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

       IS GOVERNMENT ADEQUATELY PROTECTING TAXPAYERS FROM MEDICAID FRAUD?

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

                                 JOINT HEARING

                                   before the

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

                                    and the

                      SUBCOMMITTEE ON REGULATORY AFFAIRS,
                   STIMULUS OVERSIGHT AND GOVERNMENT SPENDING

                                     of the

                             COMMITTEE ON OVERSIGHT
                             AND GOVERNMENT REFORM

                            HOUSE OF REPRESENTATIVES

                          ONE HUNDRED TWELFTH CONGRESS

                                 SECOND SESSION

                                   __________

                                 APRIL 25, 2012

                                   __________

                               Serial No. 112-151

                                   __________

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

             Available via the World Wide Web: http://www.fdsys.gov
                          http://www.house.gov/reform

                                   ----------

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    74-889 PDF                       WASHINGTON : 2012

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                  COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

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

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

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

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

     Subcommittee on Regulatory Affairs, Stimulus Oversight and Government
                                    Spending

                           JIM JORDAN, Ohio, Chairman
    ANN MARIE BUERKLE, New York, Vice    DENNIS J. KUCINICH, Ohio, Ranking
        Chairwoman                           Minority Member
    CONNIE MACK, Florida                 JIM COOPER, Tennessee
    RAUL R. LABRADOR, Idaho              JACKIE SPEIER, California
    SCOTT DesJARLAIS, Tennessee          BRUCE L. BRALEY, Iowa
    FRANK C. GUINTA, New Hampshire
    MIKE KELLY, Pennsylvania

                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on April 25, 2012...................................     1

                                   WITNESSES

    The Honorable Charles E. Grassley, a U.S. Senator from the State
      of Iowa
        Oral Statement...............................................     2
    The Honorable Michele Bachmann, a Representative in Congress from
      the State of Minnesota
        Oral Statement...............................................     4
        Written Statement............................................     6
    Gabriel E. Feldman, M.D., Local Medical Director for the Personal
      Care Services Program, New York City
        Oral Statement...............................................    15
        Written Statement............................................    18
    Christine Ellis, D.D.S., M.S.D., Orthodontist, University of
      Texas Southwestern Medical Center
        Oral Statement...............................................    25
        Written Statement............................................    28
    David Feinwachs, M.H.A., M.A., J.D., PH.D., Former General
      Counsel, Minnesota Hospital Association;
        Oral Statement...............................................    36
        Written Statement............................................    38
    Ms. Claire Sylvia, J.D., Partner, Phillips & Cohen, LLP
        Oral Statement...............................................    46
        Written Statement............................................    48
    Ms. Lucinda Jesson, J.D., Commissioner, Minnesota Department of
      Human Services
        Oral Statement...............................................    71
        Written Statement............................................    74
    Ms. Cindy Mann, J.D., Director, Center for Medicaid and State
      Operations, Centers for Medicare and Medicaid Services
        Oral Statement...............................................    90
        Written Statement............................................    93
    Ms. Carolyn L. Yocom, Director, Health Care, U.S. Government
      Accountability Office
        Oral Statement...............................................   106
        Written Statement............................................   108

                                    APPENDIX

    The Honorable Dennis J. Kucinich, a Member of Congress from the
      State of Ohio, Subcommittee on Regulatory Affairs, Stimulus
      Oversight and Government Spending, written statement...........   137
    Mr. David Feinwachs, Attorney and Counselor at Law, submittance
      of responses to additional questions to Chairmen Gowdy and
      Jordan.........................................................   139
    Levy, Phillips and Konigsberg, LLP, responses to the supplemental
      questions posed in connection with Chairman Issa's letter......   145
    Ms. Carolyn L. Yocom, responses to the questions posed by The
      Honorable Trey Gowdy...........................................   152
    Ms. Cindy Mann, responses to the questions posed The Honorable
      Trey Gowdy and The Hoonorable Jim Jordan.......................   154

       IS GOVERNMENT ADEQUATELY PROTECTING TAXPAYERS FROM MEDICAID FRAUD?

                                  ----------

                           Wednesday, April 25, 2012

                      House of Representatives,
                 Subcommittee on Health Care, District
                 of Columbia, Census, and The National
                 Archives, joint with the Subcommittee
                       on Regulatory Affairs, Stimulus
                     Oversight and Government Spending,
                  Committee on Oversight and Government Reform,
                                                       Washington, D.C.
        The subcommittees met, pursuant to call, at 9:37 a.m., in
    Room 2154, Rayburn House Office Building, Hon. Jim Jordan
    [chairman of the Subcommittee on Regulatory Affairs, Stimulus
    Oversight and Government Spending] presiding.
        Present from Subcommittee on Health Care, District of
    Columbia, Census, and The National Archives: Representatives
    Gowdy, Gosar, DesJarlais, Davis, and Murphy.
        Present from Subcommittee on Regulatory Affairs, Stimulus
    Oversight and Government Spending: Representatives Jordan,
    DesJarlais, Kucinich, and Speier.
        Also Present: Representatives Issa, Burgess, Cummings,
    Ellison, Cravaack and McCollum.
        Staff Present: Michael R. Bebeau, Majority Assistant Clerk;
    Brian Blase, Majority Professional Staff Member; Molly Boyl,
    Majority Parliamentarian; Drew Colliatie, Majority Staff
    Assistant; John Cuaderes, Majority Deputy Staff Director; Adam
    P. Fromm, Majority Director of Member Liaison and Floor
    Operations; Linda Good, Majority Chief Clerk; Tyler Grimm,
    Majority Professional Staff Member; Christopher Hixon, Majority
    Deputy Chief Counsel, Oversight; Sery E. Kim, Majority Counsel;
    Mark D. Marin, Majority Senior Professional Staff Member; Tegan
    Millspaw, Majority Research Analyst; Mary Pritchau, Majority
    Professional Staff Member; Laura L. Rush, Majority Deputy Chief
    Clerk; Jaron Bourke, Minority Director of Administration;
    Yvette Cravens, Minority Counsel; Ashley Etienne, Minority
    Director of Communications; Susanne Sachsman Grooms, Minority
    Chief Counsel; Devon Hill, Minority Staff Assistant; Jennifer
    Hoffman, Minority Press Secretary; Carla Hultberg, Minority
    Chief Clerk; Adam Koshkin, Minority Staff Assistant; Una Lee,
    Minority Counsel; Suzanne Owen, Minority Health Policy Advisor;
    Rory Sheehan, Minority New Media Press Secretary; and Safiya
    Simmons, Minority Press Secretary.
        Mr. Jordan. All right, the Committee will come to order. We
    are pleased today to have a hearing on, Is Government
    Adequately Protecting Taxpayers from Medicaid Fraud? We are
    excited about our first panel, two individuals who worked
    tirelessly on this issue and a host of issues. True great
    public servants. We are glad to have the Senator from Iowa, Mr.
    Grassley, with us today. We will start with him and then
    followed by Representative Bachmann from Minnesota's 6th
    District.
        Senator, take all the time you want, and the floor is
    yours.

                          WITNESSES STATEMENTS

             STATEMENT OF THE HONORABLE CHARLES E. GRASSLEY

        Senator Grassley. Well, I appreciate very much the
    opportunity to be here and to be with the famous congresswoman
    from Minnesota. And thank you for this very important work you
    are doing to help measure this along and get our money's worth
    out of Medicaid and other programs.
        I appreciate the opportunity to be invited. I will have a
    very long statement, but I have a shorter statement, so I hope
    my entire statement will be put in the record.
        Mr. Chairman, members of the Committee, for over 10 years
    the Federal and State government in the future will be spending
    roughly $7 trillion in combined dollars to run Medicaid
    programs. A very significant percentage of the Medicaid program
    will be run through what is called managed care.
        Essentially, the States will take the Federal dollars that
    they receive, merged with their own dollars, and hand them over
    to a third party, a managed care company, to provide services
    for Medicaid beneficiaries. The Federal Government has
    encouraged States to do so, and certainly the current trend is
    for more and more managed care.
        It is also Federal policy that States are supposed to
    conduct due diligence and oversight by knowing where Medicaid
    dollars are being spent. And CMS, likewise, is supposed to
    confirm that States are properly overseeing where the Medicaid
    dollars are being disbursed.
        In August 2010, the Government Accountability Office issued
    a report that highlights the inconsistency of CMS's oversight
    of State rate setting. My ongoing investigation into Federal
    and State oversight of managed care contracting leaves me
    gravely concerned that accountability is severely lacking in a
    program that is spending $7 trillion of combined Federal and
    State taxpayer dollars
        Today this hearing will focus largely on what has occurred
    in the State of Minnesota. There are allegations that the
    States systematically overpaid managed care companies to cover
    Medicaid beneficiaries while underpaying the same plans for
    coverage of individuals paid for with State-only dollars. This
    appears to be another example of the old game of States pushing
    the bounds to maximize Federal dollars received while
    minimizing State dollars spent.
        If that isn't bad enough, when one of the plans tried to
    return the overpayment, documents show that the State schemed
    to keep the Federal Government from receiving its share of
    overpaying to one specific company, UCare. My investigation has
    turned up troubling questions that I am very pleased your
    committee will be able to explore further with relevant
    witnesses today.
        Lucinda Jesson, of the State of Minnesota, has very
    difficult questions to answer, and some of these questions are:
        So, was the State systematically overpaying managed care
    plans on Medicaid while underpaying the same plans to provide
    care for individuals covered by State-only dollars?
        Documents show that at least once before a managed care
    company returned funds in 2003. So, how long has systematic
    overpayment been occurring in Minnesota?
        Documents from the four plans in Minnesota prove that each
    one consistently showed excess revenues derived from Medicaid
    while showing losses to State-only plans. So, was the State
    aware of this disparity?
        And while the State now trumpets the fact that they collect
    repayments for excess revenue over 1 percent, so does the State
    have any auditing mechanism in place to confirm that the
    amounts reported by the managed care companies are accurate?
        Cindy Mann of CMS also has some very difficult questions to
    answer. In 2010, the Government Accountability Office raised
    significant questions about CMS's oversight of rate setting.
    So, what have you done, Ms. Mann, to assure beneficiaries and
    taxpayers that rates are being appropriately set?
        In your March 21, 2011, letter to the State of Minnesota,
    you ask, ``If the State included reserve fund requirements in
    calculating actuarially sound managed care rates``? So, isn't
    it the job of CMS to actually know that answer?
        So, what assurance can you give us that what has gone on in
    Minnesota has not gone on all over the United States?
        Mr. Chairman and Mr. Chairman, my investigation should not
    be interpreted as questioning the role of managed care in
    Medicaid. Quite to the contrary. I think having a risk-based
    outcome-driven role for managed care in Medicaid has tremendous
    potential to produce high-quality care to Medicaid
    beneficiaries. However, for this to happen, CMS and the States
    have to live up to their responsibilities in overseeing
    contracts with managed care.
        So, in closing, Mr. Chairman, while my investigation is
    ongoing, one specific solution is fairly clear to me: States
    should be required to know the medical loss ratio of every
    managed care company they contract with specific to the
    Medicaid beneficiaries they serve. That medical loss ratio
    should be clearly defined by CMS and consistently implemented
    across every State that uses managed care. That medical loss
    ratio should be based on independently audited, verifiable
    encounter data and expense data.
        That medical loss ratio should make clear what
    administrative expenses are related to the provision of
    Medicare benefits and what administrative expenses are not.
    That medical loss ratio should be transparent for CMS, the
    States, and the public to see.
        So, let me be very clear. I do not support a federally-
    defined minimum threshold for medical loss ratio that requires
    all plans below a certain threshold to refund dollars. Instead,
    I believe the purchasers, in this case the States, using
    transparent information about how their dollars are being
    spent, are best suited to make decisions about the value
    provided for managed care companies.
        We have legitimate disagreements about many issues in
    Congress, but on this issue it seems to me there can be no
    disagreement. We must have a better understanding of where $7
    trillion will be spent over the next period by Medicaid
    programs.
        Thank you.
        Mr. Jordan. Thank you, Senator, for your good work and for
    your testimony. Your entire written statement will be made part
    of the record.
        Before recognizing the gentlelady, I would ask unanimous
    consent that Mr. Burgess, Mr. Cravaack, Ms. McCollum, and Mr.
    Ellison be allowed to participate in today's hearing. Without
    objection, so ordered.
        The gentlelady from Minnesota, where some of this activity
    took place, is now recognized for as long as she would like to.
        Senator Grassley. Mr. Chairman, I want to go because we
    have an oversight hearing with the Secretary of Homeland
    Security and I have a lot of questions I want to ask him.
        Mr. Jordan. We understand. Go ask your questions, Senator.
    Thanks for being with us.
        The gentlelady from Minnesota is recognized.

