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




 
             IMPROPER MEDICARE PAYMENTS: $48 BILLION WASTE?

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

                                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

                               __________

                             JULY 28, 2011

                               __________

                           Serial No. 112-79

                               __________

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 July 28, 2011....................................     1
Statement of:
    Levinson, Daniel R., Inspector General, Office of the 
      Inspector General, Health & Human Services; Michelle 
      Snyder, Deputy Chief Operating Officer, Centers for 
      Medicare & Medicaid Services; Kay Daly, Director of 
      Financial Management and Assurance; and Government 
      Accountability Office, accompanied by Kathleen King, 
      Director, Health Care, Government Accountability Office....     8
        Daly, Kay................................................    26
        Levinson, Daniel R.......................................     8
        Snyder, Michelle.........................................    15
Letters, statements, etc., submitted for the record by:
    Connolly, Hon. Gerald E., a Representative in Congress from 
      the State of Virginia, prepared statement of...............    73
    Daly, Kay, Director of Financial Management and Assurance, 
      prepared statement of......................................    28
    Levinson, Daniel R., Inspector General, Office of the 
      Inspector General, Health & Human Services, prepared 
      statement of...............................................    11
    Platts, Hon. Todd Russell, a Representative in Congress from 
      the State of Pennsylvania, prepared statement of...........     3
    Snyder, Michelle, Deputy Chief Operating Officer, Centers for 
      Medicare & Medicaid Services, prepared statement of........    18
    Towns, Hon. Edolphus, a Representative in Congress from the 
      State of New York, prepared statement of...................     5


             IMPROPER MEDICARE PAYMENTS: $48 BILLION WASTE?

                              ----------                              


                        THURSDAY, JULY 28, 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 a.m. in 
room 2154, Rayburn House Office Building, Hon. Todd Russell 
Platts (chairman of the subcommittee) presiding.
    Present: Representatives Platts, Issa, Lankford, Towns, 
Norton, Cooper and Connolly.
    Staff present: Ali Ahmad, deputy press secretary; Adam 
Bordes, senior policy analyst; Gwen D'Luzansky, assistant 
clerk; Mark D. Marin, senior professional staff member; Tegan 
Millspaw, research analyst; Sang H. Yi, professional staff 
member; Beverly Britton Fraser, minority counsel; Mark 
Stephenson, minority senior policy advisory/legislative 
director; and Cecelia Thomas, minority counsel/deputy clerk.
    Mr. Platts. This hearing of the Subcommittee on Government 
Organization, Efficiency and Financial Management will come to 
order.
    First, I appreciate everyone's patience and understanding 
with both the change in time from 9:30 a.m. to 10 a.m. and also 
a slightly late start as we were wrapping up our conference 
meeting in the Capitol.
    The purpose of today's hearing is to continue this 
committee's examination of improper payments made by the 
Federal Government.
    In 2010, the government estimates there was $48 billion in 
improper payments within the Medicare Program. This figure 
represents approximately 38 percent of all identified improper 
payments made by the Federal Government in fiscal year 2010 and 
is likely only a partial accounting of Medicare's total amount 
of improper payments.
    Medicare is considered a high risk program by the 
Government Accountability Office. It is known to be susceptible 
to fraud, waste and abuse. Last year, the Medicare Fee for 
Service Program reported more improper payments than any other 
Federal program. Many of these improper payments are a direct 
result of insufficient internal controls and financial 
management.
    The Centers for Medicare & Medicare Services process almost 
5 million claims every day, relying on automated systems to 
identify improper claims. Most claims are paid without any 
individual review of the claim or the medical records 
associated with it. This leads to improper payments resulting 
from claims without sufficient documentation, insufficient or 
fraudulent documentation, incorrectly coded claims or services 
that are not reasonable or necessary.
    CMS has been making efforts to better identify and decrease 
the amount of improper payments within Medicare. In 2009, CMS 
followed the recommendations of the Office of the Inspector 
General to implement stricter and more thorough methodologies 
to calculate payment error rates.
    Using this new methodology, CMS identified more improper 
payments in 2009 and 2010. CMS is also working to calculate 
improper payments made through Medicare Part D, the 
Prescription Drug Program. CMS had not previously calculated 
the improper payments for Part D and will do so for the first 
time for the current fiscal year 2011.
    CMS also plans to increase its oversight of Part D by 
performing more audits including onsite audits and face to face 
evaluations. CMS has also announced that it will evaluate the 
fraud and abuse programs put in place by third party insurance 
companies administering Part D. CMS's efforts to increase 
oversight are certainly commendable, however, more must be done 
to strengthen the internal controls, especially in CMS's 
contract management.
    In 2006, CMS began using recovery audit contractors to 
identify and recover improper payments. The recovery audit 
contractors have identified numerous vulnerabilities in CMS's 
programs. Unfortunately, CMS has only taken steps to address 
about 40 percent of these significant vulnerabilities.
    GAO has also found pervasive deficiencies in CMS's contract 
management internal controls. GAO issued nine recommendations 
to improve internal controls in 2009 but a year later, found 
that CMS had only taken steps to address two of the 
recommendations. Improper payments cost the taxpayers billions 
of dollars each year. This hearing is part of a continued 
effort by this committee to prevent improper payments and other 
instances of waste, fraud and abuse in government.
    I certainly welcome the opportunity to hear from our 
witnesses today on CMS's progress to identify and prevent 
improper payments in Medicare and would conclude with just the 
focus that given the ongoing debate with deficit reduction, the 
ongoing debate over the debt limit and the broad picture of 
spending here in Washington, how we need to do better with the 
American peoples' money, when we are looking at debt reduction 
plans that talk about reducing spending by $10 billion, $20 
billion, $30 billion in the coming years and then when we look 
and have, what we know of, at least $125 billion each and every 
year improperly made by the Federal Government, almost 40 
percent of which is identified within the Medicare Program, we 
have a lot of work to do.
    We are grateful for the witnesses being here today who will 
help us in this partnership approach to getting this work done 
and going forward in a positive way.
    [The prepared statement of Hon. Todd Russell Platts 
follows:]

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    Mr. Platts. With that, I yield to the ranking member from 
New York, the former chairman of the full committee, Mr. Towns.
    Mr. Towns. Thank you very much to Chairman Issa, the 
chairman of the full committee, and to you, Chairman Platts, 
chairman of the subcommittee.
    We should be clear about one thing. Improper payments by 
Medicare or any other agency may be over payments or under 
payments. They may be fraudulent payments or valid payments 
lacking proper documentation. They could also be inadequate 
payments for valid charges.
    In today's context of a looming breach of the Federal debt 
ceiling, it might be tempting to view Medicare's improper 
payments as an easily identifiable budget savings but that is 
not the case. Solving the problem of improper payments does not 
necessarily translate to government savings or a lower Federal 
deficit. Still, eliminating improper payments is the right 
thing to do and we should do it. I think we can all agree on 
that.
    I thank Chairman Platts for holding this hearing and I 
thank our witnesses, Inspector General Levinson, Ms. Snyder, 
Ms. Daly and Ms. King, for sharing their expertise with us 
today.
    According to GAO, governmentwide improper payments totaled 
approximately $125 billion in 2010. Medicare alone accounted 
for nearly $48 billion of that as my colleague indicated. That 
is almost 40 percent of the improper payments in the entire 
government. I find these figures deeply troubling and that is 
why we look forward to hearing from our witnesses today.
    President Obama has taken many positive steps toward 
reducing improper payments since the beginning of this 
administration. In 2009, the President signed Executive Order 
13520 which sought to increase transparency in agencies' 
accountability regarding improper payments. In 2010, the 
President also issued two memorandums that instructed OMB and 
agencies to make it a priority not only to find improper 
payments, but to recapture the money that was paid.
    Additionally, the administration announced last year that 
the Centers for Medicaid and Medicare Services would cut the 
fee for service plan improper payment rate in half by 2012. I 
certainly would like to hear more about CMS's progress in this 
matter.
    Mr. Levinson, of the Inspector General's Office, is one of 
the watchdog agencies that is responsible for identifying 
problems and recommending solutions for improper payments in 
Medicare. GAO is the other watchdog. Between these two and 
independent innovation by CMS, I am looking forward to hearing 
about how and when we can eliminate improper payments.
    I am encouraged by the progress the administration has made 
in the last 2 years in reducing improper payments. Whatever it 
is that this committee needs to do to assist in terms of the 
reduction, I would let you know that we stand ready to do just 
that.
    Thank you very much for being here and I look forward to 
your testimony.
    Thank you and I yield back.
    [The prepared statement of Hon. Edolphus Towns follows:]

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    Mr. Platts. I thank the gentleman.
    Members will have 7 days to submit opening statements and 
extraneous materials for the record. Unless any other Member 
wanted to make a brief opening statement, we will move to our 
witnesses.
    We are honored to have four distinguished public servants 
here with us today. Daniel Levinson is the Inspector General of 
the U.S. Department of Health and Human Services. He also 
serves on the Executive Council of the Council of the 
Inspectors General on Integrity and Efficiency where he co-
chairs the Committee on Inspection and Evaluation.
    We are also delighted to have Michelle Snyder, Deputy Chief 
Operating Officer for the Centers for Medicare & Medicaid 
Services where she is responsible for leading CMS's improvement 
initiatives for promoting excellence in operations.
    From the Government Accountability Office, we have Kay 
Daly, Director of Financial Management and Assurance for the 
Government Accountability Office where her responsibilities 
include financial management systems, improper payments, 
contracting cost analysis and health care financial management 
issues.
    Along with Ms. Daly, we have Kathleen King. Ms. King won't 
be making an opening statement but is available for questions 
as part of today's hearing. Ms. King is the Director of Health 
Care for the Government Accountability Office and is 
responsible for leading studies of the health care system and 
specializes in Medicare management and prescription drug 
coverage.
    Pursuant to the rules of the committee, all witnesses are 
sworn in before every hearing. So if I could ask each of our 
witnesses to stand and raise your right hands.
    [Witnesses sworn.]
    Mr. Platts. Let the record reflect that the witnesses 
answered in the affirmative.
    We will set the clock for about 5 minutes. We do have your 
written testimony which will be made a part of the record. If 
you can, stay close to the 5-minutes. If you need to go over a 
bit, that is fine. We look forward to them getting into 
questions.
    General Levinson, would you begin, please?

