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





       WASTE, ABUSE, AND MISMANAGEMENT IN GOVERNMENT HEALTH CARE

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

                                HEARING

                               before the

                SUBCOMMITTEE ON HEALTH CARE, DISTRICT OF
               COLUMBIA, CENSUS AND THE NATIONAL ARCHIVES

                                 of the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 5, 2011

                               __________

                           Serial No. 112-23

                               __________

Printed for the use of the Committee on Oversight and Government Reform








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                      http://www.house.gov/reform




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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                 DARRELL E. ISSA, California, Chairman
DAN BURTON, Indiana                  ELIJAH E. CUMMINGS, Maryland, 
JOHN L. MICA, Florida                    Ranking Minority Member
TODD RUSSELL PLATTS, Pennsylvania    EDOLPHUS TOWNS, New York
MICHAEL R. TURNER, Ohio              CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina   ELEANOR HOLMES NORTON, District of 
JIM JORDAN, Ohio                         Columbia
JASON CHAFFETZ, Utah                 DENNIS J. KUCINICH, Ohio
CONNIE MACK, Florida                 JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan                WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma             STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan               JIM COOPER, Tennessee
ANN MARIE BUERKLE, New York          GERALD E. CONNOLLY, Virginia
PAUL A. GOSAR, Arizona               MIKE QUIGLEY, Illinois
RAUL R. LABRADOR, Idaho              DANNY K. DAVIS, Illinois
PATRICK MEEHAN, Pennsylvania         BRUCE L. BRALEY, Iowa
SCOTT DesJARLAIS, Tennessee          PETER WELCH, Vermont
JOE WALSH, Illinois                  JOHN A. YARMUTH, Kentucky
TREY GOWDY, South Carolina           CHRISTOPHER S. MURPHY, Connecticut
DENNIS A. ROSS, Florida              JACKIE SPEIER, California
FRANK C. GUINTA, New Hampshire
BLAKE FARENTHOLD, Texas
MIKE KELLY, Pennsylvania

                   Lawrence J. Brady, Staff Director
                John D. Cuaderes, Deputy Staff Director
                     Robert Borden, General Counsel
                       Linda A. Good, Chief Clerk
                 David Rapallo, Minority Staff Director

   Subcommittee on Health Care, District of Columbia, Census and the 
                           National Archives

                  TREY GOWDY, South Carolina, Chairman
PAUL A. GOSAR, Arizona, Vice         DANNY K. DAVIS, Illinois, Ranking 
    Chairman                             Minority Member
DAN BURTON, Indiana                  ELEANOR HOLMES NORTON, District of 
JOHN L. MICA, Florida                    Columbia
PATRICK T. McHENRY, North Carolina   WM. LACY CLAY, Missouri
SCOTT DesJARLAIS, Tennessee          CHRISTOPHER S. MURPHY, Connecticut
JOE WALSH, Illinois














                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on April 5, 2011....................................     1
Statement of:
    Botsko, David A., inspector general, Arizona Health Care Cost 
      Containment System; Jean MacQuarrie, vice president for 
      client services, Thomson Reuters; Michael F. Cannon, 
      director of health policy studies, Cato Institute; and 
      Rachel Klein, deputy director for health policy, Families 
      USA........................................................    70
        Botsko, David A..........................................    70
        Cannon, Michael F........................................   115
        Klein, Rachel............................................   136
        MacQuarrie, Jean.........................................    81
    Taylor, Deborah, chief financial officer, and director of the 
      Office of Financial Management, Centers for Medicare & 
      Medicaid Services; Peter Budetti, M.D., deputy 
      administrator for program integrity, and director of the 
      CMS Center for Program Integrity, Centers for Medicare & 
      Medicaid Services; Gerald T. Roy, Deputy Inspector general 
      for Investigations, Office of Inspector General, U.S. 
      Department of Health & Human Services; and Loretta E. 
      Lynch, U.S. attorney for the Eastern District of New York..     5
        Budetti, Peter, M.D......................................    26
        Lynch, Loretta E.........................................    42
        Roy, Gerald T............................................    27
        Taylor, Deborah..........................................     5
Letters, statements, etc., submitted for the record by:
    Botsko, David A., inspector general, Arizona Health Care Cost 
      Containment System, prepared statement of..................    73
    Cannon, Michael F., director of health policy studies, Cato 
      Institute, prepared statement of...........................   117
    Klein, Rachel, deputy director for health policy, Families 
      USA, prepared statement of.................................   138
    Lynch, Loretta E., U.S. attorney for the Eastern District of 
      New York, prepared statement of............................    44
    MacQuarrie, Jean, vice president for client services, Thomson 
      Reuters, prepared statement of.............................    83
    Roy, Gerald T., Deputy Inspector general for Investigations, 
      Office of Inspector General, U.S. Department of Health & 
      Human Services, prepared statement of......................    30
    Taylor, Deborah, chief financial officer, and director of the 
      Office of Financial Management, Centers for Medicare & 
      Medicaid Services, prepared statement of...................     7

 
       WASTE, ABUSE, AND MISMANAGEMENT IN GOVERNMENT HEALTH CARE

                              ----------                              


                         TUESDAY, APRIL 5, 2011

                  House of Representatives,
Subcommittee on Health Care, District of Columbia, 
                 Census, and The National Archives,
              Committee on Oversight and Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:20 p.m., in 
room 2154, Rayburn House Office Building, Hon. Trey Gowdy 
(chairman of the subcommittee) presiding.
    Present: Representatives Issa, Burton, McHenry, DesJarlais, 
Walsh, Gowdy, Cummings, Norton, Clay, Davis, and Murphy.
    Staff present: Ali Ahmad, deputy press secretary; Robert 
Borden, general counsel; Molly Boyl, parliamentarian; Drew 
Colliatie, staff assistant; John Cuaderes, deputy staff 
director; Adam P. Fromm, director of Member liaison and floor 
operations; Tyler Grimm and Tabetha C. Mueller, professional 
staff members; Christopher Hixon, deputy chief counsel, 
oversight; Sery E. Kim, counsel; Justin LoFranco, press 
assistant; Mark D. Marin, senior professional staff member; 
Laura L. Rush, deputy chief clerk; Ronald Allen, minority staff 
assistant; Jill Crissman, minority professional staff member; 
Ashley Etienne, minority director of communications; and Dave 
Rapallo, minority staff director.
    Mr. Gowdy. The committee will come to order. This is a 
hearing on waste, abuse, and mismanagement of government health 
care. And again, on behalf of the witnesses and other 
interested folks here, thank you for your indulgence for all of 
us as we had to go vote.
    The Oversight Committee mission statement is as follows: We 
exist to secure two fundamental principles. First, Americans 
have a right to know that the money Washington takes from them 
is being well spent. And, second, Americans deserve an 
efficient, effective government that works for them.
    Our duty on the Oversight and Government Reform Committee 
is to protect these rights. Our solemn responsibility is to 
hold government accountable to taxpayers, because taxpayers 
have a right to know what they get from their government. We 
will work tirelessly in partnership with citizen watchdogs to 
deliver the facts to the American people and bring genuine 
reform to the Federal bureaucracy. This is the mission of 
Oversight and Government Reform.
    I will now recognize myself and then the gentleman from 
Illinois and the gentleman from Arizona for opening statements.
    Again, I want to thank our distinguished eclectic group of 
witnesses for offering what I am sure is going to be wonderful 
insight and testimony.
    Congress all too often deals in abstracts, issuing 
directives with broad scope and limited specificity. In other 
words, we pass big ideas and then leave the details to 
unelected individuals who sometimes escape the scrutiny that 
comes with popular elections, thereby abdicating our 
constitutional role.
    However, this malady in the past has not been limited to 
our lawmaking responsibility. It has also extended into 
Congress' role to hold agencies accountable for glaring 
inefficiencies. Hopefully, we are beginning to recapture that 
role and in doing so rein in an overextended bureaucracy 
fraught with mismanagement and abuse.
    Here on the Oversight Committee, it is our duty to ask fair 
questions and demand honest answers, answers whose validity the 
American people for too long have been conditioned to doubt. At 
a time when the approval of Congress is historically and 
empirically abysmal, this committee has a unique opportunity to 
begin the arduous process of re-inspiring trust in the 
institutions of government. That process begins with rooting 
out areas of waste, nowhere more prevalent than in government 
health care.
    The American people expect government to be responsible 
stewards of taxpayer dollars and devoted practitioners of 
honest introspection. However, in the areas of Medicare and 
Medicaid, we have utterly failed in both regards. In the past, 
oversight has followed a basic path: We identify a broken 
program, seek to expose the underlying cracks in its 
foundation, and explore possible avenues to rectify the 
problems. We ask, why? What are the root causes? And what can 
be done to fix the problem? In this case, however, many of 
those questions have already been asked and answered, and yet 
nothing has been accomplished.
    Since 1990, GAO has identified both Medicare and Medicaid 
as high-risk programs, highlighting a path that is fiscally 
unsustainable over the long term. The GAO also found pervasive 
internal control deficiencies that put billions of taxpayer 
dollars at risk of improper payments for waste. From delaying 
the implementation of headless accounting system to ignoring 
GAO recommendations designed to address improper payment 
vulnerabilities, CMS has repeatedly failed to properly confront 
these financial failures, a burden that falls not on the 
Federal bureaucrats tasked with enacting these reforms but on 
American taxpayers across the country.
    Both Medicare and Medicaid are in desperate need of 
fundamental wholesale systemic reform. They serve as two 
principal drivers of our crippling burden of debt at a time 
when economic uncertainty threatens our Nation's fiscal 
security. Something simply has to be done.
    However, full-scale reform is not the purpose of this 
hearing. We are seeking to identify areas of inefficiency and 
determine why commonsense recommendations calculated to 
decrease exorbitant costs have continuously been ignored. Trust 
must be earned, and addressing the mistakes of the past is an 
important first step in that process. The American people 
expect that when money is spent, it is spent properly. And when 
areas of mismanagement are discovered, they are promptly and 
adequately corrected.
    However, recent failures have left them frustrated, 
frustrated at the persistent waste, frustrated with the lack of 
remedy, consequence, and accountability, frustrated by a 
problem that is so illustrative of a broken, wasteful Federal 
bureaucracy.
    Today, I hope we can begin the process of addressing that 
frustration and begin to rebuild citizens' trust in the 
institutions of government.
    And with that, I would yield to the gentleman from Illinois 
for his opening statement.
    Mr. Davis. Thank you, Mr. Chairman.
    And I want to thank you first of all for holding this 
hearing, which I consider to be vitally important.
    As a Chicago native, I have long focused on the problems of 
the inner city poor and disabled. The Seventh Congressional 
District in which I live is the largest medical center district 
in the country, with 21 hospitals, four medical schools, and 
104 community health centers.
    Specifically in my district, the Affordable Care Act, which 
I strongly supported, improved health insurance coverage for 
334,000 residents and closed Medicare's prescription doughnut 
hole for 76,000 seniors. Additionally, it extended coverage to 
52,000 uninsured residents and has reduced the cost of 
uncompensated care for hospitals and other health care 
providers by $222 million annually.
    At a time when 13 million older Americans are considered 
economically insecure and our constituents are grappling with 
unemployment and the effects of the economic downturn, I am at 
a loss when some in Congress are pushing to reduce or eliminate 
basic health care services for vulnerable Americans.
    Make no mistake, the repeal of the Affordable Care Act and 
deficit reduction proposals targeting Medicare and Medicaid 
will equate to an assault aimed at women, the sick, and the 
poor.
    In 2009, over 365,000 Americans were on waiting lists in 39 
States to join the 3 million aged and disabled individuals 
receiving long-term care services in nursing homes and in home 
health care settings.
    I am concerned that today's hearing, reportedly focused on 
waste, abuse, and mismanagement in government health care is 
less about constructive proposals to fight fraud and is more 
about the House Republican leadership's campaign to cut 
Medicare and Medicaid.
    For the record, this is the fourth hearing in a row in the 
House on this topic, with three identical hearings held in 
recent weeks by the Energy, and House Committee, the Committee 
on Ways and Means, and finally the Committee on Appropriations.
    It is clear to this Member that the Republican leadership 
has given messages to rank and file Members for its campaign to 
slash Medicare and Medicaid. Certainly targeting waste and 
abuse in Medicare and in Medicaid is an important and 
bipartisan effort. I note that in February, a multi-agency 
anti-fraud effort, coordinated under the auspices of the 
administration's Health Care Fraud Prevention and Enforcement 
Action Team [HEAT], resulted in criminal charges being brought 
against 111 individuals who allegedly defrauded the Medicare 
program out of $225 million through false billing claims and 
kickback operations.
    As a proud supporter of the Affordable Care Act, which 
contained essential funding and new tools for agencies to fight 
health care fraud, I am especially pleased that the HEAT 
initiative has recently expanded to Chicago.
    Again, I thank the witnesses for joining us today, and look 
forward to their testimony and to this hearing. I yield back 
the balance of my time.
    Mr. Gowdy. Thank you, Mr. Davis.
    Members may have 7 days to submit opening statements and 
extraneous material for the record.
    We will now welcome our first panel of witnesses. It is my 
pleasure to introduce them from my left to right.
    Ms. Deborah Taylor is the chief financial officer and the 
director of the Office of Financial Management at the Centers 
for Medicare and Medicaid Services.
    Dr. Peter Budetti is deputy administrator for program 
integrity and director of the CMS Center for Program Integrity 
at the Centers for Medicare and Medicaid Services.
    Mr. Gerald Roy is deputy inspector general for 
investigations in the Office of Inspector General at the U.S. 
Department of Health and Human Services.
    And the Honorable Loretta Lynch is the U.S. attorney for 
the Eastern District of New York.
    I will, as is customary, ask the witnesses to rise and 
receive the oath, and then we will hear from you.
    Raise your right hands.
    [Witnesses sworn.]
    Mr. Gowdy. May the record reflect that all the witnesses 
answered in the affirmative.
    Thank you.
    And I am sure that you all are familiar with this process. 
There should be three lights that are reasonably visible to 
you. The yellow light is kind of a slowdown light, and the red 
light, particularly given the time, and in fact, we have 
another panel, I would ask you to adhere to that as closely as 
you can.
    And starting with Ms. Taylor, we will have 5 minutes for 
opening statements. Your full statement will be made part of 
the record. So if you don't get to all of it, don't think for 
one moment that it won't be read. It will be.
    So we will start with Ms. Taylor and then work our way down 
the table.

