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





  EXAMINING THE ADMINISTRATION'S FAILURE TO PREVENT AND END MEDICAID 
                              OVERPAYMENT

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

                                HEARING

                               before the

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

                                 of the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                           SEPTEMBER 20, 2012

                               __________

                           Serial No. 112-188

                               __________

Printed for the use of the Committee on Oversight and Government 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
BLAKE FARENTHOLD, Texas
MIKE KELLY, Pennsylvania
VACANCY

                   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












                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on September 20, 2012...............................     1

                               WITNESSES

Mr. John Hagg, Director of Medicaid Audits, Office of The 
  Inspector General, Department of Health and Human Services
    Oral Statement...............................................     4
    Written Statement............................................     6
Ms. Penny Thompson, Deputy Director, Center for Medicaid and Chip 
  Services, Centers for Medicare and Medicaid Services
    Oral Statement...............................................    14
    Written Statement............................................    16

                                APPENDIX

Committee On Oversight and Government Reform, Staff Report.......    36
Question asked by Mr. Gosar to Ms. Thompson......................    52
New York's Medicaid Reforms......................................    53
Editorial: State's Medicaid Abuses Cannot Stand..................    55

 
  EXAMINING THE ADMINISTRATION'S FAILURE TO PREVENT AND END MEDICAID 
                              OVERPAYMENT

                              ----------                              


                      Thursday, September 20, 2012

                  House of Representatives,
Subcommittee on Health Care, District of Columbia, 
                 Census, and the National Archives,
              Committee on Oversight and Government Reform,
                                                   Washington, D.C.
    The subcommittee met, pursuant to call, at 2:27 p.m. in 
room 2154 Rayburn House Office Building, Hon. Paul A. Gosar 
[vice chairman of the Subcommittee] presiding.
    Present: Representatives Gowdy, Gosar, DesJarlais and 

