[Senate Hearing 111-739]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 111-739
 
                    OVERSIGHT OF CONTRACT MANAGEMENT 
                      AT THE CENTERS FOR MEDICARE 
                         AND MEDICAID SERVICES 

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

                                HEARING

                               before the

              AD HOC SUBCOMMITTEE ON CONTRACTING OVERSIGHT

                                 of the

                              COMMITTEE ON
                         HOMELAND SECURITY AND
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 28, 2010

                               __________

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

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

                               ----------
                         U.S. GOVERNMENT PRINTING OFFICE 

57-330 PDF                       WASHINGTON : 2010 

For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; 
DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, 
Washington, DC 20402-0001 






















        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           SCOTT BROWN, Massachusetts
MARK L. PRYOR, Arkansas              JOHN McCAIN, Arizona
MARY L. LANDRIEU, Louisiana          GEORGE V. VOINOVICH, Ohio
CLAIRE McCASKILL, Missouri           JOHN ENSIGN, Nevada
JON TESTER, Montana                  LINDSEY GRAHAM, South Carolina
ROLAND W. BURRIS, Illinois
EDWARD E. KAUFMAN, Delaware

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


              AD HOC SUBCOMMITTEE ON CONTRACTING OVERSIGHT

                       CLAIRE McCASKILL, Chairman
CARL LEVIN, Michigan                 SCOTT BROWN, Massachusetts
THOMAS R. CARPER, Delaware           SUSAN M. COLLINS, Maine
MARK L. PRYOR, Arkansas              TOM COBURN, Oklahoma
JON TESTER, Montana                  JOHN McCAIN, Arizona
EDWARD E. KAUFMAN, Delaware          LINDSEY GRAHAM, South Carolina
                     Margaret Daum, Staff Director
                William Wright, Minority Staff Director
                       Kelsey Stroud, Chief Clerk


















                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator McCaskill............................................     1
    Senator Brown................................................     3
    Senator Pryor................................................    13
Prepared statement:
    Senator Brown................................................    67

                               WITNESSES
                       Wednesday, April 28, 2010

Kay L. Daly, Director, Financial Management and Assurance, U.S. 
  Government Accountability Office...............................     4
Rodney L. Benson, Director, Office of Acquisition and Grants 
  Management, Centers for Medicare and Medicaid Services, U.S. 
  Department of Health and Human Services........................     6

                                APPENDIX

Benson, Rodney L.:
    Testimony....................................................     6
    Prepared statement...........................................    45
    Post-hearing Questions for the Record from Mr. Benson........    55
Daly, Kay L.:
    Testimony....................................................     4
    Prepared statement...........................................    27
Fact Sheet: New Information About the Medicare Secondary Payer, 
  Recovery Contractor............................................    64


                  OVERSIGHT OF CONTRACT MANAGEMENT AT
                      THE CENTERS FOR MEDICARE AND
                           MEDICAID SERVICES

                              ----------                              


                       WEDNESDAY, APRIL 28, 2010

                                   U.S. Senate,    
          Ad Hoc Subcommittee on Contracting Oversight,    
                    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. Claire 
McCaskill, Chairman of the Subcommittee, presiding.
    Present: Senators McCaskill, Pryor, and Brown.

             OPENING STATEMENT OF SENATOR MCCASKILL

    Senator McCaskill. I am going to begin without Senator 
Brown, but I am sure he will be here momentarily and we will go 
ahead and get started since it is past the witching hour for 
this hearing to begin. So this hearing will now, in fact, come 
to order.
    This is a hearing on contract management at the Centers for 
Medicare and Medicaid. Just over a year ago, this Subcommittee 
began its oversight of government contracts. Over the last 
year, the Subcommittee has held more than 10 hearings on issues 
ranging from private security contractors to contract 
databases, covering areas from Afghanistan to Alaska. These 
hearings share a common focus: Making government contracting 
more efficient, more transparent, and more accountable.
    Today's hearing examines one of our government's most 
important agencies, the Centers for Medicare and Medicaid 
Services (CMS), which is within the Department of Health and 
Human Services. CMS is responsible for administering Medicare, 
Medicaid, and the Children's Health Insurance Program, which 
provides health care coverage for almost 100 million Americans.
    Over the last year, Medicare and Medicaid have gotten a 
great deal of attention as we in Congress have worked to pass 
comprehensive health care and health care insurance reform 
legislation. This is not a hearing about that legislation. I 
was pleased that the health insurance reform was signed into 
law. We needed reform to ensure that the health care didn't 
bankrupt average Americans and we also needed it to reduce our 
country's deficit.
    But that is not what we are here to talk about today. This 
hearing is about how CMS manages the Medicare and Medicaid 
programs, and most importantly, the contracting in those 
programs. We are here in the Subcommittee because, in fact, 
those programs are largely administered by contractors.
    Medicare contractors pay providers, enroll physicians, 
process appeals. They also answer questions from the public. 
The 1-800-MEDICARE hotline, that is brought to you by a 
contractor who made $258 million last year for that contract. 
It is contractors who provided day-to-day administration of the 
Medicare and Medicaid and Children's Health Insurance Programs.
    Welcome, Senator Brown.
    Senator Brown. Sorry I am late.
    Senator McCaskill. That is OK.
    It is also contractors who provide oversight of Medicare 
and Medicaid to the tune of almost $855 million in contracts 
last year alone. In total, CMS spent nearly $4 billion in 
contracts in 2009.
    The importance of the tasks performed by CMS contractors 
highlight the need for these contracts to be properly managed 
and overseen by CMS officials. According to GAO, however, that 
kind of oversight is exactly what CMS isn't currently doing. 
Last October, GAO reported significant deficiencies with 
contract management and internal controls at CMS. This report 
follows a 2007 report with almost the same findings, and report 
after report documenting problems with CMS's financial 
management. In fact, Medicare has been on the GAO's high-risk 
list for 20 years, in part because of its management problems, 
including management of contractors.
    Despite all the reports documenting mismanagement, nothing 
seems to improve. Today, we want to ask what is necessary to 
ensure that CMS makes the necessary improvements to make sure 
that it is the best possible custodian of taxpayers' dollars as 
we move forward.
    In preparation for this hearing, my staff examined in 
detail one CMS program administered by the Medicare Secondary 
Payer Recovery Contractor (MSPRC). Without objection, I would 
now ask that the Majority Staff Fact Sheet about MSPRC be 
admitted into the record.\1\
---------------------------------------------------------------------------
    \1\ The Majority Staff Fact Sheet appears in the Appendix on page 
64.
---------------------------------------------------------------------------
    Senator Brown. No objection.
    Senator McCaskill. The MSPRC is supposed to recover money 
for the Medicare program in cases where Medicare isn't a 
primary payer for a beneficiary's medical expense. One example 
is when a Medicare beneficiary is covered by their employer's 
health plan or if they have expenses that should be covered by 
Workers' Compensation or liability insurance.
    Last year, a group of lawyers in Kansas City contacted my 
office to bring to my attention how frustrated they were with 
CMS because they were trying to pay them. They were trying to 
send CMS money and no one was home to take the money. Imagine 
the irony of those phone calls in the context of the debates 
that were ongoing at that time. Here we were, discussing every 
day the incredible deficits that our country is facing because 
of the Medicare program, struggling with very controversial and 
difficult and complex decisions as to how we should reform the 
system, and I have lawyers calling me saying, we are trying to 
send them a check and no one will take it. That is when I 
realized we needed to do a hearing on contract oversight at 
CMS. They had been trying to return money to Medicare and the 
agency would not take it.
    The MSPRC had significant performance problems. In 2001, 
independent auditors found that the contractor, a tribally-
owned business called Chickasaw Nation Industries, failed to 
respond to communications from beneficiaries, attorneys, and 
insurance companies. CMS also found problems with the 
contractor's internal controls and case management. Reportedly, 
the MSPRC has now significantly improved its performance.
    In 2003, CMS recovered only 38 cents for every dollar spent 
on recovery. Today, the contractor reports that it is 
recovering $8.97 for every dollar spent on recovery. One of the 
things we are going to try to do today in this hearing is 
determine whether or not that figure is accurate, according to 
CMS.
    The improvements on this contract would be encouraging, but 
the overall picture painted by GAO should be a wake-up call for 
CMS on the need to take swift action. I hope CMS will listen 
carefully to what GAO and the Members of the Subcommittee have 
to say about how to improve their management and oversight of 
contracts.
    I am encouraged that we now have a nominee in Dr. Donald 
Berwick to be Administrator of CMS and I hope that my Senate 
colleagues will recognize that leadership is needed here and at 
other Federal agencies. We need to begin to work together to 
put the President's nominees in place so that government can 
work at its very best for the taxpayers of this country. If 
there are any measures that can be taken to improve their 
stewardship of taxpayer dollars, this Subcommittee will work 
with CMS to achieve those goals.
    I look forward to hearing the witnesses' testimony and hope 
that this hearing represents a step forward in ensuring that 
the costs of health care are kept under control by solid, 
aggressive contract management at CMS.
    Senator Brown.

