[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



 
  FOSTERING INNOVATION TO FIGHT WASTE, FRAUD, AND ABUSE IN HEALTH CARE

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

                                HEARING

                               BEFORE THE

                         SUBCOMMITTEE ON HEALTH

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                           FEBRUARY 27, 2013

                               __________

                           Serial No. 113-10


      Printed for the use of the Committee on Energy and Commerce

                        energycommerce.house.gov



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                    COMMITTEE ON ENERGY AND COMMERCE

                          FRED UPTON, Michigan
                                 Chairman
RALPH M. HALL, Texas                 HENRY A. WAXMAN, California
JOE BARTON, Texas                      Ranking Member
  Chairman Emeritus                  JOHN D. DINGELL, Michigan
ED WHITFIELD, Kentucky                 Chairman Emeritus
JOHN SHIMKUS, Illinois               EDWARD J. MARKEY, Massachusetts
JOSEPH R. PITTS, Pennsylvania        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
TIM MURPHY, Pennsylvania             GENE GREEN, Texas
MICHAEL C. BURGESS, Texas            DIANA DeGETTE, Colorado
MARSHA BLACKBURN, Tennessee          LOIS CAPPS, California
  Vice Chairman                      MICHAEL F. DOYLE, Pennsylvania
PHIL GINGREY, Georgia                JANICE D. SCHAKOWSKY, Illinois
STEVE SCALISE, Louisiana             ANTHONY D. WEINER, New York
ROBERT E. LATTA, Ohio                JIM MATHESON, Utah
CATHY McMORRIS RODGERS, Washington   G.K. BUTTERFIELD, North Carolina
GREGG HARPER, Mississippi            JOHN BARROW, Georgia
LEONARD LANCE, New Jersey            DORIS O. MATSUI, California
BILL CASSIDY, Louisiana              DONNA M. CHRISTENSEN, Virgin 
BRETT GUTHRIE, Kentucky                  Islands
PETE OLSON, Texas                    KATHY CASTOR, Florida
DAVID B. McKINLEY, West Virginia     JOHN P. SARBANES, Maryland
CORY GARDNER, Colorado               JERRY McNERNEY, California
MIKE POMPEO, Kansas                  BRUCE L. BRALEY, Iowa
ADAM KINZINGER, Illinois             PETER WELCH, Vermont
H. MORGAN GRIFFITH, Virginia         BEN RAY LUJAN, New Mexico
GUS M. BILIRAKIS, Florida            PAUL TONKO, New York
BILL JOHNSON, Missouri
BILLY LONG, Missouri
RENEE L. ELLMERS, North Carolina
                         Subcommittee on Health

                     JOSEPH R. PITTS, Pennsylvania
                                 Chairman
MICHAEL C. BURGESS, Texas            FRANK PALLONE, Jr., New Jersey
  Vice Chairman                        Ranking Member
RALPH M. HALL, Texas                 JOHN D. DINGELL, Michigan
ED WHITFIELD, Kentucky               ELIOT L. ENGEL, New York
JOHN SHIMKUS, Illinois               LOIS CAPPS, California
MIKE ROGERS, Michigan                JANICE D. SCHAKOWSKY, Illinois
TIM MURPHY, Pennsylvania             JIM MATHESON, Utah
MARSHA BLACKBURN, Tennessee          GENE GREEN, Texas
PHIL GINGREY, Georgia                G.K. BUTTERFIELD, North Carolina
LEONARD LANCE, New Jersey            JOHN BARROW, Georgia
BILL CASSIDY, Louisiana              DONNA M. CHRISTENSEN, Virgin 
BRETT GUTHRIE, Kentucky                  Islands
H. MORGAN GRIFFITH, Virginia         KATHY CASTOR, Florida
GUS M. BILIRAKIS, Florida            JOHN P. SARBANES, Maryland
RENEE L. ELLMERS, North Carolina     HENRY A. WAXMAN, California (ex 
JOE BARTON, Texas                        officio)
FRED UPTON, Michigan (ex officio)
  


                             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...........................................     3
Hon. Frank Pallone, Jr., a Representative in Congress from the 
  State of New Jersey, opening statement.........................     4
Hon. Michael C. Burgess, a Representative in Congress from the 
  State of Texas, opening statement..............................     5
Hon. Henry A. Waxman, a Representative in Congress from the State 
  of California, opening statement...............................     6