              STATEMENT OF THE HONORABLE MICHELE BACHMANN

        Ms. Bachmann. Good morning. Thank you, Chairman Jordan and
    Ranking Member Kucinich. Thank you, also, Chairman Gowdy and
    also Ranking Member Davis. It is a privilege to speak before
    the Committee today.
        It was about a year ago when my office became aware that
    there was a problem going on in Minnesota. We actually had
    providers contacting our office and telling us they were not
    receiving the amounts of money under Medicaid, their
    reimbursements, they thought they were being due and, as a
    result, they were no longer taking Medicaid patients. So poor
    people in Minnesota who deserved and needed the Medicaid help
    weren't able to receive it anymore.
        We began looking into the issue and we were shocked at what
    we found. What we found is that in the last 20 years there had
    been no verifiable, independent, third-party audit done of
    Medicaid money. This is unbelievable. There were audits
    conducted on Medicare money, but not under Medicaid money.
        We started to look a little further. We investigated and we
    found this isn't just a Minnesota problem; this is a problem
    that appears to be happening all across the Country, that CMS,
    at the Federal level, which is tasked with auditing and
    supervising how the Medicaid monies are spent throughout all 50
    States, has been remiss in doing their job on two counts:
    number one, we found there was no verifiable data, no standards
    of data, of meaningful data that CMS could look at to see if
    the charges that the Federal Government was being charged were
    even legitimate. So there wasn't any decent data, so to speak,
    to look at to see if the monies were spent right. But, number
    two, there weren't any independent third-party audits.
        Now, let me just give you an example. And I should ask,
    first, that the Committee would receive my testimony in its
    written form that I presented for you today. I am just giving
    you my off-the-cuff remarks right now.
        Probably an analogy would be if anyone would go to a
    grocery store and buy a grocery cart full of food, they would
    go up to the grocery store counter, they would run it all
    through the scanner, and then the grocery store clerk would
    say, ``I would like to have $150 for your groceries.'' And you
    would write out the check, hand it to the person at the
    counter, and then you would say, ``I would like my grocery tab,
    I would like to have my receipt so I can know if you charged me
    for three cans of peas or one can of peas''; and they would
    say, ``Well, we are not going to give you the grocery tape.''
    In other words, we are not going to itemize what it is that you
    owe.
        So it appears that maybe a game has been played where
    managed care organizations can charge virtually anything they
    want for any expense they want because there is no one to make
    sure that the organizations are charging what they will.
        And that brings us to the fact that Senator Grassley
    brought up, that over the next 10 years $7 trillion will be
    spent on this program. Now, if we don't have an accurate pulse
    on where this money is going today, under the new rules under
    ObamaCare, which is coming forward, in my State of Minnesota
    alone, Medicaid will expand 21 percent. If we have no
    accountability, no transparency of these monies, then what will
    we do when it is 21 percent more?
        We are a relatively small population in Minnesota; we are
    less than 5 million people. Imagine how that would translate in
    a highly populated State such as California or New York or
    Illinois or Florida. This is something that has to end, because
    we know the budget constrictions that we are up against. This
    isn't way off in the future; this is in the near term. And the
    people who will be most at risk in the future, I believe, will
    be poor people who are in need of Medicaid money. For them we
    need to have accountability.
        And that is why, in the coming weeks, I will be introducing
    the Medicaid Integrity Act of 2012. This is not a partisan
    issue in any way; this is a complete bipartisan issue. Both
    Democrats and Republicans believe in accountability. We believe
    in transparency. We all want to make sure that the patients get
    the care they deserve and that providers get the reimbursements
    they deserve so that we can continue this program.
        If we are to have any hope of having a viable program going
    forward, we have to have standards and we have to have
    accountability. This is something we can all agree, both
    chambers, Senate and House, both Republicans and Democrats, and
    I intend to reach out to my Democrat colleagues across the
    aisle because this is not partisan in any way; this is about
    making sure we all carefully watch over the taxpayers' money.
        And I thank the Committee.
        [Prepared statement of Ms. Bachmann follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Jordan. I want to thank the gentlelady for her hard
    work on this issue and a host of others, and for being here and
    testifying. And, as I said, we will make your full statement
    part of the record.
        Ms. Bachmann. Thank you, Mr. Chairman.
        Mr. Jordan. Now we will get ready for our second panel. So
    if we can just take a short little break here while the
    Committee staff prepare the table for our next set of
    witnesses.
        [Pause.]
        Mr. Jordan. We will be back in order here. I want to thank
    our witnesses. We will swear you in here just a second, but you
    know the typical routine is you have to listen to us talk for a
    few minutes. That is the way we do things. And today, because
    it is a joint hearing, you have to listen to four of us talk.
    But we will get to you as quickly as we can. So we will do our
    opening statements.
        Today's hearing focuses on the serious problem of waste,
    fraud and abuse, and mismanagement in the Medicaid program.
    These problems are not new. In fact, in 1982, the House Select
    Committee on Aging issued a report concluding that ``State
    enforcement of the Medicaid program has been an unmitigated
    disaster.'' Unfortunately, 30 years later, government's ability
    to safeguard taxpayer money in Medicaid is still an unmitigated
    disaster, but the actual dollar amount of waste, fraud, and
    abuse is much, much greater.
        Over the past 20 years, Federal Medicaid spending has grown
    from $75 billion to $450 billion a year. And as our witnesses
    in the first panel indicated, it is slated to be $7 trillion
    over the next decade. No one knows how much this spending
    consists of waste, fraud, and abuse, but it may exceed $100
    billion each year.
        As Americans struggle to pay their bills and make ends
    meet, the Federal Government borrows 40 cents of each dollar it
    spends. Fraudsters are collecting tens of billions of dollars
    from Medicaid every year.
        At the root of all the waste, fraud, and abuse is the open-
    ended Federal reimbursement of the Medicaid program. If the
    typical State identifies and recovers $1 of fraud or abuse in
    its program, it only keeps about 40 cents. Rather than
    protecting taxpayer dollars, the Federal reimbursement
    encourages each individual State to grow their programs
    unsustainably. When most States behave in this manner, there is
    waste, fraud, and abuse on a massive scale.
        Most States employ a contingency fee to consultants to
    figure out how to maximize Federal Medicaid money. Rather than
    focusing on improving efficiency of the State programs, these
    consultants, who are highly compensated out of the funds that
    are supposed to go to the poor, as Representative Bachmann
    indicated, many poor were left untreated because of the
    situation in Minnesota, they spend their time figuring how to
    make Federal taxpayers pay for State spending.
        For example, what we have learned about Minnesota's
    Medicaid program suggests that there is a new and creative way,
    a State scheme, to maximize Federal dollars. Information
    obtained through Senator Grassley's investigation shows that
    Minnesota's insurance companies were making large profits on
    Medicaid. One of the witnesses at today's hearing, David
    Feinwachs, has independently obtained information that shows
    the State was deliberately inflating Medicaid rates in order to
    leverage the Federal reimbursement.
        In response to this controversy, Minnesota's governor has
    admitted that past contracts between the State and the
    insurance companies were ``too generous with taxpayer money.''
    The response to this is, of course, you have been too generous
    with taxpayers' money, but how long has this been going on and
    what are you going to do about it? And how many other States
    are in on the same game?
        GAO and the IG have made numerous recommendations to
    improve program oversight. Regrettably, many of their
    recommendations have been ignored by CMS.
        Today's hearing will shed light on some of the flagrant
    examples of waste, fraud, abuse, and mismanagement in the
    program. It is both shocking and disheartening that the
    Government failed to catch any of these cases. If it were not
    for the work of whistleblowers and investigative reporters, CMS
    may never have uncovered the problem.
        At a more fundamental level, when a program becomes as big
    and complex as the Medicaid program, waste, fraud, and abuse
    are inevitable. The magnitude of taxpayer dollars wasted
    through Medicaid signifies the need for policymakers to
    immediately reform the program. Our Nation's limited tax
    resources must be targeted at individuals who genuinely need
    the public assistance, and cannot be used to provide huge
    windfall profits for large insurance companies and corporate
    dental practices, as took place in Texas.
        Tragically, for both taxpayers and individuals who
    genuinely need public assistance, ObamaCare does not reform the
    Medicaid program; rather, it expands it by 20 million people
    and by nearly $1 trillion over the next 10 years, as
    Representative Bachmann pointed out. It also contains a feature
    that will undoubtedly make waste, fraud, and abuse in the
    program much worse. And as a sweetener to the States, ObamaCare
    makes the Federal Government reimburse at least 90 percent of
    State spending on newly eligible populations. It does not take
    an expert to realize that State manipulation of the Federal
    Medicaid reimbursement will become much worse.
        While today's hearing will shed light on problems in the
    current program, I expect it will also provide some insights on
    a better way forward for the Medicaid program.
        With that, I would yield to the gentleman from Ohio, the
    Ranking Member, Mr. Kucinich.
        Mr. Kucinich. Thank you very much, Chairman Jordan,
    Chairman Gowdy, for holding this hearing.
        According to Harvard University scholar Malcolm Sparrow,
    the health care industry's complexity and volume of health care
    payments presents a business opportunity for a few bad actors
    suitably placed to steal hundreds of millions of dollars from
    Medicare and Medicaid.
        The Government Accountability Office estimates that in 2010
    Medicare and Medicaid made about $70 billion in improper
    payments. Improper payments include overpayments,
    underpayments, and fraudulent payments. Fortunately, the Center
    on Medicare and Medicaid Services, under Director Cindy Mann,
    and the U.S. Department of Justice are taking the threat of
    health care fraud very seriously.
        CMS has moved quickly and aggressively to stand up its
    Office of Medicaid Program Integrity, utilize high speed
    computing and data analysis to identify patterns of fraudulent
    billing in real time, and adapt to Medicaid's successful anti-
    fraud initiatives developed to deal with Medicaid.
        The Department of Justice has increased health care fraud
    prosecutions since fiscal year 2008 by nearly 75 percent. In
    fiscal year 2011, DOJ and the Department of Health and Human
    Services recovered a record $4.1 billion from health care fraud
    statements and settlements. Almost $600 million of that came
    from Medicaid anti-fraud efforts.
        The Affordable Care Act made a significant contribution to
    Federal anti-fraud efforts both in terms of increased resources
    and authority to enhance oversight and screening measures,
    clarifying law enforcement access to claims and payment data,
    and expanding key anti-fraud programs to Medicaid, among other
    things.
        But Federal anti-fraud efforts face a number of threats. At
    this very moment, the U.S. Supreme Court is considering
    striking down the Affordable Care Act. If they do, aggressive
    Federal anti-fraud activities authorized and financed by the
    Act will be compromised.
        The House Republican budget also targeted the Affordable
    Care Act, calling for its repeal and banking on cuts of $106
    billion in new Medicaid spending created by the law. The budget
    also would change the financing of Medicaid to block grants,
    which would lead the States to manage all aspects of Medicaid,
    including the bulk of anti-fraud efforts.
        As one health care fraud expert testified to the Senate
    last year, health care fraud is an exceptionally complex crime.
    The perpetrators of this crime have proven themselves to be
    creative, nimble, and aggressive. Therefore, investing in and
    employing the most effective fraud prevention and detection
    techniques is critical to achieving success.
        That level of investment can only come from the Federal
    Government. Today, Federal Medicaid, the Inspector General for
    the Department of Health and Human Services, and Justice
    Department prosecutors are mounting anti-fraud efforts with
    more success than ever before. Yet, unfortunately, my friends
    on the other side of the aisle have a budget and we have a U.S.
    Supreme Court which poses great threat to the continued
    existence and development of initiatives that would actually
    help to cut fraud.
        So, with that, respectfully, I yield back.
        Mr. Jordan. I thank the gentleman for this statement.
        We will now yield to the Chairman of the Subcommittee, the
    gentleman from South Carolina, Mr. Gowdy.
        Mr. Gowdy. Thank you, Mr. Chairman.
        More than $450 billion will be spent on the Medicaid
    program this year and, for context, there are only two
    companies in the world that have larger worldwide revenue than
    Medicaid's budget.
        Medicaid spending is actually 40 percent larger than the
    entire economy for a country we have heard a lot about lately,
    Greece.
        So, Mr. Chairman, while it is hard to quantify with
    certainty, some experts believe waste, fraud, and abuse
    constitute more than $100 billion a year. And as we see time
    after time after time, we are all too willing to overlook the
    waste of other people's money more so than we would if the
    money were our own.
        I actually prefer a little different perspective. I think
    we should zealously protect the public treasury because the
    money was collected as part of a sacred trust. And as the money
    flees, Mr. Chairman, due to waste, fraud, mismanagement, or
    simply because we just don't seem to care, so too goes trust in
    the institutions of government.
        Problems within Medicaid's Federal and State Medicaid
    partnership are the focus of today's hearing. We will hear from
    expert witnesses with firsthand knowledge of how the government
    is failing to prevent waste, fraud, and abuse in the program.
    Specifically, there will be witnesses who will share testimony
    regarding problems in New York's Medicaid home health program,
    Minnesota's Medicaid managed care program, and Texas's Medicaid
    dental program. We will examine how these problems occurred,
    why they remained undetected for so long, and whether States or
    local jurisdictions were complicit in the fraud and abuse.
        But if all we do, Mr. Chairman, is have yet another hearing
    where we perform an autopsy on some program or initiative that
    failed, we are not doing our jobs. Something concrete must come
    from this. Accountability for fraud in the form of license
    revocations, debarment, indictments, restitution, seem to me to
    be an appropriate place to start.
        When problems are identified, the people we are supposed to
    work for expect corrective measures to be taken immediately.
    When money is mismanaged, the people we work for expect us to
    seek a full recovery, not settling for cents on the dollar.
    When a fraud is suspected, the people we work for do not
    understand why it takes multiple prompts to see any real action
    taken and, frankly, Mr. Chairman, neither do I.
        I lived in Texas for four years, Mr. Chairman, and I
    absolutely love that State. But it doesn't, or shouldn't, take
    an IG investigation to notice more money was being spent on
    orthodontia in Texas than the rest of the States combined.
    Either people are gaming the system or there is some genetic
    malady which leads to more crooked teeth in Texas than the rest
    of the Country put together. And I highly suspect it is the
    former and not the latter.
        Which leads to this question, Mr. Chairman: Has the money
    been paid back? Do we know how this occurred? Or is it just
    another exhibit in the trial entitled this is what you get when
    give perverse incentives to spend more, you talismanically get
    more spending.
        In New York City, the city failed to comply with State and
    Federal regulations and unlawfully enrolled thousands of people
    in a Medicaid personal care service's program without regard to
    their need for the program. The statistical expert hired for
    the lawsuit estimated the total damages caused by the City's
    conduct were between $1 billion and $3 billion. And this total
    included only the fraud in one relatively small program in New
    York City's enormous Medicaid budget.
        Over the past 10 years, Mr. Chairman, the Inspector General
    for the Department of Health and Human Services has conducted
    19 audits. Ten of the 19 audits and 5 of the 6 audits with the
    largest findings, each of which exceeded $170 million in
    improper State receipts of Federal Medicaid dollars, were the
    result of problems in just one State, New York.
        So, Chairman Jordan, it strikes me that we can keep doing
    autopsies once the patient is dead to confirm what we already
    know, or we can practice preventive medicine. And the way to
    practice preventive medicine is to put everyone on notice,
    State officials, service providers, customers, and especially
    those who seek to take advantage of the generosity of our
    fellow citizens, that there will be consequences.
        This is not a game to see how much money we can get from
    the Federal Government to run our State; this is a program
    designed to provide a safety net for the poor and the disabled.
    If you abuse this safety net and turn it into a trampoline, you
    will be prosecuted, barred from participating, and exposed as a
    fraud. Perhaps then we will have fewer hearings on what went
    wrong.
        Mr. Jordan. I thank the gentleman. Spoken like a
    prosecutor. We appreciate that opening statement.
        The gentleman from Illinois, the Ranking Member of the
    Subcommittee, is recognized, Mr. Davis.
        Mr. Davis. Thank you very much, Chairman Jordan, Chairman
    Gowdy, and Ranking Member Kucinich for holding this hearing.
        Making sure that laws are carried out the way we intended
    for them to be carried out and making sure that money spent is
    spent the way we intended for it to be spent are great parts of
    our responsibilities as members of Congress.
        Reducing health care fraud is a policy shared by both
    Democrats and Republicans. We must be vigilant in locating
    potential waste of precious Federal dollars. The amount of
    Federal dollars expended for managed care make oversight and
    limiting abuses of Federal dollars critically important.
        Medicaid is a complex, high risk designated program, and I
    want to take this opportunity to encourage CMS to fully utilize
    all of the tools provided for in the Affordable Care Act. I am
    certain that these advancements will be invaluable to program
    integrity and have already begun to show great promise.
        I am encouraged by the Federal efforts to stop fraud in the
    Medicare and Medicaid programs. Last year, the Government
    recouped more than $4 billion. Between 2009 and 2011, the
    Federal Government recovered more than $7 for every $1 spent on
    fraud prevention and recovery activities. The return on
    investment is about $2 higher than the historical average, and
    increased coordination between the State and Federal
    Governments will yield even greater results.
        Yes, we want to ensure that every dime designated for
    beneficiaries, the elderly, the disabled, and the children, is
    spent exactly where it was intended to be spent, how it was
    intended to be spent, and for the purposes which it was
    intended to be spent.
        So I want to thank our panel of witnesses that have come
    today to share issues related to their State programs. I
    appreciate your presence and I am certain that at the end of
    this hearing and other inquiries we will find a way to make
    sure that waste, fraud, and abuse is rooted out of these
    valuable programs and exist only to a minimum.
        So I thank you, Mr. Chairman, and yield back.
        Mr. Jordan. I thank the gentleman for his statement.
        We now yield time to the gentlelady from Minnesota, Ms.
    McCollum. We have a couple of Minnesota members with us and Ms.
    McCollum has asked to make an opening statement, so the
    gentlelady is recognized.
        Ms. McCollum. Thank you very much, Mr. Chair. And I would
    like to thank you all for including me in this hearing today.
        In this Congress, the safety net which protects millions of
    Americans, elderly, children, and the disabled, is under
    attack. While tax cuts for millionaires and billionaires are
    being protected, critical services for our most valuable
    citizens are being slashed. Medicaid provides a critical health
    service, keeping people in their homes, and contributes to a
    society that values human dignity. There should be no confusion
    about the current Republican plan, which was voted on in the
    chamber a week or two ago regarding Medicaid: they want to cut
    it and they want to block grant it.
        Today's hearing, as far as it relates to Minnesota's
    Medicaid program, is about accusations of fraud under the
    administration of a former Republican, and the story of today
    is about the Democratic successor who made reforms to the
    program. Whether it is Medicaid or any other government
    program, I, along with the members of this Committee, want the
    dollars to be spent wisely and effectively. If waste, fraud,
    and abuse is taking place, it must be investigated and the
    responsible company, individual, or State needs to be held
    accountable. Mrs. Bachmann, Mr. Ellison, and I are here because
    of the focus today on Minnesota.
        I think it is terrific. Our State is delivering high-
    quality, low-cost, better care than anywhere else in the
    Country. Last month, the Commonwealth Fund released a scorecard
    comparing all local health care regions in the United States.
    St. Paul, Minnesota, my home, ranked number one in the Nation
    for best overall health care system; Rochester ranked number
    three; Minneapolis number four; St. Cloud was number seven.
    Minnesota is a model for delivering quality health care and I
    applaud our doctors, nurses, hospitals, and health care
    professionals and policymakers for their partnership that works
    better than anywhere else.
        Minnesota has long been committed to expanding health care
    coverage, containing costs, improving quality. We are unique in
    requiring HMOs to be nonprofit organizations. Quality health
    care for our State is to be a priority, not profit-taking. In
    1992, we created Minnesota Care to provide access to services
    to more than 148,000 children and working parents who had no
    other insurance that they could turn to.
        Clearly, I know Minnesota is not perfect and we have more
    work to do, but I ask this Committee to show a State that has a
    better performing record in providing quality health care.
    However, for eight years the Republican administration of
    Governor Tim Pawlenty negotiated Medicare contracts with health
    plans with little or no transparency, and the terms of these
    contracts were negotiated poorly. If they allowed fraud, waste,
    and abuse to take place, then this Committee has an obligation
    to investigate those claims. But, unfortunately, those members
    of the Pawlenty administration responsible for negotiating
    those very contracts on behalf of taxpayers, they are the ones
    who are not here to testify.
        Starting January 11th, Democratic Governor Mark Dayton's
    administration took bold action to increase transparency and
    accountability for taxpayers. Here are some of the reforms that
    have been implemented by Governor Dayton and Commissioner
    Jesson: enacting competitive bidding for managed care
    contracts, saving the State and Federal taxpayers millions of
    dollars; committing the Office of Inspector General and
    Department of Human Services to rid out waste, fraud, and
    abuse; and launching a single website with managed care
    contracts and reports, financial data, and quality measurements
    available to the public, a truly unprecedented level of
    transparency that the Dayton administration engaged in.
        In addition, Governor Dayton and Democrats and Republicans
    in the State House and Senate have worked bipartisan to require
    third-party financial audits of managed care plans going
    forward, and I am glad Ms. Bachmann has seen this as a way
    forward for the Federal Government to move on. Mr. Ellison and
    I couldn't agree more, and the State of Minnesota has already
    done it.
        But I do say if this Committee is serious about
    investigating Medicare fraud, for-profit and nonprofit health
    plans must be required to open their books and let the public
    see if profit-taking at taxpayer expense is going on.
        Other States and Congress must follow Minnesota's lead for
    transparency. I am proud of the health care system we have in
    Minnesota and we will continue to make it better for the people
    we serve and for the taxpayers we are responsible for. I
    believe that we can lead in being an example for the rest of
    the Country.
        And again, Mr. Chair, thank you so much for the courtesy of
    allowing me and Mr. Ellison to be here today.
        Mr. Jordan. Great. I thank the gentlelady for her
    statement. I would just make one point about the Republican
    plan dealing with Medicaid. Our plan is to not cut Medicaid,
    but it is to block grant it back to the States. We actually
    think if you take away the incentive for States to try to
    leverage Federal dollars and say, no, here is the amount of
    money you are getting, now you manage it, that is what you get,
    and you serve your population; we think it takes away this
    perverse incentive that exists in the current program and would
    better help those individuals who may have not got treatment
    because of all the fraud that was going on.
        With that, we would ask----
        Ms. McCollum. Mr. Chairman, just a point of clarification.
    You know how all of us sometimes slip up and say Medicaid and
    Medicare?
        Mr. Jordan. Medicaid.
        Ms. McCollum. I would like my statement to reflect
    Medicaid. Thank you.
        Mr. Jordan. Okay.
        We have, first, with us Dr. Gabriel Feldman. He is the
    Local Medical Director for New York City's Personal Care
    Services Program. We also have with us Dr. Christine Ellis, an
    orthodontist and a member of the faculty of the University of
    Texas Southwestern. Mr. David Feinwachs is the former general
    counsel of the Minnesota Hospital Association; and Ms. Claire
    Sylvia is an attorney at Phillips & Cohen.
        The practice of this Committee is we actually swear you in,
    so if you would stand and raise your right hand.
        Do you solemnly swear or affirm that the testimony you are
    about to give will be the truth, the whole truth, and nothing
    but the truth?
        [Witnesses respond in the affirmative.]
        Mr. Jordan. Let the record show that everyone answered in
    the affirmative.
        Thank you.
        We will start with Dr. Feldman and we will just go right
    down the line. Dr. Feldman, you are recognized for five
    minutes.

                    STATEMENT OF GABRIEL E. FELDMAN

        Dr. Feldman. Good morning. My name is Dr. Gabriel Ethan
    Feldman and I am a whistleblower.
        I would certainly like to start by thanking Senator
    Grassley, Congresswoman Bachmann, Congressman Issa, Gowdy, and
    Congressman Jordan, of course, and the other Committee members
    for convening this important hearing and for inviting me to
    discuss my role in helping the Federal Government recover $70
    million that was improperly billed for New York City's Personal
    Care Services Program. I would also like to make very clear
    that all my comments here today are my own and do not reflect
    my employer, my colleagues, or any other entity.
        I was born in Brooklyn, New York, and have lived on
    Manhattan's Upper West Side in a small studio apartment for
    most of the last 20 years. I am a registered Democrat. I
    received my medical degree from the Sackler School of Medicine
    in Tel Aviv, Israel. I have a BA from Brandeis University, a
    Master's degree in Public Health from New York Medical College,
    an MBA and a Master's in Health Administration from Georgia
    State University in Atlanta. I am board certified in both
    preventive medicine and public health, and I hold an active
    medical license in New York.
        I began working as a New York City PCSP, or Personal Care
    Services Program local medical director in 1990, worked through
    1993, and returned to work there in 2006, and hopefully I will
    be still working there tomorrow.
        As an LMD, I am responsible for impartially evaluating a
    client's home health care needs and appropriateness for the PCS
    program. Not every State has a PCS program. The Federal
    Medicaid Act was amended in 1990 to permit States to offer PCS
    as an optional home health care benefit. States that choose to
    implement the PCS program are required to set forth
    ``reasonable standards'' for determining individual eligibility
    and benefits.
        New York State has always offered the most generous and
    comprehensive safety net, including the most comprehensive
    Personal Care Services Program in the world. New York State
    regulations mandate that personal care services should only be
    provided if they are medically necessary and only if the
    patients have physical and medical conditions that are
    ``stable.''
        The PCS program has two levels: one is limited to basic
    housekeeping and chores; the other includes assistance with
    daily functions such as bathing, dressing, feeding, grooming,
    walking, and toileting. The PCS program aides do not provide
    any sort of skilled nursing care or monitoring.
        While the State is ultimately responsible for overseeing
    the PCSP and for providing a fair hearing appeals process, the
    program is run day-to-day at the county level. Thus, PCS is run
    quite differently in New York City than it is in upstate or
    rural counties.
        My false claims case involved Medicaid clients who received
    PCS around the clock, either on a sleep-in or split shift
    basis. Sleep-in refers to an assistant that sleeps in the home;
    split shift refers to two separate, always awake assistants who
    provide care to the client in separate shifts. Sleep-in costs
    about $75,000 a year; split shift costs twice that.
        In 2009, the year my qui tam complaint was filed, New York
    spent about $50 billion on Medicaid. About $20 billion of this
    was on long-term care, of which about $10 billion was home
    health and personal care services. These figures are by far the
    highest in the Country and partly reflect the fact that,
    nationwide, Medicaid now spends most of its funds on long-term
    care and not on primary, acute, or preventive care.
        For the last 20 years, Medicaid clients in New York City
    have received far more PCS service hours than any other group
    in the Country, and I believe that this was likely due in part
    to poor oversight at both the State and local levels.
        New York State does have a dense set of regulations that
    dictate criteria for admission to and reauthorization of its
    PCS benefits, yet I frequently found myself at odds with city
    level staff and my own supervisors regarding the determination
    of level of service.
        In New York State, those of us who work in the PCS program
    are under tremendous pressure from advocacy groups,
    politicians, administrative law judges, and family members of
    clients to rubber-stamp service requests.
        I have found my independent and very well supported
    recommendations regarding home care needs routinely overridden
    by the City's powers that be, or by administrative law judges,
    who are not required to even have any formal medical, nursing,
    or disability training. When I would suggest that a client was
    no longer appropriate for the PCS program or appeared to be
    unstable, I was taken to task as being one of those unfeeling
    bureaucrats.
        Until recently, a pervasive culture of non-accountability
    and non-compliance to PCS State regulations made it simply far
    too easy for local social service offices in New York City to
    spend billions in taxpayer money without regard to common sense
    oversight, regulations of the State, or patient safety
    concerns.
        Despite my complaints to appropriate internal parties,
    little seemed to change. I grew tired of seeing so much waste
    in the Medicaid system while hundreds of thousands of poor
    children in my State had no health insurance at all. As Justice
    Brandeis said, sunshine is the best disinfectant. So I
    contacted Levy Phillips & Konigsberg and decided to become a
    whistleblower.
        My complaint was filed under seal and I hoped the issue
    would be resolved quickly and quietly. After the case was
    unsealed, however, New York City still defiantly proclaimed
    that they would win their fight and the case in the end. The
    case was heavily litigated before Judge Rakoff in the Southern
    District. I continued to show up for work each day and was
    grateful that family, friends, and coworkers supported me. The
    case was finally settled just a few months ago.
        In sum, New York City's Medicaid program is still in dire
    need of reform. Many providers simply refuse to accept
    Medicaid. The cost growth is unsustainable and a million people
    in New York City have no health insurance at all. Higher
    spending simply had not led to better outcomes, higher patient
    satisfaction, or to better access to care. In New York City,
    Medicaid simply does not excel with regard to quality, access,
    cost, or oversight. This simply must change.
        I would also like to suggest much stronger oversight and
    independent auditing of ALJ, administrative law judges, who
    hear appeals.
        Mr. Jordan. Doctor, can you close up?
        Dr. Feldman. Yes.
        While Governor Cuomo has taken bold steps to redesign
    Medicaid in New York State, the Medicaid industrial complex is
    thriving, especially in New York City. I hope today to make
    some sort of impact on this situation.
        Thank you very much.
        [Prepared statement of Dr. Feldman follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Jordan. Thank you, doctor, for your testimony and for
    your courage in stepping forward and bringing this to our
    attention.
        Dr. Ellis, you are recognized.

