[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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Available via the World Wide Web: http://www.fdsys.gov
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
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:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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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