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

                      IMPROPER PAYMENTS: FINDING SOLUTIONS

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

                                    HEARING

                                   before the

                    SUBCOMMITTEE ON GOVERNMENT ORGANIZATION,
                      EFFICIENCY AND FINANCIAL MANAGEMENT

                                     of the

                             COMMITTEE ON OVERSIGHT
                             AND GOVERNMENT REFORM

                            HOUSE OF REPRESENTATIVES

                          ONE HUNDRED TWELFTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 APRIL 15, 2011

                                   __________

                               Serial No. 112-26

                                   __________

    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 Government Organization, Efficiency and Financial
                                   Management

                  TODD RUSSELL PLATTS, Pennsylvania, Chairman
    CONNIE MACK, Florida, Vice Chairman  EDOLPHUS TOWNS, New York, Ranking
    JAMES LANKFORD, Oklahoma                 Minority Member
    JUSTIN AMASH, Michigan               JIM COOPER, Tennessee
    PAUL A. GOSAR, Arizona               GERALD E. CONNOLLY, Virginia
    FRANK C. GUINTA, New Hampshire       ELEANOR HOLMES NORTON, District of
    BLAKE FARENTHOLD, Texas                  Columbia

                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on April 15, 2011...................................     1
    Statement of:
        Werfel, Daniel I., Controller, Office of Management and
          Budget; and Kay L. Daly, Director, Financial Management and
          Assurance, Government Accountability Office................     5
            Daly, Kay L..............................................    17
            Werfel, Daniel I.........................................     5
    Letters, statements, etc., submitted for the record by:
        Daly, Kay L., Director, Financial Management and Assurance,
          Government Accountability Office, prepared statement of....    19
        Werfel, Daniel I., Controller, Office of Management and
          Budget, prepared statement of..............................     7

                      IMPROPER PAYMENTS: FINDING SOLUTIONS

                                  ----------

                             FRIDAY, APRIL 15, 2011

                      House of Representatives,
    Subcommittee on Government Organization, Efficiency
                              and Financial Management,
                  Committee on Oversight and Government Reform,
                                                        Washington, DC.
        The subcommittee met, pursuant to notice, at 10:07 a.m. in
    room 2157, Rayburn House Office Building, Hon. Todd R. Platts
    (chairman of the subcommittee) presiding.
        Present: Representatives Platts, Lankford, Amash, Guinta,
    Towns, Norton, and Connolly.
        Staff present: Ali Ahmad, deputy press secretary; Michael
    R. Bebeau, assistant clerk; Robert Borden, general counsel;
    Adam Bordes, senior policy analyst; Christopher Hixon, deputy
    chief counsel, oversight; Tabetha C. Mueller, professional
    staff member; Noelle Turbitt, intern; Beverly Britton Fraser,
    counsel; Cecelia Thomas, counsel/deputy clerk.
        Mr. Platts. The subcommittee hearing will come to order.
        Before I begin the opening statement, I just want to
    apologize for the slight delay in starting. I anticipate that
    we will get through any opening statements from me and the
    ranking member and our witnesses. We are likely going to have a
    single vote. About that time, we will break, vote, and come
    back and do a Q and A after that vote. We will try to be as
    efficient as we can so as not to keep you any longer than
    necessary, but rather, have our discussion.
        As an oversight committee, we exist to secure two
    fundamental principles. First, Americans have a right to know
    that the money Washington takes from them is well spent.
    Second, Americans deserve an efficient, effective government
    that works on their behalf.
        Our duty on the Oversight and Government Reform Committee
    is to protect these very important 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 to
    bring genuine reform to the Federal bureaucracy. This is the
    mission of the Oversight and Government Reform Committee.
        Today's hearing on Improper Payments continues our
    subcommittee's examination of Federal financial management
    issues. It also affords us, first, the opportunity to review
    the newly enacted Improper Payments Elimination and Recovery
    Act of 2010.
        I welcome our witnesses and thank them for their efforts,
    both the written testimony you have provided as well as your
    testimony you will provide here today.
        The Honorable Daniel Werfel is the Controller and Director
    of the Office of Federal Financial Management at the Office of
    Management and Budget, and Kay Daly is the Director of
    Financial Management and Assurance at the Government
    Accountability Office. We are grateful both of you are a part
    of this hearing.
        As millions of Americans file their income taxes today,
    because of a holiday here, they have a couple of extra days
    through Monday, the 18th, as opposed to the traditional April
    15th, it is important for those of us in the Federal Government
    to take a step back and remind ourselves of the responsibility
    we have to spend those tax dollars wisely.
        First and foremost, that responsibility means we need to
    make sure that funds are being spent the way they are intended
    to be spent. Unfortunately, the total dollar amount of improper
    payments, which could be anything from payments without
    documentation to outright fraud, is staggering.
        As both our witnesses note in their testimony, Federal
    agencies reported an estimated $125.4 billion in improper
    payments during the fiscal year 2010. As a point of reference,
    the President requested $125.1 billion to fund the entire
    Department of Veterans Affairs in 2012.
        I well remember conducting a hearing in May 2003 when the
    estimated improper payments was $35 billion. It is important to
    be clear that the increases year after year are a result of
    better detection and reporting. That is a very good thing
    because as it shows, we are identifying the problem. The fiscal
    year 2010 financial report actually found the estimated error
    rate went down about half a percentage point.
        That being said, we still have a responsibility to the
    people paying their taxes today to do the best we can in
    handling their hard earned funds. The total amount of improper
    payments is very troubling. Even with the small drop in the
    error rate, the dollar amount increased by $16 billion, enough
    to fund the FBI, the DEA and the U.S. Marshals Service for 1
    year.
        In response to these concerns, this committee played a key
    role in the passage of the Improper Payments Elimination
    Recovery Act and I certainly recognize then chairman of the
    full committee, Mr. Towns, for his committee's leadership and
    work on this issue.
        The purpose of IPERA was to strengthen agency governance
    practices by incorporating a more stringent risk and
    performance framework for agencies to measure program outcomes.
    It expands the use of recovery audits and business analytics to
    help agencies recoup improper payments. These are common sense
    changes that buildupon prior requirements.
        Focusing on eliminating improper payments goes to the very
    heart of accountability. I believe the American people are
    looking to us for action and solutions. I was pleased to see
    that both of our witnesses point to examples of success stories
    in your testimony. I would like this hearing to be about those
    types of successes, about solutions.
        Technology is certainly a part of the solution and we have
    access to tools that weren't even invented when the Improper
    Payments Information Act was passed in 2002. Tools such as
    continuous transaction monitoring and business intelligence can
    help the government move toward a ``prevent and detect'' model
    other than the old ``pay and chase'' scheme.
        Technology can only go so far. As always, sound internal
    controls are the better opt for any successful, sustainable and
    cost effective solution. Agencies need to understand the root
    causes of errors and to develop better controls to prevent or
    detect them before the money goes out the door.
        One way to improve internal controls is to have a third
    party evaluate them. I was pleased to see your testimony
    addressed the issue of shifting audit resources to provide more
    scrutiny for payment activities.
        Mr. Werfel, I see that you make reference to the upcoming
    report on the CFO Act in your testimony and I am looking
    forward to those recommendations to get additional ideas on how
    to better leverage our audit resources to focus more on
    accountability and internal controls.
        Again, I thank you for your appearance here today and look
    forward to your testimony.
        With that, I yield to the distinguished ranking member, Mr.
    Towns, for his opening statement.
        Mr. Towns. Thank you very much, Mr. Chairman.
        Let me thank both of you for your service.
        This is a very important and timely hearing. I thank you
    for holding it, Mr. Chairman.
        Mr. Werfel, it is good to see you again. Ms. Daly, welcome.
    I am looking forward to your testimony as well.
        Even as the economy begins to recover from the last
    recession, the Federal Government still faces fiscal challenges
    in cutting spending and raising revenue. This subcommittee has
    continued to explore ways the government can save money and
    close the deficit.
        Mr. Werfel, the last time you visited with us, you gave us
    an excellent overview of the current financial conditions of
    the Federal Government as we looked at the consolidated
    financial statements. Today, we focus on the reduction of
    improper payments. We look to you and Ms. Daly to provide us
    with deeper insights on how we can quickly begin to conserve
    our financial resources by eliminating and recapturing improper
    payments.
        President Obama's administration has put forth very robust
    initiatives to eliminate improper payments which is one of the
    key components of the efforts to eliminate waste. I am
    encouraged to see that we have some positive results in
    response to these efforts.
        The President called for a do not pay list in June 2010, so
    that we don't keep giving money to the same ineligible
    recipients repeatedly. We now have the verified payment.gov Web
    site which allows agencies to check recipients' eligibility
    before they receive their Federal payments. This is a great
    beginning and I would like to hear more about this effort
    today.
        The President also asked agencies to be transparent about
    the amount of improper payment and to account to the American
    public for their actions in addressing these problems. I am
    pleased to see that we now have the payment accuracy.gov Web
    site that shows exact information. This is also a very good
    response.
        President Obama signed the Improper Payments Elimination
    and Recovery Act of 2010 into law last July. That law became
    effective in January 2011. I am looking forward to hearing
    about our progress under the new law as well. A healthy
    financial future for the United States requires sustained
    effort from more than one source. We must work together. We
    have to watch what we spend, get rid of waste, increase revenue
    and reduce improper payments, all at the same time to
    accomplish this goal.
        I am looking forward to working in a bipartisan way to
    reduce, to capture and to eliminate improper payments.
        On that note, Mr. Chairman, I yield.
        Mr. Platts. I thank the gentleman and certainly look
    forward, as well, to working together in that bipartisan
    fashion within the committee as well as with our executive
    branch colleagues.
        With that, I yield to the gentleman from Virginia, Mr.
    Connolly, for an opening statement.
        Mr. Connolly. Thank you, Chairman Platts.
        I want to thank you for holding this hearing to assess
    progress in reducing improper payments. Although this is a
    common topic of inquiry, sustained oversight can produce
    dividends for taxpayers by highlighting progress and
    identifying other opportunities for improvement.
        Congress and the administration have focused on reducing
    improper payments. President Obama issued Executive Order No.
    13520 reducing improper payments. President Obama also ordered
    that a do not pay list be created to avoid repeated improper
    payments and issued two memoranda to agencies to provide
    guidance in reducing improper payments.
        Despite these efforts, improper payments grew by $16
    billion in fiscal year 2010, indicating the need for further
    action. Therefore, Congress continued to ramp up efforts to
    reduce improper payments. During the last session, Congress
    included language to reduce improper Medicare payments in the
    Affordable Care Act, saving up to $80 billion annually.
        Congress also passed the Improper Payments Elimination and
    Recovery Act, as Mr. Towns just indicated, introduced by former
    Congressman Patrick Murphy and co-sponsored by many Members
    including yourself, Mr. Chairman.
        IPERA expanded reporting requirements and improved
    agencies' ability to recover improper payments. Many of IPERA's
    provisions became effective in fiscal year 2011, so we will
    need to continue monitoring its implementation to see how well
    it works and whether it can be strengthened.
        In his written testimony, Mr. Werfel, a familiar figure now
    here in this committee, I think we need to make him an honorary
    member at some point, Mr. Chairman, estimates the successful
    implementation of improper payment reduction programs could
    save $160 billion over 10 years, so there are substantial cost
    savings.
        There is evidence we already are making progress. While the
    total amount of improper payments grew during the last fiscal
    year, the improper payment rate across the Federal Government
    actually fell from 5.65 percent to 5.49 percent. While that
    still is far too high, it is important to recognize the
    progress agencies have achieved as this reduction in improper
    rates saved the taxpayers $4 billion and it is progress upon
    which we can build.
        I want to again thank you for holding the hearing and I
    look forward to hearing the testimony.
        Mr. Platts. I thank the gentleman.
        We will now move to opening statements of the witnesses.
    Again, we have the Honorable Daniel Werfel, Controller and
    Director of the Office of Federal Financial Management of the
    Office of Management and Budget. We certainly would be honored
    to have him as an honorary member. Whether he would be willing
    to associate himself with us, I am not sure.
        We also have Ms. Kay Daly, Director, Financial Management
    and Assurance, Government Accountability Office. We are always
    delighted and grateful to partner with GAO as well on your
    important work.
        It is the practice of the subcommittee that all witnesses
    be sworn before testimony. Please rise to take the oath.
        [Witnesses sworn.]
        Mr. Platts. The record will reflect that both witnesses
    answered in the affirmative. Again, we are grateful for your
    testimony.
        Mr. Werfel, would you like to begin?

