[Senate Hearing 111-785]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 111-785
 
         EFFECTIVE STRATEGIES FOR PREVENTING HEALTH CARE FRAUD

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

                                HEARING

                               before the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 28, 2009

                               __________

                          Serial No. J-111-59

                               __________

         Printed for the use of the Committee on the Judiciary



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                       COMMITTEE ON THE JUDICIARY

                  PATRICK J. LEAHY, Vermont, Chairman
HERB KOHL, Wisconsin                 JEFF SESSIONS, Alabama
DIANNE FEINSTEIN, California         ORRIN G. HATCH, Utah
RUSSELL D. FEINGOLD, Wisconsin       CHARLES E. GRASSLEY, Iowa
CHARLES E. SCHUMER, New York         JON KYL, Arizona
RICHARD J. DURBIN, Illinois          LINDSEY O. GRAHAM, South Carolina
BENJAMIN L. CARDIN, Maryland         JOHN CORNYN, Texas
SHELDON WHITEHOUSE, Rhode Island     TOM COBURN, Oklahoma
AMY KLOBUCHAR, Minnesota
EDWARD E. KAUFMAN, Delaware
ARLEN SPECTER, Pennsylvania
AL FRANKEN, Minnesota
            Bruce A. Cohen, Chief Counsel and Staff Director
              Nicholas A. Rossi, Republican Chief Counsel


                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

Leahy, Hon. Partick J., a U.S. Senator from the State of Vermont.     1
    prepared statement...........................................   100
Sessions, Hon. Jeff, a U.S. Senator from the State of Alabama....     3

                               WITNESSES

Corr, Bill, Deputy Secretary, U.S. Department of Health and Human 
  Services.......................................................     4
West, Tony, Assistant Attorney General, Civil Division, U.S. 
  Department of Justice..........................................     6

                         QUESTIONS AND ANSWERS

Responses of Bill Corr to questions submitted by Senators Coburn 
  and Specter....................................................    28
Responses of Tony West to questions submitted by Senators Coburn, 
  Specter and Grassley...........................................    44

                       SUBMISSIONS FOR THE RECORD

American Orthotic and Prosthetic Association, Tom Fise, Executive 
  Director, Alexandria, Virginia, statement......................    52
Carlin, David M., Kensington, Maryland, statement................    54
Corr, Bill, Deputy Secretary, U.S. Department of Health and Human 
  Services, statement............................................    81
Silverman, Charles J., Director, Government Affairs and 
  Regulatory Policy, Quest Diagnostics, Madison, New Jersey, 
  letter.........................................................   103
West, Tony, Assistant Attorney General, Civil Division, U.S. 
  Department of Justice, statement...............................   105


         EFFECTIVE STRATEGIES FOR PREVENTING HEALTH CARE FRAUD

                              ----------                              


                      WEDNESDAY, OCTOBER 28, 2009

                                       U.S. Senate,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:03 a.m., in 
room SD-226, Dirksen Senate Office Building, Hon. Patrick J. 
Leahy, Chairman of the Committee, presiding.
    Present: Senators Leahy, Cardin, Klobuchar, Kaufman, 
Specter, Franken, Sessions, Hatch, Grassley, and Cornyn.

OPENING STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM 
                      THE STATE OF VERMONT

    Chairman Leahy. Good morning. Today the Committee will 
refocus on the problem of health care fraud. I think we all 
know we are engaged in a great national debate about health 
care reform. I would hope that those who, like myself, are in 
favor of the public option or those who feel that they should 
oppose the President on health care, whatever thing, I would 
hope both sides would agree on one issue: that health care 
fraud is an enormous problem and is something that cannot be 
tolerated. Whether it is Federal dollars or private dollars, 
fraud is draining billions and billions away from providing 
effective health care. We have to work together to ensure that 
we have tough and effective measures in place to prevent health 
care fraud and provide accountability.
    I am pleased that we have with us today Deputy Secretary 
Bill Corr from the Department of Health and Human Services and 
Assistant Attorney General Tony West from the Department of 
Justice. Both are distinguished public servants; both are 
heavily engaged in the Government's efforts to combat health 
care fraud. We know health care fraud is wrong. It is 
insidious. It not only pushes up our health care costs and 
wastes taxpayer money, but also puts lives in danger.
    As health care reform moves through the Senate, I want to 
make sure we do all we can to tackle the fraud that could 
undermine efforts to reduce the skyrocketing costs of health 
care.
    The scale of health care fraud in America today is 
staggering. According to conservative estimates, about 3 
percent of the funds spent on health care are lost to fraud; 
that is more than $60 billion dollars a year. In the Medicare 
program alone, the General Accounting Office estimates that 
more than $10 billion was lost to fraud last year.
    And there are specific incidents that illustrate the 
problem even more clearly than these astronomical numbers. In 
April, Quest Diagnostics settled a $300 million lawsuit filed 
by California businessman and biochemist Thomas Cantor. Quest 
continued to sell a certain kind of medical test kit from 2000 
to 2006 despite complaints of inaccurate results. Now, the 
tests put the health of hundreds of thousands of dialysis 
patients at risk. Even though it was putting them at risk, the 
company continued to sell it. They were making a lot of money. 
The fact that people may die or have their health seriously 
injured did not bother them. They just made money. And the 
settlement covers claims that the bad tests led to unnecessary 
surgeries and overtreatment which risked causing deadly 
diseases.
    Just last month, the Department of Justice settled a case 
against Pfizer for $2.3 billion, including more than $1 billion 
in recovered losses--the largest health care fraud settlement 
in the Department's history. Pfizer had promoted drugs for uses 
and at dosages that the Food and Drug Administration 
specifically declined to approve for safety reasons. Pfizer 
made a lot of money, but they placed millions of Americans at 
risk for serious health problems including heart attack, 
stroke, and pulmonary embolism.
    That case was exposed by a whistleblower, and several 
whistleblowers who have come forward to expose outrageous 
instances of fraud are here today.
    Incidentally, I want to applaud Senator Grassley who has 
worked so hard in bipartisan efforts on whistleblowers over the 
years. I have been pleased to join him in those.
    Bruce Boice, a former sales representative for the 
pharmaceutical company Cephalon, blew the whistle at great cost 
to his career and livelihood on a similar scheme of marketing 
drugs for purposes for which they were not approved on which 
Cephalon made money. He helped the Government recover $425 
million. Chuck Bates and Craig Patrick, two former employees of 
the medical device company Kyphon, are also here today. They 
blew the whistle on a practice aimed at inflating the bills 
sent to Medicare for a surgical procedure and helped the 
Government recover $86 million.
    To stop the drain on our health care system caused by these 
types of fraud, we must make anti-fraud enforcement stronger 
and more effective. A lot has been done, but more can be done.
    Much attention has been devoted to fraud in the Medicare 
and Medicaid programs. This fraud is significant. It undermines 
taxpayers, doctors and patients, and we have to do everything 
we can to stop it. But it is important to remember that health 
care fraud does not occur solely in the public sector. Private 
health insurers also see billions of dollars in fraud. That 
fraud is often harder for the Government to track. Private 
companies have less incentive to report it, but it is a grave 
problem that we need to address.
    I am heartened by the significant and impressive steps the 
administration has taken to step up health care fraud 
prevention and enforcement. I am also pleased with the real 
progress represented by the anti-fraud provisions of the 
Finance and HELP Committee bills. I was glad to contribute to 
those efforts. But we have to make sure we are all working on 
that. I have been working closely with Senator Kaufman and 
Senator Specter and others to develop important additional 
anti-fraud measures. We will be introducing a bill soon that we 
hope will add to the already impressive anti-fraud efforts we 
are seeing this year.
    We all agree that reducing the cost of health care for 
American citizens is a critical goal of health care reform. I 
hope we can find a way and a consensus in this area. We will 
hear the efforts of the Justice Department and the Department 
of Health and Human Services, and I think we are going to see 
what we can do in Congress to make sure that we help. One thing 
to unite all of us, we should be against crime, and fraud in 
the medical areas is crime.
    Senator Sessions.