    Staff Present: Brian Blase, Professional Staff Member; Will 
L. Boyington, Staff Assistant; Molly Boyl, Parliamentarian; 
Katelyn E. Christ, Professional Staff Member; Linda Good, Chief 
Clerk; Mark D. Marin, Director of Oversight; Scott Schmidt, 
Deputy Director of Digital Strategy and Press Secretary; Jaron 
Bourke, Minority Director of Administration; Yvette Cravins, 
Minority Counsel; Adam Koshkin, Minority Staff Assistant; 
Suzanne Owen, Minority Health Policy Advisor; and Safiya 
Simmons, Minority Press Secretary.
    Mr. Gosar. The Subcommittee will come to order.
    Today we have a real chance to address Government failure 
head-on and reign in abuse and mismanagement of one of the 
Nation's largest programs.
    Today marks the Subcommittee's fifth hearing this Congress 
examining waste, fraud, abuse, and mismanagement in the 
Medicaid program. Each hearing has focused on specific 
instances when taxpayer resources were misused within the 
Medicaid program.
    At the last hearing in April, we learned that Texas 
Medicaid program was spending more on braces than the rest of 
the Country's Medicaid dental programs combined. We also 
learned that the Center for Medicare and Medicaid Services 
failed to detect hundreds of millions of dollars in fraudulent 
claims for years, and that CMS only learned of these improper 
payments after an enterprising Texas journalist broke the 
story.
    Today's hearing highlights another brazen example of 
Government failure. For decades New York has received a 
windfall from the Federal taxpayers through Medicaid 
overpayments that are so large I needed to double and triple-
check with my staff that the information was accurate.
    In Arizona, skilled nursing facilities which provide 
services comparable to New York's developmental centers receive 
about $200 per patient per day to treat patients. Last year New 
York's developmental centers received over $5,000 per patient 
per day, a rate nearly 25 times greater than a comparable rate 
in Arizona. A report by the Health and Human Services Inspector 
General shows these rates were ten times higher than rates 
received from private facilities in New York that perform 
similar functions.
    Last year taxpayers paid nearly $2.5 billion for about 
1,300 patients residing in New York's developmental centers. To 
put this number in perspective, Medicaid spending on New York's 
developmental centers alone exceeded the entire Medicaid 
budgets of 14 States. Moreover, Kansas' Medicaid program spends 
about as much to cover nearly 400,000 enrollees as New York's 
developmental centers received for their 1,300 residents.
    What do we know about these excessive payment rates? We 
know the rates began to increase dramatically around 1990 as a 
result of New York's proposals that were repeatedly approved by 
CMS. We know that the payment rate skyrocketed because the 
payment rate formula allowed the State-operated facilities to 
retain two-thirds of the total Medicaid reimbursement when an 
individual left the facility. According to the HHS Inspector 
General, this meant taxpayers would pay twice for individuals 
who left the developmental centers, since most of them were 
transitioning into settings such as group homes also financed 
by Medicaid.
    We know that from 1990 to 2010 CMS never questioned the 
excessive rates, and the reimbursements continued flowing to 
New York's State-operated developmental centers. CMS did not 
even identify overpayments until 2007, when they had reached 
over $3,700 per patient per day.
    To make matters worse, we know that CMS failed to take any 
specific actions for three years after it had identified the 
problem.
    In July of 2010, CMS chose to send a letter to New York 
officials only after a story appeared in the Poughkeepsie 
Journal about these excessive payment rates. We know that these 
high payment rates caused New York to backtrack on its plan to 
close developmental centers, as the overpayments allowed the 
State to plug holes in its budget.
    And we know that as of three months ago CMS was negotiating 
a plan with New York that would allow New York's developmental 
centers to continue to receive billions of dollars in 
overpayments over the next five years.
    We also know that the excessive payment rates received by 
the New York developmental centers break the law. The high 
rates violate title 19 of the Social Security Act, which 
mandates that Medicaid payment rates must be effective and 
economical. The high rates also violate Medicaid upper payment 
limit requirements, which prohibits States from claiming 
Federal matching funds for Medicaid payments that are in excess 
of what Medicare would have paid for similar services.
    According to the Committee's estimates, Federal payments to 
New York's developmental centers may have exceeded the upper 
limit payment limits by $15 billion over the past two decades.
    Penny Thompson, a witness today and the Deputy Director of 
the Center for Medicaid and CHIP Services at CMS has admitted 
that CMS failed to adequately protect taxpayers dollars in this 
case. Ms. Thompson is here today to address three key 
questions:
    First, how could daily payment rates grow to exceed $5,000 
per patient?
    Second, how is the Federal Government going to correct this 
specific problem?
    Third, how is the Federal Government going to prevent this 
type of wasteful spending in the future?
    As I mentioned at the start, Arizona sent me to Washington 
to solve problems. Hard choices will have to be made on how to 
reduce Federal spending, but ending overpayments to New York's 
State-operated developmental centers should not be a hard 
choice at all. We must end it now.
    I thank our witnesses for being here today and I look 
forward to hearing their testimony about how we can best act to 
stop these overpayments immediately and end similar abusive 
practices in any State in the near future.
    Thank you.
    I now recognize the distinguished Ranking Member, Mr. 
Davis, for his opening statement.
    Mr. Davis. Thank you very much, Mr. Chairman.
    I have always felt that waste, fraud, and abuse have no 
place in Government programming, so I thank you for holding 
today's hearing about how the flexibility provided to States in 
setting the maximum rates payable under the Medicaid program, 
referred to as upper payment limits, were misused to obtain 
Federal Medicaid matching payments, exceeding actual cost of 
services to the States.
    But this was not a problem created by the current 
Administration. Unfortunately, the title of the hearing 
obscures the reality that the problem with excessive New York 
reimbursement rates spans several decades and Administrations, 
including those of President George W. Bush, George H.W. Bush, 
and Ronald Reagan. It does not appear that the Obama 
Administration may be the first to deal with the problem, but 
holding them responsible for this problem is a bit like blaming 
a detective for the case he has not solved.
    In the past, New York, like many States facing budget 
deficits, sought an advantageous Medicaid State plan to help 
pay for its share of health care costs, while balancing the 
long list of needs of a financially strained State. However, a 
recent New York Times editorial on September 17th describes the 
New York Medicaid program as undergoing an extensive 
transformation over the last year. The current Administration 
is changing its Medicaid program and could become, according to 
the Times, a model on how to cut Medicaid without harming 
beneficiaries.
    We have provided new tools and innovations through the 
Affordable Care Act to perform the necessary oversight to 
detect and punish fraud. That is necessary to retain the 
confidence of taxpayers and meet the required statutory 
standard of efficiency and economy.
    Currently the State of New York and CMS are under intensive 
negotiations to determine a path forward. I applaud their 
efforts and look forward to a resolution.
    Finally, I hope that today's hearing is not intended to 
undermine Medicaid or to provide a political plug for Paul 
Ryan's plan for block granting Medicaid and dismantling Federal 
oversight. We must remember that Medicaid ensures critical 
health services to our most vulnerable populations: low-income 
children and families, people with disabilities, pregnant 
women, and the elderly.
    A recent poll released in July of this year by the 
nonpartisan Kaiser Family Foundation found that 67 percent of 
respondents favored expanding Medicaid to cover more low-
income, uninsured adults under the Affordable Care Act. We must 
ensure Medicaid remains strong and under Federal oversight and 
distribution.
    I look forward to the testimony of our two witnesses and 
again I thank you, Mr. Chairman, for calling this hearing. I 
think it is particularly relevant and important to making sure 
that our taxpayers get the most for their money.
    I thank you and yield back the balance of my time.
    Mr. Gosar. I thank the gentleman.
    A statement on Medicaid overpayments will be placed in the 
record. Without objection, so ordered.
    Members may have seven days to submit opening statements 
and extraneous material for the record.
    We would like to now welcome our panel.
    First of all we have Mr. John Hagg, who is the President of 
the Medicaid audit team at the Office of the Inspector General 
for the Department of Health and Human Services. We also have 
Ms. Penny Thompson, who is the Deputy Director of the Center 
for Medicaid and CHIP Services at the Centers for Medicare and 
Medicaid Services.
    Pursuant to Committee rules, all witnesses will be sworn in 
before they testify. Would you please rise and raise your right 
hands?
    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?
    Mr. Hagg. I do.
    Ms. Thompson. I do.
    Mr. Gosar. Let the record reflect that the witnesses 
answered in the affirmative.
    Thank you. Please be seated.
    In order to allow for a timely discussion, please limit 
your testimony to five minutes. Your entire written statement 
will be made part of the record.
    Mr. Hagg, you may go first.

