[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]




 
                       IMPROVED EFFORTS TO COMBAT
                           HEALTH CARE FRAUD

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

                                HEARING

                               before the

                       SUBCOMMITTEE ON OVERSIGHT

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 2, 2011

                               __________

                           Serial No. 112-OS1

                               __________

         Printed for the use of the Committee on Ways and Means




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                      COMMITTEE ON WAYS AND MEANS
                         SUBCOMMITTEE ON HEALTH

             CHARLES W. BOUSTANY, Jr., Louisiana, Chairman

DIANE BLACK, Tennessee               JOHN LEWIS, Georgia
JIM GERLACH, Pennsylvania            XAVIER BECERRA, California
VERN BUCHANAN, Florida               RON KIND, Wisconsin
AARON SCHOCK, Illinois               JIM McDERMOTT, Washington
LYNN JENKINS, Kansas

                       Jon Traub, Staff Director

                  Janice Mays, Minority Staff Director

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.


                            C O N T E N T S

                               __________

                                                                   Page

Advisory of March 2, 2011 announcing the hearing.................     2

                               WITNESSES

PANEL 1:

  Peter Budetti, Deputy Administrator and Director, Center for 
    Program Integrity, Centers for Medicare and Medicaid Services     6
  Lewis Morris, Chief Counsel, Office of Inspector General.......    26

PANEL 2:

  Karen Ignagni, President and CEO, America's Health Insurance 
    Plans........................................................    51
  Louis Saccoccio, Executive Director, National Health Care Anti-
    Fraud Association............................................    63
  Aghaegbuna ``Ike'' Odelugo, Plead guilty to state and federal 
    charges related to Medicare fraud. According to the 
    Department of Justice, the total amount paid by Medicare as a 
    result of Odelugo's scheme was approximately $9,933,354.27*. 
    He has been assisting law enforcement while awaiting 
    sentencing in May............................................    79
*http://www.justice.gov/usao/txs/releases/August%202010/
    082310%20Odelugo.htm

                       SUBMISSIONS FOR THE RECORD

Hon. Peter Roskam................................................    95
Academy of Managed Care Pharmacy.................................    98
Apria Healthcare.................................................   101
Dream Software...................................................   106
Pharmaceutical Care Management Association.......................   113

                   MATERIAL SUBMITTED FOR THE RECORD

Questions and Responses for the Record:
      Hon. Chairman Charles W. Boustany, Jr......................   116
      Hon. Jim Gerlach...........................................   120
      Hon. Lynn Jenkins..........................................   121


                       IMPROVED EFFORTS TO COMBAT
                           HEALTH CARE FRAUD

                              ----------                              


                        WEDNESDAY, MARCH 2, 2011

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                 Subcommittee on Oversight,
                                                    Washington, DC.

    The Subcommittee met, pursuant to call, at 2:09 p.m., in 
Room 1100, Longworth House Office Building, Hon. Charles 
Boustany [Chairman of the Subcommittee] presiding.
    [The advisory of the hearing follows:]

ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS

Wednesday, February 23, 2011

 Boustany Announces Hearing on Improving Efforts to Combat Health Care 
                                 Fraud

    Congressman Charles W. Boustany, Jr., MD, (R-LA), Chairman of the 
Subcommittee on Oversight of the Committee on Ways and Means, today 
announced that the Subcommittee will hold a hearing on improving 
efforts to combat health care fraud. The hearing will take place on 
Wednesday, March 2, 2011, in Room 1100 of the Longworth House Office 
Building, immediately after a brief Subcommittee organizational meeting 
beginning at 2:00 p.m.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from invited witnesses only. 
Witnesses will include experts on health care fraud from both the 
public and private sectors. Any individual or organization not 
scheduled for an oral appearance may submit a written statement for 
consideration by the Committee and for inclusion in the printed record 
of the hearing.
      

BACKGROUND:

      
    Health care fraud costs the American taxpayer tens of billions of 
dollars every year, significantly increasing Medicare spending. As a 
GAO-designated ``high-risk'' program since 1990, Medicare continues to 
attract those who defraud the government through kickbacks, identity 
theft, and billing for services and equipment beneficiaries never 
receive or do not need. The Medicare program covered 47 million 
beneficiaries who are senior citizens or have disabilities in 2010 with 
estimated outlays of $509 billion, according to GAO. With the Medicare 
Board of Trustees predicting that Medicare expenditures will reach 
nearly $1 trillion per year by 2019, a rapidly increasing amount of 
taxpayer dollars will be vulnerable to fraud unless greater steps are 
taken to stem the tide.
    The Federal Bureau of Investigation estimates that between 3 and 10 
percent of health care spending is fraudulent. With the Centers for 
Medicare and Medicaid Services estimating current health care spending 
to be over $2.5 trillion, anywhere from $75 to $250 billion is lost 
annually to fraud. As much as $80 billion of this fraud is in the 
federal health care programs, including up to $50 billion in Medicare 
alone. Though it is difficult to accurately quantify the total costs of 
health care fraud, experts at the National Health Care Anti-Fraud 
Association predict that with rising health care spending, total health 
care fraud, waste, and abuse could rise to as high as $330 billion per 
year by 2013.
    In announcing the hearing, Chairman Boustany said, ``The Federal 
Government borrows 41 cents for every dollar it spends, and a growing 
portion of this is within the Medicare program. At a time when the 
Federal Government is hemorrhaging money, we have to make every effort 
to stop fraud within the health care system. It is important that 
Congress oversee what is happening to this money. This hearing will 
explore recent efforts to combat Medicare fraud and what the government 
can be doing better. It will also explore what the private sector is 
doing to stop fraud and how public and private actors might better work 
together in this effort.''
      

FOCUS OF THE HEARING:

      
    The hearing will focus on current policies and programs designed to 
prevent and punish Medicare fraud, as well as new and innovative 
practices aimed at preventing health care fraud in the private sector. 
The hearing will also explore how the public sector and private sector 
can learn from each other about new tools to combat Medicare fraud, 
waste, and abuse.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please Note: Any person(s) and/or organization(s) wishing to submit 
written comments for the hearing record must follow the appropriate 
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here to provide a submission for the record.'' Once you have followed 
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16, 2011. Finally, please note that due to the change in House mail 
policy, the U.S. Capitol Police will refuse sealed-package deliveries 
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technical problems, please call (202) 225-3625 or (202) 225-2610.
      

FORMATTING REQUIREMENTS:

      
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    1. All submissions and supplementary materials must be provided in 
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call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
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noted above.
    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://www.waysandmeans.house.gov/.

                                 

    Chairman BOUSTANY. Now we will turn to today's hearing on 
health care fraud.
    I want to begin this hearing by welcoming our guests, who 
are here to join a very important discussion about health care 
fraud. And, gentlemen, I know you have been very busy today, 
and we appreciate you being here today.
    For our first panel, we welcome Dr. Peter Budetti, who 
serves as deputy administrator of the Centers for Medicare and 
Medicaid Services and is director of its Center for Program 
Integrity. Welcome.
    We also welcome Mr. Lewis Morris. Mr. Morris serves as the 
chief counsel to the Department of Health and Human Services' 
Office of Inspector General, an organization that is on the 
front lines of the fight against health care fraud. Welcome.
    On our second panel, we will hear from Karen Ignagni from 
America's Health Insurance Plans, and Lou Saccoccio from the 
National Health Care Antifraud Association. Both of these 
witnesses will provide insight into how the public and private 
sectors work together to fight health care fraud and where we 
might be able to improve anti-fraud efforts, and I thank them 
for coming as well.
    We also have a very rare chance to hear from Mr. Ike 
Odelugo. Through a variety of schemes involving durable medical 
equipment, Mr. Odelugo defrauded the Medicare program of an 
estimated $9 million. Since his days of committing health care 
fraud, he has assisted law enforcement efforts to track down 
those engaged in similar activities. Today, he will describe 
both how he went about defrauding the Medicare system and, in 
his experience, just how easy it was.
    This promises to be an eye-opening hearing on a very 
critical topic. This is not simply about those committing 
fraud; it is about the patients and health care providers that 
are hurt by it. I come from a family line of physicians, and, 
as a cardiothoracic surgeon, I certainly understand that every 
dollar lost to health care fraud is a dollar not spent on 
patient care.
    And we are not talking about small sums of money. Health 
care spending accounts for one-sixth of our Nation's economy, 
and within this spending is an incredible amount of money lost 
to fraudsters. Professor Malcolm Sparrow of the Harvard Kennedy 
School said before the Senate Judiciary Committee in 2009, 
``The units of measure for losses due to health care fraud and 
abuse in this country are hundreds of billions of dollars per 
year. We just don't know the first digit.''
    The FBI estimates that between 3 and 10 percent of all 
health care spending is fraudulent, as much as $250 billion 
each and every year. As much as $50 billion of this yearly 
fraud is in the Medicare program, and to put it another way, 
that is over $135 million per day in the Medicare system alone.
    Medicare crooks are robbing the American taxpayer each and 
every year of the same amount it took Bernie Madoff decades to 
rob from his private investors. Medicare fraud has become such 
an attractive target for criminals that the FBI and OIG have 
seen an increasing number of foreign criminal groups coming to 
America to exploit the program because it is less risky and a 
lot more lucrative than other illegal ventures.
    Without action, the problem is only going to get worse. The 
Medicare program had estimated outlays of $509 billion in the 
year 2010, and that number is expected to grow at a rapid pace 
as 7,000 baby boomers become eligible for Medicare every single 
day in the year 2011. CMS expects annual Medicare spending to 
approach $900 billion by 2019, and, as this spending goes up, 
so will the amount of taxpayer money potentially lost to fraud.
    While the Affordable Care Act included some new anti-fraud 
provisions, it left a lot of suggestions by the Office of 
Inspector General, Government Accountability Office, and 
Members of Congress from both parties on the cutting-room 
floor.
    At the same time, the law created a host of new health care 
spending programs. The Congressional Budget Office estimates 
these new programs will cost $940 billion over the next 10 
years and much more after that. CBO has estimated the act's 
anti-fraud provisions would save about $5.8 billion over the 
next 10 years. That is less than 1 percent of the expected 
fraud against Federal health care programs during the same 
period.
    There is also good news on the subject. Just last month a 
joint effort by the Departments of Justice and Health and Human 
Services resulted in charges against 111 defendants for 
allegedly defrauding the Medicare program of over $225 million. 
This was the largest crackdown we have seen yet, and we look 
forward to hearing about these and other efforts from our 
witnesses.
    There was also a lot to explore regarding potential 
private-public collaborations. As private health insurers 
develop new methods in technology to prevent fraud, it is 
important that the public and private sector work together in 
what should be a mutually beneficial collaboration.
    With important reforms, new technology, better use of data, 
and increased cooperation between the public and private 
sector, it is my hope we can put a substantial dent in the 
problem of health care fraud. This hearing seeks to begin that 
process.
    Before I yield to our ranking member, Mr. Lewis, I ask 
unanimous consent that all members' written statements be 
included in the record, and without objection, so ordered.
    Chairman BOUSTANY. Mr. Lewis, we will now turn to you for 
your opening statement.
    Mr. LEWIS. Thank you very much, Chairman Boustany, for 
holding this important hearing on ways to fight health care 
fraud. This is an important topic that touches the lives of 
millions of Americans. Our health care dollars are too 
precious, and we must ensure that those dollars are spent on 
health care.
    Last year, this subcommittee held a hearing on fraud in the 
Medicare program. We learned about new tools and new approaches 
that were being used to protect Medicare patients and return 
billions of dollars to the program and the taxpayers. We also 
explored the new provisions of the Affordable Care Act that 
gave government agents new tools to fight fraud.
    Today, I look forward to learning how these tools are being 
used to protect the Medicare program. I am interested in the 
new initiatives of the Department of Health and Human Services 
in this area. I am also interested in learning how people 
become involved in Medicare fraud and how health plans, 
government agencies, and organizations can work together to 
detect and stop this abuse.
    In closing, Mr. Chairman, I would like to thank the 
witnesses for being here today. I thank you for your testimony 
and your willingness to share your experiences and ideas. I 
remain committed to protecting the Medicare program and finding 
new ways to work together with you and my colleagues to fight 
fraud in this important program. Together we can ensure that 
the Medicare program remains strong for the next generation of 
Americans.
    With that, Mr. Chairman, I yield back my time.
    Chairman BOUSTANY. Thank you, Mr. Lewis.
    We have a vote called. I think what we will do is take the 
witnesses' testimony now and then probably recess at that point 
for three votes, and then we will return and resume the 
hearing.
    So now we would like to turn to our first panel of 
witnesses. I want to welcome Dr. Peter Budetti, deputy 
administrator and director of the Center for Program Integrity 
with CMS. Mr. Budetti, you may proceed.