               OPENING STATEMENT OF SENATOR BROWN

    Senator Brown. Thank you, Madam Chairman. I appreciate it. 
I try to be punctual. I lost track of time. I apologize.
    Senator McCaskill. That is OK.
    Senator Brown. As you know, this is my second meeting as 
Ranking Member of this Subcommittee, and again, it is an honor 
to join with you, Madam Chairman, in exploring the important 
issues of this Subcommittee and I look forward to trying to 
tackle these tough issues.
    I just want to submit my opening statement and make it part 
of the record and then I just want to ad lib a little bit, if 
that is all right.\1\
---------------------------------------------------------------------------
    \1\ The prepared statement of Senator Brown appears in the Appendix 
on page 64.
---------------------------------------------------------------------------
    The bottom line is, with all due respect, I am very 
concerned about where the taxpayer dollars are going and the 
oversight of those $4 billion and counting of tax-obligated 
dollars in CMS--the complaints, the lack of oversight, some of 
the failure to grab monies that are owed the government and the 
people of the United States in a timely manner. I am curious as 
to whether it is a tools and resources problem, where you need 
more of something. Is it an IT problem? Is it an oversight 
problem? Where and how can we streamline this process to make 
sure that we can save the taxpayers money and get more bang for 
our dollar? That is my bottom-line concern.
    In listening to the Chairman's comments and opening 
statement, I think she shares very similar concerns about, if 
someone is trying to pay us, I mean, just show me where the 
check is. I will hand-deliver it. We will go get it. If they 
want to give money, we should be sending somebody out for them 
to get the money and get it in the system and get reimbursed as 
quickly as possible.
    I am going to reserve the opening statement. I certainly 
appreciate it. It is easier to do it on the record, which I 
will submit that. But I just want to get down to business and 
start asking questions. Thank you.
    Senator McCaskill. Thank you, Senator Brown.
    Let me introduce the witnesses today. Kay Daly is the 
Director of the Financial Management and Assurance team at the 
U.S. Government Accountability Office (GAO), in my opinion, the 
premier government auditing agency in the world, where her 
responsibilities include financial management systems, improper 
payments, contracting costs analysis, and health care financial 
management issues. Ms. Daly joined GAO in 1989 and has 
participated on a number of high-profile and groundbreaking 
assignments.
    Rodney Benson serves as the Director of the Office of 
Acquisition and Grants Management at the Centers for Medicare 
and Medicaid Services. In this position, he is responsible for 
the award and administration of all contracts and discretionary 
grants for CMS. Mr. Benson has served in this position since 
October 1997.
    It is the custom of this Subcommittee to swear in all 
witnesses that appear before us, so if you don't mind, I would 
like you to stand and take the following oath.
    Do you swear that the testimony that you will give before 
this Subcommittee will be the truth, the whole truth, and 
nothing but the truth, so help you, God?
    Ms. Daly. I do.
    Mr. Benson. I do.
    Senator McCaskill. Let the record reflect that the 
witnesses answered in the affirmative. We will be using a 
timing system today. We would ask that your oral testimony be 
no more than 5 minutes. We are not strict in this Subcommittee. 
We would ask that you submit your written testimony for the 
record in its entirety.
    And we will turn to you first, Ms. Daly.

TESTIMONY OF KAY L. DALY,\1\ DIRECTOR, FINANCIAL MANAGEMENT AND 
        ASSURANCE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

    Ms. Daly. Thank you so much, Madam Chairman and Members of 
the Subcommittee. I am pleased to be here today to discuss 
contract management at the Centers for Medicare and Medicaid 
Services (CMS). CMS administers Medicare and Medicaid, two 
programs that are included on GAO's high-risk list, and relies 
extensively on contractors to assist in carrying out its basic 
mission.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Daly appears in the Appendix on 
page 27.
---------------------------------------------------------------------------
    In fiscal year 2008, CMS reported that it had obligated 
about $3.6 billion under contracts for a variety of goods and 
services, including contracts to administer, oversee, and audit 
claims made under the Medicare program, provide information 
technology systems, and operate the 1-800-MEDICARE help line.
    In November 2007, we reported pervasive deficiencies in 
internal control over certain contracts that were used by CMS. 
We reported that CMS's internal control deficiencies resulted 
in millions of dollars of questionable payments to contractors, 
primarily because CMS did not obtain adequate support for 
billed costs from certain contractors. Internal control--that 
is the plans, methods, and procedures used to meet missions--
are the first line of defense in safeguarding assets and 
protecting our taxpayer dollars.
    Our follow-up audit was a comprehensive, in-depth review of 
internal controls over CMS's contract management practices. 
This review, which culminated in a report in October 2009, 
again found pervasive deficiencies in internal control over 
contracting and payments to contractors. The internal control 
deficiencies occurred throughout the contracting process and 
increased the risk of improper payments or waste. These 
deficiencies were due in part to a lack of agency-specific 
policies and procedures to ensure that the Federal Acquisition 
Regulation (FAR) and other control objectives were met.
    As a result of our work, we estimated that for at least 84 
percent of FAR-based contract actions made by CMS in fiscal 
year 2008 contained at least one instance in which a key 
control was not adequately implemented. Not only was the number 
of internal control deficiencies widespread, but also many 
contract actions had more than one deficiency. We estimated 
that at least 37 percent of FAR-based contract actions made in 
fiscal year 2008 had three or more instances in which a key 
control was not adequately implemented.
    For example, based on our statistical sample of the fiscal 
year 2008 contract actions, we estimated that for at least 59 
percent of those contract actions, the project officer did not 
always certify the invoices. We noted in our 2007 report that 
CMS had used negative certification. That is a process whereby 
it pays contractor invoices without knowing whether they were 
reviewed or approved in order to ensure that the invoices are 
paid timely. This policy continued throughout 2008. In one 
case, although a contractor submitted over 100 invoices for 
fiscal year 2008, only eight were certified by the project 
officer. The total value of this contract through January 2009 
was about $64 million.
    The control deficiencies we identified in our statistical 
sample stemmed from a weak overall control environment. CMS's 
control environment was characterized by the lack of strategic 
planning to identify the necessary staffing and funding, 
reliable data for effectively carrying out contract management 
responsibilities, and follow-up to track, investigate, and 
resolve contract audit and evaluation findings for purposes of 
cost recovery.
    GAO has made a total of 19 recommendations to address the 
shortfalls in contract management we identified in the two 
audits and the agency has agreed with each of our 19 
recommendations, but has disagreed with our determination that 
actions to address about five of those were not sufficient. We 
believe that the limited actions CMS management had taken to 
date on those recommendations had fallen short of what our 
expectations were and did not always address our intent.
    In conclusion, the continuing weaknesses in the contract 
activities and limited progress in addressing the known 
deficiencies really raises questions on whether they have got 
the appropriate tone at the top regarding contract management. 
Until CMS management takes actions to address those additional 
recommendations and deficiencies that were identified in our 
report, its contracting activities will continue to pose a 
significant risk of improper payments, waste, and 
mismanagement.
    So, Madam Chairman and Members of the Subcommittee, this 
concludes my prepared statement and I would be happy to answer 
any questions you may have.
    Senator McCaskill. Thank you, Ms. Daly. Mr. Benson.