    STATEMENT OF DANIEL I. WERFEL, CONTROLLER, OFFICE OF MANAGEMENT
    AND BUDGET; AND KAY L. DALY, DIRECTOR, FINANCIAL MANAGEMENT AND
              ASSURANCE, GOVERNMENT ACCOUNTABILITY OFFICE

                     STATEMENT OF DANIEL I. WERFEL

        Mr. Werfel. Thank you.
        Chairman Platts, Ranking Member Towns, Congressman
    Connolly, and distinguished members of the subcommittee, I want
    to thank you for inviting me to testify today. I appreciate the
    opportunity to discuss the Federal Government's current efforts
    to prevent, reduce and recapture improper payments, as well as
    how the audit process can be improved to focus on key
    programmatic issues like payment errors.
        As has been discussed in fiscal year 2010, Federal agencies
    estimated approximately $125 billion in improper payments were
    made to individuals, organizations and contractors. Although
    not all errors represent fraud, all payment errors degrade the
    integrity of government programs and compromise citizen trust
    in government.
        As part of the administration's Accountable Government
    Initiative, we have set aggressive goals to prevent $50 billion
    in improper payments and recapture at least $2 billion in
    improper payments between fiscal years 2010 and 2012. In
    addition to the enactment of IPERA, the administration is
    taking numerous steps to prevent, reduce and recapture improper
    payments.
        First, as mentioned earlier, in November 2009, the
    President issued an Executive order dedicated to the sole
    purpose of reducing improper payments. The order drives
    transparency, increased agency accountability and new
    incentives for State and local governments to reduce error.
        Second, last June, the President issued a memorandum to
    agencies on enhancing payment accuracy through a Do Not Pay
    list, as Congressman Towns referenced. The Do Not Pay list will
    serve as a single source through which all agencies can check
    the status of a potential contractor, grantee or individual
    beneficiary by linking the agency to relevant eligibility data
    bases such as the Social Security Administration's Death Master
    File and the General Service Administration's Excluded Party
    list.
        The initial portal has been built. However, full
    implementation of this Initiative will be done over several
    phases, including where we are now which is currently pilot
    testing the solution with Federal agencies.
        As envisioned, the Do Not Pay list, when fully operational,
    will not just be a data match tool, but will leverage cutting
    edge, fraud technology for a detection technology to further
    reduce the number of improper payments.
        Third, in March 2010, the President issued a memorandum to
    agencies directing them to intensify and expand their efforts
    to recapture error. We have set a goal of recovering at least
    $2 billion in improper payments between fiscal years 2010 and
    2012. I am pleased that in this area we are making significant
    progress in meeting this goal as agencies reported in fiscal
    year 2010 that they had recaptured $687 million improper
    payments which is nearly a 300 percent increase from prior
    recoveries.
        As you can see, we are working toward preventing and
    recapturing improper payments across the government. However,
    we are continuously looking for better and more creative ways
    to address these challenges. For example, a financial statement
    audit result addressed whether the agency had the appropriate
    accounting in place to record that a payment has occurred.
    However, the audit opinion too often stopped short of
    scrutinizing the integrity of that payment. This leads to a
    result where there is no correlation between an agency's
    ability to obtain a clean audit opinion on their financial
    statements and an agency's ability to mitigate instances of
    improper payments.
        I believe an important improvement that should be
    considered as we reexamine our Federal reporting model is
    holding the agency accountable as part of their financial
    statement audit for reporting the various root causes and
    components of their payment errors, identifying those areas of
    error that are within their direct and immediate control for
    the agency to mitigate, and then having the auditor evaluate
    whether the agency has taken sufficient action to mitigate the
    risk associated with such errors.
        I believe this proposed change would reinforce the Federal
    financial community's current focus and ongoing commitment to
    improving results in this area.
        I want to thank you again for inviting me to testify and I
    look forward to answering any questions you have.
        [The prepared statement of Mr. Werfel follows:]

