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


 
  PROTECTING MEDICARE WITH IMPROVEMENTS TO THE SECONDARY PAYER REGIME

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

                                HEARING

                               BEFORE THE

              SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 22, 2011

                               __________

                           Serial No. 112-65



      Printed for the use of the Committee on Energy and Commerce

                        energycommerce.house.gov



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                    COMMITTEE ON ENERGY AND COMMERCE

                          FRED UPTON, Michigan
                                 Chairman

JOE BARTON, Texas                    HENRY A. WAXMAN, California
  Chairman Emeritus                    Ranking Member
CLIFF STEARNS, Florida               JOHN D. DINGELL, Michigan
ED WHITFIELD, Kentucky                 Chairman Emeritus
JOHN SHIMKUS, Illinois               EDWARD J. MARKEY, Massachusetts
JOSEPH R. PITTS, Pennsylvania        EDOLPHUS TOWNS, New York
MARY BONO MACK, California           FRANK PALLONE, Jr., New Jersey
GREG WALDEN, Oregon                  BOBBY L. RUSH, Illinois
LEE TERRY, Nebraska                  ANNA G. ESHOO, California
MIKE ROGERS, Michigan                ELIOT L. ENGEL, New York
SUE WILKINS MYRICK, North Carolina   GENE GREEN, Texas
  Vice Chair                         DIANA DeGETTE, Colorado
JOHN SULLIVAN, Oklahoma              LOIS CAPPS, California
TIM MURPHY, Pennsylvania             MICHAEL F. DOYLE, Pennsylvania
MICHAEL C. BURGESS, Texas            JANICE D. SCHAKOWSKY, Illinois
MARSHA BLACKBURN, Tennessee          CHARLES A. GONZALEZ, Texas
BRIAN P. BILBRAY, California         JAY INSLEE, Washington
CHARLES F. BASS, New Hampshire       TAMMY BALDWIN, Wisconsin
PHIL GINGREY, Georgia                MIKE ROSS, Arkansas
STEVE SCALISE, Louisiana             JIM MATHESON, Utah
ROBERT E. LATTA, Ohio                G.K. BUTTERFIELD, North Carolina
CATHY McMORRIS RODGERS, Washington   JOHN BARROW, Georgia
GREGG HARPER, Mississippi            DORIS O. MATSUI, California
LEONARD LANCE, New Jersey            DONNA M. CHRISTENSEN, Virgin 
BILL CASSIDY, Louisiana              Islands
BRETT GUTHRIE, Kentucky              KATHY CASTOR, Florida
PETE OLSON, Texas
DAVID B. McKINLEY, West Virginia
CORY GARDNER, Colorado
MIKE POMPEO, Kansas
ADAM KINZINGER, Illinois
H. MORGAN GRIFFITH, Virginia

                                 7_____

              Subcommittee on Oversight and Investigations

                         CLIFF STEARNS, Florida
                                 Chairman
LEE TERRY, Nebraska                  DIANA DeGETTE, Colorado
JOHN SULLIVAN, Oklahoma                Ranking Member
TIM MURPHY, Pennsylvania             JANICE D. SCHAKOWSKY, Illinois
MICHAEL C. BURGESS, Texas            MIKE ROSS, Arkansas
MARSHA BLACKBURN, Tennessee          KATHY CASTOR, Florida
SUE WILKINS MYRICK, North Carolina   EDWARD J. MARKEY, Massachusetts
BRIAN P. BILBRAY, California         GENE GREEN, Texas
PHIL GINGREY, Georgia                DONNA M. CHRISTENSEN, Virgin 
STEVE SCALISE, Louisiana                 Islands
CORY GARDNER, Colorado               JOHN D. DINGELL, Michigan
H. MORGAN GRIFFITH, Virginia         HENRY A. WAXMAN, California (ex 
JOE BARTON, Texas                        officio)
FRED UPTON, Michigan (ex officio)

                                  (ii)


                             C O N T E N T S

                              ----------                              
                                                                   Page
Hon. Cliff Stearns, a Representative in Congress from the State 
  of Florida, opening statement..................................     1
    Prepared statement...........................................     4
Hon. Diana DeGette, a Representative in Congress from the State 
  of Colorado, opening statement.................................     6
    Prepared statement...........................................     8
Hon. Michael C. Burgess, a Representative in Congress from the 
  State of Texas, opening statement..............................    10
Hon. Tim Murphy, a Representative in Congress from the 
  Commonwealth of Pennsylvania, opening statement................    10
Hon. Henry A. Waxman, a Representative in Congress from the State 
  of California, opening statement...............................    12
    Prepared statement...........................................    14
Hon. Fred Upton, a Representative in Congress from the State of 
  Michigan, prepared statement...................................   168
Hon. Joe Barton, a Representative in Congress from the State of 
  Texas, prepared statement......................................   169
Hon. Marsha Blackburn, a Representative in Congress from the 
  State of Tennessee, prepared statement.........................   171
Hon. John D. Dingell, a Representative in Congress from the State 
  of Michigan, prepared statement................................   172

                               Witnesses

Deborah A. Taylor, Chief Financial Officer and Director, Office 
  of Financial Managment, Centers for Medicare & Medicaid 
  Services.......................................................    16
    Prepared statement...........................................    19
    Answers to submitted questions...............................   173
James Cosgrove, Director, Health Care Issues, Government 
  Accountability Office..........................................    27
    Prepared statement...........................................    29
Marc Salm, Vice President, Risk Management, Publix Super Markets, 
  Inc............................................................    61
    Prepared statement...........................................    64
    Additional comments for the record...........................   116
Scott A. Gilliam, Vice President and Government Relations 
  Officer, The Cincinnati Insurance Companies....................    72
    Prepared statement...........................................    75
    Additional comments for the record...........................   120
Jason Matzus, Partner, Ratzman Frischman & Matzus, P.C...........    86
    Prepared statement...........................................    88
    Additional comments for the record...........................   123
Ilene Stein, Federal Policy Director, Medicare Rights Center.....    92
    Prepared statement...........................................    94

                           Submitted Material

Chart, undated, tracking new claims to Centers for Medicare & 
  Medicaid Services, submitted by Mr. Stearns....................    85
User Guide, Liability Insurance (Including Self-Insurance), No-
  Fault Insurance, and Workers' Compensation, Version 3.1, 
  Centers for Medicare & Medicaid Services, dated July 12, 2010, 
  submitted by Mr. Stearns \1\...................................
``Medicare's Repo Men,'' Mother Jones article by Stephanie 
  Mencimer, dated October 8, 2009, submitted by Mr. Murphy.......   109
Low-dollar Medicare Secondary Payer recovery claims, submitted by 
  Mr. Stearns....................................................   129

----------
\1\ The information is available at http://
  www.lightspeedclaim.com/docs/NGHPUserGuideV3.1.pdf.


  PROTECTING MEDICARE WITH IMPROVEMENTS TO THE SECONDARY PAYER REGIME

                              ----------                              


                        WEDNESDAY, JUNE 22, 2011

                  House of Representatives,
      Subcommittee on Oversight and Investigations,
                          Committee on Energy and Commerce,
                                            Washington, DC.
    The subcommittee met, pursuant to call, at 10:01 a.m., in 
room 2322 of the Rayburn House Office Building, Hon. Cliff 
Stearns (chairman of the subcommittee) presiding.
    Members present: Representatives Stearns, Murphy, Burgess, 
Bilbray, Gingrey, Scalise, Griffith, DeGette, Schakowsky, 
Green, Christensen, Dingell, and Waxman (ex officio).
    Staff present: Stacy Cline, Counsel, Oversight; Todd 
Harrison, Chief Counsel, Oversight/Investigations; Sean Hayes, 
Counsel, Oversight/Investigations; Andrew Powaleny, Press 
Assistant; Alan Slobodin, Deputy Chief Counsel, Oversight; John 
Stone, Associate Counsel; Alex Yergin, Legislative Clerk; 
Kristin Amerling, Democratic Chief Counsel and Oversight Staff 
Director; Alvin Banks, Democratic Assistant Clerk; Stacia 
Cardille, Democratic Counsel; Brian Cohen, Democratic 
Investigations Staff Director and Senior Policy Advisor; and 
Tim Gronninger, Democratic Senior Professional Staff Member.
    Mr. Stearns. Good morning, everybody. The subcommittee will 
come to order.

 OPENING STATEMENT OF HON. CLIFF STEARNS, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF FLORIDA

    We convene this hearing of the Oversight and Investigations 
Subcommittee to examine how the Centers for Medicare and 
Medicare Services (CMS) has been implementing the Medicare 
Secondary Payment statute. Medicare represents a substantial 
portion of the federal budget. So with our country facing a 
$1.4 trillion deficit and an impending debt limit ceiling vote, 
we must ensure that CMS is properly guarding the legal and 
financial interests of Medicare beneficiaries, while protecting 
the solvency of the program itself.
    Generally, Medicare is the ``primary payer'' for health 
claims. If a beneficiary has other insurance, that insurance 
may fill in all or some of Medicare's gaps. However, the 
Medicare Secondary Payment program identifies specific 
conditions under which another party is legally responsible to 
be the primary payer. In such cases, Medicare is only 
responsible for certain secondary payments. The Medicare 
Secondary Payment statute was enacted to reduce expenditures 
under the Medicare program and ensure that Medicare is properly 
reimbursed for such payments.
    The law prohibits Medicare payments for any item or service 
when payment has been made or can reasonably be expected to be 
made by a third-party payer--such as workers' compensation, 
auto medical insurance, and all forms of no-fault and liability 
insurance. Medicare Secondary Payer recoveries fall into two 
main categories: post-payment collections for injuries that 
have occurred and were paid out by Medicare, and a set-aside 
account to cover future medical bills.
    For post-payment collections, there is widespread concern 
that CMS is creating unnecessary roadblocks for parties to 
reach a settlement agreement. Businesses and injured 
individuals routinely negotiate a settlement but cannot close 
on the settlement until CMS provides a complete list of all 
medical costs incurred. We have heard complaints from a variety 
of interested parties that CMS is not providing this 
information in a consistent or in a timely manner. CMS's delays 
cause lawsuits to drag on, hinders timely payments to injured 
individuals, and causes uncertainty and increases costs for 
both large and small businesses.
    This raises several questions. Why can't CMS more quickly 
and accurately track medical costs for covered individuals? And 
is CMS even capable of administering a health payment program 
for the medical community or accurately tracking costs? Based 
on a hearing in this subcommittee earlier this year, we already 
know that CMS cannot accurately measure the amount lost to 
fraud and that CMS doles out tens of billions of dollars in 
improper payments every year. And we have yet to see reliable 
estimates on the total amount of secondary payment 
reimbursements that remain uncollected by CMS.
    In addition to post-payment collections, plaintiffs are 
supposed to set aside funds to cover future medical costs 
relating to the initial injury--such as follow-up surgeries or 
prescription drugs for chronic injuries. However, the reporting 
requirements are just so weak that CMS may not know about the 
settlement or whether the set-aside account has been improperly 
spent on unrelated, non-medical expenses. The result is that 
CMS continues to pay for an injury that was already paid for by 
a third party.
    CMS now says that they plan to increase education and 
awareness for the legal community on the requirements of 
Medicare Secondary Payer, which has been on the books for 
almost 30 years. That CMS needs to educate people on a 30-year-
old law brings into question what they have been doing for the 
past 30 years and how effective their outreach efforts have 
been. I think more needs to be done, obviously. Whenever 
retailers, insurance companies, and plaintiffs' attorneys are 
all sending letters to CMS, anxious to pay the Federal 
Government, and they can't get a complete or timely response 
about how much they owe, the system is badly broken.
    Hopefully, our witnesses today can help us better 
understand the underlying problems, and we can work in a 
bipartisan manner to fix this.
    With that, I would like to welcome our first panel: Deborah 
Taylor, Director of Financial Management at CMS; and James 
Cosgrove, Director of Health Care from the Government 
Accounting Office. And I look forward to their testimony.
    And with that, I welcome the Ranking Member Ms. DeGette 
from Colorado for an opening statement.
    [The prepared statement of Mr. Stearns follows:]

    [GRAPHIC] [TIFF OMITTED] T4294.001
    
    [GRAPHIC] [TIFF OMITTED] T4294.002
    
 OPENING STATEMENT OF HON. DIANA DEGETTE, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF COLORADO

    Ms. DeGette. Thank you very much, Mr. Chairman.
    I am pleased that we are having this hearing today on 
Medicare Secondary Payer issues. We hear over and over again--
in fact, I had two town hall meetings this last weekend where I 
heard from my constituents about how much they value the 
Medicare program, how important it is to them. Millions of 
Americans rely on Medicare to pay for visits to their doctors, 
cover their hospital stays, and help with their prescription 
drug costs.
    This hearing today is very important because the Medicare 
Secondary Payer program arrangement that you so well described 
in your opening statement saves taxpayers money while making 
sure that recipients get the benefits that they need. The 
Medicare Secondary Payer rules have saved taxpayers over $50 
billion in the last decade, but as you said, the program is not 
perfect. Beneficiaries, insurance companies, lawyers, and 
retailers assert that the way the Medicare Secondary Payer 
process is handled can create confusion and delay.
    We heard the story of one Medicare beneficiary who brought 
a case against a drunk driver that hit her. The case was 
ultimately settled. The beneficiary was told years later that 
she had to pay Medicare back using the proceeds of her 
settlement for medical costs related to the car accident or 
that the Treasury Department would seize her Social Security 
checks. Unfortunately, there are other seniors with similar 
stories.
    So, in general, I think that this subcommittee can serve 
many purposes, and one of the important purposes that we serve 
is to have sensible congressional oversight of problems with 
federal programs, because that will then motivate an agency to 
move more quickly to correct an issue.
    I am glad that we have Deborah Taylor here today, the 
director of Financial Management at CMS because I think it is 
important that we hear from CMS about problems with the program 
and how the Agency is acting to address them. We are really 
asking the Agency to do three things here: first, to protect 
taxpayer funds; second, to make sure that beneficiaries can 
fairly get their healthcare costs covered; and thirdly, to work 
with lawyers and insurance companies to obtain justice in cases 
where they have been injured or harmed.
    To the extent that this is not happening, I want to hear 
about how the Agency can improve and about whether CMS needs 
more tools from Congress to make sure that the program works 
better. I think we can also have illuminating testimony from 
GAO and representatives from groups that are affected by the 
Medicare Secondary Payer rules in the second panel today.
    You know, we can go on ad nauseam about the problems with 
this program, but I frankly am most interested in hearing from 
our witnesses about the solutions to these problems. It is not 
enough to say that the program is broken. Instead, we have to 
think creatively about the steps that the Agency can take and 
whether congressional action is needed to help.
    One possible solution is H.R. 1063, the Strengthening 
Medicare and Repaying Taxpayers Act introduced by our colleague 
Tim Murphy who was just here a minute ago. And it is a 
bipartisan bill of which I am a--oh, there he is. They have 
promoted you--or demoted you as the case may be. This fine 
legislation would take a number of steps to address the 
problems associated with Medicare Secondary Payer rules, 
establish tight new deadlines for CMS to provide information to 
beneficiaries and their attorneys.
    And so even though this is not a legislative hearing, I 
would like to hear from CMS, GAO, and the other witnesses about 
whether they think that this type of legislation strikes the 
appropriate balance between the needs of beneficiaries and the 
needs of taxpayers and see if they have any suggestions about 
how this legislation could be improved.
    Congress certainly has a legitimate interest in ensuring 
our constituents are being treated fairly under Medicare 
Secondary Payer rules. I look forward to today's hearing and 
really focusing on the solutions to address any problems that 
remain.
    Thank you, and I yield back.
    [The prepared statement of Ms. DeGette follows:]

    [GRAPHIC] [TIFF OMITTED] T4294.003
    
    [GRAPHIC] [TIFF OMITTED] T4294.004
    
    Mr. Stearns. The gentlelady yields back. And the gentleman 
from Texas, Mr. Burgess, is recognized for 2 minutes.

