[Senate Hearing 111-1059]
[From the U.S. Government Publishing Office]



                                                       S. Hrg. 111-1059

           PREVENTING AND RECOVERING MEDICARE PAYMENT ERRORS

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


                                HEARING

                               before the

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

                                 of the

                              COMMITTEE ON
               HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                                 of the

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 15, 2010

                               __________

         Available via the World Wide Web: http://www.fdsys.gov

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







                  U.S. GOVERNMENT PRINTING OFFICE
58-400 PDF                WASHINGTON : 2011
-----------------------------------------------------------------------
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 P. 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
            Joyce Ward, Publications Clerk and GPO Detailee
                                 ------                                

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

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

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














                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Carper...............................................     1
    Senator Coburn...............................................     5
Prepared statements:
    Senator Carper...............................................    41
    Senator McCain...............................................    44
    Senator Coburn...............................................    46

                               WITNESSES
                        Thursday, July 15, 2010

Kathleen M. King, Director, Health Care, U.S. Government 
  Accountability Office..........................................     5
Deborah Taylor, Chief Financial Office and Director, Office of 
  Financial Management, Centers for Medicare and Medicaid 
  Services, U.S. Department Health and Human Services............     7
Robert Vito, Acting Assistant Inspector General, Centers for 
  Medicare and Medicaid Audits, Office of Inspector General, 
  Department of Health and Human Services........................     9
Libby Alexander, Chief Executive Officer, Connolly Healthcare, 
  Connolly, Inc..................................................    25
Lisa Im, Chief Executive Officer, Performant Financial 
  Corporation....................................................    27
Andrea Benko, President and Chief Executive Officer, 
  HealthDataInsights, Inc........................................    29
Robert Rolf, Vice President for Healthcare BPO, CGI Federal, Inc.    31
Romil Bahl, President and Chief Executive Officer, PRGX Global, 
  Inc............................................................    32

                     Alphabetical List of Witnesses

Alexander, Libby
    Testimony....................................................    25
    Prepared statement...........................................    77
Bahl, Romil
    Testimony....................................................    32
    Prepared statement...........................................    93
Benko, Andrea
    Testimony....................................................    29
    Prepared statement...........................................    84
Im, Lisa
    Testimony....................................................    27
    Prepared statement...........................................    81
King, Kathleen
    Testimony....................................................     5
    Prepared statement...........................................    48
Rolf, Robert
    Testimony....................................................    31
    Prepared statement...........................................    90
Taylor, Deborah
    Testimony....................................................     7
    Prepared statement...........................................    58
Vito, Robert
    Testimony....................................................     9
    Prepared statement...........................................    69

                                APPENDIX

Recovery Audit Contractor Demonstration Vulnerabilities Progress 
  Report, submitted for the Record by Senator Carper.............
.................................................................   107
Questions and responses for the Record from:
    Ms. Taylor...................................................   114
    Mr. Vito.....................................................   131
    Ms. Alexander................................................   134
    Ms. Im.......................................................   141
    Ms. Benko....................................................   145
    Mr. Rolf.....................................................   154
    Mr. Bahl.....................................................   159

 
           PREVENTING AND RECOVERING MEDICARE PAYMENT ERRORS

                              ----------                              


                        THURSDAY, JULY 15, 2010

                                 U.S. Senate,      
        Subcommittee on Federal Financial Management,      
              Government Information, Federal Services,    
                              and International Security,  
                      of the Committee on Homeland Security
                                        and Governmental Affairs,  
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 10:06 a.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Thomas R. 
Carper, Chairman of the Subcommittee, presiding.
    Present: Senators Carper and Coburn.
    Also Present: Senator Klobuchar.

              OPENING STATEMENT OF SENATOR CARPER

    Senator Carper. The hearing will come to order.
    I am going to say something as we lead off here today that 
I do not think I have ever said at the beginning of a hearing, 
and that is, this is going to be a great hearing. [Laughter.]
    I really think so. We have some terrific witnesses. The 
subject material is very important, and we have some good news 
to talk about, and we have some lessons learned and some ideas 
that we need to drill down on, and we can do some real good for 
our taxpayers.
    I was on the phone earlier today with a long-time friend, a 
fellow who used to be Chief of Staff to former President Bill 
Clinton, Erskine Bowles. Erskine, along with Alan Simpson, 
former Senator from Wyoming, are heading up the Deficit 
Reduction Commission (DRC), which has begun working in recent 
months, and I think working effectively and with a lot of good 
thought, a lot of energy. So my mind is on deficit reduction 
today, and it is on the minds, it turns out, of a lot of people 
in our country. So I swapped with Erskine some ideas that the 
Commission is working on and some ideas that we are working on 
literally in this Subcommittee, talking about here today.
    But our focus today is to figure out what we are doing to 
prevent fraud and waste with respect to Medicare, and we have 
some witnesses that are going to tell us about what we are 
doing and maybe what we could do even better.
    The witnesses who are joining us today will tell an 
important story. Medicare, as we all know, is a critical 
component of health care in our Nation. I think there are some 
45 million seniors that are participating. I am a baby boomer, 
and while I am too young to participate in Medicare, someday I 
hope to. And there are a lot of my colleagues, people born, as 
I was, after World War II, who have the same expectation.
    As a recovering Governor, I understand the unique 
challenges that come along with running major programs. 
Unfortunately, Medicare has seen its share of problems, and 
while it has done a lot of good for people, we are mindful that 
it certainly has its share of problems.
    We know that no program is perfect, and I like to say if it 
is not perfect, make it better. In fact, I just did a press 
interview with a reporter, and we were talking about my four 
core values: Figure out the right thing to do, just do it; 
treat other people the way I want to be treated; if it is not 
perfect, make it better; and if you know you are right, do not 
give up. So those are my core values, and number three applies 
here. If it is not perfect, make it better.
    But we in Congress need to ensure that the more than $460 
billion that we are spending, I think, this year in Medicare to 
address health care needs of our Nation's senior citizens is 
spent effectively and that we spend it in a cost-effective way.
    Medicare, as we know, is on the Government Accountability 
Office's (GAO) list of government programs at high risk for 
waste, fraud, and abuse. There are several differing estimates 
of waste and fraud within the Medicare program. The Office of 
Management and Budget (OMB), for example, has reported $36 
billion in improper payments by the Medicare program, according 
to data gathered from--I think that was fiscal year (FY) 2009, 
$36 billion in 2009. And I ought to point out that figure does 
not include information about payments for the Medicare 
prescription drug program, affectionately known as Part D, as 
the administration is still struggling to determine the amounts 
of wasteful spending in that part of Medicare. Again, that is a 
part of Medicare that does a lot of good. But we are certain 
that there is a fair amount of waste or fraud involved there, 
and we want to try to identify that and go out and get it.
    I am told that U.S. Attorney General Holder estimates that 
Medicare fraud in total is probably more like $60 billion a 
year rather than $36 billion a year.
    So what has Congress and the Executive Branch done to 
address these very real problems with waste and fraud? Well, 
again, I want to start with some good news. In 2003, Congress 
mandated a Recovery Audit Contractor (RAC) demonstration 
program to examine Medicare fee-for-service (FFS) payments. And 
through recovery auditing, internal auditors or outside 
contractors are employed to go through an agency's books, 
essentially line by line, to identify and recover payments that 
are made erroneously, such as duplicate payments or payments 
for medical procedures that never happened.
    This innovative tool is widely used in the private sector. 
We used it in State government in Delaware for the Division of 
Revenue to go out and recover tax monies that were owed but not 
being collected. And now we have seen successful use by the 
Federal Government with Medicare.
    The Recovery Audit Contractor program for Medicare began as 
a demonstration program I think in March 2005. We started in 
three States, California, Florida, I believe New York, and a 
couple years later added Massachusetts and South Carolina. And 
the program I think has been successful by almost anybody's 
measure.
    Looking back at 2006, we were starting with three, I think 
later adding South Carolina and Massachusetts, but in 2006, $54 
million was recovered. In 2007, we had about, we will say, a 
quarter of a billion dollars recovered. In 2008, almost $400 
million, in the five States was recovered. The program was 
essentially down in 2009 or so for a little more than a year, 
but that year we still collected almost $300 million while we 
were standing down and doing kind of lessons learned, looking 
back at the demonstration. But if you add up the money for 
those 3 or 4 years, it was about $1 billion, which is real 
money by our standards in Delaware, maybe even in Oklahoma.
    Somewhere along the line, we said, ``Well, why don't we 
step it up to 19 States? '' And then we said, ``Well, if this 
works in three States, if this works in five States, if this 
works in 19 States, maybe it would work in all of them.'' And 
there is a provision in the newly enacted health care law that 
the President signed earlier this year to expand the program 
not just for Medicare Part A and B, doctor and hospital stuff, 
but also Part C, which is Medicare Advantage, and Medicare Part 
D, which is the prescription drug program. And also, in a 
hearing we had here--I do not know if Dr. Coburn remembers 
this, but we had a guy here who I think ran the Medicaid 
program in New York State, and he said, ``You are not 
collecting any money much at all on fraud in Medicaid.'' And he 
told us why. He said we ought to make some changes. And we have 
made those changes in the legislation that was--again, the 
health care law. And our expectation is not only are we going 
to collect a lot more money, recover a lot more money from 
Medicare, but also to help the States recover Medicaid waste 
money, and we will split that with them on roughly a 50/50 
basis. So that will help both the States and we hope help the 
Federal situation as well.
    There is an added benefit to expanding the Recovery Audit 
program in Medicare. The Recovery Audit Contracting pilot 
program has identified dozens of vulnerabilities in the 
Medicare payment system that can lead--can lead--to waste and 
fraud. According to the Centers for Medicare and Medicaid 
Services, (CMS) contractors hired to recoup overpayments 
identified ongoing vulnerabilities that could lead to future 
overpayments totaling more than $300 million. That is like $300 
million a year, not just one time, but $300 million each year, 
if we do not do something about it. So not only did the 
contractors recover about $1 billion for us in overpayments in 
the 3-year pilot program; they also identified problems in the 
system that, if addressed, will avoid literally billions of 
dollars in future errors and more fraud.
    Our witnesses from the Government Accountability Office 
will describe for us today how the Center for Medicare and 
Medicaid Services, the agency which oversees Medicare, could do 
even more to use the work of recovery audit contractors to 
address overpayments.
    We have a chart based on GAO's work.\1\ As I recall, GAO 
noted about 58 vulnerabilities. They said these are things 
that, if you do not fix these, you are going to continue to 
waste more money. They identified about 58 vulnerabilities 
through the demonstration programs. They represent, as I said 
earlier, about $300 million in overpayments on an annual basis. 
That is obviously useful information. However, according to 
GAO, CMS has actually only addressed, I think, maybe 23 of the 
58 vulnerabilities. That leaves about 35 to go. And while we 
are glad they have addressed 23, we do not want to lose sight 
of the other 35. They represent cumulatively about almost a 
quarter of a billion dollars in annual overpayments, and they 
are awaiting action, and we want to make sure we do not forget 
them.
---------------------------------------------------------------------------
    \1\ The information submitted from Senator Carper appears in the 
Appendix on page 107.
---------------------------------------------------------------------------
    GAO has also stated that CMS has not established steps to 
assess the effectiveness of any action taken to date to reduce 
the vulnerabilities by the auditors. So, one, the auditors 
identified the vulnerabilities; two, we say we are going to do 
something about it; three, we are going to figure out are we 
being effective in addressing those vulnerabilities. So it is a 
sort of three-step process. I look forward to hearing more 
about this issue from our witnesses.
    The last thing I want to mention before I turn it over to 
Dr. Coburn is prescription identifiers--this is interesting. I 
was in a Walgreens pharmacy in southern Delaware, in Seaford, 
the little town of Seaford, where the first nylon plant was 
built in this country 60 years ago. But Walgreens used to be 
Happy Harry's. Happy Harry's was a large regional chain in our 
State, taken over by Walgreens. But I spent about an hour there 
just to see how they are doing their work, how they are filling 
prescriptions and some of the safeguards that they have to 
protect consumers and make sure people who are taking more than 
one prescription are not having prescriptions that are just 
incompatible with one another, all kinds of stuff. They use a 
lot of technologies. It was very impressive.
    But the second issue for today's hearing will focus on the 
Medicare prescription drug program. An audit by the Inspector 
General at the Department of Health and Human Services (HHS) 
discovered that Medicare does not have a strong process to 
ensure valid identification numbers on reimbursed prescriptions 
under the drug program.
    Now, what does that mean? When a beneficiary brings in a 
prescription for medication he or she has been prescribed, the 
pharmacy is required to enter a provider identifier showing 
that an actual doctor or some other authorized provider 
correctly OKed the prescription. It sounds like common sense to 
me. Probably to you, too. But, apparently, some 18 million 
prescription drug claims contained invalid prescriber 
identifiers in 2007. That represents about $1.2 billion in 
Medicare spending.
    The Inspector General (IG), concluded and this is a quote. 
He said, ``It appears that CMS and Part D plans do not have 
adequate procedures in place to ensure valid prescription 
identification.'' This is a lot of money, and we want to make 
sure that this is one that we address here today.
    Our witnesses are going to report for us not only the 
current challenges of waste and fraud that we have outlined in 
the Medicare program but identify solutions, too, and we look 
forward to your presentations. Again, thank you for joining us.
    Dr. Coburn, welcome, you are on.