                       WITNESS STATEMENTS

                     STATEMENT OF JOHN HAGG

    Mr. Hagg. Good afternoon, Mr. Chairman, Ranking Member 
Davis, and other distinguished members of the Committee. Thank 
you for the opportunity to testify about the Office of the 
Inspector General's recent audit report regarding Medicaid 
payments in New York.
    Medicaid payment rates for State-operated developmental 
centers in New York are extremely high. In state fiscal year 
2009, New York claimed more than $2.2 billion in Medicaid 
reimbursement for these centers. The actual cost of operating 
the developmental centers was $578 million. The $2.2 billion 
equaled over $4,100 per day for each of the 1,700 beneficiaries 
and resulted in New York receiving Federal matching funds of 
over $1.1 billion.
    So why are these Medicaid payment rates so high? Chiefly, 
because there is no requirement that Medicaid payments be 
limited to the actual cost of providing services. When the 
current rate-setting methodology began in 1985, New York's 
daily payment rate for the developmental centers was $195 per 
beneficiary. By 2009, the rate had grown to over $4,100 per 
day. The $4,100 far exceeds the daily payment rate for all 
other similar public and private facilities in New York which 
provided similar services for a fraction of the cost of 
Medicaid.
    Unlike the developmental centers, the payment rates for 
these other facilities were based on cost and ranged from $257 
to $902 per day. If New York had used actual cost as part of 
its rate-setting methodology for the developmental centers, 
total Medicaid reimbursements could have been at least $1.4 
billion less in 2009. This could have lowered Federal Medicaid 
payments by at least $700 million for that year alone.
    For over a decade, OIG has recommended that payments to 
public providers be limited to the actual cost of providing 
services. This would help ensure that in New York and other 
States Medicaid payment methodologies for public providers are 
reasonable and economical. Until such time as payments to 
public providers are limited to actual cost, CMS should work 
with New York to ensure an appropriate Medicaid daily rate for 
State-operated developmental centers.
    Thank you for your interest in this important issue. I 
would be happy to answer your questions.
    [Prepared statement of Mr. Hagg follows:]


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    Mr. Gosar. Thank you very much, Mr. Hagg.
    Now Ms. Thompson.

                  STATEMENT OF PENNY THOMPSON

    Ms. Thompson. Mr. Chairman, Ranking Member Davis, and 
members of the Subcommittee, thank you for the invitation to 
come here today to discuss Medicaid payments to New York's 
State-run developmental centers.
    As a former senior manager at the HHS Inspectors General, a 
former CMS director of program integrity, and deputy director 
now of Medicaid and CHIP Services, I am committed to 
safeguarding taxpayer dollars in the Medicaid program through 
rigorous financial management, as well as through comprehensive 
anti-fraud activities.
    The payments for New York's developmental centers are 
excessive and unacceptable. As you have both said in your 
statements, this problem is longstanding. CMS' current priority 
is to correct New York's payment rate so that it is an economic 
and efficient rate, as appropriate and required by law. While, 
as you mentioned in your statement, we had considered for a 
time a transition period, we have ultimately decided to require 
an adjustment to proper payment levels without a transition. 
Once we have agreed upon a finalized payment methodology with 
New York, CMS will review past overpayments and determine if 
there are additional sums that need to be returned to the 
Federal Treasury.
    Beyond our priority of fixing the problematic rate and 
recovering past over payments, CMS has developed a plan of 
action and management controls to drive future policy and 
guidance and correct the vulnerabilities that led to the 
overpayments in New York.
    First, the current methods of enforcing the upper payment 
limit, which you mentioned in your statement, are not 
sufficient to protect Federal dollars. The defined payment 
methodologies in the plan in the case of New York do not 
necessarily ensure appropriate rates when elements of those 
methodologies trigger an overall escalation in the rates over 
time.
    In the case of New York, the original payment methodology 
CMS reviewed, approved, was acceptable at that point in time, 
but over a period of time those automatic escalators resulted 
in a rise in cost, and through essentially the magic of 
compounding, as we can see in your chart, those rates took off 
at a very vertical pace.
    To address these issues, CMS has been investing in its own 
data infrastructure to ensure that we have complete and timely 
Medicaid data so that we can look for these kinds of 
escalations and outliers and address them more quickly, and we 
have been investing in that infrastructure through a series of 
efforts, including some recent activities with a group of ten 
States to test a more complete and timely Medicaid data feed to 
CMS.
    But our State partners bear responsibility and 
accountability, and they are in the best position to monitor 
their own data to ensure that they are adjusting rates as 
appropriate, responding to problems that indicate excessive 
payment rates or excessive utilization. We will be writing a 
letter to the State Medicaid directors and reminding them of 
their obligations and requiring them to report to us on a 
regular basis on the results of their efforts of looking at 
data trends and identifying aberrancies and anomalies, and any 
corrective actions they are taking as a result of those 
results.
    We also plan to convene a group of Medicaid directors and 
State program integrity subject matter experts to improve 
program integrity and financial management at both the Federal 
and State levels. We will be using case studies such as those 
that we discussed earlier this year, and in the case of New 
York, to identify ways in which we can improve our management 
controls and our financial controls.
    Members of this work group will also provide input for a 
framework for measuring program integrity return on investment, 
and for increasing collaboration and alignment between 
Medicare, Medicaid, and commercial program integrity efforts. 
This work group will allow CMS and its State partners to 
address problems in a collaborative comprehensive manner.
    To summarize, the Medicaid payments made to New York for 
the developmental centers were excessive and inappropriate. We 
are working to correct the payments to New York, as well as 
reviewing past overpayments to recover Federal dollars. We are 
also improving our monitoring and approval processes to detect 
excessive payments more quickly and to prevent excessive 
payments from being made in the first place.
    I appreciate the Subcommittee's work and interest in this 
matter, and I continue to look forward to working with you as 
we make our improvements.
    [Prepared statement of Ms. Thompson follows:]