OPENING STATEMENT OF HON. MICHAEL C. BURGESS, A REPRESENTATIVE 
              IN CONGRESS FROM THE STATE OF TEXAS

    Mr. Burgess. I thank the chairman.
    This hearing is an example of what this committee does best 
in exercising its oversight function, in this case, with the 
Center for Medicare & Medicaid Services and to ensure that the 
process functions as intended, to ensure today that the 
Medicare Secondary Payment system is working as Congress 
intended and to see where improvements can be made if indeed 
there are problems. And there appear to be.
    Now, it should be intuitively obvious to the casual 
observer that CMS and third-party payers would communicate with 
each other about what is owed, what has been paid, and even be 
able to estimate what future costs when a court case lasts for 
years. However, these communications have only recently been 
required. Questions, disagreements, and difficulties persist, 
and many have suggested that improvements can be made. And 
while the Medicare Secondary Payment System is only a very 
small element of Medicare, any dollar which is paid that is not 
Medicare's primary responsibility, it is a dollar that can't be 
recovered and it is a dollar that is not available to provide 
another service for another beneficiary.
    Mr. Chairman, I know our staffs have spoken and I hope we 
can continue similar oversight into the Medicaid program as 
well. Congress has clearly agreed through the fall statements 
regarding health matters in the Deficit Reduction Act, but 
State Medicare authorities should always work to assure that 
Medicaid is the payer of last resort. Since 1980, statute has 
required State Medicaid plans to take reasonable measures to 
avoid medical claims for which the beneficiary has other health 
insurance that is legally primary to Medicaid. In 2003, audits 
of six Medicaid authorities uncovered problems with between 20 
and 36 percent of claims sampled. Extrapolating nationwide, we 
could be talking about $45 billion per year. I also look 
forward to the updated information from the General 
Accountability Office on the Medicare Secondary Payment System 
program.
    At the end of the day, no one wants a medical provider to 
bill a wrong payer and no one wants the wrong payer to pay. We 
want to know that our government programs are ensuring the 
proper and legally responsible payer meets their 
responsibility. We don't want beneficiaries to be shouldered 
with an unforeseen bill due to lagging communications.
    Mr. Chairman, I will yield back the balance of my time.
    Mr. Stearns. Thank you. The gentleman from Pennsylvania, 
Mr. Murphy, is recognized for 3 minutes.

   OPENING STATEMENT OF HON. TIM MURPHY, A REPRESENTATIVE IN 
         CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA

    Mr. Murphy. Thank you, Mr. Chairman.
    Only in Washington can someone who wants to send money back 
to the Federal Government be ignored. But that is the situation 
we are dealing with now with some of this difficulty we have 
with this problem. We want to preserve Medicare for seniors. It 
is important. It is essential. But it is a mess. What is 
critically important for our seniors' health is also critically 
ill itself and bleeding money.
    One aspect of this is that hundreds of millions of dollars 
that should be repaid to the Medicare Trust Fund are sitting in 
lawyers' accounts because the Center for Medicare & Medicaid 
Services won't tell those who want to settle a lawsuit how much 
the medical bills must be repaid to the government.
    Under the current law, the Medicare Secondary Payer statute 
is supposed to ensure the taxpayers don't foot the bill for 
senior citizens' medical expenses if the injury resulted from a 
case involving third-party liability. That makes sense, but it 
loses dollars because the system just doesn't work. Plaintiffs 
and defense attorneys, retailers, employers, and senior 
citizens all cry out that the system is a mess, but CMS, like 
Kevin Bacon's character of Chip Diller in Animal House raises 
his hand and says remain calm; all is well.
    The current MSP system, which we are investigating today, 
discourages and even prevents companies from settling claims 
involving Medicare beneficiaries because Medicare won't tell 
the settling parties how much is owed. That is why I have 
introduced bipartisan legislation with Representative Ron Kind, 
the Strengthening Medicare and Repaying Taxpayers Act--the 
SMART Act--that would compel CMS to provide the medical bills 
information so the parties can settle within 65 days. This 
legislation would get money to the trust fund and ensure 
seniors are paid money that is rightfully theirs quickly.
    As Jason Matzus--an attorney from Pittsburgh who is here 
today--will explain, his clients, some of whom are in ill 
health and depending on that settlement to pay bills and their 
mortgage have waited months to hear back from CMS on how much 
Medicare is owed. If we enact the SMART Act, that senior 
citizen will receive what is rightfully hers now.
    The SMART Act will also prevent another kind of horror 
story. These are cases where Medicare has denied medical 
treatment to a senior citizen for breast cancer because she 
received a settlement check related to a chest wall contusion 
suffered from a slip and fall years ago. This year, Medicare 
may collect an estimated 230 million from cases like auto 
accidents and slip-and-falls. And if the SMART Act were enacted 
into law, Medicare could see annual collections quadruple to $1 
billion per year.
    We will also hear how Medicare spends more money pursuing 
old claims than the amount owed to Medicare. In one example, 
Medicare spent more in postage notifying the plaintiff of their 
obligation than the $1.59 owed to the trust fund. The SMART Act 
would reduce these wasteful expenses by ensuring Medicare 
doesn't spend more money pursuing collections than the amount 
is actually owed.
    According to a new study by the Rand Corporation, if 
Medicare pursued settlements only greater than $5,000, the 
Agency would still recover 98 percent of the $1 billion I 
mentioned earlier, but it would reduce the number of claims it 
dithers away resources on by 43 percent.
    So I thank the chairman for this investigation. We have an 
opportunity with passing the SMART Act to be responsible 
stewards of the trust fund, because all of us deeply care about 
protecting the Medicare benefits that our constituents--
especially our senior citizens--have earned.
    And I yield back.
    Mr. Stearns. I thank the gentleman. The Ranking Member Mr. 
Waxman from California is recognized for 5 minutes.

OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Mr. Waxman. Thank you very much, Mr. Chairman.
    The Medicare Secondary Payer program is complex and arcane. 
Few people have heard of this program and even fewer understand 
it, but that does not mean it is insignificant. The program 
saves taxpayers billions of dollars helping to make sure that 
Medicare is not forced to foot the bill in cases where the 
other insurers should be paying. This is a worthy goal and we 
all have an interest in making this program work.
    We have two panels today, and I hope they will help us 
answer one simple question: Is the Medicare Secondary Payer 
program working for taxpayers and Medicare beneficiaries? The 
problem with answering this simple question is that there can 
be a tension between what works for the taxpayer and what works 
for beneficiaries. From the beneficiary perspective, the key 
goals are speed, simplicity, and certainty. Beneficiaries want 
Medicare to reduce burdens and rapidly give beneficiaries--
especially those caught up in legal cases with insurers because 
of accidents--the information they need about how much they or 
their insurer will have to reimburse Medicare.
    Taxpayers have different goals. Taxpayers want the program 
to leave no money on the table, even if that means waiting to 
be 100 percent certain that all funds owed to taxpayers are 
repaid. I don't envy the job of CMS in finding the right 
balance here.
    Today, we will hear from CMS about how they have chosen to 
run the program and the opportunities they see for improvement. 
We will also hear from GAO about key program areas that need 
investigation. On the second panel, we will have witnesses 
representing beneficiaries, trial lawyers, and businesses 
affected by the Medicare Secondary Payer rules. They feel that 
CMS has not obtained the correct balance in the way they have 
chosen to run the program.
    This will be a valuable hearing because it can help us 
determine whether we should enact legislative solutions. Our 
goal should be to work with CMS and other interested parties to 
be sure we are appropriately weighing the concerns of 
beneficiaries and the concerns of taxpayers. Our focus today on 
making Medicare better, however, we need to recognize how 
important Medicare is to seniors and to our Nation. And we 
should renounce efforts to end Medicare as we know it.
    Many of my Republican colleagues have bashed Medicare and 
supported turning the program over to private insurance 
companies on the basis that no government program can do an 
effective job compared to the private sector. We hear these 
arguments. One of the key talking points is that Medicare has 
extremely high erroneous payment rates. Their implication is 
clear that Medicare's error rate is higher than error rates of 
private insurers. But that simply is false. Earlier this week, 
the American Medical Association released their annual report 
card on insurers. The AMA found that Medicare had the highest 
payment accuracy rate among all providers, 96 percent. Private 
insurers' payment accuracy rates were five times higher than 
Medicare. This is a great example of Medicare leading the way 
and doing better than the private sector when it comes to 
cutting waste.
    Mr. Chairman, you and other members of your conference 
voted for the budget that would replace Medicare for people 
under 55 with a privatized and underfunded voucher system that 
would cost thousands of dollars more in out-of-pocket 
healthcare costs every year. Seniors would face the worst of 
both worlds: the loss of important guaranteed benefits and 
higher out-of-pocket costs because of the inefficiency of the 
privatized Medicare model.
    These dramatic changes to Medicare pose a much greater risk 
to seniors than the problems in the Medicare Secondary Payer 
program. That is why I sent a letter to Chairman Upton last 
month asking for hearings on the Republican budget's impact on 
Medicare & Medicaid. Now that we have started Medicare work in 
this subcommittee, I hope our next oversight hearing can look 
at the impacts of the Republican budget on this key program for 
seniors and the disabled.
    I yield back the balance of my time.
    [The prepared statement of Mr. Waxman follows:]

    [GRAPHIC] [TIFF OMITTED] T4294.005
    
    [GRAPHIC] [TIFF OMITTED] T4294.006
    
    Mr. Stearns. I thank the gentleman.
    We welcome our first panel. As mentioned, Deborah Taylor is 
the Centers for Medicare & Medicaid Services, CMS, chief 
financial officer, CFO, and director of the Office of Financial 
Management, OFM. As CMS's senior financial manager executive, 
she is accountable and responsible for planning, directing, 
analyzing, and coordinating the Agency's comprehensive 
financial management functions.
    James Cosgrove, a doctor, is a director on the healthcare 
team at the U.S. Government's accounting office, the GAO, and 
responsible for GAO studies of healthcare financing and 
Medicare payment issues with his Ph.D., his doctor's Ph.D.
    As you know, the testimony you are about to give is subject 
to Title XVIII, Section 1001 of the United States Code. When 
holding an investigative hearing, this committee has a practice 
of taking testimony under oath. Do you have any objection to 
testifying under oath? No?
    The chair then advised you that under the rules of the 
House and the rules of the committee, you are entitled to be 
advised by counsel. Do you desire to be advised by counsel 
during your testimony today? In that case, please rise and 
raise your right hand. I will swear you in.
    [Witnesses sworn.]
    Mr. Stearns. Thank you. Now, each of you can give your 5-
minute opening statement. Ms. Taylor, we will start with you.

  TESTIMONY OF DEBORAH A. TAYLOR, CHIEF FINANCIAL OFFICER AND 
DIRECTOR, OFFICE OF FINANCIAL MANAGEMENT, CENTERS FOR MEDICARE 
& MEDICAID SERVICES, AND JAMES COSGROVE, DIRECTOR, HEALTH CARE 
            ISSUES, GOVERNMENT ACCOUNTABILITY OFFICE

                 TESTIMONY OF DEBORAH A. TAYLOR

    Ms. Taylor. Good morning, Chairman Stearns and Ranking 
Member DeGette and members of the subcommittee.
    Mr. Stearns. I think, Ms. Taylor, you have to push the 
button and bring the mic a little closer.
    Ms. Taylor. OK.
    Mr. Stearns. There you go.
    Ms. Taylor. Good morning, Chairman Stearns, Ranking Member 
DeGette, and members of the subcommittee. Thank you for the 
opportunity to be here today to discuss the Centers for 
Medicare and Medicaid Services' Medicare Secondary Payer 
program. The Medicare Secondary Payer program, also known as 
MSP, is an important program that protects both Medicare 
beneficiaries and the sustainability of the Medicare program. 
The purpose of the MSP program is to ensure that Medicare pays 
primary when appropriate and recovers monies when Medicare 
should pay secondary to another insurer. While MSP is specific 
to Medicare, all insurance providers, public and private, 
utilize a system similar to the MSP to resolve conflicting 
coverage issues with other carriers. MSP policies establish 
when certain other insurance payers have primary responsibility 
for the healthcare services of a person with Medicare.
    The MSP program has traditionally had a high rate of return 
on investment of almost 9 to 1 and over the past decade has 
returned savings, both cost-avoided savings as well as 
recoveries, in excess of $55 billion. There are two types of 
MSP situations. The vast majority of MSP situations arise when 
a Medicare beneficiary is covered by an employer's healthcare 
insurance. This is a highly automated process that allows 
beneficiary claims to be automatically identified where 
Medicare is not the primary insurer. In these situations, 
unnecessary costs are avoided and there is no pay-and-chase 
required to recover these monies.
    The second MSP situation arises when a Medicare beneficiary 
is harmed or injured and receives a settlement payment from 
another insurer, usually an automobile liability or workers' 
compensation insurer. These cases are often referred to as non-
group health plan cases. These cases require close 
communication and coordination between CMS, the beneficiary, 
and their representatives, usually an attorney. In order to 
ensure continuity of care for Medicare beneficiaries, Medicare 
may pay conditionally for the healthcare of the beneficiary 
under these situations. If Medicare makes a conditional 
payment, Medicare has a statutory right to recover from the 
insurer legally required to pay for this care.
    Prior to 2008, insurers involved in these types of MSP 
situations had a limited requirement to report their 
settlements to CMS. When Congress passed the Medicare/Medicaid 
and SCHIP Extension Act of 2007, these insurers had a mandatory 
reporting responsibility to CMS. These mandatory reporting 
requirements have significantly increased the number of non-
group health plan cases and have provided recoveries to the 
Medicare Trust Fund estimated to be about $600 million.
    To facilitate a smooth transition of these mandatory 
reporting requirements, CMS took a transparent, open approach 
to establishing the requirements. We developed standardized 
electronic reporting processes and worked collaboratively with 
the insurance industry to define and test this process. We 
established a Web site where insurers can find all official 
instructions and guidance related to the mandatory reporting 
requirements. We held town hall conferences with over 34,000 
representatives from insurance industry, trade associations, 
and attorney groups, and we developed computer-based training 
on MSP policies and mandatory reporting requirements.
    As a result of our efforts, the overall number of MSP 
records posted to CMS's systems has more than doubled over the 
past 3 years. This increased activity represents a potential 
for even greater savings to the Medicare Trust Fund in coming 
years.
    We continue to leverage technology to improve our processes 
and further increase our rate of return. We have made Medicare 
information directly accessible to beneficiaries, their 
representatives, and the industry. We have expanded the 
MyMedicare.gov Web site to provide more information about the 
MSP program and to assist beneficiaries. We also developed 
mechanisms to automate many of the reporting and recovery 
processes.
    CMS is committed to a transparent MSP process and ensuring 
that Medicare beneficiaries receive the care they need while 
reducing Medicare payments for claims that are the legal 
responsibility of another insurer or liable party. We remain 
committed to improving the MSP program and maintaining strong 
communications with our beneficiaries, insurers, and other 
stakeholders.
    This concludes my statement. I would be happy to answer any 
questions.
    [The prepared statement of Ms. Taylor follows:]

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    Mr. Stearns. Thank you. Dr. Cosgrove?