              OPENING STATEMENT OF SENATOR COBURN

    Senator Coburn. Mr. Chairman, thank you for holding this 
hearing. I have a statement for the record that I would ask to 
be submitted for the record--and then we will go forward with 
the witnesses. Thank you.
    Senator Carper. Without objection, your statement will be 
inserted as part of the record.
    Let me just introduce our three witnesses on panel one. Our 
first witness today will be Kathleen King, Director of Health 
Care at the Government Accountability Office, where she is 
responsible for leading various studies of the health care 
system, specializing in Medicare management and prescription 
drug coverage. Ms. King has over 25 years of experience in 
health policy and administration. We thank you for being here 
today. Thank you.
    Deborah Taylor, Chief Financial Officer for the Centers for 
Medicare and Medicaid Services and the Director of the Office 
of Financial Management. Ms. Taylor is accountable and 
responsible for planning, directing, analyzing, and 
coordinating the agency's comprehensive financial management 
functions, including the release of the Centers for Medicare 
and Medicaid Services annual financial report.
    And our third witness is Robert Vito--again, welcome back. 
Several of you have been with us before. It is good to see you 
all again. But Mr. Vito is a Regional Inspector General for 
Evaluations and Inspections at the Department of Health and 
Human Services. Mr. Vito works in the Inspector General's 
office in Philadelphia, a suburb of Wilmington, Delaware, and--
-- [Laughter.]
    Under his leadership has been credited with identifying 
billions of dollars in savings for the Medicare program.
    Again, welcome one and all. Your full statements will be 
made part of the record, and you can proceed. I will ask you to 
try to keep your statement to about 5 minutes. If you run a 
little over that, that is OK. If you run a lot over that, that 
is not OK.
    Please proceed, Ms. King.

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

    Ms. King. Mr. Chairman and Senator Coburn, thank you so 
much for inviting me here today to talk about the use of 
recovery audit programs in Medicare.
---------------------------------------------------------------------------
    \1\  The prepared statement of Ms. King appears in the Appendix on 
page 48.
---------------------------------------------------------------------------
    For almost 20 years, as you pointed out, we have designated 
Medicare as high risk due to its size, complexity, and 
susceptibility to improper payments. The purpose of the RAC 
demonstration was to test the feasibility of using recovery 
auditing as a means of identifying improper payments. Congress 
directed CMS to test the use of RACs in a 3-year demonstration 
program from March 2005 to 2008. And in 2006, Congress enacted 
legislation that made the RAC program a permanent part of 
Medicare, and CMS launched the national program in March 2009.
    In its first year, the demonstration was estimated to have 
recouped more than $300 million. It was the first time the 
agency paid contractors on a contingency basis through a share 
of improper payments identified. The demonstration provided a 
unique opportunity for CMS to identify issues at risk of 
improper payments. CMS could then use the information to take 
corrective action to address the root causes and to help reduce 
improper payments in the future.
    The demonstration required coordination, particularly 
between RACs and Medicare's claims contractors. The 
demonstration RACs reviewed claims that had already been paid 
by those other contractors to identify payment errors. RACs 
then shared those errors and their amounts with providers and 
the claims contractors, which collected any overpayments due, 
repaid underpayments, and handled the first level of provider 
appeals.
    Many providers expressed concerns about the operation of 
the demonstration. In particular, they were concerned about the 
use of contingency fees because they thought it created an 
incentive for RACs to be too aggressive in determining improper 
payments. They also indicated that RACs made many inappropriate 
determinations that resulted in thousands of provider appeals. 
The appeals created additional workload and coordination 
challenges for the claims contractors.
    In 2008, CMS said it would make a number of changes to the 
RAC program to address these problems. In our March 2010 
report, we said that CMS had learned valuable lessons from the 
RAC demonstration, particularly in regard to coordination 
between contractors and program oversight of RAC accuracy. 
However, we identified improvements still to be made. In 
particular, as of March 2010, and as your chart shows, CMS had 
not yet implemented corrective actions for 60 percent of the 
most significant RAC-identified vulnerabilities, which are 
those representing more than $1 million. In our report, we 
identified steps that CMS should take to improve the national 
program.
    First, we said that they should establish an adequate 
process to address RAC-identified vulnerabilities that lead to 
improper payments. For the national program, CMS did develop a 
process to identify the vulnerabilities and take corrective 
actions. It is better than the process they used during the 
demonstration, but it still lacks essential procedures. We 
recommended, and CMS concurred, that they improve their 
process. CMS said that they would promptly evaluate findings of 
the RAC audits, decide on appropriate responses, and act to 
correct the vulnerabilities identified.
    Second, we said CMS should take steps to address 
coordination issues among the contractors. Based on lessons 
learned during this demonstration, CMS has improved ways for 
RACs and the other contractors to communicate. CMS also 
improved its data warehouse that helps providers avoid 
duplicate reviews, and it is working to improve its storage and 
transfer of medical records, which was a significant issue 
during the demonstration.
    Third, we said that CMS should oversee the accuracy of RAC 
claims reviews and the quality of their service to providers. 
CMS did take steps to address concerns about inaccurate RAC 
decisions. The agency hired a validation contractor to 
independently review RAC decisions. They created performance 
metrics to monitor RAC accuracy and service. And they also 
changed the contingency fee payment structure so that RACs will 
have to refund contingency fees for any determinations 
overturned at any level of appeal.
    CMS' experience with the RACs provides useful lessons in 
identifying the root causes of vulnerabilities and effectively 
coordinating and overseeing accuracy and customer service of 
contracts.
    Mr. Chairman, this concludes my prepared remarks. I would 
be happy to answer questions.
    Senator Carper. Thanks, Ms. King. Ms. Taylor.

  TESTIMONY OF DEBORAH TAYLOR,\1\ CHIEF FINANCIAL OFFICE AND 
DIRECTOR, OFFICE OF FINANCIAL MANAGEMENT, CENTERS FOR MEDICARE 
    AND MEDICAID SERVICES, U.S. DEPARTMENT HEALTH AND HUMAN 
                            SERVICES

    Ms. Taylor. Thank you, Chairman Carper and Senator Coburn, 
for the opportunity to appear before you today to discuss the 
Centers for Medicare and Medicaid Services' efforts to prevent 
and recover Medicare improper payment errors.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Taylor appears in the appendix on 
page 58.
---------------------------------------------------------------------------
    As you know, the Medicare Modernization Act of 2003 
required the Centers for Medicare and Medicaid Services to 
establish a recovery audit demonstration to pilot the potential 
usefulness of recovery auditing in the Medicare fee-for-service 
program. During the demonstration program, three demonstration 
States were selected: Florida, California, and New York. Within 
the first 18 months of the recovery audit pilots, we saw much 
potential and promise for results. Thus, in the summer of 2007, 
we expanded the demonstration to three additional States: South 
Carolina, Massachusetts, and Arizona. By the time the recovery 
audit demonstration concluded in May 2008, the six pilots in 
the demonstration project had collectively identified over $1 
billion of improper payments and returned over a net $690 
million to the Medicare Trust Fund.
    At the conclusion of the demonstration program, the 
Government Accountability Office evaluated our results and 
progress. Generally, they had some positive comments about the 
demonstration; however, they did note, as Kathy said, 58 
vulnerabilities were identified, and we had addressed or done 
corrective actions for 23, leaving 35 vulnerabilities with no 
corrective actions. At this time I am pleased to report that 
CMS has taken or begun corrective actions in all 35 of the 
remaining vulnerabilities. We appreciate GAO's recommendations, 
and going forward, we are committed to developing and 
implementing corrective actions to prevent these 
vulnerabilities from occurring in the future.
    The ultimate goal and measure of success of the recovery 
audit program is to prevent these errors from occurring after 
they are identified. The success of the RAC demonstration 
provided us with valuable information about vulnerabilities 
where improvements in the Medicare program were needed as well 
as some lessons learned for improving the recovery audit 
program. In general, we were able to gain valuable feedback 
from providers about ways to improve the recovery audit program 
with respect to interactions between the provider community. We 
took these lessons learned very seriously when designing the 
national recovery audit program and incorporated them into the 
national program.
    For example, we required all recovery audit contractors to 
hire a physician medical director to be responsible for 
ensuring that the medical records were properly reviewed in 
accordance with our payment policies. We also established a new 
Issue Review Board (IRB) within the agency to review and 
approve all claim review areas before the recovery auditors can 
begin widespread medical review.
    Another important step we took before the national recovery 
auditors could begin requesting and reviewing claims was to set 
up meetings with State representatives and provider 
associations in every single State to discuss the recovery 
audit program and answer their questions. These outreach 
meetings coupled with the incorporation of lessons learned with 
critical improvements to the national recovery audit program.
    While the national recovery audit program is now 
operational, it did take time to establish these improvements 
and build the infrastructure that Kathleen talked about for the 
national program. We currently have four national recovery 
auditors. They are divided into four regions across the 
country. And as of June, the national recovery audit program 
has returned over $32 million to the Medicare Trust Funds.
    Although the national program just began, it has also 
identified some significant program vulnerabilities. To date, 
the program has focused mostly on durable medical equipment 
(DME), an area where we know we have had high improper payments 
in the past. We are currently working on corrective actions to 
address these vulnerabilities.
    CMS also takes seriously the use of invalid prescriber 
identifiers in the Part D claims, as described by the OIG's 
recent report and as shown on the chart. Although not an 
automated indicator of fraud or invalid claim, the use of 
invalid prescriber identifiers does hamper the oversight of the 
Medicare Part D benefit. Since the OIG's review of Part D 
claims from 2007, there has been a substantial shift away from 
the use of DEA numbers toward the use of a national provider 
identifier. CMS plans to thoroughly evaluate these more recent 
claims to determine whether there are similar incidents of 
invalid NPIs and to understand what pharmacies and prescriber 
practices are resulting in the use of invalid identifiers.
    As the Chief Financial Officer (CFO) for CMS, it is my 
responsibility to ensure that we do everything possible to 
ensure the accuracy of all payments in the Medicare and 
Medicaid programs. I take this responsibility very seriously. I 
thank you for your continued support and interest in this 
program, and I look forward to answering any questions you may 
have.
    Senator Carper. Thanks so much. Mr. Vito, welcome back. 
Nice to see you. Please proceed.

    TESTIMONY OF ROBERT VITO,\1\ ACTING ASSISTANT INSPECTOR 
 GENERAL, CENTERS FOR MEDICARE AND MEDICAID AUDITS, OFFICE OF 
  INSPECTOR GENERAL, U.S. DEPARTMENT HEALTH AND HUMAN SERVICES