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        Mr. Platts. Chairman Issa. Thank you, Mr. Werfel.
        Ms. Daly.

                        STATEMENT OF KAY L. DALY

        Ms. Daly. Thank you, Chairman Platts, Member Towns and
    Congressman Connolly.
        I appreciate the opportunity to be here today to discuss
    the governmentwide problem of improper payments in Federal
    programs and agencies' efforts to address key requirements of
    the Improper Payments Information Act of 2002, commonly
    referred to as IPIA.
        For fiscal year 2010, 20 agencies reported improper payment
    estimates for over 70 programs that totaled over $125 billion.
    This is an increase from the fiscal year 2009 estimate of about
    $109 billion, primarily due to increases in estimated improper
    payments for four major programs--Unemployment Insurance,
    Earned Income Tax Credits, Medicaid and Medicare Advantage.
        The agencies administering these programs reported that the
    increases in the estimates were primarily attributable to an
    increase in program outlay. That was the case for Medicaid and
    Medicare Advantage programs even though those two programs
    reported lower error rates. Both the Unemployment Insurance and
    Earned Income Tax Credit programs reported higher program
    outlays and higher error rates for fiscal year 2010 when
    compared to fiscal year 2009.
        Although overall improper payments rose by about $16
    billion, we view this as a positive step because it indicates
    that agencies have increased their efforts to identify and
    report improper payments which will ultimately improve
    transparency over the full magnitude of the improper payment
    problem. This is a critical first step in establishing
    effective accountability measures to reduce them.
        Some agencies reported they had made progress to reduce
    improper payments in their programs and activities. Since
    initiative IPIA implementation in 2004, we found that more
    programs are reporting every year and that 17 agency programs
    that had reported improper payment error rates from between
    2004 and 2010, reported reduced error rates in those programs.
    While these error rate reductions are promising, some major
    challenges do remain.
        For example, we found that the $125 billion improper
    payment estimate does not reflect the full scope of improper
    payments across all agencies. Seven programs that had been
    identified as susceptible to the risk of improper payments with
    2010 outlays totaling about $85 billion, did not report an
    estimate. Most notable of these is the Medicare Prescription
    Drug Benefit Program which had outlays of about $59 billion in
    2010 but has not yet reported a comprehensive estimate of
    improper payments. The program does expect to do so in fiscal
    year 2011.
        During fiscal year 2010, there were a number of actions
    taken intended to strengthen the framework for reducing and
    reporting improper payments. As we noted, the President signed
    the Executive order in November 2009 to increase transparency
    and accountability for improper payments and the President also
    issued two memoranda in June and March that were intended to
    expand efforts to recapture improper payments and also use
    recovery audits, in addition to establishing a Do Not Pay List.
        The President also set the goal to reduce improper payments
    overall by $50 billion and to recapture at least $2 billion by
    the end of fiscal year 2012. In addition, in July 2010, the
    Improper Payments Elimination and Recovery Act, commonly
    referred to as IPERA, was passed and is intended to enhance
    reporting and reduction of improper payments.
        IPERA established additional requirements related to
    Federal manager accountability, recovery auditing aimed at
    identifying and reclaiming payments made in error, and
    compliance and noncompliance determinations based on Inspector
    General assessment of whether an agency is meeting IPERA
    requirements. For example, IPERA required agency managers and
    the programs to be held accountable for achieving the agency's
    goal.
        In closing, we recognize that measuring improper payments
    and taking action to reduce them are not simple tasks. The
    ultimate success of the governmentwide effort to reduce
    improper payments hinges on each Federal agency's diligence and
    commitment to identify, estimate, determine the causes of and
    take corrective actions to reduce improper payments.
        Mr. Chairman, Ranking Member Towns and Representative
    Connolly, I would like to thank you for providing the
    opportunity for me to speak before you today. I also appreciate
    your commitment to addressing this serious problem. I would be
    pleased to respond to any questions you may have at the
    appropriate time.
        [The prepared statement of Ms. Daly follows:]