                  TESTIMONY OF JAMES COSGROVE

    Mr. Cosgrove. Mr. Chairman, Ranking Member DeGette, members 
of the subcommittee, thank you for inviting me to speak to you 
today as you consider potential improvements to Medicare's 
Secondary Payer process.
    As has been discussed this morning, this process is 
intended to protect Medicare's fiscal integrity when a 
beneficiary's Medicare expenses are potentially covered by 
another insurer. Congress has spelled out rules for when other 
insurers must pay first. In such cases, Medicare pays second 
and is only financially responsible for and should only pay for 
those Medicare items and services that are not covered by the 
primary insurer. For example, Medicare has always been the 
secondary payer when the beneficiary is covered by a workers' 
compensation plan.
    In 1980, Congress made Medicare a secondary payer to other 
non-group health plans, which include auto or other liability 
insurance and no-fault insurance. Shortly thereafter, Congress 
made Medicare the secondary payer in most instances where the 
beneficiary is currently employed or has a spouse who is 
currently employed and is covered by an employer-sponsored 
group health plan. Both group and non-group health plans had a 
legal obligation to identify situations where they were the 
primary payers, notify Medicare, and pay appropriately. 
However, there were concerns that this did not always happen 
and that Medicare sometimes paid for care that should have been 
covered by other insurers.
    The Medicare and Medicaid and SCHIP Extension Act of 2007 
established specific MSP reporting requirements and fines for 
noncompliance. For example, non-group health plans must inform 
CMS when they have reached a settlement with a beneficiary in 
an MSP situation. The Congressional Budget Office estimated 
that the law's provisions would help Medicare recover or avoid 
$1.1 billion in improper payments over 10 years. Mandatory 
reporting requirements for group health plans when into effect 
January 2009. Mandatory reporting for non-group health plans 
was delayed until January 2011 for certain types of these plans 
and until January 2012 for the rest.
    My remarks today will describe the 5 major components of 
the MSP process for situations involving non-group health 
plans. These are notification, negotiation, resolution, 
mandatory reporting, and recovery. The order of the components 
and the details of the process and CMS's involvement at various 
stages may vary somewhat depending on the circumstances of the 
case. I think the best way to understand how the MSP process 
works in general is through an example, and that is what is 
included in our written statements.
    We have a graphic, and this is Figure 2 and page 8 in our 
written statement, but it tries to illustrate graphically how 
the MSP process might work when a Medicare beneficiary is 
injured in an automobile accident. In this simplified example, 
it begins when an injured Medicare beneficiary goes to the 
hospital. The hospital treats the beneficiary and eventually 
submits a bill to Medicare. Notification happens when CMS first 
learns of the MSP situation. In this example, the beneficiary's 
attorney notifies CMS and requests a list of payments Medicare 
made to the hospital. CMS's contractor provides this 
information, and although notified, Medicare may continue to 
make payments called ``conditional payments'' so that the 
beneficiary will have access to necessary medical care while 
the beneficiary's attorney negotiates with the automobile 
insurer.
    Negotiation to reach a settlement takes place between the 
beneficiary's attorney and the insurer. In this example, the 
attorney uses the information from CMS to help insure that the 
settlement includes funds to reimburse Medicare for payments 
made related to the claim.
    Resolution refers to the settlement reached between the 
beneficiary's attorney and the insurer. In a liability case, 
the insurer often provides the beneficiary with a lump-sum 
payment. Mandatory reporting is what happens at this point when 
the insurer reports the resolution to CMS. In some cases, 
mandatory reporting may be the first notification that CMS gets 
of the MSP situation. And recovery happens after mandatory 
reporting when CMS seeks to recover payments Medicare made 
related to the claim.
    While I can describe the key components of the process, I 
can't tell you how well the process is working. We are aware 
that concerns have been raised and are currently evaluating 
certain aspects of the process related to non-group health 
plans. Specifically, our study is examining aspects of the MSP 
process that have presented challenges for both non-group 
health plans and CMS. And it will also look at how mandatory 
reporting by non-group health plans is expected to affect CMS's 
MSP workload, its costs, and Medicare savings.
    We expect to complete our work and report on our findings 
later this year. We look forward to working with you and others 
in Congress as you consider this very important issue. Mr. 
Chairman, this concludes my prepared remarks. I would be happy 
to answer any questions you or other members may have.
    [The prepared statement of Mr. Cosgrove follows:]