    Mr. Vito. Good morning, Mr. Chairman and Members of the 
Subcommittee. I am Robert Vito, Acting Assistant Inspector 
General for the Centers for Medicare and Medicaid Audits at the 
U.S. Department of Health and Human Services Office of 
Inspector General. I would like to thank you, Mr. Chairman, for 
holding a hearing on this important topic.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Vito appears in the appendix on 
page 69.
---------------------------------------------------------------------------
    A little more than 4 months ago, I sat before you and 
testified about the OIG's body of work related to program 
integrity efforts and payment safeguards in the Medicare Part D 
prescription drug program. At that time I stated the oversight 
of this area by the Centers for Medicare and Medicaid Services 
and its contractors had been limited, and as a result, the Part 
D program was vulnerable to fraud, waste, and abuse. 
Unfortunately, our current work further illustrates the 
potential impact of these vulnerabilities as the lack of 
program safeguards has actually resulted in Medicare paying for 
a substantial number of questionable claims for prescription 
drugs.
    One of the most basic safeguards in paying for medical 
care, whether we are talking about Medicare, Medicaid, or 
private payers, is ensuring that an item or service was 
performed, provided, and prescribed by an appropriate medical 
professional. To that end, CMS requires that pharmacies list an 
identifier for the drug prescriber on most Part D claims. 
Without a valid identifier, we cannot even be sure that an 
actual practicing physician prescribed the drug, much less 
determine the physician's name, verify the physician was 
appropriately licensed, or identify questionable prescribing 
patterns associated with a particular physician.
    In other words, even though invalid prescriber identifiers 
do not automatically indicate fraud, they severely inhibit our 
ability to detect it. In our report, ``Invalid Prescriber 
Identifiers on Medicare Part D Drug Claims,'' we found that 
more than 18 million prescription drug claims contained invalid 
prescriber identifiers in 2007, representing 2 percent of the 
nearly 1 billion claims submitted by the plan sponsors that 
year. These identifiers were either not listed in the 
appropriate provider identifier directories or had been 
deactivated or retired more than a year earlier. Part D 
sponsors and enrollees paid pharmacies $1.2 billion in 2007 for 
these questionable claims.
    Furthermore, CMS and the sponsors did not successfully 
verify that the prescriber identifiers were even in the proper 
format. In almost 20 percent of the cases, the invalid 
identifiers did not have the correct number of characters and/
or contained inappropriate letters, numbers, punctuation marks, 
or keyboard symbols. Just to give an example, one invalid 
prescriber that did not meet the format specifications was a 
string of nine zeros. Despite this obvious issue, Medicare paid 
$3.7 million for almost 40,000 claims listed with this 
identifier in 2007.
    In other cases, identifiers met format requirements, but 
still appeared to be highly questionable on their face. 
Prescriber identifier AA with seven zeros after it was listed 
on almost 1.8 million prescription drug event (PDE) records in 
2007, representing more than $100 million in paid claims for 
150,000-plus beneficiaries who were enrolled in almost 250 
different Part D sponsors. In other words, 10 percent of all 
PDE records with invalid prescribers contained this one invalid 
identifier.
    So what can be done to fix the problem with invalid Part D 
prescription identifiers? To start with, we have provided 
invalid identifier data from our report to the Centers for 
Medicare and Medicaid Services. We are also conducting 
additional analysis and have identified specific geographical 
areas with an unusually large number of questionable claims. In 
addition, the OIG will soon issue another report that looks 
specifically at prescriber identifiers on claims for Schedule 
II drugs, like OxyContin, which are highly susceptible to fraud 
and abuse activity.
    In terms of the systemic changes, OIG recognizes the 
difficult balancing act CMS faces in trying to ensure 
beneficiary access to needed drugs while also preventing 
improper payments. Therefore, rather than implementing 
prepayment edits, we recommended that CMS conduct periodic 
reviews to ensure the validity of the prescriber identifiers 
used on the PDE records. CMS could also require sponsors to 
institute procedures that would identify and flag for review 
any Part D claims with invalid identifiers in the prescriber 
identifier field. The success of these intermediate steps 
relies on the appropriate action being taken by CMS, the 
sponsors, and the program integrity contractors when 
problematic claims are identified.
    I would also like to note that this is not the first time 
the OIG has identified vulnerabilities related to invalid 
identifiers. In July 2008, I testified that invalid identifiers 
were also an issue on claims for durable medical equipment, 
such as wheelchairs and diabetic supplies, covered under Part 
B. Specifically, Medicare paid millions of dollars for claims 
that did not accurately identify the physician that supposedly 
ordered the item, including many that listed a deceased doctor 
as the prescriber.
    In conclusion, prescriber identifiers are the only data on 
the Part D drug claim to indicate that a legitimate 
practitioner has prescribed medication for Medicare 
beneficiaries and, as such, serves as an invaluable program 
safeguard. With CMS' agreement to take steps to address the 
findings in our report, we are hopeful that the issues with 
prescriber identifiers are being resolved. However, you can be 
assured that the OIG will continue to monitor the agency's 
progress in this area.
    I would be happy to answer any questions that you might 
have at this time.
    Senator Carper. Good. Mr. Vito, thanks very much.
    I have asked Dr. Coburn if he will just lead off the 
questioning, and he has agreed to do that.
    Senator Coburn. Thank you. I appreciate the privilege. I do 
not know why I have it, but I appreciate it. Thank you.
    Senator Carper. It is because of your good work on the 
improper payments legislation which the House passed yesterday 
and is going to the President and something that we can 
celebrate for----
    Senator Coburn. We have been working on it for 6 years.
    Senator Carper. A long time. Good work.
    Senator Coburn. Several reports outside of the government's 
reports estimated Medicare and Medicaid fraud at $80 to $100 
billion. It is really interesting to me that the government 
estimates it at far less. So the question I have is: Given that 
the private insurance industry has about a 1-percent fraud 
rate, why do we have a pay-and-chase system? Ms. Taylor.
    Ms. Taylor. Well, I believe part of the reason is--and we 
do a lot up front to ensure that providers coming into the 
system are legitimate as they do the enrollment. But we are a 
system that is any willing provider, so if a provider has a 
legitimate State license, we must allow that person to 
participate in Medicare----
    Senator Coburn. I am not talking about participation. I am 
talking about payment of a claim. Why do we pay it and then 
chase it if it is erroneous? Why don't we certify it 
beforehand? In other words, there are statistical models out 
there and programs that look for abnormalities in claims. Are 
these models being used by HHS?
    Ms. Taylor. We have a system that does utilize edits up 
front. We have medically unbelievable edits. We have unlikely 
edits. We do have, correct coding initiatives that look for 
diagnosis with an incorrect code. So we do have those up-front 
sort of identifiers that are in the system. We currently are 
looking at commercial software out there that could be added to 
our systems where maybe there are commercial edits that would 
apply to Medicare.
    Senator Coburn. Have you ever gone and sat down with one of 
the large insurance companies and said, ``Show me how you all 
do your proactive fraud''?
    Ms. Taylor. We have talked to.
    Senator Coburn. No. I am talking about you. Have you ever 
sat down and gone through one of the large insurance companies' 
proactive fraud detection programs?
    Ms. Taylor. I have talked to a plan sponsor----
    Senator Coburn. OK. I am going to ask the question again, 
and I am not trying to be combative.
    Ms. Taylor. Right.
    Senator Coburn. Have you personally sat down and gone 
through a proactive fraud detection program by one of the large 
health insurers? Gone through it so that you see how it works.
    Ms. Taylor. No, I have not.
    Senator Coburn. Would you think that would be a good idea 
since their fraud rate is markedly less than yours?
    Ms. Taylor. I would agree and I do think, we should be 
doing more of that, and I can take that and do that. I do want 
to explain, though, that in Medicare we have different rules 
than some of the commercial. They do a lot of prior 
authorization of claims. We do not do that--prior authorization 
of services prior to services being rendered and claims paid. 
So we do have a different type of system where they do an up-
front validation before the service and claim is ever even 
provided or submitted.
    Senator Coburn. Well, on large items they do.
    Ms. Taylor. Right.
    Senator Coburn. But on small items, on the vast majority of 
Medicare Part B, which are small items, other than the DME 
product, they do not. I do not have to have permission from 
Blue Cross/Blue Shield to see a patient in my office if they 
have a valid card. And that is a large portion--I know it is 
not the hospital-based, I am really just talking interaction.
    You said that all 35 you have taken action on or have 
begun. Which ones--how many have you begun action on but not 
completed of the recommendations?
    Ms. Taylor. I do not know that number exactly.
    Senator Coburn. That is a real important number for us to 
know. Would you supply to the Subcommittee the ones that you 
have actually taken and finished the action on the others that 
you are taking actions and what steps you are taking? It does 
not have to be in detail, but so we see where you are.
    Ms. Taylor. I can absolutely do that. I do want to stress, 
though, that much of the errors we are identifying are the 
harder ones to fix, meaning on the face of the claim the 
service and the payment looks absolutely valid and necessary. 
It is not until you get into the underlying medical records 
that you find that possibly progress notes are missing, a 
physician did not, in fact, order the service, there is no 
signed order from the physician. So it becomes very much human 
error within the medical record that is creating much of these 
errors, and that is very, very difficult to stop and to 
identify a real solid corrective action. It is really doing 
education and outreach with providers on what is necessary to 
be inside the medical record to support----
          INFORMATION SUPPLIED FOR THE RECORD FROM MS. TAYLOR
    From the demonstration project 58 ``vulnerabilities'' were 
identified. The GAO reported in March 2010 that CMS took action on 23 
of the 58. CMS has initiated several corrective actions for the 35 
vulnerabilities identified by the GAO that had not been addressed when 
the GAO conducted their review; since that time, three of the 
outstanding vulnerabilities have been addressed, 22 are on track for 
completion within 6 months, eight are likely to take up to a year to 
correct, and two are on hold pending law enforcement investigations. In 
response to the identified vulnerabilities, corrective actions CMS has 
taken to date include:

      Education to providers at various nationwide outreach 
events. Provider outreach occurred in all 50 States to discuss what 
documentation providers need to submit to support their claims;
      Education to our claims processing contractors during RAC 
Vulnerability Calls;
      Approval of continued review in the National RAC program 
for those vulnerable areas that cannot be addressed and corrected 
through proactive automated system edits (CMS gave RACs the approval to 
review on August 6, 2010);
      Publication of a Medicare Learning Network educational 
article on July 12, 2010 emphasizing the importance of medical record 
documentation and submission of documents timely;
      Publication of a Medicare Learning Network educational 
article published on September 23, 2010 on hospital billing codes and 
the importance of submitting documentation and quantifying the correct 
principal and secondary diagnoses and the correct procedure codes for 
billing purposes; and
      Publication of a Medicare Learning Network educational 
article published on September 23, 2010 concerning medical necessity 
review.

    Senator Coburn. You know the best way to educate me as a 
physician to do it right? Not pay me. I guarantee you the next 
time I will get it right.
    Do you have sufficient sanction authority that you need 
with which to make corrective actions when people are not 
compliant with the record?
    Ms. Taylor. We do not have sanction authority.
    Senator Coburn. In other words, you cannot limit somebody's 
ability to participate in Medicare if they are not complying?
    Ms. Taylor. All we can do is flag their claims for pre-
payment review. That I believe was with the OIG, any exclusion 
or sanction.
    Senator Coburn. Well, do you think it would be important 
that you could have sanction on individual providers who, in 
fact, do not comply with the rules under which you say they 
have to operate?
    Ms. Taylor. That would maybe be helpful, yes.
    Senator Coburn. I guarantee you, when I send a claim to 
Blue Cross/Blue Shield, if it is not backed up, I do not get 
paid. And then I ask why I am not getting paid, and they say, 
``You did not comply.'' So either I comply and they pay me, or 
I do not comply. If I do that multiple times, guess what? They 
sanction me. They will not let me provide benefits to their 
insurer.
    Do any of our panelists have any thoughts on what they 
think we ought to do to limit the improper payments, just 
general thoughts, improper payments that are occurring in 
Medicare and Medicaid outside of the recommendations of the GAO 
report on what you saw on recovery audits?
    Ms. King. Senator, there is a new program that is beginning 
for competitive bidding for durable medical equipment that 
gives the agency the ability to screen providers ahead of time 
to make sure that they are legitimate businesses, and that 
gives CMS the ability not to take any willing provider but to 
make sure that they are legitimate and that they have the 
financial ability to provide services. That is something that 
we think is helpful.
    Senator Coburn. Would the GAO think it would be helpful to 
give Medicare the ability to provide sanctions on providers if, 
in fact, they were not in compliance with the rules of 
Medicare? I am not talking fraud. I am just saying lack of 
compliance, not having the data there. In other words, do I 
have a responsibility as a provider if I am going to contract 
with Medicare to make sure the available information to justify 
my charge to Medicare is there?
    Ms. King. That is not an issue that we have examined, but I 
can say that CMS does have the ability, as has been said, to 
not pay providers for services that are not provided 
legitimately or that are provided in error, or in the case of 
the RACs, to take payments back. So that is one thing they can 
do.
    When I think of sanctions, I think of that having more to 
do with illegal or fraudulent behavior, and that enters more 
into an enforcement realm. So in terms of official sanctions, 
you would want to think about whether it crosses over into 
something that is abusive or fraudulent.
    Senator Coburn. So your position would be--I am out of 
time?
    Senator Carper. You have had 9 minutes, and we start voting 
at 11 o'clock.
    Senator Coburn. All right. I will yield back.
    Senator Carper. If you would.
    One thing I want to just follow up on Dr. Coburn's 
questions is this issue of pay and chase, which is not 
something I have thought a lot about until actually this 
hearing today. But I am told Peter Tyler, who is sitting over 
my left shoulder, says that the new health care law gives CMS 
some new authority to stop pay and chase, and it requires CMS 
to stop payments if there is credible evidence of fraud. And as 
I understand, this is a significant change.
    Would you just respond on the record, Ms. Taylor, as to 
what you are all going to do with that authority?
    Ms. Taylor. I believe we are still drafting regulation on 
that authority, so I really cannot speak to it right now.
    Senator Carper. I am asking you to respond on the record 
what you are going to do with that new authority. All right. 
Thank you.
    Senator Coburn, it sounds like they may have some new 
authority here. We will find out how they are going to use it.

          INFORMATION PROVIDED FOR THE RECORD FROM MS. TAYLOR
    The Affordable Care Act (ACA) provides CMS with many new 
authorities to combat waste, fraud, and abuse in Federal health care 
programs. These new authorities offer more front-end screening and 
enrollment protections to keep those who are intent on committing fraud 
out of the programs in the first place, and new tools for deterring 
wasteful and fiscally abusive practices, identifying and addressing 
fraudulent payment issues promptly, and ensuring the integrity of the 
Medicare and Medicaid programs. CMS is pursuing an aggressive program 
integrity strategy that better incorporates fraud-protection activities 
into our claims payment and provider processes where appropriate, with 
the goal of preventing fraudulent transactions from ever occurring, 
rather than simply tracking down fraudulent providers and chasing fake 
claims. CMS also now has the flexibility needed to tailor resources and 
activities in previously unavailable ways, which we believe will 
greatly support the effectiveness of our work.
    On September 17, CMS put on display proposed rule CMS-6028-P that 
details the initial steps the Agency is taking to implement certain 
provisions in the Affordable Care Act, including new provider 
enrollment screening measures and requirements, new authority to issue 
a temporary moratorium on enrollment for areas at high risk of fraud in 
our programs, and authority to suspend Medicare and Medicaid payments 
for providers or suppliers subject to credible allegations of fraud. 
This proposed rule builds on existing authorities and on earlier 
rulemaking that implemented the Affordable Care Act requirement for 
physicians and other professionals who order or refer Medicare-covered 
items or services to be enrolled in the Medicare program.