                               Witnesses

Peter Budetti, Deputy Administrator and Director, Center for 
  Program Integrity, Centers for Medicare and Medicaid Services..     8
    Prepared statement...........................................    11
    Answers to submitted questions...............................    85
Kathleen M. King, Director, Health Care, Government 
  Accountability Office..........................................    22
    Prepared statement...........................................    24
Carolyn L. Yocom, Director, Health Care, Government 
  Accountability Office..........................................    41
    Prepared statement...........................................    24
Darrell Langlois, Vice President, Compliance, Privacy and Fraud, 
  Blue Cross and Blue Shield of Louisiana........................    62
    Prepared statement...........................................    65
Thomas M. Greene, Managing Partner, Greene LLP...................    70
    Prepared statement...........................................    72


  FOSTERING INNOVATION TO FIGHT WASTE, FRAUD, AND ABUSE IN HEALTH CARE

                              ----------                              


                      WEDNESDAY, FEBRUARY 27, 2013

                  House of Representatives,
                            Subcommittee on Health,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10:15 a.m., in 
room 2123 of the Rayburn House Office Building, Hon. Joe Pitts 
(chairman of the subcommittee) presiding.
    Members present: Representatives Pitts, Burgess, Hall, 
Shimkus, Murphy, Lance, Cassidy, Guthrie, Griffith, Bilirakis, 
Ellmers, McKinley, Pallone, Capps, Schakowsky, Matheson, Green, 
Butterfield, Barrow, Christensen, Castor, Sarbanes and Waxman 
(ex officio).
    Staff present: Clay Alspach, Chief Counsel, Health; Matt 
Bravo, Professional Staff Member; Paul Edattel, Professional 
Staff Member, Health; Steve Ferrara, Health Fellow; Sydne 
Harwick, Staff Assistant; Robert Horne, Professional Staff 
Member, Health; Carly McWilliams, Legislative Clerk; John 
O'Shea, Professional Staff Member, Health; Monica Popp, 
Professional Staff Member, Health; Andrew Powaleny, Deputy 
Press Secretary; Chris Sarley, Policy Coordinator, Environment 
and Economy; 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.

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

    Mr. Pitts. The subcommittee will come to order. The Chair 
will recognize himself for an opening statement.
    According to data from the Centers for Medicare and 
Medicaid Services, in 2011, Medicare spending accounted for 21 
percent of total national health expenditures. Medicaid makes 
up another 15 percent of total NHE.
    Medicare has been on the Government Accountability Office's 
high-risk list continuously since GAO began designating 
programs as high risk in 1990, and it remains there in GAO's 
February 2013 report entitled ``High Risk Series: An Update.''
    In 2012, Medicare spent approximately $555 billion caring 
for more than 49 million beneficiaries. CMS estimates that out 
of that $555 billion, $44 billion--nearly 8 percent--were 
improper payments. The report noted that while Medicare has 
made progress toward addressing some of GAO's previous concerns 
and the program's known deficiencies, not enough had been done 
to warrant its removal from the list.
    Medicaid entered the high-risk list in 2003 and has also 
remained there. With total expenditures of $436 billion in 2011 
for its approximately 70 million low-income beneficiaries, the 
Department of Health and Human Services estimates that 
Medicaid's national improper payment rate is 7.1 percent. These 
improper payment figures represent only those payments that CMS 
knows were improper. Estimates of the real cost of waste, fraud 
and abuse in these programs are much higher.
    In an April 2012 study, former CMS Administrator Donald 
Berwick and RAND Corporation analyst Andrew Hackbarth estimated 
that fraud and abuse added as much as $98 billion to Medicare 
and Medicaid spending in 2011. And, without any significant 
program integrity changes, the Affordable Care Act will add an 
additional 7 million people to the Medicaid rolls in 2014. By 
2022, that number will grow to 11 million new enrollees.
    The ACA also contains perverse incentives for private 
insurance companies to ignore waste and fraud, which drives up 
premiums and copayments for consumers. The ACA's Medical Loss 
Ratio provision requires health plans to spend 80 percent for 
plans in the individual and group market and 85 percent for 
large group plans of premium revenue on medical care. 
Supporters of the MLR claim it was designed to protect 
consumers from unscrupulous insurance companies. However, under 
the regulation, investments in fraud detection, and even 
quality improvement and care coordination, fall under 
administrative expenses, which can only make up 20 percent of a 
plan's spending. Plans struggling to make the 80 or 85 percent 
threshold for medical costs often can't risk these activities, 
which could save consumers money and provide them with a higher 
quality of care, for fear of being penalized and having to pay 
rebates. Even worse, if a plan does identify fraud, cutting 
those fraudulent payments and activities actually reduces their 
amount of spending on medical costs, making it even harder for 
them to reach the 80 or 85 percent threshold. We are actually 
exporting the inefficiencies of federal health programs into 
the private sector.
    While some here today may champion MLR, it is apparent to 
me that MLR will not reduce the tens of billions of taxpayer 
dollars lost each year to improper payments, but rather add to 
it, and that is a problem. Simply eliminating waste, fraud, and 
abuse is not going to put Medicare and Medicaid on solid 
financial ground, but the threat it poses to sick Americans 
cannot be ignored any longer. We have an obligation to use 
taxpayer funds in the most responsible and efficient ways 
possible, an obligation we are not currently meeting.
    I thank all of our witnesses for being here today. I look 
forward to hearing from our GAO witnesses what areas in the 
Medicare and Medicaid programs are most vulnerable to fraud and 
their recommendations to combat improper payments. I also look 
forward to hearing from our private sector witnesses about the 
tools and innovations they use to fight waste, fraud and abuse 
on a daily basis.
    Thank you, and I yield back.
    [The prepared statement of Mr. Pitts follows:]