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    Mr. Stearns. Yes. I will start with my questions.
    Dr. Cosgrove, it looks like in this resolution area of your 
graph is where the main problem is. Do you think Congress 
should step in and make the Medicare payment that is done 
first, make this such that after the insurance companies pay, 
then Medicare steps in? In that one chart dealing with 
resolution----
    Mr. Cosgrove. Um-hum.
    Mr. Stearns [continuing]. Where it seems to be the 
conflict, is there something you would suggest for Congress to 
do?
    Mr. Cosgrove. It is really premature for me to comment at 
that time. We have certainly heard concerns by the non-group 
health plans raised about how this works right now. But that is 
part of our investigation.
    Mr. Stearns. So the answer is no. You don't know?
    Mr. Cosgrove. I don't know.
    Mr. Stearns. OK. Ms. Taylor, can you provide information on 
the number of Medicare Secondary Payment cases CMS is handling 
today?
    Ms. Taylor. I don't have the exact number, but I can tell 
you that of the non-group health plan cases, I believe we have 
about 413,000.
    Mr. Stearns. I need you to pull the mic a little closer if 
you can.
    Ms. Taylor. I believe for the non-group health plan cases--
--
    Mr. Stearns. OK. I got that. This would include liability, 
workmen's compensation, and no-fault automobile Medicare 
Secondary Payment cases?
    Ms. Taylor. Correct.
    Mr. Stearns. And that is your number is roughly 400?
    Ms. Taylor. I believe that is the number that we have right 
now.
    Mr. Stearns. How many were handled last year?
    Ms. Taylor. Last year, probably about the same.
    Mr. Stearns. OK. Is this typically a number that remains 
constant every year? Is it roughly about 400?
    Ms. Taylor. What I can tell you is that since the Medicare 
and Medicaid SCHIP Extension Act of 2007, our casework, our 
workload has more than doubled.
    Mr. Stearns. OK. How long, Ms. Taylor, have you been in 
this position as a CFO?
    Ms. Taylor. For about a year and a half.
    Mr. Stearns. What did you do before that?
    Ms. Taylor. I was the deputy to the director of office----
    Mr. Stearns. OK. How much money is involved in the Medicare 
Secondary Payment process each year? How much is reimbursed to 
the trust fund.
    Ms. Taylor. To the trust fund last year in 2010 we had 
about $8 billion, which includes both the group health plan and 
the non-group health plan cases.
    Mr. Stearns. Does CMS keep track of how much money is 
reimbursed by class or type?
    Ms. Taylor. I believe we have that information but I don't 
have that----
    Mr. Stearns. For example, how much is workers' comp and, 
for example, how much is auto accident?
    Ms. Taylor. I believe we can get that information. I just 
don't have that with me.
    Mr. Stearns. In your opinion, is it being reimbursed by 
class or type? Is it distinguished?
    Ms. Taylor. I believe it is, yes. I believe our contractor 
does maintain information about which type of insurer they are 
working with, yes.
    Mr. Stearns. Do you mind submitting that for the record?
    Ms. Taylor. Sure.
    Mr. Stearns. OK. Does CMS ever attempt to estimate the 
number or amount of secondary payment cases under which CMS 
does not get reimbursed?
    Ms. Taylor. I don't believe we do track that information.
    Mr. Stearns. Um-hum. Who was in this position before you?
    Ms. Taylor. Prior to me Tim Hill had the job that I 
currently have.
    Mr. Stearns. And how long was he in that position?
    Ms. Taylor. I believe 5 years.
    Mr. Stearns. OK. Does CMS have an idea how much money that 
should be reimbursed that is not?
    Ms. Taylor. I don't think we track it that way, meaning 
when a case is identified to us, we have to wait until there 
is, in fact, a settlement. If there is no settlement, the 
Medicare beneficiary does get paid and they do get their 
healthcare covered by Medicare. Our primary goal is to ensure 
that Medicare beneficiaries do receive their healthcare.
    Mr. Stearns. On those 400 cases, do you put a suspense time 
when you go back to staff and say let us hurry up and try to 
settle this? Is there any kind of suspense record that you 
keep?
    Ms. Taylor. We don't keep any records that say we need to 
suspend this case. It is a----
    Mr. Stearns. I don't mean suspend but I mean let us say a 
case goes on and on and on and on. Do you as a CFO get a weekly 
or a monthly record that is saying of these 400 cases, 50 of 
them have gone on for 10 months, 3 months?
    Ms. Taylor. I believe we do get information about the age 
of the cases.
    Mr. Stearns. That is what I mean, the age of the case.
    Ms. Taylor. What we don't get is the reason for the age.
    Mr. Stearns. OK.
    Ms. Taylor. So it could sometimes be because the----
    Mr. Stearns. Do you physically see this come across your 
desk, the age?
    Ms. Taylor. I don't physically get that, no.
    Mr. Stearns. Do you have any interest in seeing that so you 
can say to the people, let us get moving?
    Ms. Taylor. I have an absolute interest in this MSP 
recovery process, and it is subjected to our audit by our CFO 
auditors.
    Mr. Stearns. OK. How much does CMS spend on conditional 
payments for treatment and services, coverage for which is the 
responsibility of non-group health plans on an annual basis? Do 
you know?
    Ms. Taylor. I do not know. I just know what the annual 
recoveries are.
    Mr. Stearns. How much does CMS recover annually for these 
claims?
    Ms. Taylor. Last year, we recovered about $400 million.
    Mr. Stearns. My last question is industry experts have told 
this committee's staff that there is at least $4 billion a year 
for the non-group health claims alone that is not making it to 
the trust fund. Do you confirm that? Do you have any idea how 
much money CMS is leaving on the table?
    Ms. Taylor. I don't have any information on that.
    Mr. Stearns. Does that 4 billion seem reasonable to you?
    Ms. Taylor. I honestly couldn't remark on that. We are 
relying on the individuals to report these cases to us.
    Mr. Stearns. All right. Thank you.
    Ms. Taylor. Um-hum.
    Mr. Stearns. I recognize Ms. DeGette.
    Ms. DeGette. Thank you very much, Mr. Chairman. Before I 
begin my questions, I want to welcome these Close Up students 
who have joined us. What you are seeing today is the 
legislative process in action, and oftentimes people from the 
outside world who come in and see us don't realize that much of 
what we do is in a bipartisan way in Congress. And what we are 
trying to do in this hearing today is figure out how we can 
both protect taxpayers and also Medicare beneficiaries in 
getting more money recovered from these accidents so we can 
keep our program safe and solvent. So this is an Oversight 
hearing and this is the kind of work this committee does, and 
we are delighted to have you, and we are sorry we don't have 
seats for more of you.
    I want to ask both of our witnesses, Ms. Taylor, Dr. 
Cosgrove, about some of the key decisions that Congress is 
facing as we look at the effectiveness of these Medicare 
Secondary Payer rules.
    Ms. Taylor, I think you had said that the Medicare 
Secondary Payer program recovered about $50 billion for 
taxpayers over the last decade. Is that correct?
    Ms. Taylor. That is correct. The number is 58 billion.
    Ms. DeGette. $58 billion. And so obviously this program is 
important in making sure that taxpayers are protected and that 
the Medicare program is not paying bills that other insurers 
should be paying. Is that correct?
    Ms. Taylor. Yes, that is correct.
    Ms. DeGette. And it is also important, though, that the CMS 
be responsive to the needs and the concerns of the 
beneficiaries because it really doesn't make sense either in a 
fiscal way to have beneficiaries to have to wait months to get 
basic information that they need to reach settlements in cases. 
And it frankly seems very unfair for beneficiaries to face huge 
and unexpected demands to pay funds back to Medicare years 
after they have settled.
    You know, I was a lawyer. I practiced law for about 15 
years. And what I found when I settled these cases was the 
beneficiaries get the settlement and they are so happy about it 
that they spend it right away. And then years later when the 
government comes back and tries to get this money back, they 
don't have it anymore and it is a real burden on them. And so I 
think it might be fair to say there is a tradeoff here between 
actions that are good for taxpayers, which is recovering these 
funds, but then that can burden beneficiaries later.
    And so would that be an accurate statement to say sometimes 
there is a tradeoff there between the taxpayers and the 
beneficiaries?
    Ms. Taylor. We are constantly between that delicate balance 
of ensuring that the trust funds recover monies while ensuring 
that our beneficiaries receive the care they need and ensuring 
that we recover monies that are due back to the trust funds. So 
yes, that is absolutely----
    Ms. DeGette. And in a timely fashion, I would say?
    Ms. Taylor. Absolutely.
    Ms. DeGette. Now, Dr. Cosgrove, can you offer us any 
insight here based on GAO's work?
    Mr. Cosgrove. Well, our work is just beginning right now. 
And so we starting to talk to the affected parties, which 
certainly include, you know, the non-group health plans and 
CMS. And our goal in undertaking the study is to understand 
what the challenges are but also to understand what the costs 
are for CMS in terms of implementing the mandatory reporting 
and what the potential savings might be, you know, which could 
shed light on and maybe lead towards potential recommendations 
about improvements for the program, and maybe along such lines 
as, you know, minimum recovery amounts. But, you know, that is 
far down the road. We are going to be continuing our work and 
issuing our report by the end of the year.
    Ms. DeGette. By the end of the year. Mr. Chairman, probably 
I can see a follow-up hearing coming along.
    I would ask you, Ms. Taylor, what recent action has CMS 
taken to promote the goals that we talked about here of 
improving the Medicare Secondary Payer program for 
beneficiaries and for taxpayers?
    Ms. Taylor. There are probably two sets of things that we 
have done. One is we are making information more accessible to 
beneficiaries. So we are providing them education about their 
responsibilities with MSP, but we are also making it able so 
that Medicare beneficiaries can see their claims real time and 
be able to tell their attorneys, ``These are the claims that I 
know have been processed and paid by Medicare.''
    The second part is, you know, we have had a huge workload 
increase because of the mandatory reporting requirements. This 
is not an industry we dealt with routinely, the liability, the 
casualty-type insurers, and so we learned a lot over the last 3 
years, and we are working to streamline our processes, look at 
a way to ensure that our contractor has the right skills, and 
we will be re-competing our contract for these kinds of 
activities related to the non-group health plans this fall.
    Ms. DeGette. And do any of these improvements need 
congressional action that you think would help?
    Ms. Taylor. I can't think of anything off the top of my 
head, but we would certainly be happy to work with you.
    Ms. DeGette. Thank you.
    Thank you very much, Mr. Chairman.
    Mr. Stearns. I thank the gentlelady. The gentleman from 
Texas, Dr. Burgess, recognized for 5 minutes.
    Mr. Burgess. Thank you, Chairman Stearns. And some of my 
questions are going to follow along the same lines that 
Chairman Stearns was asking.
    Ms. Taylor, how long will you have to wait for a 
settlement? What is a customary period?
    Ms. Taylor. So according to our guidelines, we want to work 
with insurers within 65 days to resolve cases. Then we allow 
them 30 days for dispute and then another 60 days to sort of 
resolve that dispute. So ideally, it could take 120, 150 days 
to resolve a case. We do have workload issues, so there are 
cases that have aged beyond that 150 days. We certainly know 
that working on a lawsuit takes time. So it can take anywhere 
between the ideal of 120 days to 6 months to resolve a case.
    Mr. Burgess. Do any of these cases ever linger for years?
    Ms. Taylor. I am not aware of any, but I certainly have 
heard that there are stories out there that have them go on 
beyond a year.
    Mr. Burgess. Is there ever a statute of limitations beyond 
which you would not try to go back and recover from a 
beneficiary?
    Ms. Taylor. If someone reports something to us, we at least 
have the responsibility to look into it.
    Mr. Burgess. Having run a medical practice--and I feel your 
pain. I mean, you are having to deal with insurers and lawyers. 
I mean, those are the two worst groups that I had to deal with 
in my professional life. But at the same time, I also know that 
if the bulk of your accounts receivable, if you will--which is 
what we are talking about--if it gets up much past 90 to 120 
days, that is money that you may just never see. So someone 
always has to be working that or reestablishing why it is that 
it is taking so long. Now, does that happen at the level of 
Center for Medicare & Medicaid Services or--you mentioned a 
contractor--is that something that is contracted out?
    Ms. Taylor. It is something that is contracted out. And as 
I mentioned, this is not an industry we had typically dealt 
with in the past. We know that we need to change our processes. 
We probably need some different skill sets at our contractor, 
and we will be making some changes in that area.
    Mr. Burgess. Now, the contractors that you hire, do they 
have any performance guidelines that they are required to meet?
    Ms. Taylor. They do, yes, but they did not anticipate some 
of the activities we are seeing now.
    Mr. Burgess. Well, and how are we overcoming that lack of 
anticipation now?
    Ms. Taylor. We are rewriting a Statement of Work with very 
different metrics and different performance requirements.
    Mr. Burgess. And these contractors, is this a competitive 
bidding situation where you put these proposals----
    Ms. Taylor. Yes, it will be going forward.
    Mr. Burgess. It will be, but currently are these 
competitively bid currently?
    Ms. Taylor. The current contractor was not ``competitively 
bid'' but it was done under all the FAR requirements that the 
government requires.
    Mr. Burgess. But going forward, you are actually going to 
go beyond that?
    Ms. Taylor. Yes, absolutely.
    Mr. Burgess. How long do you anticipate that will require?
    Ms. Taylor. We expect to have a Statement of Work on the 
street this fall.
    Mr. Burgess. And you will share that with the committee, 
obviously.
    Dr. Cosgrove, let me ask you a question on your Figure 2 
illustration on page 8. It seems as if--and maybe I missed the 
discussion--but at some point in these little block diagrams, 
the mandatory reporting block diagram, there has got to also be 
an arrow going back to the beneficiary informing them of their 
responsibilities under this, because what Ms. DeGette said was 
exactly correct. You have someone who it has been so far 
removed, the accident, the medical costs, the reimbursement, 
and now they get this nice check because their government loves 
them and sent them a check because they were injured and so it 
is theirs to spend. I mean I understand how that thought 
process works. How can we improve that loop so that the 
beneficiary has some understanding of what their obligations 
are, what their requirements are under the law?
    Mr. Cosgrove. Well, I think that is an excellent point 
because that is critical for the beneficiary to understand 
their responsibilities. My understanding from the work that we 
have done so far is that partly the responsibility is on CMS to 
provide information to beneficiaries so they know what their 
responsibilities are. I frankly don't know right now what the 
non-group health plans' responsibilities are to do similar when 
the recovery is----
    Mr. Burgess. For notification----
    Mr. Cosgrove. For notification. But that is something we 
will definitely be looking into.
    Mr. Burgess. All right. Thank you.
    I yield back, Mr. Chairman.
    Mr. Stearns. The gentleman yields back.
    The gentleman from Michigan, Mr. Dingell, is recognized for 
5 minutes.
    Mr. Dingell. Mr. Chairman, you are most courteous. I thank 
you for having this hearing, and I appreciate your concern for 
the questions before us, i.e., how long it takes for us to get 
the answers on the costs and other matters. My questions are 
for Ms. Taylor. For the following questions, please answer yes 
or no.
    Ms. Taylor, it is my understanding that CMS works with 
Medicare Secondary Payer recovery contractor that is 
responsible for determining what MSP payments are subject to 
recovery, issuing demand letters for this recovery, collection 
of MSP claims for beneficiaries, making initial determinations 
for waivers and appeals, amongst other responsibilities. So a 
common complaint is the general delay in communications. Some 
say days, some say months. This delay is frustrating to 
everybody.
    Now, does CMS currently require the contractor to respond 
to communications, whether by mail, email, written 
correspondence from beneficiaries, or attorneys within a 
specific timeline? Yes or no?
    Ms. Taylor. Yes.
    Mr. Dingell. You do? What is that timeline?
    Ms. Taylor. I believe it is 65 days.
    Mr. Dingell. Is it honored?
    Ms. Taylor. We do have workload issues that have created 
the inability for the contractor to get back----
    Mr. Dingell. I will be asking some information about that. 
Does CMS or the contractor collect data on the average response 
time in these communications? Yes or no?
    Ms. Taylor. I believe they do, yes.
    Mr. Dingell. Now, can you tell me what the average response 
time is? Submit that for the record, if you please.
    Now, a very similar complaint is the length of time it 
takes to identify the amount of MSP payments owed to CMS. Does 
CMS or the contractor collect data regarding the average time 
needed to identify and recover funds under the MSP program? Yes 
or no?
    Ms. Taylor. That is a difficult one to answer yes or no to. 
They do whatever is based on the information in the system. So 
yes, they do it as quickly as they can. The problem is claims 
lag.
    Mr. Dingell. Would you submit that in greater detail for 
the record, please?
    Ms. Taylor. Yes.
    Mr. Dingell. Now, could you tell me what the average time 
might be?
    Ms. Taylor. I don't----
    Mr. Dingell. Please submit that for the record.
    Now, a further concern is the length of time it takes for 
beneficiaries and their attorneys to obtain a demand letter 
that informs the beneficiary and their attorney of the MSP 
claim. This delay impedes the ability of beneficiaries and 
their attorneys to move forward towards a settlement, and 
again, ultimately delays reimbursement to Medicare. Does CMS 
currently require the contractor to issue a demand letter 
within a specific timeline? Yes or no?
    Ms. Taylor. Yes.
    Mr. Dingell. You do? Now, would you submit for the record 
what that average response time is?
    Ms. Taylor. Yes.
    Mr. Dingell. Now, next question. In your opinion, Director 
Taylor, what is needed to improve the responsiveness of CMS and 
its contractors to beneficiaries and their attorneys? Is it a 
new contractor that is better equipped to handle these claims 
or is it the need for additional funding and personnel to 
manage the caseload? Finally, another concern raised by a 
witness on the second panel, Mr. Salm of Publix, is the 
inefficiency of pursuing smaller claims. His testimony cites 
the example of Medicare pursuing cases as small as $1.59. Now, 
I am just a poor Polish lawyer from Detroit, but even I know 
staff time used to collect a claim here for $1.59 would far 
exceed recovery. Question: Does CMS have in place a threshold 
for MSP recovery?
    Ms. Taylor. We do not but we are looking at that, yes.
    Mr. Dingell. Do you think that that is something that you 
ought to do because you may be wasting money and flailing 
around trying to collect money that frankly is far too small to 
confer any benefit on you in view of the costs?
    Ms. Taylor. We are looking at that, absolutely. We think we 
can establish a threshold. I will comment, though, that it is 
an automated process. Once a beneficiary's case is identified 
and claims are identified associated with that case, it is an 
automatic generated bill. So it is not a manual process----
    Mr. Dingell. I would like to have you make a submission for 
the record on that point.
    Ms. Taylor. OK.
    Mr. Dingell. Next question. Does CMS have in place a 
threshold for MSP recovery? I think you have indicated that it 
does not, meaning that an MSP claim, if it is less than the 
cost of staff time to collect CMS or the contractor would not 
pursue? Yes or no?
    Ms. Taylor. That is correct.
    Mr. Dingell. All right. Thank you, Mr. Chairman. I note 
that I have gone 19 seconds over.
    Mr. Stearns. Well, I thank the gentleman emeritus of the 
full committee. And I hope, Ms. Taylor, that Mr. Dingell's 
request, that you made note of them. I didn't see you make note 
of them. Our staff did, but he has requested quite a bit of 
information, which I think would be useful for both sides to 
see.
    Ms. Taylor. Um-hum.
    Mr. Stearns. And I think his point is well taken that the 
fact that you are continuing to pursue something for $1.30 or 
something like that. After 30 years, it seems like that should 
have----
    Mr. Dingell. $1.59.
    Mr. Stearns. $1.59--that after all 30 years, it seems like 
you should have thought that out. I would be glad to yield.
    Mr. Dingell. --to get answers to the questions and see to 
it that they are put into the record and I would ask unanimous 
consent that the record remain open for the purposes of 
receiving the answers to me that have been requested.
    Mr. Stearns. By unanimous consent, so ordered. And with the 
emeritus of the full committee's background on Medicare, it is 
very helpful for the oversight and I appreciate his 
participation with that.
    We recognize Mr. Murphy for 5 minutes.
    Mr. Murphy. Thank you, Mr. Chairman.
    Ms. Taylor, you are the chief financial officer and 
director of the Office of Financial Management for the Center 
for Medicare & Medicaid Services?
    Ms. Taylor. Correct.
    Mr. Murphy. All right. Now, you cited us 413,000 cases, 
which you said is a large number and has strained the system. 
Am I correct in that?
    Ms. Taylor. That is the number for the non-group health 
plans.
    Mr. Murphy. Non-group health plans. And that is the concern 
we have talking about here. What is the median value of those 
413,000 claims?
    Ms. Taylor. I don't have the dollar figures in front of me. 
I am sorry about that.
    Mr. Murphy. OK. You will get that information to us? Do you 
have any information, for example, of how many might be under 
$50 or $100, $500, $1,000?
    Ms. Taylor. I don't know that off the top of my head but 
the reporting requirements is at $5,000, so $5,000 for 
liability and I believe it is 7,500 for workers' comp.
    Mr. Murphy. Do you even collect information on things under 
$5,000? I mean you send out letters for $1.59. We have that 
established.
    Ms. Taylor. Correct.
    Mr. Murphy. But you don't collect the data on how many 
cases you have of that sort of that 413,000?
    Ms. Taylor. We track how much the cases are but I don't 
know that I have that with me at this moment, no.
    Mr. Murphy. I am confused because on the one hand you are 
saying you don't get that information but you can get the 
information?
    Ms. Taylor. If someone reports a case to us, the threshold 
is $5,000 to report a case. So if there is a settlement for 
$3,000, they would not be required to report that case to us.
    Mr. Murphy. All right. So if you don't have that 
information, you are going to have difficulty giving us that 
information. If you don't have the information as a chief 
financial officer, you don't have the information you need to 
be the CFO. Just my observation. And I would think it is 
foolish of me to say if I found a coupon that I could get a can 
of tomato soup for 10 cents but I had to drive 100 miles to the 
store to get it, somehow in that judgment I would say it is 
probably not worth it for me to do that, which brings us back 
to this information. And then this tags along with what the 
gentleman from Michigan, Mr. Dingell, said on a number of these 
claims that are a small number, if the actual cash value is so 