     TESTIMONY OF RODNEY L. BENSON,\1\ DIRECTOR, OFFICE OF 
  ACQUISITION AND GRANTS MANAGEMENT, CENTERS FOR MEDICARE AND 
MEDICAID SERVICES, U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES

    Mr. Benson. Thank you, Chairman McCaskill and Ranking 
Member Brown. I am Rodney Benson, the Director of the Office of 
Acquisition and Grants Management (OAGM), an office within the 
Centers for Medicare and Medicaid Services. I welcome today's 
opportunity to speak with the Subcommittee on contract 
management oversight at CMS.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Benson appears in the Appendix on 
page 45.
---------------------------------------------------------------------------
    CMS is committed to the highest degree of integrity in the 
performance of its many responsibilities, and more specifically 
in the management and oversight of its contracting activities. 
We serve the aged, disabled, and poor of our Nation--the most 
vulnerable of our population.
    I am extremely proud of the contracting staff of OAGM and 
the important work we do in overseeing its many contracts. OAGM 
staff is dedicated to meeting the mission of Medicare and 
Medicaid programs and our more than 100 million beneficiaries. 
Furthermore, OAGM's managers, contracting officers, and 
contracting staff are highly skilled and dedicated to the 
agency. I can assure you that the staff of OAGM is committed to 
excellence in everything we do.
    However, we are aware there is always room for continued 
improvement and new approaches to effective oversight. CMS 
appreciates the attention that GAO has given to our contracting 
processes and the issues they have raised. The thorough and 
thoughtful work of GAO and this Subcommittee is serving as an 
important catalyst to drive new improvements to CMS's 
contracting functions and internal controls and has helped to 
enhance our contracting oversight.
    Our work is highly technical and complex, yet we have an 
obligation to the American taxpayers to perform our work in 
accordance with applicable acquisition laws and policies. I 
firmly believe that the most significant internal control to 
ensure the proper performance of CMS's contracting functions is 
the knowledge and skills of our contracting staff. We have 
worked hard to recruit people with technical and contracting 
expertise and to provide the CMS acquisition workforce with 
necessary skills, resources, and leadership to perform their 
jobs effectively.
    To this end, we have instituted a number of changes and 
initiatives to ensure the appropriate resolution of GAO's 
findings. We conduct monthly internal training for contracting 
staff that includes topics such as invoice review and approval, 
acquisition data entry, contract types, and the use of 
competition. We also made available to our staff a web-based 
acquisition tool that gives access to the information they need 
to be efficient and effective.
    Furthermore, we have senior leadership in place working 
alongside our staff as experienced resources and efforts to 
guide and mentor our staff as they acquire the knowledge and 
abilities they need to perform their jobs well and advance to 
the GS-1102 certification levels.
    We recently created a deputy position which is responsible 
for acquisition policy and for strategically placing OAGM in a 
position to meet CMS's contracting needs. We were extremely 
fortunate to have a very senior and experienced government 
executive who has an extensive background in government 
contracts and is a Certified Public Contracts Manager assume 
this position for our organization.
    We also hired a new Director for our Division of Policy and 
Support who is responsible for issuing acquisition policies, 
establishing internal controls, and acquisition career 
development. This individual came with a wealth of experience 
and expertise in acquisition policies and acquisition workforce 
development and was recruited from the Veterans Affairs 
Acquisition Academy Internship School for this position.
    We have also created a new Cognizant Contracting Officer 
position which will be devoted to ensuring the proper oversight 
of our cost reimbursement contracts.
    We have developed a detailed and comprehensive plan to 
address every one of GAO's findings. We have engaged an audit 
firm to review our plans and ensure that we have it right. The 
firm has extensive expertise regarding internal controls that 
apply to all Federal activities, which will provide us with 
guidance about best practices in other agencies and ensure we 
put in place the internal controls that will fully address 
GAO's concerns. This same firm will assist us in developing a 
comprehensive and strategic acquisition workforce plan.
    A lot remains to be done. You can be sure that you have the 
commitment of CMS to improving our contracting oversight. I am 
sincerely grateful for the work that GAO has done for our 
agency. I am also appreciative for the interest and the support 
of this Subcommittee.
    Thank you again for the opportunity to talk with you this 
afternoon about CMS's contracting activities.
    Senator McCaskill. Thank you both very much for being here.
    Let me start out with you, Ms. Daly. You found in the 
latest work that the contract management, the problems were, 
and I am quoting the report, ``pervasive.'' That is a troubling 
word to use when we have $4 billion worth of contracts. In 
light of your findings, including staffing issues, data 
problems, lack of contract management and controls, what do you 
think, if you had to prioritize the problems and if Mr. Benson 
called and said, list them for us, what would you put at the 
top of the list that they need to go after first?
    Ms. Daly. Well, Senator McCaskill, that is a very good 
question. There were, like I said, pervasive problems when 84 
percent of the contracts we looked at had at least one key 
control failure. There are a number of issues I mentioned in my 
oral statement; for example, negative certification, is one 
that is troubling to me in that----
    Senator McCaskill. Explain negative certification so that 
people who are not familiar with the term understand it.
    Ms. Daly. Certainly. Negative certification is a process 
where the invoices, when they come in, they are paid within the 
time frame without being first reviewed and approved. So they 
will not be paid if someone raises their hand and says, ``don't 
pay this, there is an issue with it.'' But if not, it moves 
forward and it is paid. So if there is an issue----
    Senator McCaskill. So there is an assumption that the 
invoice be paid unless someone raises something negative?
    Ms. Daly. Exactly. So that is one case where you can become 
part of a pay-and-chase cycle that we see a lot of times with 
other agencies: That once the dollars have gone out the door 
and then you realize there is a problem, then that has to be 
addressed. So that is certainly very troubling.
    There is also the issue of getting incurred cost audits 
done, and all of the audits done very timely. CMS does a lot of 
cost reimbursement-type contracts, so it is critical that the 
contractors for those contracts have good cost accounting 
systems in order to be able to bill accurately to the Federal 
Government. At CMS, we found error rates as high as about 50 
percent in getting those contract audits done timely. And then 
again, there were issues with contract closeouts, the last 
chance the government has to recoup those costs. So I think it 
is very important. Those are some of the key issues that need 
to be addressed sooner rather than later.
    Senator McCaskill. So just to boil it down in, I hope--not 
that I mind the terminology used by auditors--to make sure that 
in plain language what you are saying is because so many of the 
contracts, the amount of money these contractors are paid are 
based on assertions they make about what their costs are in 
performing those contracts, and the only way the government has 
to ``keep them honest'' is by auditing those costs.
    So if you have a cost plus contract or a cost incurred 
contract, there is not an incentive on the part of the 
contractor to keep costs down, because whatever their costs 
are, they are going to get paid. So there is not any incentive. 
It is not a fixed cost. It is costs incurred.
    So the incentive is to turn in big bills. So if the audits 
aren't done, if the agency that is paying the money is not 
doing the audits, if they don't have a constant sense that 
someone is looking over their shoulder, that is where you can 
have runaway costs. And it is even worse if it doesn't happen--
a serious accounting doesn't happen before the closeout because 
once the closeout happens then the only way you get that money 
back is with very expensive lawyers. Is that a fair summary of 
what cost incurred auditing and closeout means?
    Ms. Daly. I can tell you have been here before. [Laughter.]
    Senator McCaskill. OK. I just want to make sure that 
everybody understands that this is not just terminology that is 
thrown around. This is real money that we are probably letting 
go out the door that we shouldn't.
    What allowed CMS--and I would like both of you to weigh in 
on this--how did we get to the point that we have such a large 
reliance on contracting? I have said in this Subcommittee many 
times, I am not against contractors, but it does appear that 
our government, especially in the last decade, has really 
expanded contracting without the requisite acquisition 
personnel and oversight to manage it. So any hope we had of 
saving money by contracting out, I think at this point I would 
characterize as a pipe dream because I don't think that has 
been the case at all based on the work of this Subcommittee.
    So let us start with you, Mr. Benson. Why do you think that 
the contracting has become the meat and potatoes at CMS instead 
of the appetizer or dessert?
    Mr. Benson. Well, Senator McCaskill, I have 35 years of 
experience in government contracting, most of it working with 
the CMS in various capacities, and I could give you a long 
story, but I will spare you. And I think the reason for the 
reliance goes to our statutory authorities.
    For most of CMS's existence, we had major contracts with 
Medicare Intermediary Carriers. They are our legacy 
contractors. They paid the claims. They had the call center. 
They did the fraud and abuse for us. They did the audit 
recovery, the MSP recovery work. They did everything. All our 
work was performed by these contractors.