  STATEMENT OF PETER BUDETTI, M.D., DEPUTY ADMINISTRATOR AND 
 DIRECTOR, CENTER FOR PROGRAM INTEGRITY, CENTERS FOR MEDICARE 
            AND MEDICAID SERVICES, WASHINGTON, D.C.

    Dr. BUDETTI. Thank you very much, Chairman--Dr. Boustany 
and Ranking Member Lewis and Members of the Subcommittee for 
the invitation to discuss the Centers for Medicare & Medicaid 
Services' efforts to reduce fraud, waste, and abuse in the 
Medicare, Medicaid, and CHIP programs. I am also very pleased 
to be sharing the table with my distinguished colleague in 
fighting fraud, the chief counsel for the Office of the 
Inspector General, Lewis Morris.
    Mr. Chairman, from the first day that I had the privilege 
of accepting this job about a year ago, I have been asked two 
questions over and over again: Why do you let crooks into the 
Medicare and Medicaid programs, and why do you pay their claims 
when they are fraudulent? And I am very pleased to be able to 
report to you today that we are making a great deal of progress 
on both fronts. We will be keeping the bad guys out of the 
programs, the people who don't belong there, while working to 
make sure that the good providers and suppliers who are our 
partners have, if anything, less difficulties with our 
processes, and we will be moving to deny claims and screen them 
out when they are fraudulent and should not be paid. And we 
actually will be doing that in collaboration with our 
colleagues at the Office of the Inspector General.
    Under the leadership of Secretary Sebelius, CMS has taken 
several administrative steps to better meet the emerging needs 
and challenges in fighting fraud and abuse. The Secretary 
consolidated within CMS, program activities into four centers, 
one of which is the new Center for Program Integrity, and that 
is the one that I have the privilege of leading. This has 
served our purposes well. It has also helped foster our 
collaboration with our law enforcement partners.
    The Affordable Care Act also enhances this organizational 
change by providing us with an opportunity to jointly develop 
Medicare and Medicaid policies together, because the new center 
combines the Medicaid Program Integrity Group and the Medicare 
Program Integrity Group under the same roof for the first time; 
and because the Affordable Care Act, for example, the screening 
provisions in the Affordable Care Act apply equally to Medicare 
and Medicaid, this gives us a new opportunity to consolidate 
and to coordinate the programs and activities and policies 
across both programs to assure better consistency in what we 
are about.
    You might wonder whether administrative changes at an 
organization really mean anything. I can tell you that in our 
case, creating a Center for Program Integrity that is on a par 
with the other major components within the Centers for Medicare 
& Medicaid Services, elevates the issue substantially for both 
internally and also sends a message to the would-be fraudsters 
that we are taking this seriously.
    To explain how we have been transforming our fraud 
detection and prevention work, I now draw your attention to our 
chart which I believe we have also given you some hard copies 
of--but this is a poster that depicts how we are moving from 
our historical state which was based on ``pay and chase''--pay 
claims first and then try to find problems afterwards--to 
preventing fraud. That is our number one goal.
    Number two, we are committed not to pursuing a monolithic 
approach but, rather, to use our resources to apply to bad 
actors and to identify those who pose the most serious risks to 
our programs.
    Third, we are taking advantage of advances in technology 
and other innovations to modernize our approaches to doing 
this.
    Four, consistent with this administration's commitment to 
being transparent and accountable, we are developing 
performance measures that will specify what our targets are for 
improvement.
    Five, we are actively engaging our public and private 
partners from across the spectrum because there is much to 
learn from others who are engaged in fighting fraud, and we 
know that the private sector is oftentimes victim to the same 
schemes and to the same fraudsters as the public sector is.
    Finally, we are committed to coordination and integration 
among all the CMS fraud fighting programs wherever possible.
    I would like to particularly stress one point, Mr. 
Chairman, which is that as we crack down on those who would 
commit fraud, we are mindful of the necessity to be fair to 
health care providers and suppliers who are our partners in 
caring for beneficiaries, and to protect beneficiary access to 
necessary health services. This requires striking the right 
balance between preventing fraud and other improper payments 
without impeding the delivery of critical health care services 
to beneficiaries.
    We will always respect the fact that the vast majority of 
health care providers and suppliers are honest people who 
provide critical health care services to millions of Americans 
every day, and we are committed to providing health care 
services to our beneficiaries while reducing the burden on 
legitimate providers, targeting fraudsters, and saving taxpayer 
dollars.
    I appreciate the opportunity to meet with you today, and I 
will be happy to answer any of your questions later on. Thank 
you very much.
    Chairman BOUSTANY. Thank you, Dr. Budetti, and I should say 
also that your full written statements will be made part of the 
record, as is customary.
    [The prepared statement of Dr. Budetti follows:]

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    Chairman BOUSTANY. Now, Mr. Morris, you may present your 
testimony.

 STATEMENT OF LEWIS MORRIS, CHIEF COUNSEL, OFFICE OF INSPECTOR 
                   GENERAL, WASHINGTON, D.C.

    Mr. MORRIS. Good afternoon, and thank you for the 
opportunity to testify about the efforts of the Office of 
Inspector General and our partners to combat health care waste, 
fraud, and abuse.
    The OIG has been fighting the fight against health care 
waste, fraud, and abuse for over 30 years. Most of our health 
care integrity efforts are funded by the Health Care Fraud and 
Control program account, or HCFAC, and this anti-fraud program 
is a prudent investment of taxpayer dollars. Last fiscal year, 
HCFAC activities returned an unprecedented $4 billion in 
fraudulent and misspent funds. Over the last 3 years, for every 
dollar spent on the program integrity and enforcement efforts, 
the government has returned an average of $6.80. But despite 
our successes, there is much more to be done.
    Those intent on breaking the law are becoming more 
sophisticated, and the schemes more difficult to detect. Some 
fraud schemes are viral. They replicate easily and they 
migrate. As law enforcement cracks down on a particular scheme, 
the criminals may redesign it or relocate to another city. When 
their schemes are detected, some perpetrators have fled with 
stolen Medicare funds and become fugitives.
    To fight health care fraud, our response must be swift, 
agile, and well-organized. My written testimony describes in 
more detail our collaborative efforts and fraud-fighting 
initiatives, and this afternoon I would like to highlight three 
of the government's ongoing initiatives.
    First, our Medicare Strike Forces are cracking down on 
criminals in fraud hot spots across the country. Since their 
inception in 2007, Strike Force operations have charged almost 
1,000 defendants whose fraud schemes have involved more than 
$2.3 billion in Medicare claims. Just last month, as you 
referenced, sir, Strike Forces engaged in the largest Federal 
health care fraud takedown in history. The teams charged more 
than 100 defendants in nine cities, including doctors, nurses, 
and health care company owners. The alleged fraud schemes 
involved more than $225 million in Medicare billings.
    Second, the OIG is using its exclusion authorities to bar 
from the Federal health care program those individuals who lack 
integrity and pose a threat to our beneficiaries. In 
particular, we are holding responsible the corporate executives 
who are accountable for their company's criminal behavior. 
Health care is not limited to career criminals and sham 
providers. Unfortunately, major corporations also commit fraud, 
sometimes on a grand scale. We are concerned that some 
executives of these health care companies may believe that as 
long as the ill-gotten profits outweigh civil penalties and 
criminal fines, health care fraud is worth the risk. The long 
and short of it is that we aim to change that cross-benefit 
calculus by excluding the executives who are responsible for 
the fraud either directly or because of their position of 
responsibility in the company. We are mindful of our obligation 
to exercise this authority judiciously, but if an executive 
knew or should have known of the criminal misconduct of his 
organization, we will operate on the presumption in favor of 
excluding in order to protect our program and its 
beneficiaries.
    Our third initiative enlists the public and the vast 
majority of honest health care providers to help prevent fraud. 
For example, we are conducting free compliance seminars in six 
cities. One of those is taking place in Tampa, Florida, today. 
These seminars educate providers on fraud risks and share 
compliance best practices. We also recently published a fraud 
and abuse booklet for new physicians. It provides guidance on 
how physicians can comply with the fraud and abuse laws in 
their relationship with papers, vendors, and fellow providers. 
We have had over 27,000 hits on our Web site for this booklet 
alone.
    We are also reaching out to the public to play a very 
special role in helping us track down Medicare fraud fugitives. 
We have posted online on our Web site OIG's most wanted health 
care fraud fugitives, and I have included a snapshot of that 
Internet posting for your consideration. Our current most 
wanted list includes 10 individuals who allegedly defrauded 
taxpayers of more than $136 million.
    In conclusion, the OIG is building on our successes and 
employing all the oversight and enforcement tools available to 
us to protect our health care programs, the people served by 
them, and the American taxpayer.
    Thank you for your support of our mission, and I would be 
pleased to answer any questions.
    [The prepared statement of Mr. Morris follows:]

