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



 
     EXAMINING OPTIONS TO COMBAT HEALTHCARE WASTE, FRAUD, AND ABUSE

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



                                HEARING

                               BEFORE THE

                         SUBCOMMITTEE ON HEALTH

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                           NOVEMBER 28, 2012

                               __________

                           Serial No. 112-182


      Printed for the use of the Committee on Energy and Commerce

                        energycommerce.house.gov



                  U.S. GOVERNMENT PRINTING OFFICE
85-722                    WASHINGTON : 2013
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC 
area (202) 512-1800 Fax: (202) 512-2104  Mail: Stop IDCC, Washington, DC 
20402-0001



                    COMMITTEE ON ENERGY AND COMMERCE

                          FRED UPTON, Michigan
                                 Chairman

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

                                 _____

                         Subcommittee on Health

                     JOSEPH R. PITTS, Pennsylvania
                                 Chairman
MICHAEL C. BURGESS, Texas            FRANK PALLONE, Jr., New Jersey
  Vice Chairman                        Ranking Member
ED WHITFIELD, Kentucky               JOHN D. DINGELL, Michigan
JOHN SHIMKUS, Illinois               EDOLPHUS TOWNS, New York
MIKE ROGERS, Michigan                ELIOT L. ENGEL, New York
SUE WILKINS MYRICK, North Carolina   LOIS CAPPS, California
TIM MURPHY, Pennsylvania             JANICE D. SCHAKOWSKY, Illinois
MARSHA BLACKBURN, Tennessee          CHARLES A. GONZALEZ, Texas
PHIL GINGREY, Georgia                TAMMY BALDWIN, Wisconsin
ROBERT E. LATTA, Ohio                MIKE ROSS, Arkansas
CATHY McMORRIS RODGERS, Washington   ANTHONY D. WEINER, New York
LEONARD LANCE, New Jersey            JIM MATHESON, Utah
BILL CASSIDY, Louisiana              HENRY A. WAXMAN, California (ex 
BRETT GUTHRIE, Kentucky                  officio)
JOE BARTON, Texas
FRED UPTON, Michigan (ex officio)

                                  (ii)

                             C O N T E N T S

                              ----------                              
                                                                   Page
Hon. Joseph R. Pitts, a Representative in Congress from the 
  Commonwealth of Pennsylvania, opening statement................     1
    Prepared statement...........................................     4
Hon. Frank Pallone, Jr., a Representative in Congress from the 
  State of New Jersey, opening statement.........................     6
Hon. Michael C. Burgess, a Representative in Congress from the 
  State of Texas, opening statement..............................    24
    Prepared statement...........................................    26
Hon. Phil Gingrey, a Representative in Congress from the State of 
  Georgia, opening statement.....................................    28
Hon. Henry A. Waxman, a Representative in Congress from the State 
  of California, opening statement...............................    28
Hon. Fred Upton, a Representative in Congress from the State of 
  Michigan, prepared statement...................................   228
Hon. Cathy McMorris Rodgers, a Representative in Congress from 
  the State of Washington, prepared statement....................   230

                               Witnesses

Kathleen M. King, Director, Health Care, Government 
  Accountability Office..........................................    32
    Prepared statement...........................................    34
    Answers to submitted questions...............................   231
Dan Olson, Director of Fraud Prevention, Health Information 
  Designs, LLC...................................................    49
    Prepared statement...........................................    51
    Answers to submitted questions...............................   238
Alanna M. Lavelle, Director, Special Investigations, WellPoint, 
  Inc............................................................    82
    Prepared statement...........................................    84
    Answers to submitted questions...............................   250
Louis Saccoccio, Chief Executive Officer, National Health Care 
  Anti-Fraud Association.........................................   102
    Prepared statement...........................................   104
    Answers to submitted questions...............................   258
Neville Pattinson, Senior Vice President, Gemalto, Inc., on 
  Behalf of the Secure ID Coalition..............................   131
    Prepared statement...........................................   133
    Answers to submitted questions...............................   265
Michael H. Terzich, Senior Vice President, Global Sales and 
  Marketing, Zebra Technologies Corp.............................   175
    Prepared statement...........................................   177
    Answers to submitted questions...............................   299
Kevin Fu, Associate Professor in Computer Science and 
  Engineering, University of Michigan and University of 
  Massachusetts Amherst..........................................   187
    Prepared statement...........................................   189

                           Submitted Material

Statement, dated November 28, 2012, of the American Medical 
  Association, submitted by Mr. Pallone..........................     8
Statement, dated November 28, 2012, of the National Health Law 
  Program, submitted by Mr. Pallone..............................    17
Statement, undated, of Hon. Peter J. Roskam, a Representative in 
  Congress from the State of Illinois, submitted by Mr. Burgess..    30


     EXAMINING OPTIONS TO COMBAT HEALTHCARE WASTE, FRAUD, AND ABUSE

                              ----------                              


                      WEDNESDAY, NOVEMBER 28, 2012

                  House of Representatives,
                            Subcommittee on Health,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10:03 a.m., in 
room 2123, Rayburn House Office Building, Hon. Joseph R. Pitts 
(chairman of the subcommittee) presiding.
    Members present: Representatives Pitts, Burgess, Shimkus, 
Blackburn, Gingrey, Latta, Lance, Cassidy, Barton, Pallone, 
Engel, Schakowsky, and Waxman (ex officio).
    Also present: Representatives McKinley and Christensen.
    Staff present: Matt Bravo, Professional Staff Member; Paul 
Edattel, Professional Staff Member, Health; Julie Goon, Health 
Policy Advisor; Sean Hayes, Counsel, Oversight and 
Investigations; Robert Horne, Professional Staff Member, 
Health; Ryan Long, Chief Counsel, Health; Carly McWilliams, 
Legislative Clerk; John O'Shea, Policy Advisor, Health; Monica 
Popp, Professional Staff Member, Health; Chris Sarley, Policy 
Coordinator, Environment and Economy; Heidi Stirrup, Health 
Policy Coordinator; Alli Corr, Democratic Policy Analyst; Amy 
Hall, Democratic Senior Professional Staff Member; Elizabeth 
Letter, Democratic Assistant Press Secretary; and Karen Nelson, 
Democratic Deputy Committee Staff Director for Health.
    Mr. Pitts. The subcommittee will come to order.
    The Chair recognizes himself for 5 minutes for an opening 
statement.

OPENING STATEMENT OF HON. JOSEPH R. PITTS, A REPRESENTATIVE IN 
         CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA

    In May of this year, the Department of Justice brought 
charges against 107 individuals who bilked Medicare for over 
$452 million. Just seven individuals in Louisiana were 
responsible for over $225 million of this fraud.
    In a separate case in February, a single Dallas doctor was 
arrested for making $350 million in false claims. In February 
of 2011, 114 individuals who had bilked over $240 million were 
arrested in another crackdown.
    All told, that billion dollars in improper payments 
represents less than 2 percent of the estimated $60 billion 
annually lost to waste, fraud, and abuse.
    As bad as that number is on its own, I want to put it into 
context. The Medicare program is running out of money. The CMS 
actuary predicts the program could be insolvent in just 5 
years. As the Congressional Research Service wrote in a June 
2011 report, quote, ``As long as the Medicare trust fund has a 
balance, the Treasury Department is authorized to make payments 
on behalf of seniors.''
    However, the report continues, quote, ``There are no 
provisions in the Social Security Act that govern what would 
happen if insolvency were to occur,'' end quote. The report 
contends that when insolvency of the Medicare program happens, 
quote, ``There would be insufficient funds to pay for all Part 
A reimbursements to providers,'' end quote.
    If Congress and the President support the idea that seniors 
should depend on the Medicare program to pay their provider 
bills, reform of the program through legislative action will be 
needed. The Medicare trustees in their 2011 report to Congress 
have already stated as much. One area of reform that I hope we 
can tackle in a bipartisan way is the area of fraud and abuse 
in the Medicare program.
    The Federal Government has made strides recently to improve 
catching fraudulent providers and beneficiaries, and I commend 
them for their efforts. However, at the same time, they have 
largely failed to implement mechanisms that would prevent 
fraudulent payments from being made in the first place. 
Prosecuting offenders does not get all the money that they 
stole.
    One such area is predictive analytics. CMS implemented the 
fraud prevention system in July of 2011 to analyze Medicare 
claims data using models of fraudulent behavior after such a 
system was shown to work well in the private industry. However, 
while the current system can draw on a host of data sources in 
support of its efforts, the system has not yet been integrated 
with the agency's payment processing system to allow for the 
prevention of payments until suspicious claims can be 
determined to be fraudulent.
    Further, a recent GAO report stated that CMS has failed to 
define an approach for even measuring whether the current 
system is helping to prevent fraudulent billing. It is my firm 
belief that greater transparency from CMS with regard to 
current fraud programs is needed if we hope to build upon what 
is currently being done to make the program more secure.
    Our Nation's seniors are counting on us to ensure that 
Medicare fulfills its promises. We can do that in part by 
making sure their premium dollars are managed wisely and not 
lost to con artists.
    Our hearing today will discuss the efforts Medicare has 
undertaken currently to prevent fraud in government programs. 
In addition, the panel has generously offered us their time and 
expertise to explore emerging technologies and mechanisms that 
might help improve those efforts.
    I want to thank all of our witnesses for sharing their 
thoughts with us today. And I am confident that these ideas can 
help generate a bipartisan effort to improve the solvency of 
the Medicare program in the coming Congress.
    The Chair now recognize the ranking member of the 
Subcommittee on Health, Mr. Pallone, for 5 minutes.
    [The prepared statement of Mr. Pitts follows:]


    [GRAPHIC] [TIFF OMITTED] 85722.001
    
    [GRAPHIC] [TIFF OMITTED] 85722.002
    
OPENING STATEMENT OF HON. FRANK PALLONE, JR., A REPRESENTATIVE 
            IN CONGRESS FROM THE STATE OF NEW JERSEY

    Mr. Pallone. Thank you, Mr. Chairman.
    And good morning to everyone. It is good to be back after 
the election and seeing that our subcommittee is having 
hearings and moving forward in the lame duck as well as for 
next year.
    While the total cost of healthcare fraud is difficult to 
obtain, estimates range anywhere from $65 billion to $98 
billion annually. For every dollar put into the pockets of 
criminals, a dollar is taken out of the system to provide much-
needed care to millions of seniors.
    Fraud schemes come in all shapes and sizes and affect all 
kinds of insurance, public and private alike. Whether it is a 
sham storefront posing as a legitimate provider or legitimate 
businesses billing for services that were never provided, it is 
all the same result: undermining the integrity of our public 
health system and driving up healthcare costs.
    I think we can all agree that healthcare fraud is a serious 
longstanding problem that will take aggressive long-term 
solutions to reverse. And we made a strong commitment to combat 
these issues within the Affordable Care Act. The law contains 
over 30 antifraud provisions to assist CMS, the OIG, and the 
Justice Department in identifying abusive suppliers and 
fraudulent billing practices. These include enhanced background 
checks, new disclosure requirements, onsite visits to verify 
provider information, and a requirement that healthcare 
providers create their own internal compliance programs.
    The most important provisions in the Affordable Care Act 
change the way we fight fraud by heading up the bad actors 
before they strike and thwarting their enrollment into these 
Federal programs in the first place. And this way, we aren't 
just left chasing a payment once the money is already out the 
door.
    And I am encouraged by the work that has been done of late. 
Over the past 3 years, the government has recovered a record-
breaking $10.7 billion of healthcare fraud. So I am confident 
that we will begin to see even more savings as the 
implementation of these programs continues.
    But our efforts must not stop there. Fraud is ever-
changing; criminals will always find loopholes. And it is our 
job to keep one step ahead of them. Today we are going to hear 
from an array of witnesses about the state of antifraud 
measures currently being used, as well as discussing new 
approaches.
    One example of a new approach is the secure ID program, 
which would create identification cards with encrypted chips. 
Each Medicare provider and beneficiary would be required to 
swipe these cards at the point of service.
    And while there may be some benefits to this technology, 
such as preventing identity theft, I do have questions about 
how this would affect the overall system. Most important to me 
is how such a program would affect patients' access to care. 
For example, what happens if a senior simply forgets his ID 
card? Will he be sent away? I am also interested in how this 
technology can prevent the sheer criminals colluding with 
beneficiaries and handing out kickbacks.
    And as we discuss any potential pilot programs, we must 
ensure that we can evaluate different technologies that allow 
us to determine what provides the best value for our tax 
dollars.
    So, Mr. Chairman, as Congress discusses the expiring tax 
policies and impending sequestration during the lame duck, I do 
not believe we need to decrease benefits to seniors or raise 
the eligibility age to further fortify the program. Instead, we 
should focus on building upon the reforms of the ACA and 
creating better efficiencies within the system, including 
innovative ways to combat fraud and waste.
    Standing up to protect Medicare includes supporting the 
constant work that must be done to cut waste, fraud, and abuse. 
And I am committed to working with my colleagues now and in the 
future to help address this ongoing threat. So I do appreciate 
your having this committee hearing today because I think it 
addresses a very important issue, both now and in the future, 
in the next Congress as well.
    I did want, Mr. Chairman, if I could, to ask unanimous 
consent to insert two pieces of testimony in the record. The 
first is from the American Medical Association, which I believe 
raises some very important questions about smart cards. At a 
minimum, further discussion with a more robust representation 
of interested parties would seem to be warranted on that issue.
    And the second is a statement from the National Health Law 
Program, which discusses smart cards in the Medicaid context 
and raises concerns about whether these cards could serve as a 
barrier to timely patient care.
    So I would ask unanimous consent. I think you have both of 
them.
    Mr. Pitts. Yes. Without objection, so ordered.
    [The information follows:]
    [GRAPHIC] [TIFF OMITTED] 85722.003
    
    [GRAPHIC] [TIFF OMITTED] 85722.004
    
    [GRAPHIC] [TIFF OMITTED] 85722.005
    
    [GRAPHIC] [TIFF OMITTED] 85722.006
    
    [GRAPHIC] [TIFF OMITTED] 85722.007
    
    [GRAPHIC] [TIFF OMITTED] 85722.008
    
    [GRAPHIC] [TIFF OMITTED] 85722.009
    
    [GRAPHIC] [TIFF OMITTED] 85722.010
    
    [GRAPHIC] [TIFF OMITTED] 85722.011
    
    [GRAPHIC] [TIFF OMITTED] 85722.012
    
    [GRAPHIC] [TIFF OMITTED] 85722.013
    
    [GRAPHIC] [TIFF OMITTED] 85722.014
    
    [GRAPHIC] [TIFF OMITTED] 85722.015
    
    [GRAPHIC] [TIFF OMITTED] 85722.016
    
    [GRAPHIC] [TIFF OMITTED] 85722.017
    
    [GRAPHIC] [TIFF OMITTED] 85722.018
    
    Mr. Pallone. Thank you. And I yield back.
    Mr. Pitts. The Chair thanks the gentleman and now 
recognizes the vice chairman of the subcommittee, Dr. Burgess, 
for 5 minutes.