    Over time--and it was pursuant to statutory authority. 
There was authority in the Social Security Act that actually 
required, for example, for paying Part A claims, we contracted 
with fiscal intermediaries, and they were organizations who 
were nominated by providers to make payments to them.
    Senator McCaskill. Is that right?
    Mr. Benson. Yes, very unique statutory authorities.
    Senator McCaskill. I did not realize that.
    Mr. Benson. Congress really controls what we do. Congress 
started reengineering the Medicare program to a large degree. 
They formed the Medicare Integrity Program, so we were required 
to contract out the fraud and abuse functions to different 
contractors. They have contracted out, like different kinds of 
reviews. We have contractors called Qualified Independent 
Contractors (QIC). We have so many acronyms. But they do 
second-level appeals of decisions again, pursuant to statutory 
authorities.
    So we had statutory authorities that require that we 
contract out certain functions. As an agency, too, in order to 
manage the program more efficiently and effectively, we started 
also pulling out functions from the Medicare intermediary 
carriers. It used to be that our data centers, we had 
individual data centers at every one of those contractors. When 
I first started, there were like 135 of them. You can imagine, 
that was pretty inefficient and ineffective. Now, we have 
consolidated data centers. We maintain the software for paying 
the claims ourselves.
    We have been able to manage the program on a much smaller 
budget, much more efficiently and effectively, by consolidating 
those functions. But we started out from the get-go pursuant to 
a statutory scheme with having the program managed by 
contractors and it evolved to where, as I said, pursuant to the 
statutory schemes and in order to manage to the program in the 
most efficient and effective manner possible, we use a number 
of different contractors to manage our program.
    Senator McCaskill. Well, there was not a statutory 
requirement that you consolidate data centers with a 
contractor.
    Mr. Benson. There was not a statutory requirement.
    Senator McCaskill. And there is not a statutory requirement 
that you do the Medicare help line with a contractor.
    Mr. Benson. There is not a statutory requirement, ma'am, 
there is none.
    Senator McCaskill. There are some, obviously, that are 
statutory. But the preference for contractors, do you think 
that it is saving money?
    Mr. Benson. That is a very difficult question to answer. 
But you say, saving money. It certainly is saving money over 
the way we had historically administered the program.
    Senator McCaskill. But that has a lot to do with combining 
data centers, not necessarily hiring contractors to do the 
work.
    Mr. Benson. Right.
    Senator McCaskill. I mean, you guys realized efficiencies, 
but the work that you did to realize those efficiencies could 
have been done by government employees and contractors and you 
still would have enjoyed the efficiencies.
    Mr. Benson. Yes, ma'am.
    Senator McCaskill. OK. GAO found the internal controls at 
CMS were deficient and resulted in inadequate strategic 
planning for both staffing and resourcing. I understand that 
you are planning to hire Grant Thornton to conduct a staffing 
study for you. First, when do you expect the study to be 
complete?
    Mr. Benson. We expect the study to be complete, I believe 
by the end of May, beginning of the summer.
    Senator McCaskill. And is this study going to also show you 
what the right mix of contractors and government employees are?
    Mr. Benson. No, ma'am. We are really looking for this 
study, it is an acquisition capital workforce plan. It is going 
to focus on the workforce for the acquisition function.
    Senator McCaskill. All right. Should I be worried that we 
need to hire somebody to tell you that?
    I am curious what they cost. What are you paying Grant 
Thornton for this?
    Mr. Benson. I am not exactly sure, but there is a lot of 
work that is on the Grant Thornton task order because they are 
particularly focusing on the internal controls. Altogether, I 
believe we are paying about $500,000, but that is for a fairly 
robust task order. This is just one part of it, that the 
workforce developed.
    Senator McCaskill. I would like to see the task order----
    Mr. Benson. Sure.
    Senator McCaskill [continuing]. That we are paying a half-
a-million dollars for.
    Mr. Benson. Yes, ma'am.
    Senator McCaskill. GAO has given you a pretty specific list 
about internal controls, and they didn't charge you for it. I 
am concerned in some ways that we feel that we need to contract 
out somebody to tell you how many folks you need to do just 
acquisition. How many people do you have working in 
acquisition?
    Mr. Benson. We currently have a ceiling of 126, and we have 
just over 100 of those that would be devoted to the acquisition 
function.
    Senator McCaskill. And what is the payroll on those 100 
employees on an annual basis?
    Mr. Benson. We don't budget for an office exactly by total 
payroll. Our average salary would be around a GS-13. I don't 
know exactly whatever that would compute to, and I don't know 
the overall----
    Senator McCaskill. Clearly, you are not a GS-13 anymore or 
you would know.
    I am just trying to think in my mind, calculate what we are 
spending on figuring out how many people we need versus what we 
pay how many people we are using a year. That is a pretty hefty 
price tag, so I would be anxious to see the task order.
    Let me turn it over to Senator Brown now for some questions 
and I will return for a number of questions after he has an 
opportunity to question.
    Senator Brown. Thank you, Madam Chairman. You actually 
asked one of my questions, which is how much the Grant Thornton 
contract is going to be, and I mirror your thoughts. We had GAO 
that did a nice review, made recommendations, yet we are then 
going to an outside entity, paying them another half-a-million 
dollars which we don't have, and what if they come back and 
confirm what they said? I mean, are we better off, worse off? I 
don't get it.
    Mr. Benson. Senator, the main purpose of the Grant Thornton 
task order is to help make sure that we put the right internal 
controls in place. They have experience working throughout the 
government with other Federal agencies. They are an audit firm, 
think like an audit firm, and they can help us to make sure 
that our internal controls are exactly right.
    Senator Brown. But you guys have been doing this for quite 
a while. I mean, if the audit control is on right now, what do 
we have to say with what has happened in the past in terms of 
collecting money, hiring contractors. I mean, if this stuff has 
been broken, because apparently you are doing a study to find 
out what needs to be done better, what confidence should we 
have in what has been done prior to this?
    Mr. Benson. Well, Senator, improvement and change is a 
continuous and an iterative process. We try to bring every 
resource we can to make sure we are doing things in the right 
way.
    Senator Brown. OK. I think a GS-13 makes about $85,000 and 
you have 120, 126 employees, just for the record. But in your 
initial statement, you said we are a highly technical and 
complex agency. Am I correct that you are still doing your 
billing manually?
    Mr. Benson. It is not our billing, exactly. We do receive 
invoices from contractors in hard copy, and that is because we 
are in the process now of developing a new internal accounting 
system. We haven't been able--it wouldn't be a wise investment 
today of resources to build the interfaces between our 
acquisition system and the accounting system because we are in 
the process now of developing a new overall accounting system 
for the agency.
    Senator Brown. Because it seems to me that if you are 
highly technical and complex and yet we are still doing billing 
manually, it doesn't make much sense to me. Let me just tell 
you what my impression is after doing the research and having 
some experience dealing with your agency back home in the State 
Senate. There are some efficiency problems and they bother me 
greatly, because as somebody who prides himself in being a 
fiscal conservative, I want to make sure that not only me as a 
taxpayer, but everybody else as taxpayers are getting the best 
value for their dollar.
    And now that we have done a health care bill that is going 
to basically provide you more money and resources to apparently 
go out and get fraud when we haven't even collected some of the 
monies from the fraud and abuse that we have already 
identified, it seems like we are just adding good money after 
bad.
    I personally, Madam Chairman, have a little bit of 
trepidation and confidence as to whether you can, in fact, save 
money when we give you additional money to go and seek out that 
fraud and abuse. What are your comments on that?
    Mr. Benson. Well, in my position, I am responsible for the 
contracting function itself. We have a center that is devoted 
to the actual program work around the program integrity work.
    Senator Brown. Is that under your jurisdiction?
    Mr. Benson. It is not under my jurisdiction.
    Senator Brown. That is your answer? So you don't have any 
comments on that? OK. That is fine.
    Would you agree or is it true that the CMS is, in fact, 
addressing a lot of the concerns--or let me backtrack. Do you 
think it is possible for you to address the concerns in the GAO 
report, and if so, what time frame are we talking about and how 
much will it cost?
    Mr. Benson. Sir, that is a great question, and we intend to 
fully address every single one of those GAO findings. We take 
them very seriously and we are committed to addressing each one 
of them. We are putting together schedules and plans. We have 
plans in place to address those findings quickly and 
aggressively.
    And as far as the cost, beyond the Grant Thornton task 
order, the assistance we are getting there, we will be doing 
that entirely with our own staff. So there wouldn't be any 
additional cost.
    Senator Brown. So are you responsible at all as to how the 
fraud money is allocated, for fighting fraud? Does that----
    Mr. Benson. No, sir, I am not.
    Senator Brown. Madam Chairman, I am going to just table for 
a minute and give it back to you. I just want to get my thought 
process organized a little bit. Thank you.
    Senator McCaskill. OK. Senator Pryor, welcome to the 
hearing. We are glad you are here.

