[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
----------
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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
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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
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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\
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\1\ The Majority Staff Fact Sheet appears in the Appendix on page
64.
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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\
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\1\ The prepared statement of Senator Brown appears in the Appendix
on page 64.
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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.
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\1\ The prepared statement of Ms. Daly appears in the Appendix on
page 27.
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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.
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\1\ The prepared statement of Mr. Benson appears in the Appendix on
page 45.
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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
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