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

    Mr. Burgess. And I thank the chairman for the recognition 
and the time.
    We all know that the Centers for Medicare and Medicaid 
Services has not done enough to address the issue of 
inappropriate payments even though our government-administered 
health system does appear to waste billions of dollars every 
year. Eliminating inappropriate payments, payments that, in 
fact, embarrassingly hemorrhage from the programs, is, as Mr. 
Pallone pointed out, a bipartisan issue.
    Unfortunately, there is no simple answer. Fraud analysts 
are estimating up to 10 cents out of every dollar that is spent 
in health care is lost yearly to fraud. That is 10 cents out of 
every dollar we are spending. One-fifth of all healthcare 
expenditures in this country are spent on the Medicare system. 
So that is a big figure, a big dollar figure, that demands our 
attention. We could pay for everything we need to pay for, the 
doc fix, in this decade and the next decade if we simply fixed 
that problem.
    We do pay providers in practically an automatic fashion. 
This May I asked for and received a briefing from one of the 
deputy administrators at CMS, who is the Director for Center 
Program Integrity, and talked about their efforts to move from 
a pay-and-chase mindset into one that builds on a system of 
predictive modeling.
    Now, the good news is that things do seem to be moving 
forward in that arena. They started with 9 algorithms and 
quickly grew to over 30. And that was last May, so I don't know 
what that figure stands at today. But it is clearly an area 
that is crying to be taken care of.
    They are some first steps, but they are not going nearly 
far enough. Had we addressed these technologies years ago, just 
think about the amount of money that could have been saved and 
how many generations of algorithms and new generations of 
algorithms that could now be in place.
    As a physician, I support prompt pay, and I realize the 
size, scope, and complexity of the Medicare program makes it 
highly susceptible to inappropriate payments. We have to 
accelerate the use of these analytics to aid in our detection 
efforts. But, you know, it is not new concepts. The Visa folks 
do this every hour of every day of every week and will call you 
when there is untoward activity occurring on your credit or 
debit card and are pretty quick to do so. Unfortunately, in our 
Federal agencies, anything we do cannot be defined as 
``quick.''
    We have learned from watching some of the predictive 
modeling activities in the crop insurance program that, simply 
recognizing that there is a cop on the beat, people are less 
likely to misbehave. Right now we have whole industries--
illicit industries, crooked industries--that are being built 
around the fact that we just simply make so much money 
available to them, they can hardly resist the temptation to 
cheat.
    Back-end investigations will remain a part of what CMS is 
required to do. We need to be sure that we have the 
prosecutorial force to be able to go--when these individuals 
are uncovered, to make certain that we can go after them with 
the full force of the law.
    The Government Accountability Office has made 
recommendations, some of which date back to a decade when I 
first started in Congress, and many of those have yet to be 
implemented. And we need to pay attention to what they tell us 
this morning.
    Developing new and innovative approaches to fight fraud has 
become increasingly important. I certainly look forward--we 
have a very--a panel in front of us today that has vast 
experience, and I expect that they can give us a great deal of 
enlightenment.
    And with that, I do want to yield to my colleague from 
Georgia, Dr. Gingrey.
    [The prepared statement of Mr. Burgess follows:]
    [GRAPHIC] [TIFF OMITTED] 85722.019
    
    [GRAPHIC] [TIFF OMITTED] 85722.020
    
  OPENING STATEMENT OF HON. PHIL GINGREY, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF GEORGIA

    Mr. Gingrey. I thank Dr. Burgess for yielding to me.
    Mr. Chairman, it is appropriate that we as a committee look 
at the various tools for fixing the Medicare program. 
Strategically, identifying fraud, waste, and abuse is essential 
to trying to solve and to save this program that so heavily 
benefits our seniors.
    Let's face it, Medicare will go bankrupt, depending on who 
you talk to, between 2017 and 2024. At this point, we must seek 
to identify waste and eliminate it--an estimated, what is it, 
anywhere from $60 billion to $90 billion a year. And this money 
should be used to preserve Medicare and not pad the wallets of 
criminals.
    We need to ensure that the agencies are all using all of 
the powers they already have at their disposal to save wasted 
money. I would hope that we can eventually take a proactive 
approach in identifying criminals, one where we eliminate the 
payment before it is made rather than chase them afterwards. 
This is a huge problem. And I think that every one of us are 
appalled, especially those of us who are healthcare providers, 
who have worked in that field, as Dr. Burgess and myself, for 
years, trying to do the right thing, and knowing that people 
are stealing money from those who really, really need it.
    So I am glad, Mr. Chairman--thank you for having the 
hearing. And I look forward to hearing from the witnesses.
    And I yield back. Thank you, Dr. Burgess.
    Mr. Pitts. The Chair thanks the gentleman and now 
recognizes the ranking member of the full committee, Mr. 
Waxman, for 5 minutes for an opening statement.

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

    Mr. Waxman. Thank you, Mr. Chairman, for recognizing me and 
for holding this hearing today and focusing on the important 
topic of Medicare and Medicaid fraud.
    Healthcare fraud robs taxpayers of funds, affects the 
quality of care provided to program enrollees, and saps the 
public confidence in the program. And that is why I see 
fighting fraud as a critical need and an issue where we should 
be able to achieve bipartisan consensus.
    The vast majority of Medicare and Medicaid providers are 
compassionate and honest. The vast majority of beneficiaries of 
these programs desperately need the care they provide. So we 
need to be tough on fraud and tough on criminals who take 
advantage of these programs and their beneficiaries, but we can 
and should not blame the victim.
    One of the reasons I am so proud of the Affordable Care Act 
is that it contains dozens of antifraud provisions. The 
legislation has the most important reforms to prevent Medicare 
and Medicaid fraud in a generation, and already they are 
yielding results.
    As a result of the strengthened enrollment and re-
enrollment process, CMS has deactivated 136,682 provider 
enrollments and revoked another 12,477. The new fraud 
prevention system of analytics has generated numerous new leads 
for new and existing investigations and providers and 
beneficiary interviews.
    The healthcare reform law shifted the prevailing fraud-
prevention philosophy from pay and chase, where law enforcement 
authorities only identify fraud after it happens, to inspect 
and prevent. But even so, the need for boots-on-the-ground 
investigation work will always remain.
    I am proud of these efforts to reduce fraud. We are going 
to hear today from a number of witnesses describing additional 
steps and technologies CMS could take in terms of fighting 
fraud. I know some of today's witnesses support legislation to 
mandate CMS undertake a pilot project testing specific 
technology. If Congress is considering giving CMS additional 
funding to test new fraud-fighting activities, first we should 
give them the flexibility to test different interventions and 
compare the results, not mandate one very prescriptive 
activity.
    Second, we must ensure that whatever CMS decides to test is 
evaluated carefully to determine which technologies provide the 
best value for our tax dollars. Smart cards may help address 
the problem of identity theft; however, reducing identity theft 
will not eliminate fraud, and smart cards may not be the only 
way to address issues of identity verification. In fact, both 
the American Medical Association, representing our Nation's 
physicians, and the National Health Law Program, representing 
low-income beneficiary advocates, raise some important issues 
for policymakers to consider with respect to these cards.
    I am glad the committee is continuing the dialogue on 
reducing fraud in the Medicare program. If we truly care about 
protecting the taxpayer, we should build upon the 
administration's initiatives to reduce Medicare fraud. I hope 
that we can work across the aisle to do just that.
    Thank you, Mr. Chairman. I yield back my time.
    Mr. Pitts. The Chair thanks the gentleman.
    That concludes our opening statements from Members.
    Mr. Burgess. Mr. Chairman?
    Mr. Pitts. Yes?
    Mr. Burgess. If I could ask unanimous consent, I have a 
letter here from Mr. Roskam describing a bill that he and Mr. 
Carney have introduced on provider identity protection, and I 
would like to submit that for the record.
    Mr. Pitts. Without objection, so ordered.
    [The information follows:]
    [GRAPHIC] [TIFF OMITTED] 85722.021
    
    [GRAPHIC] [TIFF OMITTED] 85722.022
    
    Mr. Pitts. Any other Members having opening statements, if 
you will provide them in writing, they will be made a part of 
record.
    Today we have one panel with seven witnesses.
    Our first witness is Ms. Kathleen King, director of the 
Health Care team at the U.S. Government Accountability Office. 
Our second witness is Mr. Dan Olson, director of fraud 
prevention at Health Information Designs. Third, Ms. Alanna 
Lavelle is the director of the East Region/Special 
Investigations Unit at WellPoint. Our fourth witness is Louis 
Saccoccio, chief executive officer of the national Health Care 
Anti-Fraud Association; fifth, Mr. Neville Pattinson, 
testifying on behalf of the Secure ID Coalition; sixth, Mr. 
Michael Terzich, senior vice president of global sales and 
marketing at Zebra Technologies. And, finally, we have Dr. 
Kevin Fu, associate professor of computer science and 
engineering at the University of Massachusetts, Amherst.
    We are happy to have all of you here with us today. Your 
written testimony will be madea part of the record. We will ask 
that you summarize in 5 minutes verbally your testimony before 
beginning questions and answers from the committee.
    Ms. King, you are recognized for 5 minutes.

    STATEMENTS OF KATHLEEN M. KING, DIRECTOR, HEALTH CARE, 
GOVERNMENT ACCOUNTABILITY OFFICE; DAN OLSON, DIRECTOR OF FRAUD 
PREVENTION, HEALTH INFORMATION DESIGNS, LLC; ALANNA M. LAVELLE, 
   DIRECTOR, SPECIAL INVESTIGATIONS, WELLPOINT, INC.; LOUIS 
 SACCOCCIO, CHIEF EXECUTIVE OFFICER, NATIONAL HEALTH CARE ANTI-
 FRAUD ASSOCIATION; NEVILLE PATTINSON, SENIOR VICE PRESIDENT, 
GEMALTO, INC., ON BEHALF OF THE SECURE ID COALITION; MICHAEL H. 
  TERZICH, SENIOR VICE PRESIDENT, GLOBAL SALES AND MARKETING, 
ZEBRA TECHNOLOGIES CORP.; AND KEVIN FU, ASSOCIATE PROFESSOR IN 
 COMPUTER SCIENCE AND ENGINEERING, UNIVERSITY OF MICHIGAN AND 
              UNIVERSITY OF MASSACHUSETTS AMHERST

                 STATEMENT OF KATHLEEN M. KING

    Ms. King. Chairman Pitts, Ranking Member Pallone, and 
members of the subcommittee, I am pleased to be here today to 
discuss our work regarding Medicare fraud, including the types 
of providers involved in fraud and strategies we have 
identified that could help prevent or detect fraud.
    Since 1990, we have designated Medicare as a high-risk 
program because its size and complexity make it vulnerable to 
fraud. Recently, for the first time, we were able to identify 
the types of providers investigated for and convicted of fraud, 
which should help CMS and other agencies target their efforts 
to prevent and reduce fraud.
    In our work, we defined the subject of fraud cases as 
either institutions or individuals. We found that many 
different types of providers were investigated for fraud. In 
2010, medical facilities, such as medical centers, clinics, and 
practices, were the most frequent subjects of criminal fraud 
investigations, accounting for about a quarter of all 
investigations, followed by durable medical equipment 
suppliers, which accounted for 16 percent. Beneficiaries 
accounted for 3 percent of investigations.
    Of these, the HHS Office of Inspector General referred 
about 15 percent of the subjects investigated for criminal 
fraud to the Department of Justice for prosecution. And in 
2010, nearly 1,100 subjects were charged in criminal fraud 
cases. Of those charged, approximately 85 percent were found 
guilty, pled guilty, or pled no contest. Medical facilities and 
DME suppliers accounted for about 40 percent of these subjects.
    With respect to civil fraud cases, about 2,300 subjects 
were investigated in 2010. Hospitals and other medical 
facilities accounted for nearly 40 percent of the subjects in 
the civil cases that were pursued. According to the OIG, about 
40 percent of the--I am sorry, about 50 percent of the cases 
were pursued, and the remaining cases were not pursued for a 
variety of reasons, including lack of resources and 
insufficient evidence.
    Of the subjects pursued, about 60 percent resulted in 
judgments or settlements. And, again, hospitals and other 
medical facilities accounted for about 40 percent of the 
judgments. None of the subjects were beneficiaries.
    Turning to strategies to reduce fraud, we have identified 
three, including strengthening provider enrollment processes 
and standards; improving pre- and post-payment review of 
claims; and developing processes to address identified 
vulnerabilities.
    CMS has made progress in each of these areas through 
implementing provisions of the Affordable Care Act and the 
Small Business Jobs Act. For example, CMS now has a process in 
place to better screen providers before enrolling them in 
Medicare. And it has implemented the fraud prevention system, 
which detects suspicious claims before they are paid.
    Still, further action is needed. We have made a number of 
recommendations to CMS that have not been implemented, and we 
continue to urge CMS to adopt them.
    In addition, we have significant ongoing work designed to 
assist CMS in its fraud-prevention efforts. We are currently 
assessing the effectiveness of the prepayment edits CMS and its 
contractors use to ensure that Medicare claims are paid 
correctly the first time. We also have a study under way 
examining how Federal agencies are allocating funds from the 
Health Care Fraud and Abuse Control Program, as well as 
evaluating the effectiveness of those efforts. And we are also 
examining the effectiveness of CMS's fraud contractors, the 
Zone Program integrity contractors.
    Preventing and reducing fraud requires constant vigilance, 
as a wide variety of providers are involved in fraud and those 
intent on committing fraud will always seek new opportunities 
to circumvent program safeguards. We urge CMS to continues its 
efforts.
    And this concludes my prepared statement. Thank you.
    Mr. Pitts. The Chair thanks the gentlelady.
    [The prepared statement of Ms. King follows:]
    [GRAPHIC] [TIFF OMITTED] 85722.023
    
    [GRAPHIC] [TIFF OMITTED] 85722.024
    
    [GRAPHIC] [TIFF OMITTED] 85722.025
    
    [GRAPHIC] [TIFF OMITTED] 85722.026
    
    [GRAPHIC] [TIFF OMITTED] 85722.027
    
    [GRAPHIC] [TIFF OMITTED] 85722.028
    
    [GRAPHIC] [TIFF OMITTED] 85722.029
    
    [GRAPHIC] [TIFF OMITTED] 85722.030
    
    [GRAPHIC] [TIFF OMITTED] 85722.031
    
    [GRAPHIC] [TIFF OMITTED] 85722.032
    
    [GRAPHIC] [TIFF OMITTED] 85722.033
    
    [GRAPHIC] [TIFF OMITTED] 85722.034
    
    [GRAPHIC] [TIFF OMITTED] 85722.035
    
    [GRAPHIC] [TIFF OMITTED] 85722.036
    
    [GRAPHIC] [TIFF OMITTED] 85722.037
    
    Mr. Pitts. Mr. Olson, you are recognized for 5 minutes for 
an opening statement.

                     STATEMENT OF DAN OLSON

    Mr. Olson. Thank you. Good morning, Chairman Pitts, Ranking 
Member Pallone, and congressional leaders. Thank you so much 
for the opportunity to testify on the issue of examining 
options to combat healthcare fraud, waste, and abuse within the 
Medicare and Medicaid programs.
    I am Dan Olson. I am the director of fraud prevention for 
Health Information Designs, which is a national healthcare 
analytics company. I oversee our product offering for fraud 
called SURVEIL, and I have worked in the program integrity 
field for over 17 years.
    Thank you for entering my full comments, as I will 
summarize today my testimony.
    Today we recognize that healthcare fraud is indeed a 
criminal problem. It is multidimensional and has many facets to 
it. But I suggest to you today and recommend that we need a 
multidimensional toolset to address healthcare fraud, waste, 
and abuse. Within this toolset we need to have something that 
is dynamic in nature, nimble to change, and responsive to 
emerging trends.
    Several items that I would suggest this morning are: the 
traditional business rules, which has been in place for a long 
time, which evaluates medical guidelines and Federal and State 
policy. But to enhance this, we must have predictive models, 
which are using past claims and billing behaviors to forecast 
future actions. We must also include predictive analytics, 
which is developing statistical models to identify unknown data 
relationships. We must include link analysis, which identify 
relationships between providers, billing entities, and 
recipients, often where we can find kickbacks so they don't 
become so prevalent. We must also incorporate clinical decision 
support systems so that we no longer look at just volume-based 
metrics but we look at clinical guidelines to identify areas 
where patients are at risk for developing major medical issues.
    I must caution, though, against the belief that the toolkit 
can stand alone because simply it cannot. The toolkit must be 
managed by a broad-based partnership that includes medical 
professionals, includes legal entities, analytical 
professionals, investigative entities, coding experts, 
statisticians, et cetera. By so doing that, we will have a 
toolkit that can address the multi facets of fraud, waste, and 
abuse.
    As has been mentioned, significant progress has already 
been made in the healthcare world, but significant progress 
needs to continue to be made. Healthcare fraud is dynamic; it 
is not static. If we sit and do nothing or rely on what we have 
done in the past, we will be behind the curve. We must 
implement the following recommendations that I present this 
morning.
    First, we should continue to expand the Medicare Fraud 
strike force at the Federal level, but not only that, we must 
implement it at the State level. By implementing it at the 
State level--and I would recommend that each of the regional 
CMS offices oversee this--then we can improve upon and recover 
greater than 1 percent of the overall Medicare and Medicaid 
spend.
    We must continue and I recommend to expand and fund the 
Integrated Data Repository. The singular importance of this 
alone can simply not be overstated. I recommend that CMS adopt 
a regionalized approach to this implementation that will allow 
for a more rapid development and will reduce the testing and 
training time that is needed for deployment. It is estimated 
that over $250 million can be accomplished in recoveries during 
the initial year and over $100 million in successive years.
    We must also continue to expand the do-not-pay list that 
was originally implemented by including retired and sanctioned 
Drug Enforcement Agency numbers. Estimated savings: $200 
million.
    Finally, we must also publish national and statewide 
healthcare statistics. We have read time and again about 
something called a national healthcare fraud hotspot, where we 
see billings in excess of 3,000 percent or 2,000 percent. These 
are absurd. We need to know this. This needs to be in front of 
us so that we can act upon it.
    In order to do this, I recommend that we establish baseline 
thresholds at the provider level for Medicare and Medicaid; 
that these threshold lists be updated regularly; and that they 
be published on the CMS Web site so that fraud analysts can 
further act on them and know what emerging trends and patterns 
will be.
    I would be happy to expand on any of these issues that I 
presented this morning. I have also included these in much more 
detail in the two white papers that are attached as appendices 
to my testimony.
    I would like to thank you, Congressman Pitts, Ranking 
Member Pallone, and congressional leaders, for this opportunity 
to present. And I look forward to the question-and-answer time 
that will follow. Thank you.
    Mr. Pitts. The Chair thanks the gentleman.
    [The prepared statement of Mr. Olson follows:]
    [GRAPHIC] [TIFF OMITTED] 85722.038
    