               OPENING STATEMENT OF SENATOR PRYOR

    Senator Pryor. Thank you. Thank you for doing this today, 
Madam Chairman.
    Let me start with you, Mr. Benson, and talk about where you 
see most of the waste, fraud, and abuse in Medicare and 
Medicaid contracts. What is the biggest problem?
    Mr. Benson. Well, in terms of our contracting itself, we 
haven't encountered a lot of fraud. We had waste or abuse. We 
haven't really encountered a whole lot in terms of any sort of 
GAO IG report of our contractors.
    Senator Pryor. Ms. Daly, what are the biggest areas of 
concerns from your standpoint? Where is most of the fraud, 
waste, and abuse in the system?
    Ms. Daly. Well, Senator Pryor, in our 2007 report, we had 
identified some issues that we were concerned about that 
appeared to be waste. It looked as though there were some 
contractors that were subcontracting with each other. 
Therefore, because of that, instead of having CMS directly 
contract with them, a contractor when it contracts with someone 
else can have their add-on fees for serving that function be 
paid by the government also. So I think there was a total of 
close to $3.6 million that we thought was questionable because 
of that and should be addressed.
    Senator Pryor. And when you talk about contracting, just 
for clarification, are you talking about where CMS actually as 
an agency enters into a contract, or are you talking about for 
services provided under Medicare and Medicaid?
    Ms. Daly. Sir, I am referring to cases which CMS enters 
into a contract, not as part of the provider providing care to 
an American citizen.
    Senator Pryor. OK. I think you said in your written 
testimony that GAO estimates that there is at least 46 percent 
of fiscal year 2008 contract actions that did not meet the 
Federal Acquisition Regulation requirements, is that right?
    Ms. Daly. Well, yes sir. We were specifically referring to 
the controls in that area. For example, they considered whether 
the cost accounting system had been approved prior to contract 
award, and these are in the cases where it is a cost 
reimbursement contract. So what I think is very important for 
cost reimbursement contracts, is that the contracting systems 
that are being used by those contractors be reviewed and 
approved ahead of time to make sure that what is billed to the 
government are fair charges.
    Senator Pryor. OK. And do you know if the agency is 
addressing that?
    Ms. Daly. I am not aware of the status of addressing that 
particular recommendation.
    Senator Pryor. Mr. Benson.
    Mr. Benson. We are addressing those recommendations. We are 
taking our obligations in the administration of cost 
reimbursement contracts very seriously. We have done a number 
of things, primarily of which is to create a contracting 
officer's position which is entirely focused on ensuring the 
proper administration of cost contracts.
    Senator Pryor. OK. Will that result in less waste?
    Mr. Benson. Well, sir, it will result in making sure that 
the contract terms are adhered to. I am not sure that I 
consider that to be waste, exactly, but we want to make sure 
that the contract terms and the rules in the FAR are strictly 
followed.
    Senator Pryor. OK. Ms. Daly, are there, I guess I would 
call them best practices for the Federal Government in 
contracting?
    Ms. Daly. Well, Senator Pryor, the Federal Acquisition 
Regulations certainly serve as the basis for all of government 
contracting throughout all the agencies. I am not aware of any 
particular best practice studies that may have been done, but I 
am certain that there may be vendors out there willing to help 
you with that.
    Senator Pryor. Is there room for improvement over at CMS?
    Ms. Daly. From our work, it shows that there is clearly 
room for improvement.
    Senator Pryor. And why is CMS not doing the things that 
they should be doing?
    Ms. Daly. Well, what we saw were some of the root causes 
was that they had not determined the appropriate level of staff 
and resources needed to do what they had been tasked with 
doing. So it is basically they needed to analyze what their 
workload was and then identify what resources are needed to 
accomplish those tasks.
    We also noted that their policies and procedures had not 
kept pace with what the Federal Acquisition Regulations called 
for, and they have been working to try to address that. One of 
the things they had done was they had implemented a web-based 
system that provides the staff with access to the FAR and other 
things, but we still think they need to customize that so it 
explains how it should be done at CMS: How to use the specific 
forms; what is appropriate for them; and what supervisor it 
goes to; those kinds of things, to help them in doing their 
day-to-day activities.
    Senator Pryor. And tell me about the Contract Review Board. 
Is there a Contract Review Board and how is CMS doing with 
that?
    Ms. Daly. The Contract Review Board was what appeared to be 
a promising control to put in place to help ensure that some of 
the regulatory and quality assurances were provided, but 
unfortunately, it wasn't fully implemented as envisioned. They 
did not do the number of reviews that they had expected to do, 
nor were all of their reviews acted upon. So its value as an 
internal control was not the best that it could be.
    Senator Pryor. Mr. Benson, do you know why the Contract 
Review Board did not do all the reviews that they were supposed 
to do and why they did not follow up?
    Mr. Benson. Well, the Contract Review Board was something 
that we created internally to try to enhance the effectiveness 
and efficiency of our contracts. We are in the process now of 
revising that policy and we are really going to bolster it, 
making sure that we look at more of our contracts, that we 
really do a thorough job with that board. And I am going to, as 
a result of our new review policy, going to be reviewing 
contracts over $50 million personally. So we are in the process 
now of trying to make sure that we do have an effective 
Contract Review Board.
    Senator Pryor. And Ms. Daly, you also included in your 
written testimony that GAO found that in 54.9 percent of the 
contracts, CMS did not promptly perform or request an audit of 
direct costs. Do you want to comment on that?
    Ms. Daly. Yes, sir. I think that has been one of the 
problematic areas at CMS. The audit of direct costs generally 
occur towards the end of the contract and it is very important 
that be done very promptly and very timely so that you are sure 
that the contractor has billed for the amounts correctly.
    Senator Pryor. And how does CMS's number compare with the 
other government agencies?
    Ms. Daly. I am not aware of statistics related to that for 
other agencies, so I could try to get back to you with that 
information.
    Senator Pryor. Thank you. Madam Chairman, that is all I 
have. Thank you.
    Senator McCaskill. Thank you very much, Senator Pryor.
    Mr. Benson, one of the things that is most frustrating to 
people who do audit work is when they do a report and then they 
come back and they do another report and the things they 
reported on the first one don't appear to have been fixed. That 
is a waste of money for the taxpayers who are paying the folks 
at GAO, because if they produce a product and nobody pays any 
attention to it, that is the same as all those hours of work 
just basically going up in smoke.
    Two years later, after there were nine recommendations, GAO 
is indicating that on seven of the nine recommendations, they 
had not been fulfilled. Let us talk about that. Give me your 
best excuse as to why you need longer than 2 years to do 
something as basic as criteria for negative certification. Why 
would that not get fixed in 2 years? That is pretty basic to 
paying attention to the money going out the door.
    Mr. Benson. Ma'am, I agree, and I don't want to make 
excuses. We took actions as a result of the original GAO 
findings. GAO came back and said what we did was not 
sufficient. So this time, we want to get it right. This time, 
we are going to make the changes. For example, we changed our 
invoice review policies, but GAO didn't feel we went far enough 
in making those changes. So now we are going to do what we need 
to do on all those findings to make sure that we satisfy GAO's 
findings.
    Senator McCaskill. Because of all of the things that must 
occur as it relates to our Medicare program over the coming 
years, there is going to be a lot of scrutiny on your agency. I 
cannot stress enough that a very basic would be getting the GAO 
stuff done. You talk about cranky. If this GAO stuff doesn't 
get done, like immediately, it is a real problem because this 
is really not low-hanging fruit.
    It is my understanding that the original report found $90 
million in questionable contract payments. Now, we are not 
talking about payments to medical providers here. We are 
talking about payments you made to contractors. You have stated 
that your current investigation and an audit will address $67 
million of those costs.
    Now, here is the problem. The $90 million they identified 
was for years 2004, 2005, and 2006. The audit you did where you 
found $67 million was in 2008. So you didn't even audit the 
right year to address what they found in the previous years. Do 
you see what I am saying?
    Mr. Benson. Yes, ma'am.
    Senator McCaskill. Now, that doesn't inspire confidence.
    Mr. Benson. Yes, ma'am.
    Senator McCaskill. Do you want to speak to that and make me 
feel better?
    Mr. Benson. When we got the initial GAO report, our 
practice is to resolve audit findings when we do the close-out 
audit of the contracts. We had intended to do those contract 
audits expeditiously. We didn't. We now have a very concrete 
plan to get those audits done in the next few months and we are 
going to make sure that no payments under those contracts were 
made inappropriately.
    Senator McCaskill. Why are all these contracts cost 
incurred? Why aren't they fixed price?
    Mr. Benson. Well, the Federal Acquisition permits us to use 
cost----
    Senator McCaskill. I am not asking if you can. I am asking 
you why.
    Mr. Benson. Because our program is subject to continuous 
change and we have contract statements of work that are subject 
to continuous change, and a cost reimbursement contract is 
generally appropriate when the government can't draft a 
statement of work with sufficient, like, certainty to assure--
to shift the risk to the contractor of performance. And because 
of the statutory changes, the regulatory changes, the changes 
in the Medicare program, we just have not been able to develop 
statements of work with sufficient certainty to facilitate 
fixed price solutions.
    Senator McCaskill. Is the Medicare hotline cost incurred?
    Mr. Benson. Yes, it is.
    Senator McCaskill. How can that not be fixed cost?
    Mr. Benson. Ma'am, if I could, may I get back to you? I 
think there is a per call cost and then there are certain 
aspects of it that are fixed price, but I need to clarify that 
for the record, if I may.