  STATEMENTS OF DEBORAH TAYLOR, CHIEF FINANCIAL OFFICER, AND 
  DIRECTOR OF THE OFFICE OF FINANCIAL MANAGEMENT, CENTERS FOR 
   MEDICARE & MEDICAID SERVICES; PETER BUDETTI, M.D., DEPUTY 
 ADMINISTRATOR FOR PROGRAM INTEGRITY, AND DIRECTOR OF THE CMS 
 CENTER FOR PROGRAM INTEGRITY, CENTERS FOR MEDICARE & MEDICAID 
     SERVICES; GERALD T. ROY, DEPUTY INSPECTOR GENERAL FOR 
INVESTIGATIONS, OFFICE OF INSPECTOR GENERAL, U.S. DEPARTMENT OF 
 HEALTH & HUMAN SERVICES; AND LORETTA E. LYNCH, U.S. ATTORNEY 
              FOR THE EASTERN DISTRICT OF NEW YORK

                  STATEMENT OF DEBORAH TAYLOR

    Ms. Taylor. Good afternoon, Chairman Gowdy, Ranking Member 
Davis, and members of the subcommittee.
    Thank you for the opportunity to discuss the Center for 
Medicare and Medicaid Services' efforts to prevent and recover 
improper payments.
    CMS is committed to reducing waste and abuse in the 
Medicare program, and ensuring that our programs pay the right 
amount for the right service to the right person in a timely 
manner. It is important to remember that most errors are not 
fraud.
    These errors generally result from the following 
situations: One, a provider fails to submit any documentation 
or submits insufficient documentation to support the services 
paid; second, services provided are incorrectly coded on the 
claim; and, third, documentation submitted by the provider 
shows the services were not reasonably necessary. CMS is 
committed to reducing improper payments, and we have developed 
many corrective actions to resolve and eliminate these improper 
payments in the future.
    CMS has extensive prepayment edits and other review 
activities to identify some improper payments. However, with 
close to 5 million claims being processed each day, CMS cannot 
manually review every claim before it is paid, so we must rely 
on other techniques.
    One important tool in our efforts to recover improper 
payments is the recovery audit program. In this program, 
recovery auditors work to identify overpayments and 
underpayments in the Medicare program. Recovery auditors are 
paid on a contingency fee basis, which means they are paid 
based on a percentage of the total amount of claims they 
correct.
    The Medicare Modernization Act of 2003 required that we 
establish a recovery audit demonstration to pilot the potential 
usefulness of recovery auditing in the Medicare fee for service 
program. During the demonstration project, the recovery 
auditors corrected over $1 billion in improper payments, 
including returning and collecting overpayments in the sum of 
$990 million.
    Congress expanded the recovery audit program in the Tax 
Relief and Health Care Act of 2006, directing CMS to implement 
a national recovery audit program by January 2010. We 
considered the lessons learned from the demonstration in 
establishing the national program. It was important that we 
design a national program around five key elements: Minimizing 
provider burden, ensuring accuracy of the auditor's 
determinations, establishing an efficient and effective 
process, tracking and correcting program vulnerabilities, and 
ensuring program transparency. I would like to talk a little 
bit about some of the specific actions we took.
    To address provider burden issues related to voluminous 
requests for medical records, we established limits to the 
number of medical records an auditor could request from a 
provider within a 45-day time period. We also required that 
every recovery auditor hire a physician medical director. This 
gives physicians additional assurance that the claim denial 
decisions are accurate. To improve program transparency, we 
created a recovery audit Web site. This Web site contains 
valuable information to providers about where errors are 
occurring and the reason for those errors.
    And, last, we wanted to address recovery audit concerns 
around pervasive incentives to overidentify improper payments. 
So now we require that recovery auditors must refund any 
contingency fee related to decisions overturned on appeal.
    Although the national program is relatively new, we have 
already seen significant benefits from it. To date, the program 
has collected or corrected a total of $365 million in improper 
payments. Of that, $313 million is related to overpayments that 
have been collected.
    Another benefit of the program is identifying 
vulnerabilities where policy changes, system changes, and 
provider education and outreach are needed to prevent improper 
payments in the future. We are taking aggressive actions to 
address these vulnerabilities, and we have done many systems 
changes to stop payments from going out the door. I am 
confident that the national recovery program and ongoing 
corrective actions we have in place will continue to reduce 
improper payments.
    Thank you. And I look forward to any questions you may 
have.
    [The prepared statement of Ms. Taylor follows:]



    Mr. Dowdy. I thank you.
    Dr. Budetti.

                STATEMENT OF PETER BUDETTI, M.D.

    Dr. Budetti. Chairman Gowdy, Ranking Member Davis, members 
of the subcommittee, thank you for this opportunity to discuss 
our work at the Centers of Medicare and Medicaid Services to 
reduce fraud, waste, and abuse in our programs. I am delighted 
to be here accompanied by my colleague Deborah Taylor from the 
CMS, Deputy Inspector General Roy, and U.S. Attorney Lynch, who 
are very close colleagues in the fight against fraud, waste, 
and abuse.
    From the first day that I had the privilege to take this 
job a little over a year ago, I have been asked two questions: 
Why do we let crooks into our programs? And why do we keep 
paying them after they get into the program when we think their 
claims are fraudulent?
    I am pleased to tell you that with the new authorities that 
have been provided in recent laws and the commitment of this 
administration to fight fraud in our programs, we will be 
keeping the people who don't belong there out of our programs, 
and we will be rejecting fraudulent claims before they are 
paid. We now have the flexibility to tailor our resources to 
the most serious problems and to quickly initiate activities 
that will be transformative in bringing about the results that 
I mentioned.
    Under the leadership of Secretary Sebelius, Centers for 
Medicare and Medicaid Services have taken several 
administrative steps to better meet emerging needs and 
challenges in fighting fraud and abuse. CMS consolidated the 
Medicare and the Medicaid program integrity groups under a 
unified Center for Program Integrity, which I have the 
privilege to direct. This allows us to pursue a more 
coordinated and integrated set of program integrity activities 
across both programs. This has served both our program 
integrity activities well, this reorganization, as well as our 
ability to collaborate with our law enforcement colleagues in 
the Office of Inspector General and the Department of Justice.
    The Affordable Care Act greatly enhanced this 
organizational change by providing us with the opportunity to 
jointly develop Medicare, Medicaid, and CHIP policies on these 
new authorities. Affordable Care Act provisions, such as 
enhanced screening requirements apply across the programs, and 
this ensures better consistency in CMS's approach to fraud 
prevention.
    Some might believe that an organizational change is of 
questionable value, but I can tell you that creating a Center 
for Program Integrity that is on par with other major 
operational units within the Centers for Medicare and Medicaid 
Services sends a powerful message about our serious commitment 
to fighting fraud and also puts the bad actors on notice.
    We have made sure that our sights are fixed on the goals 
that we want to accomplish, and I would draw your attention to 
the chart that illustrates our new approach that we are 
pursuing.
    No. 1, we are embarking on a number of changes that will 
allow us to move beyond our traditional way of fighting fraud, 
which is known as pay and chase, to prevent problems in the 
first place and to avoid them from occurring.
    Second, we will not take a monolithic approach to dealing 
with fraud. We are focusing on the bad actors who pose an 
elevated risk of fraud.
    Third, we are taking advantage of innovation and 
sophisticated new technology as we focus on prevention.
    Fourth, consistent with this administration's commitment to 
being transparent and accountable, we are developing 
performance measures that will specify our targets for 
improvement.
    Five, we are actively engaging public and private partners 
because there is much to learn from others who are engaged in 
the same endeavor of fighting fraud in health care programs.
    And, sixth, we are committed to coordination and 
integration among all of the CMS programs, drawing on best 
practices and lessons learned.
    We are concentrating our actions so that we are doing a 
better job of preventing bad actors from enrolling in the first 
place, avoiding fraudulent or other improper payments, and 
working to achieve the President's goal of cutting the error 
rate in Medicare parts A and B by 50 percent by 2012. We are 
taking advantage of today's cutting-edge tools and technologies 
to help us at the front end and throughout the implementation 
of our programs.
    In doing this, one point bears stressing. 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 care services. 
We will always respect the fact that the vast majority of 
health care providers are honest people who provide critical 
health care services to millions of CMS beneficiaries every 
day.
    Mr. Chairman, I welcome this opportunity to appear before 
the subcommittee, and I look forward to your questions. Thank 
you very much.
    Mr. Gowdy. Thank you, Doctor.
    Mr. Roy.

                   STATEMENT OF GERALD T. ROY

    Mr. Roy. Good afternoon, Chairman Gowdy, Ranking Member 
Davis, and distinguished members of the subcommittee. I am 
Gerald Roy, Deputy Inspector General for Investigations at the 
U.S. Department of Health and Human Services Office of 
Inspector General. Thank you for the opportunity to discuss 
fraud within the Medicare and Medicaid programs.
    OIG is committed to protecting the integrity of more than 
300 programs administered by HHS. The Office of Investigations 
employs over 450 highly skilled special agents who utilize 
state-of-the-art investigative technologies and a wide range of 
law enforcement actions. We are the Nation's premier health 
care fraud law enforcement agency.
    Over the past 16 years, I have served in every capacity 
from field agent to the special agent in charge of the Los 
Angeles region to agency head. It is from this perspective that 
I will share my observations and experiences.
    As a new OIG agent in 1996, I investigated a case that took 
me from Southern California to Miami. I gathered evidence on a 
father and daughter team that had worked for several years to 
steal almost $1 million. The investigation and the prosecution 
took more than 3 years. The father, a former drug dealer, told 
us he found stealing from Medicare far safer and more lucrative 
than trafficking.
    Their scheme was simple. They used handwritten lists of 
beneficiary numbers to submit paper claims for durable medical 
equipment they never provided. Both ultimately pled guilty to 
health care fraud and conspiracy charges.
    Sixteen years later, I see this same general scheme on a 
grander, more sophisticated scale. Today, such schemes go 
viral. That is, they replicate, spread quickly, with national 
implications.
    Perhaps the most challenging and disturbing trend is the 
infiltration of Medicare by sophisticated organized criminal 
networks and violent criminals, who have little fear of law 
enforcement and view prison time as a badge of honor.
    In Los Angeles, Eurasian organized criminals rely on stolen 
physician identities and compromised beneficiary numbers to 
perpetrate fraud. In 2003, we had nearly 2,500 compromised 
beneficiary numbers shared electronically around Southern 
California. By 2007, that number was well in excess of 100,000.
    With these compromised numbers, criminals can steal well 
over $1 million in 90 days without ever filing a single sheet 
of paper or providing a single service. In one case, they had 
ties to employees at a Medicare provider enrollment.
    These pictures you see here show weapons seized during a 
health care fraud search warrant. When I joined OIG, this 
criminal element and their tactics were unheard of. Throughout 
my tenure at OIG, major corporations and institutions have 
committed health care fraud on a grand scale.
    Today, what is most troubling is the possibility that some 
unethical health care corporations build civil fines and 
penalties into their cost of doing business. They may believe 
they are too big to be fired, as to do so may compromise the 
welfare of our beneficiaries. As long as the profit from fraud 
outweighs punitive costs, abusive behavior is likely to 
continue.
    Built on trust, Medicare has allowed enrollment of any 
willing provider and fraud perpetrators have exploited this. 
OIG has long advocated strengthening enrollment standards, 
making participation a privilege, not a right.
    Also, those who steal from Medicare often perceive a low 
risk of detection and minimal penalties compared to street-
level crimes. However, reinvigorated partnerships and an 
emphasis on this issue by our stakeholders, including DOJ and 
CMS, reinforce my belief that a sustained effort will make 
significant strides toward eradicating fraud. Together, we are 
utilizing new techniques to combat fraud. We now catch 
criminals in the act, conduct investigations and prosecute 
offenders in a fraction of the time.
    At OIG, we protect the Nation's most vulnerable citizens 
and the Federal health care programs they depend on. OIG 
special agents diligently and effectively investigated health 
care fraud long before this issue hit the national spotlight. 
We will be here for the American taxpayers, even if that 
spotlight fades.
    However, from my perspective, we cannot afford to let up. 
Sustained efforts and continued interest by law enforcement, 
prosecutors, CMS, Capitol Hill, and the American taxpayers is 
paramount to our future success.
    Thank you.
    [The prepared statement of Mr. Roy follows:]



    
    Mr. Gowdy. Thank you, Mr. Roy.
    We will now recognize Madam U.S. attorney, Ms. Lynch.

                 STATEMENT OF LORETTA E. LYNCH

    Ms. Lynch. Thank you.
    And good afternoon, Chairman Gowdy, Ranking Member Davis, 
and distinguished members of the subcommittee.
    Thank you for inviting me to speak with you today about the 
Department of Justice efforts to combat health care fraud. I am 
honored to appear before you on behalf of the Department of 
Justice along with my colleagues from HHS, OIG, and CMS.
    As you know, the U.S. attorneys and their assistant U.S. 
attorneys are the principle prosecutors of Federal crimes, 
including health care fraud. We represent the Department of 
Justice and the interests of the American taxpayer in both 
criminal and civil cases in the Federal courts in the 94 
judicial districts across the country.
    The Department's civil attorneys, both in the U.S. 
Attorneys Offices and the Department's Civil Division, 
aggressively pursue civil enforcement actions to root out fraud 
and recover funds stolen in health care fraud schemes.
    Since the year 2000, the U.S. Attorneys Offices working 
with our civil division colleagues, as well as with the FBI, 
HHS, OIG, and other Federal, State, and local law enforcement 
agencies, have recovered over $1 billion every year on behalf 
of defrauded Federal health care programs. And in fiscal year 
2010, the Department secured approximately $2\1/2\ billion in 
civil health care fraud recoveries, more than in any other 
previous year.
    Working with our colleagues in the Criminal Division, our 
criminal health care fraud efforts have also been a tremendous 
success. In fiscal year 2010, this departmentwide coordination 
led to the largest number of criminal health care fraud 
convictions since the inception of the HCFAC program. Today, 
our criminal enforcement efforts are at an all-time high. In 
fiscal year 2010, the Department brought criminal charges 
against 931 defendants and secured 726 criminal health care 
fraud convictions.
    The Medicare Fraud Strike Force is a supplement to the 
Department's successful criminal health care fraud enforcement 
efforts and is currently operating in nine districts, including 
my own district of Brooklyn. Each district has allocated 
several AUSAs and support personnel to this important 
initiative, and partners with the Criminal Division attorneys 
as well as with agents from the FBI, HHS, and State law 
enforcement.
    The strike force teams use data analysis techniques to 
identify aberrational billing patterns in strike force cities, 
permitting law enforcement to target emerging or migrating 
schemes, along with chronic fraud by criminals operating as 
health care providers or suppliers.
    This model is working. The strike force initiative has been 
an unqualified success. In fiscal year 2010, the strike forces 
secured 240 convictions, more than in any other year of strike 
force operations.
    EDNY strike force criminal prosecutions cover a variety of 
health care fraud schemes, including kickbacks to patients. The 
principle focus of the Medicare Fraud Strike Force in Brooklyn 
has been to shut down medical clinics that pay cash kickbacks 
to dual Medicare and Medicaid beneficiaries to lure these 
beneficiaries to the clinics through the illegal use of 
transportation services reimbursed by Medicaid and then 
illegally bill Medicare for services either medically 
unnecessary or never provided. I have included three of those 
major cases in my written testimony.
    Coordination of our health care fraud enforcement resources 
works. AUSAs and the U.S. Attorneys Offices, trial attorneys in 
the Civil and Criminal Divisions, FBI and HHS agents, as well 
as other Federal, State, and local law enforcement partners are 
working together across the country with great success.
    Since the HCFAC program was established, working together, 
the two departments have returned over $18 billion to the 
Medicare trust fund. Over the life of the HCFAC program, the 
average return on investment [ROI], has been $4.90 for every 
dollar expended. Very good. But through our enhanced efforts 
over the past 3 years, the average ROI has been even higher. As 
reported in the HCFAC program's annual report for fiscal year 
2010, the average ROI for 2008 through 2010 was actually $6.80 
for every dollar expended, nearly $2 higher than the historical 
average.
    We are poised to continue these successes in the months and 
years ahead, and we look forward to working with our Federal, 
State, and local partners to that end.
    Mr. Chairman, thank you for this opportunity to provide 
this overview of the Department's health care fraud enforcement 
efforts.
    [The prepared statement of Ms. Lynch follows:]