    Senator Carper. OK. From Minnesota, welcome, Senator 
Klobuchar. Thanks for joining us.
    Senator Klobuchar. Well, thank you very much, Senator 
Carper. Thank you for inviting me to be part of this 
Subcommittee for the purpose of this hearing. I am not actually 
on this Subcommittee, but I have a great interest in this issue 
due to my work on Judiciary, where Senator Coburn also serves, 
as well as my former job as a prosecutor where we prosecuted a 
number of cases in this area. I am glad that you are back to 
report on some of the work that has been done since our last 
hearing a few months ago. When I say the numbers myself, I 
always think I get the million wrong over the billion, but $60 
billion a year in fraud to taxpayers for Medicare, as we know, 
is just simply unacceptable. And every time I say that, I think 
it is million, and I am wrong. It is billion.
    The recently released OIG report confirmed just that, one 
of the most basic oversights ensuring that a drug was 
prescribed by a doctor is not operating effectively. Medicare 
drug plans and beneficiaries paid pharmacies $1.2 billion in 
2007 for more than 18 million prescriptions that contained over 
500,000 invalid prescriber numbers. What is almost even most 
shocking is that the invalid prescriber identified, which is 
AA0000000, accounted for $105 million in paid claims. That is a 
lot of money for AA0000000. So I think that just gives us the 
example of the enormity of what we are dealing with here.
    I guess I would start with you, Ms. King. Your report noted 
58 vulnerabilities identified through the pilot program 
representing $303 million in overpayments. However, the CMS 
only addressed 23 of these vulnerabilities, leaving the 35 
vulnerabilities, which I think accounted for $231 million in 
overpayments, still awaiting action. Was there a reason to 
address only some of the identified overpayments?
    Ms. King. I do not think there was a specific reason. I 
think there were some issues in which there were problems with 
categorization. There were some issues where it was hard to 
tell what the problem was. But there was not always a reason 
why they were not addressed.
    Senator Klobuchar. Do you think you will go back and look 
at them or see if they----
    Ms. King. We do not have any ongoing work looking at the 
RACs, but, I think CMS has testified that they are working on 
them.
    Senator Klobuchar. OK. Mr. Vito, in your testimony, you 
made recommendations to CMS for subjecting invalid identifiers 
to further review. It is alarming that just 10 invalid 
prescriber identifiers account for 17 percent of all the 
invalid prescriber identifiers. And when I saw this, I thought, 
Shouldn't there be some kind of flagging system in place? And 
if so, can you describe how your recommendations would add to 
what is already in place?
    Mr. Vito. Well, I think the first thing is that CMS has 
determined that they want the beneficiaries to be able to get 
the prescriptions that they were given. So with that in mind, 
we understand the balancing act that they have to do. But we 
are suggesting that CMS start looking and doing work in this 
area to ensure that the claims that come in have valid IDs on 
them.
    In addition to that, we are saying that CMS should remind 
the sponsors or make the sponsors first identify all these 
invalid prescriber IDs and then review them to ensure that they 
do not keep coming up. When you see $100 million, $100 million 
as a regular doctor would cause people to be very concerned. It 
is just the volume of the claims. And the issue really is that 
you do not know if the claim is a good one or a bad one until 
you do more work. It could be that, they just put a number in 
and they are using that. But you will not know that until you 
actually go into doing all the work, going back into it and 
getting the information.
    So for us, it is so much more valuable to prevent it up 
front and to stop it right at that time and make sure that the 
information is correct.
    Senator Klobuchar. That it is correct.
    And, Ms. Taylor, what do you think about his 
recommendations?
    Ms. Taylor. We actually agree with all the OIG 
recommendations. We actually have looked at what is going on in 
2009. We were troubled by seeing some entities with a 
preponderance of invalid numbers. We did have discussions with 
them. What we are seeing now is a trend that the pharmacies and 
the sponsors are using the National Provider Identifiers 
(NPIs). I think in the early days of the program there was 
confusion as to whether or not those numbers should be 
protected. And so, I think we have clarified that, but because 
they were DEA numbers, people thought they needed some privacy 
or protection to them. Some sponsors told us they just put in 
fictitious numbers rather than putting in the actual number. We 
told them they need to use the NPI. And we are starting to see 
about 75 percent of the claims now in the PDE database coming 
in with NPI numbers rather than, these DEA numbers.
    Senator Klobuchar. So do you think some of this is not 
really fraud, it is just them putting in any number? Is that 
what you are saying?
    Ms. Taylor. We believe that may be part of the reason. They 
just put in a number rather than trying to look up for a valid 
number.
    Senator Klobuchar. Because they know they are going to get 
paid.
    Ms. Taylor. Correct.
    Senator Klobuchar. Of course, that also leads to a lot of 
fraud, I would think.
    Ms. Taylor. Right. I mean, so we have several efforts 
underway now. We are looking at what is going on in 2009. We 
are going to validate those NPI numbers. We do want to 
understand if there is a systemic reason for why they cannot 
get to a valid number. If there is a problem with systems or 
look-up tables, we need to work on that. But we also want to 
and have started dialogue with those who seem to be not 
following our guidance, and we will be discussing that and 
telling them to cease and desist, that they need to do actual 
look-ups for valid numbers on the PDE claims.
    Senator Klobuchar. So what do you think has been the 
greatest--we just passed this bill. There are major fraud 
components in there, and I know it was just a few months ago, 
but, --since we had our hearing 4 months ago, or since Senator 
Carper did. What would you say have been the greatest 
improvements? And do you think you see a difference in the 
money that is being saved already?
    Ms. Taylor. I think it is probably too early for me to give 
you an answer on that. We are still looking into it. But I do 
think that the plans understand we are looking and that the 
oversight is going to be much harder, and we will be 
scrutinizing the information they are giving us.
    Senator Klobuchar. When is the first time you will know if 
there has actually been savings?
    Ms. Taylor. Maybe by the end of the year. I am not really 
sure.
    Senator Klobuchar. OK. Anyone else have any other examples 
of changes that you think have been significant? Nothing? So 
those have to be made soon. That is what we are going to do, 
right?
    OK. Very good. Well, we will be looking forward to--we are 
continuing to work on legislation and pushing things. I think 
what really counts here is the numbers and those cost savings, 
which are going to be very important to taxpayers. So thank 
you.
    Senator Carper. Thanks a lot for joining us today. The 
welcome mat is always out for you.
    Senator Klobuchar. Thank you.
    Senator Carper. A first question for Ms. Taylor, if I 
could. I think three points are especially clear from your 
testimony.
    First, you and CMS have recognized the importance of 
curbing waste. We are talking about a program where we are 
spending about $460 billion this year, and the amount of waste 
that has been identified ranges anywhere from $36 billion to, I 
think, $60 billion. Senator Coburn suggests it is higher than 
that. But we are talking about something in excess of 10 
percent of the amount of money that we are spending is going in 
what many would describe as waste or fraudulent spending. And 
as pleased as I am that we are focused on that and beginning to 
drill down and address it more comprehensively, that is still a 
huge amount of money. But there is a huge upside there in 
reducing fraud. So we are pleased that you are focusing on 
this.
    Second, we learned a lot from the Recovery Audit 
Contracting demonstration program that can apply toward the 
current program as well as the next expansions that are taking 
place right now. That is good.
    Third, the Recovery Audit Contractor program has proven 
itself capable of not only recovering payments, but almost as 
important in identifying vulnerabilities that can lead to those 
overpayments. I think your testimony used the word ``success,'' 
and overall I think the Medicare program deserves credit for 
increasing the level of priority for recovery auditing in order 
to ensure that the current program is successful. And with the 
signing by the President in a week or two of the improper 
payments bill, we are going to take what you are doing here in 
recovery for Medicare Parts A and B and extend to other parts 
of our government. So that is good.
    Of course, under the recently enacted health care reform 
bill, the Recovery Audit Contractor program will expand, as I 
suggested, to Medicare Advantage, Part C, Medicare prescription 
drug, Part D, and to Medicaid. I think the deadline for 
completing this expansion is this December 31st. I believe it 
is very important, considering the success of the Medicare 
Recovery Audit Contracting demonstration and current program, 
that the expansion stays on track, including meeting the 
expansion deadline of December 31st.
    Will we see the expansion by the end of this year of the 
Medicare Recovery Audit Contracting program to all of Medicare 
and to Medicaid as is required by this new law?
    Ms. Taylor. Yes, so we are in, still planning and early 
stages of how we would expand it into the Medicare Advantage 
arena as well as the Part D program. We have some ideas 
specifically in the drug area where we think recovery auditing 
would be very valuable, such as validating the drug rebate and 
price concessions data. We think that would be very valuable to 
us. So we do have, some ideas there.
    Part C, a little tougher. We know that risk adjustments are 
something we have had problems with. We currently are already 
doing some audits in that area, but we want to explore a little 
more about some opportunities for expansion of recovery audit 
in Part C.
    For Medicaid, a little bit tougher, meaning there are 56 
different programs in Medicaid. We know that it is not free to 
bring up a recovery audit even if it is with--pays for itself 
eventually. It does require contracts. It does require 
resources. And some State legislature may not be in positions 
to give States money to seed that recovery auditing.
    So we are looking a little harder at Medicaid. I can say 
that we will do everything possible to be ready to bring it up, 
expand it in all three of those programs. I think Medicaid is a 
little bit tougher for us, just given the States' timing and 
the 56 very unique programs.
    Senator Carper. I understand that what we have asked you to 
do is not easy, and what we have asked you to do is hard, and 
especially with Medicaid. But I would just urge you and your 
colleagues to give this everything you have. There is a lot of 
money at stake here, and we just need your very, very best 
efforts. And we also need--if there are things that we need to 
be doing here on the legislative side, you need to tell us 
that, and we would do our best to try to be supportive.
    A question, if I could, Ms. King, for you. The GAO 
testimony that you have offered describes, I think, a great 
opportunity provided by the Recovery Audit Contracting program. 
Not only has the program recouped about $1 billion over a 3-
year period, but it identified vulnerabilities that can lead to 
future overpayments, and we talked about some of this today. 
However, the GAO audit in today's testimony points out that not 
all the recovery audit contractor overpayment vulnerabilities 
have been addressed by CMS. And, again, we have a chart, I 
think, that shows how much progress has been made right over 
here. Blue is good, corrective action taken on 23 out of the 58 
areas. It is about 40 percent of the areas identified. Sixty 
percent, 35 items. And let me just say--and Ms. Taylor 
mentioned, she said, ``We have already started working on the 
other 35,'' which is good. ``We have completed some of them,'' 
which is good. But I would just ask of you, Ms. King, has there 
been progress in your view since the audit was completed? When 
was the audit completed?
    Ms. King. We finished our work in March of this year.
    Senator Carper. OK, so it was about 3 months ago. Has there 
been progress since the audit was completed that you are aware 
of? And how many of the 35 items that had not been addressed as 
of March have been addressed today?
    Ms. King. Senator, I am afraid I cannot answer that because 
we have not done any work on the issue since then.
    Senator Carper. OK. I am going to ask you to answer that 
for the record.
    Ms. King. OK.
    Senator Carper. Just answer that one for the record if you 
could.
    Let me go back to you, Ms. Taylor. I understand from my 
staff that some of your folks from your office prepared some 
documents describing some of the progress in addressing the 
vulnerabilities identified by the recovery audit contractors, 
and I appreciate your providing those statements. My staff also 
tells me that the documents show--I should not say ``my 
staff.'' It is Subcommittee staff. Subcommittee staff tells me 
that documents show that CMS has a system in place, I think a 
database, to track the reported vulnerabilities, and I think 
that is one of the recommendations that GAO made. Is that 
correct?
    Ms. Taylor. Yes, sir.
    Senator Carper. Thank you. Let me just ask, Ms. Taylor, if 
you could, could you describe further for us the process that 
has been in place for the current program to address all the 
identified vulnerabilities. Just talk to us about how you are 
doing that. And do you have a timeline for when you think all 
the vulnerabilities of the identified thus far will have been 
addressed?
    Ms. Taylor. Sure. The way we track vulnerabilities is there 
is a data warehouse where vulnerabilities are--or denied claims 
are run through. What it does is it cumulates those so that we 
can see by provider and by provider type what are some repeated 
vulnerabilities, and it allows us to lump them together. We put 
as major vulnerabilities anything where overpayments are 
identified in the cumulative total of over $500,000. So that is 
how we are tracking and identifying the major vulnerabilities.
    Right now my office is directly responsible for the day-to-
day monitoring and reporting out of that data warehouse. To the 
extent I have to reach out to colleagues across CMS to develop 
corrective actions, that is what I do. But if we need to 
elevate things, meaning there are vulnerabilities that require 
policy and systems changes as well as possibly national 
coverage decision changes, that may involve someone at the 
Office of the Chief Operating Officer to get involved. But at 
this point, most of it is managed in my office on a day-to-day 
basis. I cannot give you an exact date of when I think we will 
resolve all the vulnerabilities. I think the fair answer there 
is some are easy to fix, meaning it is a systems edit that we 
can put into place.
    For example, we had an issue with a drug where we were 
paying for a claim even though the dosage was too high and 
likely not to be reasonable. So we were able to put an edit in 
place to stop that drug from being paid at too high of a 
dosage.
    Other things require policy changes which may require us to 
do legislative changes. It also can require us to do lots of 
education and outreach with our providers to understand what 
the documentation requirements are for the medical record.
    Senator Carper. I see. So if I understand it--in my 
question, do you have a timeline for when all the identified 
vulnerabilities of the current program will be addressed? And 
the answer is, ``Really we do not.''
    Ms. Taylor. I do not have a timeline, mostly because many 
of the underlying issues require us to continue to do education 
and outreach. The only way to find problems is to look at 
medical records. It is not evident on the face of the claim. It 
is very difficult to find. And it is constant repeated 
reviewing of medical records and having education and outreach 
with physicians.
    I will say that as an outgrowth of the recovery audit 
program, a lot more providers are doing compliance programs 
themselves where they are actually having compliance auditors 
and programs in-house looking through their own medical records 
to ensure that they are following our policies. So that is 
something where, we are seeing some positive impacts there.
    Senator Carper. My father used to say that the work expands 
to fill the amount of time we allocate to do a particular job. 
And I find it helpful for myself and for my own staff in other 