                  INFORMATION SUBMITTED FOR THE RECORD

    The 1-800-MEDICARE Beneficiary Contact Center (BCC) is a 
performance-based, cost-plus-award fee (CPAF) task order. A 
CPAF task order is appropriate in order to meet CMS's 
objectives of enhanced customer service while increasing 
efficiency of operations. In this case, a CPAF task order is 
being utilized because the workload of the BCC is uncertain 
with large cyclical variances and added spikes in call volumes, 
which does not permit costs to be estimated with sufficient 
accuracy to use a fixed price vehicle. To manage a normal load 
of calls from Medicare beneficiaries, there are currently 2,650 
customer service representatives. During the fall when call 
volumes rise during open enrollment periods for the Medicare 
Advantage and Part D plans, more than 4,000 staff is employed. 
We have also seen times when BCC needed over 6,000 staff 
members to service calls.
    Additionally the Agency must respond to a dynamic 
environment, which includes legislative changes or responses to 
media attention. This CPAF pricing arrangement allows the 
government to provide technical direction as required, and 
evaluate performance with a structured process that considers 
both objective and subjective criteria.

    Senator McCaskill. Well, let me just say that a per call 
cost for a Medicare hotline, doesn't seem to pass the common 
sense test to me. You are going to have to hire so many people 
to man the hotline whether the phone is ringing or not. It 
seems to me you ought to be able to resource a hotline with 
sufficient folks and set a price for that and get some bids and 
do it on a fixed price.
    I have watched so many contracts get out of control when it 
is cost incurred, cost plus, and the incentives are on the 
wrong side of the table. They are not on the taxpayers' side of 
the table, they are on the contractors' side of the table. They 
are easier to administer, admittedly, because you don't have to 
work as hard on the scope. You don't have to work as hard on 
what it is that you are laying out in terms of what is going to 
be performed on the contract, and I realize that is challenging 
in the Medicare-Medicaid environment, but it doesn't appear to 
me that you all are even focusing on a way that you can move as 
many contracts that is practicable to a fixed-cost price.
    We may follow up with more specific information about cost 
incurred, cost plus versus fixed price on the various areas 
that Medicare and Medicaid are, in fact, contracting now. I 
think it is important.
    The Subcommittee asked GAO to provide some additional 
background on some of the case studies. There was a company 
called Palmetto GBA. You awarded a cost reimbursement contract 
to them despite the contracting officer's knowledge that this 
contractor had an inadequate accounting system. So this is what 
I was just discussing, except it is even worse, because not 
only have you given them cost plus, cost incurred, you are 
giving it to a contractor that you already know doesn't have an 
appropriate accounting system to keep track of what they should 
be charging you. Why would that occur? Why would a contracting 
officer give a contract to a company when you knew they had 
inadequate accounting in order to document what we owe them?
    Mr. Benson. That should not occur, ma'am.
    Senator McCaskill. OK. I think we agree on that. Is the 
contracting officer that did that, have they been disciplined? 
Have they been held accountable?
    Mr. Benson. They have not been disciplined. We have done 
internal training to reinforce to all of our contracting 
officers the FAR requirement that a contractor have an approved 
accounting system.
    Senator McCaskill. OK. In another, GAO found the contractor 
submitted over 100 invoices of which only eight had been 
certified by the project officer. Now, your policy provides 
that the project officer review each contractor invoice, 
recommend payment approval or disapproval, and sign a 
certification form. The contract value of this particular 
contract was more than $90 million. What happened here? Why 
weren't these invoices being reviewed?
    Mr. Benson. Again, they should have been reviewed. We have 
done a lot of training of both our contracting staff and our 
project staff. We are also taking the GAO recommendation, which 
was to start having managers review some sample to make sure 
that, in fact, all the invoices that are in a contract file 
have been approved by both the project officer and the 
contracting officer. That is our policy.
    Senator McCaskill. Well, I think one of the things that is 
going to have to start happening, if things have been this 
loosey-goosey over there, that you are awarding cost incurred 
contracts to people who don't have an approved accounting 
system and you have got eight out of 100 invoices that have 
been certified when 100 percent should be certified, I think 
just saying to people, we really mean it this time, it may take 
more than that. You may have to, as somebody who is managing 
this effort, you may have to say to these employees, you are 
going to be disciplined if this stuff occurs. We have watched, 
especially in the Department of Defense, when people don't get 
disciplined, nobody takes it seriously. It is like Monopoly 
money to them.
    This is really important, that we hone in or home in--I 
have been told that I should say home in--on this problem 
because this is a huge amount of money. And candidly, if the 
contractors know that you are not paying close attention, they 
are on the front lines. That encourages the kind of environment 
where they don't have to pay close attention. And now we are 
talking about hundreds of billions of dollars.
    Let me turn it over to Mr. Brown for any of his questions.
    Senator Brown. Thank you. You have been in this position 
since 1997, is that accurate?
    Mr. Benson. Yes, sir.
    Senator Brown. And I am listening and I am learning. I know 
I don't know it all, Madam Chairman, but I think we are bonding 
because the question you asked about the recouping of 90----
    Senator McCaskill. I just had this thought for a minute. 
[Laughter.]
    Senator Brown. We are bonding.
    Senator McCaskill. We are bonding.
    Senator Brown. We are reading each other's minds, because I 
am curious as to the fact that, I mean, when she was asking the 
question, I said, my gosh, she is cheating. She is looking at 
my notes here. [Laughter.]
    And what I am finding is that in a November 2007 report, 
that $88 million or $90 million from prior years hasn't been 
recouped and it is 2010. And you say, well, we are working on 
it. We are doing this. We have got more checks and balances. We 
are doing this and doing that. With all due respect, how long 
does it take to collect the money and get reimbursed from the 
people that have been overpaid or there have been losses or 
whatever?
    Mr. Benson. Sir, as I said, we have a plan in place and we 
are going to be as expeditiously as possible addressing every 
one of those findings and making sure that we have made any 
appropriate adjustments----
    Senator Brown. Well, who is responsible, though, for 
having--I mean, why does it take coming to the hearing, or why 
does it take the GAO recent report to deal with a GAO report 
that is from 2007? That one hasn't been addressed yet. So what 
confidence would I have or would the American taxpayers have or 
this Subcommittee Chairman and the Members have to think that 
the new report is going to be adhered to?
    Mr. Benson. Sir, our office needed some change and some 
improvement. We are making those changes now. We are going to 
address those findings.
    Senator Brown. Well, you have, you say, it is a highly 
technical and highly specialized office, and I am presuming 
that the contract approval officers have training. They have 
been schooled. They are certified. And yet they haven't 
bothered to check to see if basic common sense stuff that 
should have been done when signing off on a contract wasn't 
done.
    And now you are getting more bodies, you are getting more 
money, and you are getting more opportunity, I hate to say it, 
for problems. What assurances do we have, once again, if these 
same people who have made these mistakes or didn't adhere to 
their basic training are still making these decisions, what 
confidence should I have?
    Mr. Benson. Sir, I understand. As I said, we have made some 
really significant changes----
    Senator Brown. Well, like what? I have heard that, like, 10 
times.
    Mr. Benson. Thank you. One of the things we have done, as 
Ms. Daly pointed out, we have instituted an automated system 
for all our contracting staff that sets forth in a very concise 
way all the requirements of law and regulation. We are 
customizing that with all our own internal rules. So, first of 
all, contracting officers have, or contract professionals have 
the tools they need to make sure they know the policies, they 
have the policies right there at their fingertips and they are 
following them.
    Senator Brown. All right. What tools are you talking about 
that they have now that they didn't have before?
    Mr. Benson. We have a Web-based tool that is in a very 
comprehensive way----
    Senator Brown. Is it a checklist that they have to go 
through when they are signing off on a contract?
    Mr. Benson. Exactly. It has checklists----
    Senator Brown. So that hasn't been in place before?
    Mr. Benson. We instituted it just over a year ago.
    Senator Brown. OK.
    Mr. Benson. And we also have been developing a contract 
checklist in concert with the Department of Health and Human 
Services that are going to also--it was one of the GAO's 
recommendations that in a meaningful way should assure that 
contracting officers have complied with all the steps in 
awarding a contract.
    Some of the other things we have done, and I think this is 
really significant, is made some really significant leadership 
changes. I think I said earlier in my opening statement that we 
have created a second deputy position to help us focus not only 
just the strategic aspects of managing our office, but on the 
policies, the internal controls, somebody who is very 
experienced in government acquisition.
    Senator Brown. Who was handling that stuff before?
    Mr. Benson. Well, before, it was really more or less on my 
plate and the other managers in the office.
    Senator Brown. So how many managers are in the office?
    Mr. Benson. Well, previously, we had myself and a deputy, 
and then we have two groups in the office, two group directors, 
and we have seven divisions. So we had nine people.
    Senator Brown. So now you have a new deputy that has this 
amazing experience, so he is going to solve all the problems, 
or she?
    Mr. Benson. Well, I believe that when you assign 
accountability and responsibility to somebody, things get done.
    Senator Brown. But didn't the head of CMS give that 
accountability and responsibility to you guys?
    Mr. Benson. Yes. So we have created a position to help us 
really focus and make sure we get this right. We have also 
created a--well, not created, we have hired a new Director for 
our Division of Policy and Support, someone who, first of all, 
comes to us from the Veterans Affairs Acquisition Workforce 
Academy, who has extensive experience in workforce development, 
is a nationally recognized expert in that field, as well as 
extensive experience and expertise in developing acquisition 
policy.
    Senator Brown. But don't the taxpayers have the right to 
make sure that you do get it right, because we are not talking 
about a few hundred thousand dollars here. We are talking about 
hundreds of millions of dollars. You are getting a pay increase 
now to do your job to find fraud, and yet we haven't even been 
able to collect the overpayments from 2004, 2005, 2006, 2007. 
You haven't been able to follow through in this 2007 report. We 
had another report that talks about waste and other types of 
things.
    I tell you, Madam Chairman, I am concerned, and I am hoping 
to submit some additional questions about the fact that you are 
getting all this money and you have all--we are going to do 
this, we are going to do that, we haven't done this, we haven't 
done that. I don't have much confidence. I know I am new here, 
but maybe I am looking at it in a different way to try to 
figure out who is responsible.
    I know you are not the top guy, but you are one of the 
senior people. Is it fair to say that--and my initial question 
which I tried to get, and I wasn't saying it quite correctly. 
Is it true that you are responsible for approving or issuing 
the contracts and hiring the contractors that are responsible 
for pursuing fraud and improper payments? Is that your 
responsibility?
    Mr. Benson. It is the responsibility of my office, yes, 
sir.
    Senator Brown. OK. So who is overseeing those contractors 
to make sure that they are doing their jobs in pursuing the 
fraud and waste and improper payments and then making sure that 
they collect the money and give it back to the Treasury of the 
United States?
    Mr. Benson. Yes, sir. In the award and administration of 
contracts, there is a team of government officials involved. We 
perform the contracting officer function in my office, which is 
the legal aspects of awarding, negotiating, and awarding a 
contract in accordance with the FAR. We also have a program 
staff. There is an official there, the contracting officers, 
technical representative, but there is a project manager, a 
program manager. They oversee and manage the program aspects of 
a contract.
    Senator Brown. So if that is the case, then if we have all 
these people doing all these jobs, why haven't we still 
collected--I am still getting back to the basic--why haven't we 
still collected the money that is outstanding that should be 
coming back that the GAO has identified?
    Why is it taking so long? I mean, we could use the money. 
You know that, right? We are almost at a $13 trillion debt.
    Mr. Benson. Yes, sir.
    Senator Brown. So who is responsible?
    Mr. Benson. Well, as I said earlier, I think, our normal 
process for resolving audit findings like that are to perform 
an audit of the contract and to resolve those findings at the 
time we close out the contract. We realize that process here 
was taking too long, so we are going to put particular 
attention, specific attention, expedited attention on those 
findings----
    Senator Brown. All right. So when is the 2004 contract 
going to be closed? Is that closed?
    Mr. Benson. It is not closed yet. Again, we are going to be 
taking expedited action to address that.
    Senator Brown. All right. I know I am taking a lot of time, 
Madam Chairman, but Ms. Daly, what confidence do you have 
that--you have heard my line of questioning. I don't want to 
throw stones, believe me. I just want to solve problems and try 
to find out how we can better help your agency to perform a 
very valuable function for our citizens. What confidence do you 
have with all the new money that they are getting that they 
will be able to fulfill all of the concerns that the Chairman 
and I have?
    Ms. Daly. Well, Senator Brown, Mr. Benson has made some 
very important promises to all of us here and I am certainly 
hopeful that he will follow through with those and make sure 
that CMS does take action, because just as you have noted, 
there is a lot of money at stake here. The Medicare and 
Medicaid programs are two of the largest in the Federal 
Government. To make sure that the contractors handling those 
programs and ensuring that we combat improper payments so that 
we can try to prevent them, is critical. I think this year, 
improper payments for Medicare and Medicaid totaled something 
like $55 billion, and addressing that will be exceptionally 
important.
    So what has been entrusted to Mr. Benson and his staff is 
critical. I don't know that I could put a particular rating, if 
I had to, on it, but I am encouraged that they seem to have a 
good attitude about trying to fix things.
    Senator Brown. You are being very generous. I am wondering, 
do you have a time frame that we have made a recommendation 
that they implement these things, or is it open-ended like some 
of these other things?
    Ms. Daly. Well, yes, sir. Our recommendations in general 
are open-ended. We would like, of course, them to be fixed as 
soon as possible. We generally start to follow up anywhere 6 
months to a year after the recommendation has occurred, and 
then we hope to have everything closed out no later than 4 
years, which is one of GAO's performance metrics.
    Senator Brown. Great. Thank you.
    Senator McCaskill. Let me ask, when I visited with you 
about Palmetto a minute ago, I didn't realize at the time that 
it was the fourth-largest contractor. Since this contract was 
entered into with you all full well knowing that they did not 
have a qualified accounting system to have the kind of contract 
they have, what has happened to address that in the interim? Do 
they now have the appropriate accounting system?
    Mr. Benson. Yes, ma'am, they do.
    Senator McCaskill. OK. I wanted to make sure I didn't leave 
that detail hanging. I believe we spend over $130 million a 
year with that contractor and it puts them in the top five of 
the companies that you contract with.
    The Medicare Secondary Payor Recovery Contractor, which 
really--that whole problem is what piqued my interest in this 
area, that we were having a hard time getting Medicare to 
accept money that Medicare was owed--never a good sign. This is 
a cost-plus-fee contract also, correct?
    Mr. Benson. Yes, ma'am.
    Senator McCaskill. Once again, I don't understand why this 
area would be particularly complicated, why you would need to 
make this cost incurred. Did they receive the full amount of 
the award fee?
    Mr. Benson. Ma'am, I will have to get back to you on that. 
I don't know the answer.