    [GRAPHIC] [TIFF OMITTED] 85722.039
    
    [GRAPHIC] [TIFF OMITTED] 85722.040
    
    [GRAPHIC] [TIFF OMITTED] 85722.041
    
    [GRAPHIC] [TIFF OMITTED] 85722.042
    
    [GRAPHIC] [TIFF OMITTED] 85722.043
    
    [GRAPHIC] [TIFF OMITTED] 85722.044
    
    [GRAPHIC] [TIFF OMITTED] 85722.045
    
    [GRAPHIC] [TIFF OMITTED] 85722.046
    
    [GRAPHIC] [TIFF OMITTED] 85722.047
    
    [GRAPHIC] [TIFF OMITTED] 85722.048
    
    [GRAPHIC] [TIFF OMITTED] 85722.049
    
    [GRAPHIC] [TIFF OMITTED] 85722.050
    
    [GRAPHIC] [TIFF OMITTED] 85722.051
    
    [GRAPHIC] [TIFF OMITTED] 85722.052
    
    [GRAPHIC] [TIFF OMITTED] 85722.053
    
    [GRAPHIC] [TIFF OMITTED] 85722.054
    
    [GRAPHIC] [TIFF OMITTED] 85722.055
    
    [GRAPHIC] [TIFF OMITTED] 85722.056
    
    [GRAPHIC] [TIFF OMITTED] 85722.057
    
    [GRAPHIC] [TIFF OMITTED] 85722.058
    
    [GRAPHIC] [TIFF OMITTED] 85722.059
    
    [GRAPHIC] [TIFF OMITTED] 85722.060
    
    [GRAPHIC] [TIFF OMITTED] 85722.061
    
    [GRAPHIC] [TIFF OMITTED] 85722.062
    
    [GRAPHIC] [TIFF OMITTED] 85722.063
    
    [GRAPHIC] [TIFF OMITTED] 85722.064
    
    [GRAPHIC] [TIFF OMITTED] 85722.065
    
    [GRAPHIC] [TIFF OMITTED] 85722.066
    
    [GRAPHIC] [TIFF OMITTED] 85722.067
    
    [GRAPHIC] [TIFF OMITTED] 85722.068
    
    Mr. Pitts. Ms. Lavelle, you are recognized for 5 minutes 
for an opening statement.

                 STATEMENT OF ALANNA M. LAVELLE

    Ms. Lavelle. Thank you.
    Chairman Pitts, Ranking Member Pallone, and members of the 
subcommittee, I am Alanna Lavelle, director of special 
investigations for WellPoint. Thank you for the opportunity to 
provide our input and recommendations on detecting and 
deterring fraud and abuse in the healthcare system.
    Healthcare fraud is not a victimless crime. We all pay, and 
we pay dearly. Costs extend beyond financial loss. People are 
harmed by wasteful, inappropriate testing and treatment.
    One of the significant strengths that we and other health 
plans provide is the data available from our integrated 
healthcare benefits. This allows us the ability to see the 
entire healthcare spectrum and to spot trends and outliers.
    We also have a dedicated fraud and abuse prevention team, 
known as the Special Investigations Unit, SIU. I am one of the 
lead investigators, and we are staffed by former Federal and 
State law enforcement agents and medical professionals. We also 
have a data analysis team.
    Our goal at WellPoint is to prevent healthcare fraud and 
abuse for the benefit of our members' health. And in order to 
meet this goal, we have developed a number of different types 
of programs to identify and prevent healthcare fraud and abuse, 
three of which I will briefly describe.
    First, we have our Controlled Substance Utilization 
Monitoring Program and our Medicaid Restricted Recipient 
Program. Prescription narcotic drug abuse is a national 
epidemic today. Through these programs, we are helping identify 
those who are engaged in or contributing to prescription drug 
abuse and/or drug diversion.
    For example, for our Medicaid plans, we have implemented a 
restricted recipient program in which a member who within a 3-
month period visits 3 or more prescribers, 3 or more 
pharmacies, and fills 10 or more controlled substance 
prescriptions without a confirmed underlying medically 
necessary condition, and we lock them into using only 1 primary 
care physician as prescriber, 1 retail pharmacy of their 
choice, and 1 hospital. Our case managers work directly with 
providers and members. And to date, the program has saved lives 
and many millions of dollars in emergency department visits 
alone for drug-seeking behavior.
    Second, we have recently contracted with a vendor to do 
predictive modeling at WellPoint. The program uses advanced 
neural network technology from FICO to identify previously 
unknown and emerging fraud and abuse provider and member 
schemes. Suspect providers and claims are reviewed to identify 
potential fraud, waste, or abuse and investigated thoroughly. 
Since we began using this tool just 6 months ago, we have 
opened 90 investigations and have achieved $27 million in 
projected savings. The return on the investment at this time is 
well over 15 to 1.
    And, finally, we take a multifaceted approach to identify 
bogus providers who do not actually perform services for real 
patients. Our provider database team alerts our investigators 
as to the presence of new claims coming in for new labs, new 
pharmacies, and new durable medical equipment suppliers, or 
DMEs. And we provide a full background check as well as a 
drive-by of the provider's purported office space. To date, in 
the State of California alone, we at WellPoint have stopped 
over 239 bogus DME providers before they were able to defraud 
us.
    So based on our experience in combating healthcare fraud 
and abuse, we offer the following recommendations to enhance 
future efforts throughout all sectors of health care.
    First, we are supportive of giving CMS the authority to 
establish a restricted recipient program in Medicare Part D for 
those beneficiaries displaying a pattern of misutilization.
    Second, we recommend that dually eligible beneficiaries 
with evidence of drug-seeking behavior should be locked into 
one managed care plan, rather than continue to be allowed to 
switch plans on a monthly basis to evade detection.
    Third, we support better coordination and cooperation among 
CMS, DOJ, and all stakeholders.
    And, finally, all expenses for health insurers' antifraud 
and -abuse programs should be included as activities that 
improve healthcare quality in the medical loss ratio 
calculation since they reduce waste, which reduces the cost of 
health care, and enhance patient safety by helping identify and 
remove providers engaging in unsafe and fraudulent practices 
from the healthcare system.
    In conclusion, I would like to thank the committee for the 
opportunity to testify today on behalf of WellPoint on this 
critical issue and pledge our support in any efforts to make 
the healthcare system financially viable and safe for our 
members.
    [The prepared statement of Ms. Lavelle follows:]
    [GRAPHIC] [TIFF OMITTED] 85722.069
    
    [GRAPHIC] [TIFF OMITTED] 85722.070
    
    [GRAPHIC] [TIFF OMITTED] 85722.071
    
    [GRAPHIC] [TIFF OMITTED] 85722.072
    
    [GRAPHIC] [TIFF OMITTED] 85722.073
    
    [GRAPHIC] [TIFF OMITTED] 85722.074
    
    [GRAPHIC] [TIFF OMITTED] 85722.075
    
    [GRAPHIC] [TIFF OMITTED] 85722.076
    
    [GRAPHIC] [TIFF OMITTED] 85722.077
    
    [GRAPHIC] [TIFF OMITTED] 85722.078
    
    [GRAPHIC] [TIFF OMITTED] 85722.079
    
    [GRAPHIC] [TIFF OMITTED] 85722.080
    
    [GRAPHIC] [TIFF OMITTED] 85722.081
    
    [GRAPHIC] [TIFF OMITTED] 85722.082
    
    [GRAPHIC] [TIFF OMITTED] 85722.083
    
    [GRAPHIC] [TIFF OMITTED] 85722.084
    
    [GRAPHIC] [TIFF OMITTED] 85722.085
    
    [GRAPHIC] [TIFF OMITTED] 85722.086
    
    Mr. Pitts. The Chair thanks the gentlelady and recognizes 
Mr. Saccoccio for 5 minutes for an opening statement.

                  STATEMENT OF LOUIS SACCOCCIO

    Mr. Saccoccio. Thank you. And good morning, Chairman Pitts, 
Ranking Member Pallone, and other distinguished members of the 
subcommittee. I am grateful for the opportunity this morning to 
discuss with you the various methods we believe can be 
effective in combating healthcare fraud. In my testimony today, 
I draw upon our organization's 27 years of experience 
examining, understanding, and fighting healthcare fraud.
    There is no silver bullet for defeating healthcare fraud. A 
winning antifraud strategy for Medicare must be multifaceted 
and include, as outlined in my written testimony, effective 
information-sharing among private and public payers of health 
care; the application of data analytics to healthcare claims; 
rigorous screening of providers attempting to enter or continue 
in the program; and a well-trained, adequate, and 
multidisciplinary workforce. Also, as with prescription drug 
fraud and diversion, solutions specially designed to address 
different types of fraud must be developed.
    I would like to focus on the first of these points in my 
oral testimony, effective antifraud information-sharing among 
public and private payers of health care.
    Healthcare fraud does not discriminate between types of 
medical coverage. The same schemes used to defraud Medicare and 
Medicaid migrate to private insurance, and schemes perpetrated 
against private insurers make their way into government 
programs. Additionally, many private insurers and Medicare Part 
C and D contractors provide Medicare coverage in the States, 
making clear the intrinsic connection between private and 
public interests on this issue.
    The United States spends $2.8 trillion on health care 
annually and generates billions of claims from well over a 
million healthcare service and product providers. The vast 
majority of these providers of services and products bill 
multiple payers, both private and public. For example, a 
healthcare provider may be billing Medicare, Medicaid, and 
several private health plans in which it is a network provider, 
and may also be billing other health plans as an out-of-network 
provider.
    However, when analyzing this provider's claims for 
potential fraud and abuse, each payer is limited to the claims 
it receives and adjudicates and is not privy to the claims 
information collected by other payers. In this type of 
environment, those intent on committing fraud bank on the 
assumption that payers are not working together to collectively 
connect the dots and uncover the true breadth of a scheme.
    And it is precisely this reason why the sharing of 
preventive and investigative information among payers is 
crucial for effectively identifying and stopping healthcare 
fraud. Payers, whether private or public, who limit the scope 
of their antifraud information to data from their own 
organization or agency are taking an uncoordinated and a 
piecemeal approach to the problem.
    NHCAA was formed in 1985 precisely for the purpose of 
serving as a catalyst for antifraud information-sharing. My 
written statement provides examples of the types of 
information-sharing activities conducted by NHCAA.
    The Department of Justice also has recognized the benefit 
of private-public information-sharing. For example, many U.S. 
attorneys offices sponsor healthcare fraud task forces that 
hold routine information-sharing meetings. And when invited to 
do so, private insurers often participate in these meetings to 
gather and offer investigative insight.
    Despite the Justice Department's general recognition of 
information-sharing as an antifraud tool, many, including 
NHCAA, saw the need to improve and expand the cooperation and 
antifraud information-sharing between the private and public 
sectors. After more than 2 years of discussions and meetings 
involving several interested parties, including NHCAA, the new 
Health Care Fraud Prevention Partnership was formally announced 
on July 26th at the White House.
    The Health Care Fraud Prevention Partnership represents a 
joint HHS and DOJ initiative, bringing together antifraud 
associations, private insurers, and government and law 
enforcement agencies. The partnership's purpose will be to 
exchange facts and information between the public and private 
sectors in order to reduce the prevalence of healthcare fraud. 
The partnership will also enable members to individually share 
successful antifraud practices and effective methodologies and 
strategies for detecting and preventing fraud.
    NHCAA has forged collaborative relationships between the 
private and public sectors for nearly 3 decades, and it is from 
this perspective that we believe the Health Care Fraud 
Prevention Partnership holds great promise. Just getting under 
way, the partnership needs time to develop and to demonstrate 
it can be successful. It needs consistent high-level support if 
it is to realize the sorts of tangible results we believe it is 
capable of.
    Whether undertaken through NHCAA, regional task forces and 
workgroups, or through the new Health Care Fraud Prevention 
Partnership, antifraud information-sharing and cooperation 
between the private and public sectors is essential to being 
able to detect emerging scenes and trends at the earliest time 
possible.
    Thank you for the opportunity to testify this morning. I 
would be happy to answer any questions that you might have.
    [The prepared statement of Mr. Saccoccio follows:]
    [GRAPHIC] [TIFF OMITTED] 85722.087
    
    [GRAPHIC] [TIFF OMITTED] 85722.088
    
    [GRAPHIC] [TIFF OMITTED] 85722.089
    
    [GRAPHIC] [TIFF OMITTED] 85722.090
    
    [GRAPHIC] [TIFF OMITTED] 85722.091
    
    [GRAPHIC] [TIFF OMITTED] 85722.092
    
    [GRAPHIC] [TIFF OMITTED] 85722.093
    
    [GRAPHIC] [TIFF OMITTED] 85722.094
    
    [GRAPHIC] [TIFF OMITTED] 85722.095
    
    [GRAPHIC] [TIFF OMITTED] 85722.096
    
    [GRAPHIC] [TIFF OMITTED] 85722.097
    
    [GRAPHIC] [TIFF OMITTED] 85722.098
    
    [GRAPHIC] [TIFF OMITTED] 85722.099
    
    [GRAPHIC] [TIFF OMITTED] 85722.100
    
    [GRAPHIC] [TIFF OMITTED] 85722.101
    
    [GRAPHIC] [TIFF OMITTED] 85722.102
    
    [GRAPHIC] [TIFF OMITTED] 85722.103
    
    [GRAPHIC] [TIFF OMITTED] 85722.104
    
    [GRAPHIC] [TIFF OMITTED] 85722.105
    
    [GRAPHIC] [TIFF OMITTED] 85722.106
    
    [GRAPHIC] [TIFF OMITTED] 85722.107
    
    [GRAPHIC] [TIFF OMITTED] 85722.108
    
    [GRAPHIC] [TIFF OMITTED] 85722.109
    
    [GRAPHIC] [TIFF OMITTED] 85722.110
    
    [GRAPHIC] [TIFF OMITTED] 85722.111
    
    [GRAPHIC] [TIFF OMITTED] 85722.112
    
    [GRAPHIC] [TIFF OMITTED] 85722.113
    
    Mr. Pitts. The Chair thanks the gentleman and now 
recognizes Mr. Pattinson for 5 minutes for an opening 
statement.