roles that I have held to set timelines. And I think a timeline 
could be helpful here as well. You all have addressed 40 
percent of the vulnerabilities. That is good. We have 60 
percent to go, and maybe some of those have already been 
addressed. And I am going to ask you to respond for the record 
what is a reasonable timeline, and I would like for it to be 
aggressive.
    Ms. Taylor. OK.
    Senator Carper. I do not want, 5 years from now or 4 years 
from now or 3 years. I want it to be aggressive.
    Let me just ask Ms. King, in terms of a timeline, is it 
important? What is a reasonable timeline for getting most of 
this stuff done?
    Ms. King. I do not know that we have an exact date that we 
think that it should be accomplished, but we do think it is 
important to set timely goals for achieving it.
    Senator Carper. All right.
    Ms. King. And, as Ms. Taylor pointed out, some things are 
more complicated than others, and some things are under appeal. 
So you have to take different factors into consideration, but 
we think it is important to press forward and to establish a 
timeline.
    Senator Carper. And as I said earlier, if there are some of 
these vulnerabilities that need some legislative action, you 
just need to come back and lay that out for us, and we will see 
what we can do and work together.
    Mr. Vito, we are going to have a vote here in just a 
minute. I do not want to let you get away without being asked 
some questions. In fact, this is probably the vote starting 
right now. We very much appreciate your being here today and 
the good work that you and your folks do.
    Mr. Vito. Thank you.
    Senator Carper. I think your audit has pointed out an area 
that Medicare needs to pay a lot more attention to, and you 
have described to some extent the importance of prescriber 
identifiers and ensuring that prescriptions are valid and 
also--but I am going to ask you to drill down on it a little 
bit more. Do you believe that the same validation process has 
impacts on other parts of Medicare, such as with fee-for-
service?
    Mr. Vito. OK. We have identified the invalid prescriber 
problem in both the Part B area and the durable medical 
equipment and in the Part D area for prescription drugs. We 
believe that it is very important that this information be 
there. I could give you an analogy. This would be similar to 
placing a combination lock on the gate to protect what is 
inside, but then allowing any combination to open the lock. 
This leaves whatever is behind the gate vulnerable, just like 
accepting invalid prescriber IDs on Part D claims leaves the 
program vulnerable to fraud, waste, and abuse. And when you do 
not have this information, there are many things you--when you 
look at it, there are three main controls: First, that the 
beneficiary is eligible for the Medicare program and is 
enrolled; second, that a supplier has enrolled with the program 
and meets the Medicare standards; and third is that the 
physician actually wrote the prescription.
    So that is one of the main controls. If you cannot tell 
that a prescription actually--that a physician--you cannot tell 
who it is that actually wrote that prescription, it makes it 
very difficult for you to do a lot of program integrity work.
    Senator Carper. When you say ``you,'' who is ``you'' ?
    Mr. Vito. Anyone who is doing program integrity work. It 
makes the Medicare Drug Integrity Contractors (MEDICs), it 
makes CMS, it makes the OIG. Without knowing that, you cannot--
normally what is done is you do aberrancy analysis. You lay out 
all the claims, and then you see who the prescribers are that 
are hitting the higher levels. In this case, when you have an 
invalid number you really do not know who that prescriber is, 
and you have to go back and look at it. You do not know if that 
prescriber, is licensed. You do not know if they had actions 
taken against them. You do not know if they saw the patient 
before they actually wrote the prescription. There are many, 
many things that you do not know. You do not know if they can 
write a prescription for controlled substances.
    So this is a very valuable key, and the only way you are 
going to find out if this information--if the claim is good, 
you have to do more work, and that takes a lot of effort. And 
that is why we are thinking that if you put this information up 
front, then you will be stopping the problem before you have to 
go on the back end to look at it and figure out what is going 
on.
    Senator Carper. Do we have a chart that speaks to this?
    If your eyes are pretty good, you can read this, folks. But 
if they are not, I will help. We are looking at PDE--PDE stands 
for?
    Mr. Vito. Prescription drug event data.
    Senator Carper. All right. Prescription drug event data. 
Records and payments for the top 10 prescriber identifiers in 
2007. And on the left-hand column, we are looking at invalid 
prescriber identifiers. In the middle column, we are looking at 
the number of PDE records for invalid identifiers, the number 
of records for invalid identifiers. And then on the right-hand 
side, we are looking at the payments to invalid identifiers. I 
think you mentioned the first one in your testimony. And the 
invalid prescriber identifiers, AA, and then there is like 
about five or six zeros after that.
    Then you come on down, and some of them have a lot of 1's 
in their identifier number, then a lot of 5's, but it adds up 
to a lot of money. And this is just 1 year? This is the top 10?
    Mr. Vito. 2007.
    Senator Carper. I suspect that this is not all fraudulent 
or improper payments, but my guess is some of it might be, and 
we really do not know.
    Mr. Vito. The only way you are going to know is when you do 
the work to find out what is really behind that, and that is 
the key, that if you are able to put edits up front, like you 
are trying to stop it at the very early stage, then you do not 
have to do all the work on the back end, because as Ms. Taylor 
said, some of this could be that the plans are putting in just 
certain numbers or dummy numbers. But you do not know if that 
is masking other problems that are underneath that until you 
actually do the work.
    Senator Carper. This might be an obvious question, but are 
there some simple things that we could do to really perform 
checks on the identifiers?
    Mr. Vito. Yes, I think there are, like in 17 percent of the 
cases, we knew that the actual format did not match. You know, 
if it was a DEA number, you had nine numbers in it. If you had 
an NPI, it was 10 numbers. If you do not have that exact 
number, right off the bat they could have stopped the problem 
for about $200 million because these were ones that did not 
meet the format requirements at all.
    So, I mean, at the very easiest stage, when you see that 
coming in, right off the bat there is something wrong there, 
and you should say, OK, there is something wrong here, we need 
to check into it and we need to address it, make sure it does 
not happen again.
    Senator Carper. Do you know if CMS has data, say, for 2010 
in terms of the number of PDE records that include the top 10 
invalid identifiers? Do you know that?
    Mr. Vito. I do not know if CMS has that information. It 
would be better if you would ask them. We do know that medics 
have been doing some analysis, the Medicare drug--they have 
been actually looking at this and identifying some of these 
numbers. And I believe according to the information we have 
received from them, there is a movement away from the DEA 
number towards the NPI number. But the question also is: When 
we did our work in 2007, we found that there were NPI numbers 
that were invalid as well. Are there going to be invalid 
numbers in the NPI system? Just because they are moving to a 
system where it is one uniform identifier, that does not mean 
that there might not be these problems still. So I think they 
still need to be vigilant in that area.
    Senator Carper. OK. We are well into our vote. I am going 
to just take about 2 more minutes, and then I am going to run 
and vote, and we will recess until I have voted, and I will 
come back as quickly as I can, probably within 15 minutes.
    I want to stay on this issue for a bit longer and, Ms. 
Taylor, just ask you to talk to us about this situation. And, 
again, what are we doing about it? How serious are you all 
taking this?
    Ms. Taylor. Sure. We obviously take this very seriously, 
and we are not happy that there were invalid numbers, certainly 
dummy numbers that on the face of the claim were not valid to 
begin with. I think Mr. Vito has alluded--we have asked our 
contractors for some of these top 10 to go back to the entity 
and find out why they were putting those numbers in there. We 
certainly are focused on the high-risk claims, meaning those 
where controlled substances were part of the claim. We will 
work closely with the IG if we find any real underlying issues. 
We believe that because it was in the beginning of the program, 
there may have just been a misunderstanding of whether or not 
they could put the DEA number on the face of the PDE claim. 
Some of the sponsors have told us they thought that was a 
protected number, that they would not be allowed to put it on 
the claim. So we certainly want to work and figure out what is 
going on there.
    Again, we have seen a substantial shift moving away from 
the DEA number to the NPI. We are going to be looking at the 
2009--we do not have all of 2010 yet, but we will look at 2010 
also to see whether or not, we are just substituting invalid 
numbers from DEA to NPI. We want to understand that. We want to 
be able to give these plans and pharmacies information and 
guidance about how to get to a valid NPI number. We do not know 
if there is a systems issue. We do not know if all pharmacies 
and plan sponsors have the ability to get into the NPI 
database. We do not know if there are problems with slowness of 
the database, whatever. So we want to figure out what is 
causing some of the underlying reasons why they are just 
putting a number on there.
    I think Mr. Vito and certainly the CMS concern is we do not 
want beneficiaries standing in front of the drug counter not 
being able to get needed and necessary drugs. So we always 
weigh that balance of making sure we get the valid information 
on the claim, but not holding up beneficiaries from getting 
their needed drugs. So we do not want to stop that. I think the 
issue here is we need the pharmacies and the sponsors to then, 
even if they give the information out because the system is 
slow or whatever, the drugs out, they still go back and 
validate the number, they do not leave it as a fake number on 
the PDE. We absolutely do not want that.
    And we are absolutely going to be working directly with 
those who seem to not want to follow our guidance and figure 
out whether or not we can take some actions. We certainly will 
tell them cease and desist, we will be watching you. But what 
further actions we can take on their behalf, I mean, we will 
absolutely be looking at that.
    Senator Carper. All right. Again, our thanks to each of you 
for being here today and for your testimony and for your 
responses. We are going to do a lot of oversight and follow-up 
on this. There is real money to be saved here. We have a 
Medicare Trust Fund that has somewhere between--I do not know--
10, 15 years of life left in it, and we need every dollar--it 
needs every dollar that we can save.
    It appears to me that roughly one out of every seven or 
eight dollars that is being spent in Medicare is being spent 
wastefully or fraudulently. And we have a pretty good idea 
where some of that is coming from, and obviously work has begun 
to identify those and correct it and recover money where we 
can. But when you have a trust fund that is running out of 
money in the next 10, 15, or 20 years and we know that one out 
of every seven or eight dollars is being misspent, fraudulently 
spent, there is a good way to stretch the life of the trust 
fund without raising anybody's taxes. I appreciate the work 
that is being done here. Let us keep it up. As I said earlier 
on, one of my core values, if it is not perfect, make it 
better. And while we are doing better, we can still improve, 
and we need to. So thanks very much.
    We will stand in recess for about 15 minutes, and I will 
hustle back as quickly as I can for the second panel. Thanks 
very much. [Recess.]
    The Subcommittee will reconvene. Welcome. Thanks for 
hanging in here. We were voting. If you want to know what we 
were voting on, we were voting on what we call a cloture 
motion. That is to see whether or not we will proceed to a vote 
on the conference compromise that has been worked out on 
financial regulatory reform legislation. So we need 60 votes to 
proceed to the vote on the conference report, and we will find 
out probably by now whether we got the 60 votes. I think we 
did, but we will see.
    I want to introduce our panel of witnesses. Our first 
witness, I am told, is Libby Alexander. Is Libby short for 
Elizabeth?
    Ms. Alexander. Yes.
    Senator Carper. OK. Chief Executive Officer of Connolly 
Healthcare, Connolly, Incorporated. Where are you all located?
    Ms. Alexander. Wilton, Connecticut.
    Senator Carper. OK. And I understand you provide recovery 
audit contracting services under Medicare. OK. Thank you.
    Our next witness--this is kind of a nice--I am always after 
my staff, when we have names that are just names you do not 
hear every day, I ask them to spell it out phonetically, and 
they said that your name is Lisa Im, ``rhymes with Kim.'' Is 
that right?
    Ms. Im. That is correct.
    Senator Carper. Pretty good. Chief Executive Officer of 
Performant Financial Corporation. I understand you are 
headquartered in--is it Livermore?
    Ms. Im. Yes.
    Senator Carper. Livermore, California. I used to live in 
Palo Alto, in Menlo Park, right across the bay, when I was a 
naval flight officer. It is nice to have you here. And we 
understand that your company, Performant, also performs 
recovery audit contracting for Medicare.
    Ms. Im. Yes. Region A.
    Senator Carper. What is that, Region A?
    Ms. Im. Region A is the Northeast.
    Senator Carper. OK. Thank you. Does that include Wilton, 
Connecticut?
    Ms. Im. Yes.
    Senator Carper. OK. Thank you.
    Our next witness is Andrea--it says ``Bank-o.'' But your 
name is spelled B-E-N, like my son's name is Ben, and we call 
him Ben, but is your name pronounced ``ban''?
    Ms. Benko. No. Benko, just like----
    Senator Carper. Benko, thank you. All right. President and 
Chief Executive Officer of HealthDataInsights, Incorporated. I 
am told that you are based in Las Vegas, Nevada.
    Ms. Benko. Correct.
    Senator Carper. OK. And that you also provide recovery 
audit contracting under Medicare. I just spoke with Harry Reid 
when I was over on the floor a few minutes ago. He said, ``Be 
nice to the witnesses from Nevada.'' [Laughter.]
    Our next witness is Robert Rolf, Vice president of CGI 
Federal. CGI is based in Montreal, Quebec, and provides 
recovery audit contracting services under Medicare throughout 
Canada. Is that right? [Laughter.]
    Mr. Rolf. Senator, our U.S. headquarters is in Fairfax, 
Virginia.
    Senator Carper. All right. What part of the country do you 
all cover?
    Mr. Rolf. We cover Region B, which is seven States in the 
Midwest, and that work is performed out of Cleveland, Ohio.
    Senator Carper. OK. And our fifth and final witness is 
Romil Bahl--is it ``Ra-mill''?
    Mr. Bahl. It is ``Row-mill.''
    Senator Carper. Is the emphasis on the first or second 
syllable?
    Mr. Bahl. If you actually do not emphasize either side of 
that, it works better.
    Senator Carper. It works. Romil. And your last name is B-A-
H-L, but it is pronounced ``ball'' like in baseball. Is that 
right?
    Mr. Bahl. Close enough again. Thank you, Mr. Chairman.
    Senator Carper. All right. President and Chief Executive 
Officer of PRGX Global, and I understand you are based in 
Atlanta, Georgia, and also do Medicare recovery audit 
contracting. What part of the country do you all cover?
    Mr. Bahl. Sir, we have an interesting arrangement with 
three of my colleagues here on this panel, Regions A, B, and D. 
So we are actually serving about 11 States, Senator, sort of 
holistically on our own, and then we have roughly 24 other 
States that we provide other services to, for example, in the 
DME area and home health.
    Senator Carper. OK, good. We are happy that you are here, 
and you have had a chance to listen to the first panel of 
witnesses, and to my colleagues and I ask some questions. Now 
we look forward to hearing your testimony. We value the work 
that you and your colleagues do for our country, and we want to 
make sure that we get the full value out of the work that you 
are doing. As I said earlier, everything I do I know I can do 
better, and I suspect it might be the same is true for your 
folks as well.
    So, again, Ms. Alexander, I am going to ask you to lead us 
off, and we will make your full statement a part of the record, 
and you can summarize as you see fit. Try to stick to about 5 
minutes, each of you, if you would. Thank you.