               Prepared statement of Hon. Joseph R. Pitts

    According to data from the Centers for Medicare and 
Medicaid Services (CMS), in 2011, Medicare spending accounted 
for 21% of total national health expenditures (NHEs). Medicaid 
makes up another 15% of total NHE.
    Medicare has been on the Government Accountability Office's 
(GAO) ``high risk list'' continuously since GAO began 
designating programs as ``high risk'' in 1990.
    And it remains there in GAO's February 2013 report, ``High 
Risk Series: An Update.''
    In 2012, Medicare spent approximately $555 billion caring 
for more than 49 million beneficiaries. CMS estimates that out 
of that $555 billion, $44 billion--nearly 8%--were improper 
payments.
    The report noted that while Medicare had made progress 
toward addressing some of GAO's previous concerns and the 
program's known deficiencies, not enough had been done to 
warrant its removal from the list.
    Medicaid entered the ``high risk list'' in 2003 and has 
also remained there.
    With total expenditures of $436 billion in 2011 for its 
approximately 70 million low-income beneficiaries, the 
Department of Health and Human Services (HHS) estimates that 
Medicaid's national improper payment rate is 7.1%.
    These improper payment figures represent only those 
payments that CMS knows were improper. Estimates of the real 
cost of waste, fraud, and abuse in these programs are much 
higher.
    In an April 2012 study, former CMS Administrator Donald M. 
Berwick and RAND Corporation analyst Andrew D. Hackbarth 
estimated that fraud and abuse added as much as $98 billion to 
Medicare and Medicaid spending in 2011.
    And, without any significant program integrity changes, the 
Affordable Care Act (ACA) will add an additional 7 million 
people to the Medicaid rolls in 2014. By 2022, that number will 
grow to 11 million new enrollees.
    The ACA also contains perverse incentives for private 
insurance companies to ignore waste and fraud, which drives up 
premiums and copayments for consumers.
    The ACA's Medical Loss Ratio (MLR) provision requires 
health plans to spend 80 percent (for plans in the individual 
and group market) and 85 percent (for large group plans) of 
premium revenue on medical care.
    Supporters of the MLR claim it was designed to protect 
consumers from unscrupulous insurance companies.
    However, under the regulation, investments in fraud 
detection, and even quality improvement and care coordination, 
fall under ``administrative expenses,'' which can only make up 
20 percent of a plan's spending.
    Plans struggling to make the 80 or 85 percent threshold for 
medical costs often can't risk these activities--which could 
save consumers money and provide them with a higher quality of 
care--for fear of being penalized and having to pay rebates.
    Even worse, if a plan does identify fraud, cutting those 
fraudulent payments and activities actually reduces their 
amount of spending on medical costs, making it even harder for 
them to reach the 80 or 85 percent threshold.
    We are actually exporting the inefficiencies of federal 
health programs into the private sector.
    While some here today may champion MLR, it is apparent to 
me that MLR will not reduce the tens of billions of taxpayer 
dollars lost each year to improper payments, but rather add to 
it.
    And that is a problem.
    Simply eliminating waste, fraud, and abuse is not going to 
put Medicare and Medicaid on solid financial ground, but 
ignoring the threat it poses to sick Americans cannot be 
ignored any longer.
    We have an obligation to use taxpayer funds in the most 
responsible and efficient ways possible--an obligation we are 
not currently meeting.
    I thank all of our witnesses for being here today.
    I look forward to hearing from our GAO witnesses what areas 
in the Medicare and Medicaid programs are most vulnerable to 
fraud and their recommendations to combat improper payments.
    I also look forward to hearing from our private sector 
witnesses about the tools and innovations they use to fight 
waste, fraud, and abuse on a daily basis.
    Thank you.