STATEMENTS OF DANIEL R. LEVINSON, INSPECTOR GENERAL, OFFICE OF 
   THE INSPECTOR GENERAL, HEALTH & HUMAN SERVICES; MICHELLE 
SNYDER, DEPUTY CHIEF OPERATING OFFICER, CENTERS FOR MEDICARE & 
 MEDICAID SERVICES; KAY DALY, DIRECTOR OF FINANCIAL MANAGEMENT 
     AND ASSURANCE; AND GOVERNMENT ACCOUNTABILITY OFFICE, 
ACCOMPANIED BY KATHLEEN KING, DIRECTOR, HEALTH CARE, GOVERNMENT 
                     ACCOUNTABILITY OFFICE

                STATEMENT OF DANIEL R. LEVINSON

    Mr. Levinson. Good morning, Chairman Platts, Ranking Member 
Towns, Chairman Issa and other members of the subcommittee. 
Thank you for the opportunity to testify about OIG's efforts to 
monitor and help to reduce Medicare improper payments.
    In 2010, CMS reported Medicare errors totaling nearly $48 
billion. My written statement describes in more detail OIG's 
work analyzing CMS's error rate estimates and our targeted 
reviews of Medicare improper payments. My testimony this 
morning summarizes OIG's recommendations in this area.
    Although our recommendations are tailored to specific 
vulnerabilities, the actions we recommend to CMS fall into the 
following four categories: increased prepayment and post 
payment review of claims; strengthen program requirements to 
address vulnerabilities; increase oversight and validation of 
supporting documentation and educate and issue more guidance to 
providers.
    OIG has consistently recommended that CMS enhance both 
prepayment and post payment review of claims. For example, 
OIG's analysis of claims for diabetes testing supplies 
identified $209 million in improper payment. Prepayment edits 
can help reduce improper claims for these testing supplies.
    In certain areas, CMS should strengthen program 
requirements to address integrity vulnerabilities. For example, 
we have recommended that CMS establish a payment cap on 
chiropractic claims to prevent improper payments for 
maintenance therapy.
    We also have recommended increased review of supporting 
documentation to verify that requirements are being met. For 
example, OIG found that Medicare spent $95 million on claims 
for power wheelchairs that were either medically unnecessary or 
lacked sufficient documentation to determine medical necessity. 
One of our recommendations is that CMS review records from 
sources in addition to the wheelchair suppliers such as the 
prescribing physician.
    Provider education is also critical to ensuring compliance 
in protecting beneficiaries. We found that 82 percent of 
hospice claims for beneficiaries and nursing facilities did not 
meet at least one Medicare coverage requirement, requirements 
that are in place to protect beneficiaries' health and well 
being. Medicare paid about $1.8 billion for these claims.
    We recommended that CMS provide hospices with guidance on 
the rules for certifying terminal illness and a checklist of 
items that must be included in the plans of care.
    For our part in provider education, this year, OIG 
conducted free training seminars in six cities to educate 
providers on fraud risks and share compliance best practices. 
We also published a road map for physicians to provide guidance 
on complying with fraud and abuse laws. I have copies of this 
available this morning for each and every Member.
    Although not all improper payments are fraudulent, all 
payments resulting from fraud are improper and our efforts to 
combat fraud are achieving historic results. OIG's 
investigations resulted in $3.8 billion in court-ordered fines, 
penalties, restitution and settlements in 2010. To prevent 
improper payments from compromising the Medicare Trust Fund, 
OIG refers credible evidence of fraud to CMS to implement 
payment suspensions, helping to turn off the spigot to prevent 
payment for fraudulent claims.
    Improper payments cost taxpayers billions of dollars each 
year. The Executive order on reducing improper payments states 
that the Federal Government must make every effort to confirm 
that the right recipient receives the right payment for the 
right reason at the right time. OIG is committed to this goal 
and thank you for support of our mission.
    I would be happy to answer your questions.
    [The prepared statement of Mr. Levinson follows:]

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    Mr. Platts. Thank you, General Levinson.
    Ms. Snyder.

                  STATEMENT OF MICHELLE SNYDER

    Ms. Snyder. Good morning.
    Thank you, Chairman Platts, Ranking Member Towns and 
Chairman Issa, for being with us today and members of the 
subcommittee for this opportunity to discuss the Centers for 
Medicare & Medicaid Services' efforts to reduce improper 
payments to Medicare.
    CMS is committed to reducing the amount of improper 
payments and the rate and ensuring that our programs pay the 
right amount for the right service to the right person in a 
timely manner. Like other large and complex programs, Medicare 
is susceptible to improper payments. In accordance with the 
Improper Payments Information Act, CMS calculates an improper 
payment rate for the Medicare Program annually. While these 
improper payments represent a fraction of total program 
spending, any level of improper payment is unacceptable and CMS 
is aggressively working to reduce errors.
    There is confusion about what improper payments are and 
what they are not. Improper payments are errors that generally 
result from one of the following situations: the provider fails 
to submit any documentation or submits insufficient 
documentation to support the service paid; the provider 
incorrectly codes the service on the claim or the documentation 
submitted by the provider shows that the services provided were 
not reasonable or necessary.
    Improper payments do not always represent an unnecessary 
loss of Medicare funds, rather they are an indication of errors 
made by either the provider in filing a claim or 
inappropriately billing for that service. Improper payments are 
usually not fraudulent. CMS is committed to reducing improper 
payments in our programs and we have developed many corrective 
actions to resolve and eliminate these improper payments in the 
future.
    The traditional Medicare Fee for Service Program represents 
the majority of Medicare spending. This program is administered 
by CMS through contracts with private companies that process 
close to 5 million claims each day or approximately 1.2 billion 
claims in a fiscal year. CMS uses the comprehensive error rate 
testing process to estimate an improper payment rate for the 
Medicare Fee for Service programs.
    Between fiscal years 2009 and 2010, CMS was able to reduce 
the improper payment rate by 1.9 percent from 12.4 percent in 
2009 to 10.5 percent in 2010. The CERT Program provides 
valuable information to assist in the development of corrective 
action to reduce improper payments in the future. We believe 
the best way to address these documentation problems is through 
robust provider education and outreach efforts, performing more 
review of provider medical records to ensure services billed 
meet Medicare policies and payment rules and enhanced systems 
edits and automated analytic tools.
    Some of our recent provider education efforts include the 
development of comparative billing reports, issuance of 
quarterly compliance reports and conducting routine forums to 
discuss Medicare policies and documentation requirements. We 
also recently implemented nationally the National Recovery 
Audit Program. This program allows recovery auditors on a 
contingency fee basis to identify overpayments and under 
payments in a previously submitted and paid claim.
    The Permanent Medicare Fee for Service Recovery Audit 
Program has corrected a total of $685 million in improper 
payments in a 12 month period. The program also provides 
valuable information about areas where increased education and 
outreach is needed and where prepayment medical review is most 
productive. These tools also assist in the development of 
automated edits to detect and reject claims where medical 
services are physically impossible and medically unlikely.
    In Medicare Parts C and D they differ significantly from 
the Medicare Fee for Service Program and require different 
approaches to measure and address improper payments. CMS 
prospectively pays Medicare Parts C and D plans a monthly 
capitated payment for each enrolled beneficiary. These per 
person capitated payments are risk adjusted on a beneficiary's 
health status.
    The Part C improper payment rate in fiscal 2010 was 14.1 
percent, a reduction of 1.3 percent from the fiscal year 2009 
rate of 15.4. Most of the Part C improper payments are the 
results of errors related to the fact that the supporting 
medical records submitted do not include the necessary 
diagnosis data to support the CMS risk adjusted payment.
    Again, we are working very closely to implement a number of 
audit strategies in the Medicare Parts C and D programs. This 
year, we are happy to report that in November of this year, we 
will be reporting a composite Part D rate which will be the 
first time that we have reported the rate. We believe the 
information, as we have gone through establishment of that 
error, will help us to start to push that error down because of 
what we have learned through that measurement process.
    We have a number of strategies in place I would be happy to 
talk about as we proceed through the hearing this morning. I 
would also like to assure you that we are examining techniques 
used by the private sector, by insurance companies and others 
to better inform our efforts to combat improper payments.
    We are eager to learn from successful private sector 
efforts to reduce errors and improper payments, and have indeed 
begun to form partnerships across the health care sector to 
ensure that we have the best information we can to make a 
difference in the Medicare Program and to help them also learn 
from our experiences in what is a very large payment program.
    While CMS has made significant progress in reducing waste 
and errors in our programs, we understand more work remains. I 
am confident that the systems controls and ongoing corrective 
actions that CMS is undertaking, plus the help of our partners 
and the Office of the Inspector General, and other parts of the 
Department, will help us in continuing this undertaking that 
will result in continued reduction in improper payments.
    I look forward to working with the subcommittee to ensure 
that CMS carries out this important work and to answer an 
questions you may have.
    Thank you.
    [The prepared statement of Ms. Snyder follows:]