STATEMENT OF HON. JEFF SESSIONS, A U.S. SENATOR FROM THE STATE 
                           OF ALABAMA

    Senator Sessions. Thank you. I would sincerely say that I 
appreciate what you are doing here today because I think it has 
potential to help us combat fraud.
    We have a plan before us to massively increase the Federal 
involvement in health care. In 2007, we spent nearly $2.3 
trillion on health care. According to the Centers for Medicare 
& Medicaid Services, by the year 2016 health care spending will 
reach $4.3 trillion, or 19 percent of gross domestic product. 
Medicare and Medicaid are considered one of the largest 
purchasers of health care really worldwide. In fact, over 13 
percent of the Federal budget is allocated to Medicare alone. 
No wonder health care fraud is viewed as a lucrative business 
for criminals. Wasn't it Willie Sutton--they said, ``Why do you 
rob banks? '' And he said, ``That is where the money is.'' And 
there is certainly a lot in health care. Estimates place the 
fraud from 3 to 10 percent of total health care costs.
    When I was United States Attorney, we formed a medical care 
fraud task force, and I believe the estimates then were as high 
as 10 percent fraud. When you consider how much money is being 
spent, if you could reduce that in any significant way, it 
could be some of the biggest savings we could ever achieve in 
health care in America.
    I would cite this cautionary fact. Periodically, Federal 
officials and others launch efforts against Medicare fraud, and 
I see the numbers still are a 3- to 10-percent rate out there, 
so it would suggest that we maybe have not been as effective as 
we should be, gentlemen, and hopefully we can talk about that.
    A study conducted by George Washington University Medical 
Center pointed out that fraud cost Americans approximately $220 
billion in 2007 alone. Other numbers are not that high, but 
that is a dramatic figure. And I am sure they had some basis 
for making that estimate.
    CBS' ``60 Minutes,'' I have already had a lot of calls over 
the show that aired Sunday night about some of the fraud in 
South Florida and other problems. They attributed $60 billion 
in cost to American taxpayers for Medicare fraud alone.
    And I agree with you, Mr. Chairman, that whistleblowers can 
be a critical part of discovering frauds that may be of a 
massive nature, and I know you and Senator Grassley have really 
advocated this, and others have, and I think it is a legitimate 
part of our enforcement effort.
    According to the FBI, defrauding Medicare is simple. A 
criminal simply has to ``rent a cheap storefront office, find 
or create a front man to get an occupational license, bribe a 
doctor or forge a prescription pad, and obtain the names and ID 
numbers of legitimate Medicare patients.'' That is a statement 
that may be oversimplified, but it is, in fact, happening 
today, as we know.
    Given the massive number of claims and the Government's 
inability to monitor these claims, Medicare has basically 
evolved into a pay-and-chase system--pay the claim and then 
later look to chase down the improper payments. For some 
companies, that may work. For others who are fly by-night, it 
does not. If Government has difficulty combating fraud in the 
current program, we know that if we expand those programs, it 
will be even greater.
    So I look forward to working with you. I believe the 
private sector has an interest in containing this fraud also, 
that partnerships can be reached, and that is what we tried to 
achieve between the various Federal agencies on a collaborative 
basis along with private insurers and others who are taking 
losses, too. And they have computer programs and other ways to 
identify red flags, identify areas where claims exceed 
rationality or are disproportionate in others, and those can be 
the basis for commencing investigations.
    I would like to see how you are doing on that. I think we 
need to do better, and thank you, Mr. Chairman.
    Chairman Leahy. Thank you very much.
    Our first witness is William Corr. He is the Deputy 
Secretary of the Department of Health and Human Services. He 
was confirmed unanimously by the Senate on May 6th. Before 
joining the Department, Mr. Corr served as Executive Director 
of the Campaign for Tobacco-Free Kids. He has also spent 
significant time working on Capitol Hill, most recently as 
chief counsel and policy director for Senator Tom Daschle, 
previously in senior positions with Senator Howard Metzenbaum, 
Congressman Henry Waxman, and others. He has had prior 
experience at the Department of Health and Human Services where 
he served as chief of staff to Secretary Donna Shalala and 
before that as Deputy Assistant Secretary for Health as 
counselor to the Secretary. He received his undergraduate 
degree from the University of Virginia and his law degree from 
Vanderbilt University School of Law. And, of course, Mr. Corr 
is known to many of us. Many of us, myself included, have known 
him for years.
    We are delighted to have you here.

 STATEMENT OF BILL CORR, DEPUTY SECRETARY, U.S. DEPARTMENT OF 
                   HEALTH AND HUMAN SERVICES

    Mr. Corr. Thank you, Chairman Leahy, for those gracious 
remarks, Senator Sessions and Members of the Committee. Thank 
you for the opportunity to testify today about the joint DOJ-
HHS Task Force on Health Care Fraud and, in particular, Project 
HEAT, which was created by Secretary Sebelius and Attorney 
General Holder on May 20.
    The President's creation of a Cabinet-level task force 
demonstrates his commitment to addressing fraud in our Federal 
health care programs. Our joint efforts have sped up 
prosecutions and increased recovery of funds lost to fraud.
    As has been noted by both the Chairman and the Ranking 
Senator, health care fraud is a very serious challenge to the 
integrity of our Medicare and Medicaid programs. Our response 
to it needs to be strong and aggressive, and it will be, 
because we are in a better position today than ever before to 
fight health care fraud.
    The collaboration between our two Departments has resulted 
in the use of new methods of data analysis that allows us to 
learn the profiles of criminals entering the programs, 
including the regions of the country where they are most 
prevalent and the types of payments that are most vulnerable to 
fraud. Using this new information, our strike forces are more 
effective, and we can pursue policy changes and develop 
innovative methods of preventing fraud.
    For example, when the strike force in Miami focused on 
fraudulent claims for durable medical equipment and the Centers 
for Medicare & Medicaid Services instituted more rigorous 
reviews of claims and providers, the result was an over 60-
percent reduction in DME claims in South Florida. That 
represents a decrease in claims of almost $2 billion in 1 year 
alone.
    Fraud and abuse is not limited to Federal health insurance 
programs, as has been noted. Health care fraud is a national 
problem requiring collaboration among public and private health 
organizations. Our colleagues at DOJ tell us that they see the 
same fraud schemes in the private sector that we are seeing in 
Medicare and Medicaid. Criminals who commit health care fraud 
are becoming more sophisticated and are often parts of 
organized crime enterprises.
    The best efforts of the public and private sectors will be 
required to substantially reduce health care fraud. Therefore, 
our joint Health Care Task Force is planning and will soon 
convene a national summit on health care fraud. We plan to 
invite participants from every affected group, including 
private insurers, beneficiaries, law enforcement, and 
providers. The summit will bring fresh ideas and collaborations 
that we believe will result in more effective methods of 
preventing, detecting, and prosecuting fraud.
    The collaboration between our Departments is primarily 
funded through the Health Care Fraud and Abuse Control Program, 
known as HCFAC. Since its inception, HCFAC-funded activities 
have resulted in the return of over $13 billion to the Medicare 
Trust Fund. The investigative and prosecutorial activities 
performed by the HHS Office of Inspector General and the 
Department of Justice with HCFAC resources have returned well 
over dollar per dollar for all the expenses, as high as $8 to 
$1 for every investment in 2008 alone.
    The success of the HCFAC program would not have occurred 
without the outstanding efforts of the HHS Office of the 
Inspector General, which has provided essential investigative 
and auditing services, and the work of the Department of 
Justice with its prosecutors.
    Experts agree that the most effective way to eliminate 
fraud is to stop it before it starts. Some of the most 
important work of the HEAT task force and its partners is 
focused on enhancing the fraud prevention programs in Medicare 
and Medicaid.
    Our focus on durable medical equipment is an example. DME 
fraud appears to be the most prevalent type of criminal 
activity in Medicare and Medicaid, particularly in hot spots 
like South Florida. Using authorities provided by Congress, we 
are requiring DME providers to post surety bonds; be certified 
by nationally recognized accreditation organizations, which 
includes onsite review of the supplier; and submit to new 
rigorous competitive bidding processes. This unprecedented 
level of pre-enrollment screening will be complemented by 
onsite inspections of new providers and greater scrutiny of 
suspicious claims. DME is the first step in our strategy to add 
more rigor to the fraud prevention efforts across the board.
    CMS is instituting other prevention measures as well. For 
the first time in Medicare's history, by year's end CMS will 
bring all Medicare claims data together into one centralized 
data repository. CMS, the Inspector General, and the Department 
of Justice strike forces will be able to use sophisticated new 
technology to review claims data for aberrations anyplace 
across the country.
    In summary, Chairman Leahy, we are adding resources to 
existing programs and evaluating funding needs for the future. 
We are coordinating efforts across the Government, led by the 
joint DOJ-HHS HEAT task force, with great initial success. HHS 
is building new prevention programs to stop fraud before it 
happens and using new analytical techniques to identify and 
then strike against individuals and criminal organizations that 
have targeted Medicare and Medicaid.
    While this task ahead of us is enormous, the commitment is 
very strong, and with the continued support of the President, 
this Committee, and the entire Congress, and joining forces 
with the private sector, we can continue our success in the war 
against health care fraud.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Corr appears as a submission 
for the record.]
    Chairman Leahy. Thank you very much, Mr. Corr. What I am 
going to do is have you both testify and then we will open it 
to questions.
    Tony West is the Assistant Attorney General for the Civil 
Division in the Department of Justice. He was confirmed to that 
position on April 20th. But prior to his time in the Civil 
Division, Mr. West worked as a partner at Morrison & Foerster, 
LLP, where he represented individuals and companies in civil 
and criminal matters. Mr. West also spent 5 years working as 
Assistant U.S. Attorney for the Northern District of 
California, 2 years working as a special assistant for the 
Justice Department on crime policy issues, and served as a 
State Special Assistant Attorney General in California. He 
earned his bachelor's degree from Harvard University, and his 
J.D. from Stanford University Law School, where he was elected 
president of the Stanford Law Review.
    Mr. West, delighted to have you here.