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        Mr. Platts. Thank you for your testimony. I appreciate both
    of you sharing your knowledge and insights.
        I will yield myself 5 minutes a first round of questions.
        I certainly appreciate the headway we have made since the
    former Chairman Steve Horn authored the original Improper
    Payments Information Act and got us on a good track to where we
    are today, almost 10 years later. It seems we certainly are
    doing a much better job as I referenced in my statement and you
    both have as well that we are now identifying the amounts and
    therefore, know what to go after, but it is still pretty
    significant.
        Mr. Werfel, in your written testimony you reference that
    not all errors are fraud, in fact, ``most payment errors are
    inadvertent,'' and you further say not all errors are waste,
    and in fact, ``significant amount of error is based on missing
    documentation.'' How would you roughly calculate percentage if
    it is not fraud, it is not waste, it is inadvertent and maybe
    missing documentation? Is that 50 percent of the $125 billion
    number; is it 75 percent?
        Mr. Werfel. There are a couple of answers. First, in terms
    of the overall error report portfolio, we think about one-third
    associates to the lack of appropriate documentation. That means
    we go down and we audit or sample the payment and test its
    accuracy and the people involved cannot provide us the relevant
    information for us to do an appropriate validation of whether
    the payment was accurate or not. Under longstanding audit
    principles, we don't assume the best, we assume the worse and
    we characterize that as an error. That is about one-third.
        What happens is later on as that documentation improves, we
    find not all of those payments turned out to be error. It
    reverts back to the general error rate that we see in
    government programs which is about 5 percent.
        Your other question about fraud is something that we are
    looking at but we don't yet have an exact percentage. What we
    see in the other two-thirds of the problem--I am being very
    general now--is most often the problem is an inability to
    validate eligibility or authenticity, whether data matches that
    should be occurring are not occurring or whether there really
    is at this time no third party data source to validate the
    current situation.
        In some cases, it turns out that our inability to validate
    eligibility is driven by the fact that we are actually being
    defrauded, that someone has set up a fake identity or a fake
    account of some kind. We believe based on all the information
    that we have that is a serious problem but it is not a large
    percentage of the problem. We just don't have the exact
    percentages at this time. In order to do so would take a
    different approach to our measurement that would involve a lot
    of resources and the community as a whole is considering and
    continues to consider whether to establish a particular fraud
    metric. It would be interesting to hear the interest of this
    subcommittee on that topic as well.
        Mr. Platts. I assume in the area of improper documentation,
    it is safe to believe that a lot of that relates to programs
    that are State-administered such as Medicaid where the
    verification is not done by a Federal entity but a partner at
    the State or local level?
        Mr. Werfel. It is a significant problem in State-
    administered programs. You have 50 different administrations of
    the program, 50 different approaches, so we see sometimes the
    controls and the documentation, and the rigor with which
    programs are carried out at the State level vary greatly. That
    is one of the areas. You are right, we do not have as direct,
    immediate control over how those States are running their
    operations and what kind of internal controls they are putting
    into place to maintain good documentation. That is why it
    becomes very significant.
        Mr. Platts. On a specific program, the idea of whether it
    is more fraud or inadvertent, lack of documentation, Medicare
    fee for service, you reference in your testimony, the
    President's efforts to really go after improper payments in
    this category, certainly it is a good sign to go from an
    estimated 12.4 percent to now 10\1/2\ percent.
        In that specific program, what was the most significant
    change or effort that got us from over 12 down to 10, so we are
    coming down, and how would you characterize the issue of fraud
    versus inadvertent or lack of documentation?
        Mr. Werfel. That is a very good question. Medicare is the
    largest source of error in the Federal Government. It is
    obviously the top priority of the administration to address
    that because as we address and do a better job on that, the
    whole governmentwide error rate and improper payment problem
    shrinks.
        In terms of how they have been able to improve, the
    Medicare Program, the folks at CMS have had an ongoing and
    longstanding corrective action plan that continues to move
    forward and continues to get refined, and they continue to make
    more and more progress. It has multiple elements to it.
        They are holding providers more accountable for
    documentation, they are working with the provider community to
    understand what they are required to maintain in terms of
    documentation, so that problem is there. There are other
    elements to Medicaid error, whether they are doing a better job
    in identifying coding errors. For example, they reimburse for
    an MRI but only a chest x-ray occurred or we reimbursed for a
    $4,000 procedure when only a $1,000 procedure occurred. These
    sometimes are coding errors and they are building better
    automated solutions and contractor review modules that can pick
    up on these things.
        I think the real driver here and the most promising benefit
    to Medicare is their predictive modeling and their business
    intelligence and analytics, to identify procedures that look
    anomalous and activities that look anomalous. As the
    information age emerges, we become better at detecting these
    different trends with the data.
        Sometimes there is a legitimate provider who didn't realize
    the activities they conducted are technically not Medicare-
    eligible and we need to train those medical providers better.
    In some cases, it is fraud.
        Mr. Platts. Just to conclude on that specific point, the
    business, the analytics and doing better, this is something the
    credit card industry is way ahead in. How are OMB specifically
    or departments individually trying to reach out to the private
    sector? I am a big guy with Discover Card. No annual fee, I pay
    it in full every month, cash back. But each year my wife has
    chaired the Teacher Appreciation Program at our local
    elementary school and one of the things was through the PTA to
    do a gift card for each teacher. My wife purchased them for the
    whole school, all the faculty and then is reimbursed by the PTA
    when they are provided, so there is a big charge out of the
    norm. I actually get a phone call from Discover, as the member
    of record, saying a big charge has been made 5 minutes ago. If
    there is a problem with this and you didn't authorize it, let
    us know right away.
        Mr. Connolly. Mr. Chairman, I would like that system that I
    get a call every time my wife put a big charge on the credit
    card. [Laughter.]
        Mr. Platts. I do sometimes, not in any distrust of my
    wife's spending habits, but Discover, but it is the example,
    saying something is out of the ordinary because of the amount
    of the charge. Those things happen when I make the charge too,
    Mr. Connolly.
        How are we doing as a government in trying to replicate and
    not reinvent the wheel but use the expertise from the private
    sector who had a real financial incentive to do this and they
    are doing it very well. Are we reaching out to the private
    sector or are we trying to reinvent the wheel instead of
    learning from what they have done?
        Mr. Werfel. An excellent question and to me it is one of
    the more exciting opportunities that we have. I used the phrase
    earlier leveraging the information age and that is a mantra
    that I have tried to promote within the community around this
    area.
        To answer your question more directly, I think we are going
    to look back and see one of the most critical moments in the
    history of our journey in improper payments as being the
    creation of the Recovery, Accountability and Transparency Board
    and some of the innovative things that have been going on at
    that board. They have really been serving as the major bridge
    between these cutting edge solutions, whether in the credit
    card industry, counter intelligence or otherwise and saying
    these solutions can be used in programs like Medicare and
    Medicaid.
        They demonstrated that during the Recovery Act where we
    started to get wind of some of the things they were doing by
    using data out there in the public sphere, gathering enormous
    quantities of data in real time and then using very
    sophisticated and well thought out algorithms, questions and
    queries of the data to say looking at this payment, it looks
    fine when I look at it like this but with the data I am going
    to twist it on its axis a bit and suddenly there are a bunch of
    red flags there.
        We were basically wowed by what they were able to do, so we
    started bringing in more and more agencies. They tell us they
    don't know what they are more busy doing, finding fraud or
    demoing the solutions to other agencies which I think is a
    great problem to have.
        Mr. Platts. That resource, they are serving as a kind of
    clearinghouse to educate and train departments and agencies to
    replicate what they are doing?
        Mr. Werfel. Right. One of the major moments was when we
    brought in CMS and they saw the solution. They have a forensic
    unit at CMS that does a good job, a very good job. They
    challenged the Recovery Board, said here is a bunch of data, we
    know where the fraud is within this data, let us see if you can