    Mr. Gowdy. Thank you, ma'am.
    I would at this point recognize the distinguished gentleman 
from Illinois, Mr. Davis, for 5 minutes of questions.
    Mr. Davis. Thank you very much, Mr. Chairman.
    And I want to thank each of the witnesses for their 
testimony.
    Dr. Budetti, it seems to me that since the organization of 
CMS, that one of its primary focuses has been on cost 
containment, that there has been much conversation over an 
extended period of time about reducing the cost of health care 
and containing the cost. It has been difficult to do. What 
would you consider to be the primary elements of fraud in the 
Medicare, Medicaid programs?
    Dr. Budetti. Thank you, Mr. Davis.
    I think, as Mr. Roy alluded to, we have seen the evolution 
of a new generation of fraudsters in these programs. We have 
had problems with major health care entities, companies and 
delivery systems and so forth for many years, of course, but 
more recently what we have seen is the criminal element coming 
into the programs and taking advantage of the fact that 
Medicare and Medicaid really were open for providers and 
suppliers to join in order to take care of our beneficiaries as 
necessary. So we have seen a shift.
    And I think that is a very troubling but important thing 
for us to recognize that now we are not just dealing with the 
kinds of problems that we faced in the past where somebody is 
going to be in business a few years down the road and we have a 
few years to track after them and audit them and try to recover 
or prosecute them, but where there are criminals who are going 
to disappear very quickly. So we need to be able to deal with 
both kinds of fraud these days and be nimble and stay ahead of 
the ones who just don't belong in the programs at all.
    Mr. Davis. Are there loopholes in our system that not only 
attract but kind of give individuals the idea that there are 
ways to defraud the system?
    Dr. Budetti. Well, I think one of the loopholes was not a 
loophole, but it was a deliberate part of the program which, as 
I mentioned, was a relative ease of getting providers and 
suppliers into the program so that they could take care of 
beneficiaries.
    I think in terms of the way that programs are organized and 
structured and funded, however they are structured, somebody is 
going to look for vulnerabilities, and it has to be our job to 
stay ahead of them and to figure out where the vulnerabilities 
are. No matter how we organize and pay for health care, there 
are going to be people, unfortunately, who will try to steal 
from us, and they will look at however the money is flowing and 
try to figure out a way to go after that money. So I think we 
need to be aware of all of these incentives, the financial 
incentives, the organizational structures, every aspect of the 
program, but I think it is not unique to any aspect of it.
    Mr. Davis. Attorney Lynch, let me ask you. There used to be 
a time, and I guess there still is, when there were what was 
called Medicaid mills, where practitioners just kind of had 
running streams of individuals coming through their clinics, 
and they were just seriously ripping off the public. Are we 
still finding those?
    Ms. Lynch. I think we are seeing attempts to recreate them. 
I think the benefits of the Department's recent efforts have 
been partnering with CMS and HHS, we have been able to use 
techniques that get us quicker data so that we can and we hope 
to intercept these Medicaid and Medicare mills as they are 
operating and move in to shut them down quickly.
    The problem of course is, as Dr. Budetti has intimated, is 
these organizations will spring up, close, and then reemerge 
under a different name. So with the increased tracking that we 
have been able to utilize with our partners, we think we are 
doing much better at finding these clinics and finding these 
doctors. But it is still a continual problem.
    Mr. Davis. Quickly, Mr. Roy. Could you think of some 
recommendations, based upon your experiences, that might be 
helpful to implement as to further reduce the opportunities for 
fraud and abuse?
    Mr. Roy. Yes, sir. Thank you for the question.
    In my experience, and as I spoke to in my testimony, for me 
personally it all comes down to provider enrollment. It really 
comes down to ensuring that those people that come into our 
program are there to serve our Medicare beneficiaries.
    It seemed to be a theme throughout my tenure at OIG that 
those who wish to perpetrate fraud recognize the low barrier to 
entry, and they exploit that to the maximum. So I would 
recommend a concentration on a provider enrollment to that 
aspect of the program.
    Mr. Davis. Thank you very much.
    Thank you, Mr. Chairman.
    Mr. Gowdy. Thank you, Mr. Davis.
    The chair would now recognize the gentleman from Arizona, 
Dr. Gosar.
    Mr. Gosar. Mr. Roy, could you agree with this description 
of fraud: Misusing a process to gain a financial advantage?
    Mr. Roy. Yes, sir.
    Mr. Gosar. How about you, Ms. Lynch?
    Ms. Lynch. I think it is part of the description of fraud. 
Obviously, when it comes to criminal fraud, we would have to 
have intent requirements. But, yes, that is part of the 
description of fraud.
    Mr. Gosar. What if it was the government? Would that still 
qualify? In a process. Let me go a little deeper. How about 
that? How do we audit our federally qualified health centers? I 
am going to give you some personal experiences just so you 
know.
    I am a dentist. I have been practicing 25 years until last 
year. Why on the WIC program would it take a single mom, most 
of the time, five or six visits to see the doctor, repeated 
entry, not on the same day? Why would we take a child with a 
full mouthful of decay and only allow one tooth be taken care 
of one at a time? Can you describe why would we do that? How 
about you, Doctor? You are talking about processes. What kind 
of process would mandate this kind of care?
    Dr. Budetti. I am not familiar with those policies, Dr. 
Gosar. But----
    Mr. Gosar. Do you know what an encounter is?
    Dr. Budetti. Yes, sir.
    Mr. Gosar. Why would that be misused?
    Dr. Budetti. I can understand your concern if that is what 
you were observing.
    Mr. Gosar. I am alluding exactly to that. Why would we--
what is the purpose of an encounter?
    Dr. Budetti. The purpose of an encounter, sir, of course, 
is to deal with the patient and the issues the patient has and 
try to take care of them.
    Mr. Gosar. How about we take five different visits for a 
WIC woman to be able to fill out a health history? And that 
took 5 weeks, five different visits for an encounter. Would you 
not call that fraud?
    Dr. Budetti. I am not familiar with the situation that you 
are describing, but that certainly doesn't strike me as the 
best way to go about the business of taking care of patients, 
sir.
    Mr. Gosar. When you look at processes, how do we review the 
process when we look at FQACs? You said that you are constantly 
are updating and looking at processes. How do we look at that 
process?
    Dr. Budetti. In our area, sir, the work that we are doing 
focuses principally on both Medicare payments and Medicaid 
payments. And so we look at the way that the money flows and 
look for patterns of problems no matter where the money is 
going. So we intend to look no matter where the money is going.
    I can't tell you that I am familiar with particular 
emphasis on the kinds of issues that you are talking about, but 
certainly we are looking at all of the ways that the money is 
flowing and the possibilities for problems like that.
    Mr. Gosar. What kind of audit do you on a federally 
qualified health center, or health center? And when are they 
done? Are they announced, or are they unannounced?
    Dr. Budetti. I would have to get you specific information 
on that, sir. It is not something that I am personally familiar 
with at this point.
    Mr. Gosar. What if I was to tell you that it is standing 
procedure that what we do is we have standing patients that 
come in to seek services on Medicaid and they are supposed to 
be seen first come, first serve. And they sit all day long, and 
they just get transferred to a hospital. And they are isolated 
to one segment of the day? Wouldn't you call that fraud? It is 
a process. Right? An inappropriate process. Right?
    Dr. Budetti. It sounds like a process that would need some 
attention to me, the way you describe it, sir, yes.
    Mr. Gosar. Mr. Roy, you said that you look and review these 
kind of processes. Would this be something that you have looked 
into before?
    Mr. Roy. Sir, the Office of Investigations does not look 
into such processes.
    Mr. Gosar. How would you have to go back into looking at 
them?
    Mr. Roy. I am an investigator. Our office investigates 
fraud and brings those cases to a criminal prosecutor either at 
the Federal or State level. The audit process would be from 
another component within our OIG.
    Mr. Gosar. And where would that come from?
    Mr. Roy. Our Office of Audit. And I am more than happy to 
find out and get additional information for you on that 
process.
    Mr. Gosar. Ms. Lynch, would we persecute that individual 
who was the head of that health center for that kind of misuse 
of patients?
    Ms. Lynch. Congressman, I hope we don't persecute anyone.
    Mr. Gosar. I mean, prosecute. I am sorry. It's been a long 
day.
    Ms. Lynch. OK.
    On the facts as you've described, I certainly don't have 
enough information. It certainly sounds like an inefficient 
process, but I would have to know more about it.
    Mr. Gosar. If we had an administrator misusing a process, 
fraud, that is misusing a process for a financial aspect and an 
upward gain, it seems to me like we have to do a much better 
job on that because we are seeing a lot of this. It is not just 
the private sector. It is also the government and the entities 
that it pays.
    I yield back my time.
    Mr. Gowdy. I thank the gentleman from Arizona.
    The chair would now recognize the gentleman from Maryland, 
the ranking member of the full Oversight Committee, Mr. 
Cummings.
    Mr. Cummings. First, I want to thank the witnesses for your 
testimony. And as I listened to Mr. Gosar, I could not help but 
think about the young boy in Maryland, Diamonte Driver, who 
died 3 or 4 years ago because he could not get a doctor, 
Medicaid doctor to treat him; $80 worth of treatment would have 
saved his life, and he eventually died, and his mother was in 
search of somebody to treat him.
    And I guess as I listened to those questions, I had to 
change my own line of questioning because I want to make sure 
that we focus where the fraud is.
    Ms. Lynch, I am sorry. U.S. Attorney Lynch, I really 
appreciate what you said when you talked about in fiscal year 
2010, the Department secured approximately $2\1/2\ billion in 
civil health care fraud recoveries. And I think before that, it 
had been, what? What was the highest before that?
    Ms. Lynch. It was roughly around $1 billion per year.
    Mr. Cummings. $1 million.
    Ms. Lynch. $1 billion, sir.
    Mr. Cummings. And I am trying to figure out what--I assume 
you believe--first of all, that is great. Congratulations to 
the Department, to all the people who work so hard to 
accomplish that. I assume you believe that there is more to be 
done?
    Ms. Lynch. I do.
    Mr. Cummings. And what kind of tools do you need to 
accomplish that? Because we on--first of all, on both sides of 
the aisle, we want to see this fraud, waste, and abuse 
addressed, and we want to see it addressed on every level. And 
as you answer me, I just want to just mention that the 
Coalition Against Insurance Fraud estimates that 80 percent of 
health care fraud is committed by providers and 10 percent by 
consumers. The remaining 10 percent is thought to be committed 
by others, such as insurance companies or their employees.
    And so I am just wondering, what do you see--what can we do 
to address this issue in an even more effective and pattern--
manner?
    Ms. Lynch. Thank you for the question, Mr. Cummings.
    I think that the President's budget outlines several 
provisions that would increase the resources being brought to 
bear on this problem that would allow us to expand the strike 
force system, for one, which would be an important tool in 
targeting the transitory nature of this fraud, the emerging 
nature of this fraud, and the ever evolving nature of this 
fraud.
    Another important initiative currently pending on the 
Affordable Health Care Act actually did mandate that the 
Sentencing Commission put forth a schedule for higher sentences 
for those individuals convicted of health care fraud based upon 
the amount of false billings, not just what they actually 
received. Sometimes that is less than the amount actually 
billed. But the Sentencing Commission was directed to in fact 
revise the guidelines to cover the amount billed as well as to 
raise the guidelines for the type of fraud that we are seeing. 
We think these are important resources and tools that the 
Department would use in fighting this battle.
    Mr. Cummings. Now, I assume that when you spend a certain 
amount of money to go after folks, there is a yield. In other 
words, there is a benefit that comes back in the form of 
prevention; hopefully, the message gets out, but also in the 
form of dollars. And I was just wondering, if the budget is cut 
substantially--say, for example, the strike force that you 
talked about. We actually are kind of--I mean, if that is the 
situation where you can actually show, I guess, where X dollars 
spent yields X dollars, we are kind of--I mean, if we in the 
Congress slash your budget, I guess we are kind of working 
against ourselves. Is that right?
    Ms. Lynch. Well, I think we are certainly working against 
the public fisc. I think it has been documented, as I 
mentioned, over the last 3 years, the HCFAC fund is returning 
almost $7 back for every dollar spent. A lot of that money has 
been allocated since 2008, I believe. And so if we were to 
reduce or eliminate certain funding streams, we would severely 
curtail our efforts to go after this fraud.
    Of course, we would keep the focus up. We would still work 
these cases. But we would have fewer resources to do them, 
fewer people with which to do these cases, and obviously, I 
think the return to the American taxpayer would be 
significantly diminished.
    Mr. Cummings. I think it was you, Mr. Roy, who said that 
these folks who are involved in this criminal activity a lot of 
times see getting caught--reminds me of drug dealers, these big 
drug cartels. They see getting caught as a part of the tax they 
pay. And so they don't--they are committed to accomplishing 
this because they see the benefits are so great.
    Mr. Roy. Absolutely, sir. Thank you for the question.
    The Eurasian organized crime element in Los Angeles when I 
was a special agent in charge out there and an assistant 
special agent in charge, this criminal element had no fear of 
law enforcement whatsoever. And indeed, when they were caught 
and sentenced to jail, they considered it a badge of honor. And 
in fact what they would do is they would have Mickey Mouse 
tattooed on their arms behind bars to signify that they had 
done time in a U.S. jail.
    Mr. Cummings. Thank you very much.
    Mr. Gowdy. Thank you, Mr. Cummings.
    At this point, the chair would recognize the gentleman from 
North Carolina, Mr. McHenry.
    Mr. McHenry. I thank the chairman.
    And thank you for your testimony.
    Mr. Roy, now, the incidents of fraud in different types of 
Medicare programs are--fall in different rates. Is that 
correct?
    Mr. Roy. I would say so. Yes, sir.
    Mr. McHenry. For instance part D, Medicare part D, is there 
a higher level of incidents of fraud in that program compared 
to the rest of Medicare?
    Mr. Roy. Right now, we see the emphasis in terms of fraud 
on durable medical equipment. Certainly part D is up there. 
Home health seems to be an area of Medicare where perpetrators 
like to prey. And I also would go back to corporate fraud 
element in terms of the tremendous amount of dollars in the 
corporate culture that goes along with that. I would say those 
are some of the top areas of fraud. But I think certainly part 
D falls within that realm.
    Mr. McHenry. OK. Meaning you compare it to A and B, for 
instance, what part of Medicare actually has the highest 
incidence, according to your study and research?
    Mr. Roy. Durable medical equipment right now.
    Mr. McHenry. And where do those payments come from? Which 
component of Medicare?
    Mr. Roy. They come from part B.
    Mr. McHenry. Part B.
    Mr. Roy. Yes, sir.
    Mr. McHenry. So comparing part B to part D, which has the 
higher incidents of fraud?
    Mr. Roy. Clearly part B overall.
    Mr. McHenry. Now, is there something different about the 
construct of those two programs? Or is it, for instance, what 
they are paying for? Is there something different about those 
two that would leave a greater component of taxpayers paying 
more for the program?
    Mr. Roy. I would say that one of the issues on why part B 
would be higher than part D is simply because part D is a newer 
program. We are looking at the prescription drug benefit, which 
is part D, is considerably newer than part B, and the schemes 
haven't developed yet as they have in our part B programs.
    Mr. McHenry. Interesting. OK.
    Ms. Taylor, is that similar to what your findings--or, your 
experience, I should say?
    Ms. Taylor. I think in the part D program, we do find some 
issues there. But for the most part, the errors that we 
identify are mostly in the DME, the durable medical equipment 
arena, which is the part B program.
    Mr. McHenry. Mr. Roy, is there something intrinsic about 
the relationship between Medicare and providers and patients, 
is there something intrinsic in the construct of the program 
that leads to greater incidents of fraud?
    Mr. Roy. That is an interesting question. Not that I could 
put my finger on.
    Mr. McHenry. For instance, if you are writing--if Medicare 
is required to stroke a check on a base amount of proof that a 
device has been delivered or a service has been rendered, you 
know, is there a way to change how that is structured?
    Mr. Roy. Go back to what I said earlier about, again, 
keeping a better eye on who we let into our programs. We need 
to screen and scrutinize our providers better. That is my 
opinion.
    Mr. McHenry. OK. So private sector providers of health 
care. Like compare CMS to one of the Blues or one of the other 
health care providers, do they have a similar level of 
incidents of fraud?
    Mr. Roy. I am not familiar with what is happening in the 
private sector. OIG for HHS, we concentrate on Medicare. And 
clearly sometimes we will be partnering with those entities, 
law enforcement entities that have oversight and work in the 