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    Mr. Platts. Thank you, Ms. Snyder.
    Ms. Daly.

                     STATEMENT OF KAY DALY

    Ms. Daly. Chairman Platts, Ranking Member Towns and other 
members of the subcommittee, I want to thank you for the 
opportunity to be here today to discuss improper payments in 
the Medicare Program, as well as CMS's efforts to remediate 
them.
    In 2010, Medicare covered about 47 million elderly and 
disabled beneficiaries and had estimated outlays of about $516 
billion. It makes it one of the largest Federal programs. 
Medicare consists, as you know, of four parts: Medicare Parts A 
and B, commonly known as fee for service; Part C is the 
Medicare Advantage Program; and Part D is the Medicare 
Outpatient Prescription Drug Program.
    An improper payment is defined as any payment that should 
not have been made or that was made in an incorrect amount and 
includes both overpayments and under payments. For fiscal year 
2010, HHS reported an estimate of almost $48 billion in 
improper payments in Medicare. The $48 billion in estimated 
improper payments was attributable just to Medicare Fee for 
Service and Medicare Advantage.
    From a governmentwide perspective, the Medicare Program 
does represent about 38 percent of the $125 billion in 
estimated improper payments that had been reported by the 20 
Federal agencies that covered 70 programs. HHS's estimated 
amount of improper payments for Medicare is incomplete because 
it has yet to report a comprehensive improper payment estimate 
for the Medicare prescription drug benefits. That program had 
reported outlays of about $59 billion in fiscal year 2010. As 
Ms. Snyder just indicated, HHS expects to report a 
comprehensive estimate for the prescription drug benefit in 
fiscal year 2011.
    It is important to recognize that the $48 billion in 
improper payments reported by HHS in fiscal year 2010 is not an 
estimate of fraud in Medicare. Reported improper payment 
estimates includes many types of over payments, under payments 
and payments that were not adequately documented.
    In addition, because the improper payment estimation 
process is not designed to detect or measure the amount of 
fraud in Medicare, there may be fraud that exists in the 
program that is not encompassed in the reported improper 
payment estimates.
    In 2010, CMS created the Center for Program Integrity to 
serve as a focal point for all national Medicare program 
integrity issues. The CPI as it is known is responsible for 
addressing program integrity issues and vulnerabilities that 
lead to improper payments. They collaborate with other CMS 
components to develop and implement a comprehensive, strategic 
plan, objectives and measures to carry out the program 
integrity mission and goals.
    CMS has also begun a number of initiatives related to five 
strategies that have been identified in our previous reporting. 
These strategies are key to reducing Medicare improper 
payments. However, CMS still faces significant challenges in 
designing and implementing internal controls to effectively 
prevent or detect and recoup improper payments.
    Effective implementation of prior recommendations we made 
from provisions in recently enacted laws and recent guidance 
related to these five fee strategies could help remediate 
fraud, waste, abuse and improper payments in the Medicare 
programs. The five key strategies are strengthening provider 
enrollment standards and procedures; improving prepayment 
review of claims; focusing post payment claims review on the 
most vulnerable areas; improving oversight of contractors; and 
developing a robust process for addressing identified 
vulnerabilities.
    For example, having mechanisms in place to resolve 
vulnerabilities that lead to improper payments is key to 
effective program management, but our work has shown that CMS 
has not yet established an adequate process during its recovery 
audit demonstration project or in planning for the subsequent 
recovery audit of national programs to ensure that the 
vulnerabilities that had been identified were promptly 
resolved.
    In conclusion, with the amount of estimated improper 
payments and the unknown amount of potential fraud, waste and 
abuse in the Medicare program, it is critical for CMS to act 
quickly and decisively to reduce them. As it implements 
recently enacted laws and other issues for Medicare, CMS has an 
opportunity to use new tools to help further address fraud, 
waste, abuse and improper payments in this program.
    Chairman Platts, Ranking Member Towns and the other members 
of the committee, this completes my prepared statement and I 
would be glad to answer any questions you might have.
    [The prepared statement of Ms. Daly follows:]