   TESTIMONY OF LIBBY ALEXANDER,\1\ CHIEF EXECUTIVE OFFICER, 
              CONNOLLY HEALTHCARE, CONNOLLY, INC.

    Ms. Alexander. Chairman Carper and distinguished Members of 
the Subcommittee, thank you for the opportunity to testify 
today on preventing and recovering government payment errors. 
We appreciate your interest in recovery auditing, a best 
practice that is increasingly recognized as an invaluable tool 
for returning improper payments to the government and for 
identifying ways to mitigate future payment errors. My name is 
Libby Connolly Alexander. I am the Vice Chairman of Connolly, 
Inc., and the CEO of Connolly Healthcare.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Alexander appears in the appendix 
on page 77.
---------------------------------------------------------------------------
    Connolly currently serves as a recovery audit contractor, 
or RAC, for the Centers for Medicare and Medicaid Services, 
Region C, the Southeast, and we were one of the three RACs 
during the demonstration program serving in New York and 
Massachusetts. We have also performed recovery audit work for 
the Department of Health and Human Services, the Department of 
Education, and the Defense Logistics Agency.
    Since our founding in 1979, Connolly's sole focus is the 
identification and recovery of improper payments. I personally 
have lived and breathed recovery auditing for the past 25 
years. Our company serves some of the world's largest----
    Senator Carper. What is it like to live and breathe 
something like that for 25 years?
    Ms. Alexander. We have something in common: Our passion for 
this subject.
    Our company serves some of the world's largest and best-run 
organizations in the retail, non-retail, health care, and 
government arenas. We entered the health care market in 1998 
and have since grown to where we now serve commercial insurers, 
Blue Cross/Blue Shield plans, Medicare Advantage plans, 
Medicaid managed care plans, and, of course, CMS. In all, we 
recover nearly $1 billion annually for our clients. Our growth 
has been dramatic, including tripling the number of employees 
over the course of the past 5 years to over 700 today, a 
reflection of the widespread adoption of recovery audit as a 
best practice.
    Most large organizations have created dedicated teams 
assigned to recovery auditing and plan recovery dollars into 
annual budgets. The Federal Government recognized the value of 
recovery audits nearly 10 years ago, and since that time 
strides have been made, with the RAC demonstration program 
perhaps being the best example of how a successful national 
recovery audit program can be.
    As we replicate and build upon the success of the national 
expansion of the RAC program and extend the RAC efforts to 
Medicare Parts C and D and Medicaid, as called for under 
Section 6411 of the Patient Protection and Affordable Care Act 
and now the Improper Payments Elimination and Recovery Act, the 
country should realize recoveries of billions of dollars 
annually.
    So what made the RAC demonstration program so successful? 
And what can we do to build upon it? In our testimony for the 
written record of this Subcommittee, Connolly submitted eight 
recommendations to help the government successfully expand its 
recovery audit efforts. In the interest of time, I will discuss 
only five of them here today.
    No. 1, establish goals. In our 30 years' experience, a 
successful recovery audit program is achieved when there is a 
strong alignment on the metrics against which the success of 
the program can be measured. These goals can be determined by 
examining agency estimated error rates and the success of 
previous recovery audit programs in areas such as outreach, 
transparency, and quality.
    No. 2, executive sponsorship. Since our earliest years of 
conducting recovery audits, we have continually found that 
recovery audits are most successful when there is a champion at 
a high enough level to see that the program gets off the ground 
and continues to see success.
    No. 3, provide proper funding and resources to ensure the 
greatest financial benefit to the government. Agencies need a 
comprehensive program for preventing and recovering improper 
payments, and resources for the audit on the agency side should 
be established prior to the start of the audit. This would 
include resources to assemble audit data and personnel to 
approve audit issues for recovery, to manage the collection 
process, and to handle provider-vendor relations. Over time 
these costs can be funded through a portion of the recoveries 
that flow back to the agencies. But to recover the most 
improper payments possible, funds and personnel should be put 
in place and committed up front to get the program off the 
ground.
    No. 4, institutionalize recovery audit as a comprehensive 
program, not a stand-alone project. By itself, a recovery audit 
project can recover some money for the taxpayers which we all 
can feel good about. But the true value comes from being part 
of a comprehensive program where the agency supports the audit 
and uses its results to make continual improvements. Every 
agency's mission should include a commitment to recapture 
improper payments, support valid overpayments through the 
appeals process, and look for ways to improve the recovery 
audit program going forward.
    No. 5, use the experts. Rely on recovery audit experts to 
conduct audits and provide guidance for rolling out future 
audits under 6411 of the Patient Protection and Affordable Care 
Act. Recovery audit contractors have the people, the tools, the 
technology, the processes, the years of experience, and 
independence to achieve the goals of a program. Agencies should 
focus their resources on the activities necessary to support 
the execution of a comprehensive recovery audit program in a 
timely fashion and on improvements to prevent improper payments 
from occurring in the future.
    In conclusion, Mr. Chairman, recovery auditing for the 
government is a valuable tool in the war chest against fraud, 
waste, and abuse. If an effort is made to align resources and a 
commitment made to recover improper payments, then we will 
continue to see the kind of success that we saw or encountered 
with the RAC demonstration program.
    Mr. Chairman and other Members of the Subcommittee, thank 
you for the opportunity to provide my insights, and I am 
available for any questions.
    Senator Carper. Thanks very much.
    Lisa Im.

 TESTIMONY OF LISA IM, CHIEF\1\ EXECUTIVE OFFICER, PERFORMANT 
                     FINANCIAL CORPORATION

    Ms. Im. Thank you, Chairman Carper, Members of the 
Subcommittee, for inviting me here to testify. As chief 
executive officer of Performant Financial Corporation, I am 
happy to say that for over 33 years we have actually worked for 
Federal and State agencies to help improve their fiscal and 
economic responsibility and accountability. Our first contract 
with CMS began in 2005. We were awarded the MSP demonstration 
project, and while we had California, which was one of the 
three States, we did recover 90 percent of the MSP dollars. We 
have had two other contracts with CMS, and we are currently a 
recovery audit contract for Region A.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Im appears in the appendix on 
page 81.
---------------------------------------------------------------------------
    Since February of 2009, we have invested millions of 
dollars into our own organization to support the recovery audit 
contract. And what we have learned thus far is actually fairly 
consistent with what we know from our work with many Federal 
and State agencies, including Department of Education and the 
Department of the Treasury.
    One, seed money is critical to help an agency prepare for a 
smooth implementation. Budgeting is a critical issue we 
recognize which is addressed in this contract by the self-
funding allowance, but, frankly, more resources were needed up 
front to establish the program infrastructure and assure that 
CMS could dedicate organizational resources to the contract 
start.
    Two, contingency fee structures can be and are very 
effective for recovery audit contracts. Sometimes this concept 
is misunderstood. The parties being audited describe this as a 
bounty when, in fact, it is a widely accepted program commonly 
deployed by private companies, including providers of health 
care. It is one of the best ways to recoup dollars at a value 
proposition because in contingency fee contracting, the value 
actually equals recovered dollars minus the fees. Therefore, 
recovery becomes the lever to drive value. And successful 
recovery contracts in our experience at both the Federal and 
State level are not necessarily low-priced, but they are a 
fixed fee, and so technical competency becomes the decision 
factor in a vendor selection process. And the most successful 
recovery contracts require that vendor partners continue to 
invest in the process to drive greater results over time and to 
provide continuous improvement efforts and feedback to the 
client.
    Third, outreach and education of all constituents is a best 
practice that has been applied to this recovery audit contract. 
Many of these overpayment errors are inadvertently made, but 
still represent billions of Medicare dollars erroneously 
disbursed. To educate and help providers, CMS has urged us and 
we have committed to extend great efforts to create and 
maintain outreach programs to the provider community. There is 
a continuous feedback of learning and education with providers 
that we have committed to.
    Fourth, collaborative efforts between the parties is a best 
practice, and by this I mean due to the newness of this 
recovery audit contract, there should be a spirit of 
collaboration between CMS and the vendor partners, and among 
vendor partners, like us, who are encouraged to provide direct 
feedback to CMS. This process is a discussion loop to try for 
greater consistency and uniformity in processes and enables 
continuous improvement in the contract as it matures.
    Fifth, the recovery audit concept we believe can be 
successfully applied to many other areas of the Federal 
Government, including Medicare Parts C, D, and Medicaid. 
Clearly, there are very unique challenges to each of these 
areas of health care, including disparate technological 
platforms, budgetary constraints at the State levels and 
elsewhere, and differing current practices which should be 
understood and assessed. That said, it is our belief that Part 
D is a fairly intrinsic part of Part A and B claims and can be 
added to this RAC contract. Many government programs, including 
Medicare and Medicaid, employ various types of preventative 
programs. To be fair, CMS has a number of preventative programs 
in order to help guide and educate the provider groups. But as 
an added process, recovery audit contracts can capture dollars 
lost just due to errors.
    As an example, Senator, Medicare processes 1.2 billion 
transactions per year. Provider groups have turnover in people 
or expertise, and there is an inherent difficulty in 
implementing changing reimbursement rules into systems in a 
timely manner. It all causes error that may never be completely 
addressed in a preventative way, irrespective of how strong the 
preventative program is. And that is why recovery audit 
contracts create value to the Federal agency. This kind of 
contracting is often deployed by providers in the health care 
community who also have very strong preventative programs, but 
they also will have a recovery audit kind of process on the 
back end to capture any lost dollars.
    This RAC contract implementation we believe is just 
beginning, but has great potential to succeed in returning 
dollars to CMS. Moreover, we think the application of recovery 
audit contracting across other Federal agencies has very strong 
potential and will be successful if best practices and key 
lessons from contemporaries are applied.
    Chairman Carper, thank you very much for the opportunity to 
testify today.
    Senator Carper. Thank you, Lisa Im.
    And next, Andrea Benko. Welcome. Please proceed.

  TESTIMONY OF ANDREA BENKO,\1\ PRESIDENT AND CHIEF EXECUTIVE 
               OFFICER, HEALTHDATAINSIGHTS, INC.

