[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
Available via the World Wide Web: http://www.fdsys.gov
http://www.house.gov/reform
U.S. GOVERNMENT PRINTING OFFICE
68-043 WASHINGTON : 2011
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing Office,
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, U.S. Government Printing Office. Phone 202�09512�091800, or 866�09512�091800 (toll-free). E-mail, gpo@custhelp.com.
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:]
[GRAPHIC] [TIFF OMITTED] T8043.001
[GRAPHIC] [TIFF OMITTED] T8043.002
[GRAPHIC] [TIFF OMITTED] T8043.003
[GRAPHIC] [TIFF OMITTED] T8043.004
[GRAPHIC] [TIFF OMITTED] T8043.005
[GRAPHIC] [TIFF OMITTED] T8043.006
[GRAPHIC] [TIFF OMITTED] T8043.007
[GRAPHIC] [TIFF OMITTED] T8043.008
[GRAPHIC] [TIFF OMITTED] T8043.009
[GRAPHIC] [TIFF OMITTED] T8043.010
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:]
[GRAPHIC] [TIFF OMITTED] T8043.011
[GRAPHIC] [TIFF OMITTED] T8043.012
[GRAPHIC] [TIFF OMITTED] T8043.013
[GRAPHIC] [TIFF OMITTED] T8043.014
[GRAPHIC] [TIFF OMITTED] T8043.015
[GRAPHIC] [TIFF OMITTED] T8043.016
[GRAPHIC] [TIFF OMITTED] T8043.017
[GRAPHIC] [TIFF OMITTED] T8043.018
[GRAPHIC] [TIFF OMITTED] T8043.019
[GRAPHIC] [TIFF OMITTED] T8043.020
[GRAPHIC] [TIFF OMITTED] T8043.021
[GRAPHIC] [TIFF OMITTED] T8043.022
[GRAPHIC] [TIFF OMITTED] T8043.023
[GRAPHIC] [TIFF OMITTED] T8043.024
[GRAPHIC] [TIFF OMITTED] T8043.025
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.]