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    Mr. Platts. Thank you, Ms. Daly and thanks to all our 
witnesses for your testimony.
    We will now move into questions and I will yield myself 5 
minutes for that purpose.
    I want to first acknowledge the effort, Ms. Snyder, of CMS 
and we appreciate that you and your colleagues are dutiful in 
trying to identify and prevent improper payments and be good 
stewards of the American taxpayers' money.
    In your written testimony, your statement is, ``While 
improper payments represent a fraction of total program 
spending, any amount of improper payment is unacceptable and 
CMS is aggressively working to reduce these errors.'' I read 
that to say it is only a fraction and any amount, as if this is 
a small amount. Well, 48 billion is, you are right, about 10 
percent or so of total CMS expenditures, but that is a huge 
amount of money, not just any amount, it is a huge amount.
    I don't want to minimize the efforts to prevent it but when 
I share back home that the total number for the whole 
government that we know of is estimated at $125 billion every 
year, my constituents think I misspoke. When we talk about the 
individual program, Medicare that is about 38 percent of that, 
it is staggering.
    One of the issues in your testimony, and each of you 
referenced it here today or in your written testimony, was that 
when we hear improper payments, we think fraud, the worst, and 
we do appreciate that is not the case. A lot of this is just 
insufficient documentation or the wrong documentation. Is there 
an estimate of the $48 billion that is fraud related either in 
overbilling, duplicate billing or fraudulent billing? Is there 
an estimate of that percentage?
    Ms. Snyder. Before I answer that, my mother is a Medicare 
beneficiary and trust me, I hear exactly what you just said 
when I go home. It is a big number.
    Mr. Platts. As is my mom and she asks me lots of questions 
when she gets her statement, what is all this?
    Ms. Snyder. Exactly. Sometimes it makes you not want to go 
home for Thanksgiving.
    In relation to your question about a fraud rate, one of the 
toughest problems we have had at CMS is to find the methodology 
that actually allows us in a scientific way and in a replicable 
way to estimate what amount of the improper payments are really 
fraud. It is something we have struggled with. We have gone to 
the private sector, we have talked to them and said, how do you 
estimate fraud? We have looked at literature when people make 
comments that a certain amount is fraud, we have looked behind 
it to say how did you measure it because we want to do that.
    What we found is there isn't a methodology. Our Center for 
Program Integrity started a new program and just awarded a 
contract and we are going to try to estimate levels of fraud. 
We will start with two areas that we believe are fraud prone. 
We know they are fraud prone because of the work that has often 
been done in terms of investigations by the Office of Inspector 
General and reports from the Government Accountability Office. 
That is durable medical equipment areas and home health. Just 
because of the work over the years, we know there are huge 
issues there.
    We are hoping we will be able to actually say here is a 
methodology that will work that you can apply to different 
kinds of service categories and estimate an actual fraud rate. 
We hope to have that work done over the next 6 to 8 months. We 
have invited the private sector to be part of the board that 
helps develop this methodology and hope we will be successful 
because we think this is something that will not only work for 
CMS, but will work for the private sector as well. If we 
develop something that works, we will share it.
    Mr. Platts. I appreciate the challenge of having that 
methodology to estimate. Do you have what your actual fraud 
numbers were for 2010 that you found were fraudulent, 2010 or 
2009?
    Ms. Snyder. I can submit to the record a number of 
collections, we have cases that went to the Department of 
Justice, we have investigations through the OIG where we have 
actually collected dollars back. It amounts to many hundreds of 
millions of dollars that come from those particular cases and 
they are estimated, but that is a specific case number.
    Mr. Platts. Rather than trying to estimate going forward, 
what is the track record that you know is fraudulent in the 
last 3 years, 2008, 2009, 2010? How much do we know is 
fraudulent because we caught the perpetrators of the fraud?
    Ms. Snyder. If you would let me submit that number for the 
record? It is in the hundreds of millions of dollars.
    Mr. Platts. Per year?
    Ms. Snyder. Probably over the 3-year period. Particularly, 
we have shown recoveries from the task forces in which we have 
been involved with the Office of the Inspector General, with 
the Department of Justice. There are particular dollars that 
have come back to us from those stings and those activities. It 
is several million dollars over that 3 year period. I don't 
want to give you a wrong number but it is significant.
    Mr. Platts. Whatever the number is, if it is hundreds of 
millions, we know that is a portion of what the actual fraud 
is. That is what we have caught and been able to identify. 
Again, we are talking real money here that we need to go after 
in addition to what I will call the administrative problems, 
the documentation, other types of improper payments.
    I would yield to the gentleman from New York, the ranking 
member, for 5 minutes.
    Mr. Towns. Thank you very much, Mr. Chairman.
    Let me ask, the background check, if we strengthen that, 
would that cut down on the amount of waste, fraud and abuse, if 
we strengthen the background check initially?
    Ms. Snyder. I assume you are talking about providers who 
participate in the Medicare program?
    Mr. Towns. Yes, the providers.
    Ms. Snyder. That is a suggestion that has come to us. 
Again, usually the Government Accountability Office has 
certainly cited that as a possibility, as has the Office of the 
Inspector General. What we have found one of the best ways to 
prevent fraud, waste and abuse is to keep bad actors out of the 
program from the very beginning.
    Part of keeping bad actors out of the program from the very 
beginning is making sure we do appropriate provider 
certification and screening. Part of that is taking a look at 
an application and looking to make sure you have a license, 
have you been debarred somewhere else, have you lost your 
license somewhere else, are you indeed a real operation, do you 
have a real building, so going through a number of screening 
criteria and doing it upfront and never giving the person a 
Medicare provider number is one of the best ways to proceed, 
absolutely.
    We are in the process right now of where we are going to 
recertify the 1.4 million providers that participate in the 
Medicare Program. We hope to have that mostly done or a large 
part underway by 2013. There are certain kinds of providers 
where we have recently said in regulation that we do want to 
have the opportunity to do background checks, fingerprinting, 
to take a look at them through that scope.
    In fact, recently we just hired a contractor who will start 
to take information about providers particularly in areas we 
know we have had problems and start to look at all the kinds of 
public information we have to bring it together to look at and 
say, is this somebody Medicare should be doing business with. 
It is an excellent technique and we are employing it.
    Ms. King. If I might add, we agree that keeping the bad 
actors out is one of the most effective ways to prevent fraud 
and also improper payments in the program and there are 
provisions in the Affordable Care Act that give CMS 
considerable authority to strengthen the enrollment process.
    They have infact separated providers into different 
categories of risk with home health and durable medical 
equipment being in the highest category. They have strengthened 
the ability to look at providers getting into the program. That 
is work that we have ongoing to look at what is going on there.
    Mr. Towns. Let me ask in the context we are talking about 
this morning, correction, what does it really mean when you 
talk about making a correction? Just go right down the line, 
what does it mean to you?
    Mr. Levinson. Mr. Towns, I think the Executive order states 
exactly what the goal is for every dollar expended and that is 
to get it right. If there is missing information, if the record 
is not complete, there is simply no assurance that the dollars 
spent are appropriately spent. In that sense, it is an error.
    Is it necessarily fraud? No. Those are two very different 
concepts. I would underscore that some of the most successful, 
sophisticated frauds reveal no improper payment at all because 
the paper record is so well done. While the improper payment 
amount is likely to include cases of fraud, it would be 
counterintuitive to think that they don't, it doesn't really 
capture a fraud figure.
    Mr. Towns. Ms. Snyder.
    Ms. Snyder. Correction I think, to us, is very similar to 
what Mr. Levinson is saying but it really means when you look 
at the claim that is filed, remember we got several million of 
them going through the system a day, when you look behind the 
face of that record, what you will find is a justification for 
the expenditure and that you give folks every opportunity to 
make sure that record is correct before you declare it to be an 
improper payment.
    To us, it means the service occurred, it was an appropriate 
service, it occurred in the right setting and that we paid you 
the right amount for it. If that is not the case, then it is an 
improper payment and needs to be corrected. You need to bill me 
correctly, you need to make sure you are providing the service 
in the right place. You, the provider, need to do the right 
thing. You are a partner with the Medicare program.
    Mr. Towns. Ms. Daly.
    Ms. Daly. I would have to echo some of the sentiments that 
Mr. Levinson and Ms. Snyder have just spoken. I think having 
the right documentation to pay the bill, making sure the 
patient is due for the services and so forth are all very 
important. All of that needs to be done correctly in each step 
of the process.
    Making it all done right the first time saves a lot of time 
and effort and avoids what is commonly referred to the pay and 
chase mode where if it is not done correctly the first time, it 
is considered to be payable and we have to spend a lot of time 
and effort to make corrections.
    Ms. King. To add to that, when we talk about a corrective 
action, we are thinking about is when a vulnerability has been 
identified, you know people are doing things they shouldn't, 
you put a process in place to try to prevent that in the future 
either by strengthening your enrollment standards, 
strengthening your prepay audits or doing it on post pay.
    Mr. Towns. Mr. Chairman, my time has expired but let me ask 
just one question. If you have a situation where a group comes 
to you and says, this is a problem, can you make that 
adjustment? For instance, I was looking at the power 
wheelchairs. I know there have been issues that have been 
raised over and over again which to me seems to be a legitimate 
kind of concern, but nobody is responding to it. Do you respond 
when a group comes and says this is a problem, you look at it 
and see it is a legitimate problem, can you then make an 
adjustment?
    Ms. Daly. Let me take a stab at that because that is a 
particularly interesting one to me, the power wheelchairs.
    The first place that we go is to look at what is the 
statutory requirement of that benefit category, how has it been 
defined. For power wheelchairs are part of what is called a 
homebound benefit which was established in the statutes which 
basically say you have to be able to use that power wheelchair 
inside your home. You have to be unable to walk more than three 