                 STATEMENT OF NEVILLE PATTINSON

    Mr. Pattinson. Thank you, Chairman Pitts, Ranking Member 
Pallone, and members of the subcommittee, for inviting me to 
testify on the solution to the problems for Medicare waste, 
fraud, and abuse. My name is Neville Pattinson, and I am the 
senior vice president of Gemalto. And I am here today 
representing the Secure ID Coalition.
    Gemalto is the world's leader in digital security, with 
over a billion people using our products every day. We develop 
secure operating systems and run them on secure devices that 
include smart cards, banking cards, U.S. passports, electronic 
ID cards, and tokens.
    Founded in 2005, the Secure ID Coalition is composed of 
companies which make smart cards and attendant technologies. We 
work with industry experts, public policy officials, and 
government agencies to promote identity solutions that both 
enable security and privacy protections. We are offering our 
industry expertise in the area of contact smart cards, which 
are used extensively throughout the Federal Government and 
around the world to protect access to both physical and logical 
assets as well as to protect personal information.
    Our Nation's Medicare system is under attack. Medicare 
abuse and fraud needlessly costs American taxpayers billions of 
dollars every year. The Centers for Medicare and Medicaid 
Services estimated in 2010 over $65 billion in improper Federal 
payments were made through both the Medicare and Medicaid 
programs. An April 2012 study published in the Journal of the 
American Medical Association estimated that fraud and abuse 
cost Medicare and Medicaid as much as $98 billion in 2011. 
Despite these good-faith estimates, the true cost of fraud and 
abuse in health care remains unknown.
    If we are ever to curb the fraud within the Medicare 
system, we need to start verifying those who are authorized to 
provide services, verify those who are authorized to receive 
benefits, and prevent those who are unauthorized from ever 
entering the system. Unfortunately, our current inability to 
address this fundamental identity and verification problem 
leaves the Medicare system perpetually open to ongoing 
exploitation. Programs to curb Medicare fraud without first 
resolving the identity verification problem will ultimately 
fail if we don't know who is a legitimate beneficiary and who 
is not.
    In order to get to the right track, we must structure the 
Medicare system to prevent fraud before it happens. This will 
not only save taxpayers billions of dollars every year, but 
ensure that Medicare survives to serve Americans well into the 
future. The Medicare Common Access Card Act, or the Medicare 
CAC, H.R. 2925, introduced by Congressman Gerlach and 
Congressman Blumenauerand Congressman Shimkus, is an important 
bipartisan piece of legislation that looks to solve this 
problem.
    In short, it calls for a pilot program to modernize the 
current Medicare card in order to verify both providers and 
beneficiaries as legitimate participants in the program. In it, 
five regional pilots would test upgrading the current paper 
Medicare card to a secure smart card, similar to those used by 
the DOD and all Federal employees.
    The pilots would do three things. First, it would reduce 
the number of fraudulent transactions by eliminating ways 
criminals can scam Medicare. Secondly, it would create 
significant efficiencies within the Medicare program, providing 
enormous benefit to the legitimate providers and their 
patients. And, lastly, and some would say most importantly, it 
would remove the Social Security number from the front of the 
Medicare card, immediately protecting seniors from identity 
theft and fraud.
    Here is how it would work. When checking out at the 
doctor's office, the beneficiary inserts their upgraded 
Medicare card into a reader and inputs their PIN code. The 
provider simultaneously inserts their upgraded provider card 
and scans perhaps their finger. This guarantees the transaction 
is agreed to, authenticated, and is legitimate. It has been 
electronically signed and encrypted and sent directly to CMS.
    What enables the transaction of the high-level assurance is 
a secure smart card embedded into the card. Smart cards are 
based on established, nonproprietary, open standards widely 
used by the Federal Government. Additionally, government 
healthcare systems globally utilize smart cards. The French, 
German, Taiwanese healthcare systems all use similar twin card 
systems to eliminate fraud and increase efficiencies.
    Smart cards are also widely used throughout the private 
sector. Financial services companies worldwide issue debit 
cards and credit cards to their consumers to prevent fraud and 
abuse. American banks will be introducing these Chip and PIN 
cards starting next year. But based on the savings reported by 
the U.K. financial services industry, the use of smart cards in 
that sector led to a reduction in overall fraud losses upwards 
of 70 percent.
    Mr. Chairman, I realize I am running out of time, and I beg 
to continue for another minute.
    Mr. Pitts. You may proceed.
    Mr. Pattinson. Thank you, sir.
    While industry experts believe that Medicare CAC will be 
able to deliver similar results, it is entirely reasonable to 
assume a cost savings of at least 50 percent. At the current 
rate of fraud, that represents well over $30 billion a year.
    We are not claiming this will eliminate fraud as we know 
it, nor is it a panacea. You may hear of vulnerabilities of 
otherwise resilient and stalwart systems. For that, our 
security innovations are constantly improving to solve current 
exploits and prevent future ones. The point is not to create an 
invulnerable system. That is impossible. The point is to save 
the Medicare system for the next generation.
    Existing fraud-mitigation technologies currently used by 
CMS cannot do it alone. We must prevent bad actors from getting 
into the system to begin with. Contact smart cards are the 
strongest, surest, proven, and most mature technology to do 
that.
    In conclusion, we are confident that a program such as 
Medicare CAC will bring value to beneficiaries, providers, and 
taxpayers alike. For beneficiaries, Medicare CAC ensures that 
their sensitive personal information, including their Social 
Security number, is protected by strong encryption that can 
only be read by an authorized Medicare CAC card reader. 
Providers will benefit from quicker processing of payments, 
increased billing accuracy, and the protection of their 
Medicare provider ID numbers. And taxpayers will ultimately 
gain the most significant benefit: the reduction in fraud, 
waste, and abuse within the Medicare system that can prevent 
the loss of tens of billions of dollars every year.
    Everone in Congress wants to preserve Medicare for the next 
generation of beneficiaries. Medicare CAC does this without 
having to raise taxes, eliminate benefits, or cut 
reimbursements. In our opinion, it is the best outcome for all 
possible solutions.
    Mr. Chairman, Ranking Member, and members of the 
subcommittee, I will be happy to answer questions that you may 
have. Thank you.
    [The prepared statement of Mr. Pattinson follows:]
    [GRAPHIC] [TIFF OMITTED] 85722.114
    
    [GRAPHIC] [TIFF OMITTED] 85722.115
    
    [GRAPHIC] [TIFF OMITTED] 85722.116
    
    [GRAPHIC] [TIFF OMITTED] 85722.117
    
    [GRAPHIC] [TIFF OMITTED] 85722.118
    
    [GRAPHIC] [TIFF OMITTED] 85722.119
    
    [GRAPHIC] [TIFF OMITTED] 85722.120
    
    [GRAPHIC] [TIFF OMITTED] 85722.121
    
    [GRAPHIC] [TIFF OMITTED] 85722.122
    
    [GRAPHIC] [TIFF OMITTED] 85722.123
    
    [GRAPHIC] [TIFF OMITTED] 85722.124
    
    [GRAPHIC] [TIFF OMITTED] 85722.125
    
    [GRAPHIC] [TIFF OMITTED] 85722.126
    
    [GRAPHIC] [TIFF OMITTED] 85722.127
    
    [GRAPHIC] [TIFF OMITTED] 85722.128
    
    [GRAPHIC] [TIFF OMITTED] 85722.129
    
    [GRAPHIC] [TIFF OMITTED] 85722.130
    
    [GRAPHIC] [TIFF OMITTED] 85722.131
    
    [GRAPHIC] [TIFF OMITTED] 85722.132
    
    [GRAPHIC] [TIFF OMITTED] 85722.133
    
    [GRAPHIC] [TIFF OMITTED] 85722.134
    
    [GRAPHIC] [TIFF OMITTED] 85722.135
    
    [GRAPHIC] [TIFF OMITTED] 85722.136
    
    [GRAPHIC] [TIFF OMITTED] 85722.137
    
    [GRAPHIC] [TIFF OMITTED] 85722.138
    
    [GRAPHIC] [TIFF OMITTED] 85722.139
    
    [GRAPHIC] [TIFF OMITTED] 85722.140
    
    [GRAPHIC] [TIFF OMITTED] 85722.141
    
    [GRAPHIC] [TIFF OMITTED] 85722.142
    
    [GRAPHIC] [TIFF OMITTED] 85722.143
    
    [GRAPHIC] [TIFF OMITTED] 85722.144
    
    [GRAPHIC] [TIFF OMITTED] 85722.145
    
    [GRAPHIC] [TIFF OMITTED] 85722.146
    
    [GRAPHIC] [TIFF OMITTED] 85722.147
    
    [GRAPHIC] [TIFF OMITTED] 85722.148
    
    [GRAPHIC] [TIFF OMITTED] 85722.149
    
    [GRAPHIC] [TIFF OMITTED] 85722.150
    
    [GRAPHIC] [TIFF OMITTED] 85722.151
    
    [GRAPHIC] [TIFF OMITTED] 85722.152
    
    [GRAPHIC] [TIFF OMITTED] 85722.153
    
    [GRAPHIC] [TIFF OMITTED] 85722.154
    
    Mr. Pitts. The Chair thanks the gentleman and now 
recognizes Mr. Terzich for 5 minutes for an opening statement.

                STATEMENT OF MICHAEL H. TERZICH

    Mr. Terzich. Thank you, Mr. Chairman, Ranking Member 
Pallone, and members of the subcommittee. My name is Michael 
Terzich, and I am the senior vice president of global sales and 
marketing for Zebra Technologies Corporation, which is 
headquartered outside of Chicago in Lincolnshire, Illinois.
    I greatly appreciate the opportunity to testify today and 
share my company's perspective on how secure ID card technology 
can help address the problem of fraud, waste, and abuse in the 
healthcare system and, more specifically, the Medicare program.
    My company commends you, Mr. Chairman, along with Ranking 
Member Pallone, for your leadership on this issue. We likewise 
wish to express our appreciation to your colleague from our 
home State of Illinois, Congressman John Shimkus, who has 
worked diligently----
    Mr. Pitts. Could you pull your microphone a little closer 
to you? Thank you.
    Mr. Terzich [continuing]. Who has worked diligently on this 
issue and has been a key leader in efforts to eliminate 
healthcare and Medicare fraud.
    As a global leader in the secure ID digital printer 
industry, Zebra designs and manufactures a variety of products 
that use sophisticated technology to safeguard identity and 
streamline business processes. As a result, I will focus my 
remarks on H.R. 2925, the Medicare Common Access Card Act, 
which, as you know, would establish a pilot program to test the 
potential security benefits associated with modernizing 
Medicare through the use of secure ID card technology.
    Zebra believes that this kind of technology will help 
protect the continued integrity of the Medicare program. Our 
confidence reflects the fact that technology enjoys a strong 
record of performance in both the Federal Government and the 
private sector. From the Department of Defense's use of secure 
identity credentials for logical and physical access to vital 
defense facilities and data networks, to the work of global 
credit card companies in advancing combined Chip and PINsystems 
which protect the integrity of both personal identity and 
financial transactions, secure ID technology provides a tested 
platform that Medicare can leverage in advancing efforts to 
combat fraud, waste, and abuse.
    Moreover, our experience in the private sector is that the 
digitization of business processes within Medicare will also 
help reduce the overall cost of operating the Medicare system. 
On this point, we associate ourselves with the testimony from 
our colleagues in the Secure ID Coalition, who address this 
point in greater detail in their statement.
    Let me briefly turn to three key technical elements of 
secure identification that the subcommittee may wish to 
consider as it advances H.R. 2925.
    The first is the value of leveraging the experience the 
Federal Government has gained over the past decade in improving 
identity security. In particular, we believe that the Federal 
Information Processing Standard Publication 201, better known 
by its acronym FIPS 201, and its subsidiary standards known as 
Personal Identity Verification 1, Personal Identity 
Verification 2, and Personal Identity Verification 
Interoperable, also known by their acronyms, PIV-1, PIV-2, and 
PIV-I, provide a proven framework for providing secure identity 
management technology into the fight against Medicare fraud.
    Since 2005, the Federal Government has issued millions of 
FIPS 201 and standard PIV cards to Federal employees and 
contractors covering a wide range of trusted identity 
applications. Given the Federal Government's significant and 
positive experience in using PIV-based secure ID technology 
elsewhere, we believe it makes sense to employ the FIPS 201 
standard in the pilot program that is created by H.R. 2925.
    Second is the recognition of the value that secure ID card 
technology brings to the fight against counterfeiting and 
identity theft. Counterfeiting secure ID cards is exponentially 
more difficult than counterfeiting paper-based cards, even for 
the most sophisticated, well-financed criminal enterprises. 
This enhanced security comes from a combination of media 
features, printer capabilities, and coding of encrypted data on 
the smart chip database verification, and secure methods and 
processes. H.R. 2925's pilot program will provide an 
opportunity to test these features and determine the best 
combination for the Medicare system.
    Third, Mr. Chairman, both security and efficiency are 
substantially enhanced through the use of a decentralized print 
model, which provides a realtime tie between the creation of a 
secure ID card and the immediate verification of the 
cardholder's information. Delays or gaps in time between these 
two steps, which inevitably occur when cards are manufactured 
in a remote centralized manner, increase opportunities that can 
be otherwise reduced through the use of a decentralized print 
model.
    In sum, Mr. Chairman, secure ID card technology enables the 
use of tested security features which enhance privacy and 
identity protection. PIV-compliant secure ID cards provide 
secure, multifactor authentication at a high level of assurance 
by combining cryptographic private authentication with a 
personal identification number in a durable, tamper-resistant 
card format. Once a secure ID card is programmed and associated 
with a user, it provides a trusted, authentical identity usable 
for a wide range of cyber-based and physical transactions.
    Thank you again, Mr. Chairman, for the opportunity to 
testify today. We stand ready to assist the subcommittee in 
developing legislative language related to the technical issues 
I have mentioned and urge the subcommittee to report out H.R. 
2925 with modifications early next year. I look forward to any 
questions you or your colleagues may have.
    [The prepared statement of Mr. Terzich follows:]
    [GRAPHIC] [TIFF OMITTED] 85722.155
    
    [GRAPHIC] [TIFF OMITTED] 85722.156
    
    [GRAPHIC] [TIFF OMITTED] 85722.157
    
    [GRAPHIC] [TIFF OMITTED] 85722.158
    
    [GRAPHIC] [TIFF OMITTED] 85722.159
    
    [GRAPHIC] [TIFF OMITTED] 85722.160
    
    [GRAPHIC] [TIFF OMITTED] 85722.161
    
    [GRAPHIC] [TIFF OMITTED] 85722.162
    
    [GRAPHIC] [TIFF OMITTED] 85722.163
    
    [GRAPHIC] [TIFF OMITTED] 85722.164
    
    Mr. Pitts. The Chair thanks the gentleman and now 
recognizes Dr. Fu for 5 minutes for an opening statement.

                     STATEMENT OF KEVIN FU

    Mr. Fu. Good morning, Chairman Pitts, Ranking Member 
Pallone, and distinguished members of the subcommittee. Thank 
you for the invitation to testify on the expectations of smart 
cards to combat waste, fraud, and abuse in the Medicare 
program.
    My name is Kevin Fu. I teach courses on smart cards and how 
to build secure computer systems in health care. While studying 
at MIT 17 years ago, I helped a hospital deploy a smart-card 
precursor to authenticate healthcare providers. My 
responsibility included issuing replacement authentication 
cards to nurses and physicians who would lose their cards. I am 
speaking today as an individual.
    While smart cards may reduce fraud in other sectors, there 
do remain challenges that may make deployment more costly and 
less effective than anticipated. One, smart cards authenticate 
smart cards, not people. The cards can still be borrowed or 
stolen. Two, there are several hacks against smart cards that 
have led to fraud and cloned credentials. And three, 
interrupting the clinical workflow can lead to unanticipated 
consequences on patient care that need to be investigated.
    So let me highlight the types of fraud remaining in 
healthcare programs in other countries who have already 
deployed smart cards for their national health programs. 
Further details do appear in my written testimony.
    In France, it was routine for people to share smart cards. 
Many healthcare professionals still do not have the smart-card 
readers after nearly 15 years. In such cases, a patient in 
France uses an ancient paper-based system for reimbursement. 
Thus, loopholes remain for fraud, and the French maintain two 
separate payment processing systems.
    In Taiwan, fraud persists because multiple patients collude 
with one or more doctors to report higher examination and 
medication fees such that they can split the extra money among 
themselves. Even a secure smart card cannot stop that kind of 
fraud.
    In Germany this past summer, the smart-card deployment 
proved difficult when the manufacturer accidentally distributed 
cards without PINs to 2 million patients. All the smart cards 
required replacement.
    In Britain, a survey found that general practitioners and 
staff share their National Health Service smart cards despite 
warnings of disciplinary action.
    And in Australia, they recently terminated its $25 million 
contract last month for their national eHealth program using a 
smart-card authentication service.
    Mr. Fu. Let me also highlight a few security shortcomings 
in smart cards just to give you an idea of what could be 
expected.
    In 2011, the DOD Common Access Card was suggested as a 
model approach for the Medicare Common Access Card. This was a 
valid approach. But 2 months later, a Chinese computer virus 
hacked into the computers connected to smart-cards readers to 
steal PINs from the military cards.
    Security, I teach my students, is very difficult to measure 
or predict and a common property of the hacked smart-card 
system is that the smart-card system was previously believed to 
be secure.
    In 2006, I culled out a study that analyzed the security of 
credit cards containing contact-less smart-card technology. The 
New York Times reported that card companies imply through their 
marketing that the data was encrypted to make sure that a 
digital eavesdropper could not get any intelligible 
information. But instead we found that we could wirelessly scan 
the credit cards through clothing with a tiny device built with 
$150 in spare parts.
    The Chip and PIN system deployed overseas has also 
experienced several security flaws that led to fraud. The BBC 
reported that cards were found to be open to a form of cloning 
despite past assurances from banks that Chip and PIN could not 
be compromised. Hundreds of Chip and PIN machines in stores and 
supermarkets across Europe have been tampered with to relay 
credit card data to overseas fraudsters to make cash 
withdrawals.
    With implications to public health, my understanding is 
that a significant source of fraud comes from home healthcare 
services. A home healthcare patient who cannot remember to eat 
breakfast on his own is not going to be able to remember a PIN 
or password. A stroke victim who must relearn how to swallow 
may not be able to talk or feed herself without assistance. The 
home healthcare patient depends greatly on the kindness of 
others and can be particularly vulnerable to overly trusting a 
provider.
    In short, a vulnerable home healthcare patient would likely 
comply with an unscrupulous provider who asked to hold onto the 
card and PIN so as not to inconvenience the patient.
    I have four recommendations.
    A pilot study should include a security analysis and 
penetration testing of the system by a neutral third party as 
well as tests designed with clinical engineers and health IT 
specialists to measure the impact on patient care.
    Two, a pilot study should measure fraud in comparison with 
alternatives.
    And three, a smart-card pilot should measure the impact on 
fraud while controlling for fraud reductions due to other fraud 
detection systems.
    And four, there should be a period of public feedback 
coordinated by a neutral third party who has no financial 
interest in the outcome of the selected technology. NIST may be 
a logical choice, given that the proposed legislation refers to 
NIST standards.
    So thank you. Let me conclude. And I am happy to answer any 
questions you may have.
    Mr. Pitts. The Chair thanks the gentleman.
    [The prepared statement of Mr. Fu follows:]
    [GRAPHIC] [TIFF OMITTED] 85722.165
    