small that it would cost us more to pursue than to get it, but 
I am not sure you have the data to do that. It may not be we 
are able to take action.
    But let me ask a couple more things here. So we don't know 
the median value of these claims. We don't things about that. 
Is it true that in Section 111 of the statute, it is going to 
require collection of information so long as it is greater than 
one penny, even if there were no medical bills? Am I correct 
that that is in the----
    Ms. Taylor. I am not aware of that portion of the 
provision.
    Mr. Murphy. OK. It would probably be a good thing for the 
CFO to know. My understanding is that is true, and so if there 
was a $25 gift card given out by a store to settle a potential 
case with a senior citizen, you would want to know that, too, 
as another level of settlement? But I understand that that is 
being asked for. Would you get us that information?
    Ms. Taylor. Yes.
    Mr. Murphy. I am frustrated here because we are trying to 
get information on something I am not sure you collect the very 
data that we are trying to find out. I have heard the current 
reporting system is prone to error and that CMS rejects a high 
percentage of the reports when first submitted. Any idea how 
many reports are initially rejected versus completed on the 
initial submission?
    Ms. Taylor. I am not aware of that number. I do know that 
we have reporting requirements and reporting elements that are 
required so it would be that cases are rejected because data is 
not provided adequately.
    Mr. Murphy. Are you aware of some I referenced in my 
opening statement here that Rand Corporation just completed a 
study that found if you only looked at settlements greater than 
$5,000 instead of every single settlement, your collections 
would fall by only 2.4 percent, but the number of claims you 
were pursuing would fall by 43 percent, and you still collect 
roughly $1 billion from non-group health plans if you only 
looked at claims greater than $5,000. Are you familiar with 
that Rand study?
    Ms. Taylor. I am not familiar with that Rand study.
    Mr. Murphy. Have you looked at putting in a threshold 
dollar level for that, then?
    Ms. Taylor. We absolutely are looking at that right now.
    Mr. Murphy. OK. Is this just in the earliest levels of 
review of this whole issue from your agency?
    Ms. Taylor. Yes, it is.
    Mr. Murphy. I guess it comes down to this, too. It would be 
very beneficial for Congress and obviously for Medicare, which 
I know you care deeply about is financial stability. That is 
why you are in the job you are in. It would help us all--and I 
think we are on the same team--if we could find what kind of 
saving is in this. With Medicare basically going bankrupt and I 
am sure you are having many a nail-biting moment trying to find 
the dollars for this, it would really help us if you could just 
really open all the drawers and lift up all the rugs and find 
everywhere possible in this to make this more efficient.
    And I hope you will also take a look at the SMART Act that 
a number of us on both sides of the aisle have submitted. And 
finally, I might suggest this and ask this: Have you met with 
the people who have a stake in this such as defense attorneys, 
plaintiffs' attorneys, retailers, senior citizens to ask for 
their input on some of this information, too?
    Ms. Taylor. I, personally, have met with some of those 
organizations, but folks who work for me have met with many 
more.
    Mr. Murphy. Well, I would hope that you will take a look at 
our Act and I hope you will sit around and listen to some of 
the witnesses today because I think that will be eye-opening 
for you.
    Ms. Taylor. OK.
    Mr. Murphy. I yield back my time, Mr. Chairman.
    Mr. Stearns. The gentleman yields back. The gentleman from 
Texas, Mr. Green, is recognized for 5 minutes.
    Mr. Green. Thank you, Mr. Chairman. And I want to follow my 
colleague from Pennsylvania. You are required by law when you 
put these payment requirements in place, is that correct?
    Ms. Taylor. Correct.
    Mr. Green. So the first year it is $5,000 and it goes down 
to 2,000 and then $600. And he mentioned the Rand study, the 
Rand Institute for Civil Justice study, but for us to be able 
to let you do anything like that, we actually need to change 
the law.
    Ms. Taylor. Correct.
    Mr. Green. OK. And I agree with my colleague that, you 
know, we need to make sure we get the reimbursement, you know, 
instead of double paying. We also need to make sure it is 
economically feasible----
    Ms. Taylor. Um-hum.
    Mr. Green [continuing]. And so whether it be exempting 
5,000 because you spend less than--it be like 43 percent or if, 
you know, you would only lose $24 million, it would seem like 
it would be cost-effective to do that. So maybe that is 
something our committee needs to look at and something we could 
work on together.
    But my main question is I would like to ask you about 
contractor performance to work recovering funds owed to 
Medicare under the Secondary Payer rules. In 2006, CMS 
consolidated the Medicare Secondary Payer Recovery contracts 
into a single $200 million cost-plus contract. CMS awarded the 
contract on a sole-source basis to Chickasaw Nation Industries, 
a tribally-owned firm based in Oklahoma, the contractor 
responsible for identifying Medicare payments to be recovered, 
calculating the total amount of the medical payments 
potentially ripe for recovery, issuing recovery demand letters 
and tracking secondary payer debt.
    In 2009, the Senate Subcommittee on Contracting Oversight 
initiated an investigation in the Medicare Secondary Payer 
contractor. The investigation revealed there were ongoing 
problems with the contract. For instance, CMS's independent 
auditors concluded that the combination of controlled 
efficiencies constitute a significant deficiency. CMS has also 
found that the contractor failed to comply with contractor 
requirements. The contractor failed to adequately manage its 
cases and had major accounting problems.
    Ms. Taylor, in 2010, the Senate Subcommittee on Contracting 
Oversight called a hearing and at the hearing Rodney Benson, 
Director of Acquisitions and Grants Management at CMS, 
testified. It is now a year later and what has CMS done to 
improve their performance of that recovery contractor?
    Ms. Taylor. I can tell you that we have made several trips 
to that contractor. We have put them on corrective action and, 
as I mentioned before, we are working on a Statement of Work 
that will be released this fall and we will be re-competing 
that work.
    Mr. Green. Is there a way you can get that information to 
our committee?
    And Mr. Chairman, I would appreciate it if we could see 
what the progress has been made with that contractor.
    Do the improvements of CMS and the contractor fully rectify 
the problems in the process?
    Ms. Taylor. It has rectified some of the problems, yes, it 
has.
    Mr. Green. How long does that contract run?
    Ms. Taylor. I believe it is up middle of 2012, June or July 
of 2012.
    Mr. Green. What process would you use to select a new 
contractor?
    Ms. Taylor. It would be a competitive process, so we would 
put very specific requirements in a Statement of Work with 
performance metrics, and we would be accepting bids and we 
would be reviewing those bids based on that Statement of Work.
    Mr. Green. Well, I am concerned with the problems 
identified with the contractor, and this contractor received 
the contract through the sole-source process. And CMS's 
internal auditors have found that the contractor failed to 
comply with these contract requirements, and I am hopeful that 
CMS will continue to address the problems with the contractor 
and continue to improve the recovery process, particularly when 
the contract is up for renewal.
    Ms. Taylor. Yes.
    Mr. Green. So we don't see what has happened. Again, if it 
is a $200 million contract or $200 million cost-plus contract, 
do you have any idea on how much it has cost us so far for that 
contractor?
    Ms. Taylor. I believe it is a $55 million contract 
annually, so over 4 or 5 years it would be $200 million, but 
yes.
    Mr. Green. OK. Outside of working with the contractor, have 
there been any penalties on their reimbursement based on the 
quality of their work?
    Ms. Taylor. I am not aware of any, no.
    Mr. Green. OK. Mr. Chairman, if we could also check on 
that. And I know I am almost out of time, so I appreciate you.
    Mr. Stearns. No, Ms. Taylor, I think Mr. Green has made 
some very good points. I hope you are keeping copious notes.
    The gentleman from Georgia is recognized for 5 minutes.
    Mr. Gingrey. Mr. Chairman, thank you. And I want to thank 
the first panel and very important hearing and the information 
you have given has been straightforward from both of you, and I 
certainly appreciate that.
    Ms. Taylor, I will direct my first question to you. One of 
the main complaints that we have heard from those involved in 
the Medicare Secondary Payer process is that they are unable to 
get a clear statement from CMS as to the amount that must be 
repaid to the Medicare Trust Fund.
    Your testimony discusses that if there is a disagreement on 
the amount of the money owed to Medicare, an individual can 
file for a waiver or seek an appeal. I think it would be very 
helpful if you could describe that process to us and how long 
it takes.
    Ms. Taylor. Sure. The waiver process typically is where 
there is a small dollar settlement. What happens is our rights 
are preserved after the settlement occurs. The beneficiary 
deducts attorney fees or any out-of-pocket costs that the 
beneficiary incurred as a result of any injury or harm they 
suffered. And so the amount that then is in--I won't call in 
dispute--but the amount that then Medicare can use to recover 
any is based on the net, the net of the settlement minus 
attorney fees and any out-of-pocket costs to the beneficiary. 
If those amounts are less than out-of-pocket, if the settlement 
is less than the attorney fees or out-of-pocket costs incurred 
by the beneficiary, the beneficiary can waive any amounts owing 
to Medicare.
    Mr. Gingrey. OK. Thank you. Second question for you also, 
Ms. Taylor. Members of the committee have been informed that 
the current Medicare Secondary Payer process contains an 
unfortunate paradox, in some cases that CMS takes the position 
that it cannot or will not specify the amount owed to the 
Medicare Trust Fund until after a settlement is reached, but it 
is that amount that is needed before the parties can settle. 
Why is this? How does that happen?
    Ms. Taylor. So the issue there is the amount of time it 
takes to process claims. Providers have up to a year to submit 
a claim. If that claim is not submitted, Medicare still 
preserves the right to collect against that claim so----
    Mr. Gingrey. Is it the official position of CMS that they 
will not provide an amount before settlement?
    Ms. Taylor. No. CMS provides an interim amount so we can 
look through the claim's data and say this is what we believe 
the claims are that have been processed. The problem is we 
can't finalize that number until after there is a settlement. 
Then we can look through the claims and there can be a lag in 
the receipt of those claims.
    Mr. Gingrey. OK, thank you. Mr. Cosgrove, I want to direct 
these questions to you. Does the Government Accountability 
Office believe that there are areas of the Medicare Secondary 
Payer regime that should be fixed and what are those areas?
    Mr. Cosgrove. Well, we don't know yet.
    Mr. Gingrey. It is a hard question but----
    Mr. Cosgrove. Right. We don't know yet but that is exactly 
the intention of the study that we are undertaking right now. 
Certainly, you know, we have heard concerns that the process 
may not be working as well as it should be. The non-group 
health plans have raised concerns about some of the 
difficulties that they are facing, and so one of the key 
objectives of the study is to examine the challenges for the 
non-group health plans and for CMS in implementing this 
process, as well as them also looking at what are the potential 
Medicare savings? What are the costs that CMS is incurring to 
do this? And what----
    Mr. Gingrey. Mr. Cosgrove, excuse me for interrupting you, 
but you had I think said earlier in your testimony or in 
response to a member's question when this study will be 
completed. Will you tell me again when that----
    Mr. Cosgrove. It is expected by the end of this year.
    Mr. Gingrey. By the end of this year?
    Mr. Cosgrove. Right. We are in the early stages right now.
    Mr. Gingrey. Last question that I had and again it is for 
you, has GAO ever done any work evaluating the public's 
knowledge of the need to reimburse Medicare? Now, the reason I 
ask that question is because this whole issue of subrogation 
comes up.
    Mr. Cosgrove. Um-hum.
    Mr. Gingrey. And I don't know whether you are aware of the 
fact that I have a medical liability tort reform bill called 
the HEALTH Act, and one of the provisions in that bill says 
``collateral source disclosure,'' which in most state courts 
that is not required and neither the defendants nor the 
plaintiff understands the need for that and clearly doesn't 
know about this subrogation rule that is in law in regard to 
reimbursing Medicare, whereas most probably private insurance 
companies don't have any right to subrogation of that 
settlement or claim that the plaintiff receives. So the 
question, again, has GAO ever done any work evaluating the 
public's knowledge of the need to reimburse Medicare?
    Mr. Cosgrove. I am not aware of any such study.
    Mr. Gingrey. Do you think that would be important?
    Mr. Cosgrove. Absolutely. I think it is important. This is 
important for beneficiaries. It could be a substantial 
financial liability that they face. And they need to be fully 
informed.
    Mr. Gingrey. Well, I think you are right. And I certainly 
agree with that. I see I have already gone over my time, but 
thank you all. I thank both of you very much. I yield back.
    Mr. Stearns. I thank the gentleman. Ms. Schakowsky is 
recognized for 5 minutes.
    Ms. Schakowsky. Schakowsky.
    Mr. Stearns. Schakowsky, the gentlelady from Illinois.
    Ms. Schakowsky. Thank you, my friend, Mr. Chairman.
    I am glad that we, on a bipartisan basis, are looking at 
ways to make Medicare more efficient. I am grateful to the 
evaluators who are looking at it, to you, Director Taylor, and 
to my colleagues because I believe in Medicare and that we want 
to make this system as strong as possible, the trust fund as 
strong as possible.
    And when I hear about the problems that we have in 
collecting in a timely way from other party payers, I think 
about the Republican plan, which would turn over the whole 
system to private insurers. And now I am picturing lawyers and 
I am picturing a balkanization of lots of different insurance 
companies in charge of the whole program and the effect that 
that could have on beneficiaries in trying to get paid for the 
services that they need.
    And I think that making Medicare work better and collecting 
where we should is the focus that we ought to have, not a new 
system where we say oh, OK, go to private insurance companies, 
you figure out how they are going to pay for in a timely way 
the healthcare that you need because we already have evidence 
that it is difficult. And now we will set these elderly people 
free on their own to try and get that money. So I want this to 
go right.
    So Director Taylor, we are going to hear from witnesses on 
the second panel that the current Medicare Secondary Payer 
system is ``making it extremely difficult to settle claims in a 
prompt and efficient manner.'' That is the Gilliam testimony. 
And ``harming beneficiaries and ironically and unfortunately 
harming the trust fund as well,'' and that is from the Matzus 
testimony. So I wonder if you would respond to these 
characterizations.
    Ms. Taylor. Sure. I will say that one of the things is we 
have been working very closely with industry to ensure that 
everyone understands their reporting requirements. I think that 
it is taking time for everybody to learn sort of their 
responsibilities. We have put all of our instructions out for 
industry to understand. Our requirements are automated. We have 
made it accessible--either automated or online ability to 
report to us. And you know, I think we are doing everything we 
can to work very closely with industry to ensure that everyone 
has an opportunity to improve the process.
    Ms. Schakowsky. Let me say this. Years ago when I was on 
the Oversight Committee and I worked with Steve Horn on the 
Government Efficiency Subcommittee, we would bring in agencies, 
and then 6 months later they would come back and we would say 
well, have you made progress? And unfortunately, more often 
than not it hasn't been made.
    And I would suggest, Mr. Chairman, that we do a follow-up 
here, you know, that we have identified problems, you have 
identified problems that exist, that we hold ourselves and you 
accountable to make sure that we come back and check on that 
and see if the systems that you have put in place, perhaps and 
maybe hopefully a new contractor--by the way, are we talking 
again about a single contractor--competitive bidding for a 
single contractor?
    Ms. Taylor. Yes, we are.
    Ms. Schakowsky. And would you speak to that a little? Is 
that the best way to go, do you think, having one contractor 
handle this?
    Ms. Taylor. Well, the reason we went to one contractor is 
we did have a study by GAO that said we had misapplication or 
inconsistent application of our MSP policies across 
contractors. So we did consolidate. Beneficiaries do transition 
across the country so it made it difficult for beneficiaries to 
navigate different contractors. So we do think it made sense to 
consolidate with one contractor.
    Ms. Schakowsky. Well, then, how can we deal with the 
workload issue which you have identified as a big problem? Are 
we going to be able to fix that with one contractor?
    Ms. Taylor. As part of the Statement of Work, we are 
looking at parts of the contractor specializing in different 
insurer types of reporting that a contractor might have--a unit 
that deals with just the automobile insurers or that may deal 
with the property and casualty insurers or that would just do 
workers' comp. so that they specialize and operate with certain 
industries and that they do have those skill sets to navigate.
    Ms. Schakowsky. I am out of time, but let us get it right--
--
    Ms. Taylor. Um-hum.
    Ms. Schakowsky [continuing]. And let us make sure. We will 
check back that we have gotten it right. Thank you.
    Ms. Taylor. Thank you.
    Mr. Stearns. I thank Ms. Schakowsky. And now we recognize 
Mr. Griffith from Virginia for 5 minutes.
    Mr. Griffith. Thank you, Mr. Chairman.
    Earlier this year, the President issued an Executive Order 
requiring agencies to review regulations to determine how they 
could be streamlined to operate in the most effective and 
efficient manner. Has any part of the Medicare Secondary Payer 
process been identified or reviewed as part of the President's 
Executive Order, and if so, which parts?
    Ms. Taylor. We have reviewed the MSP program and we have at 
least put forward the need to have more transparency into the 
process. So we have looked at issuing regulations surrounding 
the MSP program.
    Mr. Griffith. OK. But specifically regarding the 
President's Executive Order, have any parts been identified as 
part of that Executive Order or as a response to that Executive 
Order?
    Ms. Taylor. The main part is the requirement for mandatory 
reporting and what the responsibilities are surrounding that.
    Mr. Griffith. And you may not be in a position to answer 
these questions and I understand that, but this is just 
something I am curious about. When you have somebody who is 
injured, and we will use that classic automobile case, how do 
you separate out the settlement as being for medical expenses 
and for pain and suffering? That would be number one. Number 
two, when you are looking at ongoing expenses, how do you 
determine, you know, do you keep going on the ongoing expenses 
until you have eaten up the entire settlement or is there some 
division that is made? And last but not least along this line 
of questioning, what provisions are made to recognize that in a 
personal injury case that the plaintiff has borne the expense 
of paying the attorney out of the settlement and does, in fact, 
your process recognize that and give credit for those 
attorneys' fees as a part of the settlement?
    Ms. Taylor. It does. The part that we recover is the net of 
the settlement taking out attorneys' fees and any out-of-pocket 
cost for the beneficiary. I think it is more difficult to 
define the pain-and-suffering part of that settlement, and 
sometimes--we have been told at least--that the pain and 
suffering does sometimes include the healthcare costs for that 
beneficiary or the future healthcare costs of that beneficiary. 
So pain and suffering is defined by what their injury is and 
the cost of those healthcare services that will be needed for 
them.
    Mr. Griffith. Now, I guess that is where we have heard the 
indication that sometimes it is hard for you all to give folks 
a number.
    Ms. Taylor. Correct.
    Mr. Griffith. But it also makes it hard for the people 
trying to figure out, you know, how to settle a case without 
going through a lengthy litigious process when they don't know 
what the lien is going to be.
    Ms. Taylor. Right.
    Mr. Griffith. All right. I thank you very much and I yield 
back my time, Mr. Chairman.
    Mr. Stearns. The gentleman yields back. Ms. Taylor, before 
you go I think, as Mr. Dingell and others have pointed out, 
there is a whole list of things we have given you. It seems 
like there are lots of times you did not know. It seems like 
since you are the CFO, the chief financial officer, a lot of 
the questions we asked you, you should have known. For example, 
number of claims for small dollar amounts; two, the response 
times for getting information and payments to beneficiaries; 
three, median amount of the money involved with the 413,000 
cases; number four, your threshold you didn't seem to be aware 
of; number five, you had no idea how much CMS is failing to 
collect; number six is asking about the duration time for the 
claims settlement. You didn't have any idea. So I just want to 
tell you I think the feeling on both sides is that you just 
didn't seem to know much, and so we caution you that if you 
come back for a second hearing, we expect you to be able to 
answer these questions. I assume you will bring staff with you 
so that these questions--you can certainly ask your staff to 
help you--but to see a CFO know so little was a little 
disappointing.
    With that, we will have the second panel come up.
    And I hope, Ms. Taylor, you will stick around so you can 
hear some of the serious problems. This will be beneficial to 
you as the CFO to hear the second panel more specifically 
address some of the things we talked about.
    I want to welcome the second panel. Marc Salm is vice 
president of risk management at Publix Super Markets, where he 
is responsible for claims, consumer litigation, insurance 
purchase, and risk transfer. Scott Gilliam is vice president 
and government relations officer with the Cincinnati Insurance 
Company. He is responsible for representing the company's 
interests with state and federal governments, as well as other 
outside groups. Jason Matzus is a partner in the law firm of 
Raizman, Frischman, and Matzus where he practices tort and 
injury law representing dozens of Medicare beneficiaries. He is 
also an adjunct professor of law at the University of 
Pittsburgh School of Law. Ilene Stein is a federal policy 
director for the Medicare Rights Center's Washington, D.C., 
office.
    I want to welcome the second panel. As you know, the 
testimony you are about to give is subject to Title XVIII, 
Section 1001 of the United States Code. When holding an 
investigative hearing, this committee has a practice of taking 
testimony under oath. Do you have any objection to taking 
testimony under oath? No?
    The chair then advised you that under the rules of the 
House and the rules of the committee, you are entitled to be 
advised by counsel. Do you desire to be advised by counsel 
during your testimony today? In that case, please rise and 
raise your right hand. I will swear you in.
    [Witnesses sworn.]
    Mr. Stearns. Thank you very much. And now, Mr. Salm, we 
invite you with your 5-minute summary of your opening 
statement.