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    Chairman BOUSTANY. Thank you, Mr. Morris and Dr. Budetti.
    What we are going to do now, since we have this pending 
vote, we are going to recess and we will return promptly--we 
have three votes--and resume with questioning. And I appreciate 
your indulgence.
    [Recess.]
    Chairman BOUSTANY. The committee will resume its 
proceedings, and we will start off with questions, now that you 
all have both given your testimony.
    Mr. Morris, I think you were before our committee last 
year, and we spoke about fostering better cooperation between 
health care providers and anti-fraud efforts, and both of you 
alluded to this in your oral testimony.
    I am interested in further exploring the role of physicians 
in preventing health care fraud; identifying it, helping you on 
the front end to identify it. Certainly physicians, nurses, 
other medical professionals, are in a unique position to pick 
up on fraudulent activity on the ground, as sort of direct 
intelligence on the ground as to what is happening. And I know 
you and I spoke about the case in Lafayette, in my hometown, 
and how it involved a whistle-blower who was actually a partner 
of a physician who brought something to light that maybe for 
years had been ongoing and really--was really not detectable 
until that whistle-blower activity.
    So what barriers are there now that you are seeing that 
would inhibit physicians and other providers from coming 
forward and helping you in your efforts to identify potentially 
fraudulent activity?
    Mr. MORRIS. I think there are a number of opportunities. We 
have to do a better job of reaching out to physicians and other 
professionals. Part of it is through education. I made 
reference in my written testimony to the Road Map for new 
physicians, and the idea behind that actually came from medical 
residents who told us they didn't understand what the fraud and 
abuse laws were. OIG put together a booklet that will help them 
not only protect themselves but also be able to recognize when 
a practice is doing something that they might not want to get 
involved in. Education is part of our outreach.
    Every time we go out and demonstrate our commitment to 
compliance, demonstrate that we recognize that this is a 
complex program and that there are lots of opportunities to 
make mistakes, and that it is incumbent on physicians to 
embrace compliance, that that is the way to go. We are not a 
hammer looking at everything as a nail. Building that trust 
goes a long way.
    Next week we are meeting with the American Medical 
Association to get their ideas on how we can work together 
better and ways we can spot opportunities for collaboration. I 
think a big part of it is education. A large part of our 
efforts is also sending a message of compliance, that 
physicians and nurses and other professionals can be our 
partners in ensuring that waste, fraud, and abuse don't harm 
our program.
    Chairman BOUSTANY. Thank you. Dr. Budetti.
    Dr. BUDETTI. Yes. Thank you, Mr. Chairman.
    We have had a series of regional fraud prevention summits, 
and at each one of the summits, the Attorney General and the 
Secretary have chaired them, and then we have had panels with 
law enforcement and providers and beneficiaries. And then I 
have put together breakout sessions with providers at each one 
of the regional fraud prevention summits, and I have to say, I 
am extremely encouraged by the response of physicians and 
providers that I have been meeting with in these groups; that 
they are now very interested in working with us on this, to the 
point where I have been so impressed that I actually have 
created a position within the Center for Program Integrity of a 
medical officer.
    So I am hiring a full-time medical officer to work with the 
physicians and other health care providers around the country 
on program integrity issues, both to get the message to them 
but also to listen and to figure out what it is that we can 
work on together and what we could do different inside of CMS 
that would be more responsive. Because the message we have 
gotten from the providers was very straightforward, but it went 
in two directions. It was, on the one hand, they really want to 
work on this. On the other hand, they want us to do what Mr. 
Morris just said, which is not treat everybody the same; 
recognize the big difference between fraudsters and honest 
physicians, and we are committed to doing that. So I think 
there is a real opportunity here to work very closely with the 
medical community and other providers because the enthusiasm 
seems very strong on their side.
    Mr. MORRIS. If I could add one more thing, we share the 
view that physicians should be part of our team, and we also 
have a chief medical officer who provides valuable counsel to 
us as we do our work, planning and ensuring that we best 
understand what is going on from the physician's perspective.
    Chairman BOUSTANY. I know in the private sector, the 
private insurers often go through credentialing processes. Can 
you talk a little bit about what you are doing now at CMS in 
that regard?
    Dr. BUDETTI. One of the major provisions in the recent 
legislation that will take effect, our final regulation will 
take effect on March 25, speaks to screening of applicants to 
be able to bill Medicare and Medicaid. We all know that that 
has been kind of a soft spot in the programs, people getting in 
too easily. But under the new authorities, we are doing risk-
based screenings so that categories of providers and suppliers 
are assigned to different levels of risk with different levels 
of screening. Then they also have to revalidate periodically, 
every 3 or 5 years depending upon the categories. So this is a 
new approach. It is going to mean a much greater degree of 
scrutiny for the high-risk providers, and about the same 
scrutiny, but maybe done more efficiently for other providers.
    We get something on the average of 19,000 applications 
every month to become a provider in Medicare. So it is a large 
number of people that we have to screen through because most of 
them are going to be honest, of course, but with our new 
screening systems, we are very pleased to have that authority 
and we are putting it into place with a great deal of energy.
    Chairman BOUSTANY. Thank you. Mr. Lewis, you may inquire.
    Mr. LEWIS. Thank you very much, Mr. Chairman. Welcome.
    Dr. Budetti, in your testimony, you talk about the new 
fraud fighting tools because of the Affordable Care Act. If the 
Affordable Care Act is repealed, what would that do to your 
ability to fight fraud in Federal health programs?
    Dr. BUDETTI. Thank you, Mr. Lewis.
    Yes, the Affordable Care Act did provide us with very 
powerful new tools, as well as resources. Both of those are 
extremely important to us. I mentioned the screening 
provisions. The Secretary also has authority to declare a 
moratorium on enrollment of new providers or suppliers, where 
necessary, to fight fraud. We have a different test for when we 
can suspend payments when there is a credible allegation of 
fraud. We have coordination of a number of activities such as 
termination of Medicare and Medicaid, linking those two 
together. There is a variety of other provisions related to 
enhancing the requirements for durable medical equipment and 
home health that are areas of high risk. There are additional 
penalties for violation of the statutes that are involved. 
There is a wide range of very important authorities in the 
Affordable Care Act, and we are very pleased to have them and 
look forward to implementing all of them.
    Mr. LEWIS. Could you explain to Members of the Committee 
why the Medicare Strike Forces have been so successful, and do 
you plan to expand them?
    Dr. BUDETTI. Mr. Lewis, I am very pleased with the success 
of the Strike Forces. I think I will turn to my colleague, Mr. 
Morris, who is more directly involved in those.
    Mr. MORRIS. The Medicare Fraud Strike Forces represent a 
collaborative effort that includes the Inspector General's 
Office, CMS, the Department of Justice, and U.S. Attorneys' 
Offices. Part of the reason they are successful is we are 
working better together. We are using data to spot fraud hot 
spots and get to the problem quicker. Instead of waiting 6 
months or a year to identify an abusive provider, we know 
within weeks if someone is engaged in Medicare fraud.
    By putting resources into these fraud spots and focusing 
prosecutors and dedicated investigative resources, we are able 
to more effectively deploy them in strategic fashion. We are 
getting remarkable results as a result of those efforts.
    Mr. LEWIS. Thank you very much.
    Mr. Morris, in your testimony you discuss the agency's 
ability to exclude providers from Medicare. On average, how 
many providers do you bar from Medicare each year, and how has 
your focus on corporate executives helped you fight fraud?
    Mr. MORRIS. On average, we exclude around 3,300 individuals 
and entities each year from the Federal health care programs. 
The basis of those exclusions include convictions related to 
Medicare fraud and patient abuse, as well as a number of 
discretionary authorities; loss of licensure in a State, for 
example.
    One of the things that we would like to close a loophole on 
is our ability to go after corporate executives who are 
responsible for corporate crime but evade our exclusion tool by 
simply quitting the company. The current statute only allows us 
to exclude if the person continues to be employed by that 
sanctioned entity. We think we need to close that loophole.
    We also need the ability to focus on related entities. If 
we identify one nursing home that has committed criminal abuse 
of its residents, ofttimes that is because the corporate heads 
have denied needed resources to that facility. It has been very 
difficult for us to get up to the corporate heads and hold them 
responsible for the abuse of residents in an individual 
facility, and the amendment of our discretionary exclusion 
authority would give us the ability to do that and be able to 
say to that corporate executive, you are out of our program 
because you are not treating our residents the way we expect 
you to.
    Mr. LEWIS. Again, I want to thank the two of you for being 
here and thank you for your service. I yield back, Mr. 
Chairman.
    Chairman BOUSTANY. I thank the ranking member for his 
questions.
    The chair now recognizes Ms. Black, if you are ready, or I 
can now move on.
    Ms. BLACK. Is there someone else ready?
    Chairman BOUSTANY. We will give you some time. Ms. Jenkins, 
you may inquire.
    Ms. JENKINS. Thank you, Mr. Chairman. Thank you for joining 
us.
    Mr. Budetti, one of the new tools put in place by the new 
health care law was the requirement for face-to-face meetings 
for certain Medicare services. In Section 6407 of the bill, it 
requires that a provider conduct face-to-face meetings before 
certifying that patient is eligible for their home health 
services. And while I understand the intent of this regulation 
to fight abuse of the system, I wonder if your agency has taken 
regional concerns into consideration.
    In a rural State like Kansas, we already have a shortage of 
physicians, and this requirement is simply not feasible for 
direct supervision for outpatient therapeutic services for 
critical access in rural hospitals. If the regulations are 
followed as written, many of my hospitals would have to 
eliminate a lot of outpatient services, and that is creating 
access and cost issues for the beneficiaries.
    So I was just wondering if you could speak to any 
discussions that you have had or any ideas for how to make this 
new requirement work in our rural communities.
    Dr. BUDETTI. Well, thank you, Ms. Jenkins. I think that, of 
course, we are in the position of enforcing the statute as 
written, but we are also very much interested in not cutting 
off beneficiary access, and we are very sensitive to the kinds 
of issues that you are raising.
    This area of home health and also the area of durable 
medical equipment have been high-risk areas for us, and so it 
is quite important for us to move forward with implementing 
some of the different approaches. But that is an area that we 
did listen to some of the comments that we received about the 
timetable, and we are responding to that, and we are very 
interested in working on this.
    And I would be delighted to listen to any specific incident 
that you would like to relate from your home State of Kansas. I 
would be pleased to meet with you and listen to that and try to 
understand exactly what the kinds of issues are and how we 
might address those.
    Ms. JENKINS. Okay. Thank you. We will look forward to 
taking you up on that offer.
    On another note, CMS is expanding their use of recovery 
audit contractors, the RACs, and authority given to them by 
this new law. And I have some concerns that these contracts are 
for profit and aggressively going after claims with cash-
strapped hospitals, especially in rural States like Kansas. 
While I agree that waste and fraud needs to be found and 
addressed, this seems to me to be a duplication of audit 
services. Search and probe audits were already occurring before 
this RAC process was authorized. The rate of denied claims by 
the RAC which are then being overturned is over 70 percent. 
During this time, if a hospital does not pay the recoupment 
requested and allows it to follow the automatic process, 
interest is then charged on the claim amount to the hospital at 
over 13 percent; and even if the claims are reversed, they 
don't get their interest back.
    So questions for you: What is the net cash to CMS on the 
RAC program, and can you speak to whether this is actually 
saving money in the health care system and increasing quality 
patient care, or is it simply shifting more of the cost to 
these small hospitals by requesting payment after the fact and 
adding to their administrative costs?
    Dr. BUDETTI. The recovery audit contractor program is, as 
you mentioned, one that is based on contingency fees, and so 
they are paid for out of their recoveries, and so that is the 
structure of the RAC program, as you mentioned.
    And the RAC program was implemented, first, in a small 
number of States, and it did experience a number of issues. And 
so the feedback that we got during the initial implementation 
phase has been taken into very strong consideration in shaping 
the way the program is being implemented going forward. We 
phased in the full national implementation for just that 
reason, and we are also taking that experience into account as 
we also follow the new provisions that require the expansion of 
RACs to Medicaid and to Part C and D of Medicare.
    So the way that the RACs work is, as you mentioned, in 
terms of a portion of the recoveries is how they are funded, 
but we are working very, very hard to make sure that the kinds 
of things that the RACs learn both provide a basis for 
education to other providers so that they can deal with those 
kinds of issues and also so that we understand how to improve 
the RAC program.
    I would have to get back to you on the exact recoveries. I 
do know that the rate of being overturned on appeal was much 
higher. I don't offhand remember the exact numbers but it was 
much higher during the initial phase, the pilot phase, and that 
many of the issues that came up in that setting are now being 
taken into consideration on implementation of the full program. 
But I will be happy to get you those numbers.
    Ms. JENKINS. Okay. I would appreciate it. Thank you. I 
yield back.
    [The information follows, The Honorable Ms. Jenkins:]

    [GRAPHIC] [TIFF OMITTED] T7652.028
    

                                 