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    
    Mr. Gosar. Thank you, Ms. Thompson.
    I recognize myself for five minutes for questions.
    Ms. Thompson, how many of CMS' 4,500 employees work in the 
program of integrity or financial review capacities?
    Ms. Thompson. I don't have those figures off the top of my 
head. I mean, we do have some breakdowns that we can provide 
the Subcommittee following the hearing.
    Mr. Gosar. Do you have some idea of the percentages?
    Ms. Thompson. There are about 500 individuals who work on 
Medicaid and CHIP issues throughout the agency, and the number 
that work on financial management with respect to Medicaid and 
CHIP are a portion of those.
    Mr. Gosar. Gotcha. Now, how is it possible that CMS was 
unaware of the high developmental center rates until 2007, 
given the massive amounts of Federal money going to these 
developmental centers? I mean, this should have been a 
lightning bolt that we should be seeing.
    Ms. Thompson. I agree, and I think part of the problem here 
has been that at the Federal level the agency has not invested 
enough resources in the data infrastructures and the discipline 
of reviewing and assessing the results of that data in order to 
identify these kinds of outliers and anomalies on an ongoing 
basis. That is part of the work that we are doing to ensure 
that we can address that appropriately.
    Mr. Gosar. Well, I know that between 2007, when CMS 
identified the overpayment, how is it that these payments 
increased another $800?
    Ms. Thompson. Well, let me preface my answer to that 
question by saying that I have not had the opportunity to speak 
directly to any of the officials in the prior Administration 
that made those decisions, so I don't want to represent their 
decision-making process inappropriately here. But we have had 
an opportunity to have a talk with some of the staff to try to 
understand why, once having discovered this issue, there wasn't 
rapid response.
    And essentially, as far as we can reconstruct, it appears 
as though CMS agency staff thought that the regulation that had 
been developed and was awaiting finalization, which would have 
held Government providers to cost, would have been the 
appropriate enforcement mechanism for correcting the problem, 
and then when the Congress issued a moratorium preventing CMS 
from enforcing that rule, they believed that, out of an 
abundance of caution, perhaps an overabundance of caution, that 
to proceed on the basis of a cost argument with New York on its 
developmental centers would be a contradiction of the 
moratorium.
    Mr. Gosar. Do you think it was only because of the 
Poughkeepsie article that drew our attention that we actually 
are highlighting and actually are talking about this today?
    Ms. Thompson. Well, it was certainly the first time it came 
to my attention was after a result of the Poughkeepsie Journal 
article, so once, even after having dispensed with the actions 
and issues associated with the cost regulation, we didn't have 
a mechanism by which to go back and re-review those issues 
which had been held in abeyance during that period. That was 
the first time that I became aware of the issue.
    Mr. Gosar. So when those employees, when you go back to 
review, when they knew about these overpayments in 2007, do you 
believe that those employees that knew about that should be 
disciplined? And how should they be disciplined?
    Ms. Thompson. Well, no. Most of the employees that are 
currently in the agency that were involved in that issue at 
that time are mid-level employees. All of the decision-makers 
associated with that have left the agency.
    Mr. Gosar. Okay. And when you do audits, I mean, the IRS 
does audits pretty darn well, and they do sporadic audits 
throughout different agencies. Do you think there is something 
you could learn from the IRS in the way that you do your audits 
of agencies and States?
    Ms. Thompson. Well, I think that there is a lot of lessons 
from a lot of people in terms of making sure that we have 
proper management controls and oversight. I think that we 
actually have a pretty good process for reviewing State claims. 
We take a number of deferrals and disallowances on a regular 
basis and conduct focused financial reviews. We have a partner, 
which is the Office of the Inspector General, that can help us 
with auditing claims when we need their assistance.
    So I think the issue here was not so much the question of 
whether or not we had adequate auditing approaches as much as 
whether we had the right data and the right decision-making 
process to ensure issues were being addressed in a timely and 
comprehensive manner.
    Mr. Gosar. But it also seems to me like big-ticket items 
ought to be scrutinized in the highest----
    Ms. Thompson. Absolutely.
    Mr. Gosar. And it seems like we had this discussion about 
Texas orthodontics, and now we are having this discussion about 
New York's service centers, so from that standpoint it seems 
like there are some common-sense applications so we could 
bypass some of this confusion.
    Ms. Thompson. You are right about that. And I will also say 
that one of the other discussions that we are having is how 
Medicaid integrity contractors, who are supported by dedicated 
funds to protect the program against fraud, waste, and abuse, 
can be better employed to help us address some of these issues.
    Mr. Gosar. Thank you.
    My time is up. I would like to recognize the gentleman from 
Illinois, the Ranking Member Mr. Davis, for his questions.
    Mr. Davis. Thank you, Mr. Chairman.
    Before I begin I would like to ask unanimous consent to 
insert into the record this New York Times editorial: New 
York's Medicaid Reforms.
    Mr. Gosar. So ordered.
    Mr. Davis. Thank you.