TESTIMONY OF MARC SALM, VICE PRESIDENT, RISK MANAGEMENT, PUBLIX 
   SUPER MARKETS, INC.; SCOTT A. GILLIAM, VICE PRESIDENT AND 
    GOVERNMENT RELATIONS OFFICER, THE CINCINNATI INSURANCE 
 COMPANIES; JASON MATZUS, PARTNER, RAIZMAN FRISCHMAN & MATZUS, 
P.C.; AND ILENE STEIN, FEDERAL POLICY DIRECTOR, MEDICARE RIGHTS 
                             CENTER

                     TESTIMONY OF MARC SALM

    Mr. Salm. Chairman Stearns, Ranking Member DeGette, and 
distinguished members of the subcommittee, good morning, and 
thank you for holding this hearing today. I am honored to 
appear before the subcommittee to share our experience with 
Medicare Secondary Payer program and to offer several 
suggestions and ways in which the program can be strengthened 
to the benefit of Medicare beneficiaries, affected 
stakeholders, and taxpayers across the United States.
    I am the vice president of risk management for Publix Super 
Markets, one of the Nation's largest employee-owned supermarket 
chains. In 2010, we employed 148,000 people across 1,036 stores 
in five States. In the chairman's district alone, Publix 
operates 38 stores. We have 4,495 associates living in your 
district, Mr. Chairman, and 5,160 associates who work in your 
district. We are proud that in the history of Publix Super 
Markets we have never laid off a single employee and that we 
are consistently ranked as one of the best places to work in 
the United States. I am also appearing today as a 
representative of the MARC Coalition, which is a broad-based 
group of affected shareholders.
    Let me start by explaining to you what my view is of how 
the MSP process works through the following liability example. 
Imagine that Mr. Jones, who is a 76-year-old, falls down a 
flight of stairs at the Acme Store and is hospitalized 
overnight with a broken leg. Mr. Jones is billed $40,000 by the 
hospital, which Medicare covers and pays at some reduced rate. 
Let us say for this example $10,000. Two years later, Mr. Jones 
sues Acme. Acme wants to settle, but knowing that Medicare has 
paid for Mr. Jones' medical expenses, it knows that Medicare 
will have to be reimbursed. Acme asked Medicare how much it 
owes for Mr. Jones' care. Medicare, however, will not tell Acme 
that figure claiming that it cannot do so until the case 
actually settles. Yet Mr. Jones and Acme cannot settle unless 
they know Medicare's numbers.
    This is the untenable paradox mentioned by Congressman 
Gingrey. It is impossible for parties to figure out how much 
Medicare has actually paid. At best, the parties will typically 
hold a settlement in escrow for months while the process plays 
out. And sometimes the Medicare demand comes back as a very 
small amount, as we have heard referred to.
    Even if the case does settle, Acme and its insurers have to 
report the settlement to Medicare under the recent 2006 
amendments to the MSP laws. Now, that might sound 
straightforward enough, but to do so, we will need Mr. Jones' 
Social Security number to verify that he is a beneficiary and 
we also have to identify his Health Information Claim Number, 
or HICN, as well as 200 other pieces of information about Mr. 
Jones, many of which insurers and defendants in cases have 
never previously collected. If they fail to report, Acme and 
its insurance companies face potential penalties of up to 
$1,000 per day or $365,000 per year. And some of this data is 
very obscure that they have asked us to collect.
    This system hurts the beneficiaries who are unable to 
receive their settlements quickly because Medicare is getting 
in the way. It also hurts the Medicare Trust Fund because the 
funds are delayed even as we are prepared to pay, and it hurts 
businesses like Publix who have incurred incredible additional 
cost due to the inefficiency of today's system.
    I want to share with the committee two recommendations on 
the way Congress can improve the MSP process and to make it 
work more efficiently. First, I recommend that Congress address 
the MSP system and allow CMS, before the final settlement, to 
provide settling parties with the final amount of healthcare 
costs that CMS has previously paid. If Congress does so, the 
beneficiaries will be able to settle faster, the defendants 
will be able to settle efficiently and with certainty, and the 
trust fund will recover more money faster. This is a true win-
win-win for all the parties.
    Secondly, I want to recommend a threshold for small-dollar 
claims so that we can be sure that the amount of money that 
government is pursuing these claims does not exceed the amount 
of money that the government will recover from these claims. 
And let me explain.
    I have seen claims where settlements are being held up 
because Medicare has made demands of $1.59, $2.81, or other 
such small sums. I have a number of examples with me today. 
This is a waste of taxpayer resources and it surely costs the 
Medicare program more money than they are recovering, even 1 or 
2 or $50 to process these claims. These should all be exempt 
from the program.
    Now, we heard a reference to the Rand Institute's study, 
which was just published yesterday, and I have a copy of the 
study with me. And it indicates that if CMS exempted from MSP 
all liability claims below $5,000, they would be reducing the 
Agency workload and save costs on an estimated 43 percent of 
the claims while only sacrificing 2.4 percent of the money. 
That is $24 million of projected loss on $1 billion to be 
recovered. It is a waste of taxpayer money for the Agency to 
spend 43 percent of its time pursuing 2.4 percent of its 
dollars. And at Publix Super Markets, we settle thousands of 
claims every year below this $5,000 threshold.
    The subcommittee and Congress can bring common sense to the 
MSP system by introducing a threshold below which MSP should 
not apply. The threshold could be a flat dollar amount such as 
$5,000 as suggested by the Rand Institute, or it could be set 
prospectively at the amount of settlement is likely to yield an 
MSP collection at or below the government's recovery cost. This 
would not only save the government money but would allow 
Medicare beneficiaries to settle small claims without being 
subject to the extensive, intrusive, and costly MSP reporting 
process.
    On behalf of Publix Super Markets, I want to thank you for 
your leadership in addressing these important issues. In 
partnerships with our associates and our customers, we look 
forward to working with Congress to address these issues. Thank 
you.
    [The prepared statement of Mr. Salm follows:]

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    Mr. Stearns. Thank you. Mr. Gilliam?