    Chairman BOUSTANY. The gentlelady, Ms. Black, is 
recognized.
    Ms. BLACK. Thank you, Mr. Chairman.
    My question is for you, Mr. Morris, and I am going to 
borrow on my experiences at my State level. Tennessee was the 
pilot project for initiating universal care, and that program 
was called TennCare. It was unsuccessful. It failed and we had 
to disassemble it because of its high costs.
    And one of the problems in that program that caused it to 
fail is the sheer amount of waste and fraud. And we do have an 
Office of Inspector General, and one of the things that we saw 
that was so effective is to have a hotline for people to 
actually call and report abuses, and it was very successful.
    I didn't notice in your testimony--and of course, you have 
the most-wanted fugitives up here and the hotline for that--but 
do you have something in place that if just an individual knew 
of someone that was abusing the program, that they would be 
able to make a call so that you could investigate?
    Mr. MORRIS. Yes, we do. The number is 1-800-HHSTIPS, T-I-P-
S. We have operators standing by. They are trained to process 
complaints and concerns, many of which actually don't pertain 
to our program.
    As an example, we get calls about Social Security checks. 
The operators are trained to send those over to Social 
Security. Operators also vet the continuing complaints and 
refer many of them to our Office of Investigations or our 
Office of Audit Services. We get thousands of hotline calls 
every month, and one of the jobs of these operators is to go 
through them, and those that have potential to start a criminal 
investigation or a civil investigation are sent to our 
investigative teams.
    Ms. BLACK. And to follow up on that, can you give me some 
kind of an idea about how effective those calls are? Are you 
finding that you are able to pick up fraud, waste, and abuse on 
those calls--or from those calls?
    Mr. MORRIS. I would need to get back to you with the 
specific percentages within the universe of what actually turn 
into viable criminal investigations. As I mentioned, a number 
of the calls come from citizens who just need to talk to 
someone about a problem with the government. When we are not 
able to be directly responsive because it is an issue outside 
of our agency, we do make sure they get to the right place. But 
I will be glad to get back to you on the specifics of what 
percentage of those calls translate into a viable investigative 
lead.
    Ms. BLACK. And how is it that you let the public know that 
this line is accessible and available to them?
    Mr. MORRIS. Well, it is on our Web site, which gets 
thousands of hits every week. We make a point of bringing it to 
the attention of communities that we speak to.
    I mentioned in my oral remarks that OIG staff are in Tampa, 
Florida, today, talking about compliance training to the 
provider communities down there, and the hotline is one of the 
features that we talk to them about. That way, if they see a 
problem, they know there are avenues to bring it to our 
attention.
    Ms. BLACK. I would really like to get further feedback from 
you on how effective those calls are and whether you really are 
seeing some actual useful information.
    Ms. BLACK. My second question along that same line is, you 
actually have in your written testimony how critical it is for 
the Office of Inspector General to obtain real-time data on 
Medicare claims from CMS. Are you able to get that data in a 
timely fashion?
    Mr. MORRIS. We are make important strides, thanks to our 
partnership with Dr. Budetti and his team. The challenge right 
now, frankly, is one of technology. Dr. Budetti can speak 
better to this, but I believe that many of the claims 
processing systems that CMS has are somewhat antiquated, and 
there are about 20 different systems in play. CMS is making 
great efforts to move those systems into the 21st century so 
that we will be able to get data more quickly.
    The other challenge, of course, we face is being able to do 
something with the data once it arrives at our door; and we are 
committing significant resources to be able to analyze the data 
so we can spot fraud trends and get to the site of a crime as 
quickly as possible.
    Ms. BLACK. Well, thank you. And I do absolutely agree with 
you, because that is one thing we found in our State is that 
the data was there, and being able to mine that data was very, 
very helpful. So I certainly will encourage that we continue to 
do that. Thank you. I yield back my time.
    Chairman BOUSTANY. Thank you. The chair now recognizes Mr. 
Becerra to inquire.
    Mr. BECERRA. Thank you, Mr. Chairman, and again, thank you 
very much for having this be the very first hearing that the 
Oversight Subcommittee does.
    Gentlemen, thank you very much actually for your patience, 
the interruption with votes. We appreciate you being here and 
the work you are doing.
    Quick question. How much are you able to do with the health 
community in the private sector? We are talking about Medicare 
for the most part, Medicaid, but we know that there is a lot 
going on that overlaps between the private sector health care 
system and the public sector health care system. Any quick 
examples--and I want to get to some other questions--but any 
quick examples of how CMS is able to work with the private 
sector in health care to try to deal with fraud that hits both 
public and private sector health care?
    Dr. BUDETTI. Sure. We are doing two things that I can speak 
to right off the top of my head. One is that we are now in the 
process of moving into, as Mr. Morris said, the 21st century, 
with the technology and the sophisticated analytics that are 
currently being applied in the private sector both in the 
health care industry and in other industries. So we are 
reaching out to get the best ideas and the best approaches from 
the private sector and use them in the public programs. That is 
one thing that we are doing.
    We also have been engaged for some time in a dialogue with 
the private sector about building a public-private partnership 
to work together to fight fraud, and that is something that my 
colleague from the Inspector General could also speak to.
    Mr. MORRIS. I did a quick check last night of the number of 
cases that our Office of Investigations is working with its 
private sector counterparts. We have 50 ongoing cases where we 
are sharing intelligence and resources, to tackle a problem 
which is both in the private and the public side. The NHCAA--
you will be hearing from its representative in the next panel--
I think will tell you that we are working very effectively 
together in finding new ways to improve. We are working on a 
best practices document, for example, so that we can find 
additional ways to multiply our efforts.
    Mr. BECERRA. Excellent. I hope you continue to give us 
reports on how you are working together because we know that 
the costs of health care outside of Medicare and Medicaid are 
helping drive the costs of Medicare and Medicaid higher. And so 
to the degree that we help them tamp down costs on the private 
side, it helps us control them on the public side.
    A question--and I had ask asked my staff what the acronym 
stood for, because last year my father ended up having a 
difficult time, and he survived an episode with a heart 
condition, but he got a CPAP machine, and it stands for 
continuous positive airway pressure. I just got to the point of 
calling it the CPAP, the air machine. It helps him breathe.
    We know that there has been an issue with fraud in the area 
of DME, durable medical equipment, the CPAP machine, the oxygen 
equipment, the wheelchairs, the hospital beds that are often 
provided to beneficiaries under Medicare. And in the next 
panel, we are going to hear from an individual who was 
convicted of Medicare fraud involving durable medical 
equipment.
    I wonder if you could tell me what was done in the historic 
health care reform of the Affordable Care Act which is going to 
help us address what we know is pretty aggressive fraud in the 
area of durable medical equipment.
    Dr. BUDETTI. The area of durable medical equipment, as you 
mentioned, also is in fact one of the high-priority areas. And 
I mentioned before that we had structured, as the act requires, 
our screening processes by categories, and the highest level of 
risk includes new durable medical equipment suppliers, and so 
they will be subject to the highest level of screening for new 
entrants.
    There are also provisions in the Affordable Care Act that 
provide for increased surety bonds and other kinds of oversight 
of new DME providers and initial claims. We are also very much 
involved in a completely different approach which has to do 
with the implementation of competitive bidding for durable 
medical equipment, because when you have a limited number of 
bidders who undergo scrutiny to get into that program, we 
believe that will also be helpful in terms of having controls 
on it. And we have had a series of durable medical equipment 
specific initiatives in the past in south Florida and 
elsewhere.
    So it is something that we are attacking from multiple 
points because that is an area that we have to do a better job 
of preventing fraud.
    Mr. BECERRA. Mr. Morris, instead of answering to that 
question--I know I am going to run out of time--can I ask one 
last question? You are obviously using personnel. They are 
obviously having success in helping us detect and track down 
some of this fraud. What happens if you have to furlough or 
reduce your personnel because of budget constraints?
    Mr. MORRIS. Because the significant part of our funding is 
off of the general appropriations--it is through the HCFAC 
account--we are going to be able to keep a law enforcement 
presence. It will be reduced, unfortunately.
    I think the other challenge we will face will be just the 
general disruption when the government goes through a shutdown 
process. We will spend a lot of time on that instead of 
catching bad guys, but to the extent possible, with the funds 
available, we will continue to fight against fraud.
    Mr. BECERRA. Thank you. Thank you, Mr. Chairman.
    Chairman BOUSTANY. Mr. Gerlach, you may inquire.
    Mr. GERLACH. Thank you, Mr. Chairman, and thank you, 
gentlemen.
    Really quickly, want to give you a constituent matter that 
I just uncovered 2 months ago, and I would like to get your 
reaction to it based upon your testimony that you have 
presented to the subcommittee.
    About 2 months ago, a constituent of mine, someone who is 
on Medicare, sought medical advice from his orthopedic surgeon 
regarding an MCL problem he was having with his knee. The 
orthopedic surgeon then prescribed a knee brace for him to help 
him with his recovery of that situation.
    When Medicare was billed for that knee brace, it was billed 
for about $690. That really struck this gentleman as being very 
odd, based upon the knee brace that he got. So he went online 
to the manufacturer's Web site and saw online that the 
manufacturer is only retailing this knee brace for about $190, 
about 2\1/2\ to 3 times more being reimbursed by Medicare for 
what the manufacturer is retailing this knee brace for.
    So with that as a background, Mr. Budetti, for example, in 
your testimony you indicate that the Affordable Care Act has 
offered more opportunities and more provisions to combat fraud, 
as well as new tools for deterring wasteful and fiscally 
abusive practices to ensure the integrity of the program. So 
what would your specific recommendation be today to immediately 
halt this practice of Medicare paying 2\1/2\ to 3 times for 
this kind of medical product? And I am sure there are thousands 
of kinds of medical products that the system or the program 
reimburses for that are probably out of whack for what you 
could pick it up retail for. What are you doing specifically to 
halt that practice immediately?
    Dr. BUDETTI. Thank you for that question, Mr. Gerlach.
    What I mentioned just a minute ago, the competitive bidding 
for durable medical equipment projects a very substantial 
reduction in the prices that will be paid by Medicare. I 
believe it is on the order of 32 percent are based upon 
competitive bidding, and we believe that introducing this level 
of competition into the provision of durable medical equipment 
supplies is an important step towards combating exactly what 
you just mentioned.
    I would also add in follow-up to Ms. Black's question from 
a minute ago----
    Mr. GERLACH. May I interrupt just so I understand exactly 
what you are saying?
    So you are going to have folks competitively bid to have 
the ability to be the entity that provides the product for that 
particular medical condition. Are you going to relate at all 
whatever those bids are to the real-world retail price for 
those products, or are you just going to allow bidding among 
certain entities but they still, even though you picked the 
lowest bid, may not be tied to what the reality is in terms of 
what that product retails for in the real world?
    Dr. BUDETTI. You know, I would be very--I can't--I can't 
speak to the exact market dynamics that governed our initial 
implementation of the competitive bidding, Mr. Gerlach. I would 
be happy to look at exactly that issue for you and get back to 
you on how well the bids that we took compared to the market 
prices that we otherwise would have seen, because that is the 
core of what we are trying to do is to get to a point where we 
are paying either market price or whatever the market should be 
charging for things.
    Mr. GERLACH. When was the last time, if you know, this 
competitive bidding process was used for a knee brace product 
in the program so that that would have been the basis to set 
this new brace price at $690?
    Dr. BUDETTI. We are just implementing the competitive 
bidding this year, and it was in nine areas, but the projection 
is for it to be phased in across the country. I will be happy 
to get you all the details.
    [The information follows, The Honorable Mr. Gerlach:]

    [GRAPHIC] [TIFF OMITTED] T7652.029
    

                                 