    [GRAPHIC] [TIFF OMITTED] 85722.166
    
    [GRAPHIC] [TIFF OMITTED] 85722.167
    
    [GRAPHIC] [TIFF OMITTED] 85722.168
    
    [GRAPHIC] [TIFF OMITTED] 85722.169
    
    [GRAPHIC] [TIFF OMITTED] 85722.170
    
    [GRAPHIC] [TIFF OMITTED] 85722.171
    
    [GRAPHIC] [TIFF OMITTED] 85722.172
    
    [GRAPHIC] [TIFF OMITTED] 85722.173
    
    [GRAPHIC] [TIFF OMITTED] 85722.174
    
    [GRAPHIC] [TIFF OMITTED] 85722.175
    
    [GRAPHIC] [TIFF OMITTED] 85722.176
    
    [GRAPHIC] [TIFF OMITTED] 85722.177
    
    [GRAPHIC] [TIFF OMITTED] 85722.178
    
    [GRAPHIC] [TIFF OMITTED] 85722.179
    
    [GRAPHIC] [TIFF OMITTED] 85722.180
    
    Mr. Pitts. That concludes the opening testimony. We will 
now begin questioning, and I will recognize myself 5 minutes 
for that purpose.
    Ms. King, in 2010, the Obama administration announced that 
CMS would cut the Medicare improper payment rate in half by 
2012, an error rate that led them to conclude $60 billion in 
improper payments that were made.
    It is almost December of 2012. And knowing that GAO has 
just released a report on this demonstration project, can you 
tell us why the administration failed to release its mandated 
October report?
    Ms. King. Sir, you are referring to the Predictive 
Analytics Report?
    Mr. Pitts. I am sorry?
    Ms. King. You are referring to the Predictive Analytics 
Report----
    Mr. Pitts. Yes.
    Ms. King [continuing]. That was due to Congress?
    I can't speak for them. I do know that it has not been 
submitted yet.
    Mr. Pitts. Has the administration met their goal of 
improper payment rates being reduced by half by 2012?
    Ms. King. No, they have not.
    Mr. Pitts. What did your report reveal?
    Ms. King. Well, the improper payments rate is produced by 
HHS. And that is not--the 2012 number was just released. And I 
do know that they did not meet their rate, that the rate for 
2012 was 8.5 percent or $29 billion, which was slightly lower 
in percentage terms but higher in dollar amounts than the 2011.
    Mr. Pitts. Now, Mr. Olson, in 2010, then-acting Deputy 
Attorney General Gary Grindler stated that, quote, ``It is not 
enough just to prosecute and punish healthcare fraud after it 
occurs, we must target it before it happens through aggressive 
prescreening, auditing, and prevention techniques,'' end quote.
    An all-of-the-above strategy, if you will, and while much 
public attention has been given to post-payment recovery 
efforts under this administration, do you believe that we are 
doing enough in aggressive prescreening and prevention 
techniques, and what priorities do you recommend?
    Mr. Olson. I believe that we have made a good start. But I 
believe that there is significant progress that needs to be 
made.
    The prescreening methods that have been put in place are 
good to identify the low, medium, and high providers that are 
at risk. I still believe this is a beginning point and there 
needs to be much progress that would be made there. As well 
with the predictive analytics, I believe it is a starting 
point. I believe it is a good step that is being taken, but yet 
much more needs to be done, and I believe we are seeing that 
with the fraud prevention system that is in place. But it will 
continue to grow, and as the years roll on, that we will 
continue to see more activity in that area.
    Mr. Pitts. Ms. Lavelle, you mentioned in your testimony 
that data sharing between public and private entities is very 
important for fraud prevention. Medicare Advantage seems like a 
good example of where public and private payers meet.
    What sorts of data sharing occur between Medicare and 
Medicare Advantage plan companies? And do you believe that data 
sharing could be improved between the two to improve fraud 
prevention? If so, how?
    Ms. Lavelle. Mr. Chairman, I do believe there is a need to 
improve some of the sharing. We work through the NHCAA to share 
amongst all payers. And we do, as private payers, share with 
the government. However, oftentimes it is just a one-way street 
and we do not get the information back that we need. For 
example, if they suspend or revoke a provider, we continue to 
pay because we do not know who they have suspended or who they 
have revoked.
    Oftentimes, the Department of Justice will have an ongoing 
criminal case and we will not be allowed to intervene with that 
payer during this long criminal investigation and we continue 
to pay bad claims.
    And thirdly, there are a number of whistleblower lawsuits 
that involve patient harm. And until that qui tam lawsuit is 
unsealed, we cannot do any intervention with our providers that 
may be causing harm to our members.
    Mr. Pitts. OK. Now, you mentioned in your testimony the 
Controlled Substance Utilization Monitoring Program and 
limiting documented prescription drug abusers to one pharmacy 
and one prescriber as a mechanism to prescription drug abuse 
and to stop the costs associated with doctor shopping.
    Does Medicare Advantage or Part D plans allow insurers to 
implement a similar type of program? If not, do you know why?
    Ms. Lavelle. Not at this time. We have sought to get 
authority to do that. But at this time, they have not 
authorized that type of lock-in program.
    And, generally speaking, our biggest problems are with the 
dual eligibles between the age of 20 and 40. They not 
necessarily are seniors. But these are the folks that have the 
addiction problem and are overdosing, basically.
    Mr. Pitts. Thank you. My time has expired.
    Chair recognize Ranking Member Mr. Pallone for 5 minutes 
for questions.
    Mr. Pallone. Thank you, Mr. Chairman.
    I wanted to ask Ms. King initially, one of the witnesses 
today, I guess it was Mr. Pattinson, noted that by requiring 
identity verification of providers and beneficiaries, Medicare 
would easily eliminate more than 50 percent of the fraud within 
the current system.
    Do you believe, you know, that that is fairly accurate or 
would a verification process eliminate that much of current 
fraud?
    Ms. King. First, I do not think we really--there is no 
reliable estimate of how much fraud there is in the healthcare 
system. So half of a total that we do not know, it is hard to 
say what that would be.
    Secondly, I think that we just identified for the first 
time the types of providers that were involved in healthcare 
fraud. And no one, to my knowledge, has done an in-depth 
analysis of what the causes of fraud might be.
    So I think it would be premature to say that you could 
eliminate 50 percent of the fraud based just on identity theft, 
because we do not know the extent to which identity theft 
contributes to healthcare fraud.
    Mr. Pallone. Let me ask Ms. Lavelle about WellPoint's anti-
fraud initiatives. Does WellPoint use a smart card for 
beneficiaries like the one envisioned by the Medicare Common 
Access Card legislation?
    Ms. Lavelle. Mr. Pallone, we are on shifting sands right 
now with emerging technologies in the healthcare arena. We 
decided in the past year to pick up a predictive analytic 
modeling tool. And, to date, we haven't explored the smart 
card. We are exploring other sophisticated methods in the 
future, including an app that might go on a smart phone or an 
iPad. But we are still analyzing all the tools out there.
    Mr. Pallone. Are you aware of any of the Blues' plans that 
require beneficiary and provider smart cards? Do they use them?
    Ms. Lavelle. I am not aware of any that do, no.
    Mr. Pallone. As opposed to spending money on cards and card 
readers, where has WellPoint invested its anti-fraud dollars? 
If you had to pick one activity that you believe gives you the 
best bang for the buck, what would that be? And do you have any 
sense of your return on investment for these anti-fraud 
activities?
    Ms. Lavelle. Our most valuable tool at this time is our 
predictive analytic modeling tool. We are finding anomalies in 
systems, we are finding aberrant providers that are basically 
committing fraud. We are finding weaknesses in our own systems, 
in our own contracts, and in our own medical policies, things 
that we can urgently change to save dollars on an enterprise-
wide basis.
    Mr. Pallone. Do you have any idea of the return on the 
investment, though, in terms of that?
    Ms. Lavelle. It is well over 15 to 1 at this point.
    Mr. Pallone. OK.
    And then I wanted to ask Dr. Fu, I noticed in your 
testimony how a number of instances of fraud were committed 
when card readers were tampered with. Seems to me that placing 
multiple card readers in every physician's office just invites 
the opportunity for more fraud. Even an unsuspecting physician 
could be victimized by a faulty card reader. While that may not 
be happening today, isn't it conceivable that that is a danger 
in the future?
    Mr. Fu. That is a potential risk because of the software 
that is associated with the card readers and the connections 
that different components make into the clinical computing 
systems.
    Mr. Pallone. I am also concerned about the costs of 
implementing a smart-card system for all of Medicare. There is 
the cost of issuing the cards, the fingerprinting a million-
plus physicians and new physicians, possibly the costs of 
getting photos of beneficiaries for the cards, and the card 
readers, not to mention the system changes that Medicare would 
need to make to accept information from this new technology.
    From your experience in working in a medical setting, do 
you think it is reasonable to assume that each provider office 
would only need one card reader or do you think estimates of 
one card reader per office are a bit understated?
    Mr. Fu. I would suspect that providers would need more card 
readers than they originally anticipated. I say that because 17 
years ago, when we rolled out a similar system in a community 
hospital, that was one of the areas where it was underestimated 
how many card readers we needed, as well as how many cards we 
needed to purchase, too, because the physicians and nurses 
would inevitably misplace the cards.
    Mr. Pallone. Let me just go back to Ms. King.
    One of the things that I believe is important to keep in 
mind as we design our anti-fraud arsenal is that fraud is 
multifaceted.
    Could you just take a moment to describe the different 
kinds of fraud that is perpetrated against the Medicare 
program? I know I am almost out of time, but as briefly as you 
can.
    Ms. King. According to the Inspector General, there are 
lots of different kinds of fraud, but they include billing for 
services that aren't needed or not provided. There are kickback 
schemes where people sell their numbers, sell their beneficiary 
numbers.
    But, you know, there is a broad spectrum of fraud that is 
committed. But I don't think there has been a comprehensive 
analysis done that really drills down on all the types of fraud 
that have been identified. And there is, of course, a lot of 
fraud that goes unidentified because it is under the radar. 
People are committing acts that would be fraud that are not 
detected.
    Mr. Pallone. All right. Thanks a lot.
    Thank you, Mr. Chairman.
    Mr. Pitts. The Chair thanks the gentleman and recognizes 
Dr. Burgess for 5 minutes for questions.
    Mr. Burgess. I thank the chairman for the recognition.
    Ms. King, thank very much for being here. Thank you for 
your testimony today.
    Now, you gave us an impression in your spoken testimony 
that you have provided CMS a list of items that they might 
consider doing in order to implement the programs that they 
said that they are already implementing. Did I understand that 
correctly?
    Ms. King. Yes. We have a number of recommendations that we 
made to them.
    Mr. Burgess. Would it be appropriate for GAO to provide 
this committee with an itemized list of those things they have 
sent to the Centers for Medicare and Medicaid Services in order 
to get to the bottom of some of these inappropriate payments?
    Ms. King. We would be happy to.
    Mr. Burgess. Now, to date, has CMS replied to your 
provision? You have provided this information to CMS. Is it a 
two-way street? Are they coming back to you with the 
information?
    Ms. King. If we issue a report that has recommendations, 
the agency always has a chance to comment on them. And usually 
they either agree or disagree. And then we have an annual 
process where we follow up with them once a year to see whether 
they have implemented recommendations.
    Mr. Burgess. Well, that is really my question, that 
opportunity to agree or disagree.
    In your bibliography, you referenced another report you did 
last month about Medicare fraud prevention, CMS has implemented 
a predictive analytic system.
    In your recommendations part, you said HHS agreed to 
described action CMS was taking to address the recommendations. 
But my problem is, we have been talking about this for the 10 
years that I have been here and we are not getting anywhere.
    So how do they provide you with definitive actions that 
they are going--do they provide you with definitive actions 
that they are going to take that are associated with metrics 
where we could all know that they are doing what they said they 
were going to do?
    Ms. King. When we do our annual follow-up on 
recommendations, we engage in a rigorous process with them to 
determine whether, in fact, they have adopted recommendations.
    Mr. Burgess. When was this last annual report generated by 
CMS?
    Ms. King. We do our recommendation----
    Mr. Burgess. I am sorry, your----
    Ms. King. We do our recommendation follow-up each year in 
the fall.
    Mr. Burgess. OK. So is there a recent one that has been 
provided?
    Ms. King. That is an internal document to GAO. But we track 
that and we would be happy to provide you with a list of 
recommendations and the status of the follow-up.
    Mr. Burgess. That is what I was getting at. Thank you.
    And, Mr. Chairman, I would like for those to be provided 
and made part of the record and made available to every member 
of the committee, because I do think that it is important.
    We are all talking about the fact that we are just a few 
months away from Elysian Fields of the Affordable Care Act, and 
everyone is going to have everything that they ever wanted. But 
I don't know quite the number of States that have agreed to do 
their own exchanges, but there is a big number of States--I 
know my State is not going to do a State exchange--so there are 
a number that will fall into whatever this Federal fallback 
position is, which looks a lot like the public option.
    And one of the concerns I had about the public option when 
we talked about in this committee during a markup on H.R. 3200, 
which was the healthcare bill that didn't become law, one of 
the big concerns I had with the public option was we got a lot 
of problem right now with inappropriate payment in Medicare. 
Why in the world would we expand another public program before 
we get our hands around this problem?
    So I know the GAO does not speculate and they don't engage 
in conjecture. But do you have a feeling about what the future 
holds just a short year from now as those large public options 
come online?
    Ms. King. Sir, I would have to say not yet.
    Mr. Burgess. Well, I was afraid of that answer. OK.
    Ms. Lavelle, let me ask you, because you are WellPoint. You 
are private sector. Is your company going to be developing a 
product that will be available in the State exchanges?
    Ms. Lavelle. I am not certain at this point. But I can find 
out and have someone get back with you on that.
    Mr. Burgess. Then, of course, along the same line of 
reasoning, you know, would you participate in a Federal 
exchange if there were this large Federal fallback that were 
provided to States that weren't going to set up their 
exchanges?
    My understanding is this will be set up through the Office 
of Personnel Management, not through HHS. This is a pretty 
little-known and little-understood Federal agency right now 
that administers the Federal Employee Health Benefits Plan. But 
it is fixing to become an enormous Federal agency that will 
administer a problem--a problem---- sorry, Freudian slip--a 
program that is every bit as big as what CMS administers today 
in the Medicare system.
    So I would assume a company like yours would look at that 
and say, this is market share, we have got to be a participant 
in this.
    But at the same time, you have got this other problem with 
the medical loss ratio rules that are there in the Affordable 
Care Act. And I assume your company has looked at those medical 
loss ratios rules because they probably do affect you, do they 
not?
    Ms. Lavelle. Yes. Absolutely.
    Mr. Burgess. So if you spend money on fraud prevention, is 
that money scored as an administrative expense or a healthcare 
expense?
    Ms. Lavelle. We can only count the dollars up to the amount 
of recovery we bring in each year. So if we bring in, you know, 
$2 million, that is all we can count outside of the 
administrative costs.
    Mr. Burgess. I think you gave us a figure of ROI, of return 
on investment, of 15 to 1. So, presumably, that would be 
something you would pursue even in light of the MLR rules. Is 
that correct? Or is the MLR going to be an inhibitory factor 
for you?
    Ms. Lavelle. It continues to be inhibiting, based on our 
growth. We do a lot of quality of care investigations. We have 
found diluted chemo drugs. We have cases on cardiologists doing 
unnecessary stents, unnecessary bilateral cardiac caths. Maybe 
half of our work deals with quality of care and patient harm. 
And that is why we feel we should get some credit for some of 
the work and the prevention that we do.
    Mr. Burgess. I couldn't agree with you more.
    Mr. Chairman, I would just submit, at some point, we 
perhaps need to have a much wider evaluation of these medical 
loss ratio rules and how they affect. I mean, you are talking 
about patients--you are not just talking about fraud, you are 
talking about patient safety.
    Ms. Lavelle. Exactly.
    Mr. Burgess. We just had a big hearing in Oversight 
Investigations on patient safety because of some altered 
steroids in the compounding pharmacy. Patients depend upon us 
to be their watchdogs on this. And the fact that you feel that 
this is something that is being inhibited by the Affordable 
Care Act, we need to get on top of that.
    Now I will yield back my time.
    Mr. Pitts. The Chair thanks the gentleman and now 
recognizes the gentlelady from Illinois, Ms. Schakowsky, for 5 
minutes for questions.
    Ms. Schakowsky. Thank you, Mr. Chairman.
    Ms. King, I wanted to ask you a question. I think the 
chairman was getting at whether or not the administration has 
met its goals. And so the issue of how does one measure the 
effectiveness of fraud reduction measures. And I wanted to ask 
you about this.
    Those that prevent fraud from happening, how would we 
measure that? For example, since March of 2011, CMS has 
deactivated 136,682 provider enrollments and revoked 12,447 
enrollments, taking away their billing privileges because of, I 
guess, identifying them as fraudsters. And they no longer have 
the privilege of billing Medicare.
    So how would we calculate, or can we calculate, what kind 
of savings are realized by this revocation of billing 
privileges or any other kind of prevention measure that we 
might take?
    Ms. King. I think there are a number of steps that CMS has 
taken that are in the prevention category. And one thing is 
strengthening provider enrollments and standards so that you 
are keeping out people from the get-go who shouldn't be 
providing services to the program.
    So it is hard, you are right, it is hard to measure, well, 
you know, what might they have billed had they been allowed.
    And I think on the other side another example is the Fraud 
Prevention System, the Predictive Analytic System. If you are 
preventing things from happening, then how do you measure the 
magnitude of that? And I think that is something that CMS is 
working on and struggling with, but it is a difficult issue.
    Ms. Schakowsky. I think it is really, really important that 
we do that. And I think everyone on both sides of the aisle 
agree we need to do better. But I think it is also important 
that we get the metrics right so that we properly evaluate the 
measures that we are taking.
    Let me ask you a question, Dr. Fu. As you know, the smart-
card industry has legislation that would mandate CMS undertake 
a specific demonstration project to pilot their technology in 
five States.
    I am not a researcher, but it would seem to me that the 
bill could be made better in this fashion. It seems that 
testing one particular intervention against doing nothing 
likely will yield results. But it seems to me that the better 
question that Medicare and Congress should be exploring is 
testing one technology against another technology.
    So wouldn't it make more sense to test different 
interventions against each other to see which one is best?
    Mr. Fu. So in my written testimony, I have some further 
comments on that. I can highlight that.
    I agree, it would be more telling if the experiment were 
comparative as opposed to absolute.
    In particular, commingling the fraud reduction from the 
predictive analytics may make it more difficult to understand 
where is the reduction coming from, from the analytics or from 
the smart card. So it should not be conflated with the benefits 
from other anti-fraud mechanisms.
    There are some other technologies one could try. I would 
say none of them are surefire. But it is a valid question to 
ask.
    I believe one comment that was raised today was the issue 
of using a mobile app. And I have heard of suggestions of using 
an inexpensive photo ID. They all have problems. They all have 
benefits. But it is good to know the comparative.
    Mr. Pattinson. I would just like to add to Dr. Fu's 
comments that the smart-card technology is well proven around 
the world. Everybody in this room probably has at least one of 
them on your person in the form of a SIM card in your phone. It 
is in the U.S. passport. The Federal Government is using them 
to protect all of their infrastructure.
    So this is not testing a technology on the basis of does it 
work or not. Smart cards work in this situation for 
authentication and for identification. We are certainly not 
saying they should be done alone, and we agree that they should 
be done in conjunction with other technologies as they emerge. 
They can be included.