    find it. Not only did the Recovery Board find it, they found
    fraud that CMS had missed. They did it using a better, more
    comprehensive, different type of algorithm.
        CMS is very good, for example, at finding providers with
    unusual treatments like here is a provider in Texas who had
    seven of these types of treatment in the last few weeks and
    that is unusual. You don't see that kind of treatment out of a
    small provider. They forensically look at that stuff well. The
    Board's tool found identity fraud. It found a doctor in Texas
    using a license of a legitimate doctor in North Carolina,
    saying this doctor really doesn't exist. They had missed that
    in the CMS algorithms and forensics.
        The goal now is they shouldn't miss it anymore, so now CMS
    is creating a fraud lab where they have different types of
    people with different perspectives and expertise including some
    of the Recovery Board expertise driving to improve their
    overall algorithm.
        It is fantastic and it is going to take time before we see
    the full impact of the result, but they already have an
    investigation underway with an Inspector General around a fraud
    ring that was discovered through this.
        Mr. Platts. Good news that we are headed in the right
    direction.
        I appreciate my colleague's understanding in going well
    over my time, but I yield to the ranking member.
        Mr. Towns. Let me begin, Ms. Daly. Can you explain to me
    what a payment recovery audit is?
        Ms. Daly. Yes, sir. Payment recovery audits are actually
    audit tools, although not audits in the true sense of the word,
    typically performed by contractors who specialize in this area.
    They comb through invoices and other documentation that an
    agency maintains and identify improper payments that are in
    there and actually go out and recoup those improper payments.
        They typically work on a contingency fee basis, therefore
    there is little cost to whoever is employing them. These
    payment recapture audits or recovery audits are actually
    performed not just in the Federal Government, but in State and
    local governments and also in the private sector.
        Mr. Towns. In your testimony, both of you discussed the
    annual increases in improper payments. You said the government
    started out with $45 billion and reported improper payments in
    2004. You indicated 7 years later it was $125 billion in
    improper payments. That represents about a $70 billion increase
    in 6 years. Can either of you explain the cause for the major
    increase?
        Mr. Werfel. I think the biggest cause is just more programs
    reporting. When we first started on this journey after the
    Improper Payments Information Act was enacted in 2002, one of
    the first lessons learned was measuring error in programs isn't
    easy. It requires resources, expertise, creating partnerships
    with your funding recipients who now have to be subjected to
    these payment audits, so it took us a while on the learning
    curve to figure out the right and the appropriate way to
    measure a number of programs.
        That $45 billion that you referenced takes into account a
    smaller footprint of programs, so what happened each year is we
    have the good news of we measured three more programs, add
    their error, the next year we measure in five more programs,
    add their error and the error amount grows.
        The other cause is outlays. We outlaid significantly more
    money in 2010 than we did in 2004. Even if the error rate stays
    constant at 5 percent, if you are going from $100 to $1,000 to
    $100,000, even at a 5 percent error rate, the improper payment
    amounts go up. Those are the two causes.
        Without making any excuse, we still have a $125 billion
    problem that we need to solve. I have explained to you why it
    is increasing, but we need to be very, very focused on how to
    start turning that tide back the other way.
        Mr. Towns. Mr. Werfel, IPERA included many important
    provisions aimed at reducing improper payments. One provision
    relates to sanctions for programs that are not complying with
    the law. Specifically, if any agency is determined not to be in
    compliance for two consecutive years and the Director of OMB
    determines that additional funding would help the agency come
    into compliance, the head of the agency shall obligate
    additional funding in an amount determined by the Director to
    intensify compliance efforts.
        Would you please explain how you would determine what needs
    to be done at the agency level?
        Mr. Werfel. It is going to be challenging. I think one of
    the most important things that IPERA does that I am most
    excited about is it really integrates the Inspector General
    into this problem more than in the past. Because 2 years of
    non-compliance is based on a conclusion reached by the
    Inspector General and I am hopeful that in reaching that
    conclusion, the Inspector General is going to provide us some
    degree of a road map in terms of where some of the deficiencies
    are occurring and where the investments are needed.
        I also think the agencies on the management and payment
    side are also very dedicated. My vision is if we get to a place
    where we have an Inspector General who finds an agency has been
    non-compliant for two consecutive years, we are going to come
    to the table with OMB, the agency and the Inspector General and
    have a strong diagnosis of where the money can best be spent,
    where is the most positive return on investment.
        It is not going to be easy but I think with the right
    partnerships, we should be able to find the answers more often
    than not.
        Mr. Towns. My time has expired. Thank you, Mr. Chairman.
        Mr. Platts. Thank you, Mr. Towns.
        I now yield to the gentleman from Virginia, Mr. Connolly.
        Mr. Connolly. Thank you so much, Mr. Chairman.
        I really want to thank you for having this hearing because
    this is the kind of public policy thing I love to sink my teeth
    into and I look forward to working with you on followup
    legislation because I think this is a promising area. Not all
    of the Federal budget or Federal deficit lends itself to
    promise, this one does.
        I want to ask as many questions as I can fit in, so please
    try to be concise and bear with me.
        Mr. Werfel, if I understood your testimony, you talked
    about $125 billion in improper payments made last year. You
    said there was a goal to recapture $2 billion. That seems
    awfully modest.
        Mr. Werfel. I will try to be as concise as I can. The sweet
    spot for where you can recover error is recovering improper
    payments to vendors. The reason is the measurement that we have
    is real, every time we find an improper payment to a vendor, we
    can actually find the vendor, the date the payment was made and
    go back and get it.
        In the broader scheme, the way we estimate errors is we
    pull a small sample size and extrapolate that to a universe.
    For Social Security, which could have $1 billion in errors, we
    don't know in every case that it was John Smith or Jane Smith
    that got the error. We pull a sample size, say 400 or 4,000
    samples versus the actual 100,000 or 200,000 payments that were
    made. We only know about the errors in the small sample size.
    That is why.
        Mr. Connolly. Let me say to you as someone who ran a fairly
    large local government, I don't think you make a lot of
    progress unless you make heroic goals, stretch goals; $2
    billion doesn't cut it. It is not sufficiently robust, in my
    view. I understand the limitations but it is something I think
    we have to come back to, not when the universe is $125 billion.
        Ms. Daly, you indicated that Medicare prescription
    benefits, Part D, does not yet even track, but it is going to
    next year, improper payments, correct?
        Ms. Daly. Exactly. The Medicare Prescription Drug Benefit
    Program has actually done estimates on subsets of its
    population but does not have a total comprehensive estimate for
    that program.
        Mr. Connolly. That program has been in place now for how
    many years?
        Ms. Daly. I believe it was put in place in 2004, but I am
    not certain.
        Mr. Connolly. So we have 6 or 7 years of track record. That
    seems awfully sluggish to me. They have had plenty of time to
    get with the program, haven't they?
        Ms. Daly. I think they have been trying. As Mr. Werfel
    indicated, it is challenging to come up with a valid,
    comprehensive estimate for many of these programs. It is not
    always easy to measure where the errors are occurring.
        Mr. Connolly. Particularly with the doughnut hole, however,
    it just lends itself to gaming, some of which would be illegal
    one thinks. Prescription drug prices are all over the lot.
    There are discount drugs, generic drugs, brand drugs, expensive
    drugs, orphan drugs and all kinds of other things. It just
    seems to me that is ripe for the picking. I would hope we are
    going to put a lot of heat on them to make sure they get this
    program up and running.
        Mr. Werfel, in terms of analytical tools, I was intrigued
    by the chairman's recitation of how credit cards clearly have a
    monitoring system for ourselves and our spouses and we could
    learn a lot from the private sector. I thought I heard you say
    we are doing that on a pilot basis.
        I want to give you an opportunity with three things
    quickly. One, how do we expand that beyond a pilot so we are
    actually using the expertise of the private sector in the
    public sector given the amounts we are talking about?
        Second, in terms of diagnostic tools, what are we doing on
    the diagnostic end to better get a handle on what is the cause,
    a more accurate cause of improper payments?
        Finally, what incentives are we providing for agencies to
    have a better track record than $2 billion out of $125 billion?
        Mr. Werfel. The first question, we have definitely moved
    beyond the pilot phase, but I don't think we are where we need
    to be. I think the private sector is way ahead of us in terms
    of leveraging the type of information networks to find
