 
Committee, so we will get right into it. But let us have your 
testimony, and then we will ask some questions. Thanks so much 
for joining us. Mr. Apple, you are recognized.

TESTIMONY OF HOWARD B. APPLE,\1\ PRESIDENT, SAFEGUARD SERVICES, 
 LLC, ACCOMPANIED BY DOUG QUAVE, PROGRAM DIRECTOR, COMPLIANCE 
                     AND ENFORCEMENT MEDIC

    Mr. Apple. Thank you, Senator, and I will have a written 
statement for the record. This will be an abbreviated 
statement.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Apple appears in the Appendix on 
page 77.
---------------------------------------------------------------------------
    Senator Carper. That would be great. Thanks.
    Mr. Apple. Mr. Chairman and distinguished Members of the 
Subcommittee, thank you for the opportunity to discuss 
SafeGuard Services' role in helping CMS combat fraud and abuse 
in the Medicare prescription program. My name is Howard Apple, 
and I am the President of SafeGuard Services.
    For background, the enactment of the Medicare Modernization 
Act of December 8, 2003, represented the largest change to 
Medicare since its inception by creating a new prescription 
drug benefit for Medicare beneficiaries, which is Part D. 
Beginning in September 2006, CMS geographically divided the 
United States and awarded contracts to three Medicare Part D 
integrity contractors, the MEDICs. They were MEDIC North, 
South, and West. Each MEDIC was responsible for performing 
program safeguard functions to detect, deter, and prevent 
fraud, waste, and abuse and to mitigate vulnerabilities 
associated with the Part D benefit services provided within 
their geographic jurisdiction. SGS was awarded the contract for 
MEDIC North, which consisted of 24 of the States in the 
Northern United States, the District of Columbia, and the U.S. 
Virgin Islands.
    In September 2008, CMS reduced the number of MEDIC 
contractors to two organizations, resulting in the reassignment 
of MEDIC West States to the MEDIC North and South. MEDIC 
North's jurisdiction expanded to include 35 States, four U.S. 
Territories, and the District of Columbia. Additionally, the 
MEDICs were tasked with supporting the Center for Drug and 
Health Plan Choice's Efforts to address new or emergent areas 
of compliance and enforcement related to Medicare Advantage, 
Part C, Part D, and the program of all-inclusive care for the 
elderly for these States and Territories.
    Under the MEDIC North contract with CMS, SGS's 
responsibilities included the investigation of allegations or 
suspicions of fraud, waste, and abuse in the Part D program 
within our jurisdiction. Complaints were received from a 
variety of sources. The majority of complaints were received 
via the CMS's toll-free Part D hotline and through CMS's 
Complaint Tracking Module. Typically, complaints involved 
telemarketing scams, inappropriate enrollment or disenrollment 
within a plan, Explanation of Benefits errors, improper 
marketing practices, and drug diversion. Additional 
responsibilities included using innovative data analysis 
techniques to identify potential fraud, waste, and abuse, 
fulfilling requests for information from law enforcement 
agencies, and conducting compliance plan audits of Part D 
sponsors.
    In October 2009, SGS's contract again was modified when CMS 
decided to realign the responsibilities of the MEDICs 
functionally rather than geographically. MEDIC North became the 
compliance and enforcement MEDIC with the mission of providing 
nationwide support of CPC's compliance and enforcement strategy 
and to bridge the gap between compliance and enforcement 
activities managed by the Program Compliance & Oversight Group 
in CPC, and the nationwide fraud, waste, and abuse activities 
tasked to Health Integrity and managed by the Program Integrity 
Group. Our responsibilities now include providing audit 
technical assistance; conducting plan sponsor readiness and 
ongoing compliance assessment; investigating complaints against 
agents and brokers involving violations of the Medicare 
regulations; and monitoring and evaluating sponsors' compliance 
plans and the effectiveness of those plans.
    I just want to read a few accomplishments that we have had 
to date.