                      STATEMENT OF CHRISTINE ELLIS

        Ms. Ellis. Thank you very much for inviting me to speak
    today.
        In Texas, Medicaid has provided funding for the orthodontic
    treatment of severe handicapping malocclusions, which are
    defined as an HLD index score of 26 points. In plain English, a
    severe handicapping malocclusion is found in the mouth of a
    child whose teeth are so far out of position that they cannot
    do normal things like eat and talk without difficulty.
        Everyone who knows them knows that these kids desperately
    need braces. Children born with a cleft lip and palate are an
    example. So are kids born with craniofacial syndromes and
    certain special needs. The handicapping malocclusion exists
    because of their medical diagnosis. They are in need of
    orthodontic treatment if they are to have any hope of having
    teeth in a position remotely approaching normal.
        In many cases these kids depend on Medicaid for the funding
    of their orthodontic treatment.
        On screen 1 is an example of a child with a cleft lip and
    palate.
        While I certainly appreciate the value of an attractive
    smile, it is important to recognize the difference between the
    crooked teeth of an otherwise healthy child and a handicapping
    malocclusion. Unlike a healthy child with crooked teeth,
    children with handicapping malocclusion must be treated as they
    are growing up. Postponing orthodontic care until adulthood
    risks devastating consequences like speech that is difficult to
    understand, premature loss of teeth, and greater surgical risk.
    Braces for these kids are not optional and they are definitely
    not just for aesthetics. But in Texas these kids are at risk of
    losing the orthodontic providers who are most capable of
    providing care.
        As they say, everything is bigger in Texas, and thanks to
    the investigative reporting of WFAA's Byron Harris, we now know
    that orthodontic Medicaid fraud is no exception. Since
    September of 2011, Texas OIG has been investigating high volume
    providers suspected of Medicaid orthodontic fraud. I have
    consulted with them by auditing the patient records of these
    offices.
        The flagrancy of the fraud that I found is truly
    unbelievable. It was not accidental; providers submitted
    falsified HLD index forms to obtain preapproval for their care.
    These scores weren't off by just a point or two; they were
    inflated by all 26 points in some cases. If scored accurately,
    at best, only 10 percent of the cases would have qualified.
    These providers didn't want to put braces on the kids that
    Medicaid was designed to help, they were only interested in
    treating children without any real problems. Once they had them
    in braces, they delivered inefficient care and a whole lot of
    additional unnecessary appliances to increase their payment
    from Medicaid.
        Amazingly, Texas is making a bad problem worse. In March,
    the administration of Medicaid-funded orthodontics was
    outsourced to three dental managed care companies. The
    complexity of the approval process increased and provider
    reimbursement was cut. This is the wrong response and will only
    attract unqualified orthodontic providers, if anybody at all,
    to help these kids.
        The corrective measures needed are: one, ensure that only
    children who qualify for orthodontic care are approved and,
    two, ensure that they are adequately funded.
        In supporting increased Medicaid reimbursement of
    orthodontics, I am in no way advocating for greater amounts of
    public money to be spent on braces. Elective orthodontic
    treatment should not be funded by Medicaid. The eligibility for
    orthodontics should be limited to children with a medical
    diagnosis and an accompanying dental deformity. It is not just
    my opinion, but also that of the American Association of
    Orthodontists. These recommendations will help ensure that
    children truly needing orthodontic treatment will have access
    to high quality care.
        As you are aware, there is significant disagreement between
    dental policymakers on how best to ensure access to care.
    Policy groups like the Pew Dental Campaign and Kellogg
    Foundation advocate for greater public spending for pediatric
    dental care. To these groups, numbers define success; they
    advocate for greater numbers of dental procedures performed,
    patients treated, and dollars spent. I do not question their
    good intent. But as a boots on the ground provider, I am here
    to warn of the side effects that accompany some of their
    recommendations. Texas has learned a painful and expensive
    lesson in the folly of simply increasing public funds in hopes
    of increasing access to care.
        Several years ago, Texas settled the long-running Frew
    class action lawsuit. It claimed, among other things, that
    children covered by Medicaid did not have access to care
    mandated under EPSDT. Part of the settlement mandated the
    increased spending of $1.2 billion to increase their access to
    care. While Medicaid dental spending took off, Texas looked at
    the increasing numbers and they thought that they had achieved
    success.
        Things did not work out as they had planned. Five years and
    over half a billion dollars later, Texas has spent a lot of
    money straightening basically already straight teeth and has
    gained a lot of fraudulent orthodontic providers, including
    many private equity-owned dental clinics that are engaged in
    the illegal practice of dentistry.
        The sad conclusion to this entitlement-driven transfer of
    money is that, in Texas, we have used the mouths of children to
    enrich unethical providers and private equity investors. While
    access to care has increased, access to quality care remains a
    problem. In fact, it is possible that these children are more
    at risk of receiving unneeded poor quality care than they were
    before the changes mandated by Frew took effect.
        In conclusion, we all realize that public dollars must be
    carefully allocated to the areas of greatest need. Even though
    I am an orthodontist, I know that crooked teeth do not prevent
    one from enjoying life, liberty, and the pursuit of happiness.
        However, for a child with a true handicapping malocclusion,
    it is good and proper to craft public policy that addresses
    their deformity through Medicaid-funded orthodontic treatment.
    You can ensure their public safety net by clearly defining
    these children as the only patients who are eligible for well
    funded Medicaid orthodontic treatment. You can help ensure the
    public that their dollars are well spent by clearly defining
    dentists as the only people qualified to own and operate a
    dental business.
        Thank you for your time.
        [Prepared statement of Ms. Ellis follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Jordan. Thank you, Doctor.
        Dr. Feinwachs, you are recognized for five minutes.

                      STATEMENT OF DAVID FEINWACHS

        Mr. Feinwachs. Thank you. Mr. Chairman, distinguished
    members, thank you for the privilege of being allowed to
    participate in the process today and for asking me to be here.
        My name is David Feinwachs. I was, for 30 years, the
    general counsel of the Minnesota Hospital Association. In 2010,
    I was fired from that position. The reason I was fired is
    because I asked the wrong question. The question I asked was:
    Was the State of Minnesota using Federal Medicaid dollars for
    purposes other than Medicaid, or are we using it to cross-
    subsidize non-qualified programs, maybe even prop up commercial
    insurance products, or other things which were clearly
    impermissible? That was the wrong question.
        Minnesota, in 2010, did in fact seek legislation to provide
    for a medical loss ratio for these public programs. During the
    course of that time, one of the fascinating things was that our
    Department of Human Services produced a fiscal note that
    discussed why that proposal would never yield any savings for
    either the State or the Federal Government. They said that any
    assessment on one of our HMOs in Minnesota, any payment of a
    penalty, a fine, a clawback, a give-back would never benefit
    the government because it would simply be built into the rate
    calculation for the subsequent years and be returned to the
    HMOs.
        This is a strange assertion because, number one, it flies
    in the face of the notion that these companies are assuming
    insurance risk in their administration of these programs and,
    number two, it raises the question of why do these companies
    reserve, in massive amounts, against what appears to be non-
    existent risk. So the fiscal note raised a number of questions.
        In July of that same year I reported to the management of
    the Hospital Association that I believed that we had uncovered
    a substantial and massive fraud against the Federal Government.
    In August, on August 13 of 2010, I was asked to participate in
    a conference call involving our State Department of Human
    Services, an employee named Karen Peed. Ms. Peed was the
    Director of Medicare Managed Contracting.
        During the course of that conference call, Ms. Peed made
    the following statement: If you can't keep a secret, you have
    to leave the room, but we have been adjusting the reserve
    amount for State-only funded programs by making it essentially
    zero, and increasing the amount for PMAP Federal programs,
    blending the rate, and returning it to the insurers.
        Upon hearing this statement, I believed that all the pieces
    of the puzzle had now been assembled. We suspected that there
    was a massive fraud; Ms. Peed's statement explained the
    mechanism by which the fraud was being accomplished.
        I again went to the management of the Hospital Association
    and told them what had been discussed and urged them to do
    something. They did something: within 60 days I was terminated.
        Following my termination, I continued my advocacy on this
    issue; I returned to our State capital and continued to lobby.
    In 2011, a number of bills were introduced, but the most
    interesting thing that happened in 2011 is one of our HMOs,
    UCare, said that they were going to give a donation to the
    State of Minnesota of $30 million, a give-back. This,
    coincidentally, was exactly the amount that the year before we
    had claimed would be owing as a clawback or return because of
    the elimination of one of the programs in Minnesota that was
    not a federally qualified program.
        When UCare announced the donation, as it was called and
    attributed, they distributed to a select group of legislators a
    letter explaining the reason for the donation, and the letter
    said that the money was being returned because Medicaid rates
    had been inflated to subsidize the program, which was now being
    eliminated, and, therefore, since the Medicaid rates had not
    been lowered, they were returning what they characterized in
    their own words as an overpayment.
        Now, clearly that is not a donation.
        If we fast-forward another year, to 2012, our media in the
    State of Minnesota got hold of this letter, as well as
    documents related to Ms. Peed's statement and some other
    things, and began to take a close look and to scrutinize the
    statements which were made by UCare and, in fact, the
    statements which were made by the State of Minnesota saying
    that this was in fact a donation and that the Federal share was
    not required to be returned.
        During the course of these investigations, the media went
    to Commissioner Jesson and presented to her the Karen Peed
    statement, as well as other documents and, of course, the
    letter that UCare had written, and they asked her if this would
    be defrauding the Federal Government. Commissioner Jesson
    responded as follows: Let me say two things. Let me be very
    clear. We are not doing it that way anymore and Karen Peed is
    no longer in charge of contracting with the health plans.
        Now, this is an interesting and simultaneously troublesome
    statement because currently we are, in part, celebrating the
    return of $15 million to the Federal coffers. But the
    celebration is a little premature, and let me explain why.
        Mr. Jordan. Dr. Feinwachs, can you close up here in just a
    few seconds?
        Mr. Feinwachs. In the last year, this return has been
    called a donation, a refund, and now an administrative expense,
    and it is the last that is most important. As an administrative
    expense, it is going to be billed into the rate certification
    and you are going to return half to the State and the HMOs next
    year. The $15 million they are giving you, you are going to
    give them back next year because there are no audits, there are
    no accountability, and there is no verification.
        Thank you.
        [Prepared statement of Mr. Feinwachs follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Jordan. Thank you, doctor.
        Ms. Cohen, you are recognized.
        Ms. Sylvia, go ahead.