                  INFORMATION SUBMITTED FOR THE RECORD

    In accordance with the most recent modification issued, the 
subject contract's current payment schedule is reflected below. 
The contract was initially awarded (i.e., structured) as a 
``Cost Plus Award Fee'' (CPAF) contract. However, due to an 
unforeseeable growth in workload, CMS renegotiated and modified 
portions of the contract. Specifically, CMS renegotiated the 
contract to address the backlog in the workload volume, revise 
the CPAF pricing structure to include only a base fee and 
eliminate the award fee portion of the fee structure, and to 
revise the overall cost ceilings based on these changes. The 
revised pricing structure applies to all periods of the 
contract as shown in the chart below with the exception of 
Option Period 5, Contract line item 0006, which is an option 
period not exercised.\1\
---------------------------------------------------------------------------
    \1\ The chart referred to appears in the Appendix on pages 56 and 
57.

    Senator McCaskill. Was this awarded on a sole source basis?
    Mr. Benson. Not exactly. It was awarded pursuant to special 
authority under Section 8(a) of the Small Business Act, which 
permitted us to award a contract to this organization because 
they qualified as a Native Alaskan contractor.
    Senator McCaskill. I thought they were from Oklahoma. They 
qualified under the Native American, not the Alaskan----
    Mr. Benson. Oh, I am sorry. Did I say Alaskan? Excuse me. 
American.
    Senator McCaskill. So because they qualified in that 
program, you didn't have to compete it?
    Mr. Benson. Yes, ma'am.
    Senator McCaskill. Well, I would be interested to know, a 
company that was not returning phone calls and taking money, if 
they got--how long has this contract been in place? Two-
thousand-and-six, I see.
    Mr. Benson. Right. Yes, ma'am.
    Senator McCaskill. You consolidated several of these into a 
single cost plus contract awarded on a sole source basis to 
Chickasaw Nation Industries. So I would be interested to know 
if they have been getting the award fees on the various years 
they have had the contract, since clearly there were pervasive 
problems with this contractor.
    They are now claiming--in 2003, you have stated you only 
recovered 38 cents for every dollar spent on recovery 
activities. That would mean we were losing money trying to 
recover money.
    Mr. Benson. Yes, ma'am.
    Senator McCaskill. You don't need an accountant to tell you 
that is a bad outcome. The contractor is now claiming they are 
recovering $8.97 for every dollar we are spending on recovering 
this money. Do you have confidence that is a correct number?
    Mr. Benson. Ma'am, again, the programmatic responsibility, 
the officials that are responsible for that statistic are in 
another area of CMS. We can provide you more information 
regarding how that return on investment was arrived at. But I 
am not--I can't really speak to that.