    From December 2006 through November 14, 2009, we received 
over 10,000 calls via the toll-free hotline. We handled over 
3,200 complaints from beneficiaries. We initiated over 1,100 
investigations. We referred over 120 instances of fraud and 
abuse to the OIG and other law enforcement agencies. We also 
fulfilled 300 requests for information, such as Part D data, 
from law enforcement agencies and referred over 170 agent or 
broker misconduct cases to State insurance commissions.
    These accomplishments resulted from developing a 
collaborative and constructive relationship with CMS at all 
organizational levels which we continue to foster through 
weekly meetings, ad hoc meetings, and conference calls.
    Thank you, Mr. Chairman, for the honor of speaking with you 
today, and I would be happy to answer any questions that you or 
Members of the Subcommittee may have.
    Senator Carper. Thanks for your testimony.
    Dr. Jensen, I am going to ask you to hold up for just one 
moment. I am getting a phone call that I need to take. We will 
recess for 2 minutes, and I will be right back. Do not go away.
    [Recess.]
    Senator Carper. All right. Dr. Jensen, please proceed. 
Thank you.

  TESTIMONY OF CHRISTIAN JENSEN, M.D., MPH,\1\ PRESIDENT AND 
CHIEF EXECUTIVE OFFICER, QUALITY HEALTH STRATEGIES, AND MEMBER, 
           BOARD OF DIRECTORS, HEALTH INTEGRITY, LLC

    Dr. Jensen. Thank you very much, Senator Carper. I am Dr. 
Christian Jensen, and I am the CEO of Quality Health Strategies 
(QHS), which is a nonprofit corporation. Health Integrity is 
one of QHS's subsidiaries and has a Medicare drug integrity 
contract. Our written testimony that we have submitted contains 
many more details on our experience with Medicare program 
integrity contracts, but I wanted to note that we are also the 
holder of the Zone Program Integrity Contract for Region 4, 
which includes the Southwest, and for Task Orders 1 and 5 of 
the Audit Medicaid Integrity Contract.
---------------------------------------------------------------------------
    \1\ The prepared statement of Dr. Jensen appears in the Appendix on 
page 82.
---------------------------------------------------------------------------
    The history of these contracts has been well covered by Mr. 
Apple, and as the program has evolved, CMS has taken some 
important steps to try to improve the integrity of Medicare and 
Medicaid.
    There are some unique differences between Medicare fee-for-
service and Medicare managed care programs and Medicare Part D, 
and the complexity of Medicare Part D was alluded to by Mr. 
Blum. The data systems and the data itself are much less mature 
with Medicare Part D, and the risk model is much more complex. 
It includes cost sharing, risk sharing, and coverage gaps and 
so forth. And there has been, as has already been alluded to, a 
lack of direct access of the MEDICs to downstream providers. 
For example, we were not able to get physician and pharmacy 
records for most of the time of our existence.
    I would like to share with you that the OIG report 
represented a picture of the MEDICs as of the end of calendar 
year 2008. However, during 2009, many of the challenges and the 
difficulties that we had encountered in bringing this program 
to successful maturation were overcome. I cite a few.
    Medicare Part B data access was obtained in late 2008. 
During 2009, and that is what the following numbers allude to--
about 2,500 call center complaints were received and processed: 
138 requests were processed for law enforcement; 121 fraud 
referrals were made to law enforcement; 157 referrals were made 
to State insurance commissioners; 47 proactive analyses were 
completed; 662 investigations from all sources are now open, 
and 267 investigations resulted from proactive analyses, with 
28 percent of all our investigations during 2009 resulting from 
proactive analyses. Twelve referrals have resulted from our 
proactive analyses, and we have 203 investigations from 
proactive analysis which are still underway.
    Also during 2009, Health Integrity focused great efforts on 
trying to ensure that the law enforcement community and the 
plans were fully educated concerning the differences and the 
subtleties and the financial impact of Part D fraud. And as a 
result, we have seen three Part D indictments in 2009 and 2010.