                       STATEMENT OF CLAIRE SYLVIA

        Ms. Sylvia. Chairman, Ranking Members, members of the
    Committee, thank you for the opportunity to speak with you
    today. My name is Claire Sylvia. I am a partner with Phillips &
    Cohen, which specializes in representing whistleblowers under
    the Federal and State False Claims Acts.
        Much of the discussion today has been about auditing and
    oversight, and as important as those efforts are, even if they
    worked perfectly, and they don't always work perfectly, there
    would still be waste, fraud, and abuse. As many have
    acknowledged, that is sort of inevitable. And I would like to
    talk about a different way of addressing waste, fraud, and
    abuse, also a preventive method.
        The Government's most important tool in fighting fraud
    against the Government is the Federal False Claims Act, with
    its qui tam whistleblower provisions, which provide incentives
    to private citizens to pursue lawsuits on behalf of the Federal
    Government to redress fraud.
        The Act, first enacted in 1963, was substantially amended
    25 years ago, when Senator Charles Grassley and Representative
    Howard Berman led successful efforts to amend it and to provide
    additional incentives for whistleblowers. The changes Congress
    made in 1986, which provided whistleblowers the opportunity to
    play an ongoing role in the cases that they initiate and
    enhance the resources of the Federal Government in pursuing
    these cases, have proven phenomenally successful in addressing
    fraud, including Medicaid fraud. The Department of Justice
    reported that more than $30 billion has been recovered under
    the False Claims Act since 1986.
        The reason the Act is so successful and the State Acts are
    also successful is that they address two key problems in
    addressing fraud that are a problem for the Government, and the
    first is a lack of information. No matter how much auditing you
    do, what whistleblowers provide that the Government doesn't
    have is information about fraud.
        As Congress recognized when first enacting the False Claims
    Act and again amending it in 1986, it is very difficult to
    detect fraud without the cooperation of close observers of the
    activity. The False Claims Act provides incentives to persons
    with knowledge of the fraud to report that information to the
    Government. Those incentives include not only the possibility
    of a reward, but the opportunity to have an ongoing role in the
    case, as well as protections against retaliation.
        Without those incentives, few individuals would be willing
    to risk the cost to their careers of the type that we have
    heard about today. Other oversight methods, such as data mining
    and audit programs, can also serve an important role in
    detecting fraud, but the ability to harness the information of
    insiders has proven especially effective.
        The False Claims Act qui tam provisions also address
    another important problem that the Government has in fighting
    fraud, and that is resources. The Government would never have
    enough resources to pursue fraud. As Government recognized in
    1986, large corporations that are the subject of fraud
    investigations are often able to devote significant resources
    to these cases and often outmatch the Government. The False
    Claims Act addresses that problem by providing incentives to
    whistleblowers and their lawyers to assist the Government.
    Cases under the False Claims Act can take a very long time,
    many years to develop and pursue, and typically require
    tremendous investment of legal resources. The combined efforts
    of the Federal Government and private resources have been
    uniquely effective in pursuing fraud.
        The recent changes in Federal law will actually assist
    further in addressing Medicaid fraud. Congress amended the
    False Claims Act in 2009 to clarify a number of provisions of
    the Act that were inconsistent with Congress's original intent.
    The Affordable Care Act provided additional tools and,
    importantly, the Deficit Reduction Act in 2006 provided
    incentives to States to adopt their own False Claims Act acts
    and a number of done so, and together with the Federal
    Government they have been very effective in pursuing Medicaid
    fraud.
        The success of these provisions in addressing Medicaid
    fraud is undeniable. According to the Department of Justice, in
    the fiscal year ending 2011, recoveries under the False Claims
    Act reached a record $3 billion, and the year before also was
    close to $3 billion. Of that amount, $2.8 billion in recoveries
    was attributable to claims brought under the whistleblower
    provisions of the False Claims Act and $2.4 billion of that
    amount involved fraud against Federal health care programs,
    including Medicaid.
        Medicaid fraud takes a variety of forms and we have heard
    about a few of them today. They can be as simple as a single
    provider addressing Medicaid fraud, but they can also be
    incredibly complex. They can include things like unlawful
    pricing schemes offered by marketing and other types of
    complicated frauds, and all of those take resources beyond
    those that the States have to address them.
        Not to be lost in all of this is the deterrence value that
    these suits can have on preventing future fraud.
        So, in summary, this is a bipartisan effort, fighting
    fraud. Everyone wants to make sure that the money is spent on
    the people that it was intended to help, and the False Claims
    Act is one way to do that.
        [Prepared statement of Ms. Sylvia follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Jordan. Thank you, Ms. Sylvia.
        I now recognize the Chairman of the full Committee for a
    statement and his questions.
        Mr. Issa. I thank the Chairman. Thank you for going to me
    first.
        Ms. Sylvia, since you were last, you shall be first. Three
    billion sounds like a lot of money. GAO indicates that Medicare
    alone, $100 billion; probably about $35 billion in Medicaid or
    greater; and a huge amount in dual eligibles. Is it really that
    effective if we are talking about small single digit
    percentages of the overall problem?
        Ms. Sylvia. Well, the $3 billion is only a part of the
    amount that is being recovered. That is the dollars and cents
    that you get back to the Treasury, but it is unknown how
    significant the deterrent effect is, how much fraud is being
    prevented.
        Mr. Issa. And I appreciate that, except the deterrent
    doesn't seem to be working if you have more than $100 billion
    in Medicare alone, according to the General Accountability
    Office. So, again, isn't it true that, in fact, qui tam looks,
    quite frankly, for cases. These cases often are about financial
    return to the law firms and to the individual, and that one of
    the challenges we have is we have lots of Federal workers and
    lots of people who are paid through Federal dollars who aren't
    living up to their basic responsibility to call foul when there
    isn't any money involved or when the money is unknown. And I
    think Dr. Feldman would be a good example of, yes, there were a
    lot of dollars involved, but ultimately the question is do we
    have the protections for the whistleblower who comes to us
    simply to stop a wrong.
        Ms. Sylvia. Most whistleblowers, I assume, come to the
    Government to stop the fraud. Most of the money isn't returned
    to the whistleblowers and the law firms, it is returned to the
    Government. So the qui tam provisions do provide an important
    role in addressing fraud. It is not perfect; there is always
    going to be more fraud, but they do provide an important
    deterrent effect.
        Mr. Issa. Dr. Feinwachs, I think you would say that we have
    a more rampant expansive problem that is not being addressed
    even at State level, wouldn't you?
        Mr. Feinwachs. Yes, sir, I would say exactly that. What we
    have discovered in Minnesota is a situation where there is a
    collaboration between the private parties to defraud and
    elements of State government.
        Mr. Issa. The Chairman was kind enough to come to me first.
    I will be brief.
        This week we are going to be marking up on the House Floor
    the Data Act, literally changing the way reporting goes on so
    that every dollar, including Medicare, Medicaid dollars, the
    intention is the service providers will in fact be reported in
    a transparent way so that the public and the government, once
    and for all, will be able to see in real time, across all
    government services, where the money is being spent with a set
    of reporting. One of the challenges we are going to face is how
    do we leverage--and I am not asking for an answer here, but it
    is a challenge--how do we balance the private whistleblower's
    participation in this vast amount of new data versus cost
    effectiveness of employing Federal workers, if you would
    inspector general types, whose primary job will be to try to
    find most of that $100 billion in Medicare and probably half a
    trillion dollars in unnecessary spending, not the least of
    which would be GSA conferences throughout the Country.
        With that, Mr. Chairman, I respect the fact that you went
    to me first, and I yield back.
        Mr. Jordan. I thank the gentleman.
        We will now recognize the Ranking Member of the full
    Committee, the gentleman from Maryland, Mr. Cummings.
        Mr. Cummings. Thank you very much, Mr. Chairman.
        Mr. Issa. You can have an opening statement and or your
    time.
        Mr. Cummings. I will be brief.
        First of all, I want to thank all of our witnesses for
    being here. I think this is a very important hearing. I want to
    thank those who find it important to talk about the things that
    you see that are wrong.
        Dr. Ellis, as you were talking, I could not help but think
    about a young man who you are probably familiar with from my
    State, who is now dead, the 12-year-old, Deamonte Driver, who
    died five years ago because he had an infected tooth that would
    have taken $80 worth of treatment, but could not find a
    Medicaid dentist to treat him. He is dead at 12.
        And as I sat here and I listened to what we were saying, I
    could not help but think about something that Mr. Gowdy said,
    about and I agree with him, doing autopsies, but not coming up
    with results; doing autopsies, but not figuring out how to make
    sure we don't have to do future autopsies. We are going to have
    to address this issue and the False Claims Act may be a good
    tool. We need to figure out, Dr. Sylvia, how we make it even
    more effective. And I guess that is the one question that I
    would ask.
        But I also want to be in fairness to the folks there in
    Minnesota. Dr. Feinwachs, you just said something that was very
    interesting. I am always very careful about when we say things
    that may be harmful to anyone. The reason why I am going to ask
    you this question is because Ms. McCollum talked about the
    differences in the administrations. She talked about the
    previous administration there in Minnesota and the present
    administration, and you just said something that I just want
    you to clear up. You said that you felt that the--and correct
    me if I am wrong--that some government people, employees, were
    working with some providers and causing some of these problems.
    Is that right? In other words, some of this fraud. I am not
    trying to put words in your mouth, it is just that I want to
    make it clear. You are going to be on national TV and we are
    making accusations, and I want to make sure we are clear as to
    who we are accusing of what. You can go ahead.
        Mr. Feinwachs. Mr. Chairman, Congressman, yes, it does
    appear from what has occurred in Minnesota that some public
    employees and our HMOs were in fact collaborating, if I may use
    a kind word, in the conduct that we are questioning today.
        Mr. Cummings. And that is under the previous administration
    and this administration, is that what you are saying?
        Mr. Feinwachs. Mr. Chairman, Congressman, it appears this
    has been going on for some years; it looks to me like at least
    from 2003.
        Mr. Cummings. Until the present day?
        Mr. Feinwachs. That is correct, sir.
        Mr. Cummings. I understand. Well, I just wanted to make it
    clear, and I am sure somebody will ask you some questions
    because we will be interested to know who these people are
    since you made this accusation. And if they are doing this as
    government employees, they ought to be fired, but, more
    importantly, they need to go to jail. That is why I am very
    careful with those kind of accusations.
        Finally, let me say this. The reason why I started out by
    talking about Deamonte Driver is because when these resources
    are going places that they should not go, that is, in the
    pockets of other folks who are probably rich, and every time I
    think about this stuff it makes me mad because I live in the
    inner city of Baltimore, and if somebody steals a $30 bike, a
    bike for $30, they are probably going to go to jail, but at
    least they are going to get a record. So I want to make sure
    that some of these folks who are stealing hundreds of
    thousands, if not millions, get their chance to see their
    picture on a mug shot.
        My simple question, Ms. Sylvia, is what can we do to
    enhance the False Claims Act?
        And I am finished, Mr. Chairman. I just want to know the
    answer to the question.
        Mr. Jordan. She can answer the question.
        Ms. Sylvia. I think the Act is working quite well. One of
    the most important developments has been the adoption of the
    State Acts to create coordination between the States and the
    Federal Government. So I don't have recommendations for how to
    address it other than to have more States follow the lead of
    the ones that have already adopted their own False Claims Acts.
        Mr. Jordan. Thank you.
        I now turn to the dentist on the panel, Dr. Gosar, the
    gentleman from Arizona, is recognized for five minutes.
        Mr. Gosar. Thank you, Chairman. Thanks for allowing me to
    go here.
        As you know, before I came to Congress, I was a general
    dentist for 25 years. In fact, I was a dentist that served
    cleft lip and cleft palate for a number of years early on in my
    clinical life. I owned my own practice. I hired my own staff
    and cared for my own patients.
        I also want to commend you, Dr. Ellis, for coming forward,
    because that is what we have to do; we have to police our own.
        This is not unusual, what we see in raiding Medicaid and
    false providing accounts, but we need more people to do that.
    And it is not just limited to corporate entities, either; it is
    also community health centers, WIC reimbursements and stuff
    like that. So it across the board. You know, when you sit down
    with one child and do a procedure only on one tooth because
    that is all we are going to afford them, that is also
    disrespectful to the patient and that is fraud. Compensation
    through encounter forms, where it takes a woman seven or eight
    times to see a physician is also fraud on seven or eight
    different visits on seven to eight different weeks.
        But I am also not surprised at the corporate dentistry's
    aspect and dental clinics as a central player. In Arizona,
    where I am from, we have had a number of problems. But a lot of
    that is State laws and how we actually empower that. In fact,
    laws are worthless unless you have enforcement.
        And that is where I come to you, Dr. Ellis. In your
    testimony you say that All Smiles Clinic in Dallas area is a
    majority owner by a private equity firm. Is that correct?
        Ms. Ellis. That is correct as far as I know.
        Mr. Gosar. Is that legal under the Texas law?
        Ms. Ellis. My reading of the Texas law is it is not.
        Mr. Gosar. I agree with you, I don't think it is.
        Ms. Ellis. I think there is a big debate over that issue
    right now in Texas.
        Mr. Gosar. Okay. So if a dental clinic, no only operating
    illegally, but collecting $10 million in 2010 for Medicaid,
    which is more than half the entire State of California
    collected in the same year, is that true?
        Ms. Ellis. They collected $10 million in orthodontics. They
    also--and I would say their primary business is actually in
    pediatric dentistry, so I do not know the numbers that they
    collected total for dental care.
        Mr. Gosar. And what was done about it?
        Ms. Ellis. What was done about it? Nothing. That is the
    problem.
        Mr. Gosar. So I am curious how many laws does one have to
    break before the State Dental Board and CMS cracks down. This
    is just one of the examples of a clinic that stole millions.
        I just want to point out one more thing while I have some
    time. Part of the problem has to do with our oversight, and I
    think Ms. Sylvia may be able to answer this. Until we actually
    empower the private sector, the patients, we are not going to
    truly have reforms, are we?
        Ms. Sylvia. Well, I think the False Claims Act is one way
    of empowering patients to report fraud that----
        Mr. Gosar. But actually allowing patients to be selective
    in their care and empowering them, I think that is what is
    going to be necessary to get some total reform, would you not
    say that?
        Ms. Sylvia. I am not sure that I would say that that is the
    key to addressing fraud. I think the patients are an important
    part of it, but it is the providers that we are most focused
    on, their efforts to abuse the system.
        Mr. Gosar. Well, I may go a step further. I think that in
    Arizona we have a very active Dental Board, one of the most
    active in the Country. So this doesn't go passed very easily.
    We actually have empowered them to actually have oversight over
    corporation clinics because it puts providers in double
    jeopardy in many cases, particularly when they are brought in
    front of the board.
        But State legislatures have been part of the problem. They
    have raided professional licensing fees, basically additionally
    taxing them. So what happens is it further restricts State
    boards into having that oversight. So in many cases it is the
    State board, and in our State of Arizona that is exactly what
    they have done, is they have raided those accounts, making it
    very, very impossible for them to have the financial funds, the
    manpower to actually go after them. And it is a form of
    additional taxation. So we have to have the ability for them to
    do that.
        Second of all is also empower carveouts. Dentistry is very
    proud of their track record, and what carveouts basically do is
    give them better oversight of that population. And I think the
    States that have those types of carveouts, and I think Texas is
    now going through the process of doing a carveout so that they
    have better management of their funds, but you also need to
    have the funds to have that type of oversight as well.
        So, Dr. Ellis, thank you for stepping forward. We need a
    lot more of you to do the same thing because we have to police
    our own.
        I yield back the balance of my time.
        Mr. Jordan. I thank the gentleman.
        I would now recognize the gentleman from Minnesota, and I
    apologize, I did not realize that the representative wanted to
    make an opening statement. So, Mr. Ellison, you are recognized.
        Mr. Ellison. Thank you, Mr. Chairman. Just one quick
    question. Is the time for opening statements or for questions?
    I can consolidate both.
        Mr. Jordan. If you can consolidate, that would be great.
        Mr. Ellison. All right. Thank you.
        I would simply like to just say that I applaud this
    Committee, Mr. Chairman, and, of course, our Ranking Members
    for looking into the good use of the public dollar. The more
    efficiently we can use dollars for Medicaid, the more people we
    can help, and that is very important to me.
        I do want to point out, however, that my State, Minnesota,
    is a leader in health care, providing in access one great
    example is of a Minnesota program is a program called Hennepin
    Health, run by Hennepin County in my district. This is an
    innovative program which integrates care for individuals with
    the highest need by identifying the holistic needs of the
    individual, whether those needs are medical, housing, mental
    health treatment, or finding a job. By combining social
    services with health care, Hennepin Health is making promising
    steps to reduce costs, while also providing better care.
        Another example of the great work being done in Minnesota
    is the opening of the health plan contracts to competitive
    bidding. This has provided savings of over $500 million to
    taxpayers. In addition, the Dayton administration has
    negotiated a voluntary 1 percent cap on profits companies keep
    for reserves, resulting in a return of about $73 million to the
    State.
        So right now we are spending time, as we should, regarding
    allegations of fraud in Minnesota under previous
    administrations for a program that doesn't exist anymore and
    for which both the Minnesota legislative auditor in 2008 and
    the current State administration have found no proof. I still
    support this process, but I will note that there are many
    important and innovative steps being made to improve the
    quality of health care in Minnesota of which I am very proud.
        So that would lead me to a few questions I would like to
    ask, if I may.
        Mr. Feinwachs, the current administration in Minnesota has
    made a number of changes to health plan reimbursement. For
    instance, Minnesota used to have one set of rates for the plans
    in each county, looking at factors such as historic rate
    claims. Now the State has implemented a successful competitive
    bidding process that has achieved over $500 million in taxpayer
    savings. Do you agree that Minnesota's move to a competitive
    bidding has been beneficial?
        Mr. Feinwachs. Mr. Chairman, Congressman Ellison, no, sir,
    I do not. Minnesota's competitive bidding process began with
    four predominant HMOs controlling the market, and after the so-
    called competitive bidding the winners were the four
    predominant HMOs. The competitive bidding, as it has been
    initiated, appears to be nothing more than a market allocation
    among these four HMOs to maintain the mechanism that has been
    employed for many years.
        Mr. Ellison. Also, the State negotiated a voluntary 1
    percent cap on profits for 2011, and this resulted in $73
    million being returned to the State. Do you agree that the 1
    percent voluntary cap was a win for the taxpayers?
        Mr. Feinwachs. Mr. Chairman, Congressman Ellison, I believe
    that the return of money is a good start, but I disagree with
    the characterization as a 1 percent cap. Last year the current
    administration asked the plans to follow the lead of UCare in
    giving back money that had been received from a clearly
    inflated Medicaid rate. They didn't want to do that, so an
    agreement was negotiated whereby it would be called a voluntary
    cap. The voluntary cap, of course, is subject to manipulation
    of administrative expenses in order to achieve the cap and to
    limit the amount. My characterization of what has occurred in
    Minnesota is because we said the word audit, we have recovered
    $103 million. Imagine what would happen if we did an audit.
        Mr. Ellison. You point out in your testimony that a 2008
    report by Minnesota's legislative auditor found the State's
    payment rates to be high compared to other States. Do you agree
    that the State's recent efforts have improved its payment
    rates?
        Mr. Feinwachs. Mr. Chairman, Congressman Ellison,
    Minnesota's payment rates to the plans are high. Minnesota's
    payment rates to its providers are dismal. I don't think
    anything in recent history has changed that.
        Mr. Ellison. No further questions.
        Mr. Jordan. I thank the gentleman.
        Now recognize the Chairman of the Subcommittee on Health
    Care, the gentleman from South Carolina, Mr. Gowdy.
        Mr. Gowdy. Thank you, Chairman Jordan. I want to thank all
    of our witnesses.
        Dr. Ellis, you used the word fraud twice. That word has
    legal consequences, it is not just a term of art. And then Dr.
    Gosar asked you about whether there had been any consequences.
    I think you used the phrase police your own, which is fine,
    although I probably don't trust somebody's own group to
    administer the punishment. Has there been any punishment, any
    consequences for what happened in Texas?
        Ms. Ellis. I will be the first to say there is probably a
    person better qualified to answer that. As far as I am aware,
    there have not been any consequences.
        Mr. Gowdy. Who should I ask whether anyone has had their
    license to practice suspended, whether they are suffering the
    threat of criminal liability, civil liability, disgorgement of
    their profits? Who would be the proper person for me to ask?
        Ms. Ellis. The Texas State Board would be the one that
    handles the licensure of dentists, and they would be the ones
    that would take away the license of a dentist. Part of the
    problem is the Texas State Board has said that they do not find
    any ability to bring any kind of action against a corporation
    because a corporation does not hold a license; that they can
    only bring action against the individual dentist. The
    allegations that I have made are against All Smiles as a
    corporation and not the individuals at All Smiles.
        Mr. Gowdy. So dentists----
        Ms. Ellis. So I would guess it would be the attorney
    general. I am sorry, the short answer would be is the attorney
    general would probably be the place to go.
        Mr. Gowdy. Which the frustration, which I do not mean to
    take out on you because you did the right thing, the
    frustration is that when poor people steal they go to prison;
    and when rich people steal, they keep their title, sometimes
    they get promoted, if they work for GSA, and every now and
    again they get invited to testify before a congressional
    committee. So it is this two-track justice system that the more
    you steal, the less likely you are to have any consequences at
    all. These were orthodontists or dentists who had to certify
    that it met the criteria for--I saw a sign that said free
    braces. I can't help but smile when I see the word free. Free
    to whom, I am not sure. But somebody had to certify that this
    case fit the program, didn't it?
        Ms. Ellis. Yes. The HLD index sheet that I referenced does
    require a provider signature, and the orthodontist or the
    dentist that holds the license would have signed that
    paperwork.
        Mr. Gowdy. So dentists or orthodontists were certifying
    that something met the strictures of a program when in fact it
    did not.
        Ms. Ellis. That would be correct.
        Mr. Gowdy. That just doesn't seem to be a hard case to win.
        Ms. Ellis. I don't disagree with that.
        Mr. Gowdy. There are no studies that suggest there are more
    crooked teeth in Texas than there are other States, are there?
        Ms. Ellis. No.
        Mr. Gowdy. And there certainly wouldn't be any studies that
    suggest there are more crooked teeth in Texas than all other
    States combined.
        Ms. Ellis. No.
        Mr. Gowdy. And yet it took a reporter to unlock this
    mystery? No one at CMS happened to notice, gosh, we are
    spending more money on crooked teeth in Texas than we are the
    rest of the Country?
        Ms. Ellis. That is right. It is unbelievable.
        Mr. Gowdy. Well, it may also come as something as a
    surprise to you, it did to me. We spend $500 billion a year to
    investigate and prosecute fraud in the health care system, and
    here we missed something that my 15-year-old daughter could
    have detected.
        Mr. Feinwachs, I want you to help me understand an email,
    if you can, even though you didn't send it and you didn't
    receive it. In order to have a good chance of keeping all this
    money, it must be characterized as a donation. I find the word
    characterized to be interesting. The writer did not say it must
    be a donation, it just must be characterized as a donation. Am
    I putting too much emphasis on the word characterized?
        Mr. Feinwachs. Mr. Chairman, no, I do not believe that you
    are. The donation was accompanied by a letter describing it as
    the refund of an overpayment, so to call it a donation would
    require some modification or recharacterization of the event.
        Mr. Gowdy. Which then instructs the next line in the email,
    which is if a refund, Feds clearly get half. Can you work with
    Scott on redrafting? And then the final sentence is the one
    that I find most interesting: Also, I thought we were going to
    handle this through phone calls. I can't imagine why someone
    would prefer phone calls over emails unless perhaps it were to
    avoid a trail. Am I too cynical, Dr. Feinwachs?
        Mr. Feinwachs. Mr. Chairman, no. Let me say that what I
    have trouble imaging is why anyone would put a directive not to
    put things in writing in writing. But that is not for me to
    answer. The point you raise is quite interesting because
    redrafting suggests that there was in fact an original draft,
    and it would be fascinating to know what the original draft
    said.
        Mr. Gowdy. And if we had a team of investigators who also
    were not in some way complicit or desirous of a State keeping
    the money, perhaps they would be just a tad bit more aggressive
    in finding out the answer to that question.
        Thank you, Mr. Chairman.
        Mr. Jordan. I thank the Chairman for his good questions.
        We will now recognize the Ranking Member of that same
    Health Committee, the gentleman from Illinois, Mr. Davis.
        Mr. Davis. Thank you very much, Mr. Chairman, and again I
    want to thank all of the witnesses for being here.
        I have always thought of myself as being sensitive to the
    question of waste, fraud, and abuse. But I have also attempted,
    in my own thinking, of trying to make sure that I wasn't guilty
    of throwing out the baby with the bath water, that is, throwing
    out things that might work, might be necessary.
        So, Dr. Feldman, I am interested in hearing a little bit
    more about what the State of New York has done, or New York
    City, to try and ensure compliance with PCS regulations as was
    outlined in the settlement that you had mentioned.
        Dr. Feldman. The City and the State have taken great
    measures to improve the program and to comply with regulations.
    I know because I work there every day; I will be there
    tomorrow. I see that folks are getting completely retrained.
    They are bringing in new staff. People were let go; many people
    retired. Many people who were in high positions are no longer
    there.
        In fact, in some ways the program is run even closer to the
    regulations that I had anticipated. What I usually tell folks
    is that now the program that I work in is a little bit like