                 TESTIMONY OF SCOTT A. GILLIAM

    Mr. Gilliam. Thank you, Mr. Chairman, Ranking Member 
DeGette, and members of the subcommittee. Good morning and 
thank you for this opportunity to provide testimony on how the 
Medicare Secondary Payer system can be improved to protect 
Medicare beneficiaries in speed reimbursements to the Medicare 
Trust Fund.
    My name is Scott Gilliam. I am vice president and 
government relations officer with the Cincinnati Insurance 
Company, one of the Nation's top 25 property casualty insurer 
groups marketing business, home, auto, and life insurance in 39 
States. I am testifying today on behalf of my company and the 
Medicare Advocacy Recovery Coalition, MARC, a group which seeks 
to bring improvements and efficiencies to the MSP system.
    Today, I would like to tell you about the numerous problems 
the current MSP system has caused not only for our company but 
for the innumerable Medicare beneficiaries that we interact 
with in the course of settling thousands of personal injury 
claims every month. To put this aspect of our business in 
perspective, we settled over 40,000 personal injury liability 
claims last year, paying out over $580 million to settle those 
claims using the services of our 730 field claim 
representatives who are located around the country. 
Unfortunately, the current MSP system is making it extremely 
difficult to settle claims in the prompt and efficient manner 
we believe injured parties deserve and it is having significant 
negative impact on claimants who are Medicare beneficiaries.
    Mr. Salm has already addressed the problems caused by the 
backwards manner in which CMS collects reimbursements owed to 
the Medicare Trust Fund. In my testimony today, however, I 
would like to focus on several critical problems with the MSP 
Section 111 reporting process, which imposes extremely 
complicated data reporting requirements on those of us who 
settle claims with Medicare beneficiaries.
    CMS could have implemented the new reporting process 
through formal rulemaking, which would have allowed for 
stakeholder input. Instead, the Agency created a complex and 
broad-reaching system without engaging the affected community. 
The resulting MSP reporting system involves a complex computer 
submission process that requires responsible reporting 
entities--REEs, those of us who settle claims--to submit a 
significant amount of data to CMS alerting the Agency that we 
have paid a settlement or a judgment to a beneficiary. 
Unfortunately, we do not have access to many of the data 
elements that CMS requires us to report and claimants are often 
unwilling or even unable to provide the data to us.
    To give you an idea of the scope and complexity of the 
reporting system, I have brought with me today the CMS user 
guide that we have to follow to report the data. It is like a 
telephone book. And at my company, we have been spending 2 
years trying to implement this, and here is the flowchart we 
use in our claims department to try and figure out how to 
report the data.
    The reporting requirements not only impact the claims-
pending community; they can also have a negative impact on 
Medicare beneficiaries as well. Consider what happens when the 
Medicare computer system decides that a beneficiary's current 
injury or ailment is connected to the primary payer who 
reported an unrelated payment in the past. Here is a good 
example. We settled a claim with a woman who was in a car 
accident and reported the settlement to Medicare. Years later, 
the woman was diagnosed with breast cancer, and Medicare denied 
coverage for her treatment on the grounds that her breast 
cancer was related to the prior car accident. This may sound 
absurd, but it is a true story from our claim files.
    Mr. Stearns. Could you move the mic just a little closer? 
Yes. Go ahead.
    Mr. Gilliam. While these reporting requirements are 
intended to insure that Medicare is made aware of cases where 
it can assert MSP claims, in practice, however, these complex 
reporting requirements often slow down settlements and in many 
cases prevent settlements from even happening. In these 
situations, money that otherwise could have been promptly 
returned to the Medicare Trust Fund is delayed, reduced, or 
never paid. This is especially true in cases where the 
innumerable claimants who are not represented by an attorney 
and are intimidated by requests to turn over their private 
personal information in order to settle their claim.
    One of the particularly problematic elements of the Section 
111 reporting process is that it requires insurance carriers to 
collect Social Security numbers or health insurance claim 
numbers, HICNs, from all parties with which we settle claims. 
Our claimants are loath to provide this information and in many 
cases flatly refuse. And it is little wonder they refuse. Can 
you imagine having someone who you believe has caused you an 
injury and who you are now considering suing demand that you 
hand over their Social Security number?
    And to make matters worse, the same Agency that requires us 
to collect SSNs or HICNs for Medicare beneficiaries runs 
advertising campaigns to prevent Medicare fraud by discouraging 
Medicare beneficiaries to give out those numbers. Shouldn't 
this be reason enough for CMS to come up with a better way for 
us to identify Medicare beneficiaries for MSP reporting? 
Perhaps Congress could help the Agency solve this problem so 
that we can navigate the process without requiring disclosure 
of SS numbers.
    A simple solution would be only to require reporting of the 
last four digits of the Social Security number, a method 
Medicare already uses to match beneficiaries with their 
Medicare Part D plan. If CMS can use the last four digits of an 
SS number in the Part D program, why can't they use it in the 
MSP program?
    Another significant problem with the current system is 
Draconian penalties. Those of us who pay claims face a 
mandatory $1,000-per-day penalty for failing to properly report 
a claim. We agree that harsh penalties should be used to pursue 
bad actors who purposefully circumvent the system, but we also 
believe that Medicare should promptly--however, the mandatory 
penalties for reporting failures mean that even companies like 
ours that are doing their utmost to achieve full compliance can 
face massive penalties for small errors or technical problems 
that occur through no fault of our own.
    Our company has invested 2 years of financial and human 
resources in developing an information technology system to 
manage MSP reporting, and despite our feverish efforts and full 
committee compliance, we could still face massive penalties if 
even a single data element is entered incorrectly or our 
computer systems have a problem or the CMS problem.
    Mr. Stearns. Mr. Gilliam, I need you to sum up.
    Mr. Gilliam. Yes, I will.
    I will wrap up quickly. There is another important issue I 
want to raise to your attention today. And there are a number 
of claims now arising where Medicare is denying coverage for 
current ailments based on past claims that we have paid that 
are completely unrelated. This is occurring in hospice cases, 
hospice patients being denied care because of an old claim that 
is not related to their current care. And with that, I will 
wait for your questions.
    [The prepared statement of Mr. Gilliam follows:]

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    Mr. Stearns. Thank you. And by unanimous consent, we will 
put in your book and your chart into the record. So done.
    [Some of the information is available at http://
www.lightspeedclaim.com/docs/NGHPUserGuideV3.1.pdf. The rest of 
the information follows:]

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    Mr. Stearns. Mr. Matzus?

                   TESTIMONY OF JASON MATZUS

    Mr. Matzus. Good morning, Chairman Stearns----
    Mr. Stearns. I just need you to pull the mic a little 
closer.
    Mr. Matzus. Good morning. Can everyone hear me? OK. Good 
morning, Chairman Stearns, Ranking Member DeGette, and members 
of the subcommittee, thank you for your leadership in holding 
this important hearing. I greatly appreciate the opportunity to 
testify on how the Medicare Secondary Payer system impacts 
Medicare beneficiaries.
    My name is Jason Matzus. I am a partner at the law firm of 
Raizman, Frischman, and Matzus. My firm is based in the 
Pittsburgh area represented by Congressman Tim Murphy of this 
committee. I have handled hundreds of personal injury claims, 
including those resulting from auto liability and other 
personal injury claims. In many of these cases, I am 
representing Medicare beneficiaries in their claims against 
third parties. In that capacity, I have firsthand experience 
with many of the unintended consequences of the MSP system. I 
fully support the intent of the MSP requirement to make sure 
Medicare is repaid when someone else has accepted liability for 
a beneficiary's medical care. But the current MSP system causes 
many problems for the beneficiaries I represent and delays or 
even prevents full repayment to the trust fund.
    The unfortunate reality is that in practice, the current 
MSP system harms not only beneficiaries but the trust fund as 
well. The most significant problem my beneficiary clients face 
is that the current MSP system administered by the Center for 
Medicare & Medicaid Services is running the process backwards. 
We cannot get the Final Demand explaining how much money is 
owed to Medicare until after a case settles and is reported to 
CMS. As the prior witnesses on this panel have noted, this is 
causing many significant problems and harms everyone involved, 
including, ultimately, the Medicare Trust Fund itself.
    The backward recovery process is creating significant 
obstacles that make it very difficult for cases to settle. The 
amount of money that will need to be repaid to Medicare is a 
critical piece of information, a piece of information that we 
currently cannot get when we need it most, during settlement 
negotiations. This problem, this lack of critical information 
is causing more and more cases to go to trial instead of being 
settled simply because nobody has a reliable final number from 
Medicare of what the trust fund is owed. More cases going to 
trial rather than settling outside of courtrooms necessarily 
means that ultimately less money will be recovered by Medicare. 
That is obviously contrary to the primary goal of the MSP 
system. Thus, the current recovery process actually works 
against the goal of recovering as much money as possible for 
the trust fund.
    Even if I settle a case without knowing the final number, 
which happens, there are still extreme delays in getting that 
Final Demand amount from Medicare. Even once the beneficiaries 
have settled their claims or won their case in Court and the 
required reporting has been made to Medicare, my client still 
must wait and wait and wait to receive anything from their 
settlements. It is not at all uncommon for it to take 6 months 
or even a year just to resolve the MSP portion of a claim. My 
firm alone has had many instances of such cases for 
beneficiaries when it took that long. Of course, my beneficiary 
clients are not the only ones who are waiting to be paid during 
this time. The Medicare Trust Fund also does not get reimbursed 
until we are told the Final Demand amount. In the aggregate, 
these delays translate into millions of dollars of lost revenue 
annually for the Medicare Trust Fund. A system that harms both 
the Medicare beneficiaries and the trust fund simply cannot be 
right.
    These long delays are causing significant financial strains 
for many beneficiaries who have been injured. At my firm, we 
have had instances where the Medicare beneficiary faced the 
prospect of foreclosure on their home because of the delay in 
getting the Medicare reimbursement resolved. This can happen 
when a Medicare beneficiary is counting on the settlement 
proceeds to reimburse them for the out-of-pocket costs 
associated with their injury such as co-pays, uncovered medical 
services, and lost wages. Fortunately, we have avoided that 
calamity, but the issues are real. Tragically, a colleague of 
mine has told me of an instance where the beneficiary has died 
during the interim period waiting for the MSP portion of the 
claim to be resolved after the case is settled.
    I strongly urge this committee and Congress to empower 
Medicare to provide a Final Demand amount before settlements 
occur so that everyone would know how much money is owed and 
would be able to settle accordingly. If that were to occur, the 
beneficiaries that I represent would be far better off than 
they are today and the trust fund would recover many millions 
of dollars more than is the case today. If this simple change 
occurred, both beneficiaries and Medicare could receive their 
reimbursements much faster than they do today.
    Let me be clear. We are ready and able to reimburse the 
trust fund, but we need your help to clear the bureaucracy out 
of the way and make a sensible MSP system that will actually 
work. One month ago, I had the privilege of meeting with 
Representative Tim Murphy along with approximately 30 other 
lawyers from the Pittsburgh area on this issue, all interested 
stakeholders on this issue. As we asked Congressman Murphy last 
month, I join with my colleagues in respectfully urging you to 
allow us to quickly and efficiently resolve MSP claims. I thank 
you for the opportunity to testify today before the 
subcommittee and I welcome any questions that you have.
    [The prepared statement of Mr. Matzus follows:]

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    Mr. Stearns. I thank the gentleman. Ms. Stein, welcome, for 
your 5-minute opening statement.

                    TESTIMONY OF ILENE STEIN

    Ms. Stein. Good morning, Chairman Stearns, Ranking Member 
DeGette, and other distinguished members of the subcommittee. I 
thank you for the opportunity to testify today about the 
current Secondary Payer program and the difficulties Medicare 
beneficiaries face navigating this system.
    I am Ilene Stein, Federal Policy Director for the Medicare 
Rights Center. Medicare Rights is a national, nonprofit 
consumer service organization that works to ensure access to 
affordable healthcare for older adults and people with 
disabilities. Last year, we assisted more than 14,000 Medicare 
beneficiaries and nearly 4,000 healthcare professionals through 
our national helpline. These calls inform our public policy 
efforts and allow Medicare Rights to bring the voice of 
Medicare beneficiaries to the national conversation about 
Medicare.
    For the health and integrity of the Medicare program, a 
robust Secondary Payer regime is necessary. However, the 
current system is flawed in both policy and implementation. The 
results can be devastating for Medicare beneficiaries. Not only 
do individuals receive demands from Medicare for large amounts 
of money that, in some cases, they do not owe and/or cannot 
pay, but in certain situations, Medicare will cease coverage 
because cases were improperly closed by CMS and MSPRC.
    Though not all-inclusive nor mutually exclusive, the 
problems we identified with the Secondary Payer process fall 
into 5 categories. The first is untimely collection of 
Medicare's share of settlements. Currently, there is no 
established time frame by which Medicare must tell individuals 
what they owe if they have settled a liability case. If a 
beneficiary settles without knowing the Medicare costs, 
Medicare may come back years later and collect a sizeable 
portion of the settlement to Medicare. In some cases, given the 
lapse in time and because the beneficiary is unaware that 
Medicare is owed money, settlement funds may no longer exist.
    The second issue is that CMS and MSPRC often miscalculate 
the amount that Medicare is owed. Frequently, callers to our 
helpline receive notices from MSPRC requesting repayment for 
treatments that are unrelated to injuries associated with a 
previous accident. This is because CMS and the contractor do 
not properly segregate claims related to accidents from other 
claims completely unrelated to those past injuries.
    The third issue concerns beneficiaries' difficulty in 
obtaining information about their cases from CMS and MSPRC. 
Callers experience extremely long hold times, and even when 
individuals are able to reach customer service representatives, 
they receive inaccurate or incomplete information.
    Fourth, beneficiaries who manage to get an explanation 
often find the source of the issue to be that CMS and MSPRC did 
not properly close their case. As a result, even though the 
insurance company has closed the case, the Medicare system 
believes that Medicare is still a secondary payer. 
Consequently, Medicare conditionally pays, sending demands for 
reimbursement to beneficiaries or stops paying for services 
altogether. Such a serious matter should be resolved quickly 
but it often can take up to a year to get the case closed.
    Finally, notices sent to consumers by MSPRC are not clear. 
While they speak to appeal rights, they do not contain detailed 
information on how to request an appeal or about the 
documentation necessary to be successful. Notices also fail to 
elucidate the hardship waiver process available if consumers 
are unable to pay Medicare the money being requested.
    There are several steps that can be taken legislatively or 
administratively that would help solve many of the problems 
that beneficiaries encounter. Ideally, as soon as incidents are 
reported to Medicare, Medicare would then provide the insurer 
and the beneficiary with an estimate of the conditional 
payments made by Medicare for treatment related to the injury, 
as well as an estimate of future treatment.
    Medicare collection practices should ensure timely 
recovery. Medicare Secondary Payer claims should not be 
initiated more than 2 years after the settlement has been made. 
This would also help to ensure that in settlement negotiations 
and legal proceedings, all parties are able to consider 
Medicare's claims. CMS and its contractors should be required 
to improve the notices provided to consumers. Specifically, the 
notices' language must be more consumer-friendly, and the 
notices should include more detailed information about appeal 
and hardship waiver rights and process.
    MSPRC should be required to maintain a transparent, easy-
to-use process through which beneficiaries and their 
representatives can obtain information about their cases. This 
means both ensuring shorter call times, and more importantly, 
assigning a specific staff member to cases who can be reached 
directly.
    CMS and its contractors should develop a better process for 
separating claims that are and are not related to an accident. 
CMS and the contractor should also be required to make 
decisions expediently when beneficiaries dispute the inclusion 
of claims because they do not believe that they relate back to 
an accident.
    Thank you again for the opportunity to testify today. I 
would be happy to respond to any questions from the committee.
    [The prepared statement of Ms. Stein follows:]