private sector health care fraud arena as well. But there is 
nothing--I am not the person to say that those involved in 
Medicare fraud are exponentially more than what we see in the 
private sector.
    Mr. McHenry. OK. Well, thank you, Mr. Chairman. I would be 
happy to yield my time to the chairman if you would like it.
    Mr. Gowdy. I thank the gentleman from North Carolina. And I 
will keep that in mind.
    I am going to go last. If there is anybody here when I go, 
I will keep that in mind.
    I would yield to at this point to the gentleman from 
Connecticut, Mr. Murphy.
    Mr. Murphy. Thank you, Mr. Chairman.
    Ms. Taylor, I just want to get a couple facts on the table 
so we have a clear understanding of the Medicaid program. 
Medicaid covers about 60 million at-risk Americans. Is that 
right?
    Ms. Taylor. I believe it is around 40 to 50, but it is in 
that ballpark.
    Mr. Murphy. And covers about half of all of the long-term 
care expenses, half of all the nursing expenses in the country?
    Ms. Taylor. Correct. Yes.
    Mr. Murphy. About a third of the money goes into community 
services, and about half of all Medicaid recipients are kids. 
Right?
    Ms. Taylor. I am not a Medicaid expert, but--I am not sure 
about that number, but I assume it is probably a large chunk of 
children. Yes.
    Mr. Murphy. I ask these questions because what I see is a 
disconnect here today. This is an incredibly important hearing.
    But there is I think a gap between a very worthy discussion 
that we are having here today and what happened earlier today, 
where my Republican friends outlined a proposal to essentially 
end the Medicaid program as we know it and dramatically cut 
Medicaid funds for kids, for seniors in nursing homes, for 
States, and essentially results in millions of vulnerable 
seniors and children losing access to our health care system. I 
think this is a really important conversation. But it happens 
on the same day that we are talking about essentially ending 
preventative health care services and crisis health care 
services for a lot of vulnerable Americans.
    And to Ranking Member Cummings' question, there also seems 
to be a disconnect between the budget debate that we are having 
today, in which we are talking about potentially dramatically 
cutting the budgets for many of your agencies while asking you 
to do more with respect to fraud and abuse. And in addition to 
the bottom line numbers that are being cut out of your budgets, 
there are also riders to the continuing resolution, including 
the repeal of the Health Care Reform Act. And as we talked 
about, there are some incredibly important provisions in that 
act which bolster your efforts.
    And so it is a frustrating hearing today, because we are 
talking about radical changes to Medicare and Medicaid being 
proposed today that will withdraw services from millions of 
vulnerable Americans. And we are talking about cutting your 
budgets at the same time that we are holding multiple hearings 
in the Capitol about asking you to do more.
    And I guess I take--Representative Cummings hit on a couple 
issues here, but I guess I would pick one piece out of the 
Health Care Reform Act that would go away with the continuing 
resolution as passed originally through the House of 
Representatives and pose the question maybe to Mr. Roy and to 
Attorney Lynch. That is, the element of the Health Care Reform 
Act that focuses on data sharing, a really important piece of 
understanding fraud and trying to make sure that all agencies, 
whether they be at the Federal or State level, have the 
information that they need to try to track fraud and to address 
it when necessary.
    So I guess I would ask both Mr. Roy and to Attorney Lynch, 
how important are the provisions of the Affordable Care Act 
with respect to increasing data sharing? And do you have 
worries, should that act be repealed, whether you have the 
resources necessary to try to track information as it moves 
through the system?
    Ms. Lynch. Thank you, Mr. Murphy.
    I would say that, yes, repeal of those particular 
provisions would in effect harm our efforts to eradicate fraud. 
In particular, data sharing is important because as CMS and HHS 
are working on their processes, they are able to provide to us, 
the prosecutors, almost real-time data on claims that are being 
made. And if we can identify those fraudulent claims as they 
are going into the system, we have a much greater chance of 
stopping them before they get to the large numbers that we are 
seeing currently.
    We also have a much greater chance of identifying the 
players. As I mentioned before, they do tend to shut down and 
move on. This would allow us to identify those players, those 
fraudsters much earlier.
    So, for us, for the Department, the Department's 
perspective, the data sharing provisions of the Affordable Care 
Act have been extremely important.
    Mr. Murphy. Mr. Roy.
    Mr. Roy. Thank you, sir.
    Ultimately, I think that I would probably survive the data 
angle. Data--and the way you described the issues is very 
important to investigators. I talk about it in my testimony 
about how we are catching criminals in the act as opposed to 
finding out 90 days later that they are stealing money from us, 
and by that time, they are already gone on their way to the 
next scheme.
    What concerns me more are the funding aspects, the long-
term funding for HCFAC. OIG, OI is human resources driven, and 
I need to ensure that I have the funding to keep bodies on the 
ground and engaged in the process.
    Other that than that, I think Dr. Budetti and I--I think I 
would be OK getting the data out of Mr. Budetti.
    Mr. Murphy. Thank you, Mr. Chairman.
    Mr. Gowdy. I thank the gentleman.
    The chair would now recognize the gentleman from Indiana, 
Mr. Burton.
    Mr. Burton. Thank you, Mr. Chairman.
    I just have a couple of questions.
    Ms. Lynch, you said for every dollar that is spent on 
prosecution, you get $7 back or you recover $7?
    Ms. Lynch. Yes. Roughly, sir. Yes.
    Mr. Burton. The estimated fraud over the last several years 
has been $150 billion each year since 2008. I don't know how 
that dovetails into the results you say you are getting. If 
you're getting $7 back for every $1 invested, then you are 
saying that you actually need a lot more money in order to stop 
the fraud that is so prevalent. Right?
    Ms. Lynch. Well, I think that certainly funding is an 
important part of what we need. The other tools that we have 
mentioned in terms of--and I would defer to the agencies, in 
terms of changing their protocols, are also very important as 
well. But the resources that we have enable us to sharpen our 
focus on these particular activities, and they do bring great 
benefits back to the taxpayers.
    Mr. Burton. Well, the system that we have right now just if 
you are getting $7 back for every $1 that you get for 
investigations or prosecutions, this is just overwhelming you. 
There is just no way that you are going to be able to really 
make a big dent in an estimated $150 billion in fraud each 
year. I mean, if you are doing such a good job, which I don't 
disagree that you are, but if you are getting $7 back for every 
$1 that is being invested in you and we have $150 billion in 
fraud each year, my gosh, you would need $20 billion in order 
to keep up the 7-1 ratio if you went and got everybody.
    So it just seems like to me it is almost an insurmountable 
task that you have before you to stop the waste, fraud, and 
abuse or even make a big dent in it because it is so prevalent.
    Ms. Lynch. Well, Congressman, I would prefer not to view 
any crime problem as insurmountable but more as a challenge to 
be met. And I think we have a number of tools. We have the 
civil enforcement as well. We have a number of options there. I 
would rather--certainly rather not give up on the problem.
    Mr. Burton. No. No. I don't want you to give up. Don't 
misunderstand. I just think that the whole system needs to be 
revamped, because no matter how hard you work, all of you 
collectively, to stop fraud, waste, and abuse in the system, it 
is not going to work. I mean, when you have an estimated $70 
billion to $234 billion in fraud, as hard as you work with the 
money we give you, you are never going to be able to make a big 
dent in it. The system needs to be revised.
    We need to do something like--and this has nothing to do 
with you. But it seems to me that the government ought to 
provide a mechanism for people to buy insurance through private 
sources rather than have the bureaucracy try to contain waste, 
fraud, and abuse, because you can't do it. As hard as you 
work--and I am sure you all work very hard. If you get $7 back 
for every $1 in investment that you make, and we still have 
$150 billion a year in fraud, the system is not working. And it 
is not going to get any better unless we take a hard look at 
the system and revise the whole thing. And I think that is what 
we are talking about right now.
    And I hope that both sides of the aisle, my colleagues on 
both sides of the aisle will take a hard look at that. Because 
if we still have $150 billion in fraud that we can't stop and 
we haven't been stopping, and we have people who are working so 
diligently like Ms. Lynch and the others, and they are getting 
$7 back for every $1 we give them for investigations, it is a 
task that is not doable. And so we have to look at a different 
way to deal with the problem of health care and the system 
needs to be revised.
    Obamacare--I know you call it something else, but we call 
it Obamacare. Obamacare is only going to exacerbate the 
situation. So I think we need to as a Congress go back and take 
a look at the whole system and try to make this system more 
responsive to the individual. In other words, if they buy 
insurance from a health care company and we provide a mechanism 
for them to do that, we will be able to keep track of the 
losses and whether or not there is fraud, at least to a much 
greater degree than we are right now.
    Mr. Cummings. Would the gentleman yield? Just very quickly.
    Mr. Burton. Sure, I will be glad to yield.
    Mr. Cummings. Just very quickly. Just on this side, we were 
trying to figure out where you--just give us the cite for your 
$150 billion, since you----
    Mr. Burton. Sure. The New England Health Care Institute 
estimates that the United States wasted $150 billion each year 
since 2008. But the losses or the waste and fraud and abuse has 
ranged from $70 billion to $234 billion. Even if you take the 
lower figure, these people who are doing a good job--and I am 
not criticizing them. I am just saying there is not enough 
money that we can give them to enforce the laws that will 
overcome at least $70 billion. And the estimate is it is $150 
billion a year. And I thank the gentleman. I yield back.
    Mr. Gowdy. I thank the gentleman from Indiana. I will 
recognize myself now for 5 minutes.
    Ms. Taylor, do agree with the President when he said there 
is $900 billion of waste, fraud and abuse in Medicare and 
Medicaid?
    Ms. Taylor. I think that is probably a better question for 
Dr. Budetti.
    Mr. Gowdy. I mean yes or no?
    Ms. Taylor. I----
    Mr. Gowdy. Is it a $900-billion-a-year problem?
    Ms. Taylor. I am really not familiar with that quote or 
that number. I am not familiar at all.
    Mr. Gowdy. All right. Let me ask you, there was a chart put 
up initially that had, we want to go from pay and chase to 
verify. And it strikes me the frustration that I have heard 
listening to the testimony or frustration that I have felt 
listening to it is that it is--the strategy seems to be pay and 
then pay again to investigate and then pay again to prosecute 
and then pay again to pretrial services to do a PSI and then 
pay the probation and pay to the marshals and pay to the Bureau 
of Prisons. What I want to know is, when are we going to invest 
the same amount of money in stopping the fraud before it 
happens? We cannot investigate and prosecute our way out of 
this problem.
    So Mr. Roy, let me ask you this, last night I was reading 
and I could be wrong, let's say I am, I counted 55 different 
recommendations that have been made with respect to reforming 
Medicare and Medicaid that have not been implemented, 55. Let's 
say I am off by 25, let's go down to 25, or let's just take 
your issue, durable medical equipment. Can you give us specific 
things that should be done to start ferreting out fraud, waste, 
abuse, whichever of the three you want to call it, with respect 
to durable medical equipment?
    Mr. Roy. I would go back to my earlier testimony, sir, and 
concentrate on provider enrollment. Scrutinizing----
    Mr. Gowdy. Right, criminal background checks.
    Mr. Roy. Absolutely.
    Mr. Gowdy. What else? Make sure they are familiar with the 
policies and procedures so they can't claim they didn't know.
    Mr. Roy. Make sure they have office and office hours. Make 
sure that they have products to actually provide to durable 
medical equipment beneficiaries.
    Mr. Gowdy. OK.
    Mr. Roy. Again, I also would throw in there that you have 
to look at the environment in which they are working. In Los 
Angeles, for example, we once had 25 durable medical equipment 
companies in a 5-mile radius serving a very, very small----
    Mr. Gowdy. All of which can be done with a site visit, 
right? A criminal background check, an interview and a site 
visit? It is not high mass, so I would ask you Dr. Budetti or 
Ms. Taylor, why hasn't that been done?
    Dr. Budetti. Well, thank for the question Chairman Gowdy, 
Chairman Gowdy, I must say I agree with you that this is 
exactly what needs to be done, and that is exactly what we are 
doing. As of Friday of March 25th, our major regulation took 
effect that put into place risk-based screening for 
applications to be new providers and suppliers.
    Mr. Gowdy. I don't want to interrupt you----
    Dr. Budetti. Putting those kind of screens into place, sir.
    Mr. Gowdy. But can you appreciate the frustration----
    Dr. Budetti. Absolutely.
    Mr. Gowdy [continuing]. Of this problem not having arisen 
in March of this year, it has been a problem for a number of 
years. And I think folks question what takes us so long to deal 
with--that is not high math what he just suggested. We could 
come up with that over lunch. So what has taken so long?
    Dr. Budetti. I can't speak to what happened before I took 
this job a year ago. But I can tell you that those are some of 
the same reasons I took the job. And those are exactly the 
things that we are working on everyday.
    Mr. Gowdy. Mr. Roy, what about home health, give me three 
things that you would do if you were emperor for the day with 
respect to home health?
    Mr. Roy. I would go back to, once again, looking at those, 
who is coming into our program? Who is providing those 
services? And then, again, I would look at the environment to 
see how many providers are in a certain area. Does it really 
make sense to have an exponential amount of providers to serve 
a community that probably doesn't exist? Those are the types of 
issues I would focus on if I was looking at it from an 
administrative position.
    Mr. Gowdy. Dr. Budetti, do you agree with me that Ms. Lynch 
and her colleagues cannot ever prosecute and enforce our way 
out of this problem?
    Dr. Budetti. Yes, I think we all agree that we need a 
teamwork approach here, that we need to keep the bad guys out 
in the first place, not pay them when they are submitting 
fraudulent claims, and also go after the ones who do get into 
the program and who do need to be prosecuted. We can't do away 
with that side of the equation by any stretch of the 
imagination.
    Mr. Gowdy. I am not advocating--that would be one of the 
last things I would advocate would be doing away with 
prosecutors. But how are you going to change the pay-and-chase 
model to a verify and then pay?
    Dr. Budetti. Through our new screening, through our new 
authorities to declare a moratorium on new enrollments of 
providers and suppliers when necessary to fight fraud, through 
our new ability to exclude--to keep people out of the Medicaid 
program. When they have been terminated for cause in one State, 
they will be terminated everywhere, same for Medicare.
    We have a number of new authorities put into effect that 
will have exactly that effect. It is keeping the bad guys out 
and suspending payments when there is a credible allegation of 
fraud pending an investigation by our colleagues at the Office 
of the Inspector General. All of those are in place, sir.
    Mr. Gowdy. My time is up, so I am going to ask one very 
quick question. Have those changes already been implemented, or 
are they yet to come?
    Dr. Budetti. Many of them have--the regulation I referred 
to took effect, and we are actively implementing it as I speak.
    Mr. Gowdy. And when would you expect the country to have 
confidence that they are fully implemented?
    Dr. Budetti. I would expect that all of the advanced 
technologies and other sophisticated techniques that we are 
applying will be in place later this year and will be well into 
our payment systems fully integrated by next year. But we are 
implementing them bit by bit as we go forward, as we learn what 
we can do in the meantime. But this is something we are working 
on very diligently everyday now, sir.
    Mr. Gowdy. All right, thank you.
    Dr. Budetti. You are welcome, thank you.
    I want to thank our panel, and we are going to take a 5-
minute recess. I am going to come down there and thank you all 
personally for coming, and then we will set up for the next 
panel.
    [Recess.]
    Mr. Gowdy. Good afternoon, we now want to welcome our 
second panel of witnesses: First, David, Mr. David Botsko is 
the inspector general of the Arizona Health Care Cost 
Containment System.
    Ms. Gene MacQuarrie, is that close.
    Ms. MacQuarrie. It is.
    Mr. Gowdy. Is vice president for client services at 
Thompson Reuters; and Michael Cannon is director of health 
policy studies at the Cato Institute.
    Pursuant to committee rules, all witnesses will be sworn 
in, so I am going to ask you to please rise and raise your 
right hands.
    Ms. Klein, I can see your last name, but I don't have my 
information so when I get it, I will do due diligence in your 
introduction, too, OK.
    Ms. Klein. Sure.
    Mr. Gowdy. But we can still take the oath.
    [Witnesses sworn.]
    Mr. Gowdy. Let the record reflect all witnesses answered in 
the affirmative.
    I am going to start with Mr. Botsko, and we will move from 
my left to right, and you will have 5 minutes. I think if you 
were here for the first panel, you know there are lights and 
what the lights mean. Ms. Klein, by the time we get to you, I 
will have a full introduction worthy of your distinguished 
background, OK?
    We will start with Mr. Botsko.