    working for the Green Bay Packers a couple of years after
    Lombardi came, because now it is extremely careful about how we
    approach each case and how PCS services are provided.
        Throwing the baby out with the bath water, I really need to
    say very clearly I am not here to advocate slashing Medicaid
    spending or eliminating necessary Medicaid services, or even
    shrinking Medicaid or privatizing it, or throwing the elderly
    into nursing homes or to throw disabled children into snake pit
    institutions. These are the kids of things that I get hit with
    all the time. What I am trying to do here is to help both sides
    of the aisle realize that if we are going to have reasonable
    cost growth, we need reasonable oversight, so that people get
    better care.
        The problem in New York City is not the same as in
    Minnesota. Minnesota has a wonderful reputation for providing
    health care; it is always known as a model. New York City is
    not. We spend the most in New York State; we spend $50 billion
    a year. I cannot tell you how much of that money is wasted; I
    can only assure you that in my program specifically I am fairly
    comfortable in knowing that in the old days we wasted more than
    $823,000 every day.
        Mr. Davis. You know, you caused me to remember the days of
    the Medicaid meals that were rampant in many places, especially
    in inner city communities throughout America that I have spent
    a great deal of time in, and I certainly think that we have
    made progress since then and things have become more
    sophisticated, more complex.
        So, Ms. Sylvia, can I ask you the schemes that you have
    mentioned that pharmaceutical companies sometimes might use,
    could you share what some of those may be and may have been?
        Ms. Sylvia. Sure. A lot of the emphasis at today's hearing
    has been on sort of simple frauds, but a lot of the frauds that
    affect Medicaid are things like off-label marketing. And we
    have several cases involving that, which would include using
    kickbacks and promotions to doctors and hospitals to recommend
    and use devices and drugs that are approved for those
    particular uses. And that costs Medicare and Medicaid money
    because they wouldn't pay for those goods or services if they
    had known that those practices were going on. And no amount of
    oversight is going to produce information about those practices
    that whistleblowers who actually work on the inside and can
    report the types of emails or the types of things that aren't
    being written down that whistleblowers can report.
        Mr. Davis. Does the utilization of samples as promotional
    activity fall into any of this, to your knowledge?
        Ms. Sylvia. Well, use of kickbacks to encourage or induce
    the use of goods or services provide or paid for by Federal
    health care dollars can be a violation of law and can be a
    violation of the False Claims Act, so there are circumstances
    where samples could fit that model.
        Mr. Davis. Thank you very much.
        Thank you, Mr. Chairman. I yield back.
        Mr. Jordan. I thank the gentleman for his questions.
        We now yield to the gentleman from Texas, Dr. Burgess.
        Mr. Burgess. Thank you, Mr. Chairman. Thank you for letting
    me be part of your hearing today. I sit on the Committee on
    Energy and Commerce, which does have a lot of jurisdiction over
    the Medicaid program, and I will just tell you that I have had
    a personal interest in this for some time because, Dr. Ellis, I
    have seen the billboards back home. My home is not too far from
    where you work, so I have been aware of there being some type
    of problem because generally, in my experience in the practice
    of medicine, it was not necessary to advertise for Medicaid
    patients, they found you if you were willing to see them, and
    many providers, of course, will not because of the low
    reimbursement rates.
        So generally how would a clinic like this, how would they
    go about patient recruitment?
        Ms. Ellis. Well, the billboards apparently worked pretty
    well. There have been offices accused of having solicitors go
    out and recruit business from places such as where they go to
    receive their food stamps or their State benefits. I have heard
    of the same thing going on at areas where children will be,
    like CC's Pizza; other areas wherever they feel that they can
    target a Medicaid population.
        Mr. Burgess. And let me just ask you this, because Mr.
    Gowdy asked a very important question about the enforcement
    action of all of this. Have you been contacted by the Attorney
    General's Office of the State of Texas regarding the things
    that you have brought to light?
        Ms. Ellis. I was contacted by both Texas OIG and the
    Attorney General within about a week's period after one of
    Byron Harris's stories ran and was basically told that I needed
    to work with just one, and the decision was made that OIG was
    the place where I could be best of service.
        Mr. Burgess. So that is the State Inspector General.
        Ms. Ellis. Yes, Texas OIG.
        Mr. Burgess. Has the Office of Inspector General at the
    Department of Health and Human Services talked to you?
        Ms. Ellis. The Federal?
        Mr. Burgess. Yes.
        Ms. Ellis. No.
        Mr. Burgess. Region 6 is down in Downtown Dallas, they are
    right next door to where you work at Children's Medical Center,
    but you have not talked with them?
        Ms. Ellis. No, I haven't talked with them.
        Mr. Burgess. And as far as anyone from the Fraud Division
    at the Department of Justice, have they visited with you?
        Ms. Ellis. No.
        Mr. Burgess. But it sounds like there may be a significant
    number of dollars that have been fraudulently transferred, so
    just to the man on the street it would seem likely that this
    would be something that would be of interest to the Fraud
    Division at Department of Justice, would it not?
        Ms. Ellis. I would agree with that, yes.
        Mr. Burgess. And, again, just following the reasonable
    person concept, I don't see how they have missed that. And you
    make such an important point about the risk and potential
    damage from unnecessary care. I mean, this is not a question of
    denying care to a needy child or a child who has a diagnosis
    that compels the care, but when you indiscriminately apply care
    across a population that is not in need, there is also the
    possibility that you are going to be causing future
    difficulties for these kids, is that not correct?
        Ms. Ellis. That is true.
        Mr. Burgess. And that is why it is so important that, yeah,
    people do the right thing, but not only that; if they are doing
    the wrong thing, that they be stopped and that they be held
    accountable. When I was in the practice of medicine, and I
    grant you it has been a few years that I have been in active
    practice, but it seems to me you had a law on the book that
    prevented the corporate practice of medicine in the State of
    Texas. Now, that may have changed in the last legislative
    session, I am not sure. Is there also a similar prohibition on
    the corporate practice of dentistry in Texas?
        Ms. Ellis. There is a paper that has been provided to this
    Committee, and I can make it available to you, that actually
    summarizes the corporate practice of dentistry in all 50
    States. The basic answer to your question, no, it is not legal.
        Mr. Burgess. And, again, since that is a State statute, it
    would appropriately be the attorney general's office that would
    prosecute those cases, would it not?
        Ms. Ellis. I don't know how to answer that.
        Mr. Burgess. You know, I am not asking this to be
    contentious, but we need to get the people who should be
    enforcing the law to be interested in enforcing the law. In all
    sincerity, that is the purpose in asking the question. I want
    this to happen. During the time I was in practice, I always
    felt that if I broke the law, something serious would happen to
    me; it would happen quickly, and I wasn't sure what would
    happen, but I knew it would likely be bad.
        Now you have the situation completely turned on its head,
    where no one seems to care that it is illegal because not only
    is no one looking, but if it is put right in front of someone,
    there is no enforcement action. And, again, not just picking on
    the State here, because we are going to be hearing from the
    Center of Medicare and Medicaid Services in a little bit. They
    also bear a tremendous responsibility here about not just
    allowing the money to go out the door inappropriately, money
    that should be going to good purposes and taking care of people
    that we are obligated to care for, but people are being damaged
    in the process; and it is their dime that is allowing it to
    happen.
        So, again, I am just frankly stunned that the Center for
    Medicare and Medicaid Services--I mean, what is involved in an
    audit? When I get audited by the IRS, again, I know that it is
    going to be pretty dreadful. What is involved in these audits?
    Is no one noticing the flight of dollars out the door? I
    realize Texas had some problems in the initiation of SCHIP, and
    when President Bush was a candidate back in 2000, he received a
    lot of criticism because his State spent less than other
    States. But in the process of trying to deal with that, we have
    now created the nightmare scenario for a lot of families in
    Texas that are receiving care that, again, not only
    unnecessary, but likely to be damaging to their future health.
        Mr. Chairman, I appreciate the time that you have allowed
    me and appreciate the generosity. I am going to yield back, but
    we haven't heard the end of this, and this story is one that is
    important and we need to get the people who are supposed to be
    in charge of watching the hen house back to doing their job.
        Mr. Jordan. I thank the gentleman.
        Before yielding to the gentleman from Connecticut, let me
    just ask Dr. Feldman and Dr. Feinwachs has anyone from CMS, the
    Inspector General from CMS or HHS, or anyone from the Justice
    Department contacted officials in New York City or State
    officials in Minnesota? And we will start with Dr. Feldman.
        Dr. Feldman. I have encouraged them to; I have given them
    plenty of names and fodder. I don't know exactly what the
    follow-up was.
        Mr. Jordan. But, to your knowledge, no one has contacted
    the City of New York officials regarding the issue, Dr.
    Feldman?
        Dr. Feldman. No.
        Mr. Jordan. Okay.
        Dr. Feinwachs?
        Mr. Feinwachs. Mr. Chairman, in mid-year 2011, when the
    State of Minnesota's 1115 waiver came up for renewal, we
    contacted CMS and implored them not to renew the demonstration
    waiver because of problems. But our concerns, to the best of my
    knowledge, have not been addressed.
        Mr. Jordan. And no one from the Justice Department has
    contacted officials in the State of Minnesota, to your
    knowledge?
        Mr. Feinwachs. To my knowledge, no, sir.
        Mr. Jordan. All right, thank you.
        We will now yield to the gentleman from Connecticut, Mr.
    Murphy.
        Mr. Murphy. Thank you very much, and thank you all for your
    testimony and for your courage in bringing all of this forward.
        I think it is appropriate, Dr. Ellis, that a lot of the
    questioning has focused on the revelations that you have
    brought to light because it speaks to this much larger issue of
    an explosion of for-profit institutional care in this Country.
    It is not just for-profit dental clinics; we, today, have more
    for-profit hospitals than ever, more for-profit hospices, for-
    profit nursing homes, dialysis centers, outpatient surgical
    centers, walk-in clinics. And you have hinted at this in some
    answers to questions, but I might ask you sort of a broader
    one, which is that you speak to one of the solutions here being
    a crackdown on the private equity ownership of dental
    practices. In response to Mr. Burgess's question, you were
    talking about some of their innovative recruitment methods.
        Let me ask you this question. What is that you think is
    unique about private equity ownership of a dental clinic or,
    frankly, of any other institution that makes it more likely
    that fraud will occur in that setting versus a nonprofit
    setting?
        Ms. Ellis. In my opinion, there is a conflict of interest
    in who holds the doctor's interest. Is it his employer and
    their investors or is the doctor's patients? There are plenty
    of private practitioners who are guilty of what has been going
    on in Texas as well. They just aren't able to leverage the
    dollars that the private equity companies are.
        In my written statement I hope I don't throw all the blame
    on just private equity, but certainly they are part of the
    problem. But it just comes down to a conflict of interest. If
    you are the doctor and the patient is your patient, and you are
    interested in maintaining the integrity of your private
    practice, you have to make sure that you are delivering care or
    your reputation within the community is going to become not
    that that will attract patients to your business.
        The private equity groups tend to operate by name, they
    don't identify themselves by dentist. The patient comes to the
    company. They are coming to an image, they are not coming to an
    individual. And the dentists that are in their employment are
    under a contract, and in a lot of these companies they will
    have bonuses tied to production. The production is expected to
    be in the patient's best health, but the corporation is clearly
    in the interest of pursuing greater and greater profits.
        Mr. Murphy. Bonuses tied to production, not necessarily
    bonuses tied to quality.
        Ms. Ellis. Exactly.
        Mr. Murphy. Dr. Feinwachs, in Connecticut we have had a
    long history with Medicaid managed care, and I won't go through
    the song and dance of all the problems that we had, but
    eventually, last year, we decided to bring our Medicaid program
    back in-house, and that has resulted in a pretty substantial
    savings to taxpayers. Representative Ellison hinted at this
    question, I think, but can you talk about this broader issue of
    whether fraud is more likely under a Medicaid managed care
    system and whether, ultimately, we have a guaranty that we are
    saving taxpayer dollars by continuing to manage Medicaid
    dollars in a private HMO system versus a system run by a State
    government?
        Mr. Feinwachs. Mr. Chairman, Representative Murphy, let me
    say, first, before I address that question, I may have
    misspoken previously. While I have no personal knowledge, I
    believe there is a deal, a Department of Justice inquiry going
    on in Minnesota. I think there have been stories run about it
    in the newspaper. So I don't mean to suggest that that is not
    happening, but I know what I read about it.
        Having said that, sir, let me address your question. I
    don't think that there is any guaranty of efficiency, network
    adequacy, or any of the hallmarks that we would attribute to a
    properly and efficiently run Medicaid system because of the
    presence of managed care, so-called. I think in Minnesota we
    have a tremendous health care system, which is due to the
    commitment and dedication of our health care providers;
    hospitals, physicians, dentists, podiatrists, chiropractors,
    across the board. That is the fuel which moves the engine of
    health care forward in our State.
        What we need to do is to engage in auditing designed to
    answer exactly the question you have raised: What is the value
    of managed care in its involvement in this system, does it add
    value, does it add expense, what exactly does it do and how
    does it do it, in order to reach an intelligent conclusion to
    that very important question.
        Mr. Murphy. I know my time has expired here. I asked the
    question because the budget that we just voted on here proposes
    effectively doing the same thing for Medicare that we do in
    most State systems for Medicaid, essentially handing the system
    over to the private sector. And I think it is useful to look at
    both the equality experience and the fraud experience of States
    that have done the same thing with their Medicaid programs.
        Mr. Chairman, thank you very much for the time.
        Mr. Jordan. I thank the gentleman.
        Let me just start with you, Dr. Feinwachs. The overpayment/
    donation, the $30 million that was referenced several times in
    the hearing, that was just one company, right, that was UCare?
    You had four companies involved in the Medicaid managed care
    program, correct?
        Mr. Feinwachs. Mr. Chairman, that is correct, there are
    four companies and UCare is the smallest, and smallest by quite
    a----
        Mr. Jordan. Okay. So in your judgment, in your estimation,
    in your professional opinion, what is the potential
    overpayment/donation concerns if you factor in the other three
    managed care companies?
        Mr. Feinwachs. In the absence of complete data, it is
    somewhat difficult to answer, but assuming that the overpayment
    was for UCare alone, that would have been $30 million relative
    to six months for that company. If you work that math
    backwards, you come out with about a half a billion dollars. If
    the overpayment was to----
        Mr. Jordan. Half a billion dollars in a six month time
    frame?
        Mr. Feinwachs. No, sir, half a billion dollars----
        Mr. Jordan. Over several years.
        Mr. Feinwachs. --back to 2003.
        Mr. Jordan. All right.
        Mr. Feinwachs. If the $30 million was to represent the
    overpayment for six months to all companies, the result will be
    different. The problem is we have no audit trail, we have no--
    --
        Mr. Jordan. Safe to say that it is significantly more than
    $30 million.
        Mr. Feinwachs. Much, much more.
        Mr. Jordan. Okay. Let me just ask. I assume you are all
    involved in some national association, with the hospital
    association. You probably travel to national events,
    conventions, or what have you. Dr. Feldman, Dr. Ellis, the same
    thing. When you are at those events or when you get a chance to
    interact with your colleagues from around the Country talking
    about this issue may come up, to what extent do you think this
    is across the Country, so it is not just isolated in Minnesota,
    Texas, and New York? And let me start with Dr. Feldman.
        Dr. Feldman. I have no doubt whatsoever in my mind that if
    you go to the top five States--New York, Ohio, Florida,
    California, Texas--where a third of all Medicaid money is
    spent, you will find similar patterns. I think New York is
    probably the most egregious situation because of our
    sociopolitical situation, but I am very confident that you will
    find similar schemes, similar problems all across the Country.
    The point is to go where the money is, and, as you said, this
    program is going to cost over $7 trillion whatever time period
    you want to use. But it is important to understand most of that
    money over the next 10, 20, and 30 years is going to be spent
    on long-term care and custodial care and nursing home care. So
    you better be prepared to be lambasted by advocacy groups who
    are constantly saying you are just doing this because blah,
    blah, blah, blah, blah. So I would urge you all to start where
    the money is, in long-term care and personal home health care.
        Mr. Jordan. And if I could--and I will get to Dr. Ellis and
    Dr. Feinwachs, but while I have you, Dr. Feldman, you talked
    about the Medicaid industrial complex. Is that what you are
    referring to in those----
        Dr. Feldman. Yes. I think that this is an absolutely
    terrific example of a joint situation; it is nonpartisan. I
    talked about the military industrial complex. Well, let me tell
    you something, in 1970 we spent about 6 percent of our GDP on
    defense and we spent about 6 percent of our GDP on health care.
    We now spend maybe 3, 4, 5 percent on defense and we spend 17
    percent on health care. This is what the voters want and I
    support it. I am a physician. All I am asking is to understand
    and accept the fact that whenever there is money out there that
    is labeled Medicaid, and whenever you have deserving
    beneficiaries, it is so easy to defraud people.
        Mr. Jordan. And let me just ask you, and all those concerns
    and potential problems are exacerbated by the fact that if in
    fact the ObamaCare legislation becomes law and takes effect,
    approximately 20 million more individuals are going to be part
    of the Medicaid program.
        Dr. Feldman. Yes. And I think both side of the aisle should
    be aware of this. If it passes, we are going to expand Medicaid
    greatly. And, believe me, you guys are going to be very busy
    and CMS will have to probably two, three times the amount of
    money worrying about fraud. And if it doesn't pass, I think the
    right side of the aisle is quite naive to think that that 17
    percent GDP number isn't going to go to 25 percent in the next
    25 years.
        Mr. Jordan. No, that has to be changed.
        Dr. Ellis, while Texas, you understand the situation there,
    but in your opportunities where you have had to interact with
    colleagues around the Country, while it may not be as
    widespread as what you have seen in your State, do you think it
    exists in other States as well?
        Ms. Ellis. Well, Texas blows every other State away by a
    mile.
        Mr. Jordan. I understand that.
        Ms. Ellis. So, quite honestly, I don't--my feeling is that,
    no----
        Dr. Feldman. I resent that. New York is far above everyone
    else in this.
        [Laughter.]
        Ms. Ellis. When it comes to orthodontics, it is just such
    an obvious no-brainer. I just don't think that if it is not
    stopped, surely it will spread to other States, but right now I
    don't feel that that is the case.
        Mr. Jordan. Okay.
        Dr. Feinwachs, quickly?
        Mr. Feinwachs. Not to be outdone, Minnesota's fraud is more
    massive and more clever than yours.
        Mr. Chairman, I do believe the problem is widespread across
    the Country. I also believe that it is a bipartisan issue
    because whether your issue is deficit reduction or expansion of
    access to health services, our system is terribly broken and we
    have to repair it.
        Mr. Jordan. Great point. As Dr. Ellis and I think you have
    all pointed out, there are people who needed care and qualified
    for the care who didn't get the care because of the fraud that
    was taking place, and then there is just the waste and the
    unfair treatment of taxpayers. So I think that is well said.
        And we have the gentlelady from Minnesota.
        Ms. McCollum. Thank you, Mr. Chair. And I think you
    summarized why we need to address this really well, watch out
    for taxpayers and make sure that people who deserve access to
    these health care opportunities have them.
        Mr. Feinwachs, I want to thank you for all the years of
    service. I remember when I was on Health and Human Services in
    Minnesota, you testifying; always straightforward, always
    answer questions directly like you are today, so thank you very
    much for everything that you have done.
        I have three questions, and I am just going to put them out
    there altogether for you.
        Minnesota's nonprofit, we have some things written into the
    law which has a little more transparency than other States do
    as to what is going on with their Medicare contracts. The
    State, right now, it will be at the governor's desk to provide
    a third independent party audit. If you can kind of give us
    some pointers of where you think we should be going as a
    Committee for looking for what type of audits.
        The second point I would like to bring up, I am very
    concerned about block granting Medicaid because when you block
    grant it, it is just a dispersal out there; there aren't as
    many strings attached. And even with the strings that we have
    attached now, we are not doing a good job of watching
    taxpayers' dollars, making sure that those individuals have
    providers who can afford to give them treatment that they
    needed.
        And I know Senator Hahn I believe was here promoting block
    grants. He stopped by our office, I believe, and it is
    something I am very skeptical of.
        And then my third point is I agree, and I know that the
    Chair is going to ask a little more about the email and the
    returning of the money between the Federal and the State. I
    guess the State should, as a resident of Minnesota, we have a
    shortfall. If it gets returned to the State coffers, that is
    one thing, but we also have a shortfall here in the Federal, so
    having it returned to the Federal Government is as good as
    well. But the fact is that it was even caught in the first
    place. So if you can just talk a little bit about audits and
    maybe your opinion of block grants, it would be very helpful to
    me to hear from a fellow Minnesotan.
        Mr. Feinwachs. Mr. Chairman, Representative McCollum, I
    would be happy to try to address those questions.
        First, let me say something about nonprofit status in
    Minnesota. Our HMOs are required by statute to be not-for-
    profit. In my estimation, corporate nonprofit status confers
    tax exemption, not sainthood. What is important in any
    organization is the integrity of its management and codes of
    ethics that are present in order to provide proper service and
    accountability.
        To the issue of audits, the audit question I believe is
    relatively straightforward. You need rigorous oversight and
    audits by independent third parties. We also need to determine,
    in Minnesota and elsewhere, if the consulting actuary to the
    State has been permitted to consult with the State's vendors.
    This would seem to raise a problematic issue, a red flag, if
    you will.
        We know now that in Minnesota that such things have been
    permitted in the past, historically, and even now the argument
    is made that it is not occurring anymore, but the safeguard I
    believe that is being proposed now is that different employees
    from the same firm will consult both with the State and the
    State's vendors, and that seems less than well advised.
        So these audits need to be truly independent; they need to
    be accountable to the Federal Government; and, above all, they
    need to enforce the standards we have because all of the
    practices that you have heard described today, not only in
    Minnesota, but elsewhere, are in fact unlawful and should be
    addressed and dealt with.
        So audits retrospective, prospective, and ongoing need to
    occur. In Minnesota we just enacted an audit bill. First audit
    won't start until 2015. And unless I miss my guess, because of
    funding problems in the future or arguments related to less
    accountability, perhaps due to block grants, perhaps not, but
    like all things political, when there is a delay, there is time
    to dismantle the good work that has been proposed. So our need
    for audits are immediate and prospective and retrospective, and
    done by a truly independent third party.
        Ms. McCollum. Mr. Chair, in the time that is remaining, it
    used to be our county, we had a county system that delivered
    care to people who found themselves in the gap, and we were
    told that the private sector could deliver it better. And now I
    think we have to question as to, without proper oversight and
    penalty for defrauding taxpayers, if in fact a private sector
    business model is in the best interest of the taxpayers.
        Mr. Jordan. I thank the lady.
        Now I will yield to the gentleman from Ohio, the Ranking
    Member in the Subcommittee.
        Mr. Kucinich. I am going to wait for the next panel.
        Mr. Jordan. We appreciate that.
        We want to thank you all for----
        Mr. Davis. Mr. Chairman?
        Mr. Jordan. Mr. Davis?
        Mr. Davis. Can I just make a clarification?
        Mr. Jordan. Sure can.
        Mr. Davis. One, I just need to clarify that there is
    current investigation taking place in Minnesota by the
    Department of Justice. There has been a settlement in the
    allegations in New York. Also, the CMS has no authority to
    determine or prosecute fraud; that falls to the Office of the
    Inspector General or to the Department of Justice, and CMS can
    only take financial action related to the Medicaid matching
    programs. I just wanted to make those clarifications.
        Mr. Jordan. Yes, but it is also true that CMS has to
    approve the waiver when a State decides that it is going to
    operate under this plan, the rate reimbursement that they are
    going to receive.
        And they did in fact approve the request by the State of
    Minnesota, isn't that correct, Dr. Feinwachs?
        Mr. Feinwachs. Mr. Chairman----
        Mr. Jordan. They approved it after several provider groups
    had written and said, hey, you need to take a look at this and
    maybe think twice about doing this, and yet they went right
    ahead. Isn't that correct, Dr. Feinwachs?
        Mr. Feinwachs. Mr. Chairman, Representative Davis, that is
    correct. Also, we do something called Medicaid rate
    certification. We certify, we attest to the Government that the
    rates are correct. And even though CMS may lack enforcement,
    they should be verifying and looking at that process to make
    sure that those certifications----
        Mr. Jordan. But don't they have to sign off on it before
    they have to pay it?
        Mr. Feinwachs. They do, sir.
        Mr. Jordan. So that took place, correct?
        Mr. Feinwachs. Correct.
        Mr. Jordan. Okay. I thank the gentleman.
        I thank the gentleman from Illinois.
        We want to thank our first panel for being here and for
    your work.
        We will now ask the staff to prepare for our second panel.
        [Pause.]
        Mr. Jordan. The Committee is in order.
        We want to thank our second panel for being here. It is
    still this morning. We have with us Ms. Lucinda Jesson, who is
    the Commissioner of Minnesota's Department of Human Services;
    we have Ms. Cindy Mann, Director of Center for Medicaid State
    and Operations for the Centers for Medicare and Medicaid; and,
    of course, Ms. Carolyn Yocom, who is the Director for Health
    Care at the U.S. Government Accountability Office.
        We have to do the same routine, so if you will stand up and
    raise your right hand.
        Do you solemnly swear or affirm that the testimony you are
    about to give will be the truth, the whole truth, and nothing
    but the truth?
        [Witnesses respond in the affirmative.]
        Mr. Jordan. Let the record reflect that all of our
    witnesses answered in the affirmative.
        You get five minutes. You guys know the drill. We will
    include all of your written testimony in the record, but if you
    can keep it to five, approximately five, that would be great,
    because I know that Mr. Gowdy, Mr. Kucinich, and Mr. Davis, we
    have some questions for you.
        So, Commissioner, we will go right down the list and you
    are up first.