to four steps inside the confines of your apartment, your 
house, whatever it may be.
    When you take a look at that and folks come to you and say 
this power wheelchair enhances the quality of my life because 
it lets me go to the mall, to church on Sunday, however it 
might allow you to get outside the walls of your apartment, 
that certainly is a valuable thing to the quality of that 
individual's life.
    However, if you look at the statute behind it and the legal 
requirements, by definition, you don't meet the requirement of 
the law in order for that power wheelchair to be provided to 
you. That is a particularly tough one because, yes, if you are 
a doctor on one hand if you are somebody's daughter and you go 
in to a doctor and say, my mama could really use this, as a 
doctor you want to provide that. However, the ability to do 
something about that is limited by what is in statute in that 
particular example.
    The second place you look is to see is there regulatory 
policy around this. Is there a regulatory policy or any ability 
if it makes sense to make some change and then take a third 
look at it to say, is it a matter of policy that we have 
interpreted, that we have put something in place, so how much 
room do you have to work with that particular group of 
providers or that particular service to change it.
    It is a pretty rigorous process. We do listen to folks. 
They come in, talk to us and we look to see what makes the best 
sense for the beneficiary, but what makes the best sense to the 
beneficiary in terms of the laws and regulations that are in 
place that bound that particular benefit category.
    One of the things we found with wheelchairs, when we have 
looked back at them we have a really high error rate. It is 
pretty much for the reason I described. It does not satisfy the 
definition of the benefit. We are looking at ways we can put 
some controls in place on the front end of it so that we are 
not paying and chasing for power wheelchairs or power mobility 
devices that don't meet the requirements of the benefit.
    Mr. Towns. Thank you, Mr. Chairman, for your generosity.
    Mr. Platts. The gentleman from Oklahoma, Mr. Lankford, for 
5 minutes.
    Mr. Lankford. Thank you, all of you, for what you do. My 
mom is also one of those Medicare recipients. She will never 
have the opportunity to meet people like you serving behind the 
scenes and say thank you, so I would pass that on from her and 
millions of other seniors. What you do is a great service to a 
lot of people, so we appreciate that and the dedication you put 
into it.
    The fraud, like you I go home on Thanksgiving and that is 
what we are going to talk about, Medicare fraud, friends she 
has bumped into and things she perceives to be fraud and all 
those things. Let me flip to the other side of it.
    I also hear from doctors and hospitals who are very 
frustrated with recovery audit contractors. There is a 
perception in their minds that they walk through the door and 
they are guilty and they are going to stay there until they 
prove they are guilty, no matter how long it takes.
    They understand they are paid by the paperwork, so they are 
going to stay, dig through and find some nurse who was in a 
hurry who did not put the date on the form and they are going 
to get fined for it. They fight and fight and fight, sometimes 
for years through the process; this code was active and now 
suddenly, it is not and they are getting hammered sometimes 
thousand and millions of dollars in fines when they are the 
good providers. I am talking good hospitals.
    How do we fix this? Because they hate the Federal 
Government because those recovery audit contractors are their 
enemies and they are going to stay until they make money off 
them. They are not there for their benefit. They are there for 
our benefit as far as recovering things, but that hospital 
says, I am the good guy, how come I am getting hammered? How do 
we fix that?
    Ms. King. We did an evaluation of the demonstration of the 
Recovery Audit Program and I think we did identify some 
missteps in terms of some of the initial actions that were 
taken by the RACs. It is our understanding that CMS has 
instituted a process, a committee inside CMS that has to prove 
the issues that the RACs are going to undertake.
    Mr. Lankford. That has not trickled down actually yet, 
because I can tell you as recently as of the last couple weeks, 
I have been in communication with yet another hospital in my 
district that is fighting the same thing. It is a bounty hunter 
coming through their doors and they are determined to find 
something wrong, and they will. They are not happy at all 
because they are adding additional staff in compliance areas 
for things that are not fraud.
    My understanding is these contactors are paid even if later 
they determine that it wasn't true, it really was correct. Is 
that correct?
    Ms. King. Actually, that was the case in the demonstration 
but it is not the case in the national program. If something is 
overturned on appeal, then the RAC does not get paid.
    Mr. Lankford. That is a good fix for a start on that, but 
how do we develop this relationship because they are no longer 
our friends, we are setting out as an enemy to them.
    Ms. Snyder. We have heard that, so the good news is that is 
not new news to us but it is a continuing concern.
    In the demonstration which went on for 3 years, we did 
learn a lot of things and we learned a lot better about how to 
manage the contractors. Some of the things Ms. King referenced 
like having a committee that says, is this legitimate, before 
you go after somebody, making it clear to the RAC contractors 
if this is overturned on appeal, you are going to pay back the 
money and the provider gets back the money.
    We actually recently hired two of what I call someone to 
watch the RAC, a validation contractor if you will. They do 
spot checks of the RAC's work, the particular contractor's work 
to say, were you inappropriately aggressive, were you looking 
at the wrong things, did you really use standard accounting 
practices.
    I think it, again, is a continuing education, an outreach. 
We have regular standing forums with our provider community, 
one of the topics that's always on those calls, and we get 
hundreds of providers who call into those forums. We talk about 
the issues with the RAC program and have said to folks, if you 
think your area RAC is being overly aggressive, if you have 
continuing problems with them, let us know and we will look 
into it.
    In reference to the particular hospital that you just 
mentioned, if you would give me the name of the hospital, we 
will reach out to them and look to see if it is a matter of 
what I will call hard feelings because they don't like the 
program, whether or not those corrective actions have reached 
out in that particular setting, and redouble our efforts to 
make sure folks understand the intention is not gotcha. The 
intention of this really is making sure we are paying 
appropriately. I would be very happy to reach out to that 
community.
    Mr. Lankford. I would completely agree it is a good thing 
for us to be aggressive in this process but they perceive it 
very much as gotcha and the smallest minutiae that is going 
with it. I have had several hospitals I have talked to about 
it. The one I most recently talked to didn't want me to bring 
up their name on it because they feel there will be punitive 
action against them even harder next time. They are very 
careful to say, we are cautious on how we move on that because 
they have so much power on us now, our functioning and 
operation. This is not one of your large major hospitals, but 
it is a good charitable hospital.
    That is no way to live and operate, so I want you to stay 
aggressive on it. This system is not working for them at all.
    Mr. Levinson. If I can add a couple of things, we actually 
will be looking at the RAC process in our office later this 
year in the sense of looking at CMS's oversight of the RACs. I 
wouldn't want my comments to be part of some effort to say RACs 
are necessarily a bad idea.
    As our work starts in this area, there are a couple of 
observations worth putting into the mix as we try to understand 
the pros and cons of RACs. One issue is that the RAC process is 
really a variation on the model of pay and chase because the 
money has already gone out the door. RACs are trying to recover 
money and that, in a sense, certainly is good, but it is a 
continuation of a model that the government is trying to get 
away from. We are trying to catch the problems before they 
leave.
    The other is in the brief work we have been able to do in 
the first few years with the RAC process, RACs referred only 
two case of potential fraud to CMS in the 3-years of the 
demonstration between 2005 and 2008, even though they found a 
billion dollars in improper payments.
    It is important to understand that the incentives need to 
be aligned in a way so that while improper payments are 
identified, in as least intrusive and most productive way, that 
it also is a process that should reveal where fraud occurs and 
because the RACs don't see any money coming from identifying 
fraud, those cases wind up being referred for investigation.
    Mr. Lankford. We are catching paperwork mistakes and not 
fraud.
    Mr. Levinson. There is actually disincentive in a sense 
potentially to refer cases of fraud because then they are taken 
out of the universe of improper payments. I think these are the 
kinds of very important issues that need to be teased out as we 
look at the RAC program.
    Mr. Lankford. Thank you.
    Mr. Chairman, thank you for allowing a couple extra 
moments. I yield back.
    Mr. Platts. I thank the gentleman and I would associate 
myself with the gentleman's comments because your term of 
bounty hunter is also what I hear whether it be from an 
institution or individual providers where they feel they are 
not innocent until proven guilty, that they are guilty of 
wrongdoing and in essence, they are trying to prove 6 months 
ago when they treated a patient, they did it by the book, did 
provide the service they were paid for, yet are put in the 
position of having to prove their innocence as opposed to 
assuming their innocence.
    I yield to the gentleman from Tennessee, Mr. Cooper.
    Mr. Cooper. Thank you, Mr. Chairman.
    The headline of this hearing is the $48 billion in improper 
payments, but already we have parsed that and have a better 
understanding because apparently a relatively small percentage 
of that is fraudulent but it is also possible to have 
fraudulent payments that are not covered by the $48 billion.
    I would like to ask what percentage of the $48 billion are 
overpayments as opposed to under payments or mispayments? 
Essentially what we are doing when we put out a figure like $48 
billion, we are talking about the quality of the red tape. Good 
quality of the red tape doesn't show up in that $48 billion 
number. If there is a flaw in the red tape, then wham, it is in 
the $48 billion. I am guessing, and perhaps I am wrong, that 
most of the $48 billion is still overpayments.
    Ms. King. The vast majority.
    Mr. Cooper. That is still a real concern to taxpayers. It 
is interesting that in your data, when you are comparing fee 
for service problems with managed care problems, actually 
managed care problems are slightly higher at this point. You 
think with managed care, you get more management and better 
quality red tape but apparently that is not true. It will be 
fascinating to see what the Medicare Part D numbers are now 
that you are finally able to evaluate that.
    To put this in context, people also need to know that fee 
for service problems usually indicate overpayments and over 
utilization of services where sometimes managed care problems 
indicate under utilization of services, denial of care. It is a 
completely different human result. One injures the taxpayer, 
the other injures the patient.