   STATEMENT OF TONY WEST, ASSISTANT ATTORNEY GENERAL, CIVIL 
              DIVISION, U.S. DEPARTMENT OF JUSTICE

    Mr. West. Thank you, Mr. Chairman.
    Mr. Chairman, Senator Sessions, and members of the 
Committee, thank you for inviting me here today to testify on 
the Department of Justice's efforts in fighting and deterring 
health care fraud. Under the leadership of the Attorney 
General, Deputy Attorney General David Ogden is supervising the 
Department's day-to-day efforts to marshal our resources in 
combating health care fraud, recovering Medicare funds stolen 
through fraud and abuse, and coordinating with the Department 
of Health and Human Services. The Deputy Attorney General very 
much wanted to be here today, but was unable to attend because 
of a prior commitment. He asked me to relay to you the 
important work that DOJ is doing in close coordination with HHS 
and our other law enforcement partners to deter, detect, and 
defend against health care fraud and to express how important 
this issue is to both him and the Attorney General.
    Mr. Chairman, every year hundreds of billions of dollars 
are spent to provide health security for American seniors, 
children, and the disabled. While most medical or 
pharmaceutical providers are doing the right thing, we know 
that when Medicare and Medicaid fraud occurs, it costs the 
American taxpayers billions of dollars.
    While there is no official Federal estimate of the level of 
fraud in Medicare or Medicaid or the health care sector more 
generally, external estimates project the amount at 3 to 10 
percent of total spending, and this fraud affects public and 
private insurers alike.
    It is those wrongdoers who we must stop. Those billions 
represent health care dollars that could otherwise be spent on 
services for Medicare and Medicaid beneficiaries, on seniors, 
children, and families, but instead are wasted on fraud and 
abuse. This is unacceptable.
    We have a duty to our citizens who receive treatment paid 
for by the Medicare, Medicaid, and other Government programs to 
see to it that the integrity and quality of their care is not 
undermined by fraud, because when Medicare and Medicaid fraud 
occurs, it can corrupt the medical decisions health care 
providers make with respect to their patients and thereby put 
the public health at risk.
    The Department of Justice recognizes both the urgency and 
the need to recover funds that are lost to fraud as well as to 
ensure that such fraud does not reoccur. That is why the 
Department of Justice, through its Civil, Criminal, and Civil 
Rights Divisions, along with the U.S. Attorneys' Offices and 
the FBI, have prioritized much of our enforcement efforts on 
protecting the integrity of health care that is provided to 
patients.
    However, we must also recognize that we cannot combat this 
problem alone. Coordination across agencies is an integral part 
of preventing and prosecuting health care fraud, which is why 
Secretary Sebelius and Attorney General Holder announced in May 
2009 the creation of the Health Care Fraud Prevention and 
Enforcement Action Team, or HEAT. And with the creation of the 
HEAT team, as Deputy Secretary Corr put it, fighting Medicare 
and Medicaid fraud became a Cabinet-level priority for both DOJ 
and HHS.
    HEAT, through its emphasis on agency coordination and 
resource and data sharing, is helping to solidify a partnership 
between DOJ and HHS begun by the Health Care Fraud and Abuse 
Control Program, or HCFAC.
    Since HCFAC's inception, our two Departments have returned 
more than $15 billion to the Federal Government, of which over 
$13 billion went back to the Medicare Trust Fund. These efforts 
have resulted in more than 5,600 criminal convictions for 
health care fraud offenses, with the average return on the 
public's investment being $4 for every $1 spent.
    During fiscal year 2008, the Department of Justice's 
vigorous efforts to combat health care fraud accounted for more 
than $1 billion in civil settlements and judgments. During that 
same time period, the Department opened 849 new civil health 
care fraud matters and filed complaints or intervened in 226 
civil health care fraud cases. During that same time period, 
Federal prosecutors filed criminal charges in more than 500 
health care fraud cases involving charges against nearly 800 
defendants and obtained 588 convictions for health care fraud 
offenses. And they opened over 950 new criminal health care 
fraud investigations involving more than 1,600 defendants.
    Now, in addition to strengthening exist programs to fight 
illegal conduct, we have also worked cooperatively to prevent 
health care fraud before it happens, through increased 
compliance training for providers and expanded public education 
so that the American people can be part of the solution by 
reporting suspected fraud to the HEAT task force.
    Mr. Chairman, we hope that you will look at the 
Department's successes thus far in combating waste, fraud, and 
abuse and recognize the role we continue to play and can 
continue to play with the help of our Federal and State 
government partners in making sure taxpayers' funds are 
protected and patient safety is preserved.
    As we have seen time and again, the only way we can truly 
be effective in protecting the integrity of our public health 
care programs is by combining the full panoply of our Federal 
resources, our expertise, and our information across agency and 
jurisdictional lines.
    The Department of Justice looks forward to working with 
Congress as we continue to prevent, deter, and prosecute health 
care fraud.
    Mr. Chairman, this concludes my prepared statement, and I 
am happy to answer any questions you or the Committee have.
    [The prepared statement of Mr. West appears as a submission 
for the record.]
    Chairman Leahy. Well, thank you very much, Mr. West.
    You know, I thought it was a good sign when the Obama 
administration launched the Health Care Fraud Prevention and 
Enforcement Action Team, the HEAT initiative. Several of us on 
this Committee once had the opportunity to be prosecutors, and 
we know how important it is if you can combine forces when you 
want to go after fraud of any sort, and the high-level joint 
agency task force sends a pretty strong message you are going 
to do that. And I think the sharing of information is extremely 
important, especially as some of these frauds become more and 
more complex. People make a lot of money out of them, and if we 
cannot share the information, we are never going to find them, 
especially for those who think that the only cost of getting 
found out is that it may cost them some money. I would like to 
think the cost of them being found out is some of them will go 
to jail. That might actually prove a deterrent.
    Now, it is my understanding the HEAT team is using new 
technology to improve real-time data sharing and analysis 
between HHS and DOJ. Is that what is happening, Mr. Corr?
    Mr. Corr. Senator Leahy, one of the most important results 
of the collaboration that has developed so far has been not 
only a commitment but the realization of providing real-time 
access to the Department of Justice, to its investigators, and 
to the Office of the Inspector General. By the end of the year, 
we will have a single data base for all Part A, Part B, and 
Part D of Medicare, and the investigators will be able to 
review claims as they come into the Centers for Medicare & 
Medicaid Services.
    That means that at the earliest possible moment our 
investigators can be evaluating whether there are trends that 
indicate fraud in a particular area or a particular field, a 
particular category of service. It enables CMS to do additional 
and tougher claims review. So the collaboration has been 
extremely valuable in making sure that--one of the most 
important things we heard from day one from the Justice 
Department and our Inspector General was that we have to have 
access to the data, to the claims as they come into CMS, and we 
are doing everything we can to make sure that happens.
    Chairman Leahy. Mr. West, are you finding that this is 
helpful to the Department of Justice?
    Mr. West. Yes, Senator. Mr. Chairman, when you look at the 
strike forces, for instance, the strike forces have on them 
representation by CMS. I think that underscores how important 
it is to not only share data and information, but to make sure 
that we are using that information to identify trends early on, 
to communicate that back to CMS, as well as use that data to 
drive our enforcement decisions. It is helpful both in the 
civil investigations of health care fraud as well.
    Chairman Leahy. I have found over the years that so many 
times these areas of fraud, whether in this area or in military 
contracting or any other area, the most important information 
often comes from an insider, from a whistleblower through the 
False Claims Act. I mentioned Senator Grassley's work in this, 
and he and I and Senator Kaufman and others worked over many 
years to strengthen this anti-fraud tool, and we passed the 
Fraud Enforcement and Recovery Act of 2009. That amended the 
False Claims Act for the first time in nearly a quarter 
century, and the day the President signed it, I was there, and 
a number of law enforcement people seemed pretty excited that 
we had this.
    Will this help under the False Claims Act? And I ask the 
question not just seeking affirmation of it, but I want to 
know: Is it working? Will it work? Are there other things we 
should do?
    Mr. West. Mr. Chairman, yes, the False Claims Act, and 
particularly the FERA amendments that were passed earlier this 
year, have been an important tool in our ability to continue to 
combat health care fraud. And we are very much appreciative of 
this Committee's work, and the Senate, for passing those 
amendments.
    The vast majority of cases that we pursue under the False 
Claims Act come from qui tam relators. They originate with 
whistleblowers. And so making sure that we have the tools that 
allow us to use information that is provided by qui tam 
relators, to be able to investigate those cases, to make sure 
we will not be unduly restricted in our ability to bring false 
claims actions, all of those have proven to be quite important 
in our efforts.
    Chairman Leahy. Well, I notice also we had reference to 
studies by George Washington University. There was one that 
showed the kind of fraud that is also perpetrated by the 
private health insurance industry. When I first saw these 
numbers, I asked if they were correct, and they are. In 2009, 
United Health, a leading insurance company, paid $350 million 
to settle losses by the American Medical Association and other 
physician groups for overcharging patients and physicians for 
medical services, a 28-percent cost increase for some doctors 