                      STATEMENT OF LUCINDA JESSON

        Ms. Jesson. Thank you, Mr. Chair. Mr. Chair and members, my
    name is Lucinda Jesson. I am Commissioner of the Department of
    Human Services for the State of Minnesota. Thank you for the
    opportunity to discuss Minnesota's Medicaid program.
        You know, Minnesota is a leader, and has been, in using
    managed care to serve its Medicaid population, and I was happy
    to accept this invitation because, as more and more States move
    Medicaid populations into managed care, there are a lot of
    lessons to be learned from Minnesota; lessons about what works
    and lessons about what needs to be done differently, both types
    of lessons.
        First let me talk about what works. Access, quality,
    innovation, delivery models. Minnesota has placed a high
    priority over many years in providing good access to health
    care for its low income citizens, and managed care is available
    to enrollees statewide through our nonprofit HMOs and county-
    based health plans. And let me be clear. Managed care has been
    critical to providing access to health and long-term care
    services for our Medicaid population. You often hear in other
    States that having public insurance doesn't mean much if you
    can't see a doctor. Not in Minnesota. Overall, our enrollees
    have access to quality care.
        What needs improvement? Better contracting, being a smarter
    purchaser of health care, and, frankly, increased oversight.
    And let me address each of these concerns and briefly outline
    the steps Minnesota has taken over the past 15 months, since
    Governor Mark Dayton took office, to address them.
        When Governor Dayton and I took office last year, we had
    serious concerns about how the Department of Human Services
    under the previous administration had purchased health care for
    its Medicaid managed care program. We also had concerns about
    the transparency and oversight of the contracting process
    itself. Our concerns stemmed from increasing profit margins
    that health plans earned from public programs, the particularly
    high level of health plan reserves--and I attached some charts
    on these things to my written testimony--which resulted in
    part, these reserves, from profits on public programs, and we
    had concerns about the contracting process itself.
        We were struck that the contracts we inherited from the
    previous administration offered few incentives for improving
    quality and reducing costs. Moreover, at a time when the
    private sector was making considerable progress on payment
    reforms, doing more creative things, the State contracts
    remained stuck in the old way of doing business.
        We also felt that the actuarial soundness requirement was
    inherently inflationary, because you ended up setting rates in
    the future based upon primarily what had happened in the past,
    and we questioned where the incentives were for more
    efficiency.
        So while there are and were many positive aspects to
    managed care, there was also a lack of creativity and a lack of
    focus on value on how health care was purchased in Minnesota,
    and we moved very quickly to address those. First, we addressed
    the 2011 contracts we inherited by asking all four major health
    plans to voluntarily agree to cap their 2000 earnings at 1
    percent of operating margins for our programs, and I want to
    thank the plans for agreeing to that.
        Earlier this month we announced that an estimated $73
    million will be returned to the Federal and State governments
    due to this cap on excess profits. And when you add to the $30
    million from UCare, which we have agreed with CMS to treat
    under that 1 percent cap so that the Federal Government is
    returned its share, when you add those two together, you have
    over $100 million we recovered for Federal and State taxpayers
    from the previous administration's 2011 contracts.
        But we didn't stop there. Just a little over a month after
    I took office, we put the major health plan contracts for the
    Twin Cities metropolitan area out for bid. In the past, DHS,
    working with its actuaries, basically set the capitation rates,
    and any plan could participate if they accepted those rates.
    Those rates were approved by CMS. But under competitive
    bidding, we changed the incentives. Plans had an incentive to
    give us their best proposal in terms of cost and quality.
        And there were winners and losers among the health plans,
    but the real winners were the Federal and State taxpayers who,
    under the new contracts, had $175 million in savings to the
    State and an equal $175 million to the Federal Government. When
    you combine this with our other managed care reforms that we
    passed with strong legislative support, our managed care
    reforms totaled over $600 million, and that is in addition to
    the $100 million from the cap, in savings to the State and
    Federal Government.
        But we need to not only be a smarter purchaser of health
    care; we need to increase the oversight of these large
    contracts, and no one believes that more than I do. In
    Minnesota, there are, as you have heard, very real questions
    and some mistrust over where these billions of dollars are
    going, and that is why Governor Dayton, just two months into
    office, ordered additional audits of the health plans, and
    those audits started this month. They are being conducted by
    outside vendors contracted by the Minnesota Department of
    Commerce.
        Additionally, at DHS, I created the Office of Inspector
    General to enforce increased program fraud detection and
    prevention efforts. We also changed the contracts we had with
    the health plans to have better compliance, and we added
    reporting requirements about what they were doing on their own
    program integrity office.
        Finally, as someone mentioned, the Human Services Bill,
    which just passed our legislature and is headed to Governor
    Dayton's desk, requires a requirement for third-party financial
    audits in addition to the ones the governor has ordered. These
    audits will strengthen our oversight that we have conducted
    through our legislative auditor's office and Governor Dayton
    strongly supports this requirement.
        Minnesota has long been a leader in how managed care plans
    serve our Medicaid enrollees, but changes needed to be made in
    the way we do business now and in the future. We have made an
    unprecedented number of them just in the last 15 months, and we
    are not done.
        Thank you.
        [Prepared statement of Ms. Jesson follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Jordan. Thank you, Commissioner.
        Director Mann?

                        STATEMENT OF CINDY MANN

        Ms. Mann. Good morning, Chairman Gowdy and Gordon, Ranking
    Members Davis and Kucinich, and members of the Committee. Thank
    you for the invitation to discuss Medicaid's financial
    management.
        No matter could be more central or important to the
    Medicaid program, or indeed to any health care program.
    Medicaid, as you all know, is the primary source of medical
    assistance for millions of low income, disabled, and elderly
    Americans, children and adults alike. In fiscal year 2012, an
    estimated 56.6 million people will receive their health care
    coverage through the Medicaid program.
        The Medicaid program establishes, at the Federal level, we
    establish minimum requirements. States design, implement,
    oversee their Medicaid programs and federalism is the hallmark
    of the program. Our basic financial management arrangement
    works as follows: States pay for the health care benefits
    provided to eligible individuals and the Federal Government, in
    return, matches qualified State expenditures at a rate that
    varies between 50 and 75 percent. On average, States are
    responsible for about 43 percent of program costs. The matching
    structure ensures that both the States and the Federal
    Government have a very strong fiscal interest in assuring that
    the program operates efficiently.
        I am going to use my time this morning to briefly describe
    our methods of financial oversight that relate specifically to
    the issues raised at this hearing, but let me first make a few
    quick observations.
        Medicaid, like other payers, is very interested in
    supporting new ways of delivering and paying for care to
    promote better care at lower costs. Fortunately, we have at our
    side something most payers don't have, which is 50 State
    partners. We have a number of States that have been approved to
    operate and create health homes that are looking for shared
    savings arrangements with their providers, and States as
    diverse as Texas and Massachusetts that are redesigning in
    fundamental ways their Medicaid delivery systems.
        Second, because Medicaid, like the marketplace, generally
    is experiencing significant change, our goal is not just to
    manage the issues that were identified last year or five years
    ago, but, rather, to develop new tools and methods to respond
    to and, indeed, to anticipate the changing landscape.
    Therefore, like many prudent purchasers, we value in our
    investing in data and measurement to assess what is working, to
    rapidly adjust when things aren't working, and to rapidly scale
    when things are going well. Improved data and measurement will
    take a while for us to fully implement, but it will allow us to
    better track costs, utilization, integrity, and quality.
        Third, nothing that has been talked about today is unique
    to Medicaid. Orthodontists doing improper billing, health plans
    overcharging, those aren't unique to the Medicaid program,
    sadly. The work that the Attorney General of the United States,
    that Secretary Sebelius have done to aggressively fight health
    care fraud with the private sector, has focused on health care
    fraud more broadly and the notion that it is a broad issue that
    affects public, as well as private payers. We have a major
    responsibility to do so, but it is not a problem that is unique
    to either Medicaid, Medicaid, or commercial payers.
        I am going to now turn to a general description of our
    methods for overseeing the payment of Federal matching funds.
        States report their expenditures to us on a quarterly basis
    through an online system, and a team of accountants and
    financial management specialists review those States'
    submissions of expenditures. They review them carefully and
    approve them or defer them before we pay our Federal matching
    payments.
        Our teams also coordinate with State auditors and with the
    HHS Office of Inspector General to ensure that State
    expenditures and corresponding claims for Federal funds are
    allowable, and every year we also establish with our regional
    offices a work plan for an in-depth financial management review
    that reflects our assessments or risk. We might follow up with
    an OIG report that suggest a problem that might be widespread;
    we might focus on an area of spending that we think is prone to
    abuse. When we question expenditures, we defer payment; we
    defer the Federal funds to the States pending resolution, and
    then we disallow the funds for claims for which adequate
    documentation or justification is lacking.
        We are not, as Congressman Davis pointed out, we are not
    the fraud office; we are not the law enforcement office. But
    we, of course, work very closely with those offices as
    appropriate. And I might say, in that regard, that the Office
    of Inspector General, the HHS Office of Inspector General, the
    Department of Justice has been involved in each and every one
    of the matters that we have discussed today, both in New York,
    in Minnesota, as well as in Texas.
        Let me turn next to our oversight of plans and provider
    payment rates. Under Federal Medicaid law, States are
    responsible for setting their rates to providers and plans in a
    fair and efficient manner, and assuring that plans and
    providers are paid enough so that Medicaid beneficiaries have
    access to care. Both of these elements of the equation are
    really critical. We and States must have measurement systems in
    place to assure that rates are sufficient to provide our
    beneficiaries with access to care.
        This relates directly to the matter that Representative
    Cummings mentioned earlier with respect to Deamonte Driver, who
    died for lack of being able to find dental care in the State of
    Maryland. We issued proposed rules on how we might monitor
    access last year and plan to finalize that rule later this
    year.
        At the same time, plans and providers must not be paid more
    than what is fair and efficient, or else the program is wasting
    money or spending money inappropriately. As a result, we set
    outer bounds in the Medicaid program. For example, we won't pay
    more than the upper limit of what Medicare would pay for
    certain classes of providers, and we require rates paid to
    plans to be actuarially sound and certified.
        And one very important control that is embedded in the
    structure of the program itself is that because States are
    spending their own money, as well as the Federal Government's
    money, they will take every opportunity to act as prudently
    purchasers. We know, of course, that States also will seek to
    maximize Federal funding, and so we have measures in place to
    ensure that States in fact pay their State share of costs.
        Turning specifically to the payment rates in managed care,
    we are grateful to the GAO for its work over the years and its
    recommendations specifically in 2010. We have taken those
    recommendations very seriously and we are working towards
    implementation. We have made good progress, but more needs to
    be done. We have supported our regional offices through
    training and guidance; we are creating a stronger database for
    the evaluation of rates; we are developing an online system of
    contract review; and we are planning to strengthen our
    financial management and oversight to move more toward a risk-
    based approach, modulating the depth of review based on risk
    factors.
        With respect to Minnesota--and I will just be a moment--we
    are pleased to report, as the Commissioner noted, that
    Minnesota determined that it will provide, appropriately, we
    believe, the Federal Government with its share of the UCare $30
    million that was received by the State, and we also have added,
    contrary to, I think, the implications earlier, in the terms
    and conditions to the waiver in Minnesota, very specific
    provisions to assure that there is increased oversight in the
    Minnesota plans, and we continue to work very closely with the
    State as we move forward.
        Thank you.
        [Prepared statement of Ms. Mann follows:]

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        Mr. Jordan. Thank you, Director.
        Director Yocom?

                     STATEMENT OF CAROLYN L. YOCOM

        Ms. Yocom. Chairman Jordan and Gowdy, Ranking Members
    Kucinich and Davis, and members of the Subcommittee, I am
    pleased to be here today as you discuss oversight of the
    Medicaid program.
        The Medicaid program has been on GAO's list of high-risk
    programs for nearly 10 years, in part because of concerns about
    the program's fiscal management. CMS and its State partners
    continue to face challenging finding the proper balance between
    Federal oversight and States' flexibility to administer their
    Medicaid programs. Both the States and the Federal Government
    must take responsibility for managing program finances
    efficiently.
        My remarks today summarize some of GAO's prior work on
    CMS's oversight of three areas of the Medicaid program: States'
    rate setting methodologies for capitated managed care,
    supplemental payments, and program integrity. Overall, our
    prior work has shown that that CMS has faced challenges with
    the fiscal management of Medicaid in these three areas.
        First, with regard to rate setting methodologies, in August
    of 2010, we reported on CMS's oversight of States' compliance
    with actuarial soundness requirements which govern the process
    used to develop capitated managed care rates. At the time of
    our reporting, we found significant gaps in CMS's oversight of
    two States. In particular, CMS had not reviewed one State's
    rate setting for multiple years, nor had it completed a full
    review of another State's rate setting since the actuarial
    soundness requirements became effective, which was in August
    2002. Beyond these two States, we identified additional
    inconsistencies in oversight, raising concerns that CMS was not
    ensuring other States' compliance with actuarial soundness.
        In this same report, we noted that actuarial certification
    does not ensure that the data used to set the rates are
    reliable because actuaries may not audit or independently
    verify these data. CMS's efforts to ensure the quality of the
    data used to set the rates were generally limited to requiring
    assurances from States and health plans. From GAO's
    perspective, these efforts do not provide enough information to
    ensure the quality of the data used to set rates. With limited
    information on data quality, billions of Federal and State
    dollars are at risk for misspending.
        Second, for over a decade we have reported on various
    financing arrangements involving supplemental payments that
    shift the cost from the States to the Federal Government. Our
    work has found that while a variety of congressional and CMS
    actions have helped curb such arrangements, gaps in oversight
    remain. Statutory changes have resulted in recent regulations
    that have the potential to improve oversight of some, but not
    all, supplemental payments.
        Effective in 2011, there are improved transparency and
    accountability requirements for supplemental payments to
    hospitals that treat large numbers of low income and Medicaid
    patients. However, these requirements, such as facility-
    specific reporting, are not in place for other types of
    supplemental payments, which appear to be increasing. Because
    such financing arrangements effectively increase the Federal
    Medicaid share above what is established by law, they threaten
    the fiscal integrity of the Medicaid program and they damage
    the Federal-State partnership.
        Last, in December 2011, we testified that a key challenge
    CMS faced in implementing its Medicaid Integrity Program was
    ensuring effective coordination to avoid duplicating States'
    program integrity efforts, particularly in the area of auditing
    provider claims. The largest component of the Medicaid
    Integrity Program, the National Provider Audit Program, has had
    disappointing results, as these overpayments identified by its
    audit contractors were not commensurate with its contractors'
    costs.
        For example, CMS's audit contractors identified about $15.2
    million in overpayments in fiscal year 2010, but the combined
    cost of the National Provider Audit Program is over twice that
    amount, about $36 million. CMS has announced plans to redesign
    this program, but it remains to be seen if this redesign will
    achieve improved results.
        CMS's other core activities are broad in scope and raise
    similar concerns regarding duplication.
        On a more positive note, its collaborative efforts on
    auditing with States and CMS's Medicaid Integrity Institute, a
    national training program for State program integrity
    officials, both show promise. In particular, these efforts
    appear to promote effective State coordination and
    collaboration, and show more promising results.
        Mr. Chairman, this concludes my prepared remarks.
        [Prepared statement of Ms. Yocom follows:]