    Again, to put it in context, we had a hearing this morning 
regarding the Pentagon. I think the Pentagon is still number 
one on the GAO's list of high risk government agencies because 
they have never been auditable. After decades of trying, they 
are still not even close to being able to be auditable. When 
the Simpson Commission asked how many contractors the Pentagon 
had, the official response was somewhere between 1 million and 
10 million.
    I am in no way justifying Medicare problems but that is 
astonishing incompetence when you can't tell within an order of 
magnitude who your payees are because somebody has to write the 
contractor a check. They don't do this work for free.
    Another area of serious concern is Medicaid. It is just not 
nearly as centralized as Medicare because that is farmed out to 
the States. That gives you at least 50 different opportunities 
to have confusion, mismanagement and lack of accountability, 
fraud and improper payments.
    One of the fundamental issues that has barely been touched 
in this hearing is the Federal Government has actually paid 
people very promptly under the Federal Prompt Pay Act. That is 
what creates this situation of pay and chase. At least in the 
health care area, you have some of the slowest payers on the 
planet.
    In the private sector, private insurance companies will 
stretch out accounts receivable for 180 days or longer. 
Meanwhile, the good old Federal Government steps up and pays 
you in 30 days. That makes the process of pre-certification so 
tough. No one has ever written us a thank you note saying thank 
you for paying us in 30 days. They take that for granted.
    Meanwhile, even the GAO set up two fake DME companies and 
was able to scam the system. A lot of folks in the small 
business and provider communities do not want to say thank you 
for coming through with payment within 30 days. That creates 
the situation where we have to chase the improper payment.
    I am in no way defending the bounty hunters or the RACs but 
sometimes the Federal Government is an easy touch too. That 
balance has to be struck in a proper way. I am glad you are 
improving your system so you are able to get a better handle on 
that.
    I see that my time is about to expire, Mr. Chairman. Maybe 
I should just stop there. Thank you.
    Mr. Platts. I thank the gentleman, the first of us four to 
actually be dutiful with the time and it is appreciated.
    I would comment with the gentleman with the issue with 
fraud is we don't really know what percentage, we don't know 
that it is a small percentage. We don't really know because it 
is not geared to signal out fraud. I don't know we can say it 
is a small percentage of the improper payment number. Even if 
it is just 10 percent, that is still close to $5 billion but we 
don't really know what the percentage is. That is why I asked 
what has been identified as we know for certain was fraud in 
the past 3 years, to start to look at that issue, how to better 
identify it.
    Also, your point about the Department of Defense is well 
made and we are looking at a hearing in the fall on DOD and the 
issue you touched on. GAO has well recognized the challenges at 
that department.
    With that, I yield to the gentleman from Virginia, Mr. 
Connolly.
    Mr. Connolly. Thank you, Mr. Chairman.
    I want to thank everyone for being here. I want to add to 
the testimony. My parents have been major consumers, 
unfortunately, of Medicare for about 25 years. When we were 
voting on health care reform last year, my dad said to me, you 
need to know that in those 25 years, I am talking major, major 
stuff, never once has there been an error, never once have they 
had to be reminded to meet an obligation, never once have they 
arbitrarily denied something that was important to us in sharp 
contrast to the private insurance system.
    He said, at least speaking for us, we are very satisfied 
customers and by the way, it has allowed them, in their 
eighties now, to live autonomous, productive lives, managing 
their health care frankly because of Medicare. Let us remember 
that as a context as we now look at a feature of Medicare that 
is not so good.
    I think we have to begin with accepting the fact that $48 
billion is a staggering sum of money. It is unacceptable for 
two reasons. We owe it to the taxpayers to do something about 
it. It is their money. Second, frankly, it feeds into the 
narrative which I reject that we cannot afford Medicare.
    What do you mean we can't afford it? If we can get $48 
billion to zero times 10, you have a huge significant chunk of 
savings in the program that doesn't touch benefits. It is 
critical that we get our arms around this.
    Nothing happens without being measured. Ms. Snyder, have we 
in fact set an ambitious goal knowing we will never get to zero 
but to get to zero? Is the goal to get to zero and are there 
milestones and metrics that allow us to do that?
    Ms. Snyder. Yes, sir. The administration has set what I 
think is an incredibly aggressive goal, to cut the error rate 
in half by 2012, so we would be right around 6 percent. Again, 
I think most folks will argue when you get to 6 percent, then 
it is going to be cut it in half again to 3 percent.
    I think one of the difficulties in driving down the error 
rate is that you put interventions in place against a sample 
that was drawn and evaluated, and then within 3 months of that 
being in place, you start drawing a sample again of claims. It 
is the ability for interventions to actually take effect that 
is one of the greatest challenges in terms of driving down the 
rate. That is going to make it tough but we know we are on the 
hook to do it and we are going to do our best to get there.
    Mr. Connolly. I would simply say nothing happens without 
stretch goals in government. I ran a very large government 
across the river. I really would like to see you come back with 
very ambitious stretch goals, understanding that getting to 
zero is a noble goal, never attainable, but if you press the 
system to get to that goal, we will have far more dramatic and 
positive results.
    Ms. Snyder. In response to what you are saying, it is very 
important to know that probably 10 million of the claims inside 
the billion claims are the ones that are the biggest dollar 
ones. They are the hospital inpatients, so focusing there, we 
hear you.
    Mr. Connolly. I want to sneak in two more questions. One is 
in looking at the data, Medicare Advantage compared to Fee for 
Service surprisingly is 35 percent higher in improper payments. 
Why is that?
    Ms. Snyder. Medicare Advantage, when we looked behind the 
numbers on that, we found is when we pay a capitated rate, that 
capitated rate is based on a risk score. In other words, inside 
your files, if you have Medicare Advantage plan, you have to be 
able to have medical justification or documentation that says 
you are a really sick guy and I need to pay you more for it.
    When we started looking behind the patient panels, we found 
there wasn't documentation necessarily that said you are a 
really sick guy, so when I figure out your capitated payment, 
it should be a higher rate. When we look at that, some of it 
was missing documentation similar to fee for service, but part 
of it is trying to determine what the sickness score, if you 
will, of a particular plan and what the rate adjustment should 
be against the fact that the patient panel may not be as sick 
as reported.
    Mr. Connolly. Do some of the measures we took in health 
care reform help you in that regard with respect to Medicare 
Advantage?
    Ms. Snyder. I think the risk adjustment pieces of it and 
knowing how to look inside of that, and those metrics coming 
out of the Affordable Care Act will be very useful to us. 
Through a series of audits, we are trying to take the 
measurement, go back against the audit and figure out what the 
reduction and capitation really should be so it is a real 
dollar financial number.
    Mr. Connolly. Mr. Chairman, given your incredible 
generosity, would you allow me one more question and I don't 
think it is a long one.
    It is my impression in talking with the U.S. Attorneys 
Offices that Medicare fraud has increasingly moved up as a 
priority for them and consumes a lot of their time in terms of 
bringing charges against organized fraudulent activity on 
Medicare. Mr. Levinson, Ms. Snyder and Ms. Daly, is my 
anecdotal impression confirmed by data and what is your 
interaction with the U.S. Attorneys Office to ensure that while 
we don't want to be bounty hunters, on the other hand, people 
who are deliberately organizing and orchestrating fraud against 
the U.S. Government and taxpayers need to be brought to 
justice. What is the interaction and what is the data?
    Mr. Levinson. Mr. Connolly, the interaction is robust, 
especially over the last several years as these anti-fraud 
strike forces have taken hold in cities around the United 
States. There has been a very ambitious effort to root out 
systemic health care fraud especially in places where it exists 
like south Florida, Los Angeles, parts of the Gulf States, New 
York and Detroit.
    That is in large part why you are hearing more about it, 
more resources are being expended. It does require careful 
coordination between the Justice Department, the prosecutors, 
and OIG as the investigators. Let me put in a plug that this is 
funded on our part by the Health Care Antifraud Account that 
was established in HIPPA and has grown. It certainly has helped 
us to recover more than $6 for every dollar put into the fund 
back to the trust fund and the Treasury.
    It has been very successful thus far and we are continuing 
to build on that. A very critical part of the fraud piece in 
health care fraud does have to do with enrollment, making it 
too easy for folks masquerading as health care providers to get 
into the program, to get a provider number. Title VI of the 
Affordable Care Act does strengthen that whole enrollment 
process so if we can get that initial piece, if we can keep the 
wrong people out of the program in the first instance, that 
makes a huge impact on the fraud problem.
    Mr. Connolly. Thank you very much. Thank you, Mr. Chairman, 
for your indulgence.
    Mr. Platts. You are welcome.
    The gentlelady from the District of Columbia, Ms. Holmes 
Norton.
    Ms. Norton. Thank you very much.
    This hearing has been very informative and educational, 
particularly when you get into what is actual fraud. I would 
like to break down what overpayments really mean. Do they mean 
cheating? Do they mean miscalculating? Do they mean paperwork? 
When I hear overpayments, that would seem to say somebody is 
putting in for too much money relative to the service provided. 
What is your view of that, any of you?
    Ms. Daly. Congresswoman Norton, I would like to clarify 
that overpayments can mean all of the things you mentioned. It 
can be for the wrong amount, it could be a duplicate payment, 
it could be a payment that was made to someone who was 
ineligible to receive it, it could be someone eligible to 
receive it, or they received the wrong amount. It could be any 
number of things under contractual, statutory or regulatory 
restrictions for that payment. There is a broad swath there it 
can cover.
    Ms. Norton. I understand the limitations of statistics, but 
I must say the reporting of these numbers in this way does add 
to what I think Mr. Connolly was referring to. When people hear 
a word like overpayment, they are used to that meaning. They 
don't even think in terms of their own overpayment of their 
credit card bill. They think the government is overpaying 
people who should not be paid.
    I would urge you to find a category, I recognize we have to 
break down these categories, but find a category that would 
make the public understand how much of this overpayment comes 
from malfeasance. I think that would turn the public off more 
than anything else.
    Yes, we want the rest of it to be reported, but it does a 