and patients. Private insurance companies have no requirement 
to report fraud, and some studies suggest they have strong 
initiatives to hide fraud and simply pass on the cost to 
consumers.
    Why don't we hear more about this fraud in the private 
sector?
    Mr. West. Well, Mr. Chairman, I think when you are talking 
about fraud, of course, and a covert activity, it is always 
difficult to get a handle on what the actual numbers are. I can 
say that through the use of the False Claims Act, and 
particularly the qui tam provisions, I think we have a valuable 
tool in allowing us to ferret out fraud where it is occurring.
    I would also say that an important part of the approach is 
making sure that we are talking with private insurers who are 
also victims of fraud. I would say about 6 weeks after I was 
confirmed, I addressed the board of the Coalition Against 
Insurance Fraud, and what became quite clear is the private 
sector as well as the public sector are victims of fraud. And 
so coordinating, sharing information where permitted by law, 
sharing strategies, I think all of these are important efforts 
to augment our abilities to combat fraud.
    Chairman Leahy. Thank you very much, and I apologize. I 
went over my time. I was not paying attention.
    Senator Sessions. Thank you, Mr. Chairman. I would just say 
that you raise an important issue. You can count on my strong 
support in moving forward to make progress. I think you will 
have bipartisan support.
    I would just ask, Mr. Corr, will you be the person that is 
going to head this task force? Or will someone else be assigned 
the specific duties? Both of you are good witnesses, but I 
would like to know who is going to head this effort.
    Mr. Corr. The Secretary and the Attorney General organized 
the task force, and the Deputy Attorney General, David Ogden, 
and I are the co-chairs of the task force. I wanted to just 
mention that--and I do not want to sound bureaucratic, but the 
fact that we have this task force--it is meeting regularly. We 
have organized committees. We are going to stay with this every 
day, every month, every year, until we get a handle on it.
    So I will be the one responsible for working with Deputy 
Attorney General Ogden to make sure that the task force 
performs.
    Senator Sessions. And, Mr. West, on DOJ's side, the 
Department of Justice, who is the point person for these task 
forces?
    Mr. West. Well, as the Deputy Secretary indicated, Deputy 
Attorney General David Ogden is heading up the day-to-day 
responsibilities for our task force. But I can assure you that 
it has the attention of all of the--at the highest levels of 
the Department of Justice. Not only is it a key priority for me 
in the Civil Division, Assistant Attorney General Lanny Breuer, 
who heads the Criminal Division, it is a key priority for him.
    So this issue has the absolute full attention of the 
highest levels of the Department of Justice.
    Senator Sessions. Have you selected people? Mr. Ogden I do 
not think is a prosecutor. You are not, Mr. Corr. You came from 
a different background. You have, Mr. West. You have tried some 
cases, but you have got the whole Civil Division to run. Mr. 
Ogden is Deputy for the whole Department of Justice. Have you 
empowered some really capable people who know about these 
cases, have experience in it, to actually ensure the 
effectiveness of these efforts?
    Because I just want to tell you, I have been at this 
business since 1981 when I was appointed U.S. Attorney, and 
every President that has ever held the office has announced a 
fraud task force on health care. That has just been the way it 
is. And that is not bad, but it takes sustained effort and 
support from the top--probably not so much the management from 
the top, but support from the top.
    Do you think you have made that commitment, Mr. Corr? Do 
you have the people selected that have had experience in this 
that can help make it work?
    Mr. Corr. Absolutely. The senior leadership of CMS, the 
senior leadership in the Inspector General's office, the 
Secretary herself will be involved in this. We believe we have 
the right people, and we will be holding them accountable, and 
the Secretary will certainly be holding me accountable--and I 
think the President will expect both of our Departments to make 
sure that we are not just more talk--and we believe we have a 
record so far that our collaboration is paying results. And we 
expect to continue that.
    Senator Sessions. You also recognize, Mr. West, do you not, 
that the fraud schemes impact the private sector, the Veterans 
Administration, the Department of Defense, State Medicaid 
programs and other programs, disability claims, and Indian 
health care claims? Are those persons going to be--do you have 
people from each one of those and they will be working 
together? And are you attempting to coordinate the data that 
they may have in their systems that could identify aberrational 
charging levels in certain areas that could help you identify 
criminal activity?
    Mr. West. You are quite right, Senator, that this involves 
a number of public agencies and data that perhaps we can get 
from a number of public agencies. And the answer is yes, we are 
actively seeking to try to coordinate that information through 
the HEAT task force.
    And I should mention that the HEAT task force not only has, 
as you have pointed out, support from the top, from the 
Attorney General, from the Secretary, and then the actual 
chairing by the Deputy Secretary and the Deputy Attorney 
General, but there are a number of subcommittees that are a 
part of HEAT. One of them, in fact, is a data-sharing 
committee, and there is where you have the real expertise, the 
line lawyers from my Division, from the Criminal Division, the 
professionals from the HHS side, who are meeting regularly and 
talking regularly and figuring out the best ways to share the 
data, to share the information, to go out and figure out what 
we do not have, so that we can make the most informed law 
enforcement decisions we can.
    Senator Sessions. Well, thank you, Mr. West, and both of 
you. I think we can do better. I hope and believe that you can 
do better.
    I would just say the ``60 Minutes'' program caused quite a 
lot of national discussion. People do not like that. They do 
not appreciate their tax money being stolen. And it has been 
going on for years. We have been hearing about the South 
Florida problem for years.
    Let me just ask it simply. Do you guys intend to address 
the abuses in other areas, but in particular South Florida that 
we have been hearing about and seen so much about?
    Mr. West. Yes, Senator. And, in fact, we have a strike 
force that is there. In fact, I think it was featured in the 
``60 Minutes'' program. And one of the great advantages of 
that--and just last week I think we had one disposition down in 
South Florida. You are right, it is a hot spot, and it has a 
lot of attention from our Criminal Division as well as our 
Civil Division.
    Senator Sessions. Thank you.
    Chairman Leahy. Well, thank you.
    As Senator Sessions said, on rooting out fraud you are 
going to have strong bipartisan support here in the Senate, 
certainly in the Congress, and one of the reasons we put the 
tools in here, both in the fraud bill and the whistleblower 
bills, is to help you on that. But we will count on you if you 
find that the tools are inadequate or contradictory, to let us 
know so we can change it.
    I am going to turn the chair over to Senator Kaufman, who 
has joined me in all these, and I apologize for leaving for a 
doctor's appointment. Take care.
    Senator Kaufman. [presiding]. Good luck.
    Mr. West, can you tell us about the role of kickbacks in 
health care fraud? Who pays them to whom and why?
    Mr. West. Well, yes, Senator. What we find when we find 
fraud in this area is sometimes physicians will be paid by 
providers to refer patients to a particular provider. That is 
illegal. We will sometimes find that a physician who has a 
financial relationship with a provider will try to refer 
patients to that provider or that provider will try to refer 
patients to the physician. That, too, is illegal. So when we 
see the kickback activity, it is an indication that there is 
fraud going on.
    Senator Kaufman. In your view, what is the impact of the 
payment of such kickback on not just health care costs but also 
the quality of care?
    Mr. West. Well, we think it really corrupts the quality of 
care because patients have a right to depend upon the integrity 
of advice that they get from their physicians, and they have a 
right to believe that that advice is not tainted by any 
financial interest or any other inducement that a physician may 
get. It ought to be advice that is given in the best interest 
of the patient. And so we believe it harms public health.
    Senator Kaufman. Mr. Corr.
    Mr. Corr. I would certainly agree with those remarks.
    Senator Kaufman. OK. One significant form of health care 
fraud is off-label marketing, Mr. West. Please tell us what 
form of fraud, what problems it creates, and what the 
Department is doing to fight it.
    Mr. West. Well, off-label marketing usually involves, 
Senator, a situation when a pharmaceutical company will market 
a drug for a use that it has not been approved by the FDA for. 
So, for instance, if there is a drug that is designed to fight 
headaches and that company were to market it as a weight loss 
drug, that would be an off-label marketing purpose.
    The problem is, of course, that, again, patients and 
purchasers have a right to depend upon the integrity of the FDA 
process, and if the FDA has approved a drug for a specific 
process and then that drug is marketed for something else, that 
corrupts the ability for a patient or a consumer to make an 
informed choice.
    Senator Kaufman. Great. Mr. Corr, as we discussed, Medicare 
has a statutory mandate to pay out claims quickly. Can you talk 
about how the mandate works and how it interacts with anti-
fraud efforts?
    Mr. Corr. Thank you, Senator. It is a very important 
question as we grapple with trying to improve our prevention 
efforts.
    When a claim comes into the Centers for Medicare & Medicaid 
Services, we are obliged to pay within 14 to 30 days--no early 
than 14, but by 30 days. So the review that has to be done of 
those claims is immediate. We get 4.4 million claims each day, 
so there is a huge volume, and providers rely upon Medicare to 
be paying in accordance with that schedule.
    So there is pressure for us to move those claim forms 
along. We do do claims review, and some of those, about 3 
percent, are pulled out and go through further medical review. 
But it just indicates the difficulty of spotting fraud early 
and recognizing it, but not undermining the medical practice 
that needs to go forward.