    anomalies and errors, but we have isolated examples of success
    stories. Almost every agency has a forensic unit and we have
    some expertise in this area and we have brought them together
    in a working group recently to try to make sure we pushing
    ourselves to better and better things.
        The examples I provided are real. The Defense Department is
    one; they have a very sophisticated pre payment algorithm tool
    that they use that has prevented something like $1 billion in
    error over the last few years. The Recovery Board is real and
    it is happening today. CMS's Fraud Lab is real and is happening
    today.
        The reality, I would argue and my belief, is the credit
    card companies with the networks that they are developing are
    more sophisticated and ahead of us and we need to catch up.
        Your second question I believe was on diagnostics and root
    causes. I think that is an area of real progress that has been
    made since 2004. When we talk to agencies, it is not about a
    lack of understanding of what is causing the error. It is more
    what are the appropriate solutions. There are two things that
    drive our challenge on solutions.
        One is do we have the information that we need. Sometimes
    whether it is the Privacy Act or just the lack of an automated
    tool to pull it, we don't always get the information we need to
    validate. The second is the tougher we make the world for
    recipients to prevent improper payments, it can create other
    programmatic challenges. I often find myself in a meeting with
    an agency and say, here is how you do it, just create a policy
    that makes it much, much more difficult to get a payment error.
    That tends to have reverberations around the rest of the
    program and could either create access barriers or create other
    complications, so it is finding that equilibrium.
        I don't think I remember your third question.
        Mr. Connolly. The third question was are the right
    incentives in place for agencies to put together a robust
    program and making this a priority?
        Mr. Werfel. I think they need to be stronger. IPERA is a
    great start with the compliance penalties, the push to get this
    into performance appraisals. Earlier Chairman Platts referenced
    the audit situation. You are probably aware that on November
    15th of each year, agency financial statements are due and
    their audits are due. I always talk about in the push to
    November 15th, is remarkable how the agencies are so dedicated,
    working through the night, 17 hours a day and this tremendous,
    intense push to get our financial statements out on time and to
    get them with clean audits. I think if we can harness that
    energy, the accountability is there. The CFOs take it
    personally if they don't get a clean audit, it is a big deal.
    If we can somehow harness that energy around this problem, I
    think you would see a tremendous change. That is something I
    want to promote with this subcommittee.
        Mr. Platts. I thank the gentleman.
        Before I yield to Mr. Guinta, just to follow on that, the
    premise that the audit of the internal controls that we
    required of DHS was, I believe, one of the keys to their
    getting on a good track. As you referenced, someone could get a
    clean opinion on their annual audit, yet have $100 billion of
    improper payments going out the door because the audits we are
    doing now don't go after identifying those improper payments,
    just that they can account for the money, not necessarily that
    it was properly spent.
        With that, I yield to the gentleman from New Hampshire, Mr.
    Guinta.
        Mr. Guinta. Thank you, Mr. Chairman.
        Thank you both for your testimony.
        First of all, the number $125 billion, how accurate is that
    number?
        Mr. Werfel. I will give that to the auditor.
        Mr. Guinta. I know that is a reported number, but what
    would be your guesstimate of additional moneys that we are not
    identifying in overpayments or improper payments?
        Ms. Daly. That is the unknown answer because we have to
    wait until an empirically sound method is developed for
    providing an estimate. Right now, the best we know is that it
    is $125 billion for 2010. We do know there are at least seven
    major risk susceptible programs that have not reported. I can't
    give you a sense of how much those particular programs may have
    in improper payments or others where they maybe tightening up
    their methodologies and moving forward that might provide a
    more precise estimate for programs that have already reported.
        That happened a year or so ago with the Medicare fee for
    service program. They initially reported an estimate for 2009
    of about $24 billion and then applying a more stringent
    methodology, raised that estimate to about $35 billion. That is
    a case where when they do a more precise estimate, they are
    able to identify what the various reasons and causes are.
        I wanted to add to something discussed just a minute ago
    that I do think the estimates coming out are getting better,
    but it is also very important to have consistency in measuring
    because that way you are comparing apples to apples and you
    don't have the differences that may come about just because you
    are using a different approach in your measurement.
        Mr. Guinta. In the seven major programs not reporting yet,
    which are the top two?
        Ms. Daly. Medicare Prescription Drug and then I believe
    TANF would be the next larger dollar value program that has not
    reported.
        Mr. Guinta. Over the last 5 years, has this number been
    roughly the same, this $125 billion or has it progressively
    increased?
        Ms. Daly. The number has been progressively increasing.
    Last year's estimate was $109 billion. Prior to that, I have to
    check a cheat sheet, if you don't mind, I believe the number
    was $72 billion in 2008, $55 billion in 2007, so we have seen a
    consistent progression upward. As Mr. Werfel indicated, a lot
    of that is because there are more programs reporting every
    year.
        Mr. Guinta. Do you have a breakdown of how much would be
    Medicare and how much would be Medicaid?
        Mr. Werfel. I can answer that question. It is a very large
    portion in Medicare fee for service, $34.3 billion in error and
    Medicare Part C, $13.6 billion, and in Medicaid, $22\1/2\
    billion. That is more than half our balance sheet on error just
    in Medicare and Medicaid alone.
        Mr. Guinta. Is there ever a likelihood of us achieving real
    savings in these three areas? When I say real, I mean 70, 80 or
    90 percent?
        Mr. Werfel. Yes, but it is going to take time and it is
    going to take congressional help. For example, there is in the
    President's 2012 budget a series of program integrity proposals
    for a variety of different programs, but in Medicare alone, our
    proposals, we believe if enacted, would have the impact of
    saving $42 billion over 10 years if you combine the legislative
    proposals we are seeking and some additional funds to do
    program integrity work. That doesn't get you to the 70 or 80
    percent, but again, we think this is an extremely important
    step to be taken.
        Mr. Guinta. Would you send some of those recommendations to
    my office? I don't know if other Members would like them, but
    if you would, I would like to take a look at that.
        Mr. Werfel. Absolutely.
        Mr. Guinta. Thank you. I yield back.
        Mr. Platts. I thank the gentleman.
        I yield to Mr. Lankford from Oklahoma.
        Mr. Lankford. Thank you.
        I would say keep going. There are a lot of people counting
    on you based on the budget and the American people looking
    forward to getting some of this cleared up over time. This has
    been a long ongoing process. It is not a simple task by any
    means, we understand that, but keep going with what you are
    doing.
        Mr. Werfel, you know my propensity on some of the Web sites
    that we have on the dot govs. Can I ask a quick question on the
    paymentaccuracy.gov? How is that connected and are there other
    places that people can go to be able to find that and track it?
    Is the information connected to data.gov and other places as
    well as the agency's Web site as well so it is easy to identify
    and find?
        Mr. Werfel. That is a good question.
        First of all, just to promote the Web site,
    paymentaccuracy.gov, we have been pleasantly surprised with the
    number of hits and foot traffic we get on the site. It is a
    well visited site and we are very excited about that.
        I can't say that we have the perfect architecture of all
    the different links but there are a lot of different
    opportunities to get there. In particular, it is in our USA
    spending family and I would say that is probably our most
    visited Web site in this terrain, so I think that is most
    critical.
        Mr. Lankford. I would continue to encourage you to find a
    central portal that we can promote as a Federal Government site
    and say if you are looking for something, you can go here, get
    a chance to connect and jump off and it is also searchable so
    you can connect and it connects with different things rather
    than having to search in one, search another and another and be
    able to track it.
        The consequences for an employee, vendor or contractor that
    were discovered in improper payment, how is that working? We
    talked about incentives. Obviously we want incentives for the
    agency to be able to find and reuse that money in other areas
    if it is done appropriately. What are the consequences, give me
    some examples of that?
        Mr. Werfel. I think the major consequence is that once a
    payment is identified as error, and we identify the vendor that
    received the error, if they don't pay back the money in a
    timely way, we have a suite of different activities we can
    undertake to enforce that debt collection. One of the things I
    am working to do with the procurement community is to figure
    out all the additional steps we can take.
        When we make a payment error to a vendor, that is the
    United States making an error. I believe the vendor has an
    obligation to report that error as soon as possible. So we are