    We have had a great deal of success in collaborating with 
plan sponsors. We have established Part C and Part D plan 
working groups. They meet quarterly and include law 
enforcement, the ZPICs, and the plan sponsors. And, as a 
result, the referrals that we receive from plan sponsors went 
up from 90 in 2007 to 396 in 2009, and we have already had 244 
in the first 2 months of 2010.
    Health Integrity has only been the national benefit 
integrity MEDIC since October 2009, 5 months, but already this 
national experience has strengthened our ability to identify 
new and emerging regional fraud schemes, to identify existing 
national scope issues, and to focus on fraud and its prevention 
through vulnerability reporting, fraud alerts, and other 
measures. And I would like to thank Senator Carper and the 
Subcommittee for this opportunity to offer my comments, and I 
am pleased to answer any questions.
    Senator Carper. Thanks, Dr. Jensen.
    In your statement you mentioned--I will paraphrase, but I 
think you said we have had a great deal of success in--I think 
``coordinating'' was the word that you used--in coordinating 
with plan sponsors. How do you measure success in the work that 
you do? In your statement, you talked about referrals and 
investigations begun.
    Sometimes in our schools we measure success not by whether 
the kids make progress, academic progress from the beginning of 
the school year to the end of the school year. We judge success 
on whether they show up or whether there is lack of 
disciplinary problems. But how do you measure success?
    Dr. Jensen. Well, one measure of success, although it is 
perhaps a progress or a process measure rather than an outcome 
measure--because we are not at the outcome stage yet with many 
of these investigations--is by the number of referrals and 
their dramatic increase from the plans. Somebody is getting the 
message there at the plans that the MEDICs are here and that 
they can handle these complaints or referrals that they receive 
about fraud, and that there is a responsibility on the part of 
the plans to make those referrals.
    Senator Carper. Thank you.
    Mr. Apple, how do you measure success?
    Mr. Apple. Well, there are two ways of measuring success. 
You could look at quantity and say we referred this many cases 
to law enforcement. But what I look at more and what my team 
looks at more for metrics is the quality of our work.
    So, for example, if in 1 year we referred 10 cases to law 
enforcement and five of them ended up not being accepted 
because they did not believe the quality of the work was that 
good, there is a benchmark. If the next year we find 100 
percent of our cases were accepted because of quality, that is 
one benchmark, to me, of success. And at SGS, we truly--the 
mantra is not quantity. You want, of course, quantity. But the 
mantra really is quality of work. When we refer cases to law 
enforcement, when we do responses to law enforcement for 
requests for information, if we get a letter back from law 
enforcement saying that was very helpful, that saved us tons of 
hours of work to get this case through, that to me is a measure 
of success.
    Senator Carper. Is there some way that we are measuring 
success in the work that you all do, we actually quantify 
dollars that we have prevented from being defrauded from the 
program or dollars that we have recovered that were 
fraudulently diverted? Is that part of the measurement of 
success?
    Dr. Jensen. There is, of course, the return on investment 
measure: Comparing what CMS puts into funding its contractors, 
to what are they getting back and what the taxpayers are 
getting back. And that is a difficult thing to measure 
sometimes when you have a lot of variables.
    Senator Carper. Let me just interrupt you if I can. I 
mentioned earlier the program that we are running, initially in 
three States, with the recovery audit contractors where we 
recovered through last year about $700 million. That is pretty 
easy to say this program is working. They get 9 to 12 percent 
as a percentage to compensate them for their efforts. But, we 
could say, well, we are getting $600 million, $700 million, 
that is a pretty good way to measure success.
    But what I am looking for is a way to quantify your efforts 
and the efforts that you have described here in ways that are 
relevant to us as the $600 million or $700 million figure is 
relevant. I am sorry. Go ahead.
    Mr. Apple. Well, I was going to say SGS does more than just 
the MEDIC work. We are also a ZPIC. We also are a program 
safeguard contractor in several States. And let me just digress 
a little bit from the MEDIC, if I may.