disservice to the most popular and perhaps most important 
Federal program, especially since not everyone seems to be for 
that program, at least not here in Congress, when words like 
that are used. I recognize this may put an additional burden on 
you, but I do think it is a burden worth taking on. I would ask 
you to look at that. Ms. King?
    Ms. King. If I might, it is a difficult thing to do because 
if you are talking about malfeasance or fraud, that has a legal 
definition and involves a deliberate attempt at wrongdoing.
    Ms. Norton. You are doing pretty well. I saw your 
statistics on referral of cases to the U.S. Attorney. The 
public is interested in wrongdoing, Ms. King.
    Ms. King. I understand.
    Ms. Norton. Yes, they are interested in mistakes, too, 
because they hold the government accountable for being 
efficient, but the first thing of interest is somebody cheating 
us with this program that is so important to us. I understand 
how impossible it is to get a definition that meets with a 
statistically valid notion. That is why I only asked you to 
look at it.
    I was just perplexed about Medicaid Part D, that only in 
January was the government beginning, this is the first of the 
really large programs, to look at overpayments for Part D, the 
drug program. What have we been doing with that program?
    Ms. King. It began in 2006.
    Ms. Norton. Yes. We have not been doing the same kind work 
on overpayments, under payments, etc. for Part D that we have 
been doing for the rest of Medicare?
    Ms. Snyder. Why don't I try to answer that? I am sure my 
colleagues from GAO can help me out on this one.
    I don't think we would say we haven't looked at error 
inside the program. We essentially have spent the last 3\1/2\ 
to 4 years figuring out what you should report and how to 
separate the particular components of the measurement. In fact, 
we have looked at four different aspects of the Part D program 
and found error in all four of those aspects. Three of them, 
low income subsidy payments, actual computations within the 
system that pays the drug benefit itself, was well under 1.5 to 
2 percent.
    The area that seems to be driving inside the Part D drug 
benefit comes back to if you go to the point of service, where 
the beneficiary goes in to get their prescription filled, what 
is not there at the pharmacy is supporting documentation for 
that order to be filled. We found in terms of the prescription 
drug events, that was the biggest issue, documentation at the 
point of service. I think that number, I hope I have this 
right, was around 13 percent. That was the biggest number in 
Part D.
    Ms. Norton. That is the same issue, often documentation, 
with the rest of Medicare. In January 2011, CMS awarded a 
contract to identify incorrect payments and recoup payments in 
Medicare Part D. That program wasn't paid for, unlike the 
health care laws which we just passed. That means the taxpayers 
have been really paying through the you know what for this one 
for errors.
    Is your testimony that it has taken that long to develop a 
system for doing the very same thing you were doing with rest 
of Medicare?
    Ms. Snyder. I think my testimony on that is like any error 
rate program, you want to make sure you are getting it right 
because it is a partnership with the provider.
    Ms. Norton. You just began in January. I commend you. This 
is an administration that has been here for a couple of years. 
I am not sure if in prior hearings there were reports on 
progress to measure Medicare Part D in the same way that we 
measure other parts of Medicare. Have there been? Has the 
Congress been kept informed or did this just pop up, this is 
something we ought to look at because we have been working on 
it and maybe we ought to report it to the Congress?
    Ms. Snyder. I think we, as part of the Improper Payment 
Act, are required to report on all of our programs. Certainly 
in terms of being a high risk agency because of the Medicare 
Program generally, any major new program that comes to CMS, we 
would look at it and be required to report an error rate on it. 
It has taken us a little while to get there.
    I think the good news is that will be a composite error 
rate reported this November with our audited financial 
statement.
    Ms. Norton. Can I ask one more question? Will you be able 
to go back or will this reporting begin as of 2011 or 2010? How 
far back will you be able to go on error rates?
    Ms. King. Just forward in Part D.
    Ms. Norton. That means in 5 or 6 years, people got off 
scot-free. I understand startup so I am not blaming you. But my 
goodness, you can imagine and perhaps some of that information, 
some of that experience will help us to develop going forward 
how to better track that data.
    Thank you very much. We will never get back that money.
    Mr. Platts. I thank the gentlelady.
    One bright note I would highlight on Part D is when it was 
passed, the estimates of its cost had been about 40 percent 
lower than what was initially anticipated, so there is a 
positive message out there about how that program is being 
operated.
    I yield myself 5 minutes for questions. I have a couple 
follow-ups to my colleagues.
    Mr. Lankford talked about the recovery audit contractors 
and Ms. King, you referenced it is a contingency fee approach 
but if what they find is overturned on appeal, then the RACs 
are not allowed to keep that. That assumes there is an appeal 
made. I guess my question is, how easy is an appeal done, what 
is the cost of doing it?
    I am wondering if someone is found to have made improper 
payments, are they going to just give up the money, don't 
bother doing an appeal so the RAC still gets paid even though 
it may not have been a legitimate improper payment?
    Ms. King. That is sort of a tough question to answer. I 
think the RACs initially, and I presume so in the national 
program, are sort of going after big ticket items. If you are a 
provider and an inpatient hospital service, there is a lot of 
money on the line, I would think you would be more likely to 
appeal than not.
    Mr. Platts. Ms. Snyder, do you have anything to add to 
that?
    Ms. Snyder. I would say there has been a robust appeals 
process. The provider community hasn't been shy about pushing 
back. When they have pushed back, we have looked at it and it 
has resulted in certain changes, certain edits in our system, 
to help folks bill right on the front end. The ultimate with 
this would be if we are doing it right moving from a pay and 
chase environment to pay it right to begin with, ultimately RAC 
contractors would be much more limited in our set of 
interventions on improper payment because we would be paying it 
right to begin with.
    Mr. Platts. One of those aspects of paying right up front 
is the certification of the providers, that they are legitimate 
medical providers. The ranking member talked about that as 
well.
    You mentioned that you are recertifying all providers? Can 
you expand on what that involves and how quick a process is it 
to recertify all providers?
    Ms. Snyder. We are going to do it in stages. If you are a 
new provider coming into Medicare, then there are more 
stringent requirements on the very front end. We divided it up 
into different groups, new folks coming in, people who are 
already Medicare providers, about 1.4 million providers.
    We have hired a contractor to help us with that. We 
automated applications so people can come back and give us 
their updated information like billing places, actual physical 
locations, all the things that help us determine whether or not 
you are a legitimate provider. We have already started the 
recertification and we plan to have 100 percent of the 
community either completed in terms of recertified or 
significantly underway by January 2013. There are very specific 
project plans in-house in our Center for Program Integrity that 
is responsible for that activity.
    I think we have done something like 25 newsletters and 
articles to the provider community. We have been doing open 
forums with them to say this is coming, this is what we need 
you to do to work with them.
    Mr. Platts. In going through this process of 
recertification or just in general, if you find a provider who 
is not legitimate, can you expand on how you pursue them or how 
you work with the Department of Justice if they have been 
fraudulent and what type of penalties usually would be pursued?
    Ms. Snyder. If it is a new guy, we don't give him a billing 
number or we give him a temporary billing number which means 
that within 3 months, we have to make sure they are indeed a 
good guy. That is like a stop loss policy. That is one of the 
new policies in place.
    The other is as we go through looking at recertification, 
we are also sending out people to do face to face visits with 
folks, particularly in areas where we know there have been a 
problem. We always go back to the durable medical equipment 
suppliers. We not only do a face to face visit with you, and we 
are going to show up randomly over a period of time to make 
sure you are indeed a legitimate provider.
    We have a new tool that we are more than willing to use, 
suspension of payment if need be which is different from the 
philosophy in the past. The philosophy for Medicare all along 
was we take any willing provider. That philosophy now has 
changed because as you stated, $38 billion is a big number.
    We refer people immediately. We referred something like 40 
providers in the last quarter to the Office of the Inspector 
General to say take a look at this. We may sometimes continue 
payments because law enforcement wants to build a case. There 
are a number of ways we are stopping payment to begin with or 
at least limiting the damage.
    Mr. Platts. You mentioned face to face which I think is 
important and recognize that within your own entity, the 
ability to go out and have a face to face with the 1.4 million 
providers. I don't know if it has ever been looked at but 
perhaps it sounds like about a 2-year process to go through 
recertification, once every 10 years we have an entire fleet of 
individuals out on the street doing census where they literally 
are walking the neighborhoods in every town, every city, every 
community in this country. It is a pretty simple approach that 
when they are in the neighborhood, Medicare partners with the 
Census Bureau to say, we have these 10 providers that say they 
are located in this neighborhood. As you go through that 
neighborhood, make a visit to confirm there is an entity there 
operating. It uses a resource already walking that street.
    We are 9 years away from the next census but at least once 
every 10 years there is someone showing up at a provider's 
location to say yes, there is a doctor's office here operating, 
another way we are trying to weed out the bad guys.
    A lot of outreach has been talked about with providers. 
When my mom has services provided, she gets a statement of 
services. She is extremely grateful for the services provided 
and the payment of those services. She looks down that list and 
she looks at the cost and is overwhelmed by how much the 
service was in total cost.
    Is there an effort in those statements that clearly says if 
something is not right on here, that there is an easily 
identified 800 number? Is that part of every statement?
    Ms. Snyder. Yes, sir. We have statements that run all the 
time on those notices of beneficiary payment that say if you 
have a question, call 1-800. Our Center for Program Integrity 
has just started, and it has gotten a lot of interest on the 
part of the beneficiary community, if you have a question and 
think there is something wrong with your bill, you think there 
is something funny going on, please call 1-800. We set up a 
component within the 1-800 number to receive those calls.
    We then run them against the other kinds of data analysis 
and modeling we do to see is there something going on here. We 