    But at the moment, this is an easy thing to help save the 
Medicare system a great deal of money very quickly with proven 
technology, even though under H.R. 2925, we are only asking for 
a pilot because we want everybody to be confident that we can 
build the best system to save the most money to preserve the 
longevity of Medicare.
    Ms. Schakowsky. Thank you, Mr. Chairman.
    Mr. Pitts. Chair thanks the gentlelady.
    Now recognizes Dr. Cassidy for 5 minutes for questions.
    Mr. Cassidy. Thank you all for being here.
    Ms. Lavelle, WellPoint has MA plans. And do you have the 
same level of fraud, waste, and abuse in your MA plans that you 
administer for CMS as is reported to occur in direct fee-for-
service Medicare?
    Ms. Lavelle. That is difficult to answer, Congressman.
    We are very vigilant with our MA plan. We have a lot of 
rigorous applications, data mining programs we run against it.
    One of the common denominators and one of our biggest 
issues is the ``any willing provider'' clause that allows any 
willing provider to bill.
    Mr. Cassidy. Are you allowed to do precertificaiton, 
preauthorization even if you have an ``any willing provider''?
    Ms. Lavelle. On certain procedures, yes.
    Mr. Cassidy. OK. OK. So you are not sure, possibly, but 
just not sure.
    Ms. Lavelle. Well, I am not certain if our level of fraud 
in MA is the same as CMS.
    Mr. Cassidy. Got you.
    Ms. Lavelle. It is just hard to determine.
    Mr. Cassidy. OK. Now, everybody is familiar with McAllen, 
Texas, immortalized in the New Yorker as a place with a lot of 
CMS fraud, waste, or abuse. But there is a health affairs 
article, first author is Franzini, looking at the Blue Cross 
population. And in this actually McAllen, Texas, had a 7 
percent lower utilization rate than El Paso.
    Now, it seems like if Blue Cross is 7 percent lower in a 
place where--I forget the exact number--but where McAllen is 
like 180 percent higher than El Paso, that the problem is CMS, 
frankly. And the authors of the paper at the end postulate what 
could be the problem. Some of them are reflected in your GAO 
report.
    Would you like to render an opinion on that?
    Ms. Lavelle. I am not familiar with the article, so I'd 
rather not.
    Mr. Cassidy. What would be your estimate of why Blue Cross 
Texas has 7 percent lower expenditures in McAllen, whereas CMS 
has, again, I wish I had looked at--80 percent or 180 percent 
higher than the cohort city, if you will, the comparison city?
    Ms. Lavelle. I think we do have some sophisticated tools in 
place that stop the dollars before they go out the door.
    Mr. Cassidy. So that suggests that CMS does not.
    Ms. Lavelle. No. I am not suggesting they do not. But we 
are very competitive in the Blues. And we are very 
collaborative between States in warning each other, giving 
early warning signals. But we do have very rigorous special 
investigation----
    Mr. Cassidy. Got you. The only reason I am cutting you off 
is time is limited. And it does seem as if the Blues have 
something that CMS does not, which is a little daunting when we 
figure we are turning over our healthcare system to them.
    You mention in your testimony, I think it was you, about 
the duel eligibles being able to change Part D plans month to 
month. And so those seeking drugs will try and stay one step 
ahead.
    Ms. Lavelle. Yes.
    Mr. Cassidy. Do you have an estimate of how much money we 
would save? Because prescription drug abuse is a huge problem.
    Ms. Lavelle. It is.
    Mr. Cassidy. Do you have an estimate of how much we would 
save were we to limit that activity?
    Ms. Lavelle. I don't have an estimate. But I can tell you 
that a single provider that we lock into place with a single ER 
for nonemergency use, we could save at least 300,000 to 400,000 
a year based on----
    Mr. Cassidy. Three hundred, four hundred thousand what?
    Ms. Lavelle. Dollars a year, per member.
    Mr. Cassidy. Per member.
    Ms. Lavelle. For locking them in. They evade the lock-ins 
by jumping from WellPoint to Humana to Aetna.
    Mr. Cassidy. You would save $300,000 per member, per year?
    Ms. Lavelle. For every dollar we spend on drugs, we have 
determined that we spend approximately $41 on facility fees.
    Mr. Cassidy. And any clue the size of this population that 
you would save $300,000 per year on? I mean, is it a thousand 
people? Is it a million people?
    Ms. Lavelle. It is hard to say. But it is----
    Mr. Cassidy. Ballpark.
    Ms. Lavelle. We probably have a thousand right now that we 
are monitoring. And we just don't have the manpower to 
monitor----
    Mr. Cassidy. So a thousand times 300. We are talking about 
real change here----
    Ms. Lavelle. Yes.
    Mr. Cassidy [continuing]. For one company. Granted, a big 
one.
    Ms. Lavelle. Right.
    Mr. Cassidy. Dr. Fu, I really liked your testimony, man. I 
will tell you, the TWIC card was supposedly going to be the 
answer for all security problems, and I get regular complaints 
from people fighting about the TWIC card. And I like the way 
you kind of, if you will, puncture a couple holes in its 
foolproofness.
    Is there anything short of a retinal scan that could 
actually make a secure ID card? Because you mentioned, if 
somebody gives their card to somebody else and they can take 
that number, et cetera, et cetera.
    Mr. Fu. Thank you, sir.
    Identity is very difficult to establish. In computer 
security, there are three basic ways to do it. You can use 
something you have, like a smart card; something you know, like 
a password; or something you are, like a fingerprint. Whereas 
we also like to call it something you lost, something you can't 
remember, and something you were.
    But I would say that the difficulty is in how the smart-
card system is used in the greater system. So it doesn't matter 
if you have the most secure technology or even if there is a 
flaw, if that system is put as a component in a larger system 
that it itself has flaws. For instance, a paper-based----
    Mr. Cassidy. Got you.
    Mr. Fu [continuing]. Alternative system would leave that 
door open to fraud.
    Mr. Cassidy. But still within that, there has to be--and 
you point that out--there has to be things about the card 
itself even in a perfect system that can make that system 
vulnerable.
    So I go back to again is anything besides the fingerprint 
or a retinal scan going to give you the assurance that somebody 
sitting at a computer terminal is just not filing claims for 
things not done?
    Mr. Fu. Unfortunately, despite decades of research in 
computer security, there is no silver bullet. There is no 
surefire way to establish identity. I think one of the reasons 
that certain identity cards work well in buildings is that you 
may have police nearby or people watching or people who would 
catch you.
    So I don't have a good answer for you on what would work 
better. I do think it is a good idea to try different 
alternatives because different contexts you will see different 
technologies having different advantages.
    Mr. Cassidy. Thank you, Mr. Chairman. I apologize for going 
over.
    Mr. Pitts. Thank you. The Chair thanks the gentleman.
    The Chair recognizes the gentleman from New York, Mr. 
Engel, for 5 minutes for questions.
    Mr. Engel. Thank you very much, Mr. Chairman.
    Mr. Saccoccio, in your testimony, one of your 
recommendations is that we ensure a skilled and sufficient 
workforce of anti-fraud professionals. My sense is that no 
matter how much we invest in front-end screening or technology 
solutions, we will still have a need for those boots on the 
ground.
    There are providers who look legitimate on paper and it is 
only until an unannounced visit that we discover something is 
wrong. Sometimes it is not until a beneficiary is interviewed 
or calls to report something suspicious that investigators get 
a hint of problems.
    So my question is, can you talk about what kind of anti-
fraud workforce CMS should maintain? Do you believe additional 
investments in anti-fraud funding, including for personnel, 
would be valuable to help fight Medicare fraud?
    Mr. Saccoccio. Yes. Thank you for the question.
    I definitely agree that technology is not the silver 
bullet. It is a tool that has to be used. Predictive analytics 
is important. It is going to give you a lot of leads. But once 
you get those leads from the technology, you need the people to 
examine those leads.
    I don't know of any system right now where you could just 
flip a switch and based on the information you get back from a 
computer be able to automatically deny a claim or suspend a 
claim until there is some sort of investigation done.
    So you definitely need folks that are very savvy with 
technology, experts in technology. You need folks able to 
analyze data that is generated, statisticians, those types of 
folks. You need folks that have clinical backgrounds, because 
as a few of the witnesses talked about, a lot of the issues 
involve quality of care, necessary care. So you need folks that 
have clinical backgrounds.
    And then you need investigators, folks that know how to do 
investigations, folks that can go out into the field and ask 
questions and visit sites where potentially you have phantom 
providers or fraudulent providers.
    So you need a mix of workforce. So definitely any resources 
that are put into this, some have to be focused on technology. 
But you also have to ensure that you have the right type of 
workforce to go out there and conduct the investigations and 
validate the information that the technology is feeding you.
    Mr. Engel. Thank you.
    Let me ask you again, Mr. Saccoccio, and also Ms. King, the 
Affordable Care Act contains a number of provisions designed to 
promote data sharing between agencies, the Federal Government, 
and the States, and also various Federal healthcare programs. 
And it also, as you know, provides new tools and strengthens 
penalties against fraudulent providers.
    The CBO, the Congressional Budget Office, estimates that 
these anti-fraud provisions when fully implemented will save 
American taxpayers $7 billion over the next 10 years.
    So let me ask you again, Mr. Saccoccio, and also Ms. King, 
what specific aspects of fraud detection do you think are being 
most positively impacted by the provisions in the Affordable 
Care Act and what additional steps do you believe Congress 
should take to enable better fraud detection and prevention?
    Ms. King, why don't we start with you.
    Ms. King. Yes. Well, one of the key provisions of the 
Affordable Care Act was a set of provisions strengthening the 
ability of CMS to screen providers before they are enrolled in 
the program. So you are ensured that you are only getting 
legitimate providers in the program.
    And as part of that process, CMS also contracted with a 
couple of contractors to do onsite inspections to go up, you 
know, for high-risk providers to make sure that they are, in 
fact, legitimate businesses and to automate the enrollment 
process more quickly so that you can see before you enroll 
someone whether they are on the do-not-pay or the excluded 
list.
    So those kinds of things I think have a good bit of 
potential.
    Mr. Engel. Thank you.
    Mr. Saccoccio?
    Mr. Saccoccio. Yes. I think the biggest thing in the 
Affordable Care Act, as Ms. King mentioned, is the ability, 
giving CMS greater ability to screen providers coming into the 
program.
    And I think some of that is going to require, depending on 
how you establish--when you look at different providers, you 
have to establish potential risks from those different types of 
providers. So the greater risks that you anticipate, the more 
screening you will have to do, which may require some onsite 
visits for things like DME companies, to ensure that these are 
actually valid companies that are actually in business.
    But I think one of the steps looking to the future is that 
a lot of this information that is coming out of their automated 
screening process that CMS is doing has to also be incorporated 
into their Fraud Prevention System.
    In other words, connecting the dots, not--as you screen 
providers, to make the network connections between different 
types of providers. Because what you have is are often put up 
as fronts for different companies. And as you establish who 
these folks are, you'll see that there are connections with 
other folks that are actually committing fraud.
    So I think a big piece of that is doing the screening, but 
then incorporating what you are finding out from that screening 
and what you are also doing with respect to claims analysis and 
predictive analytics.
    Mr. Engel. Thank you.
    Thank you, Mr. Chairman.
    Mr. Pitts. The Chair thanks the gentleman and now 
recognizes the gentleman from Georgia, Dr. Gingrey, 5 minutes 
for questions.
    Mr. Gingrey. Mr. Chairman, thank you.
    And I want to thank all of the panelists, all of the 
witnesses. I am going to direct my questions primarily to the 
member from the Government Accountability Office, Kathy King. 
So, Ms. King, it will be primarily directed toward you.
    I will kind of follow up on what my colleague from New 
York, Mr. Engel, was just referencing regarding the provisions 
in the Patient Protection Affordable Care Act, Obamacare, 
toward combating waste, fraud, and abuse. And I think he gave 
the figure of an estimated savings of $7 billion over 10 years 
if these provisions of Obamacare were implemented.
    Ms. Lavelle testified that WellPoint's anti-fraud 
activities rely in part on a system of identifying high-risk 
practices, providers, and beneficiaries, and then creating 
solutions such as prior review to deal with these problems.
    The Patient Protection and Affordable Care Act created a 
number of--in fact, I think at least eight anti-fraud 
provisions, such as granting the Secretary the authority to 
conduct criminal background checks for providers and suppliers 
considered high risk.
    Ms. King, you referenced that.
    Can you tell me whether this administration has, to date, 
implemented all of these provisions that are in the law in 
Obamacare?
    Ms. King. I cannot, because our process of checking on them 
is not complete. But, you know, in the spring when we also 
testified about this issue, there were a few provisions, 
including the criminal background check and surety bond 
provisions, that were not yet implemented.
    Mr. Gingrey. Let me help you a little bit. You say you 
cannot answer the question on what has been implemented.
    Section 6407 of Obamacare created a requirement that CMS 
implement face-to-face encounters between patients and 
providers before a physician can certify eligibility for 
durable medical equipment.
    While the State of Georgia has many good and hopefully 
honest and mostly honest DME providers, we all know that 
durable medical equipment is one of the most fraudulent areas 
in Medicare and has garnered nationwide scrutiny on programs 
even like ``60 Minutes.''
    Can you tell me, has the administration implemented face-
to-face provider meetings for DME to date? Have we done that?
    Ms. King. Not to my knowledge, they have not. Ordinarily, 
if I were appearing before a committee, I would check on all of 
those things, but I did not have the opportunity to fully check 
all those things before coming today.
    Mr. Gingrey. Well, look, I am going to help you again. And 
I said there were eight things I think you--maybe CMS has 
implemented one of the eight. But let me list, just read to you 
a number that have it, including this face-to-face encounter in 
regard to prescribing durable medical equipment.
    Implement checks to make sure that a physician actually 
referred a Medicare beneficiary for medical service--for 
example, clinical laboratory--before paying the claim.
    No, they have not done that.
    Implement a surety bond on home health agencies and certain 
other providers of services and supplies.
    No, they have not done that.
    Establish a compliance program for fee-for-service 
providers and suppliers.
    Once again, no, that has not been done.
    Implement a temporary moratorium for new Medicare providers 
from enrolling and billing the Medicare program even though 
there are more than enough suppliers to furnish healthcare 
services in certain areas of the country.
    No, they have not done that.
    Mr. Chairman, I believe this committee should find out what 
powers CMS has. Many of them, as Ms. King indicated, and 
others, that were granted in the law which is now over 2 years 
old to help implement waste, fraud, and abuse that it currently 
does not employ. So how are we going to save that $7 billion 
over the next 10 years.
    My opposition to Obamacare in this committee certainly is 
well known. I do believe that protecting taxpayer dollars and 
Medicare dollars from fraud and abuse is one of the main 
charges of this government and that we as committee members 
have.
    And it is very much a bipartisan issue. Medicare is set to 
go bankrupt as early as 2017, as late as 2024. If this 
administration has the authority to implement changes within 
the Medicare program that could prevent billions in lost funds 
annually and it is not using them, I believe, Mr. Chairman, 
that the administration owes us an accounting of the reasons 
why to date, 2 years, seven out of eight provisions have not 
been implemented.
    And I yield back.
    Mr. Pattinson. Mr. Chairman, Congressman, I would like to 
make a comment.
    Mr. Pitts. Go ahead. You may.
    Mr. Pattinson. I think you are describing a very 
significant problem about the DME issue of being able to 
deliver equipment and have it prescribed without physical 
contact.
    Looking at the pilot that we once proposed under this 
Medicare CAC Act, I would suggest that that is exactly a very 
good reason why we could use the twin card approach; a provider 
and a patient must both combine their cards in a reader to 
perform the transaction to show that they have authorized this 
particular DME equipment for this provider, by this provider 
for this individual. Then subsequently on delivery. Then we 
know who was responsible for issuing that request.
    So no nefarious claims or no nefarious deliveries of DME 
equipment can now take part on the basis that you have to have 
two keys to make that request work. So I would strongly 
recommend that we include that as part of the pilot.
    Mr. Pitts. All right. Thank you.
    The Chair now recognize the gentleman from Illinois, Mr. 
Shimkus, for 5 minutes for questions.
    Mr. Shimkus. Thank you, Mr. Chairman.
    Apologize for not being here for all the opening 
statements. Thanks for your testimony. In this era of budget 
crises and entitlement reform, to think that we wouldn't do 
some simple steps to get a handle on waste, fraud, and abuse is 
unbelievable. Frustrating from those of us.
    Mr. Pattison, just for a second, and you mentioned it 
earlier in one of the questions, H.R. 2925, which I am a co-
sponsor of, bipartisan support, is what type of a program?
    What is the intent of 2925?
    Mr. Pattinson. It is to operate a pilot----
    Mr. Shimkus. A pilot program.
    Mr. Pattinson. Pilot program of five regions.
    Mr. Shimkus. How are the region to be chosen?
    Mr. Pattinson. The regions would be defined the by agency 
implementing the----
    Mr. Shimkus. And it is my understanding under the highly 
abused areas of----
    Mr. Pattinson. If that's what they so choose, that would be 
where they would have the best effect.
    Mr. Shimkus. That is the intent.
    Mr. Pattinson. Indeed.
    Mr. Shimkus. I think that is our intent.
    Mr. Pattinson. The pilot would be to upgrade the Medicare 
cards for the beneficiaries by taking the number off the card 
and providing the card, such as the one I have in my hand here. 
It would also be providing a similar smart card, but with more 
capability to the provider. Then by using the terminals at the 
various locations, which, by the way, with a Chip and PIN 
implementation coming out, these terminals are going to become 
prevalent all over the place, anyway. So we are just adding 
basically functionality to existing terminals that will exist 
by the time we get around to a pilot.
    But by putting the two cards in the same unit, performing 
the PIN actions of the beneficiary and the fingerprint of the 
provider, we conceal those transactions and prevent people from 
creating transactions without any of these technologies.
    So think of it like a safety deposit box in the bank; you 
need to have two keys to make this drawer open. You need to 
have these two keys to make these transactions work.
    So the pilot is to test this. And to date Dr. Fu's 
testimony, it is to make sure we design the very best and most 
robust system for a potential rollout.
    Mr. Shimkus. And, Mr. Terzich, do you want to add to this 
discussion on the use of the card?
    Mr. Terzich. Mr. Congressman, I would add the following. 
Essentially, when you look at, both from the government and 
from the private sector perspective, the pervasive deployment 
expansion of smart cards and smart chips, you know, today there 
are literally billions of smart chips in circulation, millions 
of smart cards in circulation. And despite some random rogue 
instances of security breach, the underlying technology has 
demonstrated time and time again that it is a very productive, 
useful technology.
    And when you apply that to the challenge at hand here where 
there is a very optimal opportunity to engage in the low-
hanging fruit by simply deploying some technology, that I think 
would in many respects take a big slice out of the abuse and 
the fraud that exist today.
    Mr. Shimkus. I have no understanding why we would not move 
immediately to do this as a start. Not the entire solution of 
waste, fraud, and abuse in the system. But this is really a no-
brainer. Twenty million Department of Defense individuals use 
this system. This is not--this is not new technology or new 
activity that no one has used before.
    So the other thing I would like to add on is, Mr. 
Pattinson, how about international--well, let me start by this 
too, because my frustration is pretty high on our challenges 
that we face in this country.
    If anyone uses their credit card overseas today, theft 
comes by someone stealing your slip, not through the 
technology.
    If anyone uses a passport, these new passports that we have 
that swipe through the system, they are using this with 
biometric facial identification. I mean, folks, we are using 