   STATEMENTS OF DAVID A. BOTSKO, INSPECTOR GENERAL, ARIZONA 
  HEALTH CARE COST CONTAINMENT SYSTEM; JEAN MACQUARRIE, VICE 
  PRESIDENT FOR CLIENT SERVICES, THOMSON REUTERS; MICHAEL F. 
CANNON, DIRECTOR OF HEALTH POLICY STUDIES, CATO INSTITUTE; AND 
 RACHEL KLEIN, DEPUTY DIRECTOR FOR HEALTH POLICY, FAMILIES USA

                  STATEMENT OF DAVID A. BOTSKO

    Mr. Botsko. Good afternoon, Chairman Gowdy, Ranking Member 
Davis, and the other distinguished members of the subcommittee. 
Thank you for the invitation to speak before this committee, I 
am David Botsko, the inspector general of the Arizona Health 
Care Cost Containment System, the state Medicaid agency.
    I have spent my entire career enforcing laws and protecting 
citizens. Prior to my 11 years with Medicaid, I was a Special 
Agent with the U.S. Government for 22 years conducting criminal 
investigations. The program I work for, AHCCCS, was established 
in October 1982 as a managed care agency and is a leader in 
controlling medical costs within the Medicaid program. The $10 
billion AHCCCS budget serves 1.3 million beneficiaries. The 
AHCCCS OIG was created in November 2009, replacing the program 
integrity office.
    As of February 2011, the OIG has recognized the total 
savings and cost avoidance of approximately $31 million during 
the past 8 months alone. We also have achieved 9 criminal 
convictions, with 11 additional individuals pending prosecution 
as I speak.
    Even though overall staffing for the AHCCCS program is down 
due to budget challenges, we have actually increased OIG 
staffing.
    My testimony will focus on three elements that impact the 
success or failure of Medicaid investigations, and I have some 
recommended solutions. The OIG utilizes a dedicated team of 
investigators to screen Medicaid applications that meets 
suspected fraud criteria. The applications are referred to the 
Fraud Prevention Unit, which strives to conduct the initial 
investigation within 24 hours of receipt.
    During the State fiscal year 2010, the unit received almost 
8,200 referrals, and we conducted approximately 8,000 
investigations. The investigations resulted in 1,500 ineligible 
individuals being denied benefits. The estimated cost avoidance 
for these denials was in excess of $15 million. During this 
timeframe, the Fraud Prevention Unit saved an average of $1.9 
million per investigator per year. We are working to expand 
this program for more offices, but the State is limited to 
available matching funds for additional staffing.
    The OIG has two units for investigating member and provider 
compliance issues in addition to the Fraud Prevention Unit. The 
average cost per investigator is $58,000 per year per 
investigator. In 2010, these two units opened 450 
investigations and closed 300 cases. During the State fiscal 
year 2010, these two units realized the total cost avoidance in 
recovery of $13 million with the return on investment of 9.1.
    We're utilizing an analytical tool produced by EDI Watch to 
discover suspicious payment patterns and apply this information 
to other providers within the system. These tools generate 
additional information and potential cases that also require 
more State match for funds for investigations.
    We have developed a successful outreach program that has 
dramatically increased the amount of fraud referrals received 
by our office. However, because of our success, we have created 
more back logs.
    Other issues that impact our resources, such as countless 
staff hours working with federally mandated audit contractors, 
which have historically had little positive impact while 
draining resources. Recently imposed Affordable Care Act rules 
mandate additional screening requirements and accountability 
for receiving provider application fees, etc. These mandates 
will have had and will continue to impact the agency resources 
as they continue to strain our overburdened work force.
    The ongoing efforts at the Federal and State level to 
reduce fraud and waste in health care programs is critically 
important. We are confident that we can continue to improve our 
oversight by focusing responsibilities and resources on those 
who are best equipped and most informed, which is the States.
    Each State Medicaid program is unique. In Arizona, we rely 
significantly on managed care, and we work with our managed 
care partners, but as the State, we play a critical role in 
investigating and pursuing fraud. The State Medicaid Fraud 
Control Units are funded with 75 percent Federal matching 
dollars. Why not fund the State Medicaid OIGs and Program 
Integrity Units with the same funding but require that the 
State document the rate of return on that investment to the 
Congress? Change the Federal code to allow the State OIGs or 
program integrity units to conduct full investigations and 
avoid duplication of effort and save valuable time and money.
    To summarize, the State Medicaid programs are best 
positioned to target limited resources. We also use a program 
called CLEAR in investigating our members. My recommendation is 
to increase matching dollars that should not require additional 
Federal expenditures if duplicate Federal initiatives were 
streamlined and focused on State efforts. Medicaid is a 
Federal-State partnership, the States are doing everything in 
their power to ensure the Medicaid program that we are 
responsible for operates efficiently. Thank you, and I'll be 
happy to answer any questions.
    [The prepared statement of Mr. Botsko follows:]



    
    Mr. Gowdy. Thank you, sir.
    We will now recognize Ms. MacQuarrie for her 5-minute 
statement.

                  STATEMENT OF JEAN MACQUARRIE

    Ms. MacQuarrie. Chairman Gowdy, Ranking Member Davis, 
members of the subcommittee, my name is Jean MacQuarrie, and I 
am vice president for health care payment integrity for 
Thompson Reuters. Thompson Reuters has been engaged with our 
public and private sector customers to ensure payment integrity 
for decades.
    The U.S. health care system is complex with providers 
treating differently for the same condition. Data mining alone 
is not sufficient to validate the reasonableness of services 
being billed. Clinical intelligence must be embedded in 
analytic software to allow for identification of inappropriate 
bills.
    Additionally, most fraud investigators are not physicians 
or professional coders. Therefore, it takes software to 
accommodate the complexities of health care for the fraud 
investigator.
    The foundation of clinically based fraud, waste and abuse 
detection systems are essential. Within the Thompson Reuters 
Advantage Suite products, we include episodes of care which 
aggregate inpatient, outpatient and drug claims and into 
disease categories with severity stages. Episode grouping 
enables validating submitted claims against patient's medical 
conditions, identifying services that might be fraudulent or 
abusive. Clinical intelligence is also added to the data. These 
clinically intense data additions save our customers hundreds 
and thousands of investigative hours each month by allowing 
rapid and clinically accurate data mining.
    Congress has recognized the critical importance of 
predictive modeling in the fight against fraud and waste and 
now needs to recognize the critical importance of clinically 
intensive models to further advance the analytics essential to 
fraud, waste and abuse. As an example, it is a well-known fact 
that some types of fraud are pervasive, and they occur because 
it is hard to catch them in claims data. Your screen will have 
some screen shots from this system.
    Having a clinically based detection system is essential to 
identify the issues. For example, diabetic test strips are not 
needed by patients without diabetes. We use our episode 
technology to identify patients who get test strips and then 
make sure that they have diabetes. The subset selection process 
allows me to run these reports in English without having to 
understand the complex coding behind disease conditions.
    The report shows individual pharmacies and the number of 
diabetic test strips that they distribute to patients who do 
not have diabetes with some of these pharmacies in the 95 to 99 
percent range. This could be an indication that beneficiaries 
are purchasing these items, which are frequently sold at flea 
markets, or that pharmacies billing for products that aren't 
delivered.
    In Medicaid, the Payment Integrity Units run complex 
statistical analyses for specific provider types, like mental 
health, dentistry and therapy. These complex reports rank 
providers by their degree of deviation from their peer groups 
based on numerous statistical measures calculated over time. 
The comparisons to the peer group are automatically adjusted 
for the severity of illness of the patients so that rankings of 
the providers are fair for those providers who treat really 
sick patients. Good providers greatly appreciate clinical 
intelligence.
    It would take an investigator hundreds of hours to perform 
dynamic risk-adjusted profiling, capabilities all embedded in 
the Thompson Reuters Advantage Suite product. With our 
clinically based solution, these complex measures can be 
adjusted by our clients which just a few mouse clicks. To 
investigate the providers who ranked at the top of the report, 
we also go to CLEAR, the Thompson Reuters public records data 
access solution. It is important to use public records and 
other disparate data when we look for fraud and abuse.
    Investigators should not use claims data alone. Public 
records data sets includes Federal and State sanctions from all 
States as an example. Those data banks can be queried 
automatically and as available as a standalone, searchable 
platform. This screen shows how easy it is to request a review 
of one of the ranked providers. And when we drill down, we can 
see this provider has four sanctions and leads us to a link 
analysis chart showing to providers related to 19 total 
providers on boards of directors of each other's companies who 
practice out of the strip mall you see in front of you, which 
does not seem to support the millions of dollars billed to 
Medicare by these providers.
    Our Thompson Reuters clients who use this analytic software 
include 22 State Medicaid agencies who identify hundreds of 
millions of dollars in fraud, waste and abuse annually. In 
addition, CMS has Advantage Suite implemented and is rolling it 
out now.
    In closing, as documented in the white papers, you will 
find on the table to my right, the problem of fraud, waste and 
abuse in health care as clearly noted today is huge. We have 
done a lot to help our clients combat the problem.
    CMS has taken many steps to implement predictive modeling 
and now clinically based detection systems. With that said, 
there is still much to do. Thompson Reuters won't let up; we 
will continue to work hard and fast to deploy the best 
technology and subject matter experts to stay ahead of those 
who would defraud the government. Thank you very much.
    [The prepared statement of Ms. MacQuarrie follows:]



    
    Mr. Gowdy. Yes, ma'am, thank you.
    Mr. Cannon.