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        Mr. Jordan. Thank you. Thank all the witnesses.
        I will now yield five minutes to the Chairman of the
    Subcommittee, the gentleman from South Carolina, Mr. Gowdy.
        Mr. Gowdy. Thank you, Chairman Jordan.
        Director Mann, since 9:30 this morning we have learned, in
    that whopping less than three hours, that there is an expert
    witness who will testify that perhaps as many as 90 percent of
    the cases in Texas were outside the guidelines. We have
    providers who were certifying otherwise in writing. You have
    before and after pictures. You have photographs of providers
    who were advertising free braces. So it would not be tough, I
    don't suspect, to send an investigator to these free braces
    clinics to find out what percentage of patients they actually
    denied, as opposed to accepted. You have no study showing any
    hirer rate of malocclusion in Texas than any other State.
        So, with that bevy of evidence, what has CMS done about the
    Texas orthodontia scandal?
        Ms. Mann. Well, several things that I would like to note.
    First, there is an HHS Office of Inspector General is
    conducting an investigation now, as well as the Department of
    Justice. They are deeply involved and actually just made an
    announcement about some agreement----
        Mr. Gowdy. Have you talked to the attorney general recently
    about this case to get an update on its status?
        Ms. Mann. I have not talked to the attorney general
    recently.
        Mr. Gowdy. Have you talked to the United States attorney
    and the appropriate district in Texas to get an update on the
    status of the case?
        Ms. Mann. Yes. We have been in touch with the Office of
    Inspector General. Our regional office has been in touch with
    them and I have been in daily, well, regular contact, I should
    say, with the State Medicaid director and with the
    commissioner----
        Mr. Gowdy. Have any orthodontists lost their license to
    practice medicine?
        Ms. Mann. I don't know that. You asked that earlier and I
    thought that was an important question, and I have sought the
    answer to that. We don't oversee that, but I don't know the
    question. I do know that the orthodontists, if they have bilked
    the Medicaid program, not properly billed the Medicaid program,
    they should be terminated not just from that Medicaid program,
    but from any Medicaid program across the Country.
        Mr. Gowdy. Which would be debarment, right? That is the
    phrase we use, debarred.
        Ms. Mann. Well, our jurisdiction is to terminate them form
    participating in the program. We don't honestly control----
        Mr. Gowdy. How about to disgorge them of the profits? Has
    there been any attempt at restitution or disgorgement of the
    profits?
        Ms. Mann. My understanding--you will have to talk to the
    Department of Justice, we can get you that information, but my
    understanding is, at least as to the corporation for whom they
    worked, some of them, that is part of it. Certainly from our
    point of view--again, we are not the law enforcement arm----
        Mr. Gowdy. I understand that. That is why----
        Ms. Mann. From our point of view----
        Mr. Gowdy. That is why I haven't asked you who has gone to
    jail. But you do have a role in getting restitution, do you
    not?
        Ms. Mann. That is exactly right. And we will----
        Mr. Gowdy. So all I can ask you about--I will just ask you
    how much money you have collected in restitution.
        Ms. Mann. We are looking at which claims were improperly
    paid and we will defer all those claims and any that were
    improper----
        Mr. Gowdy. How long do you think that will take? Because it
    just doesn't strike me as being that difficult of a case, to be
    honest with you.
        Ms. Mann. Generally, when the Department of Justice is
    involved in an investigation, we usually wait until their
    investigation is complete so that we don't get in the way, but
    we will defer the claims pending the investigation.
        Mr. Gowdy. So you are going to insist that restitution be
    part of any criminal settlement with any of these orthodontists
    or corporations?
        Ms. Mann. I can't comment on what will happen with respect
    to the criminal actions----
        Mr. Gowdy. But you are going to ask for it?
        Ms. Mann. I can commit that our authority is, and we will,
    defer and disallow any claims that were improperly paid.
        Mr. Gowdy. All right, Commissioner Jesson, do you know a
    Christopher Ricker?
        Ms. Jesson. Mr. Chair, that name sounds familiar, but I
    don't know who it is.
        Mr. Gowdy. Well, I don't either, but this is what he wrote
    in an email: We do not want to give any appearances that the
    money might be coming to DHS, parenthetically, it bolsters our
    argument with CMS that this wasn't a provider return and,
    therefore, doesn't need to be shared with them. I guess them
    being CMS, which may go to why you want to have telephone calls
    as opposed to emails.
        So I will ask you why your preference for telephone calls
    and not emails.
        Ms. Jesson. Mr. Chair, actually, that email was talking--if
    you look at the whole chain of them, about two things. One of
    them, I was correcting a draft press release, and that was
    where I said it should be a donation. But it was also in my
    emails----
        Mr. Gowdy. Well, let me ask you about that. The context of
    it is in order to have a good chance of keeping all this money,
    it must be characterized as a donation. It doesn't read in
    order to keep the reader of our press release from getting the
    misapprehension, it must be corrected, it clearly is calculated
    to be able to keep all the money, agreed?
        Ms. Jesson. Mr. Chair, UCare, when they came to tell me
    about this call to the donation, I was trying to characterize
    it the same way they characterized it to me----
        Mr. Gowdy. Well, if it were just to correct a press
    release, why would you say, if a refund, Feds clearly get half?
    Why wouldn't you say we just have to get the press release
    right?
        Ms. Jesson. Mr. Chair, there is, as you know, a difference
    between a bona fide donation, which I believe this was, and a
    return of money, and I was trying to make that clear.
        Mr. Gowdy. Is there a strict policy on emailing press
    releases? Is that why you asked for telephone calls instead of
    emails?
        Ms. Jesson. No, Mr. Chair. Actually, the reference to
    telephone calls was going back to an earlier part of that email
    where we were talking about informing the chairs of the
    legislative committees----
        Mr. Gowdy. You certainly can understand how it might read
    otherwise, can't you, Commissioner?
        Ms. Jesson. If you only read that portion of the email
    chain and not the entire one, I understand that.
        Mr. Gowdy. Well, what I am reading is in order to have a
    good chance of keeping all this money, it must be characterized
    as a donation; not that it must be a donation, it must be
    characterized as a donation. If a refund, Feds clearly get
    half. Can you work with Scott on redrafting? Also, I thought we
    were going to handle this through phone calls. Surely you can
    see how a casual reader might get the impression that this was
    calculated to keep the full $30 million, and not to correct
    some press release, can't you?
        Ms. Jesson. What I was doing, Mr. Chair, was what I think
    my job calls for when someone makes a donation, and I think
    have a good faith basis that it is a donation.
        Mr. Gowdy. Do you have a lot of people making $30 million
    donations?
        Ms. Jesson. That is a really good point, sir.
        Mr. Gowdy. So how many $30 million--if it is a good point,
    what is a good answer? How many $30 million donations did you
    have that you sent emails to make sure they were characterized
    correctly?
        Ms. Jesson. Congressman, I think that is an excellent
    point, because this was a very unique situation, and one which
    we didn't have a play book for, where there wasn't a clear
    answer. We took one position; CMS took another. And I am glad
    we are able to resolve this by basically----
        Mr. Gowdy. Well, I don't know that we have resolved it. The
    only thing that has been resolved to me is that there is a
    perverse incentive to keep as much of other people's money as
    you possibly can, even if it means re-characterizing something.
    That is the impression I got.
        Mr. Chairman, I am out of time.
        Mr. Jordan. I thank the gentleman for his important
    question.
        Before going to the Ranking Member, Mr. Kucinich, let me
    just ask you, Director Mann, when did you first learn about the
    situation in Texas? Was it through the media, through the press
    accounts?
        Ms. Mann. It was----
        Mr. Jordan. After it had become public knowledge, is that
    when you first learned about it?
        Ms. Mann. After it had become public knowledge----
        Mr. Jordan. What about the situation in Minnesota, when did
    you first learn about the----
        Ms. Mann. Through the commissioner also of Texas; we talked
    about the problem.
        Mr. Jordan. After it had become public. What about the
    situation in Minnesota, when did you first learn about that,
    was it after it had become public knowledge through the efforts
    of Mr. Feinwachs and others?
        Ms. Mann. Yes, after it had become public knowledge.
        Mr. Jordan. How many people work at Health and Human
    Services?
        Ms. Mann. I don't have that number off the top of my head,
    but I would be happy to give you----
        Mr. Jordan. I think it is 65,000 is what I have been told.
    How many people work at CMS?
        Ms. Mann. A little over 300.
        Mr. Jordan. So of that 65,000 folks, 300 folks at CMS, do
    you have anyone who--I mean, it would seem to me someone would
    be watching particularly the Texas situation, where you have
    one State doing more of this than the rest of the Country
    combined, and yet the first time you found out about it is when
    the press broke a story on it?
        Ms. Mann. Chairman, we do not pay claims directly; we----
        Mr. Jordan. Do you have anyone who does oversight at HHS?
        Ms. Mann. The State pays claims and then we would look and
    see what happens to those claims and whether those claims are
    legitimate claims. There were $200 million, as I understand it,
    in orthodontia claims in an account of about $2 billion spent
    for dental care that was rising. It should have been detected;
    it was clearly an outlier claim. The State did not, in its
    surveillance of outlier claims, did not specifically look at
    the coding for orthodontia claims. It expected----
        Mr. Jordan. So it was the State's problem?
        Ms. Mann. It is certainly in the first----
        Mr. Jordan. It was their fault that it wasn't recognized
    and no fault rests with CMS, even though we just heard from
    Director Yocom, who had all kinds of concerns about what goes
    on at CMS and how you fail to audit, how you----
        Ms. Mann. I think we have joint responsibility. What I am
    saying is that in the first instance----
        Mr. Jordan. It sounded like what you were saying is you
    were blaming Texas.
        Ms. Mann. I am saying we have joint responsibility. In the
    first instance the State had----
        Mr. Jordan. You have 65,000 employees----
        Ms. Mann. I don't have 65,000 employees.
        Mr. Jordan. Sixty-five thousand employees at HHS and you
    just said it was joint responsibility, even though you said
    Texas has the responsibility.
        Ms. Mann. We have joint responsibility.
        Mr. Jordan. Okay. Sixty-five thousand employees and no one
    could see this? No one saw this coming? Until it was public, no
    one knew about it?
        Ms. Mann. We did not know about it until it was revealed.
    We are working in many States and many States are doing
    predictive modeling, where you can track the expenditures on
    different codes and you would identify outliers. That was not
    done in this circumstance.
        Mr. Jordan. We will be generous for the time for the
    Ranking Member. We now recognize Mr. Kucinich from Ohio.
        Mr. Kucinich. Thank you very much, Mr. Chairman.
        I want to follow up on a line of questioning that my
    friend, Mr. Gowdy, began of Commissioner Jesson.
        Commissioner, until just the day before yesterday you
    maintained that the Federal Government was not entitled to any
    part of the $30 million UCare transfer, isn't that right?
        Ms. Jesson. That is correct.
        Mr. Kucinich. Okay. Now, after CMS pursued this matter with
    you, you have apparently changed your mind and you intend to
    give the Federal Government its share of the UCare transfer. I
    have questions about how you got to the point of believing and
    acting to keep all of the UCare funds from Minnesota, when many
    believed at the time, and you now concede, that the funds
    needed to be divided with the Federal Government.
        Now, you note in a letter to CMS a discussion of the
    donation announcement with Ms. Mann while you were attending a
    conference in Baltimore in March of 2011. Is it your testimony
    that you provided Ms. Mann with full information on the matter
    at that encounter and that Ms. Mann then gave you an approval
    of your intention to keep all the funds from Minnesota?
        Ms. Jesson. No, Congressman, that is not what I am saying.
    I did--Nancy Feldman, who is CEO of UCare, came to my office
    and told me on March 14th that they were going to make this
    donation. I was in Baltimore on the 16th and 17th of that week;
    during that time I met with Cindy Mann and people from CMS, and
    it was more of a here is a heads-up; we are issuing a press
    release today about this donation.
        Mr. Kucinich. So when this discussion occurred, were you at
    a reception, was it a formal business meeting, were either
    present? Did you present a legal analysis? Help me understand
    this. How did that come up?
        Ms. Jesson. This came up during, it was a scheduled
    meeting; we were there for what was called a pace car event and
    we were meeting with CMS about exchange-related matters about
    the health exchange. So there was a group of people from
    Minnesota and a group of people with CMS. It was not on the
    agenda of the meeting; I just said it to let her know what was
    going on. I have never said that she said that is fine. As a
    matter of fact, I believe when I said it I said something along
    the lines of----
        Mr. Kucinich. So you are saying now that you didn't believe
    that you had some form of approval from Ms. Mann, or indirectly
    from CMS, of your characterization of the funds as a donation
    solely to the State be placed in the Minnesota general fund, is
    that right?
        Ms. Jesson. That is right.
        Mr. Kucinich. Where did you get the idea, then, that it was
    a donation? How did that come up?
        Ms. Jesson. Congressman, it came up because UCare, when
    they came in, they said, we are making a donation to the State
    of Minnesota of $30 million from our reserves; and that was
    really just two days before I talked to Ms. Mann, and that was
    what I knew. I did look at the contracts myself to see did they
    owe us this money? They didn't owe us this money under the
    contract and we hadn't asked for the money. So from my
    perspective----
        Mr. Kucinich. They didn't owe you the money, you hadn't
    asked for it, but you wanted $30 million to go to the general
    fund of Minnesota. How does that happen? I don't understand.
        Ms. Jesson. Congressman, what UCare told me when they came
    to meet with me was Minnesota had a historic budget deficit of
    $5.3 billion. They felt like they had the money available in
    the reserves; they made a donation. But, if I may, Congressman,
    I just want to be clear, as far as changing my mind. We
    believed we had a bona fide donation, and there are
    disagreements----
        Mr. Kucinich. But what is a bona fide donation? I don't
    understand that. I mean, the rule is you would have to give
    half to the Federal Government. Now, in fact, as early as July
    2011, according to what we have, Ms. Mann began to question
    you, asking you for your justification in keeping the entirety
    of the UCare transfer for Minnesota. Now, to me, that doesn't
    seem consistent with this notion that somehow CMS had known,
    signed off. Help us with this. Help us understand this.
        Ms. Jesson. Congressman, we took the position that it was a
    donation. CMS took the position that it was a refund and had to
    be shared with the Federal Government. After we got the
    donation, we provided additional information to CMS. We have
    differences with CMS over large amounts of money often.
    Sometimes if we don't----
        Mr. Kucinich. Really? Such as what? Give me another example
    of a difference you have with CMS on a large amount of money,
    and are you withholding that money from CMS?
        Ms. McCollum. Mr. Chair, if the Commissioner could finish
    the thought, please.
        Mr. Kucinich. Excuse me. The gentlelady from Minnesota, I
    have a line of questioning here which is important for the work
    of this Committee, and I would ask the gentlelady to suspend.
        Would you answer the question, please?
        Ms. Jesson. Congressman, it is frequent that we will have
    disagreements where there are unique situations, which this
    was, or ambiguity in interpretations. For example, just a
    couple of examples, in 2006 CMS disallowed over $19 million in
    the Federal match regarding a supplemental payment to nursing
    homes. We disagreed about that; we couldn't resolve it. We went
    to the appeals board and that board found in favor of the
    State. In 2008 there was a disagreement about $8 million in
    Federal funds, which we, once again, went to the appeals board
    and the appeals board came down somewhere in the middle between
    the Feds and the State.
        These are discussions that frequently happen. What I am
    happy about here is that we were able to, because of the one
    percent cap, resolve this, I think, appropriately with CMS.
        Mr. Kucinich. So there was nothing unusual about the kind
    of exchange where the State claims $30 million as a donation,
    you go back to CMS and you work it out, is that what you are
    saying?
        Ms. Jesson. A $30 million donation, Congressman, is
    certainly unusual.
        Mr. Kucinich. Well, this is why we are here to discuss it.
    I think it is unusual, but I am just trying to find out how it
    happened and I am still not sure.
        I just would like to conclude, Mr. Chairman, and say that
    based on the testimony that is presented here and other
    information given to the Subcommittee, I think that the
    chronology of events went like this: the commissioner or the
    State claimed all $30 million of a transfer from a Minnesota
    Medicaid managed care organization; the Federal Center for
    Medicare and Medicaid Services questioned the justification for
    claiming the entire amount for the State, rather than returning
    to the Federal Government its share of the transfer; and
    ultimately you, Commissioner, reversed yourself and you are now
    returning about $15 million to the Federal Government.
        Now, I am not saying that you did any wrong, perhaps you
    thought you were doing the right thing; somebody else is going
    to have to determine that. But I think in this instance the
    Federal Center for Medicare and Medicaid Services did something
    right, and it is important to go over the sequence to sustain
    that view.
        So I thank the gentleman for his indulgence with time here.
        Mr. Gowdy. [Presiding.] I thank the gentleman from Ohio.
        The Chair would now recognize the gentleman from Illinois,
    Mr. Davis.
        Mr. Davis. Thank you very much, Mr. Chairman.
        Commissioner Jesson, let me just ask you did you seek a
    legal opinion relative to the status of the contribution?
        Ms. Jesson. Congressman, after we got the July letter from
    CMS taking the position that this was not a donation, I did
    seek a legal opinion about this.
        Mr. Davis. This was afterwards that you sought it.
        Ms. Jesson. After we got the July letter, but it was still
    before we actually received the donation, Congressman.
        Mr. Davis. Let me just say that I think there has obviously
    been some mistake in judgment in terms of this whole matter.
    But I also want to indicate that I have been looking at
    Minnesota for a long time in terms of its health care, and
    there is a great deal that is right with Minnesota. It has been
    a model for efficiency as a result of this tremendous nonprofit
    health care system efficiency that I have observed. But I would
    like to hear about improving the contracting operation. Can you
    speak to us about the competitive bidding process now and what
    it is that you have done to improve that?
        Ms. Jesson. Thank you, Congressman. Actually just a month
    and two weeks after I started in the governor's budget,
    Governor Dayton proposed competitive bidding for really half an
    area that included half of our Medicaid enrollees, and the
    reason we did that is because, as I said earlier, we had
    serious questions about the excess money that the health plans
    were making and we really wanted to reset and get the best rate
    we could, but also looking at quality.
        So what we did was issued an RFP, request for proposals,
    for all the health plans to bid on our Medicaid population by
    county. They had to give us both the cost bids, but also,
    importantly, include a lot of quality information. And when we
    sat back to judge those bids, we judged them half on their
    quality and half on their cost, and after doing that we ended
    up reducing the number of health plans that served most of the
    counties. So we took the best bids and we reduced the projected
    cost to the State and the Federal Government for those plans by
    I think it was almost 7 percent and saved over $300 million
    just on the competitive bidding.
        But then what we did was we took what we learned about the
    fact that obviously these rates could be a lot lower than
    people had thought in the past, a lot lower.
        Mr. Davis. So you recouped $73 million this year and you
    have shared that with the Federal Government?
        Ms. Jesson. Correct.
        Mr. Davis. Can I ask why were the UCare funds of 2011
    initially handled differently?
        Ms. Jesson. Congressman, they were initially handled
    differently because we were told and believed it was a
    donation. But once we looked at the one percent cap, we
    realized that if UCare hadn't made that donation, then they
    would be paying back $38 million, instead of just $8 million,
    to the State and Federal Government. So we thought it was only
    fair to share that $30 million with the Federal Government, as
    well as the $73 million, as well as the over $600 million that
    we have saved in our managed care reforms.
        Mr. Davis. So this transaction came as a result of prior
    contractual relationships under the former administration?
        Ms. Jesson. Yes, Congressman, the one percent cap did
    because we inherited the contracts. We thought they were too
    generous, so we negotiated a cap with the health plans.
        Mr. Davis. Did you have the feeling that there had been any
    cross-subsidizing of Minnesota's program by improperly
    inflating the Medicaid costs?
        Ms. Jesson. The program, General Assistance Medical Care,
    that is being accused of--it is a State-funded program, so the