this now. All we are asking is that let's try it to highlight 
waste, fraud, and abuse.
    I want to move to Ms. Lavelle real quick.
    Your testimony is also illustrative of an issue with the 
healthcare law, fee for service, and Medicare Advantage. And I 
would hope that when you go back, you would ask to do an 
analysis of the waste, fraud, and abuse under fee for service 
versus waste fraud and abuse in dollars. You have to get some 
statistician that would make it equal sizes or whatever they 
have to do to make sure.
    But I would wager money that fee for service is multiple 
times more abusive in waste, fraud, and abuse. And the argument 
I would postulate is that you have an organization established 
and folks making sure that there is not waste, fraud, and abuse 
going out the door, and that is that whole medical loss ratio 
debate and what is going to be able to be paid for.
    So if we don't allow companies to do their due diligence 
because we don't let them qualify in the medical loss ratio, 
guess what, we are going to have more waste, fraud, and abuse. 
It is the most ludicrous thing that I have seen. We need 
market, we need competition. The private sector does that 
because they don't want to lose the money.
    With that, Mr. Chairman, I think we need to have many more 
hearings on this issue.
    Thank you all.
    Mr. Pitts. The Chair thanks the gentleman and now 
recognizes the gentlelady from Tennessee, Ms. Blackburn, for 5 
minutes for questions.
    Ms. Blackburn. Thank you, Mr. Chairman.
    And I want to thank each of you for your patience, sitting 
through this hearing, being here with us today.
    Ms. King, thank you for your report. I appreciate that you 
got that in to us in a timely manner, and I appreciate the way 
that you broke it out, looking at medical facilities, durable 
goods, and where the problem exists.
    I think for those of us that have been focusing on this 
waste, fraud, abuse issue in the Medicare/Medicaid systems, and 
this is not a new problem, what we have come to realize is that 
HHS as a whole doesn't put enough attention on this issue, and 
that we still have a broken system, and that the pay and chase 
model does not yield the results that we need.
    And I can tell by looking at your nodding heads you all 
agree with that.
    I will say this. I am disappointed that we did not get the 
Medicare report that was due to be made public on October 1 
looking at these issues. And my hope is that we are going to 
see this soon.
    I do want to ask you, Ms. King, did you all look at the 
contract that was given to Northrop Grumman in 2011 to develop 
a system? We had the bureaucrats there at Centers for Medicare 
and Medicaid at CMS that gave a $77 million contract to have 
Northrop Grumman in 2011 to come up with a fraud prevention 
system. Did you all look at this contract and the miserable 
yield that has come from that with its first eight months of 
implementation?
    Ms. King. We evaluated the implementation of the program. 
But we did not look specifically at the contract.
    Ms. Blackburn. OK. But I think you can say if we spent $77 
million in 8 months into the implementation, we have seen a 
$7,591 return from that investment, that it is pretty poor, 
pretty poor investment.
    I want to turn to Mr. Saccoccio, Mr. Terzich, and ask you 
all, if you were given a $77 million contract, how would you go 
about--what would your advice to Medicare, to CMS be on solving 
this problem? Would you have a ready answer? Would you have a 
way to move forward to help CMS, to help companies like 
WellPoint in identifying this fraud before it is committed?
    Mr. Saccoccio. You know, the CMS contract and their 
implementation of this Fraud Prevention System, from our 
viewpoint, it is definitely a road they have to go down. Now, 
whether or not, you know, the cost of that contract and who 
they decided to go with, with respect to that contract, I have 
no particular information on that. But definitely predictive 
analytics and predictive modeling, those are the things that 
they have to be doing going down the road.
    Now, sometimes I think what happens with these systems is 
that, with respect to suspension of payments, I know they 
haven't started where they are actually suspending payments 
based on the----
    Ms. Blackburn. Well, in the interest of time, let me 
interrupt you now.
    Do you know private sector companies that could probably 
solve this and solve this problem quickly?
    Mr. Saccoccio. It is hard to say. I know some of the health 
plans are using predictive modeling of some sort. About 40 
percent of our members do. And as Ms. Lavelle mentioned, they 
are having success with that.
    So I think, you know, obviously, the implementation, there 
are more efficient ways of doing things. But not being part of 
that process, it is very hard for me to say.
    Mr. Terzich. Congresswoman, can I add a comment here?
    Ms. Blackburn. Yes, you may.
    Mr. Terzich. You know, when you have look at the challenge 
that we face, I think it is the sum of a variety of technology-
based solutions that can make a big impact.
    And beyond predictive analytics, you know, you have the 
opportunity in H.R. 2925 to add the electronic handshake that 
occurs. And that information that gets processed in real time, 
in combination with predictive analytics, is going to increase 
visibility throughout the process.
    And from our private commercial experience in business, 
what you see is the more visibility you apply to the process 
through the use of technology, the more opportunity you have to 
refine those processes over time. And so it is much more of a 
journey than an event. But it creates a tremendous opportunity.
    Ms. Blackburn. So what you are saying basically is, with 
the existing technologies and with the existing platforms that 
you all have created in the private sector, we could create a 
pathway that would place the necessary firewalls and the 
necessary handshakes and the necessary screenings and 
prequalifications that would eliminate much of the fraud, which 
has now become big business in Medicare/Medicaid, so big that 
we have even had the Secretary of HHS before us say they don't 
know exactly how big it is, if it is a $4 billion a year or $10 
billion or $100 billion.
    The issue is, we have to find a way to track it and 
eliminate it and prevent it from occurring because pay and 
chase doesn't work. So what you are saying is you all have the 
items that are necessary.
    I yield back, Mr. Chairman.
    Mr. Pitts. The Chair thanks the gentlelady.
    I ask unanimous consent that Congresswoman Christensen and 
Congressman McKinley be allowed to address our witnesses for 5 
minutes.
    Without objection, so ordered.
    Dr. Christensen, you are recognized for 5 minutes for 
questions.
    Mrs. Christensen. Thank you, Mr. Chairman. And, again, 
thank you and thank the ranking member for allowing me to sit 
in on this hearing.
    And thank the panelists for being here.
    Mr. Saccoccio, one of the points you raised in your 
testimony is that information-sharing--and others did, too--and 
cooperation among all players of health care is critical. And 
you spoke about collaboration between HHS, I guess, and DOJ.
    But could you talk a little about the current information-
sharing that might be taking place between private and public 
sector and what more could be done? And any specific examples 
you might have of how that public-private partnership and 
sharing of information has led to some success in cracking down 
on fraud?
    Mr. Saccoccio. Yes, as I mentioned in my testimony, 
information-sharing is critical between the public and private 
sides. You have a healthcare system where you have multiple, 
multiple payers. None of them get a complete view of everything 
that is happening out there. Therefore, it is incredibly 
important that they share information.
    Some of the things that are happening right now, my 
organization, NHCAA, our members consist of health plans, about 
90 health insurers, but we also partner with the public side, 
as well. So the CMS, the IG's office at HHS, the FBI, they all 
participate with us. And the things that we do, we actually 
have meetings where everyone sits around a table and talks 
about what they are seeing, what the emerging schemes are, what 
the emerging trends are, so that you could take that 
information back and look at your own data and your own plan. 
So that is happening.
    We have a database of investigations so that if a private 
insurer, say, WellPoint, opens an investigation and puts that 
information into the database, that information is available 
not only to other health plans but also to law enforcement, 
FBI. So that kind of information is being shared.
    We also have a process by which if there is an open 
investigation that, say, the FBI is conducting and they want to 
know whether there was any private exposure on the private side 
for private health plans, they can query us, and we go out to 
the private side members to see what kind of exposure there may 
be.
    So those types of things are happening.
    What I see with this Health Care Fraud Prevention 
Partnership, I think that allows us to potentially take it to 
the next level, where you could actually have data exchanges, 
data analysis done, where private health plans could take a 
look at their data, the government could take a look at their 
data, say, in Medicare fee for service and Medicaid, and on 
particular topics come together and share that data to see what 
each payer is seeing so that you can anticipate that.
    A good example of this was, back in 2010, we had an 
information-sharing meeting at NHCAA that we hosted in Florida, 
where we had the FBI, the inspector general's office at HHS, 
local law enforcement, private payers, all came together to 
discussion the infusion therapy fraud in south Florida. And 
based on that, the private insurers found out that they had 
about a half a billion dollars of exposure from infusion 
therapy fraud just based on the information that they were able 
to obtain from CMS and vice versa.
    So it is incredibly important in the environment that we 
have that, as information comes out from the various data 
analytics that different companies use and that CMS may be 
using, that as they see different things, that they share those 
with the other payers so that they can go back and see what 
kind of exposure they may have.
    Mrs. Christensen. Thank you.
    Dr. Fu, we had at least two testimonies about smart cards, 
and we can see that they would provide protection. But one of 
the problems that was noticed in a National Health Law Program 
fact sheet was that they can also be a barrier to access and 
perhaps, this article suggested, that identity verification 
programs reduce costs by discouraging eligible beneficiaries 
from obtaining the cards and, therefore, the benefits, rather 
than from preventing fraud.
    So my question to you is, do you think in these pilot 
programs this is another factor that should be included in 
assessing----
    Mr. Fu. I do think a pilot program should look at both--or 
not only the benefits, but also the risks, including the 
clinical care and potential patients who may not receive the 
care they would have otherwise had.
    Mrs. Christensen. Thank you. And----
    Mr. Pattinson. If I could comment, the fact that they have 
the card or not today, in terms of their care, it shouldn't 
detract in any way or make it any different to what we would 
have if we did a smart card implementation. The patient should 
always be getting their care and not have any negative effect.
    So I don't see any difference between what we do today as 
well as what we could do with a smart card. You are not going 
to get denied service. We are just trying here to stop the 
fraud.
    Mrs. Christensen. It is just the hurdles that they have to 
go through to get the card. And for a person that might be 
disabled, poor, poorly educated, there are barriers there for 
them to really access the card and, therefore, the benefits.
    Mr. Pattinson. I am sure you have a good point, 
Congresswoman. The fact that the ATM cards and everything, they 
are using bank cards today, debit cards, credit cards--this is 
nothing more than a card and a PIN. And, yes, there will be 
instances where PINs are hard for those to manage, and in that 
case we need to have the right policy and the right part of the 
pilot to work out how to correct those situations.
    Mrs. Christensen. That was the point of my question, that 
it should be a part of the pilot so that we could make sure 
that, while they provide the security, they don't increase the 
barriers. Thank you.
    Thank you, Mr. Chairman.
    Mr. Pitts. The Chair thanks the gentlelady.
    That concludes round one. We will go to one follow-up per 
side.
    Dr. Burgess, you are recognized for 5 minutes for a follow-
up.
    Mr. Burgess. I thank the chairman for the recognition.
    Ms. King, let me just ask you. You guys have done some 
extensive study on the fraud prevention system at CMS, and you 
have prepared a report. Can you give us an idea of what is the 
number of fraudulent claims that have been stopped dead in 
their tracks by this fraud-prevention system?
    Ms. King. Not exactly. I can't, sir. But, you know----
    Mr. Burgess. Well, let me ask you this: Has there been one 
instance where a claimed dollar didn't go out the door because 
of this fraud-prevention system?
    Ms. King. I don't believe that they are stopping payments 
yet.
    And I think the way the system was designed, it was not 
intended to be an automatic stopping of payments in most cases. 
The way it is designed is that it flags problematic claims and 
problematic payments so that then those things are investigated 
to determine whether they appear to be fraudulent.
    Mr. Burgess. Your answer is not giving me--I mean, I talked 
about the Elysian Fields and the problems that are ahead. You 
are not giving me a great deal of confidence that the dollars 
aren't going to fly out the door at an even faster rate and end 
up in places where they shouldn't be.
    Now, one of the things I have talked about before and I 
mentioned in my opening statement, do you think there are a 
sufficient number of Federal prosecutors to be able to bring 
the prosecutorial case for fraud when it is discovered?
    Ms. King. We are currently in the process of evaluating the 
use of the healthcare control account which provides funds to 
DOJ, the FBI, and the OIG. So we will be in a better position 
to evaluate that later this year.
    Mr. Burgess. And once again, you are not giving me a great 
deal of confidence here.
    You know, when I send one of my staff members with my 
personal credit card down to Chick-fil-A to buy lunch for the 
office, I get a call back that says, Hey, your card is being 
used to charge $100 worth of Chick-fil-A here; is that OK with 
you? Why can't it work that way in the CMS world?
    Ms. King. You mean that there is an automatic response?
    Mr. Burgess. Yes. When something appears out of the 
ordinary. ``This isn't something that we normally see in the 
conduct of your business day, Doctor. Here is some evidence 
that may be of interest to you.'' And I say, ``No, no, it is 
fine. You let them go ahead and have the Chick-fil-A.'' But why 
is it so hard in your world, or CMS's world I should say, for 
that to happen?
    Ms. King. I don't know the exact magnitude of the cost, but 
I think implementing something like that--and I have gotten 
phone calls, too, from the grocery store before I have gotten 
home, ``Did you charge this?'' I think that technology is 
expensive.
    Mr. Burgess. Apparently it is worthwhile for Visa. Because 
what is their fraud rate? .03 percent? And CMS's fraud rate is 
anybody's guess, but 10 percent or whatever it is?
    Ms. King. You know, we have not been able to determine what 
the fraud rate is in----
    Mr. Burgess. I get you.
    Ms. King [continuing]. Government or private health plans.
    Mr. Burgess. But I would suspect that WellPoint is not in 
the business of letting all of their dollars go out the door 
inappropriately.
    Is that correct, Ms. Lavelle?
    Ms. Lavelle. Yes, that is correct.
    We have two prepayment review programs going, one in New 
York, one out of Chicago. Just last year alone, in placing some 
of these providers on prepay review where we turn off their 
ability to file electronically, they send in medical records, 
we have saved $18 million, just in the New York market. So that 
is one of our most aggressive and useful tools right now.
    Mr. Burgess. Yes. As a provider, I would hate that. But at 
the same time, when you are dealing with the problem, the 
magnitude that we are seeing, and you are fixing to expand it--
you know, let's be honest. The Affordable Care Act, the States 
that aren't going to do a State exchange, that are going to do 
the Federal fallback, I mean, this creates an entire new 
dimension for fraud, which brings up the other point.
    How at WellPoint are you staying ahead--you know, some of 
the stuff we heard on Homeland Security, you have to learn to 
think like a terrorist. How are you learning to think like a 
criminal who wants to defraud the healthcare system?
    Ms. Lavelle. Well, we try to stay ahead with the emerging 
technologies. We are looking at devices, pharmaceuticals, 
procedures. Every week there is something new that comes out.
    The providers have consultants which tell them how to bill 
for these things. Even though they are investigational and not 
covered, they get counsel on how to bill for them under 
conventional coding. So we are constantly looking at those 
devices and trying to stop a lot of them on the dime.
    The providers actually advertise the new devices on their 
Web site and tout that they are covered by most insurers. And 
we have shut several of them down in the last few years.
    Mr. Burgess. But to reemphasize the point, those dollars 
spent on that activity would be scored as administrative 
dollars----
    Ms. Lavelle. Exactly.
    Mr. Burgess [continuing]. Under the medical loss ratio. In 
fact, you are not going to be rewarded for doing that in the 
new system under the Affordable Care Act. You will be penalized 
to some degree for your fraud-prevention activities.
    So in an odd way the Affordable Care Act is creating new 
opportunities for fraud and penalizing you if you decide that 
you are not going to pay these dollars out inappropriately. It 
is a recipe for fiscal disaster.
    Thank you, Mr. Chairman. I will yield back my time.
    Mr. Pitts. The Chair thanks the gentleman and now 
recognizes the ranking member, Mr. Pallone, for 5 minutes for 
follow-up questions.
    Mr. Pallone. Thank you, Mr. Chairman.
    I had one question, but I wanted to clarify the record. 
When Dr. Gingrey mentioned that CMS had not implemented the 
face-to-face requirement from the Affordable Care Act, that is 
not correct. The face-to-face requirement for durable medical 
equipment was implemented in this year's physician fee schedule 
rule, and home health face-to-face requirements were 
implemented in 2011.
    The other thing, I wanted to respond to Ms. Lavelle's 
testimony and Mr. Shimkus's stating that the medical loss ratio 
formula undermines fraud-fighting activities by insurers. In 
fact, the medical loss ratio requirement in the ACA is a 
critical consumer protection that has already saved consumers 
over a billion dollars. HHS followed the NAIC position on how 
to characterize the fraud-fighting activities and provided some 
room for insurers in the formula.
    And fraud-fighting is an administrative activity, and I 
don't think it should become an open-ended loophole to 
undermine the medical loss ratio. The formula fairly allows 
some moneys to be deducted from the administrative side of the 
formula but balances that against undermining this important 
consumer protection, in my opinion.
    I wanted to ask Dr. Fu, I have this article that discusses 
students at Cambridge University in England, and it finds--
basically what they did is they crashed the chip and PIN 
system. Have you seen this before?
    Mr. Fu. I am not familiar with that particular article, but 
I am familiar with the work.
    Mr. Pallone. Yes. So, I mean, if this is happening with the 
secure card now, isn't there a danger of that in Medicare? I 
mean, how do we--you know, I know it is Cambridge and they are 
smart, but isn't there the same risk?
    Mr. Fu. Well, I think these--you cannot underplay the 
risks. There will inevitably be problems in any technology. But 
one thing for sure, it is not a silver bullet. And, in 
particular, there can be some vulnerabilities in the software 
associated with interfacing with readers.
    Mr. Pallone. And, Mr. Pattinson, since I brought this up, I 
should give you an opportunity to comment on that, too, if you 
want. I noticed the British accent, so maybe you are familiar 
with Cambridge and what is going on there.
    Mr. Pattinson. Well, I am an American citizen, Congressman, 
but, yes, that is my roots.
    I would say that in all these instances that you find it is 
not the card technology that has been compromised, it is the 
system that it has been involved in. And with the good offices 
of good security professionals like Dr. Fu, we often engage 
these people at Cambridge ourselves and hire them to actually 
try and attack our systems. And on that basis we can make 
better improvements for the future rollouts.
    So for any Medicare pilot and potential rollout, we would 
ensure that we have all of the lessons learned from these other 
situations where the systems have become and are identified as 
vulnerable and make sure that we implement the technology which 
is the best for this Medicare program and, therefore, the best 
for sustaining the longevity of this benefit program.
    Mr. Pallone. All right. Thank you very much.
    Thank you, Mr. Chairman. I yield back.
    Mr. Pitts. The Chair thanks the gentleman.
    That concludes the testimony. If Members have questions for 
the witnesses, I ask that the witnesses respond to the 
questions promptly. I remind Members that they have 10 business 
days to submit questions for the record. Members should submit 
their questions by the close of business on Wednesday, December 
the 12th.
    Mr. Pitts. Excellent hearing. Thank you very much for your 
testimony.
    Without objection, the subcommittee is adjourned.
    [Whereupon, at 12:12 p.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]
    [GRAPHIC] [TIFF OMITTED] 85722.181
    