    Ms. Benko. Chairman Carper, thank you very much for 
inviting me to testify before this very important hearing and 
for your efforts to prevent and recover government payment 
errors. I am president and CEO of HealthDataInsights (HDI). HDI 
is a technology-drive health care services company that 
specializes in claims integrity. Our customers include both 
public and private payers of health care services. The company 
employs sophisticated proprietary software tools, database 
queries, and complex review strategies to retrospectively 
analyze 100 percent of a payer's claims data. We have an 
experienced, robust, physician-led clinical team and quality 
management team who review more than $300 billion in annual 
claims paid data each year. We focus our efforts on the honest 
end of the spectrum of waste, fraud, and abuse; that is, 
overpayments and underpayments due to improper billing and 
other sources of error.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Benko appears in the appendix on 
page 84.
---------------------------------------------------------------------------
    HDI participated in the RAC demonstration program that 
corrected over $1 billion in improperly paid claims. During the 
demonstration we identified 41 percent of the total findings 
while working with only 31 percent of the data. HDI is the 
national RAC in Region D, which includes the 17 Western States 
and three U.S. Territories. We also serve as the payment error 
measurement review contractor, which establishes the error rate 
for the Federal Medicaid program.
    I would like to thank CMS for the progress made to date on 
the implementation of the national RAC program and acknowledge 
the challenges of implementing a program that requires 
cooperation among a vast number of contractors while managing 
the potential provider impact and the quality of the audit 
programs.
    While the national program performance to date has been 
encouraging, there are a number of ways to achieve greater 
success. Based on lessons learned, HDI has the following 
recommendations:
    First, we strongly urge Congress to establish target 
recovery goals of at least 50 percent of an agency's identified 
payment error as estimated in the annual reports. For example, 
based on the 2009 Medicare fee-for-service error rate, the 
annual recovery goal would be $12 billion for this program, 
half of the projected error rate as established by the 
Comprehensive Error Rate Testing (CERT) program of $24 billion.
    Second, claims adjustment processes to recover the improper 
payments identified must be expedited and expanded to 
materially benefit the trust fund. Currently, automated mass 
adjustment processes to adjudicate incorrectly paid claims are 
in development, and until those are implemented, we need to 
increase the manual throughput to accelerate returns to the 
trust.
    Third, expansion of the quality and scope of reviews is 
necessary. To the extent that RACs are allowed to review 
inpatient claims and other new issues more quickly, we believe 
returns to the Medicare Trust Fund will rapidly increase. 
Another issue to consider is the current limitation on the 
ability to request medical records from providers within the 
RAC program.
    Fourth, CMS has conducted major finding discussions with 
contractors to determine strategies to reduce improper payment 
types, and this should be implemented as this recovery program 
is rolled out in all agencies.
    Fifth, Medicare's provider network is a key component to 
the delivery of quality health care, and as such, our efforts 
are sensitive to providers. All constituents of health care 
delivery systems desire claim payment integrity and accuracy. 
Claims should be paid according to policies and fee schedules. 
No more, no less. This creates a sentinel effect of ensuring 
that providers continue to maintain solid billing and treatment 
practices. Medicare policies, coverage requirements, and 
guidelines, which have been so carefully developed over 
decades, are evidence-based, proven protocols for delivering 
patient care that ensure quality.
    Our final recommendation is to leverage the success of the 
Medicare RAC program by extending it to other government health 
care payers. While there is a mandate that a RAC-like project 
be implemented in Medicaid as well as Parts C and D, we believe 
that the benefit to the government, when data is aggregated. If 
data can be audited and analyzed for an entire region for 
Medicare fee-for-service, Medicaid, and Part D, we can identify 
more improper payments through better data quality, more 
significant statistical analysis, and the impact on the 
provider can be effectively managed via one coordinated program 
that maximizes the return to the trust fund and minimizes the 
impact on the provider networks. The government would also 
benefit by expanding the RAC to the Federal Employees Health 
Benefit (FEHB) Program , the VA, and TRICARE.
    In summary, we believe at HDI that there is a tremendous 
opportunity to ensure claim payment integrity and quality and 
to realize literally hundreds of billions of dollars over the 
next 10 years in recoveries for the government.
    Thank you.
    Senator Carper. Good. Thanks. And thanks for mentioning the 
Federal Employees Health Benefit Plan, the potential there, and 
the VA as well.
    Mr. Rolf, welcome. Please proceed.

TESTIMONY OF ROBERT ROLF,\1\ VICE PRESIDENT FOR HEALTHCARE BPO, 
                       CGI FEDERAL, INC.

    Mr. Rolf. Thank you, Chairman Carper, Ranking Member 
McCain, and Members of the Subcommittee. My name is Robert 
Rolf. I am vice president for CGI Federal, an information 
technology and business process services company that has been 
partnering with government for nearly 35 years.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Rolf appears in the appendix on 
page 90.
---------------------------------------------------------------------------
    In my role, I am responsible for CGI's efforts to implement 
the Recovery Audit Contractor program in Region B, a seven-
State region in the Midwest, as well as similar audit and 
recovery efforts that CGI performs for its State government and 
commercial clients. It is my pleasure to appear today before 
you at this hearing to examine the use of RACs in the Medicare 
program.
    Under CGI's contract with CMS, we are tasked with the 
identification of improper payments made to hospitals, 
physicians, clinics, and other providers of services under 
Medicare Parts A and B. This work involves conducting audits of 
paid claims using both automated and manual review processes 
intended to identify provider overpayments and underpayments. 
Although most of this work involves catching improper payments 
on the back end, CGI fully supports all efforts to prevent such 
payments from happening in the first place. We currently assist 
CMS in the development of an improper payment prevention plan, 
a mission that CGI takes very seriously.
    As a result of CGI's experience with the RAC program, I 
would like to share a few observations about this important CMS 
program and some lessons learned about recovery audit efforts 
with the Subcommittee.
    First, transparency and communication are critical to the 
success of the program. It is important that RACs provide 
transparent information to Medicare providers regarding the 
program, the issues under investigation, and the basis for an 
improper payment determination.
    Second, the RAC program promotes continuous process 
improvement for claims processing and payment. CGI participates 
along with the other RACs in major finding discussions with 
CMS. This process informs CMS of areas representing the 
greatest vulnerability to the program, along with 
recommendations for corrective action.
    Third, there is the potential for this contingency approach 
to expand to other areas across government. Several legislative 
provisions in the Affordable Care Act expand the RAC program to 
Medicaid as well as Medicare Parts C and D. And now, thanks to 
your leadership, Chairman Carper, along with Ranking Member 
McCain and Senators Lieberman, Collins, McCaskill, and Coburn, 
CGI believes that with the final passage of the Improper 
Payments Elimination and Recovery Act, combined with OMB fiscal 
year 2012 budget guidance, we will focus agency attention on 
this topic in an unprecedented fashion across the entire 
Federal Government.
    When expanding into new areas for recovery audit, it is 
important to note that while there are many similarities, there 
will be some differences in approach from the existing RAC 
program. One common lesson learned from any recovery audit 
program, whether in health care claims or other payment areas, 
is the need for a robust process to recover funds identified by 
a RAC as improper.
    Companies such as those before you today are adept at 
analyzing and identifying improper payments out of the millions 
of transactions that occur in programs each year. However, 
without the necessary infrastructure to recover the funds, the 
government will be slow to realize the benefit a RAC program 
can bring.
    CGI prides itself on combining cutting-edge technology with 
years of domain experience in creating valuable solutions for 
our clients. We are especially proud of our ability to deliver 
successfully on the RAC program by featuring our health care 
expertise and broad experience in audit recovery programs. More 
than that, CGI remains passionate about the opportunity to 
partner with CMS and hopefully other Federal agencies in one of 
the most critical good-government efforts underway today.
    I appreciate the chance to appear before you today, and I 
would be pleased to answer any questions you have.
    Senator Carper. Thanks, Mr. Rolf. Mr. Bahl.

   TESTIMONY OF ROMIL BAHL,\1\ PRESIDENT AND CHIEF EXECUTIVE 
                   OFFICER, PRGX GLOBAL, INC.