    looking at ways--we haven't identified the perfect solution--to
    increase the vendor's responsibility to help in this hunt for
    improper payments.
        Mr. Lankford. There is both a balance in that because I
    have talked to a physical therapy center in Oklahoma City not
    long ago and they had a longstanding battle with Medicare
    reimbursements where they would get a random contact saying
    this was inappropriate. They would pull their file and say no,
    it was very appropriate, here is the code. I am sure it is
    being identified as inappropriate, they are telling me no, I
    have the full verification, this is the right code, this is the
    right thing.
        How are we hitting that balance between the two where we
    don't have an individual vendor that is being crushed in the
    process and having to fight for a year to get the payment they
    deserve versus finding real fraud and saying we have to sniff
    this out? There has to be a balance.
        Mr. Werfel. You are hitting on the central issue. I made
    this point in response to Congressman Connolly's question.
    There is a tension when I sit in a room with an agency, often I
    say, why can't we do this more aggressively? Why can't it be
    more comprehensive? Why are you waiting until you are 95
    percent confident to go after an error? Why don't you go after
    an error when you are 80 percent confident and cast a wider
    net?
        The issue that it creates more false positives and it
    creates the potential for more litigation and inequity, so the
    question is finding that right equilibrium and finding that
    right balance plane.
        Mr. Lankford. If there is some way to be able to notify the
    vendor that this is something that is suspicious, if you would
    provide some simple documentation to make sure we can clear
    that up, that would certainly help rather than the cutoff point
    of saying, we think it is, reimburse our money to us, pay us
    whatever it may be. It provides some sort of interim step that
    would be very helpful in that process on both sides. We want to
    be able to tell people we are tracking it aggressively. If more
    people are getting that contact and saying we are watching,
    that helps. If more people are finding, I had better pull this
    and have my documentation in place, that is a helpful thing.
        It is somewhat disturbing to hear about Medicaid, dealing
    with $22 billion in this abuse, fraud, whatever it may be,
    whatever we are going to call it. That is running 8 to 10
    percent of Medicaid costs, a significant amount that we are
    processing. I would encourage we continue in any way we can to
    track that.
        Is there a single area you can look at and say this is the
    big issue with Medicaid and why we are having so much come out
    of it? Is there anything that comes to the top of that $22
    billion?
        Ms. Daly. Actually, the agency reported that typically for
    both Medicare and Medicaid, they have medical necessity issues,
    trying to determine whether the medical procedure should have
    been performed. Oftentimes it is, as you mentioned, things like
    insufficient documentation commonly reported as one of the key
    causes of improper payments for those programs.
        Eligibility status is another for Medicaid that you don't
    see for Medicare. Typically, these are the causes that the
    agencies report are contributing to those estimates of improper
    payments.
        Mr. Werfel. I would add one thing to that. The other
    challenge HHS has on the Medicaid front is 50 different States
    running 50 different Medicaid type programs. It is sometimes
    difficult to say here is a unifying solution to our eligibility
    or documentation problem. It doesn't always translate for every
    State. It just means we have to work harder and get more
    granular in our solutions on a State by State basis. I think
    CMS is doing that but clearly at $22 billion, a lot more needs
    to be done.
        Mr. Lankford. On our side legislatively, we are working on
    correcting that with the budget we are putting out today on the
    House floor, block grants, Medicaid back to the States, it puts
    the accountability side on them. We are dealing with 50
    different States and we are trying to resolve that in a
    different way.
        I appreciate that and I yield back.
        Mr. Platts. I thank the gentleman.
        We are honored to be joined by the distinguished Chair of
    the full Committee on Oversight and Government Reform from
    California, Mr. Issa.
        Mr. Issa. I thank the chairman. I apologize for not being
    here for the whole hearing but we are doing two at once, so I
    was over in National Security.
        Mr. Werfel, I sent you a letter about a month ago that
    today happens to be miraculously the deadline, that asked what
    your policy was and the basis for not sitting on panels if they
    weren't to your liking. Am I going to see that letter today?
        Mr. Werfel. I believe we are on track to get you a response
    today, yes.
        Mr. Issa. Today will end soon, you know.
        Mr. Werfel. At OMB, our COB is later than normal, but we
    will get yours.
        Mr. Issa. As you are finalizing it, since it is not here, I
    understand a longstanding policy for this committee is not the
    2-years in which the Obama administration had your own party
    looking over your shoulder, it has to be a basis that would
    transcend any one administration. Otherwise, it is an
    administrative choice which is not acceptable to the other body
    that has the obligation for oversight, so hopefully your answer
    will be creative and maybe a yes, we will come more often.
        Mr. Lankford was asking about the false positives and so
    on. Two days ago, I was in front of one of the many groups we
    keep bringing in from AmericanJobCreaters.com, people who are
    talking about abuse within the Federal system, talking about
    the checks and balances, the absence of the ability to track in
    real time, waste, fraud and abuse. I asked them because we were
    on the subject how many of you have received a call from Visa
    or Master Card telling you that there is a suspicious problem?
    Virtually every hand went up. It was probably 80 percent at
    least.
        Then I asked how many of you had identity theft or your
    card actually stolen? About four hands went up, one of whom was
    on my staff. The amazing thing was I asked if anyone was upset
    and they said, of course not. Why? Because it reduces the cost
    of that card. If it wasn't for the millions of false positives
    that are asked and explained, the cost of those cards would go
    up by multiple percentage points because, as you know, Master
    Card eats the losses.
        My question to you is, why in the world wouldn't you
    develop a system that would allow you to basically be false
    positive ten times, twenty times more often, ask the question
    and in an analytical and inexpensive way accept the answers and
    then sift through those answers? Why isn't that the approach
    since it works for VISA and Master Card in real time and for
    us, it doesn't work so well the way we're doing it?
        Mr. Werfel. That is a very good question, a challenging
    question and I can assure you, Congressman, I am typically the
    person at the table pushing for a broader net and a more
    aggressive posture so that we can drive down errors.
        Coming back at me across the table are very legitimate
    programmatic and policy concerns, in particular the concern
    that setting up these types of internal controls and stop
    points or moratoriums on payments or keeping a payment from
    going out the door can create situations not only in which an
    eligible beneficiary is denied a payment, but also can create
    the risk of litigation and due process that can slow down the
    process.
        Mr. Issa. May I stop you for a second? I would narrow my
    concern and request. Unless they don't get answers after a
    period of time, your credit card doesn't actually get frozen,
    so let us go back again. Why wouldn't you send them out and
    expect responses and not necessarily shut off the payment, but
    simply increase because so much of this to the physicians and
    others can be done electronically, why wouldn't you send out
    and only when there is a complete absence of response, multiple
    times or if you take what you are presently sending and do stop
    if you don't get the answer you want, and add nine times more?
        But you don't stop except for the ones you are already
    stopping, all you are really doing is creating the alert,
    improving the system and eventually eliminating some of the
    false positives if you have a quality circle where you are
    learning from it. Why isn't that at least on a pilot basis on
    your radar screen to basically make Medicaid and Medicare
    oversight similar to credit card companies that can do this so
    automated and so efficiently that you are talking about a
    fraction of the fraud and the cost?
        Mr. Werfel. It is totally on our radar screen and it fits
    right into our strategic plan.
        Mr. Issa. Then I am going to ask one more because my time
    has expired and I want to be conscious we also have a vote.
        The President's fiscal year 2012 budget appears as though
    the Board success is being rolled into the Department of
    Treasury's Bureau of Public Debt for the creation of yet
    another new system. Why is it we would spend $10 million to
    take a program that has proven its successfulness because it
    didn't fall into Treasury's existing trap. It especially makes
    health care reform look less complicated when you look at all
    the report ``froms'' and the report ``tos.''
        Why in the world would we do that? Isn't the Board proof
    that you have to do it differently and not simply roll it into
    one more report? Ms. Daly, I think I will start with you on
    that because from an efficiency standpoint, I think you see
    what we are getting to.
        Ms. Daly. Yes, Congressman. I am really not familiar with
    the particular proposal you are talking about but I can say the
    Board did identify a number of very promising techniques that
    could and should be used throughout the government to try to