    Senator Kaufman. Ranking Member Sessions asked a really 
good question about we have been doing about this for years and 
how difficult it is. Do we have enough resources directed 
toward fighting fraud, in your opinion?
    Mr. Corr. Senator, what I can tell you is that we believe 
we have identified practices that are making a difference and 
that are successful. We need to do more enrollment review. We 
need to do more stricter claims review. We know that the strike 
forces have been quite successful in identifying fraud and 
reducing it.
    All of those activities could be expanded and would have a 
significant impact.
    Senator Kaufman. OK. Thank you.
    Senator Grassley.
    Senator Grassley. Thank you, Senator Kaufman.
    I want to thank Senator Leahy for holding this hearing, 
trying to get to the bottom of this, although I think it is a 
never-ending job. There are always so many sophisticated crook 
out there who are always going to sit around and laugh at us in 
Government that we cannot get ahead of them. I think in the 
years that Senator Baucus and I worked together on the Finance 
Committee, we have had at least 20 oversight hearings, 
investigative hearings on such fraud. So I compliment the 
expansion of that through Senator Leahy and this Committee as 
well.
    In the 1986 law, we set up something that we call CIDs, 
civil investigative demands, and the idea was to get 
investigations during the investigative stage. Now, where we 
evidently made a mistake in 1986 was that the law then required 
the Attorney General to sign all those CIDs himself, so earlier 
this year in the bill that Senator Leahy referred to, the FERA 
legislation, we permitted the Attorney General to delegate CID 
authority to a designee. That provision allows the Department 
to share CID information with qui tam relators and Federal and 
State and local agencies. These provisions will help streamline 
CIDs and speed up the inventory decisions by the Department. 
However, nearly 6 months after FERA was signed into law, I have 
heard that there has been no decision from the Attorney General 
regarding who the authority is delegated to.
    So update me on this, if you can, Mr. West. What is the 
status of the CID delegation authority? And has the Attorney 
General decided who will have final delegated CID authority? 
And if not, why not? Because we made a mistake in 1986. An 
Attorney General is so busy, any Attorney General is so busy 
and maybe overlooks this. We want to get it so it can be used.
    Mr. West. Well, thank you, Senator. That is exactly right, 
and we welcomed that amendment to FERA to allow the CID 
authority to be sub-delegated. And I have taken steps to ensure 
that that happens. It is within the Department's internal 
process right now. Hopefully within fairly short order we will 
have that sub-delegation, so that is moving through the 
internal DOJ process.
    Senator Grassley. Do you have kind of a deadline to getting 
that decision made?
    Mr. West. We do not have a deadline per se, Senator, but I 
can tell you that there is a great deal of desire to see that 
effected sooner rather than later. It is something that I talk 
regularly with U.S. Attorneys around the country about, and it 
is something that we are moving through as quickly as we can 
the internal process at DOJ.
    Senator Grassley. Well, do we have any problems in that 
process with whether or not the Attorney General is considering 
adding additional requirements prior to allowing delegated 
authority to CIDs? And if so, what might those conditions be? 
Or maybe that is not a problem.
    Mr. West. I do not think that that is a problem, Senator. I 
appreciate it, but I do not think that is an issue.
    Senator Grassley. OK. Will that delegation go down to the 
U.S. Attorneys, or would it stay at Main Justice?
    Mr. West. Well, that is one thing that we are looking into, 
and part of the reason is we want to make sure we get that 
right. But that is one of the questions that we are currently 
considering.
    Senator Grassley. OK. On another point--and this may 
sound--I hope I am considered an equal opportunity oversight 
person and I am not--you know, you folks are new to me, so 
these questions go to Republicans or Democrats. And so I am 
going to bring up a problem that we have had around for a 
while.
    There are 1,040 false claim cases that are under seal in 
Federal courts waiting on the Department of Justice to make a 
decision to join the lawsuit. This is on top of the 130 pending 
cases the Department has joined and the 340 that it has 
declined. Of the cases awaiting a decision, 985 of them allege 
allegations of health care fraud, so overwhelmingly, you know, 
this whole False Claims Act is going after health care fraud. 
You know, when we first wrote it, it was to go after defense 
industry fraud. But wherever it is used, it is important.
    This number of 1,040 is higher than the 1,000 cases under 
seal when I asked the same question a year ago, which, of 
course, I was asking of another administration. Averaged out, 
it takes about 12.3 months for the Justice Department to make a 
decision. Twelve months is a long time for the Government to 
figure out if it is willing to pursue fraud.
    As the author of the 1986 amendments, I wanted to attest 
that Congress indeed intended that the Department make an 
intervention decision in a timely manner. So I find it 
troubling that some cases are lingering for 36 months.
    Questions--and this will be the last series of questions, 
and they will go pretty quickly. Does the Justice Department 
have a plan to clear this backlog in a timely manner? If so, 
what is it? And if you do not have a plan, you know, I would 
just want to know that.
    Mr. West. Yes, thank you, Senator, and I appreciate the 
concern. This is actually something that I asked my folks in 
the Civil Division not long after I arrived to look into 
because I was curious about it as well. And here is what I have 
learned.
    Those cases that you have identified, the 1,000, they are 
indeed cases which are actively being investigated, not just in 
my Division in the Civil Division, but throughout the country 
in all of the U.S. Attorneys' Offices throughout the country. 
So that represents 1,000 cases that are actively in various 
stages of investigation throughout the country.
    What we also know is that one of the reasons it may take 
time to investigate these cases, not only are they complex, as 
I know you appreciate, and we have a duty to thoroughly 
investigate the allegations of wrongdoing, which we take 
seriously, but oftentimes they involved parallel criminal as 
well as civil allegations or investigations. And we always want 
to make sure that we are not doing anything in the civil case 
that might adversely impact a potential criminal case and vice 
versa.
    The other thing that I think is important to point out is 
that when these cases are under seal, oftentimes there is an 
active negotiation to globally resolve the case. So in the 
majority of cases that are unsealed, what you see is not only 
an announcement of allegations, but you also see an 
announcement of a settlement. And we believe that actually 
serves everybody's interest best.
    Senator Grassley. Could I make a statement? I am done 
asking questions. Maybe for the benefit of my colleagues, as 
much as anybody else.
    Now, I understand there are 1,000 cases, and if the Federal 
Government is involved, there is more money going to go to the 
Federal Treasury. If the private litigator goes ahead 
themselves, they get a higher percentage. But, on the other 
hand, if there are 1,000 cases there, it would seem to me that 
some of those decisions can be made, to get the private 
litigator moving ahead, we would accomplish at least more for 
the Federal Treasury than maybe waiting so long to make such a 
decision.
    Thank you very much.
    Mr. West. Thank you, Senator.
    Senator Kaufman. Senator Franken.
    Senator Franken. Thank you, Mr. Chairman. I will go to Mr. 
West first.
    Historically, Federal anti-fraud efforts have focused on 
Medicare and Medicaid, but criminals do not distinguish--or do 
they?--between public and private health insurance when they 
engage in fraudulent activity, right?
    Mr. West. You are quite right, Senator. They do not 
distinguish.
    Senator Franken. So are we doing enough to go after private 
health care fraud? And what would be the benefit of jointly 
addressing fraud in the public and private sectors? And how can 
we best create a coordinated strategy for fraud across the 
entire health care system?
    Mr. West. Well, I think the point you raise, Senator, of 
trying to coordinate is very important. It is one reason why I 
met with the Coalition Against Insurance Fraud early on in my 
tenure to talk about coordination, sharing strategies, sharing 
information where permitted by law. And, in fact, I should say 
that that has led to an ongoing dialog with my office where we 
hold meetings with private insurers to talk about ways in which 
we can better coordinate.
    I would also point out something that Deputy Secretary Corr 
mentioned in his testimony about the summit that is being 
planned which would involve the participation of private 
insurers just for that very point that you raise, that it is 
important to look at this problem of fraud in health care as a 
holistic problem, not just a public problem or not just a 
private sector problem.
    Senator Franken. And do you feel that private insurers 
really feel that they have been reached out to by the 
Department of Justice?
    Mr. West. Well, I can only tell you that the letter that I 
received from the Coalition Against Insurance Fraud--and I 
should mention that that is a coalition of private insurers, 
along with some participants from the public sector--was very 
complimentary and one which appreciated the fact that the 
Department of Justice is making an active effort to reach out 
to private insurers. So I was heartened by that, and I think 
they have been heartened by the ongoing dialog that we have had 
with them, and the ongoing dialog that we are having with them 
through HEAT.
    Senator Franken. But there is no statutory requirement to 
collaborate between public and private. Correct?
    Mr. West. That is correct. You are right.
    Senator Franken. I would like to take a little time--for 
either of you, we have been hearing about the fraud, and we do 
not hear--I would just like to get some examples of it, because 
we just hear these numbers and incidents.
    There was one that I saw which was in Florida where these--
infusion therapy, fake infusion therapy. Can one of you explain 
that? Mr. Corr.
    Mr. Corr. It would be an example of someone with HIV/AIDS 
that needed intravenous treatment. But infusion therapy, home 
health care, and durable medical equipment are three areas 
where the----
