[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


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                      http://www.house.gov/reform

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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

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

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

   Subcommittee on 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:]

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    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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