    Mr. Hagg and Ms. Thompson, thank you both for being here.
    President Obama directed you to initiate unprecedented law 
enforcement efforts to detect fraud in Medicare and Medicaid. 
Could you describe the impact and benefit of multi-
jurisdictional and multi-agency investigations on the 
recoupment of Federal Medicaid dollars?
    Mr. Hagg. Thank you, Mr. Davis.
    Certainly there are additional PI tools, program integrity 
tools, that are used by the OIG as part of ACA. For this 
specific issue in Medicaid, this is something that the issue, 
similar issues like we found in New York, that are happening in 
New York, we have been involved with these type issues going 
back to about 2001. Going back to that period between 2001 and 
2005, we conducted a series of audits that identified similar 
issues with county-operated nursing homes and hospitals. Based 
on that work from that time period, we made recommendations 
that the payments for public providers be limited to the cost 
of providing services.
    We still feel strongly about that recommendation. We feel 
like it makes sense. If somewhere along the line it had been 
implemented, the issue in New York wouldn't have been able to 
happen, and if it had, then there would have been a clear link 
for the Federal Government to get funding back that exceeded 
the actual cost of providing services.
    Mr. Davis. Ms. Thompson?
    Ms. Thompson. Well, to go back to your question about the 
tools and the approach that the President has asked us to start 
employing in order to address program integrity and financial 
management across programs, some of those additional tools have 
been extremely important from new ways of doing provider 
screening, to new ways of collecting and utilizing and 
analyzing data, to the use of predictive analytics, to the use 
of contractors and support services in new and innovative ways 
in order to protect the integrity of the program. We have seen 
great results from a number of those activities.
    Mr. Davis. Thank you. When Budget Committee Chairman Paul 
Ryan unveiled his budget for fiscal year 2012, it called for 
repealing the Patient Protection and Affordable Care Act, 
turning Medicaid into a block grant. As a result, Federal 
oversight activities and investigations under the Department of 
Health and Human Services and the Department of Justice would 
come to a halt. The job of protecting Federal monies from fraud 
and misuse would devolve entirely to State officials. No more 
Federal program integrity initiatives, no more coordination of 
anti-fraud activities across Medicare and Medicaid, no more 
collaboration across State lines. The Ryan budget considers 
that a budget savings.
    Let me ask you, what would be the impact of cutting Federal 
funding in the areas of oversight, management, and anti-fraud 
efforts?
    Mr. Hagg. Well, certainly if program integrity tools that 
are a part of ACA were cut, they would need to be someplace. 
You know, those tools would need to be somewhere so that we 
could continue to do the work that we are doing in trying to 
root out fraud, waste, and abuse within the HHS programs.
    Mr. Davis. Ms. Thompson?
    Ms. Thompson. Well, this is a case in which I think how I 
would describe the problem that we are talking about this 
afternoon is a failure of management controls, so I don't think 
the answer to a failure of management controls is less 
management control.
    There was a press report after this Subcommittee's last 
hearing on Medicaid in April that describes the Subcommittee's 
message as being that States are as accountable for the 
stewardship of Federal funds as they are for the stewardship of 
State funds, and I thought that was a very important and 
accurate characterization of what the Subcommittee was trying 
to say and I can't associate myself with it more strongly.
    So I think that, regardless of how Federal funding flows to 
States, there needs to be appropriate oversight and controls to 
ensure those Federal funds are being used properly and for 
approved purposes under the statute.
    Mr. Davis. Would it be accurate to suggest or state that if 
the resources are not available then it is virtually impossible 
to do the oversight that is necessary to prevent or to further 
prevent fraud and abuse?
    Ms. Thompson. Well, certainly, and I will let John chime in 
too on this question, certainly the proper protection and 
oversight of any programmatic activities or funding requires 
both people and technology and the appropriate kinds of 
financial and management controls that are necessary to protect 
the program against abuses.
    Mr. Hagg. Yes, we would need appropriate funding and 
appropriate tools so that we are able to perform the work that 
we perform.
    Mr. Davis. Thank you very much, Mr. Chairman. I yield back.
    Mr. Gosar. I thank the gentleman.
    I now recognize my colleague, Dr. DesJarlais from 
Tennessee.
    Mr. DesJarlais. Thank you, Mr. Chairman.
    I thank you both for appearing here today.
    First, I would like to ask unanimous consent to put the 
editorial: State's Medicaid Abuses Cannot Stand, from the 
Poughkeepsie Journal, into the record.
    Mr. Gosar. So ordered.
    Dr. DesJarlais. Ms. Thompson, the Committee learned that 
CMS' plan as of two and a half months ago was to continue to 
allow the overpayments in the case of New York. Is that still 
CMS' position?
    Ms. Thompson. No. We have been very open and transparent 
with the Subcommittee staff about our thinking and the 
progression of our talks with the State. We were in a place 
where we were considering that, for a variety of different 
reasons, but ultimately concluded, I think, as the Subcommittee 
demonstrated in its report, that the proper thing to do here, 
especially given the longstanding nature of this problem and 