    Senator Franken. Explain, though. Explain the fraud. I 
mean, you are----
    Mr. Corr. What I was going to say is that in each of those 
three areas, we have a similar problem where the barriers to 
entry for providers are quite low; where a criminal could, as 
Mr. West was pointing out earlier, get a physician to agree to 
prescribe certain treatments for a kickback. The criminal could 
very well take a provider's billing number as well as get 
beneficiaries' billing numbers and bill Medicare for services 
that have never been rendered or bill for services that were 
unnecessary.
    Senator Franken. So kickbacks, billing for procedures that 
were never done, OK. Now, in your testimony you mentioned 189 
convictions. What are the penalties? Are these people in 
prison?
    Mr. West. Many of them do go to prison. In fact, when you 
look at the average length of prison sentence and you include 
the strike force activity, it is about 37 months for a health 
care fraud offense. And I should note that the strike force 
activities or enforcement activity, that is in addition to what 
is already going on in U.S. Attorneys' Offices around the 
country. But this is a very serious crime, and it is being 
treated that way by the Department of Justice, and we seek 
serious penalties.
    Senator Franken. OK. I think the biggest fraud was by 
Pfizer. Is that right? And they paid a fine of over $2 billion.
    Mr. West. That was the biggest fraud in connection with 
misbranding or off-label marketing, yes.
    Senator Franken. OK. Is anyone in prison for that?
    Mr. West. No, Senator. What happened there is you had two 
individuals who were charged criminally, and through a plea 
agreement, as to one, and a conviction after trial, as to the 
other, those individuals--those cases were resolved.
    Senator Franken. Because people go to prison for having, 
you know, a bag of marijuana. These are people who are 
responsible for ripping off Medicare to the tune of a couple 
billion dollars, and they are not in prison. Now, how are we 
going to deter this? How are we going to deter people doing 
this if they can plea bargain and stay out of prison? Why don't 
we send them to prison?
    Mr. West. Well, there are two things I would say in 
response to that, Senator.
    First is that I can assure you that when we have the 
evidence, and the facts and the law allow us to pursue criminal 
cases against individuals such that we can put them in prison 
for these offenses, we will do that. That is the commitment 
that the Department of Justice has, and that is how seriously 
we take it.
    Unfortunately, the evidence is not always as clear-cut as 
one would like it to be, particularly when you are talking 
about large organizations in which the decisionmaking is quite 
diffuse, it is very difficult to find out exactly who made what 
decision.
    So we have to be vigilant, on the one hand, and aggressive, 
and we are that. But at the same time, we want to be 
responsible to make sure that we are actually targeting those 
individuals who are responsible as opposed to simply going out 
and capturing activity that may not be warranted by the facts 
or the law.
    Senator Franken. Thank you.
    Thank you, Mr. Chairman.
    Senator Kaufman. Senator Cornyn.
    Senator Cornyn. Thank you, Mr. Chairman. I would like to 
express my appreciation to the witnesses for being here today, 
and thank you for serving your country in your capacities that 
you are holding now. I have to confess, though, that the bad 
guys outnumber the good guys, and I agree with Attorney General 
Holder that the lack of resources is a real problem, and I have 
some personal experience as a former State Attorney General in 
the Medicaid fraud area where we work with the Federal and 
State authorities to try to deal with this.
    But I would like to--so I know you are doing as well as you 
can with the resources you have, and I want to do everything I 
can to be supportive of that, and that is one reason why 
earlier this year I reintroduced a bill called the STOP Act, 
which I think addresses this problem of pay and chase and would 
change it to detect and prevent when it comes to Medicaid 
fraud.
    But, Mr. Corr, I do not know how we can expect CMS to do a 
much better job when they are only able, out of the 4.4 million 
claims they get a day, to review 3 percent of them. So that is 
why I would like to work with you to try to figure out how we 
can change the paradigm to one that will actually work, because 
I am not sure we will ever have enough good guys to outnumber 
the bad guys in this area.
    But I do want to explore, because there is a lot of 
difference about public options in health care reform and 
public plans, we obviously have two prominent Government-run 
health care plans--Medicare and Medicaid. And I just want to 
contrast and get your reaction to some statistics, because I 
think, Mr. West, you pointed out that anywhere between 3 to 10 
percent of what is spent on these Government plans now is 
stolen by fraud.
    And just for example, I would note that in recent testimony 
about the credit card industry, which has $2 trillion in 
transactions per year, which is nearly the size of the health 
care sector, there are more than 700 million credit card 
transactions and circulations, millions of vendors, and yet 
their total fraud is roughly 1 percent compared to 3 to 10 
percent for Medicare and Medicaid--1 percent for credit card 
transactions.
    According to a chapter on Medicare fraud in a book called 
``Stop the Crooks'' that I want to cite to you here, one 
statistics that intrigues me is that in private health 
insurance claims, fraud is roughly 1.5 percent or less, 1.5 
percent compared to the Federal Government 3 percent to 10 
percent. And that is why I think we have to change our paradigm 
and how we deal with these issues to go from a pay-and-chase 
system to a detect and prevent system.
    But I would like to ask you, other than resources, what 
else can we do to make sure that the Government-run health care 
plans we have now, Medicare and Medicaid, what is in the 
vernacular of today the public option that is being discussed 
more generally to create yet another Government plan, what can 
we do to reduce the fraud and the theft in the current 
Government plans to more closely approximate what we see both 
in the credit card industry at 1 percent or in the private 
health care claims, which is about 1.5 percent? Do you have any 
thoughts about that?
    Mr. Corr. Senator, we currently have under review the 
additional authorities, particularly at the enrollment period, 
that would benefit CMS as these 4.4 million claims come in. We 
have around 18,000 new providers seeking provider numbers from 
Medicare every month. We have about 900 durable medical 
equipment providers seeking new numbers every month. So there 
is not only a flood of claims coming in but also providers, and 
we are taking a very careful look at what additional 
authorities to review without undermining the ability of the 
Medicare program and Medicaid program to pay claims to 
providers who are rendering quality care and deserve to be paid 
quickly, how we can better identify the bad guys as they start 
into our system. And we will be bringing that to the Congress 
as soon as we can.
    Senator Cornyn. Mr. West.
    Mr. West. Senator, thank you. First I would say that with 
the FERA amendments, that has been a very big help to our 
efforts, and we appreciate that.
    I think one other way in which you can be quite supportive 
is to support the HEAT priorities. What that task force 
represents is really an unprecedented level of coordination 
between DOJ and HHS, and supporting the data-sharing 
initiatives that are underway there, supporting the dual 
criminal and civil enforcement efforts that we are undertaking 
there, and I will note that I recall when I was here for my 
confirmation hearing, you asked both Assistant Attorney General 
Breuer and myself if we would work together to combat health 
care fraud and at least, you know, do a few things. I think you 
said, ``We know you cannot get it all, but if you do at least a 
few things, you can at least begin to deter some of the bad 
guys.'' And I am happy to report that in the last 6 months we 
have taken that suggestion and we have done that. And so your 
help and the Senate's help in continuing to support our efforts 
through HEAT I think will be quite helpful.
    And then I would simply say that we are always open to a 
dialogue and hearing your suggestions, the suggestions of your 
colleagues on how we might better enhance the enforcement tools 
and prevention tools that are available to us when it comes to 
dealing with health care fraud.
    Senator Cornyn. Mr. Chairman, I want to just say that one 
of the reasons why I think it is so important to have False 
Claim Act authority and the qui tam process that you and 
Senator Leahy and Senator Grassley--and I have made some minor 
contribution to, because we need more good guys on the field 
investigating and prosecuting these claims because, frankly, 
the Federal Government and the State government is outnumbered, 
and we need to get more resources on the front lines to deal 
with this.
    But I think we also have to look at this pay-and-chase 
system and realize that we are never going to be able to catch 
up with all the fraud, particularly, as Mr. Corr points out, 
under a situation where you have to pay those claims within 14 
to 30 days, and you are getting 4.4 million of them a day and 
can only review 3 percent of them. I mean, we have to change 
the game, I think, in order to win.
    Thank you very much.
    Senator Kaufman. Thank you.
    Senator Klobuchar.
    Senator Klobuchar. Thank you very much. Thank you, Mr. 
Chair, and thank you to our witnesses. I think we have 
discussed this before, but when I was a prosecutor, I made a 
high priority out of prosecuting these types of white-collar 
cases, and particularly these fraud cases involving Medicare 
and Medicaid, because the saddest part of these cases was the 
money. Ultimately, the people ripped off are the most 
vulnerable people in our society. And I saw firsthand how these 
crooks would cheat the system, so I really appreciate the work 
that you have done.
    A bill that I introduced with former Senator Martinez, 
which I think would be somewhat helpful here, focuses on--it is 
called the IMPROVE Act, which improves the payment policy for 
reimbursement through oversight and efficiency by requiring 
direct deposits of all payments made to providers under 
Medicare and Medicaid. And we know of several recent incidences 
involving the use of check-cashing facilities.
    For example, in November of 2007, a woman was indicted for 
billing Medicare for motorized wheelchairs that beneficiaries 
did not need. According to the indictment, the woman then 