    Mr. GERLACH. Thank you, sir.
    And real quickly, Mr. Morris, your office is obviously 
responsible for auditing, evaluating these programs. Have you 
at any time in the past looked at the overcharging, overpayment 
for products of this nature? And if so, what have your 
recommendations been, and how has CMS handled those 
recommendations; or has this been an issue you have not looked 
at before?
    Mr. MORRIS. This is an issue we have looked at a great deal 
over the last 10 years or more. The OIG, of course, does not 
set prices. It merely does the audits. But we have looked at 
everything from wheelchairs to oxygen concentrators to 
orthotics and, in each case, reported back to CMS that we 
believed that the program is paying way too much.
    Mr. GERLACH. What has been the response by CMS to those 
recommendations?
    Mr. MORRIS. It has varied a great deal on the particular 
product, but CMS has generally been receptive to our 
recommendations. In some instances, they put it out they felt 
they had legal barriers to actually reducing the prices. The 
competitive bidding process----
    Mr. GERLACH. Have you had a systematic recommendation to 
cover all of the products that are utilized through the 
program, or have your recommendations been product specific, a 
wheelchair or a knee brace or an oxygen tank?
    Mr. MORRIS. They have been product specific, but with 
broader programmatic recommendations that would go to the 
principle of we ought to pay at market rate and not above it.
    Mr. GERLACH. It seems to me there ought to be some 
systematic recommendations, not individual equipment specific 
recommendations. There are probably problems across the entire 
spectrum of product reimbursement in the program. So, 
appreciate your additional thoughts on that.
    Thank you, Mr. Chairman.
    Chairman BOUSTANY. Mr. Kind, you may inquire.
    Mr. KIND. Thank you, Mr. Chairman. Thank you for holding 
what I think is a very important hearing, and hopefully we will 
have an opportunity in the course of this session of Congress 
to get into this as well. I think it is very helpful.
    Nothing drives people crazier than the thought of wasteful 
payments going out to fraudulent claims being made against the 
Medicare system. So I appreciate the work both of you gentlemen 
and your agencies are doing to combat this.
    Mr. Morris, let me start with this. Have you had a chance 
to quantify the type of return we get on the dollar that we 
spend on anti-fraud measures, what type of return that we are 
recovering from that?
    Mr. MORRIS. Yes, we have. We are very mindful of how 
valuable the taxpayers' dollars are, and we want to make sure 
we are a good investment. If you look at the money spent on our 
health care anti-fraud efforts in the last 3 years, we brought 
back to the government $6.80. That is a great ROI. So the short 
answer is yes, and it is a great number.
    Mr. KIND. So, under the Affordable Care Act, if I got my 
numbers right, roughly $350 million was authorized over a 10-
year period for the feet-on-the-street effort, and I think the 
President's 2012 effort was asking for about $270 million for 
HCFAC. You think that is going to be a wise use of the money as 
far as the potential for return?
    Mr. MORRIS. I confess that I have a somewhat self-
interested answer here. Yes, of course. More seriously, I can 
tell you that there are cases that we want to get to that our 
current resources do not allow us to. By way of example, we 
have put a lot of resources into the Medicare Strike Forces and 
realized a tremendous return both in taking bad guys off the 
street and saving Medicare money, but it has meant that some of 
our civil cases, civil cases involving pharmaceutical fraud and 
others, have had to wait. The ability to bring more feet to the 
job and focus on those cases I think will return very positive 
benefits.
    Mr. KIND. So you don't have to answer this, but it just 
seems intuitively, then, that this is an area where further 
budget cuts may end up costing us more in the long run if we 
are taking away that enforcement capability or investigative 
capability.
    To follow up on what I think Ms. Black was referring to 
earlier, are we getting better at being able to distinguish 
innocent errors that are submitted versus outright fraudulent 
practices? Mr. Budetti.
    Dr. BUDETTI. This is a very high priority for us to do 
exactly that, and that is why I mentioned the risk-based 
approach that we are taking. We are implementing a variety of 
different private sector approaches analyzing data and not just 
claims data, but moving into a much wider range of data. We 
have set a goal of having essentially zero false positives. We 
want to be very sure that we have reached the right conclusions 
in analyzing the data. So, yes, so I believe that we are making 
great progress in that direction.
    Mr. KIND. Let me ask both of you if you have an opinion on 
this. But I think ultimately the key to whether health care 
reform is successful or not is our ability to change the way we 
pay for health care in this country, starting with Medicare and 
moving from the fee-for-service system we currently have under 
Medicare to a fee-for-value or a quality- or outcome-based 
reimbursement system. If we are successful in making that 
transition to a new reimbursement, rewarding value over volume, 
what impact is that going to have on fraudulent practices 
throughout the country?
    Mr. MORRIS. I think it is going to have the potential of 
reducing conventional fraud, in for example the paying of a 
kickback to get a service ordered. The challenge we will face 
is that in any system of reimbursement, there are opportunities 
to exploit it. As we move into an integrated delivery system 
where we are rewarding quality, we are going to also need to 
make sure that some of the other reverse incentives don't 
result in skimping on care or steering of patients. We are 
mindful of those risks, but I think it is critical that we move 
to an integrated system and that we are going to have to give 
the system an opportunity to sort of try itself out. Every 
system has opportunities for exploitation and we are going to 
need to be vigilant.
    Mr. KIND. Sure. Dr. Budetti.
    Dr. BUDETTI. Yes. I think that, as you are well aware, we 
are moving towards implementing a number of new ways of 
organizing and paying for care with accountable care 
organizations and medical or health homes, value-based 
purchasing, a variety of different initiatives. In each case, 
we are raising exactly what Mr. Morris raised which is, if we 
are going to approach this from a new direction, let's look at 
what the vulnerabilities are. Let's do that prospectively so 
that we don't set ourselves up for a different kind of problem 
going forward.
    So, yes, we might very well escape some of the past 
problems that we have had. We want to also be on the lookout 
for what kind of new situations we might encounter as we change 
the system.
    Mr. KIND. All right. Thank you both. Thank you, Mr. 
Chairman.
    Chairman BOUSTANY. Mr. Buchanan, you may inquire.
    Mr. BUCHANAN. Thank you, Mr. Chairman for holding this 
important hearing. Gentlemen, I was curious because I hear so 
many numbers and I am a Member from Florida. But when you look 
at just the fraud or abuse or whatever for Medicare and 
Medicaid, what is the best number? What is the range that you 
use? Because there are so many numbers out there. I hear $100 
billion, $60 billion. What is the estimate as it relates to 
basically Medicare and Medicaid?
    Mr. MORRIS. We share your frustration that there is not one 
number and that there seem to be estimates all over the place--
you hear everything from 3 to 10 percent, 3 percent being what 
the NHCAA estimates, 10 percent being what the GAO estimated 
about 10 years ago. To be honest with you, I don't think we 
know with precision how much fraud there is out there. That is 
in part because fraud is, by the nature of the crime, 
concealment. Good frauds go undetected.
    Mr. BUCHANAN. But what is your best estimate? As someone 
who deals in this every day, what would you say is a range from 
a high to a low or whatever?
    Mr. MORRIS. My best estimate, not based on any empirical 
proof but just everything we see, is that the fraud ranges 
anywhere from about $60 to $100 billion a year across all 
systems, public and private.
    Mr. BUCHANAN. And how much is the public system, Medicare 
and Medicaid; just your estimate? And I am not holding you to 
it. I am just trying to get a sense of what that might be.
    Mr. MORRIS. Well, if we assume that both public and private 
systems are preyed on by the same set of criminals, I think we 
can presume that we would share our proportion of the total 
health care expenditures. So it is going to be in the tens of 
billions of dollars. It is way too high.
    Mr. BUCHANAN. Doctor, what is your thought on it?
    Dr. BUDETTI. Yes, sir. I think that whatever it is, it is 
too high. I think that whether we have a number or not, that 
one thing that we do see is that the more we look for it, the 
more we find.
    Mr. Morris mentioned the return on investment. The return 
on investment has been going up consistently over time as we 
have spent more money to fight fraud. I view that as both good 
news and bad news. It means that it is a wise investment of 
public funds. It also means that we are not on the flat of the 
curve, so to speak; that there is still quite a bit of fraud 
out there for us to find and to deal with. So I think that 
whatever the number is, it is very substantial, and it needs 
our attention.
    Mr. BUCHANAN. Let me mention, you always hear--you brought 
it up here a few minutes ago about south Florida, Miami/Dade/
Broward Counties. And being the only member on Ways and Means 
in Florida, I hear a lot of that even in my own district.
    But let me state something that I read. It was reported by 
the University of Miami. There was a recent report out that 
said it is their understanding that six of the Nation's top 
most-wanted Medicare fraud fugitives have been given refuge in 
Cuba. Could this be the case? Is it ongoing? Is there any 
organized crime component that you are aware of as it relates 
to fraud? And can it be any kind of a tie-in with the Cuban 
Government?
    Mr. MORRIS. I am not aware of any tie-in to foreign 
governments as it relates to the health care fraud perpetrators 
that we either have listed here or elsewhere.
    Mr. BUCHANAN. Have you heard about the six of the Nation's 
most-wanted Medicare fraud victims are in Florida--or, I mean, 
are in Cuba?
    Mr. MORRIS. I have not. I have heard rumors that three of 
them are in Cuba in a Cuban jail.
    Mr. BUCHANAN. Okay. Well, we hear different information. 
Doctor, do you have anything to add to that?
    Dr. BUDETTI. No, I don't.
    Mr. BUCHANAN. The other thought is, and you touched on this 
a little bit earlier, that you are working with the private 
sector together to combat fraud. In terms of the various 
agencies--you know, and I heard you touch on it a little bit--
could you expand on that a little bit more, what you are doing? 
I know you can't be everywhere at all times. But in terms of 
working with the private sector to deal with fraud, what are 
you actually doing?
    Mr. MORRIS. Well, let me give you a great example. The 
Investigation of the Year, awarded by the NHCAA last year, was 
for a collaborative effort in Kansas, focusing on a pill mill, 
two defendants who were pushing painkillers. They were 
associated with potentially 60 deaths from drug overdoses. The 
DEA, FBI, OIG teams and a number of private insurers came 
together, pooled their information on the prescription patterns 
and practices, identified the trends and were able to focus and 
build a case that would have otherwise taken far longer and 
taken far more resources.
    The result is we got the convictions and we were able to 
close down a pill mill that was threatening citizens' lives. 
That is a great example of how we can work with the private 
sector to pool our resources and our intel to get to a just 
result.
    Mr. BUCHANAN. We have 1,300 pill mills. We are dealing with 
that right now. I will yield back.
    Chairman BOUSTANY. Yes. Gentlemen, thank you for your 
testimony and your answers to these questions. Please be 
advised that members may have written questions they would like 
to submit, and I would ask you to oblige. Thank you for the 
work you are doing, and we look forward to hearing from you 
again on this ongoing problem that we are having to deal with 
on Medicare health care fraud.
    Mr. MORRIS. Thank you very much, Mr. Chairman. Members.
    Chairman BOUSTANY. I would now ask the second panel to take 
their seats.
    I want to thank and welcome Karen Ignagni, President and 
CEO of America's Health Insurance Plans; Mr. Louis Saccoccio, 
Executive Director of the National Health Care Anti-Fraud 
Association; and Mr. Ike Odelugo who has pled guilty to State 
and Federal charges related to Medicare fraud. And I want to 
thank all of you for being here as we try to delve into this 
important subject and try to understand what more might need to 
be done.
    You will each have 5 minutes to present your oral 
testimony. Your full written statements will be made a part of 
the record. And Ms. Ignagni, we will begin with you. Thank you.

STATEMENT OF KAREN IGNAGNI, PRESIDENT AND CEO, AMERICA'S HEALTH 
               INSURANCE PLANS, WASHINGTON, D.C.

    Ms. IGNAGNI. Thank you, Mr. Chairman, Dr. Boustany, Ranking 
Member Lewis, and Members of the Subcommittee. We are pleased 
to have the opportunity today to discuss how health plans are 
playing a leadership role in fighting and preventing health 
care fraud; how we are working with the Department of Health 
and Human Services--a number of you inquired about that; how we 
are working with law enforcement and where there are 
opportunities to do even more.
    Our members have developed cutting-edge techniques, as you 
have heard this afternoon, to identify fraud and halt practices 
that lead to substandard care. We are involved in flagging the 
delivery of inappropriate or unnecessary services that may harm 
patients, inappropriate charges or charges for phantom 
services; detecting unlicensed or unqualified personnel, and 
identifying substance abuse and increasingly identity theft. 
Our members' anti-fraud initiatives have prioritized preventing 
fraud before it takes place rather than paying and chasing 
after the fact.
    We are proud that these initiatives were models for the 
important new efforts being made in the public sector and 
believe now even more progress can be made. Health plans fight 
fraud by operating special investigations units that are 
staffed with personnel with clinical, statistical, and law 
enforcement expertise. They do four things: They perform 
intensive license and qualification review. That is the 
credentialing function. They work to identify potential fraud 
before a claim is paid by employing sophisticated software 
techniques to detect anomalies in billing. They investigate the 
clinical basis for the claim that has been flagged and tagged 
by relying on physicians, pharmacists, and other trained 
personnel. Quite a number of these matters, as you heard this 
afternoon, involve medical equipment, infusion, and narcotics 
prescribing. We take action by suspending payments when fraud 
is detected, jettisoning providers from networks, and providing 
information to law enforcement.
    Increasingly, efforts are focused on preventing identity 
theft. When a patient borrows a friend's identity to obtain 
insurance coverage, harm can result to the real beneficiary of 
that insurance policy who may be inappropriately or incorrectly 
tagged with the wrong blood type or identified inappropriately 
as having a condition they do not have. We detect substance 
abuse as a very, very high-priority activity, a current fraud 
and abuse initiative that literally has life-and-death 
significance.
    Looking ahead we have offered the committee this afternoon 
four recommendations:
    First, we are urging a reconsideration of how fraud 
prevention and credentialing programs are treated under the 
interim final regulation for the new medical loss ratio 
requirement. The Department of Health and Human Services' 
interim final rule adopts the recommendations that were made by 
the National Association of Insurance Commissioners which, in 
those recommendations, only allowed fraud recoveries to be 
considered as quality improvement, not the cost of programs 
that have been the focus of discussion this afternoon, the 
prevention and early intervention. This is at odds with the 
promising efforts now being incorporated into the public sector 
programs which are based on the very programs that our members 
have pioneered. Similarly, the MLR interim final regulation 
excludes provider credentialing from the definition of 
activities that improve health care quality which is now 
recognized as a critical function, and we applaud the 
Department for doing that in the efforts that are underway. We 
urge the committee to ask for reconsideration of how these 
programs are handled.
    Second, we have recommended that existing partnerships 
between the private and public sectors be strengthened. We have 
made a recommendation about how that can happen. We think a 
simple aspect of more clarity about the ability of law 
enforcement to share information is important in this endeavor.
    Third, we recommend that the health plans should be 
included in restitution agreements when the Department of 
Justice or other enforcement agencies enter into agreements and 
obtain restitution from people who commit health care fraud. 
This is done sometimes, not always; and we think there are 
opportunities here.
    Fourth, we recommend creating a safe harbor for health 
plans that supply information concerning suspected health care 
fraud to any public or private entity.
    Mr. Chairman, there has been a great deal of progress made 
in certain States. We are encouraged by that. We think there 
should be a more uniform approach, and we hope that the 
committee might consider that more attention could be paid to 
that matter. This concludes our testimony. We appreciate the 
opportunity to be here.
    And, Mr. Chairman, we are very happy to have the 
opportunity to sit next to Mr. Saccoccio who has done a 
fantastic job operating his group that has brought many in the 
public and private sectors together to share this kind of 
information. Thank you very much.
    Chairman BOUSTANY. I thank you.
    [The prepared statement of Ms. Ignagni follows:]