the fact that it is taking us a little bit of time to work with 
the State to resolve it, even from the last time that we 
started expressing our concerns, was simply to move to make the 
payment level or payment methodology as appropriate and 
leveled-out as possible on an as-soon-as-possible basis.
    Dr. DesJarlais. Okay. So this may be redundant. Is it a 
factor in CMS' current negotiation with the New York's 
developmental centers that they have received Federal 
overpayments in excess of $15 billion over the past two 
decades?
    Ms. Thompson. Well, it is certainly true that, because of 
the way that we have been allowing New York to draw down these 
dollars, that the abrupt cessation of those payments will 
require some considerable adjustment on the State's part, but 
that is an adjustment they have been prepared for.
    I will say that we talked earlier about the fact that this 
has been a longstanding problem, in addition to the fact that I 
think certainly this Administration is committed to solving it. 
I am happy to report that we also have a State Administration 
that is at the table, recognizes this is the problem and is 
committed to solving it.
    Dr. DesJarlais. Can CMS issue an immediate deferral so that 
the overpayments cease until a reasonable rate is restored?
    Ms. Thompson. That is a tool that is available to us.
    Dr. DesJarlais. Okay.
    Ms. Thompson. So that, you know, if we continue to be 
unable to reach a proper conclusion in a short amount of time, 
we can consider making deferrals.
    Dr. DesJarlais. Let me ask this, and this is not directed 
at you, but I have just been here two years, came out of the 
practice of medicine for 20 years, and I think for everyone 
sitting in the room, if this was your business and this was 
identified and that was money coming out of your bank account, 
would you be dragging your feet or making the same type of 
considerations for New York if that was your business?
    And Mr. Davis is talking about the oversight that is needed 
in the Federal Government to ensure these programs shouldn't go 
to the States and let the States handle them. I mean, my gosh, 
from what I am hearing here, maybe that is the best thing that 
could happen, because if this is an example of how we do 
oversight in the Federal Government, then when I am told that 
$0.48 on every $1 that comes in from our taxpayers is wasted, 
this seems to make sense.
    So if this were your business, would you be waiting or 
would you be doing it yesterday?
    Ms. Thompson. I appreciate the question, and I think the 
answer to that is, as we look at what we are trying to 
accomplish here, we tried to be cognizant of two things: one 
has been the payment rate, themselves, and what is making them 
reach these levels and what are the underlying dynamics and 
data that we need to be looking at, which has taken us more 
time than we would like to sort out with the State; but the 
other is a concern that the State has made assertions that the 
abrupt cessation of these payments will cause tremendous 
dislocation for the State's DD system, and so we try to take 
that into account.
    Dr. DesJarlais. This is again not directed to you, but if I 
have an employee in my office and they have been embezzling 
from me for two decades, and I find out that that is the case 
but they tell me if I abruptly stop that that would create a 
real hardship because they couldn't pay for their Cadillac and 
their boat, you know, that is kind of I look as a taxpayer when 
they look at something like this, a case like this. How do we 
justify that?
    Ms. Thompson. Well, unfortunately, in this case it is not a 
matter of buying a Cadillac as it is supporting services to 
very vulnerable beneficiaries, so that is our concern. It is 
really the concern about the beneficiaries. It is not a concern 
about whether it is convenient or inconvenient for the State.
    Dr. DesJarlais. So the beneficiaries----
    Ms. Thompson. But, having said that, I will say that we 
have ultimately concluded that this is not the proper place for 
that consideration.
    Dr. DesJarlais. Okay.
    Ms. Thompson. And if the State has some needs that it wants 
to submit to us for consideration, we can deal with that on its 
own merits in a separate conversation.
    Dr. DesJarlais. Thank you. What is the per patient payment 
rate that CMS believes satisfies the legal requirement that 
Medicaid payments be efficient and economical?
    Ms. Thompson. We are still finalizing those methodologies 
and numbers, and that is one of the reasons we are not at 
completion yet, but I think you can expect to see a rate that 
is at about one-fifth of its current levels.
    Dr. DesJarlais. Okay. I see my time has expired.
    Mr. Gosar. We can go a second round.
    Dr. DesJarlais. Keep going?
    Mr. Gosar. You can do it in the second round.
    Dr. DesJarlais. Okay. I will yield back. Thank you.
    Mr. Gosar. Well, we are going to go along those same lines, 
Ms. Thompson. Dr. DesJarlais started talking about how we are 
going to get to that number, and you said about one-fifth. Is 
it the same per patient payment rate that would satisfy 
Medicaid upper payment limit requirement?
    Ms. Thompson. Yes. The mechanism by which we would actually 
enforce this payment rate is through a new methodology 
associated with an upper payment limit.
    Mr. Gosar. And so it will comply along with the Federal 
Government regulation?
    Ms. Thompson. That is right.
    Mr. Gosar. Does CMS still plan on giving New York five 
years to bring these payment rates into compliance?
    Ms. Thompson. No.
    Mr. Gosar. So we are going to have an abrupt cut
    Ms. Thompson. Yes.
    Mr. Gosar. Okay. Do you believe that New York's Medicaid 
program deserves specific scrutiny from CMS, and additionally 
the individuals?