    [GRAPHIC] [TIFF OMITTED] 85722.182
    
    [GRAPHIC] [TIFF OMITTED] 85722.183
    
    [GRAPHIC] [TIFF OMITTED] 85722.184
    
    [GRAPHIC] [TIFF OMITTED] 85722.185
    
    [GRAPHIC] [TIFF OMITTED] 85722.186
    
    [GRAPHIC] [TIFF OMITTED] 85722.187
    
    [GRAPHIC] [TIFF OMITTED] 85722.188
    
    [GRAPHIC] [TIFF OMITTED] 85722.189
    
    [GRAPHIC] [TIFF OMITTED] 85722.190
    
    [GRAPHIC] [TIFF OMITTED] 85722.191
    
    [GRAPHIC] [TIFF OMITTED] 85722.192
    
    [GRAPHIC] [TIFF OMITTED] 85722.193
    
    [GRAPHIC] [TIFF OMITTED] 85722.194
    
    [GRAPHIC] [TIFF OMITTED] 85722.195
    
    [GRAPHIC] [TIFF OMITTED] 85722.196
    
    [GRAPHIC] [TIFF OMITTED] 85722.197
    
    [GRAPHIC] [TIFF OMITTED] 85722.198
    
    [GRAPHIC] [TIFF OMITTED] 85722.199
    
    [GRAPHIC] [TIFF OMITTED] 85722.200
    
    [GRAPHIC] [TIFF OMITTED] 85722.201
    
    [GRAPHIC] [TIFF OMITTED] 85722.202
    
    [GRAPHIC] [TIFF OMITTED] 85722.203
    
    [GRAPHIC] [TIFF OMITTED] 85722.204
    
    [GRAPHIC] [TIFF OMITTED] 85722.205
    
    [GRAPHIC] [TIFF OMITTED] 85722.206
    
    [GRAPHIC] [TIFF OMITTED] 85722.207
    
    [GRAPHIC] [TIFF OMITTED] 85722.208
    
    [GRAPHIC] [TIFF OMITTED] 85722.209
    
    [GRAPHIC] [TIFF OMITTED] 85722.210
    
    [GRAPHIC] [TIFF OMITTED] 85722.211
    
    [GRAPHIC] [TIFF OMITTED] 85722.212
    
    [GRAPHIC] [TIFF OMITTED] 85722.213
    
    [GRAPHIC] [TIFF OMITTED] 85722.214
    
    [GRAPHIC] [TIFF OMITTED] 85722.215
    
    [GRAPHIC] [TIFF OMITTED] 85722.216
    
    [GRAPHIC] [TIFF OMITTED] 85722.217
    
    [GRAPHIC] [TIFF OMITTED] 85722.218
    
    [GRAPHIC] [TIFF OMITTED] 85722.219
    
    [GRAPHIC] [TIFF OMITTED] 85722.220
    
    [GRAPHIC] [TIFF OMITTED] 85722.221
    
    [GRAPHIC] [TIFF OMITTED] 85722.222
    
    [GRAPHIC] [TIFF OMITTED] 85722.223
    
    [GRAPHIC] [TIFF OMITTED] 85722.224
    
    [GRAPHIC] [TIFF OMITTED] 85722.225
    
    [GRAPHIC] [TIFF OMITTED] 85722.226
    
    [GRAPHIC] [TIFF OMITTED] 85722.227
    
    [GRAPHIC] [TIFF OMITTED] 85722.228
    
    [GRAPHIC] [TIFF OMITTED] 85722.229
    
    [GRAPHIC] [TIFF OMITTED] 85722.230
    
    [GRAPHIC] [TIFF OMITTED] 85722.231
    
    [GRAPHIC] [TIFF OMITTED] 85722.232
    
    [GRAPHIC] [TIFF OMITTED] 85722.233
    
    [GRAPHIC] [TIFF OMITTED] 85722.234
    
    [GRAPHIC] [TIFF OMITTED] 85722.235
    
    [GRAPHIC] [TIFF OMITTED] 85722.236
    
    [GRAPHIC] [TIFF OMITTED] 85722.237
    
    [GRAPHIC] [TIFF OMITTED] 85722.238
    
    [GRAPHIC] [TIFF OMITTED] 85722.239
    
    [GRAPHIC] [TIFF OMITTED] 85722.240
    
    [GRAPHIC] [TIFF OMITTED] 85722.241
    
    [GRAPHIC] [TIFF OMITTED] 85722.242
    
    [GRAPHIC] [TIFF OMITTED] 85722.243
    
    [GRAPHIC] [TIFF OMITTED] 85722.244
    
    [GRAPHIC] [TIFF OMITTED] 85722.245
    
    [GRAPHIC] [TIFF OMITTED] 85722.246
    
    [GRAPHIC] [TIFF OMITTED] 85722.247
    
    [GRAPHIC] [TIFF OMITTED] 85722.248
    
    [GRAPHIC] [TIFF OMITTED] 85722.249
    
    [GRAPHIC] [TIFF OMITTED] 85722.250
    
    [GRAPHIC] [TIFF OMITTED] 85722.251
    
    [GRAPHIC] [TIFF OMITTED] 85722.252
    
    [GRAPHIC] [TIFF OMITTED] 85722.253
    
    [GRAPHIC] [TIFF OMITTED] 85722.254
    
    [GRAPHIC] [TIFF OMITTED] 85722.255
    

                                 