    help prevent improper payments.
        Mr. Issa. Mr. Werfel.
        Mr. Werfel. I have a couple of responses to that.
        Mr. Issa. You do ask for more money to move it than it
    costs to produce it, just in case you are looking at the scale.
        Mr. Werfel. On the one hand, I will say that I have talked
    to Chairman Deviney about the possibility of defraying some of
    the costs by leveraging the hardware/software and expertise
    that he has, but he is an independent entity and I would never
    presume to ask for the keys to his car. I want to make sure
    that he understands that we want to emulate what he is doing
    because it is a best practice and figure out the best way to
    emulate it. If we can leverage his infrastructure to make our
    endeavor less expensive, and he would agree, that is definitely
    a path forward.
        In terms of Treasury, I think we can be extremely
    successful in deploying this technology at Treasury. Treasury
    makes almost all the payments for the Federal Government
    ultimately. They take the information from the agency and they
    cut the checks, as I am sure you know. That means all this
    information is flowing centrally into Treasury. They have what
    I believe to be the bench strength, the expertise and the right
    network and relationship with the agencies to develop a very
    powerful fraud detection technology that can centrally utilize
    some of these credit card neuro-networks that you referenced
    earlier.
        We have to find a place for it and it seems to me that
    finding the place where all the information converges before
    the payment goes out seems logical. If there are concerns with
    Treasury in terms of their operations, let's talk about them,
    sort through them and see if we can find corrective actions,
    but from a design standpoint, I think we have a strong argument
    around Treasury as being the right location.
        Mr. Issa. Very good.
        Mr. Chairman, Chairman Deviney has told us he is more than
    willing to meet with all the parties. I would suggest that a
    less formal environment with the chairman, members of our
    committee and staff and people from your organization might be
    the best way to strategize whether or not the keys to the car
    could be handed over in a more efficient fashion.
        Thank you. I yield back.
        Mr. Platts. I thank the chairman. Certainly that focus of
    learning what has been done and applying it in the best way is
    what we want to be about. I appreciate the chairman's
    participation here today.
        I yield to the gentlelady from the District of Columbia,
    Ms. Norton.
        Ms. Norton. Thank you, Mr. Chairman.
        I note a great deal of executive action. After all, these
    are agencies under the control of the President. An Executive
    order in November 2009, another memorandum on finding the
    payments in March 2010, followed in June by what I really like,
    a Do Not Pay List, is this the first time there has ever been
    an Executive order on this subject?
        Mr. Werfel. Yes, Congresswoman. This is the first Executive
    order that I am aware of that is dedicated to this problem. As
    you just noted, I have served under multiple Presidents and I
    have never seen this level of attention to the improper
    payments problem coming from a President.
        Ms. Norton. This looks like a real focus that has been
    continuous and systematic. It is frankly very impressive,
    particularly considering how difficult it is to recoup money if
    some agency writes you and says they have overpaid you like the
    IRS and they want their money back. That is enough to send you
    up the wall.
        I am satisfied that we have the first systematic effort to
    do something about a problem that is, to say the least, elusive
    and difficult because you have to deal after the fact. When you
    see how large the government, it is inevitable absolutely that
    there would be overpayments.
        I am always interested in the cause because prevention
    seems the best strategy. I am sure you may have spoken of the
    causes. Based on some of the figures I have from OMB, I want to
    ask you about improper payments when one looks comparatively,
    and we are looking at very different agencies, so I don't know
    how to evaluate the different agencies.
        For example, you have Medicare fee for service and improper
    payment amounts, $34.3 billion. That is a rate of 10\1/2\
    percent. When I first saw that, I thought the money goes
    through so many hands, maybe it has to do with that. Then I
    looked at the national school lunch program where I don't think
    anybody has to put up any money and that rate of overpayment
    was 16.3 percent. I am trying to get a grip on some anchor
    factor that may lead to overpayments because if you retrace
    that, maybe you could know how to prevent it.
        Do you have any insights into why, for example, school
    lunch would have such great overpayment percentage than
    Medicare fee for service?
        Mr. Werfel. Congresswoman, certainly this is something we
    have studied very closely to try to understand the root causes.
    I think we are in a good place right now to understand those
    root causes. Our challenge has been finding the right
    solutions.
        To answer your question directly, eligibility is a key
    issue across the board for programs generally, confirming
    eligibility and eligibility is often driven by factors like
    what the household size is, what their adjusted gross income
    is, what their assets are in order to determine whether they
    are the right population to receive this particular income
    maintenance or social benefit.
        It is no different in school lunch. We have a lot of school
    districts with a variety of different procedures in place to
    make sure the right kids are receiving subsidized or free and
    reduced price lunches. When we audit it, we find that
    overpayments are made in the form of a greater population of
    children receiving the school lunch subsidy than otherwise
    would if the requirements were technically followed.
        Ms. Norton. That is very helpful. You see the low rates for
    disability insurance, the Social Security Administration.
        Mr. Werfel. Correct.
        Ms. Norton. That is 0.05 percent there. Does it have to do
    with experience? Does that have to do with what it takes to
    qualify because you would think the same would be true in terms
    of qualifications being so nailed down, the same would be the
    case with Medicare fee for service. We know exactly who those
    people are or aren't. Does that have to do with the hands
    through which it goes and the providers whereas with disability
    insurance, you have a very low rate which perhaps goes through
    less hands or fewer hands?
        Mr. Werfel. That is a very good question. My answer to that
    question is the Social Security Administration has a direct
    connection to the beneficiary it is paying. The process is one
    straight line from the Social Security Administration
    determining eligibility to the payment and it is a unified
    system throughout whereas school lunch is 50 different States,
    different State Departments of Education.
        Ms. Norton. Medicare fee for service, you would think there
    is a straight line there between the physician or whoever gets
    the money, the State or whoever.
        Mr. Werfel. Medicare is unique in terms of one of the major
    drivers of error is a cousin of eligibility, it is medical
    necessity. Medicare is probably the most challenging of all the
    programs because, for example, a patient comes in and the
    doctor makes a decision on the spot to keep that patient
    overnight but when you go back and look at it, Medicare only
    would have reimbursed for an outpatient experience. That is
    about training doctors and figuring how to better understand
    the decisions that are made. It is an enormously complex
    challenge because it is very difficult to validate medical
    necessity in real time. That is why you see such high numbers
    in Medicare.
        Mr. Platts. I apologize to the gentlelady, but I have to
    run to the floor.
        Ms. Norton. I appreciate your graciousness, Mr. Chairman.
        Mr. Platts. As we have seen here on both sides, there is
    tremendous interest in the issue and I want to wrap up quickly.
        When Mr. Lankford talked about block granting Medicaid, I
    know it is a controversial issue, but it is to go after the
    issue of saying to the States, we are going to give you a block
    grant of money so they then buy in and have much greater
    incentive to go after the improper payments than today when we
    are paying 57 percent, they are paying 43. They have less
    incentive than when it is their own money. I think that is what
    Mr. Lankford discussed, to after school lunch where it is local
    verification. If we are paying the bill, they are not as
    concerned because we are paying the bill.
        The bottom line is we want to work with you, with the
    administration, both sides of the aisle, with the committee and
    really partner with you. I know Mr. Towns and Mr. Connolly both
    have talked to me about partnering with me. I think Mr.
    Lankford and others on this side want to work with you on
    legislative fixes that we need to help you go to the next step,
    also how we can partner with the administration on getting the
    Department of Transportation and the Postal Service to comply
    with the original Improper Payments Act to adequately identify
    the possible risk.
        Any way we can work together, the bottom line is to
    identify improper payments and how to prevent them in the long
    term or recovery when they are made.
        We appreciate you both being here. Mr. Werfel, you were in
    the hot seat a little here but we are glad to have the
    partnership we have with you and your office and look forward
    to continuing that and working closely with you.
        We will keep the record open for 7 days for any additional
    information you would like to provide or any statements Members
    would like to submit for the record. We thank you for your
    testimony.
        This hearing stands adjourned.
        [Whereupon, at 11:27 a.m., the subcommittee was adjourned.]