    Ms. Thompson. Well, New York----
    Mr. Gosar. I mean like politicians and those supervising 
this process? I mean, this is deceiving and fleecing of the 
American taxpayer.
    Ms. Thompson. Well, in terms of how we treat New York, it 
is on its merits as any other State, if that is the question. I 
have never been a part of any conversations that would suggest 
that our considerations are other than programmatic and 
financial and consistent with the statute.
    Mr. Gosar. But you do know that in New York politicians 
have been charged with Medicaid fraud over the past decade? You 
know there have been six of them: Guy Verelli, Joseph Bruno, 
Anthony Samarino, William Boilen, Carl Krueger, and Pedro 
Espada. Are you aware of that?
    Ms. Thompson. No, I wasn't specifically aware of that.
    Mr. Gosar. I think it is very crucial that we know those 
individuals because of the predication that this has been going 
on. And this should also be a highlight for CMS to be noting 
the politicians and those directors that are indicted based 
upon their previous actions.
    Are you aware that the two former New York Senate majority 
leaders have been indicted on Medicaid fraud: Joseph Bruno and 
Pedro Espada?
    Ms. Thompson. No.
    Mr. Gosar. I think these are real glaring issues that we 
ought to continue to pay attention to.
    In a 2010 news article, a deputy commissioner for fiscal 
and administrative solutions at the Office for People with 
Developmental Disabilities, James Morin, said, ``I am not 
saying reimbursement doesn't exceed cost by any stretch. Quite 
honestly, the reimbursement is what it is. CMS has supported 
it.'' What do you say to New York State officials that have 
said CMS supported the high developmental center payment rates?
    Ms. Thompson. Well, again, I am cautious about not 
characterizing prior Administration's or decision-makers' 
comments, but certainly since the moment that it came to our 
attention, New York State was quite aware we were not in 
support of those rates or methodologies.
    Mr. Gosar. You weren't, but previous individuals in your 
position definitely have been?
    Ms. Thompson. It is actually hard for me to believe that 
they would have been, and I think the----
    Mr. Gosar. Well, no action was taken, so by abdication they 
were doing it.
    Ms. Thompson. Well, again, it is hard for me to speak for 
them, but I actually think that, had they been aware as we are 
today of the dollars involved and where the rates are, that 
they would have taken different action.
    Mr. Gosar. Has the State of New York been real cooperative?
    Ms. Thompson. They have under the current administration. 
Yes.
    Mr. Gosar. So let me ask you more about this payment 
mechanism. You know, you are from this obviously cost-shifting 
scenario and now we are going to cut it off, and we were 
talking about somewhere, one-fifth of that compensation. This 
is a big chunk of change.
    Ms. Thompson. Yes.
    Mr. Gosar. What kind of conversation has New York 
expressed, or have they expressed any kind of dire consequences 
for other types of services that this was compensating for?
    Ms. Thompson. Well, indeed they did originally appreciate 
that they had a problem, that it was a bad problem, that it 
needed to be solved, but they were expressing this concern 
about the impact on State budgets and how that would 
reverberate through the health care system in New York, and 
that was why we were giving some consideration at one point in 
time to the idea of some kind of transition.
    But ultimately I think the argument has to be placed back 
on New York that if it has a claim for Medicaid funding it 
needs to meet the requirements of the Medicaid statute, and we 
ought to be talking together and dealing out on those issues on 
that basis.
    Mr. Gosar. So individuals should be held accountable in 
those actions? I'm getting back to accountability.
    Ms. Thompson. Yes.
    Mr. Gosar. Because Main Street America--I am from Arizona 
and this amount of money is huge in our State.
    Ms. Thompson. Yes.
    Mr. Gosar. I mean, we are cutting services right and left, 
and I come from one of the poorest Districts in the Country. I 
have got lots of Native Americans where our dollars are really 
spread thin. So we have got to have a common-sense application 
in making sure that people in the know and those making 
decisions are held accountable for what is right and what is 
wrong; wouldn't you agree?
    Ms. Thompson. Yes.
    Mr. Gosar. Well, I am running out of time. I am going to 
acknowledge my good friend, Mr. Davis from Illinois.
    Mr. Davis. Thank you very much, Mr. Chairman.
    On page nine of the majority report it states, ``The Obama 
Administration has not taken any serious actions to prevent 
inappropriate State leveraging of Federal Medicaid money; 
rather, the stimulus bill made it more advantageous for States 
to figure out how to game the Federal Medicaid reimbursement 
since it contained the massive increase in each State's F-
map.''
    I would like to ask you, Ms. Thompson, to respond to this 
allegation. How does CMS respond to the assertion that the 
stimulus bill encourages fraud?
    Ms. Thompson. Well, certainly the purpose of the enhanced 
match under the stimulus bill for States was a reflection of 
the fact that States were facing dire fiscal and economic 
conditions and were in desperate need of additional Federal 
funding to continue and stabilize their Medicaid programs.
    I will go back to the point that I made earlier, which is 
that, regardless of what the level of Federal funding is or how 
the underlying financing works, State officials have 
responsibilities for the stewardship of those Federal funds, 
and there were no changes made in our act to the requirements 