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    Chairman BOUSTANY. Mr. Saccoccio, you may proceed.

  STATEMENT OF LOUIS SACCOCCIO, EXECUTIVE DIRECTOR, NATIONAL 
      HEALTH CARE ANTI-FRAUD ASSOCIATION, WASHINGTON, D.C.

    Mr. SACCOCCIO. Thank you. Good afternoon, Chairman 
Boustany, Ranking Member Lewis, and other distinguished Members 
of the Committee. I am Louis Saccoccio, Executive Director of 
the National Health Care Anti-Fraud Association, NHCAA.
    NHCAA was established in 1985 and it is the leading 
national organization focused exclusively on combating health 
care fraud. We are uncommon amongst associations in that we are 
a private-public partnership. Our members comprise more than 85 
of the Nation's most prominent private health insurers, along 
with more than 80 Federal, State, and local government law 
enforcement and regulatory agencies that have jurisdiction over 
health care fraud who participate in NHCAA's law enforcement 
liaisons.
    NHCAA's mission is simple: to protect and serve the public 
interests by increasing awareness and improving the detection, 
investigation, civil and criminal prosecution, and prevention 
of health care fraud. The magnitude of this mission remains the 
same regardless of whether the patient has health care coverage 
as an individual or through an employer or through Medicare, 
Medicaid, TRICARE, or other Federal or State program.
    Health care fraud is a serious and costly problem that 
affects every patient and every taxpayer in America. Just as 
importantly, health care fraud is a crime that directly affects 
the quality of health care. Patients are physically and 
emotionally harmed by health care fraud. As a result, fighting 
health care fraud is not only a financial necessity, it is a 
patient safety imperative. Also, health care fraud does not 
discriminate between types of medical coverage. The same 
schemes used to defraud Medicare migrate over to private 
insurers, and schemes perpetrated against private insurers make 
their way into government programs.
    Additionally, many private insurers are Medicare Part C and 
D contractors or provide Medicaid coverage in the States, 
making clear the intrinsic connection between private and 
public interests.
    As a result, the main part I want to emphasize is the 
importance of anti-fraud information-sharing between private 
and public payers. NHCAA has stood as an example of the power 
of a private-public partnership against health care fraud since 
its founding, and we believe that health care fraud should be 
addressed with private-public solutions.
    One salient example that illustrates the power of 
cooperative efforts against health care fraud can be found in 
south Florida. In response to the challenge of health care 
fraud schemes in south Florida, including fraud schemes 
involving infusion therapy in home health care, NHCAA formed 
the South Florida Work Group. In meetings held in 2009 and 
2010, this NHCAA work group brought together representatives of 
private insurers, FBI headquarters, and field divisions, CMS, 
HHS, OIG, DOJ, the Miami U.S. Attorney's Office, and other 
Federal and State law enforcement agencies, to address the 
health care fraud schemes emanating in south Florida. The 
details of the emerging schemes, investigatory tactics and the 
results of recent prosecutions were discussed with the dual 
goals of preventing additional losses in south Florida and 
preventing the schemes from spreading and taking hold in other 
parts of the country.
    This type of anti-fraud information-sharing is critical to 
the success of anti-fraud efforts. HHS, OIG, CMS, and DOJ have 
demonstrated a strong commitment to information-sharing with 
private insurers and are working with NHCAA to identify the 
barriers, both actual and perceived, to effective anti-fraud 
information-sharing with the goal of increasing the 
effectiveness of this critical tool in the fight against health 
care fraud.
    It would greatly enhance the fight against health care 
fraud if Federal and State agencies clearly communicate to 
their agents the guidelines for sharing information with 
private insurers, emphasizing that information-sharing for the 
purposes of preventing, detecting, and investigating health 
care fraud is authorized and encouraged, consistent with 
applicable legal principles.
    In addition to information-sharing, the other effective way 
to detect emerging fraud patterns and schemes in a timely 
manner is to apply cutting-edge technology to the data to 
detect risk and emerging fraud trends. The pay-and-chase model 
of combating health care fraud, while necessary in certain 
cases, is no longer tenable as the primary method of fighting 
this crime. In recognition of this fact, many private sector 
health insurers now devote additional resources to predictive 
modeling technology and real-time analytics, applying the fraud 
prevention methods on the front end, prior to medical claims 
being made.
    The Federal Government has also recognized the value of 
real-time data analysis as a key aspect of its interagency HEAT 
initiative. The Medicare Strike Force model, as you have heard, 
employed by the HEAT program combines Medicare paid claims into 
a single searchable database, identifying potential fraud more 
quickly and effectively. Additionally, CMS is working to 
implement risk-scoring technology to apply effective predictive 
models to Medicare.
    NHCAA is encouraged by the renewed Federal emphasis given 
to fighting health care fraud, and NHCAA knows continued 
investment and innovation are critical. And as greater 
attention is given to eradicated fraud from government health 
care programs, we urge decisionmakers to also recognize and 
encourage the important role that private insurers play in 
keeping our health care system healthy and free from fraud.
    Thank you for allowing me to testify today. I would be 
happy to answer any questions. Thank you.
    Chairman BOUSTANY. Thank you Mr. Saccoccio.
    [The prepared statement of Mr. Saccoccio follows:]

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    Chairman BOUSTANY. And, Mr. Odelugo, thank you for being 
here. You may proceed, sir.

 STATEMENT OF AGHAEGBUNA ``IKE'' ODELUGO, PLED GUILTY TO STATE 
    AND FEDERAL CHARGES RELATED TO MEDICARE FRAUD; HAS BEEN 
  ASSISTING LAW ENFORCEMENT WHILE AWAITING SENTENCING IN MAY; 
                         HOUSTON, TEXAS

    Mr. ODELUGO. Thank you, Mr. Chairman and Members of the 
Committee. It is with profound humility and deep gratitude for 
this opportunity that I come before the Members of the 
Committee today to provide testimony on the pressing issue of 
Medicare fraud in the durable medical equipment (DME) sector of 
the health care services industry.
    My name is Aghaegbuna ``Ike'' Odelugo. I am from Nigeria 
and came to the United States in 1998 with the sincerest of 
intentions to eventually acquire my master's degree. Instead, 
beginning in 2005 and extending to 2008, I engaged in a 
business that presents unique opportunities for fraud and 
abuse. I am speaking of the DME sector of the health care 
services industry. I engaged in fraud and abuse in this 
industry. I participated with others in 14 different companies, 
reaching 11 different States.
    DME fraud is incredibly easy to commit. The primary skill 
required to do it successfully is knowledge of basic data entry 
on a computer. Additionally required is the presence of so-
called ``marketers'' who recruit patients and often falsify 
patient data and prescription data. With these two essential 
ingredients, one possesses a recipe for fraud and abuse. The 
oven in which this recipe is prepared is the Medicare system. 
This system has a number of weaknesses which are easily 
exploitable. This is a nonviolent crime and is often committed 
by very educated people, including business people, hospitals, 
doctors and administrators. It reaches across all ethnic and 
racial lines. It relies on an often unsuspecting victim base of 
Medicare recipients, elderly citizens who long for attention 
and care, who simply want someone to talk to. It also at times 
involves patients who willingly participate in the fraud.
    DME providers who engage in this type of fraud either do 
their own billing or outsource the billing to persons such as 
myself. In my own experience, I dealt with 14 DME companies and 
did their billing. I often dealt directly with marketers who 
provided patient referrals, most of them fraudulent. I also 
dealt with physicians who knowingly participated in this fraud 
by knowingly writing prescriptions when they knew they were not 
medically necessary, or at times writing prescriptions for 
patients they never saw.
    I am not here today to appear proud of what I have done, 
yet I want the Members of the Committee to understand that I 
have done everything humanly possible to correct my past 
wrongs. The opportunity to testify today before this 
subcommittee is something I am very grateful to be able to do.
    Mr. Chairman and Members of the Committee, I want to thank 
you for allowing me the opportunity to address the Subcommittee 
on Oversight. I sincerely regret my actions over the past years 
and today's testimony, I hope, will be understood as part of a 
continuing effort on my part to help in any way I can to 
correct my wrongs and prevent future wrongs.
    I also wish to take this opportunity to publicly thank 
Assistant United States Attorney Al Balboni and Special Agent 
Joseph Martin of Health and Human Services for the confidence 
they have placed in me during the course of my continued 
cooperation.
    Finally, I wish to publicly apologize to this body and, 
most of all, to the American taxpayers. I am now prepared to 
answer any questions the Members of the Committee may have. 
Thank you.
    Chairman BOUSTANY. Thank you, Mr. Odelugo. We appreciate 
your testimony.
    [The prepared statement of Mr. Odelugo follows:]