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    Mr. Stearns. I thank Ms. Stein. Mr. Gilliam, looking at 
that report, have there been other versions of this? I 
understand there has been three versions of this 200-plus-page 
report that is guidance? Is that true?
    Mr. Gilliam. Yes, Mr. Chairman. The copy I have is Version 
3.1.
    Mr. Stearns. OK. So there has been at least three versions. 
Now, has this provided you with any kind of guidance? Just yes 
or no.
    Mr. Gilliam. Kind of.
    Mr. Stearns. Not really, OK. Mr. Salm, I just want to 
quickly take us through the recovery process here for liability 
insurance, no-fault insurance, and workmen's compensation just 
to make sure all of us understand it correctly.
    The first step in the MSP recovery process is that you 
report your case to a contractor at CMS, correct?
    Mr. Salm. Well, no, sir.
    Mr. Stearns. OK.
    Mr. Salm. You have to understand that especially from a 
liability standpoint we have a tremendous amount of process, 
the American legal system, that goes on before we ever get to 
this.
    Mr. Stearns. So that is not the first step?
    Mr. Salm. No. Well, the first step as far as the Agency is 
concerned is that they want us to report the settlement to the 
Agency. OK? But before we go through that, we would go through 
an entire claims operation, a litigation operation. Understand 
that from our standpoint, this is coming very near the end of 
the process. And speed is a great priority at the end of the 
process because frequently we don't get to this number until we 
are actually facing a trial date.
    Mr. Stearns. So once a case has been established, then you 
receive a Rights and Responsibilities letter about protecting 
Medicare's interest in the settlement negotiations, is that 
correct?
    Mr. Salm. There is a Rights and Responsibilities letter, 
right, that talks about that.
    Mr. Stearns. Then you are supposed to receive a conditional 
payment letter? Is that right?
    Mr. Salm. At some point you are supposed to receive a 
conditional payment letter. I can tell you that in the times 
that my adjusters have requested the conditional payment 
letter, including the appropriate release from claimants, we 
have never received a conditional payment letter.
    Mr. Stearns. Well, isn't that the law that you are supposed 
to receive a conditional payment letter?
    Mr. Salm. Well, we can get the amount of the payments made 
by Medicare but we can't get a letter that actually indicates 
how much money we owe Medicare until after we report to them 
how much we have settled the lawsuit for.
    Mr. Stearns. And how long does it generally take CMS to 
provide you with a conditional payment amount?
    Mr. Salm. The conditional payment amount, once we make the 
request, I have never seen one less than 90 days, and more 
likely it is more like 6 months.
    Also, Mr. Chairman, if I note when we get the conditional 
payment amount from Medicare, it says right on the letter that 
we get, and I have a copy of it, it says, ``This is not a bill. 
Do not send a payment at this time''--right on the document.
    Mr. Stearns. Can we get a copy of that?
    Mr. Salm. Absolutely.
    Mr. Stearns. And make it part of the record?
    Mr. Salm. Absolutely.
    Mr. Stearns. And this is prior to settlement, right?
    Mr. Salm. This would be prior to settlement, yes, sir.
    Mr. Stearns. How and when are changes in this amount, as 
well as the amount of future payments you are responsible for 
communicated to you and other parties in the lawsuit?
    Mr. Salm. I don't know.
    Mr. Stearns. Let me ask each of you. You describe this 
bureaucratic inefficiency, and I think you have touched on it. 
What is the number one thing--we will just go from my left to 
right--that you would like to see changed immediately?
    Mr. Salm. I would like to be able to get the amount that we 
owe Medicare before we settle the claim.
    Mr. Stearns. And what would that duration be generally, 
just average?
    Mr. Salm. How long would it take us? I think the timeline 
set forth in H.R. 1063, which would be either 65 or 95 days 
would be sufficiently quick so we could resolve lawsuits.
    Mr. Stearns. OK. Mr. Gilliam, name one thing that you would 
like to see fixed.
    Mr. Gilliam. What he said plus responsiveness from MSPRC. 
We are waiting for Final Demand letters from them for 11 
months, 12 months, 14 months, 18 months, 6 months, 6 months, 7 
months, 7, 7, and 8. They never send letters. We are on hold 
for 56 minutes or an hour or 90 minutes when we are trying to 
call them.
    Mr. Stearns. Now, Ms. Taylor said that there are 413,000 
cases and she couldn't even answer the duration time, but you 
are giving us some pretty dramatic long durations here of even 
trying to get information.
    Mr. Gilliam. And many of these are after seven to ten 
attempts at phone calls----
    Mr. Stearns. And you are on the phone for an hour?
    Mr. Gilliam. Ninety minutes.
    Mr. Stearns. Ninety minutes?
    Mr. Gilliam. One time they hung up, then they transferred 
us, and then we were on hold for 90 minutes.
    Mr. Stearns. And is there music going on?
    Mr. Gilliam. I don't know.
    Mr. Stearns. I hope the people you are talking to are 
people in the United States.
    Mr. Gilliam. Pardon?
    Mr. Stearns. Are the people you are talking to in the 
United States?
    Mr. Gilliam. Yes.
    Mr. Stearns. They don't farm it out to India, do they?
    Mr. Gilliam. No.
    Mr. Stearns. OK. Mr. Matzus, what is the number one thing 
that you think?
    Mr. Matzus. Mr. Chairman, the number one priority would be 
to get the Final Demand number from Medicare prior to the 
settlement.
    Mr. Stearns. OK. And Ms. Stein?
    Ms. Stein. Well, kind of two. I have got the statute of 
limitations on how long it would take for Medicare to collect 
their share, as well as more transparency with the contractor. 
We also experienced long wait times and have difficulty 
resolving cases. It requires us to resend documentation over 
and over again. We have cases that have lasted over a year to 
close.
    Mr. Stearns. Have you had the experience as Mr. Gilliam to 
talk about 90 minutes on the phone?
    Ms. Stein. Yes. I would say the least amount of time we 
have to wait on the phone is about 30 minutes. We have had to 
wait up for over an hour, I think an hour and 20 minutes.
    Mr. Stearns. So you have waited an hour and 20 minutes. So 
you have one of your employees just putting it on speaker and 
waiting there all during that period of time?
    Ms. Stein. Indeed. I actually have personally waited on the 
phone for----
    Mr. Stearns. You personally have waited?
    Ms. Stein. Yes, sir.
    Mr. Stearns. And during that time, is there somebody that 
comes in during those hour and 20 minutes that says thank you 
for holding? Or is it just a dead phone or what is it?
    Ms. Stein. The case I handled is probably 2 years old. It 
is mostly just music, I think.
    Mr. Stearns. Just music?
    Ms. Stein. But I do have to say that once we do actually 
reach an operator, we will have maybe a several-minute 
conversation where they say please resend your documentation. 
It isn't on file. And then you have to call back again.
    Mr. Stearns. I will just close. When you do this, do you 
have to put things through like they want information 
keyboarded in that you have to put in a lot of documentation 
before they even talk to you?
    Ms. Stein. In some cases, yes. It depends on the case.
    Mr. Stearns. You have got to put the case number, dates, 
and things like that in before they even go further? But you 
can't talk to anybody first. You are talking to a computer, 
right?
    Ms. Stein. Right. Well, and also if somebody has a 
representative, they have to submit the documentation, the 
Appointment of Representative form as well, which often gets 
lost.
    Mr. Stearns. OK. My time has expired. The gentlelady is 
recognized.
    Ms. DeGette. Thanks. To follow up on that, Mr. Gilliam, the 
other problem is people don't have one customer service agent 
assigned to them, so let us say you have 10 cases, you have to 
call back each time with each separate case, right? You can't 
just call someone up and go, OK, here are the 10 issues I want 
to talk to you about.
    Mr. Gilliam. That is correct. Every time we call, and if we 
are lucky enough to get through, it starts over with somebody 
new, and they won't even accept emails.
    Ms. DeGette. Right.
    Mr. Gilliam. It has to be phone calls or in writing.
    Ms. DeGette. Yes. Mr. Matzus, I have a question for you. In 
the earlier panel, somebody was talking about the medical costs 
vis-a-vis the settlements of these lawsuits. They are talking 
about the medical costs versus the pain and suffering. And I 
wasn't a personal injury lawyer but I hung around with a bunch 
of them, and my understanding of the way these cases are 
usually settled you have got a clear statement of the medical 
costs and then you may have pain and suffering or whatever 
else, but the medical costs aren't normally the pain and 
suffering, correct?
    Mr. Matzus. No, Congresswoman.
    Ms. DeGette. I mean, normally those are two different 
areas.
    Mr. Matzus. That is correct.
    Ms. DeGette. Especially in the settlement, right?
    Mr. Matzus. Medical costs are a separate silo.
    Ms. DeGette. That is correct.
    Mr. Matzus. Separate and distinct from the recovery for 
noneconomic damages----
    Ms. DeGette. Right.
    Mr. Matzus [continuing]. Such as pain and suffering.
    Ms. DeGette. Right.
    Mr. Matzus. That is correct.
    Ms. DeGette. And so that is why you need to have the 
medical cost information up front at settlement so we can 
accurately figure out how much the victims needed to be 
compensated and then how much needed to be reimbursed to 
Medicare out of that settlement, right?
    Mr. Matzus. It is a necessary and critical part of the 
equation to figure out what is a fair value at which to agree 
to settle.
    Ms. DeGette. I have got to say we rarely ever see the 
grocery stores and the trial lawyers sitting at the same table 
agreeing on an issue. So I wish those Close Up kids were still 
here to see this.
    Mr. Salm. Mark this day on the calendar, I think, Mr. 
Chairman.
    Ms. DeGette. Yes, right. Exactly.
    Ms. Stein, I wanted to ask you about a little bit of what 
you were talking about and what I mentioned in my opening 
statement about the program's beneficiaries because we keep 
hearing these stories about Medicare coming after beneficiaries 
years after the cases have been settled for reimbursement for 
medical expenses. And the case I talked about in my opening 
statement was an 81-year-old woman who got hit by a drunk 
driver. She got $20,000 from automobile insurance in a 
settlement and then 13 years later, so add that up, 94 she is 
now, Medicare sends her a letter demanding repayments of 
medical services over a decade old. Have you heard similar 
stories about beneficiaries being contacted by Medicare years 
after settlement demanding payment?
    Ms. Stein. Yes, we have heard cases like that. And this 
kind of speaks to the hardship waiver process. It is pretty 
difficult to get a waiver. The process is burdensome to 
consumers and the situations that hardship waivers apply to are 
somewhat arbitrary. For example, somebody who is on SSI, which 
is obviously low income, that doesn't necessarily automatically 
make them eligible for some type of waiver, either full or 
partial waiver.
    In my written testimony I talked about--and this speaks 
back to the idea that claims aren't properly segregated--that 
individuals who were in car accidents, you know, 5 to 10 years 
ago suddenly receive bills from Medicare or no longer able to 
receive Medicare coverage going forward because they claim 
that, you know, a broken hip that they received in their 
kitchen relates back to a car accident that happened, you know, 
over 5 to 10 years ago.
    Ms. DeGette. So there needs to some kind of a time frame. 
Claims shouldn't be initiated maybe 2 years after settlement or 
something like that, correct?
    Ms. Stein. Yes.
    Ms. DeGette. But that does lead us to a question, and I am 
wondering if any of you have an opinion on this is it makes 
perfect sense to me to have all of the data at settlement or 
shortly thereafter, but you have a little tension here because 
if you have medical claims that continue to come in, we want to 
assure that the taxpayer gets reimbursed for those expenses, 
but on the other hand, you want to have a quick settlement. So 
what can we do to make that system work better so we have some 
closure early on at settlement or soon after but at the same 
time we are not leaving medical costs out there that could be 
recaptured?
    Mr. Gilliam. If I could jump in there. In probably 95 
percent of the cases, when we are ready for the Medicare 
number, the treatment is basically done. It is typical that 
when we try and settle claims--and Jason knows this--we want to 
get all the numbers together. In most cases, the plaintiff is 
done treating and so we have all the data, and that is when we 
need to know what Medicare owes. And at that point, all of the 
Medicare-paid treatment has been completed and we don't 
understand why they can't tell us what that number is.
    Ms. DeGette. Does everybody else pretty much agree with 
that statement?
    Mr. Salm. Yes, we very much agree with this. Plaintiffs' 
lawyers don't bring cases to resolution or settlement until 
they know what the total medical care is that they want to get 
reimbursed for. And another point is made that in the normal 
practice of subrogation, what normal insurance companies, 
corporations do all the time, if you are ever going to get your 
money, you have to make a decision to cut off, sort of chasing 
the dollars at some point because you are just not going to get 
enough money to justify the effort you put into it.
    So Mr. Gilliam and I make decisions on subrogation every 
day and we say OK, we will take X number of dollars now because 
we don't think we are going to get X plus 20 later or it is 
just going to take too much time.
    Ms. DeGette. Thank you.
    Thank you, Mr. Chairman.
    Mr. Stearns. The gentleman from Pennsylvania is recognized 
for 5 minutes, Mr. Murphy.
    Mr. Murphy. Thank you, Mr. Chairman.
    I think the more I hear, the more it boggles the mind and 
breaks the heart when we hear of what happens to seniors.
    A couple of things first. Mr. Gilliam, in retail settings, 
I understand that sometimes someone may get injured but they 
said, look, I am not going to sue the store or anything. 
Accidents happen, but I need you to make sure my medical 
expenses are taken care of. And sometimes stores say we still 
want to show good faith effort. Here is a gift card to use at 
our store, things like that. That happens, am I correct?
    Mr. Gilliam. Yes, that happens thousands of times a year.
    Mr. Murphy. Do you have to report that number yet?
    Mr. Gilliam. We don't have to report that number yet, but 
we will have to----
    Mr. Murphy. But you will?
    Mr. Gilliam [continuing]. Report that number in 3 years.
    Mr. Murphy. So if someone gets a $25 or $50 gift card off 
their groceries, will Medicare, according to the new rules, 
come after them and say you owe us that money to reimburse for 
medical expenses?
    Mr. Gilliam. Absolutely. We will have to report that under 
the new rules. We will have to report that under the process 
and Medicare--we become a primary payer in that case.
    Mr. Murphy. So you have someone who is living off Social 
Security and they think, my goodness, I get basically a half a 
bag of groceries for free here. Now, Medicare is going to come 
back and say we want that food back. We need that 25 or $50 
back. That is what you are telling me?
    Mr. Gilliam. That is what I am telling you, yes, sir.
    Mr. Murphy. Breaks the heart.
    Mr. Matzus, when you were describing this case of someone 
who died before--while someone is waiting for this claim, does 
it actually impose other hardships upon the seniors on a couple 
levels? Number one, do you know of any cases out there where, 
because of the amount of money that is kind of in the air, or 
in the claims to be made my Medicare against someone to come up 
with some reimbursements, that seniors may actually delay other 
healthcare because they don't have the money to take care of 
themselves?
    Mr. Matzus. Congressman Murphy, I think--as everybody on 
the panel can appreciate--most Medicare beneficiaries have 
limited financial resources. A small change in their monthly 
costs can push them very quickly beyond the financial tipping 
point from which they cannot or will have a very difficult time 
recovering. And oftentimes, when you have to make a decision 
between paying for current uncovered Medicare services that you 
need versus paying other bills, people choose to pay for the 
necessary uncovered medical services and in essence are robbing 
Peter to pay Paul.
    Mr. Murphy. And on this, I am assuming while you are 
working on a case, they are also accruing other legal expenses 
which, because of the delays and people having to sit on the 
phone and wait for calls, am I correct on that, too?
    Mr. Matzus. Congressman Murphy, the way our firm operates, 
it is a contingency-fee basis, so we don't bill our clients 
based upon an hourly rate.
    Mr. Murphy. Some may do that?
    Mr. Matzus. Some firms may.
    Mr. Murphy. So in some cases it may cost the seniors even 
more? So the delay is costing seniors not only they are 
delaying some care, maybe not getting some care, maybe having 
to pay back grocery money, et cetera.
    If the parties settle without the Final Demand letter, what 
happens to the seniors' settlement money? Anybody know?
    Mr. Matzus. If I may, typically, the settlement money is 
held in a law firm's client trust account or escrow account 
pending final notice from Medicare of what amount is owed. And 
then distribution is only made after the Final Demand figure.
    Mr. Murphy. What if that Final Demand figure is much higher 
than the conditional payment? Who pays the difference? Has that 
happened?
    Mr. Matzus. It can happen. Colleagues have reported that 
happening. It has not been my personal experience where there 
has been a significant difference, but in theory, you know, the 
beneficiary and/or the law firm and/or the liability carrier is 
potentially responsible. We don't have the opportunity to go 
back in time and get a second bite at the apple in a liability 
settlement. Once a case is settled, it is settled. The money 
that is received is the only money that will be received.
    Mr. Murphy. Does it take as long if you are dealing with 
private insurance companies as it takes with Medicare?
    Mr. Matzus. To get the final lien figure? No.
    Mr. Murphy. How long would they typically take?
    Mr. Matzus. We always have the final lien figure in advance 
of----
    Mr. Murphy. So it is humanly possible to do this?
    Mr. Matzus. It is. By way of example, Medicaid----
    Mr. Murphy. Now, I know that the CFO of CMS has other 
things to do today, but I would hope in something that would 
save taxpayers billions, save seniors a lot of headache, and 
maybe save some lives here, I hope that that information is 
getting to her.
    One other thing I want to read briefly--and this is from a 
magazine called Mother Jones--not my usual reading, but I found 
it interesting that it talks about a case here--and I would 
like to submit this for the record, too, Mr. Chairman----
    Mr. Stearns. By unanimous consent, so ordered.
    Mr. Murphy [continuing]. Where someone actually got snared 
by Medicare twice. It says the first time in 2002 when the 
Agency began seizing her only income of $498 monthly Social 
Security check for nearly 3 years until she repaid more than 
$16,000, her settlement minus legal fees. After that, she 
thought her troubles were over, but in 2008, Medicare returned 
for more. That $66,000 bill not only failed to recognize that 
Coury had already repaid what she owed, it also far exceeded 
the $20,000 she had received from her daughter's insurance 
company in the first place. And eventually, this person, a 
former accountant, discovered that Medicare had included every 
procedure Mollie had undergone since her accident, including 
unrelated care like open-heart surgery and treatment for 
emphysema. And, of course, cases like this abound.
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    Mr. Murphy. And I am hoping that one of the outcomes of 
this hearing, Mr. Chairman, is that we hear from cases 
throughout the country. We have just got to fix this problem. 
It is hurting too many seniors and hurting the taxpayers. And I 
join my colleague from Colorado in saying when you have 
retailers, plaintiffs' attorneys, defense attorneys, those 
advocates of senior citizens all agreeing this has to be fixed, 
it is time to fix it. And I yield back my time. Thank you.
    Mr. Stearns. The gentleman yields back his time. We 
recognize the chairman emeritus of the Energy and Commerce 
Committee, Mr. Dingell from Michigan, for 5 minutes.
    Mr. Dingell. Mr. Matzus, the issues will be directed at 
you. It sounds like the Medicare Secondary Payer reimbursement 
process is lengthy, burdensome, and complex for beneficiaries 
and attorneys to navigate. Why doesn't Medicare pursue 
reimbursement from the primary payer directly?
    Mr. Matzus. Congressman Dingell, my hunch on that would be 
from a cost-efficiency standpoint, it is more cost effective 
for Medicare to recover money in a passive manner as opposed to 
direct intervention in pursuit of claims.
    Mr. Dingell. All right. Now, what happens if beneficiaries 
decide they don't want to pursue claims? For example, if an 89-
year-old woman broke her leg in a car accident and then decided 
not to file an insurance claim or pursue any other form of 
recompense, wouldn't Medicare then be stuck with all the bills 
without any form of reimbursement?
    Mr. Matzus. In practical reality----
    Mr. Dingell. That is a very real problem, isn't it?
    Mr. Matzus. It is.
    Mr. Dingell. All right. And I am sorry to hurry you, but 
time here is limited.
    It is my understanding from your testimony that if you are 
unable to reimburse Medicare until after the parties have 
reached a settlement, you have a Final Demand letter from CMS 
and those often take many months or even years to get. Is this 
is the case? Yes or no?
    Mr. Matzus. Yes.
    Mr. Dingell. OK. Now, what happens to the beneficiary's 
settlement money in the intervening time? Is the beneficiary 
able to access the money?
    Mr. Matzus. No.
    Mr. Dingell. In your experience from working on such cases, 
how long is the settlement money typically in limbo before 
Medicare is reimbursed?
    Mr. Matzus. A short period of time would be 3 or 4 months. 
A typical period of time is probably 6 to 9 months or longer.
    Mr. Dingell. Now, you and I are both attorneys and I am 
sort of curious. As a fellow attorney, how does this affect the 
attorney-client relationship?
    Mr. Matzus. It creates significant problems with the 
attorney-client relationship.
    Mr. Dingell. Now, the next question is to you again, Mr. 
Matzus, Mr. Salm, and Mr. Gilliam. Mr. Matzus, Mr. Salm, and 
Mr. Gilliam, has your business or other businesses similar to 
yours incurred additional costs as a result of lengthy and 
burdensome Medicare Secondary Payment reimbursement process? 
Yes or no?
    Mr. Salm. A big yes. Yes, we have.
    Mr. Dingell. OK. Mr. Matzus?
    Mr. Matzus. Yes.
    Mr. Dingell. Mr. Gilliam?
    Mr. Gilliam. Yes.
    Mr. Dingell. OK. Now, what effects have these costs had on 
your business? Starting with Mr. Salm, Mr. Gilliam, and then 
Mr. Matzus.
    Mr. Salm. The first effect we have had is we have spent 
hundreds of thousands of dollars in an attempt to get Medicare 
the data that they need in the workers' comp setting. The 
second effect it has had is delayed the resolution of liability 
claims while we have been waiting to figure out what Medicare's 
number is and get the money to Medicare. The longer a case 
stays open, the more the case costs somebody like Publix Super 
Markets and the slower it is to get to the beneficiaries.
    Mr. Dingell. So it hurts most everybody involved?
    Mr. Salm. Yes, it absolutely hurts the primary company like 
Publix, it hurts an insurance company like Cincinnati, it hurts 
the plaintiff's attorney, who is waiting to get his money and 
to deal with client, and of course it hurts the person that we 
are all talking about here, the beneficiary, because these are 
people who are waiting for their money in a liability claim 
situation.
    Mr. Dingell. All right. Mr. Gilliam, your additional 
comments?
    Mr. Gilliam. Yes, we have incurred hundreds of thousands if 
not millions, complying with this reporting manual trying to 
collect the data and keep it safe from hackers so we can report 
it. It so delays the claims settlement process, and at my 
company, we have a philosophy. We are in the claims-paying 
business. We like to speedily end claims. We don't like to have 
people upset that they are waiting, and the longer we have to 
keep a file open, the more it costs us and takes our adjusters 
away from handling current claims as they shepherd these old 
claims.
    Mr. Dingell. Mr. Matzus?
    Mr. Matzus. Congressman, more important than the costs to 
our firm are the costs and the financial consequences as well 
as the emotional consequences to Medicare beneficiaries. While 
putting more work and time into a case does increase our cost, 
most importantly, the significant costs by the delay are borne 
by the Medicare beneficiaries.
    Mr. Dingell. Thank you. Now, last question, gentlemen. What 
expectations do you have for the future if costs associated 
with Medicare Secondary Payment reimbursements remain the same 
or increase? In other words, what does the future hold if costs 
remain the same or increase? And don't be shy.
    Mr. Matzus. The nightmare continues and gets worse. We end 
up spending all of our time dealing with computers and being on 
the phone for an hour and a half when we could be helping 
people.
    Mr. Dingell. Now, we also have reason to think that it will 
probably increase over time, do we not? And that means there 
will be a multiplier effect take place, does it not?
    Mr. Gilliam. If they would simply start over and ask us 
what kind of data do we already collect, we might already have 
the data they want but they ask us to collect all this 
ridiculous data that doesn't really help them identify who owes 
them money. Talk to us about what we already have and maybe we 
already have it.
    Mr. Dingell. My time has expired and I thank the chair for 
it, but would you each submit to us for purposes of the record 
your suggestions about what should be done to correct this 
intolerable situation and to make it better from your 
standpoint, from the standpoint of the patients and the 
beneficiaries, and from the standpoint of the government, if 
you please.
    And I would ask, Mr. Chairman, that the record remain open 
for that purpose.
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    Mr. Stearns. All right. The gentleman's request is obliged 
with. And the gentleman from Georgia, Mr. Gingrey, is 
recognized for 5 minutes.
    Mr. Gingrey. Mr. Chairman, thank you.
    Mr. Matzus, you had, in responding to Mr. Dingell in regard 
to the amount of time, the so-called limbo period I think you 
said 3 to 4 months but typically 6 to 9 months, let us 
reference a medical malpractice tort case where there is a 
settlement or a judgment in fact. During that period of time, 
that limbo period, who actually controls the proceeds?
    Mr. Matzus. The proceeds are typically provided to the law 
firm, the plaintiff's law firm, and the money is held in the 
plaintiff's firm's escrow account.
    Mr. Gingrey. All right. And thank you for that answer. So 
the money is controlled during that limbo period by plaintiff's 
attorney, by the law firm. And you say it is placed in escrow. 
Are there limitations in regard to what you can do with that 
escrow account? Let us say can you put it in a money market 
fund? Can you put it in a local bank? And if there is interest 
generated on that money during that interim, who does that 
interest go to? Does it go to the plaintiff, the injured party, 
or does it go the law firm?
    Mr. Matzus. It goes to neither as I understand it.
    Mr. Gingrey. Well, who does it go to? Does it go to 
charity?
    Mr. Matzus. If there is interest occur, that is a good 
question, I don't exactly know. Typically, if the money is held 
in a client-on-trust account, the interest would, I guess, 
ultimately in the aggregate go to the particular State's Client 
Trust program.
    Mr. Gingrey. Well, in my humble opinion, I would think it 
should go to the injured party, to the plaintiff ultimately.
    Mr. Matzus. I agree.
    Mr. Gingrey. Let me ask this question of Ms. Stein.
    You are an advocate for Medicare beneficiaries and we 
appreciate that. In regard to this requirement to pay back 
Medicare for the cost that they have incurred and this 
subrogation requirement that is in the law, if the injured 
party is still living and it has been 2 years later that they 
get this demand letter from Medicare, does Medicare have the 
authority within the law to put a lien on Social Security 
benefits as an example if that happens to be their only asset?
    Ms. Stein. Yes, they could actually begin to deduct money 
from the Social Security benefits.
    Mr. Gingrey. And if the individual is deceased by the time 
they get the demand letter, the lien would be against their 
estate if they have any value there?
    Ms. Stein. Yes, I believe that is the case.
    Mr. Gingrey. All right, thank you. Let me ask one quick 
question of everybody. We heard Ms. Taylor testify that CMS 
does provide Medicare Secondary Payment reimbursement amount in 
a timely manner. However, the testimony of this panel, the four 
of you seem to contradict that statement. Let me just ask you 
one by one starting with Mr. Salm. Does CMS consistently 
provide the amount owed to Medicare in a timely fashion before 
the case is settled, yes or no?
    Mr. Salm. No. They can't. The regulations prohibit them 
from giving us the final payout amount before the case is 
settled.
    Mr. Gingrey. Do they provide you--I will add to is--a 
reasonable estimate of what the costs are?
    Mr. Salm. They provide a conditional payment letter. The 
time that it takes to get the conditional payment letter ranges 
between--for a party like mine--never and 6 months. But we make 
an awful lot of requests for these and they frequently respond 
back we have no record of this file.
    Mr. Gingrey. And again, I wanted all of you to answer this 
and I am expanding the question a bit. But if they make an 
estimate, would it be reasonable to say that then the maximum 
amount that they could eventually recover would be within a 
certain percentage point above that estimate and no more?
    Mr. Salm. I think that is fair.
    Mr. Gingrey. Let us go ahead, Mr. Gilliam.
    Mr. Gilliam. We never get timely numbers. I don't know of 
any instance where we got a timely number. I think Ms. Taylor 
talked about 65 days. If they gave us a number at 65 days, we 
would be dancing in the street and back home in Cincinnati and 
not here in Washington.
    Mr. Gingrey. Mr. Matzus?
    Mr. Matzus. The CPL letters, the conditional payment 
letters, are not generally provided timely within the 65-day 
period. In regard to your last point about if Medicare was 
limited in the amount that they could recover by percentage 
above the figure in the CPL, that would be very, very helpful. 
Currently, there is no such limitation. So from a practical 
perspective, the CPL number is meaningless because it is not a 
final number.
    Mr. Gingrey. Right. And finally, Ms. Stein?
    Ms. Stein. I agree. I think that it would extremely helpful 
to limit it. I think it would also help in closing cases in a 
timely manner. So, again, when claims aren't properly 
segregated, individuals aren't receiving notices, you know, 10 
years later or they are not able to access Medicare coverage 
because there has been a lien against them.
    Mr. Gingrey. Right, thank you.
    Thank you, Mr. Chairman, for your patience with us.
    Mr. Stearns. Well, thank you. And I just want to follow up 
with what you had indicated. Actually, this Mother Jones 
article, Ms. Coury, who got into an automobile accident in 
1995, Medicare actually confiscated her Social Security check 
of $498 in 2002, so she was 88 years old and Medicare came in 
and confiscated it for 3 years until she repaid more than 
$16,000, her settlement minus some legal fees. So I mean that 
is an egregious example.
    In closing, I just want to put into the record--I have in 
my hand MSP demands for $1.59, $2.81, and $4.82. I ask 
unanimous consent that they be made part of the record.
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    Mr. Stearns. And Mr. Salm, is this a frequent instance of 
where Medicare is spending, you know, 43 percent of its time 
for pursuing 2 percent of its dollars?
    Mr. Salm. It is impossible for me to tell how frequent it 
is given the difficulty of collecting information, but I have 
additional claims with me for $36.75, $42.50, $44.83, and I 
think the biggest one I have is $69.62. When you consider that 
there is $1 billion at stake, it seems to me that this is not a 
good use of our government's time.
    Mr. Stearns. On the $36, how long did it take?
    Mr. Salm. I can't tell you. I am sorry.
    Mr. Stearns. Yes, OK.
    Mr. Gilliam. Mr. Chairman, if I could jump in, we have a 
claim that we have been waiting for 14 months for Medicare to 
accept our payment of $16.54.
    Mr. Stearns. $16?
    Mr. Gilliam. Yes. We have called them. We have written 
them, and so 14 months later, a file is still open waiting for 
a release from Medicare and they haven't even cashed our check 
for $16.54.
    Mr. Stearns. I wonder why they haven't cashed your check? 
Part of the bureaucracy.
    Mr. Matzus, is this sort of typical of the frequency? Or 
how frequent does this occur in your litigation?
    Mr. Matzus. It doesn't occur in our litigation.
    Mr. Stearns. Do you have your mic on? It doesn't occur?
    Mr. Matzus. It doesn't occur----
    Mr. Stearns. OK.
    Mr. Matzus [continuing]. In our practice.
    Mr. Stearns. OK. Ms. Stein, is this----
    Ms. Stein. Mostly the clients that call us tend to have 
Medicare claims higher amounts, above $5,000, but we did have a 
case recently that was $35.
    Mr. Gilliam. And to make you more angry, 24 months for a 
$91 payment. We are waiting 24 months.
    Mr. Stearns. Twenty-four months for a $91 payment.
    Mr. Gilliam. To be accepted.
    Mr. Stearns. Wow. Well, I think we have finished our 
hearing.
    Ms. DeGette, is there anything you would like to add?
    With that, I think we will close the hearing. I want to 
thank you for your forbearance, for waiting as the second 
panelists. I think clearly this agency, Medicare, has not 
worked well with the Secondary Payment and we, as Members of 
Congress, are going to have a second hearing if possible on 
this, and we look forward to trying to solve these problems. 
And thank you for your interest.
    [Whereupon, at 12:26 p.m., the subcommittee was adjourned.]
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