on States to claim dollars appropriately or to our structure or 
controls under which they could claim those dollars.
    Mr. Davis. Page 12 of the report asserts that CMS failed to 
take any specific actions for three years after it admitted to 
having identified the problem. Is this a fair characterization, 
to your knowledge, and can you explain to the Subcommittee what 
actions were taking place from 2007 to 2010?
    Ms. Thompson. Well, again, I want to characterize this 
carefully, because some of that time was in the prior 
Administration with prior officials making some of those 
decisions, but, again, it was, in my understanding, the view of 
the staff at the time that the cost regulation that was being 
finalized would be the appropriate enforcement mechanism to 
solve the problem.
    Indeed, I think Mr. Hagg made that point that if we had 
such a regulation that that would have prevented these 
excessive payments. But that subsequent moratoria on enforcing 
that regulation issued by the Congress constrained further 
action on CMS' part.
    Mr. Davis. Are you comfortably satisfied that there has 
been enough review of what may have been taking place that, if 
there were gaps, if there were opportunities, have those been 
closed sufficiently or closed to the point where you know that 
the kind of things that may have been taking place would have 
as much opportunity to do so?
    Ms. Thompson. Well, I think specifically in the case of New 
York, that is one of the things that has taken some time to 
work through, because we don't want to place a new payment 
methodology or payment rate inside the New York State plan. We 
don't want that and the State officials don't want that. That 
doesn't actually solve the problem. So part of what we have 
been doing is actually pulling apart together, both the Federal 
and State side, what the methodology does, how it works, and 
what the underlying data tells us about how that is played out 
in terms of overall costs and rates.
    In the case of the Nation, we are really taking New York as 
a case study and determining what additional steps we might 
need to take to improve our management controls overall so that 
we don't see this kind of situation occurring again, and so we 
are sure that we have looked and determined that no other 
similar situations are already in existence.
    Mr. Davis. I thank you both for your testimony.
    Thank you, Mr. Chairman. I yield back.
    Mr. Gosar. Thank you, my colleague
    I have just got two more questions if you will bear with 
us.
    So I want to make sure, for the record, that we are going 
to scale payments back to one-fifth of what they currently are?
    Ms. Thompson. We would be happy to keep you informed on the 
actual rates and methodologies that arise. That is an 
approximation based on the best estimates that I have right 
now.
    Mr. Gosar. Okay. I just wanted to make sure I had that. And 
do you agree with the Inspector General's recommendation that 
limits the reimbursement rate of State-operated providers such 
as the New York developmental centers to actual cost?
    Ms. Thompson. So that was the regulation. Regulation to 
actually effectuate that kind of a policy was issued by CMS in 
2007 to great consternation on the part of the Congress on a 
bipartisan basis, which led to two moratoriums and a sense of 
the Congress that CMS should not proceed on that basis, so we 
have had some experience going down that route.
    Having said that, I think we would be happy to have more 
conversations and discussions with the Inspector General's 
office as well as with the Subcommittee staff and cognizant 
Congressional staff to discuss that in more detail.
    I will say in this case effective enforcement of the upper 
payment limit would have prevented this problem from occurring, 
as well, so I think part of the conversation should also be 
talking together about how we are going to improve the ongoing 
monitoring of our upper payment limit as also another mechanism 
by which to avoid these kinds of problems.
    Mr. Gosar. Mr. Hagg, would you agree with that statement, 
because I know in your testimony you alluded to it.
    Mr. Hagg. Well, as part of our audit work we did not 
determine whether or not the State was or was not in compliance 
with the upper payment limit rules. Certainly it would appear, 
since the rates are so high, they may not be in compliance with 
those rules.
    That being said, based on the example in New York and based 
on previous work that we have performed, we believe strongly 
that paying the public providers or limiting payments to public 
providers to the cost of providing the services is something 
that is needed because it will bring a higher level of 
accountability and transparency and make it much easier to see 
how Medicaid funds are used.
    Mr. Gosar. That sounds wonderful.
    Mr. Davis, do you have any other questions?
    Mr. Davis. No, Mr. Chairman.
    Mr. Gosar. Well, first of all, Ms. Thompson, I want to 
commend you. This is an action well deserved, and boy, you are 
right on top of it, so I would like to commend you for those 
actions and, Inspector General, as far as looking at the whole 
scenario, and we would like you to keep it up. This is about 
services, but it is also about accountability and making sure 
that dollar goes to the proper places, so I do want to commend 
you for that.
    I would also like to keep in touch to make sure we are 
understanding how that rate looks, to make sure we have some 
accountability from our oversight.
    With that, I would like to thank our witnesses for taking 
the time out of their busy day and schedules to appear before 
us today.
    The Committee stands adjourned. Thank you.
    [Whereupon, at 3:15 p.m., the subcommittee was adjourned.]


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