    In the other programs, as a ZPIC and a program safeguard 
contractor, we really are prohibited by CMS from measuring 
success by return on investments, and the reason being is we do 
not want to be perceived as bounty hunters. So, in other words, 
you do not want to just say we referred 50 cases to law 
enforcement and not really look at the quality of our work.
    But in the ZPICs and in the program safeguard contract, we 
know how much we recover. There is a mechanism for us to know 
how much was recovered, and that is one way of knowing that the 
return is far greater than the expense of running our programs.
    I have behind me Doug Quave, who is my program director, 
and, he has told me we have no way of really getting the 
records to know how much was recovered on the MEDIC Part D.
    Senator Carper. Feel free to come to the table and identify 
yourself for the record, please.
    Mr. Quave. Thank you. For the record, my name is Doug 
Quave. I am the program director for what is now the Compliance 
and Enforcement MEDIC. We used to be MEDIC North, as Mr. Apple 
referred to.
    The problem is because of the intricacies in the ways that 
the Part D and Part C programs are paid in a capitated rate, it 
is difficult to quantify the loss to the government. It is not 
like Parts A and B, where somebody submits a claim and gets 
paid so much for a claim. Instead, they get paid a monthly rate 
per member to administer the plan. And then they bid, the 
sponsors bid a certain amount and say this is how much we think 
we can quantify--we can provide this plan for the 
beneficiaries.
    So it is very difficult to quantify the loss. That is why 
it is difficult for us to turn around and show the return on 
investment by a referral. At this point, we have been referring 
law enforcement to CMS for assistance in trying to quantify 
that amount on our referrals.
    Mr. Apple. And let me just add on to that what I was saying 
is under the Part A and Part B program, there are different 
mechanisms to see the metrics. Number one, you could stop 
payments from going out the door. You could put pre-payment 
edits in. You could make recovery of overpayments. So that is a 
more definitive way of knowing what was recovered and what your 
return was. You do not have that in the MEDIC program.
    Senator Carper. All right. Somebody else? Dr. Jensen.
    Dr. Jensen. There are anecdotal or isolated reports so, for 
example, we conducted an investigation into allegations about a 
pharmacist in a Southern State who was submitting high-volume--
false claims for high-cost HIV and anti-psychotic drugs to 
eight Part D plan sponsors. The investigations revealed that 
particular pharmacist had submitted $200,000 worth of 
prescriptions to Medicare Part D which were never provided to 
the beneficiaries or prescribed by the physicians. That 
pharmacist was taken out of practice. That perhaps is one 
example of a saving.
    Another also took place in a prominent Southern State where 
a pharmacy billed Medicare's Part D for medications that were 
never rendered to beneficiaries nor prescribed by physicians 
which totaled over $1 million between February 4, 2008, and 
June 26, 2009. The owner of the pharmacy was indicted in the 
Southern District of that State on charges that he owns two 
pharmacies which billed Medicare for approximately $20 million 
and received $6 million in payments. He was sentenced to 112 
months' incarceration.
    But, Senator, there are other values to this program which 
cannot be measured in dollars. I point out also an 
investigation of a physician and a nurse practitioner who were 
overprescribing controlled-substance narcotic analgesic drugs. 
Known drug traffickers were seen going into the office, and as 
a result of his prescribing, 10 patients died of overdoses of 
prescription drugs. That doctor was indicted in October 2008 on 
14 counts that alleged her actions led to the death of three 
patients in 2006. Her trial is set for next month.
    And the director of an assisted living facility who stole 
controlled-substance medications from chronically ill patients 
for her own personal use was indicted on 11 counts of false 
statements relating to a health care matter.
    Those things are important perhaps, but it is difficult to 
measure them in money.
    Senator Carper. OK. Thank you.
    A question really for both Dr. Jensen and Mr. Apple--maybe 
a couple of questions. Your comments and your testimony have 
suggested some improvements on several fronts identified by the 
GAO and by the Inspector General. MEDICs, I believe, were 
supposed to ensure that the sponsors' anti-fraud compliance 
plans were in order and being implemented correctly. Yet the 
Center for Medicare & Medicaid Services prevented you from 
actually starting the audits. At least that is what I am told.