laundered the money through a Houston check-cashing business, 
cashing several Medicaid checks each for more than $10,000.
    So my first question, I guess of you, Mr. Corr, is: Does 
CMS have the capacity to administer payment electronically? And 
do you think this would be an effective way to prevent fraud?
    Mr. Corr. Senator, I apologize for not being more up to 
speed on the pros and cons of what you are proposing. We 
certainly want to consider every avenue that gives us and gives 
the Department of Justice a greater chance to track down who is 
ripping off Medicare and Medicaid.
    Where the checks are sent I think is not as big an issue. 
Paying electronically as opposed to paying by check is not as 
big an issue for Medicare. But what I would prefer to do, if 
you do not mind, is talk with our experts about any issues that 
we have, and also talk with the Justice Department about how 
that would assist in tracking down the criminals.
    Senator Klobuchar. Very good. We think it would be a good 
idea. Patrick Murphy has a bill in the House, and we are hoping 
to get it included in this health care reform.
    The other thing that I have found interesting, Mr. Corr, in 
your testimony is that you mentioned that the strike force 
prosecutions in Miami have focused on fraudulent claims for 
durable medical equipment and that new prevention efforts have 
resulted in a 63-percent reduction in these claims, which is 
something to be proud of.
    Can you talk about these prevention efforts? And why is 
this type of product more susceptible to these fraud claims?
    Mr. Corr. It is more susceptible because it is easier for a 
criminal to become a durable medical equipment supplier, to put 
in to CMS fake claims for individuals who are not receiving the 
equipment, or to bill for a more sophisticated, more expensive 
piece of equipment than they actually have provided.
    We oftentimes see criminals who will set up several 
corporations with different family members, so we are trying to 
track down individuals who are very smart about our payment 
limits and they understand how much we pay for certain things 
and when certain bills get kicked out of the system, caught 
with our computer checks. So what we have to do is be more 
focused, and we are, and the durable medical equipment is the 
best example.
    On screening these providers before they get into the 
system. We have just instituted surety bonds for all durable 
medical equipment suppliers. We now require accreditation of 
those providers, which includes an onsite visit to be sure that 
there actually is a provider there that is legitimate. We look 
at their staffing, at their licenses. We are improving our 
claims review so that it is more sensitive. And as I mentioned 
earlier when you were not here, by the end of the year CMS will 
have a single integrated data base of all Part A, Part B----
    Senator Klobuchar. No, I actually came in for that part.
    Mr. Corr. I apologize.
    Senator Klobuchar. I remember you saying Part A, Part B. 
That will be helpful.
    Another area I thought was interesting when we look at all 
these statistics is the Homeland Security Committee found that 
Medicare claims contained the identification numbers of an 
estimated 16,500 to 18,200 deceased physicians, which involved 
something like 385,000 to 572,000 claims for medical equipment. 
In every case study cited by the Senate Committee, the deceased 
physicians were merely unwitting instruments--or their names 
were--in transactions that meant easy money for these crooks.
    What is CMS doing to combat criminals from using these 
deceased physicians' identification numbers?
    Mr. Corr. One of the most important is to create a single 
integrated data base for the entire country that allows us to 
avoid criminals using a physician's name or number in multiple 
jurisdictions where we have separate contractors and separate 
data bases. We also are improving our compromised--we call it a 
compromised provider number and compromised beneficiary number 
data base so that when we have the first indication that a 
claim has been filed for someone and it should not have been, 
that number then triggers a rejection of all future claims or 
at least a review of all future claims.
    So as you heard, with so many claims coming in and with the 
requirement to pay quickly, we are trying our best to get much 
better control on the front end of who is in the program so 
that we do not run into these situations.
    Senator Klobuchar. Very good. We will probably have time 
for a second round, but just quickly, Mr. West, we have been 
talking a lot about resources here. And as you know, it is more 
than just prosecutors; it is also accountants and other people 
that are needed to work on cases like this. And I was a strong 
supporter of our recent legislation, the FERA legislation. But, 
again, there may be more needed in this area given the amount 
of money at stake.
    But one thing we have not talked about is I would assume 
that it would be helpful for the tools in the toolbox to have 
U.S. Attorneys confirmed to actually prosecute these cases. 
Would that be correct?
    Mr. West. Well, I think that is right, Senator. I think 
clearly the U.S. Attorneys around the country are an important 
force, front-line force in prosecuting fraud--all crimes, not 
just fraud, but fraud--and we rely on them heavily to help us 
combat Medicare fraud.
    Senator Klobuchar. Would it also help to have judges 
confirmed and marshals confirmed?
    Mr. West. Well, the criminal justice system works well when 
it is fully complemented.
    Senator Klobuchar. Thank you very much, Mr. West.
    Mr. West. Thank you, Senator.
    Senator Franken. Senator Specter, would you like to 
question or would you like to wait a couple minutes?
    Senator Specter. Thank you, Mr. Chairman. I just walked in, 
having attended the hearing on----
    Senator Kaufman. Your ``talk'' button.
    Senator Specter. I said I just walked in, having attended 
the hearing in Environment and Public Works, and I know our 
hearing today is on the issue of fraud, waste, and abuse on the 
health care legislation. And I think it is important that the 
final bill will include a provision for mandatory jail 
sentences.
    Under our current system, jail sentences are discretionary 
with the trial judges. They may follow the recommendations of 
the guidelines, or they may not. But we have seen an increasing 
number of sentences, fines, where there is very egregious, 
reprehensible, serious conduct involved. And the fines are 
simply added into the cost of doing business.
    A jail sentence is different. Senator Graham and I have 
taken the lead in introducing a bill which would provide a 
mandatory sentence of 6 months for fraud in the medical field, 
whether it is Medicare, Medicaid, or against private insurance 
companies in excess of $100,000. There is an aversion in many 
quarters to having any mandatory sentences, and I think there 
is something to that if you deal with the crack cocaine issue, 
the disparity. And there is legislation pending there which 
Senator Durbin has championed and others have introduced.
    But where you deal with white-collar crime, it is 
especially susceptible to deterrence. If you talk about a bar-
room homicide on a Saturday night when people are intoxicated, 
you are not going to deter anybody by a jail sentence there. 
But if you are dealing with Medicare and Medicaid fraud or 
insurance company fraud, people are going to go to jail, and 
any jail, even 6 months--one of the concerns that we have had 
in trying to structure what a sentence should be--kind of looks 
too light if you have a multi-million-dollar fraud scheme.
    So I just wanted to make that comment. If I knew what had 
gone on, if I knew how to formulate a relevant question, I 
would do so.
    [Laughter.]
    Senator Specter. But since I do not, that customarily is 
not any standard around the U.S. Senate, but occasionally I 
follow it. Thank you, Mr. Chairman.
    Senator Kaufman. Senator Specter, you always ask relevant 
questions. I have watched you for a long time.
    To follow up on that and what Senator Franken said, Mr. 
West, you have done both criminal and civil work. What kind of 
deterrence do you think jail time is?
    Mr. West. Well, I think jail time is certainly a strong 
deterrent, and I think that when we have the evidence and we 
have the law and we have the ability to seek jail sentences, we 
certainly do that, and we do that aggressively. In fact, it is 
the policy, the sentencing policy of the Department of Justice 
to recommend sentences that fall within the applicable 
guideline range. Only in extraordinary cases do we depart from 
that. But, clearly, we take health care fraud very seriously. 
We will seek the most serious penalties that we can, given the 
law and the facts of every specific case.
    Senator Kaufman. Mr. Corr, do you have any comments you 
want to make on that?
    Mr. Corr. Nothing to add. Thank you.
    Senator Kaufman. Let us talk about CRIPA for a minute, if 
we can, Mr. West. Tell us how the act relates to health care.
    Mr. West. Well, CRIPA is an act--Civil Rights of 
Institutionalized Persons Act, and this really is a tool that 
we use with the Civil Rights Division responsible for enforcing 
to ensure that the rights of individuals who are 
institutionalized in some way, shape, or form are not being 
abused and are not being eclipsed. And it is an important part 
of the full panoply of Federal enforcement tools that we have 
at our disposal.
    Senator Kaufman. Now, right now you do not have the 
authority to subpoena institutions being investigated, but you 
have to rely on their cooperation. Is that right?
    Mr. West. That is absolutely correct.
    Senator Kaufman. And what impact does that have on 
investigating and doing the work that you should be doing?
    Mr. West. Well, I do think, Mr. Chairman--I believe that 
the situation involving investigations, as we have seen by 
analogy in the CID context, certainly can be facilitated with 
the ability of making either civil investigative demands or 
administrative subpoenas where that is appropriate.
    I think I would invite further conversation with you and 
with others who are interested in this as to what the exact 
correct mix of tools is in the CRIPA context.
    Senator Kaufman. Mr. Corr, what technologies or techniques 
would help HHS better leverage existing personnel to engage in 
anti-fraud opportunities?
    Mr. Corr. The Justice Department and our Inspector General 
look to us to manage the enormous data that comes into the 
Department in a way that promotes oversight and investigation. 
And I think one of our challenges is in making that data base 
most usable. It might seem remarkable, but it will take us 
until the end of this year to create a single data base, and it 