have received a number of those complaints. We are logging them 
in. I shouldn't call them complaints but questions. We log them 
in so we can get back to the beneficiary to close it out or get 
back and say we really can't answer this now because we have to 
take more of a look.
    Mr. Platts. You have tens of millions of partners out there 
who can help you on the front lines in identifying something 
that is fraudulent and bring it to your attention.
    A final question before I yield to the ranking member if he 
has other questions or comments, the issue of medically 
unnecessary services. General Levinson, you talk about this in 
your testimony and payment for services deemed not medically 
necessary, so the taxpayers are paying, the Medicare 
beneficiary is paying 20 percent on average for that, something 
they don't need, and perhaps it is even unsafe because they 
went through a procedure they didn't need and were put at risk 
in getting that service.
    You referenced the 6-month period and the tens of millions 
of dollars of improper payments related to being medically 
unnecessary. Can you expand on what your recommendations were 
to try to try to address that aspect of improper payments and 
where you see CMS is in responding to your recommendations?
    Mr. Levinson. It is crucial that there be the documentation 
in order to demonstrate that indeed this was exactly the kind 
of service or product actually needed by the patient, by the 
beneficiary. As you point out, this is a burden that is placed 
on both the taxpayers and beneficiaries when you don't have 
that medical necessity determination.
    I think the power wheelchair example is a pretty good one 
because there are different types of power wheelchairs. 
Obviously the more sophisticated are going to be more 
expensive. If the paperwork doesn't demonstrate and you look at 
the actual beneficiary, there is no reason to provide a premium 
kind of power wheelchair that has features that really aren't 
necessary, that is a cost to the government, to the beneficiary 
and it raises questions about gaming the entire system. That is 
just an example and this does constitute a significant portion 
of the improper payments.
    Mr. Platts. Ms. Snyder, your perspective on that aspect of 
improper payments and how you are trying to prevent it up front 
rather than chasing after the fact?
    Ms. Snyder. I think for us one of the best ways to prevent 
it is if we find there was over utilization of services or 
unnecessary services, we translate that into an edit that goes 
into the front part of our payment system. We literally have 
over a thousand edits in the claims payment system. Part of 
those are to push out a claim if it appears, based on a 
diagnosis code and the service being requested, if it doesn't 
match, it kicks it out, so you don't pay it.
    The wheelchairs are a good example, but I think another 
really good example is people with ulcers, bed sores. There is 
a special mattress surface and we often find it is appropriate 
for a certain kind of mattress to be prescribed but they go to 
what I will call the deluxe mattress, the person with really 
significant sores and who needs that kind of surface to be well 
rather than going to a different kind of surface that may be 
appropriate to the medical condition of that person.
    It is not reasonable and necessary. There is a service that 
is necessary but what actually gets prescribed for the person 
is not reasonable and necessary. If we start to see kick-ups in 
payment, and this is part of the front end of our data 
analysis, you see a kick-up in a particular benefit category, 
then you start to look behind that and say what is really going 
on here. There should be a service of some sort but is the 
intensity of the service actually one that should occur. If we 
can track that and do it from all kinds of leaks from all kinds 
of folks, we then put that edit in the front of the system to 
shut it down.
    Mr. Platts. Thank you.
    Mr. Towns, any other questions? I yield to the gentleman 
from New York.
    Mr. Towns. Thank you very much.
    GAO made nine recommendations. You have actually 
implemented two. Is there any reason why you have not 
implemented the other seven? Have you responded to them in some 
way?
    Ms. Snyder. We are actually setting up a meeting with our 
GAO colleagues next week because we thought we had closed seven 
of the nine. I think partly what has happened is we have done 
some internal kinds of things in terms of policy statements, 
some training and development that quite frankly we have not 
shared with the GAO.
    We think we are a lot closer to having the bulk of those 
recommendations closed. As I said, I think next week we are 
sitting down with them to give them some documentation we have 
done. We have totally rewritten a training manual. Part of this 
is about contractor closeout and how one audits overhead rates, 
how one tracks cost allocation systems and a bunch of very 
technical contracting kind of work.
    I think the one open recommendation we are totally in 
agreement about is out of about $4 billion worth of contracting 
activity we do, there was a question of about $88 million of 
incurred costs. When we went through those incurred cost 
contracts, we believe we are at a point where probably $86 
million of that is actually allowable. We think there is about 
$2 million that is not. We put some of those in what we call an 
interim audit file where we want to do more intense looking.
    We really do owe GAO an answer on that. We have given them 
different numbers at different times as we worked through that 
audit process, but I really think we are a lot closer to having 
the bulk of those closed. I really look forward to sitting down 
with GAO next week and going through that.
    There is an internal policy document that we did not share 
with them that we should that is sitting with our Office of 
General Counsel and the Office of Financial Management which 
addresses a number of the weaknesses. My guess is it will get 
us most of the way there. I think there will be areas where CMS 
will be taking the position that we believe we are willing to 
incur the business risk on this rather than putting in a set of 
resources. GAO may or may not agree with that but we certainly 
need to sit down together and work through that. I think we are 
closer to closed than not.
    Mr. Towns. GAO?
    Ms. Daly. Congressman Towns, I appreciate the opportunity 
to discuss this and I agree with what Ms. Snyder said. We have 
not received documentation to confirm whether or not CMS had 
indeed taken the actions we had recommended related to the 
contract weaknesses we identified. We are very encouraged to be 
having meetings with them to review what steps have they taken 
to address issues such as having appropriate contract 
closeouts, improving their invoice review procedures, all of 
these things that are critical to protecting and making sure 
those contract actions are legitimate.
    Ms. Snyder. We really appreciated the recommendations we 
got from GAO. We think we can strengthen our internal controls 
by acting on them and are happy and glad to do that. We are 
glad to have the benefit of that review.
    Mr. Towns. In talking to administrators in the health care 
field, they are saying that electronic records might solve a 
lot of the problems or would it further complicate the problem? 
What will it do with the problem? Do you feel that is the case?
    Ms. King. I don't think we know for sure yet. I think it is 
too soon to tell. Certainly they are going to provide better 
documentation. There should be better documentation on file, so 
that would be a positive step but I think before there is 
further implementation and we have an opportunity to look at 
it, I don't think we can say it would solve the problem for 
sure.
    Mr. Towns. Thank you very much, Mr. Chairman.
    I yield back.
    Mr. Platts. I thank the gentleman.
    Before we wrap up, just a couple of other quick things. 
One, to follow up on Mr. Towns' focus on the internal controls 
and contract management aspects, I am glad to hear we are 
further along than maybe we thought in that area and just in 
the testimony today where we have recovery audit contractors, 
we have validation contractors to cover the recovery audit 
contractors and even when improper payments are identified by 
the recovery audit contractors, they don't collect, and I 
forget the term for the contractors that actually do the 
collection. We have a lot of contractors. Managing those 
contractors is key if we are going to get a true handle on 
improper payments. That partnership between CMS, GAO and the 
IG's Office is critical.
    Just to refocus on Ms. Norton's issue of Part D, I 
appreciate this is an ongoing effort, that we are now in the 
first year where we will have a good assessment of Part D 
improper payments and if we apply a rough average of the fee 
for service, Part C, 10 percent, 12 percent, 14 percent, 
somewhere in there, we are still talking about $5-$6 billion 
perhaps of improper payments in Part D on top of what has 
already been identified.
    It is all the more important that effort move forward as it 
is and we are dutiful in how to address those.
    In closing, I guess I would emphasize what I think just 
about all of us have hopefully conveyed, the importance of what 
you do and the gratitude of our constituents for Medicare 
ensuring that our seniors are getting the medical care they 
need and that we do right by them. We certainly want to 
recognize CMS's efforts in ensuring that is the case and also 
the partnership between all three entities represented here, 
CMS, the IG Office within the Department and GAO. I hope that 
the three of you and your entities will see this committee in a 
very positive partnership manner because that is really the 
intent of this hearing.
    I think, Ms. Snyder, you referenced not playing gotcha. I 
sometimes forget the references because I have been chairman 
with him as my ranking member on two occasions and he has been 
chairman with me as his ranking member and the bottom line is 
we have a shared focus which is just to have good government 
and to partner with all of our colleagues in government to 
achieve that. I hope that comes through as our intent with this 
hearing and going forward to continue to partner and how we can 
further partner in the months and years to come, especially if 
there are legislative issues.
    One that was mentioned concerned statutory language with 
the power wheelchairs and how you have to start there. If there 
are issues you identify at CMS that perhaps the intent of 
Congress is not fulfilled accurately or appropriately in the 
way the statute was written versus what you think we were 
trying to do, you probably will learn that before us because of 
implementing the statute, we hope you will come back to our 
committee or Ways and Means and Energy and Commerce with 
Medicare and Medicaid and partner with Congress.
    That is what we are hoping to do in every aspect and at the 
end of the day, as far as this subcommittee's focus, we hope to 
do our best to ensure that every dollar of the American 
people's hard earned funds sent to Washington are handled and 
used in a responsible, accountable fashion.
    I know that is what the four of you as public servants are 
after and are appreciative of your efforts. We look forward to 
going forward in a positive way with you.
    We will keep open the record for 7 days for any additional 
information, specifically those numbers on actual fraud dollars 
identified in the past 3 years. That would be great. We look 
forward to continuing at the committee level with Members as 
well as their staffs in how we can work with you.
    With that, this hearing stands adjourned.
    [Whereupon, at 11:48 a.m., the subcommittee was adjourned.]
    [The prepared statement of Hon. Gerald E. Connolly and 
additional information submitted for the hearing record 
follow:]

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