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    Chairman BOUSTANY. Ms. Ignagni, in your testimony you 
mentioned the possible negative impact of the medical loss 
ratio rules on a private insurer's anti-fraud efforts. Could 
you elaborate more on that? What will happen if this rule is 
fully implemented, and what the impact will be on your efforts 
or your private insurer companies, their efforts to conduct 
anti-fraud activities?
    Ms. IGNAGNI. Thank you, Mr. Chairman. We appreciate the 
opportunity to speak more about this. Essentially what the MLR 
requirements involve in a very direct way is that it allows 
plans to categorize expenditures for health care quality 
activities. What is not included in the quality activities are 
two buckets, basically. Number one, credentialing of providers. 
Dr. Budetti talked, I think very effectively, about the 
importance of that being added to government programs. We agree 
with that. We have pioneered those techniques. We are not 
allowed to account for those under quality in the present 
recommendation that was submitted by the NAIC to the Department 
of Health and Human Services, number one.
    Number two, also the preventive aspects that I talked about 
and Mr. Saccoccio talked about; the data mining, the predictive 
modeling, the early detection prevention that now the 
Department is working very hard also to incorporate into their 
public programs, again, important activities underway at HHS. 
We have had those activities underway for very, very many years 
and have been very successfully undergoing and engaging in 
programs and efforts. So we flagged that both for the NAIC, we 
flagged it for the Department, and we wanted to flag it today 
as the committee is focusing on the progress that is being made 
now in public programs, particularly incorporating these very 
techniques. It is penny-wise and pound-foolish, essentially.
    Chairman BOUSTANY. So in addition to that, both you and the 
panel before you talked about the importance of public-private 
partnerships.
    Ms. IGNAGNI. Yes, sir.
    Chairman BOUSTANY. And if this rule goes forward, it really 
hurts your ability to conduct anti-fraud activity at a time 
when we are trying to enhance and move forward on these 
collaborations between the private sector and the public 
sector. Is that correct?
    Ms. IGNAGNI. The incentives are, as you have correctly 
stated, now under the recommendations that were made originally 
by the NAIC, and there was considerable discussion about that 
here. It is only for the pay-and-chase situation. And that is 
precisely what everyone wants to get away from and what our 
plans have worked very, very hard to actually not only think 
about executing programs but actually operating programs very 
effectively and very successfully.
    And as you heard from Mr. Morris who spoke very effectively 
about this as well, we are now turned to by law enforcement 
agencies for help in their activities, and are very effectively 
doing that.
    Chairman BOUSTANY. Mr. Saccoccio, do you want to comment on 
that as well?
    Mr. SACCOCCIO. Yes. You know, we feel that if you look at 
the Federal side, a lot of resources have been put into anti-
fraud efforts. And the President's budget I know asks for an 
increase of discretionary funding for the health care fraud and 
abuse control program. There are additional fundings in the 
Affordable Care Act. It doesn't make sense to put all those 
investments on the Federal side and then create a rule that is 
really a disincentive for private plans to invest in the type 
of preventive-type techniques that you want to use to go after 
fraud.
    Chairman BOUSTANY. It runs counter to the whole effort, it 
seems.
    Mr. SACCOCCIO. That is correct.
    Chairman BOUSTANY. Okay. Thank you.
    With regard to the interaction between private sector and 
public, when a private insurance company highly suspects fraud 
or actually detects fraud, you do contact CMS to notify them, 
right? Most of the time or all the time?
    Ms. IGNAGNI. The first place that normally this contact is 
made is law enforcement. Oftentimes there are criminal cases 
that our plans suggest and expect based on what they are seeing 
in their data. So oftentimes that is the first place.
    Increasingly, Mr. Chairman, there will be this exchange of 
information now with the new activities that are being built in 
the public sector. We have similar kinds of activities. So it 
is easier to go back and forth. And there has been a great deal 
of communication both in Mr. Saccoccio's association as well as 
with law enforcement directly. We think there is an 
opportunity--more opportunity for information-sharing from law 
enforcement to the private sector, when there is a case that 
has been opened, to more routinely share information. And we 
think that there needs to be some clarification in that regard 
to make sure that agents are aware that that is permissible and 
that they can do that.
    Chairman BOUSTANY. So you still are encountering some 
barriers there whereby a Federal agent may not feel comfortable 
cooperating or collaborating with----
    Ms. IGNAGNI. In some cases. We think there is just an 
opportunity for clarity here and there could be more 
consistency and more uniformity of practice.
    Chairman BOUSTANY. And if you have further suggestions 
specifically on how we might do that, you might bring it 
forward to the committee.
    Ms. IGNAGNI. Thank you, sir.
    Chairman BOUSTANY. Thank you. Mr. Kind, you may inquire.
    Mr. KIND. Thank you, Mr. Chairman. And I thank the 
panelists for their testimony here today. Karen, let me 
continue with you for a second. You said first referral goes to 
local law enforcement for follow-up and possible prosecution. 
Have you found that they have the level of competency or 
expertise in order to pursue these investigations?
    Ms. IGNAGNI. It is a very good question that you are 
posing. And it really depends on the issue at hand. This is a 
very important question. In some cases they are very active--we 
had a case recently where one of our special fraud 
investigative units found that they were being billed for 
phantom procedures by infusion clinics that weren't providing 
services to anyone. They were just being billed. And they 
noticed that in the data because they noticed an uptick from 
what was going on usually in the community. So it caused them 
to ask questions and so on.
    That is fairly straightforward in terms of how that 
compares statistically with norms. If you have certain 
overutilization of procedures which are very clinical, very 
high tech, we have found now that there is a great deal of 
activity going on in law enforcement to make sure that they are 
getting the kind of medical expertise that Mr. Morris talked 
about, frankly, with the medical director being involved in the 
OIG activities. There is quite a lot of that going on.
    And I know Mr. Saccoccio has far more experience than I do. 
So I am happy to yield to him, Mr. Kind, for more explanation 
about this.
    But generally we are finding that in our units, we have 
staffed them with people who know about law enforcement, people 
who are clinicians, people who know about pharmacy, and people 
who are statisticians. And that served our plans very, very 
well, to have a full panel of techniques they can deploy.
    Mr. KIND. Mr. Saccoccio, do you have anything to add?
    Mr. SACCOCCIO. Mr. Kind, one of our goals and one of our 
missions at NHCAA is to educate investigators about fraud. So 
we probably educate between 150 to 200 FBI agents every year, 
about 50 to 70 IG agents every year. So that that is an 
important part of what we do, too, and that was the concept 
behind this public-private partnership. And when this education 
takes place, it is both private and public investigators coming 
together, sharing their experiences, sharing what they know, 
their best practices. And that is really critical.
    So I think we are seeing that. For example, the FBI and the 
IG does have that expertise. As they bring in new agents, we 
take them into our programs, educate them about what they need 
to know, because you are dealing with coding and medical jargon 
and those kinds of things that you know, say, maybe a new FBI 
agent isn't aware of. But I know the agency is very good about 
getting their agents trained, and we do a lot of that with 
them.
    Mr. KIND. Karen, if we eventually move from fee-for-service 
to fee-for-value reimbursement, is that going to have any 
impact on anti-fraud measures?
    Ms. IGNAGNI. This is also a thoughtful question. I heard 
you pose it to the last panel. I think, Yes, but. Let me just 
tell you the ``but'' I was thinking when I was sitting back 
there listening. What we are seeing in some of our fraud units 
also is when you go to bundling of payments and you have more 
integration, there are new skills that are required to make 
sure that we are not seeing up coding in that situation. So, 
yes. But I want to provisionally say that there are new skills 
and tools that we are already deploying to make sure that we 
can spotlight problems.
    Also moving from the ICD-9 to ICD-10 coding system, you are 
going to be creating thousands of new codes. We are very 
concerned about upcoding there as well. So we will be deploying 
new skills to make sure we are spotlighting that early.
    Mr. KIND. And what about the build-on on the HIT systems 
and the integration of those systems? Is that going to enhance 
data collection?
    Ms. IGNAGNI. It has in our case. What we have seen is just 
the investment that we have made in infrastructure in HIT, has 
really allowed the statistical tools to be deployed. They are 
very sophisticated and you need the right kinds of personnel to 
operate them, obviously. But this investment in IT allows that 
to move much faster.
    In the old days we used to be looking at clinical charts. 
Now we are looking at data and we can look at reports and we 
look at statistical profiles, frankly, of areas and different 
practitioners.
    Mr. KIND. Thank you. I have to go run and vote.
    Mr. GERLACH. [Presiding.] Let me follow up on some of the 
points you made in your testimony. And you see members moving 
off of the dais here because we had a vote series called about 
15 minutes ago, so that is why they are running over to the 
floor and voting and then some of them are coming back as well, 
given the space that we have between a couple of the votes. So 
we would like to try to conclude the hearing today, and 
hopefully we can do that with your continued testimony here 
over the next few minutes.
    Mr. Odelugo, if I may go to you, sir. Thank you for 
testifying today. And thank you for your insights. We heard 
from the other two presenters on the panel with you, some of 
their more systematic views of what is happening with health 
care fraud, their experiences out there in the system from a 
systematic standpoint.
    You were very much involved in fraudulent activity through 
your individual activity and those of those you partnered with. 
You said in your testimony that it was incredibly easy to 
commit fraud, and as a result you billed the system for over $1 
million, if our information is correct. Is that accurate?
    How long did it take you to put in place the plan of action 
that you engaged in, getting other folks to participate with 
you to the point where you were able to make claims and 
ultimately collect over $1 million in Medicare reimbursement 
payments?
    Mr. ODELUGO. It didn't take me that long. It was just a 
matter of understanding the system.
    Mr. GERLACH. I am sorry. Say that again?
    Mr. ODELUGO. I said it didn't take that long. It was a 
matter of understanding the system and setting up the 
structures. Not more than a month.
    Mr. GERLACH. Okay. The people you worked with in this 
process, in this scheme, how did you approach them? And how 
willing were they to participate? Because, obviously, they were 
going to make money out of this scheme that they shouldn't have 
been making. Was it pure greed? Or what was it that got you to 
entice them to participate in this fraudulent activity?
    Mr. ODELUGO. Basically I didn't approach them. I found--
well, like I found a loop in the system where I could bill for 
some things on a patient--maybe out of a patient bill up to 
$4,000, $5,000. And I kind of set up a billing system. Where 
most of them were interested in billing for wheelchairs, I was 
concentrating on billing for these ortho-kits. And they 
couldn't figure it out on how to do it. So most of them had to 
come to me to bill for their provider services.
    Mr. GERLACH. Was there somebody that gave you this idea 
initially to participate in this activity? Or did somehow you 
decide, you have accessed physician identifier numbers on the 
computer and figured out how to move forward?
    Mr. ODELUGO. No. Just like I heard your last question you 
were asking about the knee brace. My understanding, the cost of 
the back brace which was about $960, against $80. And then, you 
know, from there, I started getting into more of it. Then I got 
to know about the hinged knee braces. All of this is right in 
the computer. You go online, you can see them and how much they 
pay for it. And you just get the correct code and bill it. That 
is all it takes.
    Mr. GERLACH. Okay. Ms. Ignagni and Mr. Saccoccio, have you 
had an opportunity to read the Affordable Care Act's anti-fraud 
provisions that were enacted in this law? And if so, what is 
your overall sense of how effective they might be? Or what 
other recommendations would you have that are not included in 
those provisions that we ought to be looking at making into law 
to try to really address the fraud and waste and abuse problems 
that we have?
    Mr. SACCOCCIO. The anti-fraud provisions in the Affordable 
Care Act I think are going to be effective, with respect to the 
screening, as Dr. Budetti and Mr. Morris spoke about earlier. 
Screening, the moratorium, bringing in certain classes of 
providers, given the circumstances, the Secretary's ability to 
suspend payments when there is a credible allegation or 
credible evidence of fraud. All those things I think are good 
things.
    The additional resources as far as money that is there, I 
think also obviously is a good thing, especially given the 
return on investment that you get. It is unlike maybe some 
other Federal spending. This is money that you put in, that you 
get back a nice return on investment.
    As far as other things, I think there is--as CMS goes 
forward and develops their analytical tools, their data 
analytics, to the extent that they are able to share that 
information with private insurers, I think that would be very 
helpful. In other words, as they, say, get into the 21st 
century with respect to looking at Medicare data, as they begin 
to find trends and schemes, to be sure to share that with the 
private side. I mean, we do a lot of that now. But I think it 
is going to be important as they--because they have probably 
the largest group of data than any--the other private insurers 
obviously are divided up, you know, by company. Here with 
Medicare, to be able to get that information that they develop 
based on those analytics, I think would be very helpful and 
critical once they are able to do that.
    Mr. GERLACH. Ms. Ignagni, do you agree?
    Ms. IGNAGNI. I agree with Mr. Saccoccio. And I think 
further that one could provide more clarity about the sharing 
of information so that particularly law enforcement agents know 
that that is permissible.