    Would you say that the progress on auditing the compliance 
plans started once you were given the authority to audit the 
anti-fraud plans of the sponsors?
    Second, why were you not given the authority before 2008?
    And, finally, are there current tasks or auditing that you 
are awaiting permission to begin?
    Mr. Apple. Well, I could start with that. Quite frankly, we 
do not know why we were not given the authority. We were just 
told we were not able to conduct audits until--I believe it was 
October 1, 2008, and, again, this is the customer telling us 
this, and we follow what the task order required of us.
    We believe that as we do more audits and as we----
    Senator Carper. Let me just interrupt you. Are there 
current tasks or audits that you are awaiting permission to 
begin, either of you?
    Mr. Apple. As I speak here today, we are conducting an on-
site audit, under the new program an expanded audit, and we are 
told that many more are being planned.
    Senator Carper. OK. Are there audits that you are awaiting 
permission to begin?
    Mr. Apple. No, because we do not request permission from 
CMS. They tell us which audits they want conducted. This is 
directed by CMS.
    Senator Carper. Dr. Jensen.
    Dr. Jensen. We did, while we had the authority to do it, 10 
audits, which were desk audits, and I will say that we, too, 
were prepared to do many more audits. The MEDICs were ready to 
carry out that responsibility, but the orders did not come.
    Of the 10 desk audits we did, we did find some areas of 
weakness, but the desk audits are subject to the criticisms 
that have been made already here this afternoon.
    Senator Carper. Let me just interrupt you again, if I may. 
Describe for us in terms that everybody could understand what a 
desk audit is. Describe for us in terms that everybody can 
understand the kind of audits that you ought to be conducting, 
if allowed.
    Mr. Apple. Well, the desk audit itself was essentially you 
asked for information from the sponsor for----
    Senator Carper. ``You'' being?
    Mr. Apple. SGS would ask----
    Senator Carper. SGS stands for?
    Mr. Apple. SafeGuard Services. That is my company, 
SafeGuard Services. And a request would be made of the 
sponsors, the plans, to provide us the data to prove that they 
were meeting the seven elements required to be a sponsor.
    The difference between that and what SGS is doing now is 
now we are going on site and we are looking at the 
effectiveness of their programs, of their compliance programs. 
And this would be the best example, Senator. On a desktop 
audit, SGS might receive information that had proof that 
training sessions were provided on the following dates, A, B, 
C, D, E. When you go on site, you could get extra records like 
attendance records. How many people actually attended? Let me 
see the curriculum that you provided the attendees to make sure 
it is relevant to the work you are doing. So you really can 
delve into the effectiveness, not just the fact that they 
checked the box and had compliance.
    Senator Carper. Dr. Jensen, same question. Just compare for 
us a desk audit to the kind of audit that you think you ought 
to be doing.
    Dr. Jensen. In my view, an on-site audit has many 
advantages over the desk audit, the opportunity to verify on 
site directly and experientially what has been stated in a 
document.
    Senator Carper. OK. And do you feel like you now have the 
ability to go on site and conduct the kind of on-site audit 
that is more appropriate?
    Mr. Apple. Mr. Chairman, the audits we are doing now are 
much more effective, and my team believes that these audits 
will be very effective.
    Senator Carper. Dr. Jensen.
    Dr. Jensen. The division of labor between the two MEDICs 
leaves that responsibility now with Mr. Apple's organization.
    Senator Carper. OK. Now, one of the questions I asked at 
the end of the first panel, I asked them to tell us what we 
needed to be doing in terms of legislation that would enable 
them to do a better job, especially CMS, and they gave us a 
couple of ideas, and we explored some other ideas during the 
course of their testimony. But in terms of what you need to 
have in order to be able to be unleashed to be fully effective, 
what do you need in terms of change in attitude, change in 
direction, change in regulation, change in legislation? What do 
you need to unleash a tsunami-like effect in assaulting fraud 
that has occurred in this program?