    Mr. Bahl. Thank you, Mr. Chairman.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Bahl appears in the appendix on 
page 93.
---------------------------------------------------------------------------
    Mr. Chairman, Senator McCain, distinguished Members of the 
Subcommittee, PRGX very much appreciates the opportunity to 
testify before this Subcommittee, and it is my privilege to 
represent our team here today. We are gratified by the 
Subcommittee's efforts to tackle the problem of improper 
payments, most recently, of course, the passage of the Improper 
Payments Elimination and Recovery Act of 2010.
    The act removes major impediments to successful recovery 
audits and, most importantly, incents agencies by allowing them 
to keep a portion of the funds recovered. This act, coupled 
with the expansion of recovery audits included in the recent 
health care legislation, more than doubles the levels of 
auditable Federal spending. We are excited about this expansion 
and look forward to competing for the opportunity to recover 
more taxpayer dollars.
    While the rules for the expansion to Medicare Parts C and D 
and Medicaid across the 50 States will not be known until CMS 
and the States issue their solicitations and launch formal 
procurement processes, we are convinced that the application of 
proven recovery audit capabilities to these other areas of 
Medicare and Medicaid will yield great returns. Recovery audit 
potential has also been advanced by the administration's 
emphasis, including the President's personal endorsement, of 
the recovery audit process.
    PRGX is the global leader in recovery audit and the pioneer 
of a new category of services we term ``profit discovery.'' Our 
services: Audit, analytics and advice, are key elements of 
successful financial management in large private enterprises 
and in government agencies. We also have one of the longest 
track records in recovery auditing for the Federal Government.
    Based on our 40-plus years of experience since pioneering 
the recovery audit industry, we believe there are four key 
success factors for a government agency to run an effective 
audit: One, an effective program champion; two, a broad scope 
audit; three, strong motivation, certainly with no 
disincentives; and, four, a capable recovery audit services 
partner.
    In doing our work, we abide by a number of key principles: 
Integrity, confidentiality, security, and always value for our 
clients. Also, we are sensitive to the providers and other 
vendors we work with and, in fact, one of our key metrics is 
provider abrasion or vendor abrasion.
    It is part of our commitment to our clients, including CMS, 
that we are fair in all our dealings with the hospitals, the 
physician groups, and all other providers as we audit on behalf 
of the taxpayer.
    It may also be worthwhile to mention that there are three 
key pillars to how we approach recovery audit. As we have said 
for long at our company, first, we make sure that the juice is 
worth the squeeze. Our very heavy, front-loaded investments 
demand a high confidence that we can deliver results.
    Second, we turn over big rocks before the pebbles. We do 
not spend dollars to chase dimes, nor should the American 
taxpayer.
    And, finally, we focus a lot of effort on getting it right 
the first time. Our focus on accuracy is paramount and is 
demonstrated by PRGX having the lowest percentage of findings 
overturned on appeal during the Medicare RAC demonstration 
program.
    We bring this expertise and commitment to our work with CMS 
and the provider community to optimize recoveries as a core 
part of their overall program integrity efforts. As an auditor 
in three of the four recovery audit regions, we have a broad 
and unique perspective on the processes and the errors that 
take place.
    The same methodical, careful implementation that CMS is 
using with its national Medicare RAC program should also be 
emulated in other Federal agencies, and now it can be, given 
the means provided in your recent legislation.
    PRGX's Medicaid recovery audit experience incorporates many 
of the lessons we have learned from the Medicare RAC program. 
Our estimates suggest that recoveries in Medicaid alone could 
be more than $1.35 billion annually.
    Our recommendations for the national Medicaid expansion 
include the following: Create a set of guidelines for process 
automation and streamlining of appeals to get each State's 
Medicaid recovery audit program up and running quickly; and, 
further, the audit concepts that have already been approved for 
the national Medicare RAC program could be carried over to 
fast-track State Medicaid recovery audit programs, thereby 
reducing duplication of effort, reducing provider confusion.
    Error rates for Medicare Parts C and D also suggest great 
potential for recoveries, and we are eager to begin helping CMS 
identify and recover these funds. We suggest focusing the 
recovery audit effort on the transactions between the Medicare 
Advantage and prescription drug plans and the provider. This is 
where the complexity lies. This is where the errors occur.
    Because Medicare Part C and Part D plans are administered 
by private enterprises that bear the actuarial risk, the 
recovered funds in any fiscal year could accrue back to the 
plans, thereby providing them the appropriate incentive to 
implement effective recovery audit programs. But CMS should 
then use the adjusted costs to revise future annual premiums, 
thereby effectively bending the health care cost curve going 
forward.
    The lessons learned from the Medicare RAC program, the new 
authorities and incentives provided in legislation, and a 
renewed emphasis by the Executive Branch have set the stage for 
great strides in tackling improper payments. We are proud, sir, 
to be part of these efforts.
    I would now be happy to answer any questions you may have. 
Thank you again.
    Senator Carper. Thank you all.
    How many of you have testified before, before the House or 
Senate? Raise your hand. So this is the first time. That is 
good. Well, you did a very nice job. Very nice job.
    You have the benefit of being the second panel, and you 
have had a chance to listen to the first panel. And I do not 
want to spend a lot of time on this, but I would like to ask 
each of you to maybe take 30 seconds or so, anything you want 
to reflect on that you heard from the first panel that you 
think should be underlined, emphasized, maybe should question, 
but just go back to what you heard in that first panel and let 
me hear from you. Ms. Alexander, I do not want to pick on you, 
but if there is anything you would like to just reflect on and 
react to the first panel's comments.
    Ms. Alexander. Some final remarks, actually, that Deb 
Taylor was making with regard to the correction of some of the 
identified improper payments. I do support what she was saying, 
that some of them are much more easily addressed than others. 
Some of these errors can be fixed with, adjustments to computer 
edits and things like that, very easy and very efficient to 
address. But, other the root cause of some of these errors is 
much more complicated. And, we have been in the recovery audit 
business for a very long time, and most of our business is 
repeat business. I would assume it is the same for my 
colleagues here at this table.
    I think that the notion that you can completely fix and 
make errors go away is something that needs to be considered.
    Senator Carper. All right. Thank you.
    Ms. Im, a reflection on anything that you heard that you 
want to just emphasize.
    Ms. Im. Sure. Again, I think I just want to speak to the 
error correction and the prevention piece of it, sir. A good 
recovery audit program will continually find areas for 
opportunity for improvement, and I think that is what makes us 
good partners, is if we continue to find room for improvement. 
So, again, to the extent that 100 percent prevention is in a 
perfect world, we as partners to CMS can help continue to 
improve that process over time.
    Senator Carper. OK, thank. Ms. Benko.
    Ms. Benko. I have to add to that, because we have been 
doing health care auditing for 25 years, and we do not find the 
same things today that we found 5 years ago. When something 
gets fixed something else pops up because there are new 
treatments, there are new ways of billing, there are all kinds 
of new things.
    The other issue is that, a lot of emphasis this morning was 
put on correcting vulnerabilities, and in the new program, the 
more dollars that we can recover, the more opportunity to 
identify vulnerabilities. The program is slowly ramping up. So 
as it ramps up, there will be more opportunity, and I think if 
we can accelerate the ramp-up, that would be to all of our 
benefit.
    Senator Carper. Good. Thank you. Mr. Rolf.
    Mr. Rolf. I was intrigued by the discussion concerning the 
Part D error rates, and the issue that I see is you can attack 
both these--what we are doing now in the Part A and B program, 
separate from the errors that were discussed earlier today on 
the Part D side. But the real synergies that you are going to 
achieve is when you can compare across both of those programs, 
analyze the data across both of those programs, and identify a 
third set of errors that are independent from each other.
    So while it was significant, the discussion that was had 
this morning, I think there is an untapped opportunity there to 
be able to discover additional improper payments by integrating 
the reviews between the Parts A and B and the D.
    Senator Carper. All right. Thanks. Mr. Bahl.
    Mr. Bahl. Mr. Chairman, if I could first, sort of two 
reactions to this morning. As a taxpayer, as a good corporate 
citizen, I know my PRGX team would join me in saying that I was 
gratified. The obvious interest and passion to fix 
overpayments, whether they are, erroneously done or whether 
there is actual fraudulent misconduct conducted, was absolutely 
terrific.
    Without saying anything different from what the other 
panelists have said, I do think focusing on fixing the gaps as 
you go along is crucial, sir. I will tell you that after 40 
years of recovery auditing in this industry, we believe 
entirely so--and this is true right across the private sector 
for all our clients--that they do not only want us to fix 
recoveries. They want us to give them simplified, improved 
operating environments, to be strategic partners with them, to 
close those gaps that are causing those errors all the time. It 
is increasingly not a differentiator. It is increasingly table 
stakes for a recovery auditor to audit a client, to be able to 
fix those errors as we go. And so we look forward to being 
involved in that.
    Senator Carper. OK. I pressed our witness from CMS on a 
timeline. I said, ``Give me a timeline for''--we do not have 
the chart up, but for the vulnerabilities that have been 
addressed--I think 40 percent of them have been, about 60 
percent have not been. And as you suggest, Ms. Alexander, some 
of them are easy, some of them are not. And maybe a couple of 
them require legislation.
    But I said before, if we do not have a timeline, if we do 
not have a date that we are trying to get something done or 
something close to that, then these kinds of things just 
stretch out forever.
    Also, I questioned our witnesses about how realistic is it 
to expect to expand cost recovery in Parts C and D by the end 
of this year, how realistic is it to expect for us to have it 
done in 50 States. And let me just come back to that second 
part, the expansion of C and D by the end of this year, 
December 31st, and the expansion of this capability in all 50 
States. How realistic is that? And I am concerned--I was 
encouraged by what I heard on Parts C and D, not so encouraged 
on what I heard about the States. As an old Governor, a former 
Governor, a recovering Governor, I can appreciate a little bit 
why that might be.
    Anybody have any thoughts on the expansion, how realistic 
are we in our expectations? Please, Mr. Rolf.
    Mr. Rolf. Chairman Carper, regarding the expansion and the 
time frames, I agree with you that work tends to expand the 
time allotted, and it is a statement within my company that 
what gets measured gets done. And so I would agree with you the 
time frames need to be set, and they need to be aggressive time 
frames to move forward.
    Regarding the specific areas of expansion to C and D and 
into Medicaid, many of us up here today have experience in 
those areas now working with Medicare Advantage plans, working 
in the Medicaid arena, have the experience to be able to 
quickly move into those types of programs. I think it would be 
difficult given the current state of Federal procurement time 
frames, I think that the chance for the agency to be able to 
meet those time frames is to leverage existing contract 
vehicles they have in place today.
    Senator Carper. All right. Thank you. Mr. Bahl.
    Mr. Bahl. Thank you, Mr. Chairman. You know, if I could be 
so bold as to quote what you quoted, I think, just a few months 
ago, you quoted Willie Sutton, did you not, sir? There is money 
there, right? There is over $600 billion just of auditable 
spend, and we must get after it.
    I think one of the potential issues that is in front of the 
CMS is while Medicaid expansion should be relatively easy 
because it is very sort of RAC-style, right, fee-for-service, 
and the question is only will there be 50 independent 
procurements with the States or not. I mean, that I think can 
roll out quickly.
    There is some complexity with respect to Parts C and D, 
sir. Those are obviously run by private enterprises that bear 
the actuarial risk, and so, our suggestions specifically in 
that--just like what you did in S. 1508, you provided for some 
incentives for the government agencies. That sort of incentive, 
therefore, has to be provided to the plans, the plan 
administrators themselves.
    And so while we must audit where the money is in the 
transactions set between those plans and the providers, we 
believe that we give back, right, the recoveries in any given 
year back to those private players so that they are incented. 
But then the CMS is incented, as I said before, to bend the 
cost curve, to use that adjusted amount each year to apply 
their SGI and other cost increases.
    Senator Carper. All right. Thank you.
    Ms. Benko, Ms. Im, Ms. Alexander, any other comment on this 
point?
    Ms. Benko. We are be ready to take on additional work with 
the Medicaid and the Part D plans absolutely quickly. We know 
where the errors are. We could incorporate that into the work 
we are already doing with the Medicare Part A and B, and it 
could happen this year. It is more CMS has to set out a goal of 
what they want to accomplish and make it happen.
    Senator Carper. OK. Thank you. Ms. Im.
    Ms. Im. Chairman Carper, I would agree with what Andrea has 
said, and, moreover, the type of infrastructure and alignment 
that CMS has to do in order to engage a vendor because of all 
of the multiple partners requires that they leverage what work 
has already been done. So our experience has been that these 
are no small tasks for any agency to face, and for CMS to 
expand current contracts feels a lot more effective and 
efficient than to actually go out and have to do another whole 
stream of procurements and technological matching. So it 
certainly sounds a bit self-serving, but we are prepared also 
to take on additional work based on this being a recovery audit 
contract, very prepared to help CMS make continuous 
improvements in Part D, and C as well.
    Senator Carper. Good. Thanks. Ms. Alexander, a comment?
    Ms. Alexander. I agree that a coordinated approach would be 
the most efficient under the time frame that has been 
established. I also think that they should move forward and 
segment the eligibility and the other payer liability type 
recovery work separately from the type of recovery audit 
contracting overpayment work that we are doing currently.
    Senator Carper. OK. Thank you.
    I am going to ask each of you to take a shot at this 
question. I am supposed to be someplace else right about now, 
and so I am going to be mercifully brief with you. But this is 
a good panel. I hate to let you go too soon. But I have a 
question, again, for each of you.
    Some of you included in your testimony specific 
recommendations, I think at least the first three witnesses, 
maybe others, but specific recommendations--I do not know if we 
asked for them. Did we ask for our witnesses to give us 
specific recommendations for improving the program? But you 
did, and we appreciate that.
    Do you all believe that CMS should establish a goal for the 
collection of improper payments? I think I know the answer to 
that question, but do you agree that they ought to set a goal 
for collection of improper payments? Sort of describe that goal 
for us, if you would. Like if you were in their shoes and you 
were setting a goal, what might that goal be? How might you set 
it? What would you keep in mind in setting the goal? And I 
think that sort of thing is maybe done more often in the 
private sector than the public sector. But we need to set some 
goals here, and I think we need to set some timelines. But just 
respond to that, if you all would. I do not care in what order 
you respond.
    Ms. Benko. I will start.
    Senator Carper. Please.
    Ms. Benko. If I was running CMS, I would look at the CERT-
identified error rate because that is the error rate that can 
be recovered. It is on the honest end of fraud, waste, and 
abuse.
    Senator Carper. You say the ``honest end.''
    Ms. Benko. It is mistakes. It is not a criminal intent 
where you are never going to get the money back because the 
person has taken the money and left the country. The money is 
still here. The providers are still participating in Medicare. 
So I would look at that CERT error rate, which is, I believe, 
in 2009 $24 billion of errors. And then I would look at how am 
I going to be impacting the providers and the beneficiaries and 
the quality of care, and I would balance it.
    So I would set at least half of that as a goal, that I 
should be--and ultimately I would want to recover all of it, 
but I would say at least half of that should be able to be 
recovered. I mean, you saw $1 billion recovered from three 
States. It is definitely doable on a national program.
    Senator Carper. OK. Thanks.
    Anyone else? Please, Mr. Rolf.
    Mr. Rolf. Chairman Carper, I would agree with Andrea. I 
would also say that, as she pointed out, since $1 billion was 
recovered in States representing approximately 25 percent of 
the program, a minimum threshold should be, in rolling it out 
to the rest of the country, should be to achieve what was 
achieved during that program. So a floor should be at least $4 
billion.
    Senator Carper. OK. Thank you. Mr. Bahl.
    Mr. Bahl. Mr. Chairman, there is not a whole lot to add to 
that. The only thing I would say, because you specifically 
asked what else should one keep in mind, and I do think that 
what we are asking the agency to do--in this particular case, 
it is the CMS--in terms of managing those provider abrasion 
levels and so forth that I was so key on earlier, have to be 
kept in mind. And so I think, somewhat of a slow and steady 
approach to ramps is OK, but then absolutely, I could not agree 
more with Rob. Our number is closer to five on that chart than 
it is four.
    Senator Carper. All right. Thanks. Ladies, anything you 
want to add before we----
    Ms. Alexander. The only thing I would add is there are two 
pieces to goals, right? There is the quantitative goals, the 
financial goals, which are very, very important in creating 
alignment and the resources and the objectives of reaching 
those financial goals. But equally as important are the 
qualitative goals around things that are important to making 
the program a success beyond just the numbers. So, goals have 
to really reflect both qualitative and quantitative pieces.
    But the projects that, have strong alignment between a 
client and a contractor are where those goals are clearly 
understood so that everybody is marching along toward the same 
goal line.
    Senator Carper. OK. Thanks. Ms. Im, anything else you want 
to add?
    Ms. Im. Mr. Chairman, the only thing I would add is in a 
collaborative effort, which we believe this should be, those 
numbers will not be absolute over time, but will continue to 
change with feedback and learning from the RAC contract.
    Senator Carper. OK. All right.
    If 2 weeks goes by and you do not hear any questions, you 
are free and clear, at least from my colleagues and me. My 
guess is that you will probably hear some questions from us, 
and I appreciate your willingness to respond to some of my 
questions today.
    I said earlier I am a boomer. I was born in 1947. A lot of 
people were born that year and the years that followed that as 
well. There are a lot of us, and it is amazing how--I try to 
work out just about every day of my life, and one of the places 
I work out is the YMCA. We have great YMCAs in Delaware. I 
usually work out at one of them before I get on the train and 
come on down here. But you would be surprised how many people 
say to me, ``Do you think Social Security will still be there 
when I am ready for it? Do you still think we will have a 
Medicare program when I am eligible for it?'' And I say, ``You 
bet we will. And we are determined to make sure that you do.''
    I was on the phone this morning with Erskine Bowles, as I 
said earlier, just talking through some of the entitlement 
programs and what we might do and sharing with him a little bit 
of the work that you are doing and the promise that I think it 
holds for our broader Federal Government. But I come back to--
Dr. Coburn said that he thought maybe 1 percent of the claims 
paid by a private health insurance company there is fraud 
involved. It sounds pretty low, especially if you are looking 
at Medicare and these fraud numbers look to be anywhere from 
about 8 percent to maybe 15 percent. I cannot believe that they 
are that good and that we are that bad.
    But whether it is 8 percent or 10 percent or 12 percent, we 
can do a lot better than that, and we really need to. So when 
those people who are at the YMCA or on the train or down in 
southern Delaware at the beaches, when they say, ``Well, is 
Medicare going to be there for me?'' I will say, ``You bet it 
is.'' And one of the ways we are going to make that happen is 
what you are doing.
    I think it is really--and Peter Tyler, who has helped me 
with putting this hearing together, one of the points that he 
keeps coming back to is a really good one--is it is not just 
important that you figure out how to go out and recover some of 
this money. It is important that you figure out how to provide 
less--what do you call it? ``Provider abrasion,'' I think that 
is the term that you used--and we actually have learned from 
the first several years of the program how we can interact 
better with hospitals and doctors and nurses and other 
providers. But a big part of this is actually having identified 
the other vulnerabilities and for CMS to take that seriously 
and aggressively and go out and address those rather than must 
keep making those same mistakes. Three hundred million dollars 
year after year after year, that adds up pretty quick.
    I am a recovering State treasurer, too. When I was elected 
State treasurer, I was 29, and in the State of Delaware, nobody 
wanted to run as a Democrat, so I got to run because nobody 
wanted to. And at the time we had the worst credit rating in 
the country. We were tied for dead last with Puerto Rico. They 
were embarrassed to be in our company. Delaware was very good 
at the time at overestimating revenues and underestimating 
spending, and that is how we got the worst credit rating in the 
country. We had all the money in the State-owned bank that was 
about to go under, and we had $40,000 of FDIC insurance on it. 
We had no cash management system, and nobody would lend us any 
money. And I got to be State treasurer. And from an early age, 
I have been interested in trying to figure out how to spend our 
taxpayers' money wisely.
    And with respect to Medicare, we actually do spend 
taxpayers' money from the employers and the employees who pay 
into the fund, for the most part. There are some general fund 
monies as well. But a lot of the spending that we do in our 
government today is not taxpayer money. It is money that we 
just borrow from the Chinese or from the Japanese, from the 
Brits, and from anybody else, the folks that have all that oil 
who turn around and lend us money.
    We have to be smarter than that, and with your help we are 
going to be. In fact, I think we already are.
    Thank you very much, and with that, this hearing is 
adjourned.
    [Whereupon, at 12:31 p.m., the Subcommittee was adjourned.]

                            A P P E N D I X

                              ----------                              





                                 