    allegation, as I understand it, is they were paying more for
    Medicaid to pay less for the State-funded program. That program
    is no longer in existence when I started as commissioner, so I
    didn't work at the department, so I do not have firsthand
    knowledge of whether that happened; and actually, Congressman,
    when I started, I brought in a whole new team in this part of
    the department because I thought we needed to change direction.
        But I will say I very clearly thought that the State of
    Minnesota and the Federal Government were paying too much money
    under our Medicaid contracts. That is why I put them out for
    competitive bids.
        Mr. Davis. Thank you very much.
        Director Mann, can I ask you if there is a separate office
    of CMS responsible for fighting fraud?
        Ms. Mann. Yes, there is. Also, let me try and be clear on
    my answer on numbers before. CMS itself has 4500 full-time
    employees; Medicaid office, which I oversee, has about 350; and
    we have the Center for Program Integrity, Congressman, about
    150 people. They are primarily responsible for fraud, but
    really it is--I would certainly, as the director of the program
    itself, see it as also good strong financial management as my
    responsibility, as well as the Center for Program Integrity.
        Mr. Davis. So you have 150 people fighting fraud. That is
    for the entire Country?
        Ms. Mann. Well, that is for the Center for Program
    Integrity, that is actually Medicare and Medicaid.
        Mr. Davis. Yes.
        Ms. Mann. There are about 60 within that for Medicaid.
        Mr. Davis. Thank you very much.
        And thank you, Mr. Chairman. I yield back.
        Mr. Gowdy. I thank the gentleman.
        The Chair would now recognize the gentleman from Texas, Mr.
    Burgess.
        Mr. Burgess. I thank the Chairman for the recognition and
    again appreciate the opportunity to be here with you.
    Obviously, I am on another committee, but this issue is so
    important that I wanted to participate today.
        Ms. Mann, we have heard three specific cases here today,
    every one of which is startling in and of its own right, but
    tell us what you are doing and going to do at CMS to prevent
    this from happening and to deal with the issues that have
    already occurred.
        Ms. Mann. Well, in terms of the issues that have already
    occurred, there are investigations going on in all three
    situations. Actually, reports have already been issued in the
    New York case and investigations going on in both Minnesota and
    Texas by the HHS Office of Inspector General and the Department
    of Justice involved.
        To the extent that we determine that there are questions
    about any particular expenditures, we defer those expenditures;
    we won't pay until there has been full resolution, and then we
    disallow if we do not feel that there is justification for
    paying for those----
        Mr. Burgess. How many payments have you disallowed so far
    in Texas on dental procedures?
        Ms. Mann. We have not taken the disallowance yet; it is
    still within the regional office to consider the disallowance.
        Mr. Burgess. So these clinics are still being paid?
        Ms. Mann. I believe the State has moved forward and the
    clinics are not being paid. So I don't think the problem is
    continuing. The State has taken a number of different steps to
    change their process; they had a prior authorization, a company
    that did prior authorization to review those claims. That
    company should have screened out and not allowed the kind of
    claims that went in. They obviously didn't do their job.
        The State has changed that contract. The State has also
    changed its method of payment for orthodontia services so you
    weren't getting the situation where, if you came in 22 times,
    you got paid 22 times, but has moved to a global payment.
        So there have been a number of changes that the State
    itself has made to stop the problem going forward, but we still
    need to see what claims were paid that should not have been
    paid.
        Mr. Burgess. Well, I certainly appreciate the work that the
    State is doing and of their understanding of the fact that they
    had a problem. But you had a problem.
        Ms. Mann. Correct.
        Mr. Burgess. And I guess my interest at the Federal level
    is what is being done right now to correct that problem and to
    prevent it from happening again.
        Ms. Mann. Well, what we first do is make sure that the
    problem stops going forward. So that is an important part----
        Mr. Burgess. So the State guys are doing that.
        Ms. Mann. State does that in consultation with us, but yes.
    That was our first line of----
        Mr. Burgess. Forgive me, but it just seems like there was a
    big failure at whoever was in charge of oversight, the OIG.
    This is OIG 101. Mr. Gowdy pointed out that his 15-year-old
    daughter could have probably picked up the problem here. This
    was not obscure. There is plenty of fraud that is obscure, but
    this was not; it was out in the open for all to see. And we
    talk about audits and we talk about actuarial soundness, but
    really that never came into play, did it? All we got were
    assurances that, hey, we are okay; we are doing everything the
    right way, and the checks continued to go out. That is a
    massive failing on the part of the Federal partners who were
    responsible for providing those funds.
        Ms. Mann. We do do audits of State Medicaid programs. We do
    look at outlier claims of State Medicaid programs. We do not do
    audits of every single claim in every State.
        Mr. Burgess. Why wouldn't these have, then, come to the top
    of the radar screen? I mean, they seem pretty obvious.
        Ms. Mann. Because they were not separately coded. What was
    growing overall was the dental account in Texas because of
    major changes that the State did in its dental account. These
    were basically hidden claims within that. So neither we nor the
    State identified them as an outlier. We do that in many
    instances. It is a lesson learned in terms of how to break out
    certain codes and make sure we are all examining those codes in
    a very particular way.
        Mr. Burgess. I will be the first to admit that Texas used
    to be its own country and in many ways we behaved that way. But
    here you had Texas charging or paying more than the rest of the
    Country combined. Seems like that had to get someone's
    attention at some level, because that is just such a stark
    difference. I mean, Texas was paying more than Florida. Texas
    was paying more than California.
        Ms. Mann. And the problem, which is a lesson learned in
    terms of moving forward, is that it was not pulled out as a
    separate code, but inside the broader dental claiming, and so
    neither Texas nor CMS identified it in a timely way as to
    something that we should all look at.
        Mr. Burgess. Two years ago the president identified
    McAllen, Texas, as an outlier with Medicare spending and
    criticized the State because of that. And this was happening
    right under your noses and no one said anything about it. Where
    was the integrity at the Office of Inspector General?
    Consequently, why has the Department of Justice been so slow to
    get involved in this?
        I respect the fact that a lot of the problems were State
    specific, but you had a duty, you had an obligation as well, as
    the steward of these funds, that were going out. I mean, here
    you have the dentists testifying that there were recruitment
    activities going on at a pizza parlor to get patients to be
    inappropriately referred, to have procedures they might not
    have needed on children. I mean, that should be assault and
    battery. People should be going to jail for this, not just we
    are looking into it and we hope to have some better answers for
    you in the future.
        I am stunned by the revelations that we have had today. You
    have spent enormous money and press time focusing on a public
    hospital in Dallas, Texas, and this was happening right under
    your nose. You criticized the hospital because it wasn't
    following procedures, because it wasn't doing things correctly,
    and your own procedures aren't being followed. I mean, this is
    a classic case of take care of your own problems first, before
    you start criticizing someone else. This is an enormous
    problem. We are not, obviously, anywhere near the end of it,
    and I am just so grateful to the Committee for initiating this.
    I promise you that this will continue to get my full attention
    in my office and at our Committee. We have to do right by the
    taxpayers. We have to do right by the people who have, in fact,
    been harmed by these activities.
        Mr. Chairman, you have been indulgent. I will yield back
    the balance of my time.
        Mr. Gowdy. I thank the gentleman from Texas.
        The Chair will now recognize the gentlelady from Minnesota,
    Ms. McCollum.
        Ms. McCollum. Thank you.
        Commissioner, this was an unusual thing to have UCare come
    and say we would like to give you $30 million, and it was a
    contribution. There is Federal money that goes into Medicare
    disbursements and there is State taxpayers' money. So I am glad
    you had a discussion with CMS. And as a resident of Minnesota
    and as a person who looks after the Federal purse strings, I
    think we have come to a good conclusion with that. So thank you
    to everyone for their work on that. But I don't think we are
    going to see many donations coming forward again in the future.
        Could I maybe shift this a little bit to CMS and to GAO
    while we have them here? And I am going to combine two
    questions and then just ask your professional opinion.
        The Affordable Care Act, which was just passed into law,
    will streamline Medicaid eligibility as part of the health
    exchanges. It is going to standardize quality measurements for
    adults; it is going to provide new tools to provide fraud,
    waste, and abuse. So if you could maybe tell me a little bit
    about how you two can see, and, Commissioner, if you have
    anything to add, how these tools included in the Affordable
    Care Act, will improve State and Federal oversight in the
    Medicaid program.
        And then to GAO specifically, has GAO ever looked at the
    differences between for-profit and nonprofit health plans in
    respect to fiscal management and quality outcomes within
    Medicare managed programs?
        And then to GAO--this also goes to CMS--150 employees.
    Every Medicare contract is different between it is different
    between the two States, they are constantly being renewed and
    refreshed, so can you provide me maybe a little more
    information about the challenges that you have? Maybe some of
    the successes that you can identify in CMS's Medicaid Integrity
    Institute, especially as it relates to States investigating and
    prosecuting Medicaid fraud? Or perhaps this is grossly
    understaffed, grossly staffed so that we can't do the very
    things that I agree with Chairman Gowdy on, we need to be
    handing things over for prosecution. A hundred and fifty
    employees for 50 States, all the contracts different and
    constantly changing.
        And I yield my time to you to have a discussion.
        Ms. Mann. Well, thank you, Congresswoman. Let me just
    respond to the first part of your question about what the
    Affordable Care Act does in terms of providing some new tools.
    Let me identify a few of them that I think are really directly
    relevant to some of the issues we have discussed here. First,
    it requires that every State have a RAC program to look at
    fraud and have modeled after the Medicare program, which has
    been successful in terms of bringing in a rate of return that
    is effective now. States are implementing that requirement as
    of January 2012 and it allows payments of basically dollars for
    collections identified by the contractors. So it is an
    encouragement for States to move forward and a new method for
    them to identify and pursue improper payments.
        Secondly, we have a new provider enrollment requirements in
    the Affordable Care Act that assure that if a provider has been
    terminated, for example, in Texas, for improperly billing in
    the Texas program, that they can't start billing in Oklahoma;
    that we have set up a system so that States know about
    terminations from one State to another, as well as from
    Medicare to Medicaid, so that if we have problems in South
    Florida in the Medicare program, the Medicaid program in
    Florida or elsewhere also takes action to ensure that that
    provider is no longer participating in the program.
        We also have, in the Affordable Care Act, an emphasis on
    program analytics to be able to detect fraud, improper payments
    before it occurs. That is certainly all of our goal; not just
    to detect it afterwards and get repayment, but to avoid it
    going forward.
        Ms. McCollum. Thank you. I have about 42 seconds left for
    GAO. And all that oversight disappears with repeal of the
    Affordable Care Act.
        If GAO would like to comment
        Ms. Yocom. To my knowledge, we have not done work that has
    looked specifically at profit versus nonprofit, so I can get
    that question out quickly.
        With regard to the Medicaid Integrity Institute, some of
    the promising practices that we have heard from States is
    really just a chance to be educated on ways to detect improper
    payments, ways to recover, ways to analyze; and that has been
    an extreme benefit. State Medicaid programs are widely varied
    in size and in support, so having a Federal role to provide
    instruction and oversight has been helpful.
        Lastly, I want to underscore something that Director Mann
    said, which is being able to look across States. That
    capability is quite limited right now in the Medicaid program
    and it needs to be developed. Until this program has good data
    and strong data that allows for comparisons that can be more
    easily done, we won't be successful in combating improper
    payments and other types of fraud.
        Mr. Gowdy. I thank the gentlelady from Minnesota.
        I want to follow up on something the gentlelady from
    Minnesota made reference to. I think she said that we would not
    be having anymore donations in the future. My question is a
    little different, which is how many had you had in the past.
    How many $30 million donations from corporations had you had in
    the past?
        Ms. Jesson. Mr. Chair, this is the only one I am aware of.
        Mr. Gowdy. So there is only one, and we are left to
    conclude that it was either donated out of the beneficence of
    the corporate heart, which isn't that likely, or maybe there is
    another alternative explanation, which leads me to ask this:
    Was there a letter that accompanied that check or was it just a
    check in the mail? Did they offer any explanation in writing as
    to why they may make a $30 million donation?
        Ms. Jesson. Mr. Chair, there was a letter from the CEO in
    July, I believe, she sent to the State of Minnesota. The check
    actually we received in November.
        Mr. Gowdy. And what was the explanation that the giver of
    the donation actually gave?
        Ms. Jesson. That it was just that, a donation to help the
    State during this budget crisis.
        Mr. Gowdy. Right. Is there any evidence that perhaps UCare
    had been overpaid in any way by the State of Minnesota?
        Ms. Jesson. Mr. Chair, as I said, I believed that the
    contracts that had been negotiated during the previous
    administration were too generous. I don't think they were
    overpaid in the sense that those were not actuarially sound
    contracts----
        Mr. Gowdy. So there is no evidence that UCare was overpaid
    and that maybe a State health plan may have underpaid.
        Ms. Jesson. Mr. Chair, I think the evidence would say that
    those contracts were actuarially sound and approved by CMS, so
    I don't think there was an overpayment. But I do understand
    that the health plans historically have said--this is, once
    again, before I was commissioner--that they lost money on the
    State-funded program.
        Mr. Gowdy. So they lost money on the State. Okay. Well, can
    you understand at all the cynicism of maybe questioning the
    motive behind the corporate heart making a once in a lifetime
    $30 million donation?
        Ms. Jesson. Mr.----
        Mr. Gowdy. Am I the only one that has any amount of
    cynicism about that?
        Ms. Jesson. Mr. Chair, I was certainly surprised when they
    came into my office to tell me about the donation; it was
    highly unusual.
        Mr. Gowdy. Director Yocom, do you have any experience with
    the beneficence of the corporate heart making a $30 million
    donation simply because a State was unable to manage its
    finances appropriately?
        Ms. Yocom. No, sir, I don't.
        Mr. Gowdy. Do you happen to have a copy of the letter that
    accompanied the $30 million donation?
        Ms. Jesson. Mr. Chair, I don't have a copy of the letter
    here. As I said, I know that there was a letter in July and we
    got the donation in November.
        Mr. Gowdy. And is there any chance that letter referenced
    overpayments?
        Ms. Jesson. I----
        Mr. Gowdy. Actually, I think there is a really good chance
    that letter referenced overpayments. I think there may be like
    a 100 percent chance it referenced it. So given the fact that
    the donation was for overpayments, why would there be any
    argument that CMS wasn't entitled to half of it?
        Ms. Jesson. Mr. Chair, they characterized it as a donation.
    They were not--under the contract, they were not required to--
    --
        Mr. Gowdy. Well, I mean, it doesn't----
        Ms. Jesson.--pay it back to us.
        Mr. Gowdy. Does it really matter what you call something? I
    mean, I could call the check I just had to write the IRS a
    donation. It is not a donation. I mean, come on, it is $30
    million. No corporation is ever going to give a State $30
    million out of the benevolence of their shareholders' hearts.
        Ms. Jesson. Mr. Chair, it's a nonprofit corporation. I
    thought it was very generous. I acknowledge there are
    reasonable positions on both sides of that----
        Mr. Gowdy. Well, would you acknowledge that it may very
    well have been because they had been overpaid systematically?
    Isn't that a little better explanation than beneficence?
        Ms. Jesson. Mr. Chair, I believe they were paid according
    to the terms of the contract----
        Mr. Gowdy. Well, then why would they----
        Ms. Jesson.--but I believe those contracts were too
    generous.
        Mr. Gowdy. Why would they say they were overpaid?
        Ms. Jesson. You would have to ask UCare about why they
    phrased it that way. They told me it was a donation. They
    weren't required to make it.
        Mr. Gowdy. Okay.
        The gentleman from Minnesota.
        Mr. Ellison. Thank you, Mr. Chairman.
        Commissioner Jesson, could you talk a little bit about what
    Minnesota has done in the Dayton administration to try to be
    more efficient and to give greater value to the taxpayer vis-a-
    vis the Medicaid program?
        Ms. Jesson. Certainly, Congressman Ellison. I spoke earlier
    about competitive bidding and really trying to get better value
    and recovering a lot of money for the taxpayers through that,
    and the 1 percent cap where we, in addition to the $600 million
    through our managed care reforms, about $73 million through the
    1 percent cap, there are some additional things that go beyond
    just money, but that we believe will save money as well, that
    we are doing in Minnesota.
        You mentioned one of them, our Hennepin health projects.
    That is where we are contracting with Hennepin County on a
    capitated basis to serve some of the poorest people who make
    less than $8,000 a year, those who use a lot of our social
    services. We just started that in January, just one year after
    the governor took office, but preliminarily we believe they
    will better serve those folks and save money, because we are
    actually integrating social services with our health care.
        We are starting health care demonstration projects, where
    we will, by the end of the year, we hope, have contracts with
    nine different provider groups, where we are directly
    contracting with providers, changing the incentives once again
    so that they share any savings that they get, as long as they
    meet our quality measures. And those are providers that are
    agreeing to care for populations, kind of Medicaid ACOs, all
    around our State, very different types of populations. We
    believe there is a lot to learn from what we are doing.
        Mr. Ellison. Now, earlier on, one witness, when I asked
    him, do you agree that Minnesota's move to competitive bidding
    is beneficial, that witness's response was no. It was a pretty
    flat no. I guess my question is do you agree with that? And do
    you think that the competitive bidding process can be improved
    even more by maybe even allowing more bidders? I think the
    witness said that it was limited to the four HMOs. I think I
    got that right. So could it be improved if there were more
    bidders and allowed access to the program?
        Ms. Jesson. Congressman, I think that the competitive
    bidding was a success. It was a success for quality care. I
    know it was clearly a success for taxpayers.
        Mr. Ellison. Five hundred million dollars, right?
        Ms. Jesson. Yes. But I think we can improve it, and we are
    going to be expanding it. We are expanding it into Greater
    Minnesota, where there is enough competition, and we are
    opening it up. Those who won the bids, and there were typically
    two in each county, were some of the major health plans, but we
    are opening this up. We want to increase competition because we
    think it is a good way to get better value for taxpayers.
        Mr. Ellison. Commissioner, I have a little less than two
    minutes. I was hoping to get your impression on this question.
    I believe that the witness that I was referring to, Mr.
    Feinwachs, and I do want to thank him for being a vigilant
    steward of the public dollar; we want to encourage people to
    step up. But I am trying to understand this, so I just want to
    get your opinion. He pointed out in his testimony that a 2008
    report by Minnesota's legislative auditor found the State's
    payment rates to be high compared to other States. What do you
    think about that? Are we doing better? Are they high? Are they
    getting lower? Could you comment on that?
        Ms. Jesson. Congressman, I agree, actually, with what the
    legislative auditor said in that report, which is that
    Minnesota's rates are higher, but they are probably higher
    because we cover more people with disabilities in Minnesota
    than in many other States, and that is more expensive; and we
    also cover a lot more benefits. That is a choice our
    legislature in Minnesota has made, to have broader coverage,
    and that is, I think, a major reason that it is more expensive.
        Mr. Ellison. Okay.
        I yield back, Mr. Chair.
        Mr. Gowdy. The gentleman from Minnesota yields back.
        On behalf of all of us, we want to thank our panel of
    witnesses for taking time out of their busy schedules to appear
    before us. We look forward to seeing you again soon, either at
    this Committee or another.
        With that, the Committee stands adjourned.
        [Whereupon, at 12:49 p.m., the subcommittee was adjourned.]

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