                 STATEMENT OF MICHAEL F. CANNON

    Mr. Cannon. Thank you, Mr. Chairman and Ranking Member 
Davis, for this opportunity to address the committee on this 
very important issue.
    My name is Michael Cannon. I am the director of health 
policy studies at the Cato Institute. The Cato Institute is a 
libertarian think tank founded in 1977 to promote the ideas of 
individual liberty, limited government, free markets and peace.
    The best evidence that we have suggests that $1 out of 
every $3 that Medicare spends is pure waste; that is, it 
provides zero benefit to Medicare enrollees, either in terms of 
improved health or greater patient satisfaction.
    Fraud and improper payments exceed--likely exceed 9 percent 
of Medicare spending and have been estimated to be as high as 
40 percent in the New York State Medicaid program. Medicaid 
abuse is so great, entire cottage industries of consultants and 
lawyers have emerged to help individuals and States abuse the 
program.
    It is difficult to convey the magnitude of waste, fraud and 
abuse in Medicare and Medicaid. We often hear about how private 
insurance companies earn excessive profits, while insurance 
company profits on an annual basis come to about $12 or $13 
billion a year. Improper payments in Medicare, including fraud, 
have been clocked at $48 billion per year. So for every $1 the 
private insurance companies earn in profits, Medicare loses $4 
to fraud and other improper payments. When we include Medicaid, 
the Federal Government loses nearly $6 to fraud and improper 
payments for every $1 that insurance companies earn in profits.
    We often hear about how there is too much money in 
political campaigns. Well, if you look at all Federal 
campaigns, if you look at spending by all candidates, all 
parties, all independent groups seeking to influence Federal 
elections in both 2007 and 2008, the sum total of all that 
spending comes to just over $5 billion. Medicare loses roughly 
25 times that amount each year to wasteful health care 
spending, that is health care spending that does nothing to 
improve the health or improve patient satisfaction for Medicare 
enrollees.
    Medicare fraud is not confined to the behavior of criminals 
and a few health care providers. Elected and unelectedofficials 
in both the legislative and executive branches of the Federal 
Government routinely defraud the American public by pretending 
that the so-called Medicare trust funds contain actual assets 
that may be used to pay Medicare benefits. As the Clinton 
administration explained in its 2000 budget submission, the 
balances in the Medicare and Social Security trust funds, ``Do 
not consist of real economic assets that can be drawn down in 
the future to fund benefits. The existence of large trust fund 
balances therefore does not by itself have any impact on the 
government's ability to pay benefits.''
    I should note that was an aberration that appeared in one 
of the Clinton administration's budgets. And I don't know that 
any statement that frank has appeared in any budget submission 
since.
    Congress and the White House under the control of the both 
parties have also defrauded the American people by using 
budgetary gimmicks to hide the full cost of Medicare. These 
fraudulent gimmicks include the legislative reductions in 
Medicare payments to physicians under the Balanced Budget Act 
of 1997, passed under Republican control of Congress, and to 
part A providers under the Patient Protection and Affordable 
Care Act of 2010, passed under a Democratically controlled 
Congress.
    Such spending reductions are so politically implausible 
that Congress routinely rescinds them, yet their inclusion in 
statute makes Medicare appear less costly than it actually will 
prove to be in a 10-year budget window and beyond. This type of 
fraud has become so routine that the Congressional Budget 
Office attempts to correct for it by projecting future Medicare 
outlays based on current policy, assuming that Congress 
rescinds the spending reductions as opposed to current law, 
which assumes the reductions will take affect.
    I think this hearing is particularly timely given the 
budget blueprint that House Budget Committee Chairman Paul Ryan 
has introduced today. The Medicare and Medicaid reforms in that 
proposal could dramatically reduce waste, fraud and abuse in 
those programs, and I think that expanding those proposals 
would do even more to combat fraud, waste and abuse. Thank you.
    [The prepared statement of Mr. Cannon follows:]



    
    Mr. Gowdy. Thank you.
    Ms. Rachel Klein is the deputy director for health policy 
at Families USA.
    Welcome, Ms. Klein.

                   STATEMENT OF RACHEL KLEIN

    Ms. Klein. Thank you very much, Mr. Chairman, members of 
the subcommittee. Thank you for inviting me here today to speak 
to you about the important role that Medicaid plays in our 
Nation's health care system. As you mentioned, I am deputy 
director of health policy at Families USA, the national 
organization for health care consumers.
    The Medicaid program has become the backbone of our health 
care for seniors, people with disabilities and children. In 
2010, the program covered 68 million people nationwide. 
Starting in 2014, Medicaid will become the platform for an 
important expansion of health coverage for low-income working 
adults filling an unfortunate hole in our safety net.
    Medicaid was designed as a partnership between the Federal 
Government and States, and States have a lot of flexibility in 
that partnership. The Federal Government provides, on average, 
57 percent of the cost of the program and establishes the 
minimum requirements regarding who is eligible and what it 
covered. The States administer the program and make choices 
about whether to expand beyond the minimum requirements from 
eligibility and coverage, how to structure the delivery of 
health care and pay providers.
    States have taken advantage of their flexibility to design 
very different programs. Eligibility levels vary widely across 
States, who is covered varies widely, what services are 
covered, as well delivery systems all vary widely.
    Today Representative Paul Ryan, chairman of the House 
Budget Committee released a budget proposal that suggests 
radical changes to the Medicaid program that will severely 
restrict State flexibility. The proposal would reduce Federal 
Medicaid funding by 35 percent, more than one-third, over the 
next 10 years. It would eliminate the Medicaid expansion 
authorized by the Affordable Care Act enacted last year, and it 
would end the Federal commitment to sharing Medicaid health 
care costs with States by capping Federal Medicaid funding.
    States are already struggling with Medicaid costs in a 
difficult economic climate. The Federal Medicaid cuts proposed 
by Chairman Ryan today will not help States with the difficult 
budget choices before them; rather, they will compound the 
difficulties facing States by shifting more costs to them. 
States would be forced to cut eligibility, benefits and 
provider payment rates or raise taxes significantly, thus 
shifting costs to working families. This proposal does nothing 
to contain or reduce health care costs, it just shifts the 
burden.
    The proposal will make it very difficult for States to meet 
the needs for residents when demand for Medicaid increases 
sharply, such as during a recession, a hurricane or an 
epidemic. States are already operating very lean Medicaid 
programs, and there are not a lot of places for them to cut. In 
fact, Medicaid costs 27 percent less than private insurance for 
children and 20 percent less than private insurance for adults, 
according to the Center on Budget and Policy Priorities. These 
cuts will leave Governors, as a letter from 17 Democratic 
Governors released yesterday attests, little choice but to 
eliminate health coverage for many vulnerable people.
    When the Federal Government cuts Medicaid, it is important 
to know these cuts will particularly hurt America's senior 
citizens and people with disabilities. Medicaid is the largest 
payer of nursing home care, allowing seniors to receive the 
intensive care they need it as they grow more frail and aren't 
able to live at home. It is also the largest payer of home and 
community based services, allowing seniors to live in their 
homes or with their families longer before they need to enter a 
nursing home. All together, Medicaid pays for nearly half of 
all long-term care received in the United States.
    These services are critically important, not only for 
seniors but for the estimated 52 million family caregivers who 
are able to continue working or get respite when they need it 
because of services. Medicaid also makes Medicare work helping 
seniors who have low incomes pay their Medicare premiums and 
copayments.
    Medicaid is also an engine for State economies. Federal 
funding provided to States generates jobs and business activity 
that wouldn't otherwise be in those State economies. For 
example, every $1 million of additional Federal Medicaid 
funding in South Carolina supports 24 jobs and $2.2 million in 
business activity in a year. In Illinois, a million dollars of 
Federal funding spend on Medicaid generates 22 jobs and $2\1/2\ 
million in business activity in a year. Likewise, a reduction 
in Federal spending on Medicaid would cost jobs, wages and 
business activity.
    Moreover, Medicaid helps working families when they lose 
their jobs in a recession. Despite high unemployment rates, 
there was no increase in the number or rate of uninsured 
children in 2009 during the height of the recession. Between 
2008 and 2009, Medicaid enrollment increased significantly as 
families were able to rely on Medicaid when they lost their 
job-based health insurance.
    A proposal such as that offered by Chairman Ryan would 
seriously undermine this Nation's and States' ability to meet 
the health care needs of our most vulnerable citizens. Seniors, 
people with disabilities, and children will suffer, and State 
economies will be strained.
    Mr. Chairman, I thank you for this opportunity to speak 
here today.
    [The prepared statement of Ms. Klein follows:]