                  INFORMATION PROVIDED FOR THE RECORD

    The cumulative Return on Investment (ROI) from FY2007 
through the first quarter of FY2010 for the MSPRC is $8.97. CMS 
believes that this amount is generally correct; however, the 
amount has not been audited.
    The ROI is calculated using the following methodology:

    1. LTake the total amount collected and subtract the 
refunded amount (e.g. waivers, appeals, three party checks) to 
arrive at the ``Actual Collected Amount;'' then
     LDivide the ``Actual Collected Amount'' by the cost of the 
contract.

    CMS cautions against comparing the FY2007 through first 
quarter of FY2010 ROI amount with the ROI from 2003. The 
cumulative total $8.97 reflects actual ROI for both group 
health plan (GHP) and Non-GHP (e.g. liability insurance, no-
fault insurance, and workers compensation) collections during 
this period. GAO calculated the FY2003 ROI of $0.38 from GHP 
collections only; therefore, these are not directly comparable 
figures.

    Senator McCaskill. Well, it is important, and let me just 
tell you, I know that you are going to say this maybe isn't 
under you, but here is why I think you should know about it. 
Are you involved in deciding whether they get an award fee? Is 
your office involved?
    Mr. Benson. Yes, ma'am, it would be.
    Senator McCaskill. And wouldn't how well they are doing 
collecting money be relevant to whether or not they should get 
an award fee?
    Mr. Benson. It would be, yes.
    Senator McCaskill. So that is my point here. We should not 
be giving award fees to sole source contractors that are cost-
incurred contractors unless we are confident that they deserve 
an award fee because they have done an outstanding job. So I 
would hope in these kinds of contracts that you would not only 
be checking ahead of time to make sure they have the 
appropriate accounting system so we are getting charged the 
amount of money, but on the back end, that you know how well 
they have done.
    There has been a way-too-common practice in government just 
to give award fees because everybody gets them. That needs to 
stop. I mean, that is like tipping 25 percent for bad service. 
We can't afford to do that in our government.
    This is a sweet contract for them. They don't have to 
compete. It is big. Clearly, there wasn't a lot of oversight 
going on until all of a sudden Members of Congress started 
getting notified that they were hearing from their people at 
home that nobody would take their money.
    So I would like you to follow up on those and find out, and 
if it takes me having to inquire in the program office or in 
the Secretary's office to find out--and I want to know when 
this contract is up and if there is any intention on competing 
it.
    And I will look into whether or not this is one of these 
exceptions that it doesn't matter how big they get. Do you know 
if this is a front or whether they are actually doing the work?
    And let me explain what I mean by that for the record. You 
know what I mean?
    Mr. Benson. Yes, ma'am.
    Senator McCaskill. I want to make sure everybody 
understands. This is this carve-out that we are busy 
campaigning against that certain contractors--typically in the 
8(a) program, you get some leverage and advantage for being in 
the 8(a) program, but when you get to a certain size, you age 
out of the 8(a) program. Well, there is a carve-out, and that 
is if you are an Alaska Native corporation, you can be as big 
as you want to be for as long as you want to be, and even more 
importantly, you don't even have to do the work. You can apply 
as the contractor and then subcontract the whole thing, and 
really what you do is you rent out your corporation for 
purposes of not having to compete.
    Is this a situation that they have subcontracted for all 
the work?
    Mr. Benson. Ma'am, I am not exactly sure what proportion of 
the work is subcontracted. We can provide that information.

                  INFORMATION SUBMITTED FOR THE RECORD

    CNI is performing approximately two-thirds of the work in 
the MSPRC contract and is subcontracting out the remaining 
third. The Small Business Administration's guidelines require 
8(a) firms to directly perform 51 percent of the contract 
workload. CMS works closely with CNI, and all our contractors, 
to ensure the appropriate balance between work performed by the 
prime contractor vs. that of any subcontractors.
    CNI's subcontractors for this contract are:

    a. Cahaba Government Benefit Administrators (Cahaba)
    b. Group Health Incorporated (GHI)
        1. JP Morgan Chase
        2. United Systems of Arkansas
        3. Neil Hoosier and Associates
    c. ViPS

    Senator McCaskill. I think that is important. I have 
nothing against the 8(a) program, but within the 8(a) program, 
it needs to be fair, it needs to be balanced, and it needs to 
be equal. Because you are an Alaska Native corporation should 
not allow you to get non-compete contracts that you actually 
aren't doing the work on.
    You have told the Subcommittee staff that you are exceeding 
the goal for small businesses. I am curious if that is because 
the CNI has such a big contract.
    Mr. Benson. Actually, those dollars aren't counted in our 
small business goals and it is because we use money that was 
appropriated under statute for the Medicare Integrity Program. 
I am not sure why, but it is considered to be non-appropriated 
funds. So, actually, no, it is not counted in that goal.
    Senator McCaskill. OK. Do you know how many contractors 
your assertion that your goal has been met, do you know how 
many contractors go into that? What I am trying to get at is we 
found that in some of these agencies, they say they are making 
their goal for small contractors, but it is because they 
sometimes have one or two big ones as opposed to many smaller 
businesses.
    Mr. Benson. To the best of my knowledge, we don't have 
those big contractors like you are talking about, like a CNI, 
in that base. It is a number of smaller contractors.
    Senator McCaskill. OK. That is terrific.
    Let me also ask you, the MSPRC rule, there is a new rule 
that they have put in, and in October of last year, for some 
reason, they changed the number of consent forms that primary 
plan and third-party administrators have to sign. I think the 
need for beneficiary consent is legally required and important, 
but I am trying to figure out why we went from one to three 
forms. That is usually a bad sign, that we have to go from one 
form to three forms. And what is happening is that it is our 
understanding that it is causing these files to stay open for 
months because there aren't three forms.
    If you can track down who the person was that thinks we 
need three forms instead of one, I would be happy to have a 
conversation with them in this hearing room about it, because I 
don't--somebody needs to explain why that is necessary.
    Mr. Benson. Yes, ma'am. We will provide you that 
information.
    Senator McCaskill. Thank you very much. I have no more 
questions. Do you have any more questions, Senator Brown?
    Senator Brown. Thank you, Madam Chairman. One more.
    What percentage of contractors are actually getting award 
fees? Do you know that? And if not, you could provide it to me 
in writing.
    Mr. Benson. I will provide that, sir.

                  INFORMATION SUBMITTED FOR THE RECORD

    As you requested, we are providing, under separate cover, 
an overview of award and incentive fee contracts. It includes 
an analysis that is based on contract actions from October 1, 
2008 through October 31, 2009. This information was originally 
prepared for Senator Carper but addresses your concerns as 
well.\1\
---------------------------------------------------------------------------
    \1\ The analysis submitted by Mr. Benson appears in the Appendix on 
page 62.

    Senator Brown. Because if it is 100 percent, I mirror what 
your thoughts are on this. It is almost like your analogy, 
tipping for bad service. There is no incentive to do well. It 
is a disincentive if they know, at the end of the term, 
regardless of how they do, they are going to get an automatic 
bonus. It is a joke. So I wanted to just ask if you could 
submit that to the Subcommittee.
    Senator McCaskill. I want to thank both of you for being 
here today. I want to thank Senator Brown. We will note for the 
record that bonding was put on the record today. I think that 
is a good sign, right, Senator?
    Senator Brown. A most flattering----
    Senator McCaskill. I like that.
    I do want to say sincerely, Mr. Benson, that it is time for 
you to be aggressive. We have this new health care bill that is 
going to put even more pressures and responsibilities on 
accountability, and this Subcommittee is not going anywhere. 
Whether I am here or not, the Subcommittee is going to be here, 
and I can assure you, we are going to keep looking. I see the 
role of this Subcommittee as giving voice and volume to many of 
these GAO audits that have been done so that we don't come back 
in another 2 years and have another seven findings that were 
repeated from the findings before that, repeated from the 
findings before that. That has to stop.
    Accountability has to begin within your agency. And if you 
need tools, if you don't have the tools to do the job, now is 
the time to speak up and let us know, because we are not going 
to take that as an excuse 2, 3, or 4 years down the line when 
we have problems implementing the new law because you are not 
ready and you don't have the proper internal controls or 
contract oversight management in place.
    Thank you, Mr. Benson, and thank you, Ms. Daly.
    The hearing is adjourned.
    [Whereupon, at 3:51 p.m., the Subcommittee was adjourned.]
























                            A P P E N D I X

                              ----------                              

[GRAPHIC(S) NOT AVAILABLE TIFF FORMAT]

                                 