    Second, I do believe that there should be more thought to 
this issue of having safe harbors for health plans that 
actually provide information to State insurance commissioners, 
provide information to law enforcement, to the agency, to make 
sure that it is very clear that that is permissible and there 
will not be countersuits from providers who are at the other 
end of that information.
    And then I do believe that in the area of restitution, it 
should be more routine that the private sector is included in 
those restitution agreements and efforts. And then finally the 
MLR, sir.
    Mr. GERLACH. I will yield back to the chairman. Thank you.
    Chairman BOUSTANY. [Presiding.] The chair recognizes the 
ranking member of the subcommittee, Mr. Lewis.
    Mr. LEWIS. Thank you very much, Mr. Chairman. And welcome. 
Thank you for your testimony. I have had an opportunity to read 
over it.
    Mr. Odelugo, we understand that you have been cooperating 
with law enforcement for over 2 years. Why did you initially 
get involved with Medicare fraud? And why have you chosen to 
come forward? What moves you? What suggested to you to 
cooperate, to come forward?
    Mr. ODELUGO. Before I came forward, I really stopped doing 
it. I stopped doing that in December of 2007 when I knew there 
was an ongoing investigation on me. So I approached my attorney 
right here, and he advised me that the best thing for me to do 
was to come forward and get them to know me and talk to me. And 
that is how I got to turn myself in. And from then on, I 
started cooperating with them, based on their suggestion.
    Mr. LEWIS. Do you have any regrets? Would you tell others 
that may have the desire, the urge to participate in defrauding 
Medicare or some other Federal health program, suggest to them 
that this is not the way to go?
    Mr. ODELUGO. I have been doing that already.
    Mr. LEWIS. All right. I appreciate that.
    Mr. Saccoccio, on your Web site, you warn consumers about a 
new scam involving health care. What are the types of scams you 
have seen to date? What tips do you give consumers?
    Mr. SACCOCCIO. I think probably if I had to pick the one 
top scam, it would be identity theft. And that is not just 
identity theft where person A steals person B's identity in 
order to get health care, but large-scale identity theft that 
occurs in Medicare and Medicaid, regrettably on a regular 
basis, where folks on the inside that is somebody, say, working 
at a clinical laboratory or a hospital, decides that they are 
going to take this information and sell it on the outside. So 
folks could still make false claims. Sometimes the information 
is obtained through misrepresentations, phone calls where 
seniors are fooled into giving their information over the 
phone.
    So I think the biggest one right now is medical identity 
theft. And the biggest recommendation we give to consumers is 
to protect your health insurance information, whether it be 
Medicare, private insurance, whatever it happens to be. Make 
sure you protect that just like you would a credit card, your 
Social Security number. Just do not give that information out 
to anyone on the phone unless you particularly know who you are 
speaking to. So I think identity theft is really the biggest 
one.
    And the other hot areas that we have seen I think are 
similar to Medicare. It has been DME. It has been home health 
care. It has been infusion therapy. And the other one, 
community mental health centers, are now I think becoming a 
challenge as well. But you know, from a patient and a consumer 
perspective, I think identity theft is the number one thing 
they need to look out for.
    Mr. LEWIS. Thank you. Ms. Ignagni, I understand your 
members have experience in analyzing claims and they are using 
this to predict fraud. Based on their experience, what 
recommendation or best practice will you share with us and CMS?
    Ms. IGNAGNI. I think, sir, that CMS now is in the process 
of adopting exactly the kinds of tools and techniques that we 
use. It is called in statistical terms ``predictive modeling,'' 
software packages that actually detect anomalies in data. In 
other words, in a particular area, there are patterns of 
practice. When you see in the data that a particular physician, 
a particular pharmacy, a particular area, is up significantly 
or we have seen situations where physicians are billing over 
50-some patients in a day, that would be an anomaly that this 
software would flag.
    We have been very pleased that CMS now, and the Department, 
is adopting the same kind of tools and techniques, and they 
work very, very well to really give you that early intervention 
and that kind of emphasis on prevention so you want to detect 
fraud before any claim is paid.
    It is much harder when you are paying and chasing, and it 
is much better when you can do this earlier on. And that is 
where we have really focused a great deal of our activities. 
And, frankly, that was the model on which there was a lot of 
discussion last year, and now the Department is actually 
operating those same skills.
    Mr. LEWIS. I just want to thank you for being here and for 
your testimony. Mr. Chairman, thank you for holding this 
hearing.
    Chairman BOUSTANY. Thank you. Ms. Jenkins, you may inquire.
    Ms. JENKINS. Thank you, Mr. Chairman. And I, too, want to 
thank you for this hearing and thank you all for your 
testimony.
    Ms. Ignagni, as you are aware, the Medicaid program was 
designated as high risk by the Government Accountability Office 
in 2003 and Medicare has been designated that way since 1990. 
In the last update on these high-risk programs back in February 
of this year, GAO states that CMS has not met their criteria 
for having the Medicare program removed from this list. And 
while they have implemented certain recommendations for 
Medicaid, more Federal oversight of the fiscal and program 
integrity is needed. The new health reform law expands 
eligibility to both of these programs.
    So, could you just please address how this will affect your 
Association's ability to reduce fraud over an even larger 
population and pool of taxpayer dollars?
    Ms. IGNAGNI. What our plans have done is actually pioneer a 
number of different practices which are very, very important. 
First, credentialing. We have put a lot of resources into 
making sure that physicians have the qualification that 
patients expect, that they are licensed, that they don't have 
malpractice efforts, that they have not been convicted of 
fraud, et cetera. They just go down the line. Those are very 
robust activities that we have worked very, very hard to make 
sure as we are putting together panels of practitioners, 
clinicians, that we can guarantee to our beneficiaries that we 
have executed those processes, number one.
    Number two, the whole area that the chairman was inquiring 
about a few minutes ago in terms of how do you step back and 
prevent fraud, getting the statistical packages operating 
with--they are called SIUs, special investigative units, with 
clinicians, with statisticians, with pharmacy experts, with law 
enforcement experts, so that you can look at what we are seeing 
in the data; where are their hot spots, if you will; where is 
there trouble? What needs to be done? We flag claims and then 
we do further investigations. So that is on the front end.
    Also, when payments are made, there are similar processes 
that are executed to make sure you are following those; if we 
have missed anything, to make sure that we are catching it also 
on the back end. Similarly for pharmacy, in the area of 
pharmacy, we have found clinics that are prescribing pain 
medications. There have been a number of efforts to shut those 
clinics down, detect them, et cetera. There has been a great 
deal of work between our health plans and law enforcement and 
public officials to do exactly that. And you will see that 
expanding.
    Infusion, as Mr. Saccoccio said, we have seen a very, very 
significant uptick in problems related to infusion; clinics 
springing up, billing, and no patients behind those bills. So 
we have worked very hard to put in place practices that will 
detect that.
    Unnecessary procedures that can be life-threatening for 
patients. We have seen situations where physicians have 
operated on patients who didn't need those operations. Or in 
some cases people weren't qualified to actually practice the 
services they were providing. So unnecessary services, a very, 
very big area. I must say, of course, that the majority of 
physicians, of course, are upstanding, ethical individuals. But 
there are some bad apples. So our tools and techniques are 
designed to detect those.
    We worked very closely with Mr. Saccoccio's Association 
that has brought together health plans, law enforcement, and 
public officials to share this kind of information. Mr. 
Saccoccio does a great deal of training, as he indicated, which 
is very, very important to make sure that all sides have access 
to the best practices that work and that work effectively.
    And now that the public agencies have adopted the practices 
of private sector plans, then I think there is reason to be 
very, very hopeful about the ability to do even more to share 
information under the auspices of Mr. Saccoccio's Association 
and the activities that are underway at the Department that we 
heard about earlier.
    Ms. JENKINS. Okay. Thank you.
    Ms. IGNAGNI. Sure.
    Ms. JENKINS. Ten years ago, back in Kansas City, we had one 
of the most horrendous cases of health care fraud that I ever 
heard of. A local pharmacist was convicted of diluting nearly 
100,000 prescriptions for 4,000 patients. His profits came from 
diluting expensive chemotherapy medications. A local 
pharmaceutical sales rep was the first one to suspect foul 
play. He discovered that pharmacist was selling more of a 
specific drug than he was purchasing from him. He worked with a 
doctor who used this pharmacy and the local authorities to 
bring charges against the pharmacist.
    Mr. Ignagni and Mr. Saccoccio, you both mentioned the need 
for more public-private cooperation to help combat health care 
fraud. The case I just mentioned was greatly assisted by 
private companies. Can either one of you elaborate on what else 
those of us in Congress can do to allow and encourage private 
companies to work with CMS and our law enforcement to reduce 
fraud in the system?
    Mr. SACCOCCIO. Well, I think, as I mentioned, data analysis 
is going to become critical going forward. CMS is in the 
process of looking for and putting in place the right type of 
system as far as predictive modeling for Medicare. I think it 
is going to be critically important as they develop these 
systems on the set of data that they have, which is an enormous 
set of data, that that data be shared, that what comes out of 
that data be shared with the private side.
    It is critically important not just for the commercial 
side, but remember again the private insurers have Medicare 
Part C, Part D. They are doing Medicaid in the State. So there 
is a lot of tie-in both on the private side and public side in 
the public program. So I think that sharing of data is going to 
be critically important.
    And then I think the other thing is, there is a commitment 
I believe on the part of the IG and HHS, CMS, and DOJ to share 
information with the private side. I think a lot of that 
information has to filter down to the agents in the field; that 
they need very specific guidance about what they can and can't 
do. And we have been working with Mr. Morris, with Dr. Budetti, 
and others to try to address that particular issue. And 
hopefully in the near future we are going to see some progress 
along those lines, too. Where agents are in the field though, 
okay, this is not only okay for me to do, it is something that 
I should be doing.
    Ms. JENKINS. Thank you. We will look forward to working 
with you. I yield back.
    Chairman BOUSTANY. One final question for you. Mr. Odelugo, 
how easy is it to get physician provider numbers in your 
experience and to file additional claims? You know, if you get 
denied, getting a different number and filing additional 
claims. Could you talk a little bit more about your experience 
with that?
    Mr. ODELUGO. Thank you, Mr. Chairman. Basically to get a 
physician's UPIN number, you just have to go online and pick it 
out. It is public information.
    Chairman BOUSTANY. So just go online and you can find these 
numbers?
    Mr. ODELUGO. Yes. You just get it from there. You can even 
get the one that has the closest ZIP Code to wherever the 
patient lives, and you can input it on the system and transmit.
    Chairman BOUSTANY. Is there a method to what provider 
numbers you would pinpoint? Do you look for those who perhaps 
may be licensed in multiple States versus just in a single 
location?
    Mr. ODELUGO. Well most providers will want to get licensed 
in every four regions of Medicare. That way they can bill for 
any patient, depending on where they are. That is why if you 
look at my statement or my recommendations, I was trying to 
suggest that any claim that doesn't cross-reference with the 
doctor's billing for the services should not be paid. That way, 
providers cannot just turn in a claim without the doctor 
billing for the services of, you know, doing the prescription.
    So try to implement it that way because most of businesses 
are done by the billers. Most billers know whatever is going on 
between the doctors and the providers. But they transmit the 
claims. If they can have it where they can get the billers to 
be held responsible for a little bit of whatever that is going 
on, that can help assist them.
    Chairman BOUSTANY. Thank you. Mr. Lewis, do you have any 
further questions?
    Mr. LEWIS. Mr. Chairman, I don't have any further 
questions.
    Chairman BOUSTANY. Thank you. Well, that will conclude our 
questioning of the witnesses. I want to thank all of you for 
being here today and providing your testimony and answering 
questions of the members. I want to remind you that members may 
have some written questions they would like to submit later to 
you, and I would ask you if you would oblige and make those 
answers a part of the record.
    One final thing, Mr. Ranking Member, Mr. Roskam, a member 
of the full committee, has a statement that he would like to 
submit for the record.
    Mr. LEWIS. Without objection.
    Chairman BOUSTANY. Without objection, so ordered.
    [The information follows, The Honorable Mr. Roskam:]

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    Chairman BOUSTANY. With that, we will conclude this 
hearing, and the hearing is adjourned.
    [Whereupon, at 4:22 p.m., the subcommittee was adjourned.]
    [Submissions for the Record follow:]
                Academy of Managed Care Pharmacy, Letter

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                 Prepared Statement of Apria Healthcare

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                  Prepared Statement of Dream Software

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    Prepared Statement of Pharmaceutical Care Management Association

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                   MATERIAL SUBMITTED FOR THE RECORD
             Questions from the Honorable Chairman Boustany

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                       Questions from Mr. Gerlach

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                       Questions from Ms. Jenkins

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