will be an enormous benefit. And I think we need to continue to 
make improvements in the accessibility of that data for review 
for purposes of fraud.
    As we identify new techniques and new systems that we need, 
we will be the first to let you know.
    Senator Kaufman. A number of commentators, including the 
head of the Medicare Program Integrity Director Kimberly 
Brandt, assert that prescreening of Medicare providers could 
substantially reduce fraud. Is that correct? Do you believe 
that?
    Mr. Corr. That is certainly our view.
    Senator Kaufman. OK. Thank you.
    Senator Franken.
    Senator Franken. Mr. Corr, we have heard the statistic 
today, and I have heard several times the statistic that fraud 
in private health insurance occurs at 1.5 percent. Do we have 
good data to verify this statistic?
    Mr. Corr. Unfortunately, we do not. We have estimates from 
a number of different organizations, but it is sometimes very 
hard to distinguish fraud from unnecessary care that is simply 
wasteful. So getting a clear reading on fraud, we know it is 
substantial and way too large, but we do not have a clear sense 
of exactly how much.
    Senator Franken. So when that statistic is trotted out, it 
is sort of trotted out especially when it is trotted out to 
compare the fraud rate in private insurance to Medicare, it is 
really maybe not--there might be, I do not know, some reason 
that someone is doing that other than----
    Mr. Corr. There is no requirement----
    Senator Franken [continuing].--Trying to get at the facts? 
Could that----
    Mr. Corr. There is no requirement for private insurance 
companies to report fraud rates. As you know, in Medicare and 
Medicaid we do report an annual error rate that is more than 
just fraud. It also includes mispayments over at----
    Senator Franken. We are here trying to figure out what is 
really going on. It is probably maybe not useful to use 
something that has no data behind it. Would that be fair to 
say?
    Mr. Corr. I am sorry. The estimates, you mean?
    Senator Franken. Never mind.
    [Laughter.]
    Senator Franken. I just have a question--first of all, to 
speak to Mr. Cornyn's concerns, I was very impressed with the 
sort of return on investment. I would like either of you to 
speak to that--or maybe, Mr. Corr, you can speak to that--on 
increases in spending in your work and what it yields. Can you 
speak to that a little bit?
    Mr. Corr. The numbers that we provided to you involve the 
work of our strike forces in areas where we have concentrated 
our time and energy. In 2008 alone, there was a return of $8 
for every $1 we spent from our HCFAC fund, which is the basic 
source of revenue for our prevention and enforcement efforts. 
The prepayment restrictions and claims audits that we have 
instituted we believe have returned $13 for every $1 we have 
spent over the last 3 years. And these are lessons learned. We 
are trying our best to identify those techniques that most 
quickly and most effectively identify when fraud is occurring.
    Senator Franken. I imagine at some point the investment and 
the yield would reach a point of diminishing returns. But is it 
fair to say that it has not yet?
    Mr. Corr. That is fair to say.
    Senator Franken. OK. Thank you.
    This is for both of you. This is just a curiosity of mine. 
How many of these people who end up doing fraud start out doing 
this legally and say, ``Hmm, you know, I could have billed for 
a more expensive wheelchair. I think I will do that'' ? And 
then they do that and they get away with it, and now they are 
doing it routinely, and they buy a nicer condo. And then they 
start doing it. Is that common? Is that a common thing?
    Mr. West. Unfortunately, we do not have very precise 
numbers on fraud generally or on how many individuals who might 
start out as legitimate providers migrate.
    Senator Franken. You do not collect stories.
    Mr. West. We do not have that, unfortunately, Senator.
    Senator Franken. OK. And it is fair to say, is it, Mr. 
Corr, that electronic records, electronic health records, 
really is an area--because you are talking about the data base 
you are getting together. That is a place where we can really 
start increasing our efficiency in attacking fraud. Is that 
right?
    Mr. Corr. Absolutely, as well as improving the quality of 
medical care.
    Senator Franken. So it is a tremendous investment. It is a 
win-win, right?
    Mr. Corr. It is an investment that Congress has made and 
that we are doing our best to implement.
    Senator Franken. OK. I want to thank both you guys for the 
work you do.
    Mr. Corr. Thank you.
    Mr. West. Thank you.
    Senator Franken. Thank you, Mr. Chairman.
    Senator Kaufman. Senator Klobuchar.
    Senator Klobuchar. Thank you very much, Mr. Chairman.
    I know, Mr. West, that you talked about--when you talked 
about the HEAT team--how you have been able to analyze this 
data and, in coordination with HHS, identify fraud hot spots 
and then focus on those hot spots. So what are the factors that 
determine whether a place is a hot spot?
    Mr. West. Well, I think one of the key things we look for 
are patterns of activity. If we see patterns of, say, 
overutilization or if we see patterns of overbilling, if you 
have a particularly small provider and they are a large 
percentage of claims that are made in a particular area, that 
is an indicator that there may be fraudulent activity going on. 
So there are a number of data points that we look at.
    Senator Klobuchar. So hot spots are parts of an area, is 
what you are looking at?
    Mr. West. When I talked about hot spots, I was referring 
geographically. I think we know that--and I think the 
deployment of our law enforcement resources as manifest by the 
strike forces indicates where we see----
    Senator Klobuchar. And where are--can you tell me where 
these hot spots are?
    Mr. West. I think you will see it in South Florida----
    Senator Klobuchar. Are they places that are hot? Florida.
    Mr. West. Houston.
    Senator Klobuchar. I just knew it.
    Mr. West. And Houston where it is also warm, but you also 
have Los Angeles, where I guess it is warm most of the year, 
and Detroit, where you have 50-50.
    Senator Klobuchar. I think what would be interesting with 
this is that we are very focused on the highest quality, low-
cost areas of the country in terms of putting incentives into 
this bill to get Medicare reimbursement rates to reward that 
kind of behavior. And I find it interesting that the places 
that you mention tend to be some of the places, particularly 
Florida, Texas, that have some of the higher-cost, lower-
quality care, and that is nothing to say about these States, 
but sometimes it is because there is a lack of organization in 
their health care systems. Sometimes it is because they just 
have had a culture of medicine delivery that just is not the 
same as the way a place like Mayo clinic would do it. And I 
find it so interesting you mentioned two of the areas that tend 
to have--I think most people would think it is like a hotel. 
You pay more and you get a better room. Not true with health 
care. For the most part, you pay more and you get a worse room, 
whether it is in a hospital or whether it is the treatment you 
get.
    So I just wonder if you have any thoughts on the 
interrelationship between disorganized health care systems and 
the propensity for fraud.
    Mr. West. Well, I think whenever you have--I think Senator 
Sessions actually said it best. Whenever you have large amounts 
of money, you have the propensity for fraud. I think that is 
why we have efforts to combat not only health care fraud at the 
Federal level, but also financial fraud in all of its forms. 
And so I do not know if I am the best person to comment on the 
interrelationship between disorganized health systems and 
fraud, but I do know that where we see it, it is usually 
because we see patterns that are occurring.
    Senator Klobuchar. And then are you able with this hot-spot 
analysis to learn from that and then prevent certain locations 
from being hot spots, you kind of put the word out on the kind 
of fraud you are seeing?
    Mr. West. Well, the data flows both ways. Not only is it 
important for us to share data with HHS to try to identify 
where we are going to deploy our law enforcement resources, 
what we pick up in the field and the information we pick up in 
the field, it is very important for the Department of Justice 
to share that with HHS so they can in turn identify providers 
who may be falling into these patterns. Absolutely, it flows 
both ways.
    Senator Klobuchar. Did you want to add anything, Mr. Corr.
    Mr. Corr. Simply to say that that is exactly right, and it 
is the reason the collaboration is paying off.
    Senator Klobuchar. I found that interesting, and what I 
would hope then also would come out of it is some suggestions 
about how to, you know, organize the systems and put in place 
these protections to prevent fraud. And it is just no surprise 
to me that there is a pattern.
    Mr. Corr. Senator, just as one example, the lack of 
accountability within a disorganized health care system does 
open the possibility for fraud. For example, if you bundled 
payments for certain kinds of services and one aspect of that 
bundled payment was durable medical equipment, it would be more 
difficult for a fly by-night criminal to set up a corporation 
and start billing Medicare than if they had to participate as a 
part of a more organized system where there was a single 
payment for all the services that were rendered.
    Senator Klobuchar. Because the other providers would have 
an interest, and there would be a double-check for you, not 
just the Government checking.
    Mr. Corr. Yes.
    Senator Klobuchar. I would think the other people that want 
to get paid have an interest in not getting ripped off by some 
fly by-night criminal that comes in and takes part of their 
money when they do not get the durable medical equipment. That 
is very interesting, because I am a big fan of these bundled 
payments. So thank you very much.
    Senator Kaufman. Well, I want to thank you both for your 
excellent testimony on what obviously is a critical subject. As 
we move toward meaningful health care reform, we must ensure 
that criminals who engage in health care fraud and those who 
contemplate doing so understand that they face swift 
prosecution and substantial punishment. I look forward to 
working with the Department of Health and Human Services and 
with the Justice Department and with Chairman Leahy and others 
on the Committee to promote this goal.
    Thank you very much, and the hearing is adjourned.
    [Whereupon, at 11:34 a.m., the Committee was adjourned.]
    [Questions and answers and submissions for the record 
follow.]

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