    Mr. Apple. Well, Mr. Chairman, I come from a background of 
law enforcement. I have a long history of law enforcement. And 
you made a reference to Willie Sutton robbing a bank because 
that is where the money is.
    Medicare fraud is a little bit different, and that fraud 
many times is paper driven. And I will tell you that anytime 
you have Medicare fraud, if you have sufficient data, you will 
find that fraud proactively or reactively. And with that as a 
basis, my comments would be the more data that can be available 
to the MEDICs, the better off the MEDICs will be.
    Additionally, if the MEDICs were allowed to obtain medical 
records directly rather than going through the sponsors, I 
believe that would be beneficial.
    And, third, something that was not addressed is while the 
MEDICs are able to look at the A and B data, the fact is that 
the PSEs and ZPICs that do the A and B are not allowed to look 
at the D data. And I believe the more people, the more 
investigators that can wrap their hands around data and crime 
problems, you will get a better picture and more productive 
results.
    Senator Carper. Good. We are going to write you and ask you 
to reiterate that and maybe amplify on the points you just made 
in writing, if you would.
    Mr. Apple. Mr. Chairman, I would be delighted.
    Senator Carper. Dr. Jensen, would you react to what----
    Dr. Jensen. I echo what Mr. Apple said, particularly with 
respect to data. One of the reasons we are here and some of the 
criticisms which have been made of the program are because of 
the lack of data in a timely way. The larger the database, the 
greater the potential for identifying fraud, and that is what I 
am enthusiastic about. Anything that the Legislative Branch can 
do to facilitate that would be greatly appreciated.
    Senator Carper. OK. Is there anything that either of you 
want to add or take away from what has been said? Also, not 
just for this conversation we have had with you on this panel, 
but looking back to our conversation with our first three 
guests, just reflect on that. Anything that you would like to 
underline, underscore, bring to our attention as especially 
noteworthy?
    Mr. Apple. I think hearings like this are so essential. It 
makes us all better, and I appreciate the ability to be able to 
participate in this hearing. Thank you, Mr. Chairman.
    Senator Carper. Sure. Any points?
    Mr. Apple. No. I think every one of their points were on 
line. I do not think I could add to anything that they said 
already without just being redundant.
    Senator Carper. That is all right. In a setting like this, 
redundancy is actually good. [Laughter.]
    Mr. Apple. OK.
    Senator Carper. We are talking about billions of dollars we 
are trying to capture.
    Mr. Apple. One thing that Mr. Vito mentioned--again, what I 
said--is to give more data to the plans and also to require the 
sponsors to report fraud, waste, and abuse and not make it 
voluntary.
    Senator Carper. OK.
    Dr. Jensen. And in retrospect, considering the testimony 
from the previous panel, it is important to remember that was a 
snapshot in time. That was at the end of 2008. And here we are 
a good year past that, and, Senator Carper, there has been a 
lot of progress and a lot of upward movement and a lot of 
successes since then.
    Senator Carper. Would you say we still have some distance 
to go?
    Dr. Jensen. Absolutely. In your own words, anything can be 
improved on.
    Mr. Apple. I agree. It is not enough to be good. You have 
to be great and continue to get better.
    Senator Carper. OK. All right. Well, we appreciate your 
being here today. Thanks for your preparation and thanks for 
your responses to our questions.
    Thank you for coming out of the audience to pinch hit here 
at the witness table, Mr. Quave.
    Mr. Quave. Thank you, Mr. Chairman.
    Senator Carper. Some of our colleagues who were unable to 
join us today will be submitting questions in writing. I will 
probably be submitting a couple questions in writing as well. 
Members have 2 weeks to submit their questions following the 
conclusion of today's hearing. I would ask when you receive 
those questions, if you would respond to us promptly.
    Again, thank you and we look forward to improve further on 
the work that is being done. Thanks very much.
    With that, this hearing is adjourned.
    [Whereupon, at 5:09 p.m., the Subcommittee was adjourned.]


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