    
    Mr. Gowdy. Thank you.
    At this point, I would call on the distinguished gentleman 
from Illinois, Mr. Davis.
    Mr. Davis. Thank you very much, Mr. Chairman.
    Medicaid is a vital program that serves the most vulnerable 
Americans in this country. I often have said that it was the 
best thing that happened to health care since Indians 
discovered cornflakes. But the vast majority of these 
individuals are either young children, senior citizens or 
individuals with disabilities who rely on the services that 
Medicaid provides.
    In February, Mississippi Governor Haley Barbour told a joke 
about Medicaid beneficiaries driving fancy cars to get their 
prescription drugs while attending a National Governors 
Association meeting. Governor Barbour told the Washington Post, 
and I am quoting, ``we have people pull up at the pharmacy 
window in a BMW, and they say they can't afford their 
copayment.''
    On March 2nd, the Washington Post fact checker gave 
Governor Barbour's story four Pinocchios, meaning that it was a 
whale of a story and it was inaccurate.
    Ms. Klein, let me ask you, in your extensive analysis of 
Medicaid programs, do you think that the Governor's assertion 
is an accurate depiction of people who are seeking services 
through Medicaid?
    Ms. Klein. No, I don't. There are many, many millions of 
vulnerable people in the United States who rely on Medicaid 
because they cannot afford to get health care anywhere else. 
Health care is extremely expensive, and when people have very 
low-paying jobs, they really rely on Medicaid to make sure that 
their kids can go to the doctor when they have an ear infection 
or that their parents can afford the home care or nursing care 
services that they need.
    Mr. Davis. I am old enough to remember when there was no 
Medicaid. And I recall individuals who actually had no access 
to care at all. I mean, there was simply nothing that they 
could do. I mean, they used home remedies. They did whatever 
they could come up with. What do you think would happen to 
these individuals today if there was no Medicaid? What would 
they be able to do?
    Ms. Klein. Without Medicaid, people will be uninsured. 
Health insurance is very expensive, and most of the people who 
rely on Medicaid for their primary form of health coverage 
cannot afford to purchase health care on a private market, so 
they would go uninsured.
    They would miss out on a lot of health care. As we know, 
people who are uninsured do not get as much health care even 
when it is needed as people who have Medicaid coverage. And so 
we would see a lot of unmet needs going on, and they would 
delay care until they ended up in the emergency room.
    Mr. Davis. So if they are uninsured, unemployed, over taxed 
emergency rooms, places where the emergency rooms may come like 
an old man's teeth, few and far apart. They are in serious 
trouble. I mean, the ultimate has to be that the only 
individuals who could benefit from this kind of system would be 
undertakers and cemeteries because there would be no way for 
these individuals to receive just a modicum of care. And so I--
it would be a terrible way to run a health care system. And I 
certainly would hope that our look at waste, fraud and abuse is 
not taking us in that direction, although we know that there 
are individuals who exploit systems in both the public and 
private sector.
    And Ms. MacQuarrie, I would like to just ask you, how does 
your organization work with providers in both of those elements 
to try and get rid of waste, fraud and abuse?
    Ms. MacQuarrie. Thank you for your question. In both of 
those elements, you mean in Medicare and in Medicaid?
    Mr. Davis. Yes.
    Ms. MacQuarrie. Yes, we provide information, independent 
data, data mining to our customers. As I mentioned, we have 22 
State Medicaid agencies who use our data to help identify cases 
of fraud, waste and abuse in their programs. We support CMS in 
its initiatives as well.
    Mr. Davis. Thank you very much--please go ahead.
    Ms. MacQuarrie. Yeah, I am sorry.
    The important point that I was making earlier is that the 
software has to be smarter. We just can't aggregate numbers and 
crunch data and say, we are spending too much money on a 
particular program. We have to look at it from a clinical 
perspective so we have positions and clinicians who help 
validate the clinical intensity that we build into this data 
mining software.
    Mr. Davis. Thank you very much.
    Thank you, Mr. Chairman, I am going have to run out, but I 
am not abandoning you.
    Mr. Gowdy. I do not feel abandoned.
    Mr. Davis. I have just have to go and protect my 
redistricting process. Thank you.
    Mr. Gowdy. The chair will recognize the gentleman from 
Arizona, Dr. Gosar.
    Mr. Gosar. Thank you.
    Ms. Klein, why do we have so many emergency visits?
    Ms. Klein. Um----
    Mr. Gosar. Why are we all stacked up in the emergency room?
    Ms. Klein. I am sorry?
    Mr. Gosar. Why are we all stacked up in the emergency room? 
I mean, you know the facts and figures.
    Ms. Klein. Well, there are lots of people who use emergency 
rooms for a lot of different reasons. Many of them have actual 
emergencies.
    Mr. Gosar. Oh, yes. But, I mean, we are seeing an undue 
thing. Let's kind of go to statistics. We can make statistics 
do anything we want them to, OK. Wouldn't you say the No. 1 
reason we have a problem in our emergency room is we are 
lacking family docs?
    Ms. Klein. You know, actually, I do not know, because I am 
not an expert on how the health care system is divvied up. I 
know they are certainly shortages of providers in certain areas 
of the country. That is true in--across the health care sector.
    Mr. Gosar. It is pretty much, but the No. 1 reason why we 
don't have family docs is because of unfunded mandates; isn't 
that true, Mr. Botsko?
    Mr. Botsko. Thank you for the question. Regarding whether 
that is the reason, I am not really at liberty to say, that is 
not my specialty.
    Mr. Gosar. Uh-huh. But one of the unfunded mandates is that 
we are asking providers to do more and more with less, and they 
are not actually seeing patients. And so the only recourse 
patients have is to go to the emergency room.
    Mr. Botsko. And yes, sir. We are certainly are being asked 
to do a lot more with a lot less.
    Mr. Gosar. Can you tell me some of the strings that are 
attached with the Federal money for Medicaid money?
    Mr. Botsko. Some of the ones that we are seeing are the 
unfunded mandates where we are asked to go out and do site 
visits, and we have received no additional funding for that. We 
are also asked to account for the money that is to be collected 
for providers to register under the new act, which I believe 
this year is about $505. So we have to collect it, account for 
it and be able to do our due diligence in counting for the 
public's money.
    Mr. Gosar. I know, I have talked to the Governor from 
Arizona, being from Arizona, we have some difficult 
circumstances. How would you see that--could you see us working 
more collaboratively or more--how do I say, from a State's 
vantage point versus what the Federal Government's dictating?
    Mr. Botsko. I believe the States are probably the best 
resource that we have right now in combating fraud, waste and 
mismanagement. As in my testimony, I spent 22 years with the 
Federal Government as a Federal Agent and a supervisory Special 
Agent, and 11 years currently with the State Medicaid program. 
We are the best equipped to fight the fraud because we are 
closest it; we know what is going on in our States. We work 
collaboratively with our health care programs. We work with the 
managed care system. And I believe that increasing the Federal 
match, such as right now the Medicaid prosecutors receive 75 
percent and we, the OIG, receive 50 percent--and I believe 
matching that and making it at least equal with the prosecutor 
would be a wise solution to the program.
    Mr. Gosar. So one-size-fits-all doesn't work?
    Mr. Botsko. Not really.
    Mr. Gosar. So we are really too big as a Federal program; 
it should go back to the States.
    Mr. Botsko. That is my belief.
    Mr. Gosar. Mr. Cannon, one of the aspects of medicine is 
defensive medicine. Can you talk to me a little about tort 
reform and how we can look at tort reform as the overall cost 
and why we haven't had any tort reform, particularly last year 
and years before?
    Mr. Cannon. There is a lot of belief that defensive 
medicine is driving wasteful health care spending. There is 
some evidence to suggest that it is, but I think it is 
important to recognize that there are two types of defensive 
medicine. One is efficient defensive medicine so that if the--
let's take the example of back pain: Should everyone with back 
pain receive an MRI as a matter of course? Well, if it turns 
out that not giving those patients an MRI results in injuries 
to them, they suffer losses because we didn't detect serious 
spinal injuries, that would exceed the cost of providing those 
MRIs, then yes, we should provide those MRIs. That is efficient 
defensive medicine.
    So there is also inefficient defensive medicine where the 
cost of not providing those MRIs is not that great, maybe 
because we don't have very good treatments for back pain, in 
which case the cost of providing the MRIs would exceed whatever 
losses they would suffer from not receiving them.
    So it is very difficult, first of all, to tease out the 
inefficient stuff from the efficient defensive medicine, and it 
is important to distinguish between the two, but it is also to 
discern whether it is the fear of lawsuits that is driving the 
use of more and more services, or is it the fact that in this 
country as a result of mostly Federal policy, most doctors are 
paid on a fee-for-service basis where they make more money the 
more services they provide. Both the fear of lawsuits and fee-
for-service payment are pushing in the same direction. So I am 
not sure that--first of all, it is very difficult to figure out 
how much defensive medicine is contributing--inefficient 
defensive medicine is contributing to wasteful health care 
spending, but I believe that it is not a significant factor.
    I think that the fact that the Federal Government 
subsidizes health care so much through the Medicare and 
Medicaid programs and the Tax Code plays a much larger role.
    Now why have I--with that said, I think that we do need 
serious medical malpractice liability reform in this country. 
Why have we not seen it? I think the biggest reason is that 
judges will not enforce contracts that allow individuals either 
with their health care providers or through an insurance plan 
as an intermediary to set their own--basically to pick their 
own medical malpractice liability reforms. Judges won't enforce 
those contracts. I think it is a much superior approach to 
trying out things like caps, loser pay rules and so forth 
because if something doesn't work, it is easier for patients to 
rewrite the contracts than it is for the Federal Government to 
State governments to rewrite the laws once they have been put 
in place.
    Mr. Gosar. Hold that thought. We will come back for a 
second round.
    Mr. Gowdy. At this point, I will recognize the 
distinguished gentleman from Maryland, Mr. Cummings.
    Mr. Cummings. The--this morning, the Budget Committee 
Chairman Ryan unveiled his budget for fiscal year 2012, which 
calls for repealing the Patient Protection of Affordable Care 
Act, turning Medicaid into a block grant and forcing Medicare 
beneficiaries to spend more of their fixed income on purchasing 
private health insurance.
    In my district, if I go to a town hall meeting, and there 
are 100 people and I ask them, what is their source of income, 
do they have more than one source, usually 90 percent, 
sometimes as many as 95 percent, tell me all they have is a 
Social Security check.
    According to the Wall Street Journal article Monday, 
Chairman Ryan's proposal would--and this is what the Wall 
Street Journal said--would essentially end Medicare as the 
program that directly pays those bills. Instead, seniors would 
be forced to venture out into the private insurance marketplace 
to purchase insurance. The Wall Street Journal mentioned giving 
insurance companies approximately $15,000 toward beneficiaries' 
purchase of private health insurance leaving beneficiaries to 
pay the remainder out of pocket.
    And since my Republican friends also want to repeal the 
Affordable Care Act, seniors are not going have any of its 
protections against abuses by private insurance, by the private 
health insurance industry, such as prohibiting preexisting 
condition exclusions and charging sicker beneficiaries higher 
prices than younger healthy people.
    I am trying to figure out, and I haven't--we just got the 
proposal today. Ms. Klein, help me with this, who is going to 
insure an elderly person? I am just curious. You know, I can't 
see how $15,000 is going to do that. Who is going--who is 
going--I--I mean, I have people that I know who are 40 years 
old and can't get insurance because of a preexisting condition. 
So now you are going put all these seniors out--not you, but 
the proposal--to put the seniors out there, give them a little 
piece of paper with $15,000. One visit in 1 day or maybe, at 
best, a day and a half will take care of that $15,000 quick. 
And we have a lot of seniors with chronic conditions. Have you 
gone through that? Have you figured that out?
    Ms. Klein. No, I haven't figured that out. Thank you very 
much for the question. I think it is really important to take a 
very close look at this proposal, which is essentially removing 
the promise and guarantee of access to affordable health 
coverage that we have made to America's seniors as well as 
other vulnerable people.
    The Medicare program and the Medicaid program work together 
to ensure that seniors, people with disabilities as well as 
children and working families have access to affordable health 
coverage that is comprehensive and that meets their needs. 
Without those programs, we will see a lot of people who are 
unable to get necessary health care.
    Mr. Cummings. I remember I was talking to my mother a few 
weeks ago, and she came up from South Carolina, rural South 
Carolina and she was telling me, we were talking about my 
grandparents, who died long before I was born. And they died in 
their 40's. And I said, ``Mother, that is kind of young to 
die.'' She said, ``Well, back then, there was no--we expected 
to die that early.''
    Can you see us going back to that kind of situation? And I 
don't like to just throw death out there, but the question 
becomes what are the alternatives? And it just seems to me that 
people--say, for example, we didn't have Social Security; we'd 
have seniors literally either having to depend on their 
relatives or begging for money. And it seems like in a country 
as great as ours, we can do better than that. And I think a lot 
of people have said to me, well, Republicans aren't going to go 
through with that. And I said, well, it is out there. And I 
think we have to be very, very careful with that.
    Would you agree?
    Ms. Klein. I would, thank you.
    Mr. Cummings. And does anybody else have any comments on 
this?
    Mr. Cummings. Yes, sir, Mr. Cannon.
    Mr. Cannon. Thank you for the opportunity, Congressman.
    I think lots--all seniors under the chairman's proposal, as 
I understand it, would be able to obtain health insurance 
coverage, and that is because the payment they receive from the 
Federal Government to purchase that coverage will be adjusted 
for income, so that lower-income people will get larger 
vouchers, if you will. He doesn't call them that; I will use 
the V word. And they will also be risk-adjusted, so that people 
with severe illnesses will get larger vouchers and be able to 
purchase insurance coverage. That will cover a lot of people 
who have preexisting conditions. And another----
    Mr. Cummings. Which is probably about all of them, by the 
way.
    Mr. Cannon. Well, that is true. That is why the average 
voucher amount, $15,000, would be more than the amount to 
cover--it would cost to cover someone under 65. And if you are 
concerned about that the not being enough money, remember the 
Dartmouth Atlas of Health Care has shown pretty convincingly 
that one-third of all Medicare spending is pure waste; it does 
nothing to improve the health of Medicare patients. Think of 
that as a huge margin of safety. So that seniors, even if they 
consume one-third less care than they do today, under say a 
very inefficient Medicare program, it would not harm their 
health.
    Mr. Cummings. I see my time is running out.
    Mr. Gowdy. Thank you, Mr. Cummings.
    Ms. Klein, do you disagree that we are $14 trillion in 
debt?
    Ms. Klein. I am actually not an expert on the Federal 
budget.
    Mr. Gowdy. Well, you were just very critical of our 
colleague Paul Ryan's budget. So do you disagree that we are 
$14 trillion in debt?
    Ms. Klein. No, I do not.
    Mr. Gowdy. Do you disagree that the annual deficit is $1\1/
2\ trillion?
    Ms. Klein. No, I do not.
    Mr. Gowdy. Do you disagree with the President when he says 
there is $900 billion in waste, fraud and abuse in Medicare and 
Medicaid?
    Ms. Klein. No, I don't.
    Mr. Gowdy. Have you proposed a budget for 2012?
    Ms. Klein. No, sir.
    Mr. Gowdy. Has your organization proposed a budget for 
2012?
    Ms. Klein. No.
    Mr. Gowdy. Well, I am struck with your willingness to 
criticize Representative Ryan when you have no alternative 
yourself.
    By 2031, every single cent in revenue generated by this, 
the most powerful economy on the face of the earth, will only 
be sufficient for the entitlements. That is it, by 2031. So 
what is your plan to reform Medicare and Medicaid?
    Ms. Klein. I think we need to remember that these programs 
provide vital services to people who, without them, would be 
left without access to care.
    Mr. Gowdy. You don't think we know that? You don't think 
Representative Ryan knows that?
    Ms. Klein. I wouldn't want to conjecture about what 
Representative Ryan knows. I think it is important to remember 
whenever we are looking at proposals to reform these programs 
the vital role that they play in protecting people's access to 
health care who would otherwise go without.
    Mr. Gowdy. You would agree with--is the government the only 
way indigent folks can have access to health care? Is that the 
only model we have ever pursued in this country?
    Ms. Klein. I don't believe it is the only model that we 
have ever pursued, but it has been a very successful model over 
the past 40-plus years. And I know that there are many folks, 
even within the health insurance industry, who agree that the 
existing programs that we have are the right way to go, 
particularly for people who have very high medical costs, as 
seniors and very low-income people tend to do.
    Mr. Gowdy. Well, where--I won't say it again without 
contradiction. We are $14 trillion in debt. So I would beg to 
differ that the programs are going swimmingly, or we would not 
be on the precipice of a financial slew of despond that we may 
not get out of. With specific reference to the commerce clause, 
can you tell me whether or not you think the Federal Government 
does not have the authority to send Medicaid back to the 
States?
    Ms. Klein. I am not sure I understand the question.
    Mr. Gowdy. Can Congress send the Medicaid program back to 
the States?
    Ms. Klein. The States already administer the----
    Mr. Gowdy. I mean block grant. The very part of 
Representative Ryan's budget that you just criticized, the 
block granting of Medicaid moneys back to the State, do we have 
the authority to do that?
    Ms. Klein. I haven't examined the legal authority for that.
    Mr. Gowdy. So you don't challenge that we do have the 
authority to do that?
    Ms. Klein. I do not challenge, I have not looked at the 
legal authority.
    Mr. Gowdy. What plans have you put forth to eliminate 
waste, fraud and abuse in Medicare and Medicaid?
    Ms. Klein. I think it is very important to make sure that 
both of those programs run as effectively and as efficiently as 
they can. I think we need to make sure and, in fact, it is our 
responsibility as a Nation to make sure that Federal dollars as 
well as State dollars spent on health care are actually going 
to pay for health care for the people they are designed to 
serve.
    Mr. Gowdy. Well, you and I are in agreement on that. My 
question was, what specific plans have you put forth to reform 
Medicare or Medicaid?
    Ms. Klein. I have not.
    Mr. Gowdy. Mr. Cannon, if you could do three things with 
respect to Medicare, by the end of April, to cut costs, what 
are the first three things you would do?
    Mr. Cannon. Mr. Chairman, I would give each--I would take 
the existing Medicare budget and convert it into a fixed 
voucher that each senior would receive to purchase health 
insurance, private health insurance plan of their choice, 
adjusting those vouchers for income and risk, as I mentioned 
before, was No. 1.
    Mr. Gowdy. Now, when you say voucher, in a voucher model, 
the money goes to the patient?
    Mr. Cannon. It would be very much like cash, but it would 
be restricted to health care expenses. They could use it to 
purchase a health insurance plan. And whatever they don't 
spend, they would get to keep and even pass on to their heirs, 
which gives seniors an incentive to weed out waste, fraud and 
abuse that just doesn't exist in the program today.
    Mr. Gowdy. Would you have copays for any of the patients 
under Medicaid, any disincentive to go to the physician 
whenever you want to for whatever you want to?
    Mr. Cannon. In Medicaid?
    Mr. Gowdy. In Medicaid.
    Mr. Cannon. What I would do with Medicaid is block grant 
the program, and give the States maximum flexibility to spend 
that money on providing medical care to the needy and let them 
decide whether to use copayments or not. A lot of folks on 
Medicaid, a copayment is going to keep them away from 
lifesaving care. It could--it could, that is a feasible--that 
could happen. What I--the reason I don't want to be making 
those decisions is because I don't think I have the wisdom to 
make those decisions.
    But the reason that I want block grants is because I think 
that the States are going to do a much better job of coming up 
with innovative ways of structuring those benefits so that they 
provide care to the people who are needy, who are truly needy. 
And they don't induce people to become dependent on government 
for their health care as the current Medicaid program does.
    The way the Federal Government pays for Medicaid by 
matching State funds creates a pay-for-dependents incentive. If 
you spend another dollar, that gets someone--for every dollar a 
State spends they get $1, $2, $3, in some cases $4, from the 
Federal Government; they can quintuple their money. That 
encourages States to make people more dependent on the 
government for their health care so that is the motivation 
behind block grants.
    It will also reduce waste, fraud and abuse in that program 
because the State would bear the full cost of waste, fraud and 
abuse, as opposed to right now where they only bear 43 percent 
of the cost on average.
    Mr. Gowdy. Thank you, Mr. Cannon.
    I will call on the gentleman from Arizona for a second 
round of questioning, Dr. Gosar.
    Mr. Gosar. In part of the--Mr. Cannon, part of the problem 
that we find is for physicians and particularly in costs 
associated in why we are having problems is basically cost 
shifting because we have so many physicians or so many services 
that are not compensated for and unfunded mandates, so it is 
constantly shifted.
    How do you see--how do I want to put this? How do you see 
the insurance companies be a part of a problem in the tort 
reform aspect? Because most physicians are part of panels so 
there are certain things that insurance companies will tell the 
physician or the patient they can or cannot do, it puts 
physicians in harm's way.
    Mr. Cannon. I am not sure I am aware of any ways that the 
insurance companies are creating a problem in the tort system. 
Medical malpractice liability insurers actually do a lot of 
good communicating the signals that the tort system creates 
into quality improvement measures to help physicians improve 
the quality of care that they provide.
    Mr. Gosar. I understand. But certain procedures, let's say 
somebody comes in, and they are going do an MRI, and the 
insurance company has to pre--you have to pre----
    Mr. Cannon. Get pre-authorization.
    Mr. Gosar. Pre-authorization to get that done. And maybe it 
doesn't happen. Who is put in harm's way when that doesn't 
occur, and we have a litigation?
    Mr. Cannon. If the insurance company requires 
preauthorization before necessary care, then--and they don't 
get that pre-authorization and the care isn't delivered, then 
that can put the patient in jeopardy. If it is that clear-cut a 
case, however, then the insurance company isn't really 
preventing the provider from providing those services; they are 
just saying, we are not going to pay for it. So there is an 
option for the provider to provide those services and then----
    Mr. Gosar. But hasn't that been part of the problem, 
particularly in hospitals and emergency rooms in some of the 
cost-shifting aspects within tort reform? That has been a big 
question mark as to who is saddled with that jurisdiction.
    Mr. Cannon. I am not----
    Mr. Gosar. Who is going to get the claim? It is obviously 
not the insurance company; it is the doc.
    Mr. Cannon. In these disputes, whenever you have an 
insurance company and the provider that are not part of the 
same entity, you are going to end up with these sorts of 
disputes. And I don't really know what is the best way to 
resolve those disputes. What I know is that we need more 
experimentation and competition, and we need to let people 
choose different ways of structuring the financing and 
delivering of health care, so that they can pick whatever way 
works best for them.
    There are some health plans where the insurance plan and 
the providers are essentially part of the same entity. There is 
still friction but a lot less friction than when you just have 
the health insurance company paying the bills. So I don't have 
a magic bullet solution to that, other than choice and 
competition, which will let people find the solution that works 
best for them.
    Mr. Gosar. So an increased and competitive marketplace 
would definitely help us.
    Mr. Cannon. And I think that Chairman Ryan's proposal is a 
step in that direction.
    Mr. Gosar. Would it also not have some competition within 
the insurance industry?
    Mr. Cannon. Absolutely. That is to be desired.
    Mr. Gosar. And isn't that a problem for the States right 
now, in most cases?
    Mr. Cannon. Too much competition?
    Mr. Gosar. Not enough competition for States and not having 
the jurisdiction over them now.
    Mr. Cannon. I am not sure about the jurisdictional issue. 
However, I think that within each State, there is far less 
competition than there could and probably should be in health 
insurance, if only because each State prevents their residents 
from purchasing health insurance licensed by another State.
    I think that is an idea that has been--that tearing down 
those barriers to trade is an idea that has been advanced here 
on Capitol Hill. Certainly we at the Cato Institute have 
endorsed it, and I think that would dramatically increase 
competition, probably even more than Chairman Ryan's proposal 
would.
    Mr. Gosar. So maybe even utilizing the Federal Government 
to actually instill that. For example, having FTC look in 
inclusionary monopoly type rules.
    Mr. Cannon. I am more skeptical of antitrust laws--although 
I am not an expert in that area--I am more skeptical of them 
than I am of Congress' ability to use the commerce clause of 
the Constitution to tear down barriers to trade between the 
States, which was the original intent of the original meaning 
the commerce clause. It was intended to allow--to create a free 
trade zone within the United States. We don't have that in 
health insurance right now, and competition suffers as a 
result.
    Mr. Gosar. Mr. Botsko, you see competition being a problem 
in Arizona?
    Mr. Botsko. Thank you for the question, sir. I don't really 
think that I am equipped to answer that question. The IG's 
Office tries to stay out of those types of things.
    Mr. Gosar. Competition would definitely help you as far as 
taking your dollar further, right?
    Mr. Botsko. Yes, I believe it would.
    Mr. Gosar. Thank you.
    Mr. Gowdy. Well, the chair would recognize the gentleman 
from Maryland, Mr. Cummings.
    Mr. Cummings. Mr. Cannon, help me with this, if you have 
100 people, seniors, who are all sick, who all have preexisting 
conditions, and you are going to give them a maximum of $15,000 
for an insurance policy, help me understand how that works. In 
other words, who is going to insure a senior who is sick? I am 
curious, maybe I am missing something.
    Mr. Cannon. My understanding, Congressman, is that the 
$15,000 amount----
    Mr. Cummings. That is like a max, right?
    Mr. Cannon. My understanding is that would be an average. 
Right now I think Medicare spends something like $10,000 or 
close to that on average per enrollee. And Mr. Ryan's proposal 
would take today's average amount, let that grow over time, and 
I think GDP plus 1 percent until 2021, at which point that 
would be the average voucher amount seniors would receive--I am 
sorry, premium assistance amount seniors would receive.
    Mr. Cummings. And they would go out, and they would 
purchase this insurance.
    Mr. Cannon. Let's say that $15,000--I sort of suspect it 
would be more--that would then be adjusted for income so that 
low-income people would get more than $15,000; adjusted for 
illness, so that if you are low-income and sick, you would get 
even more.
    Mr. Cummings. Do you know what the max would be?
    Mr. Cannon. I am not aware of what the maximum would be. 
That would be a result of the rules, the specific risk-
adjustment rules that haven't been spelled out in his budget, 
but you would have sick people getting a lot more money. The 
key is that they would own that money. It would be theirs. If 
they spent it wisely, then they would get to keep it to help 
pay for their out-of-pocket expenses in future years. And if 
they have some left over when they die, they could pass that on 
to their children.
    Mr. Cummings. Wouldn't it concern you? I know that you are 
concerned about the health of our seniors. Right?
    Mr. Cannon. Absolutely. I am very closely related to two 
Medicare enrollees.
    Mr. Cummings. So I am trying to figure--now, let me break 
this down to my district, because I have to be concerned about 
them. A lot of people in my district are your sicker 
population. In other words, it would not shock me if they--if I 
had a room of 50 seniors, that perhaps at least out of the 50, 
10 might spend some time in the hospital with dealing with 
maybe perhaps a chronic disease or some emergency situation, 
like heart problems or whatever. And those expenses could 
escalate very rapidly.
    And I guess what I am trying to figure out is I know 
insurance companies are out there to make money. They make 
their money. They are going to find a way to make their money. 
And I am trying to make sure I understand, when they take that 
piece of paper--I know you don't want to use voucher, but that 
is basically what it is.
    Mr. Cannon. I don't mind that term.
    Mr. Cummings. They take their voucher and they are shopping 
around for these insurance companies, they get--assuming they 
can get one. So you have confidence that these companies are 
going to insure them. And when we do away with preexisting 
conditions as an element that is, you know, my friends on the 
other side are saying they want to do away with the Affordable 
Care Act, one of the main things that my constituents are most 
concerned about is preexisting conditions. So--and as I tell my 
constituents, you know, some of the younger folks to say to me, 
well, Cummings, I am not worried about preexisting conditions. 
I tell them, you just keep on living; you will have some 
preexisting conditions.
    So if I have a person who does not have the protection of 
preexisting conditions, got a voucher, and--I am just 
wondering, do you--is there a concern that they may not able to 
get insurance?
    Mr. Cannon. Within the context of the chairman's budget--
Chairman Ryan's budget--I am sorry--Medicare reforms, no. I 
believe that he would require insurance companies to take all-
comers.
    Now, the--what we call these bans on discrimination against 
people with preexisting conditions, they are really a 
government price control. A competitive marketplace would set 
the price for the--health insurance for someone very sick at a 
very high level, maybe prohibitively expensive for that 
individual. When the government says that you can charge them 
no more than you charge a healthy person, well, then that 
insurance company has to charge all enrollees a weighted 
average. The government is forcing down the price for sick 
people by forcing up the price for healthy----
    Mr. Cummings. I got that. So----
    Mr. Cannon. And so the problem with government price 
controls is that they can change the prices that people offer 
in the marketplace, but they don't change the underlying 
economic reality that drives those market prices. And so what 
happens is you have insurance companies trying to mistreat, 
avoid, and dump sick people as a result of these government 
price controls. If a patient costs $50,000 to insure but the 
government says you can only charge them $10,000, well, an 
insurance company is going to have to get rid of those sick 
people by providing them lousy coverage, lousy service, or else 
they are going to go out of business.
    And research by President Obama's--some of President 
Obama's economic advisers has shown that is what happens under 
those government price controls. I would rather do without them 
precisely because I think we would have better protection for 
people with very expensive illnesses.
    Mr. Cummings. I see my time has expired.
    Mr. Gowdy. Mr. Botsko, the first panel talked a little bit 
about this pay first, verify second, third, fourth, recapture 
if we think we paid out incorrectly, which seems like a very 
inefficient model. Propose a better model to us, maybe one with 
verification or investigation on the front end.
    Mr. Botsko. Well, I am proud to say that the State of 
Arizona actually does that. We have the Fraud Prevention Unit. 
That unit is staffed by a group of investigators who go out 
upon referrals that originate from hospitals due to fraud 
indicators that the Office of Inspector General has set forth. 
Once that referral is received by my office, the investigators 
are out on the street within 24 hours conducting interviews. So 
we stop the people from getting into the system, those that are 
ineligible and that the investigation has shown are ineligible, 
and we stop it right at the very beginning. And I believe last 
year it was about $1.9 million in cost avoidance per 
investigator.
    Mr. Gowdy. You have a background in law enforcement?
    Mr. Botsko. I do.
    Mr. Gowdy. How many years did you serve in law enforcement?
    Mr. Botsko. Twenty-two years in Federal law enforcement.
    Mr. Gowdy. With the Bureau?
    Mr. Botsko. I was with the U.S. Department of Defense doing 
contract fraud, and also with the U.S. State Department 
Diplomatic Security Service.
    Mr. Gowdy. Did you ever run an NCIC background check?
    Mr. Botsko. Yes, sir.
    Mr. Gowdy. Those aren't hard. Are they?
    Mr. Botsko. No, sir. A matter of seconds.
    Mr. Gowdy. Is it too much to ask to run a background check 
or an NCIC on people who purport or want to be durable medical 
equipment suppliers?
    Mr. Botsko. Absolutely not. And in fact, the Arizona Office 
of Inspector General, we are a criminal justice agency so we 
have an NCIC terminal, and we do those checks.
    Mr. Gowdy. Did you ever do something as outlandish as 
actually go interview a target or a suspect?
    Mr. Botsko. All the time, sir.
    Mr. Gowdy. Do you think it is too much to ask that we go 
have a field interview with someone who aspires to be a 
supplier of durable medical equipment to make sure that they 
have an office and it is staffed and it is something other than 
a pizza parlor or a post office box?
    Mr. Botsko. That would certainly be a very proper and 
appropriate means of attack on the program to stop those that 
are perpetrating fraud. However, as with everything, more 
money, more staff are necessary to do those things.
    Mr. Gowdy. Perhaps. Or perhaps we go to Ms. MacQuarrie. And 
is there technology that can help? Not to eliminate any 
investigators' jobs, but is there technology that can help?
    Mr. Botsko. Let me just add that we actually use one of 
their products.
    Ms. MacQuarrie. Thank you for the question. Regardless of 
how health care is paid for, there is going to be fraud in it. 
And it is critically important to continue the fight against 
fraud, first in a prepayment mode as you have just indicated, 
Mr. Chairman. And there are technologies available. The CLEAR 
product that we had in our written testimony and in my verbal 
testimony does a complete research check of all individuals for 
whom we mine the data for. And that would be all of those DME 
suppliers who want to get into the program.
    We take that a step further, however, and we can link the 
risk indicators within this public record data, things like 
criminal records or preexisting tax liens or sanctions in one 
State and the providers move to another State and the State 
doesn't know that they were sanctioned someplace else. We can 
link all of that to historic claims data and do predictive 
modeling and actually assign a risk indicator.
    This is work that we do today, assign a risk indicator on 
those who would be providing applications to get into the 
program. So if we did have some limited field investigative 
staff, we would have them go out against those who have the 
highest risk indicators, as opposed to just every 10th supplier 
who might submit an application for enrollment.
    Mr. Gowdy. Mr. Cannon, quickly.
    Ms. MacQuarrie indicated that you are going to have fraud 
regardless, which is probably true. Do you have any statistics 
or perspective on whether or not fraud is more pervasive in the 
private insurance market or in the government health care 
delivery system?
    Mr. Cannon. You are going to have fraud I think wherever 
you have human beings. But I think you are going to have more 
fraud in government health care programs than you are in the 
private sector for the simple reason that government is people 
spending other people's money, and nobody spends other people's 
money as wisely or as carefully as they spend their own.
    So we have heard some discussion about tightening provider 
enrollment in Medicare. We could do that. We could also insist 
that providers provide more documentation with the claims that 
they file so we can ensure that those are valid claims. But 
when you, Congressman, hear from people in your district, 
providers in your district that these measures that they have 
to--the legitimate providers have to comply with now are too 
onerous and can't we repeal them, you and other Members of 
Congress are going to say, maybe we should repeal these things.
    They would prevent fraud, but you will roll them back. Why? 
Because it is not your money that is being lost to fraud. That 
is how government operates. That is why waste, fraud, and abuse 
are endemic to government programs, because government is 
people spending other people's money.
    Mr. Gowdy. On that happy note, we will end. I want to thank 
all four of our witnesses and everyone else in the audience for 
participating, as well as my colleagues on both sides. Thank 
you.
    [Whereupon, at 4:40 p.m., the subcommittee was adjourned.]

                                 
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