    Mr. Pitts. The Chair now recognizes the ranking member of 
the Subcommittee on Health, Mr. Pallone, for 5 minutes for an 
opening statement.

OPENING STATEMENT OF HON. FRANK PALLONE JR, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF NEW JERSEY

    Mr. Pallone. Thank you, Chairman Pitts, and good morning to 
everyone.
    Fighting fraud across all health care settings is critical. 
I think we can all agree on that. In fact, this committee has 
an important role in ensuring that the government is aggressive 
in addressing long-term solutions to an ongoing threat, and I 
am committed to working with my colleagues now and in the 
future to help support the constant work that must be done to 
cut waste, fraud and abuse.
    But I am not entirely sure that another hearing on this 
topic, since one was held less than 3 months ago, is necessary 
so soon. Instead, I think we should be examining the impact of 
the looming sequestration, which is just 2 days away. Mr. 
Waxman and I along with other senior members of this committee 
requested that we look at how sequestration will affect the 
programs and agencies we oversee. For example, in New Jersey, 
nearly 4,000 fewer children will receive vaccines for disease 
such as measles, mumps, rubella, tetanus, whooping cough, 
influenza and hepatitis B due to reduced funding for 
vaccinations, and the New Jersey State Department of Public 
Health will lose about $752,000, resulting in around 18,800 
fewer HIV tests. These spending cuts not only threaten our 
economy but also a range of vital services that I think our 
time today would be better spent examining.
    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 
all has the same result: undermining the integrity of our 
public health system and driving up health care costs. So for 
every dollar put into the pockets of criminals or program 
abusers, a dollar is taken out of the system to provide much-
needed care to millions of people including Medicare seniors.
    I think we can all agree that a strong commitment to combat 
health care fraud and abuse was included 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. The most 
important provisions change the way we fight fraud by heading 
off the bad actors before they strike and thwarting their 
enrollment into their federal programs in the first place. In 
this way, we aren't left chasing a payment once the money is 
already out the door. And we also made important improvements 
in the ACA to the False Claims Act, which is another useful 
tool that can help address fraud and abuse.
    Today we will hear from CMS about the great work already 
being done. Over the past 4 years, enforcement efforts have 
recovered $14.9 billion, and I think that is considerable 
progress. In fact, return on investment for each dollar spent 
on health care-related fraud and abuse investigations in the 
last 3 years has been $7.90. So we will also hear from the GAO 
about their high-risk report released this month. That report 
notes that while making positive steps, there is still a lot of 
areas or a number of areas that continue to need improvement.
    So I know we are going to hear from the panel. I think we 
must continue to innovate. Bad actors are always going to find 
loopholes, and it is our job to keep one step ahead of them.
    Thank you again, Mr. Chairman.
    Mr. Pitts. The Chair thanks the gentleman and now 
recognizes the vice chairman of the subcommittee, Dr. Burgess, 
for 5 minutes for an opening statement.

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

    Mr. Burgess. Thank you, Mr. Chairman, and I will 
acknowledge that members on both sides of the dais have a 
fundamental sense of fairness about this and they want to 
preserve, protect and defend the program that is there to serve 
the most vulnerable seniors in our population.
    I agree with the ranking member that it does seem like we 
have a lot of hearings about this. I will agree that it doesn't 
seem that there has been a lot of movement in the right 
direction. I would disagree that this hearing is not important 
and we should be focusing on something else because, after all, 
the sequester would not even be necessary if Congress was doing 
its job in oversight, if the Administration was doing its job 
and the agencies were doing their job and didn't allow these 
dollars to be delivered hand over fist to felons and organized 
crime in the first place.
    I do feel that the Federal Government has not done enough 
to address this issue. Sure, we had a hearing right at the end 
of the last Congress, the Oversight and Investigations 
Subcommittee. In fact, we have some of the same witnesses here 
today. But I got to tell you, it bothers me that we keep having 
to have these hearings and we don't seem to ever move the 
needle.
    I took the liberty of doing a little Google search last 
night, and Googled the name Janet Reno and Medicare fraud, and 
it turns out in February of 1998, 15 years ago this month, 
Janet Reno stood in front of the American Hospital Association 
and said fraud in the Medicare and Medicaid system is the 
number one priority for her Justice Department, and it was 
going to end with her. Well, here we are 15 years later and we 
are having the same discussion.
    The analysts, the law enforcement officials estimate that 
10 percent of total health care expenditures are lost to fraud 
on an annual basis, and guess what? That 10 percent is not 
equally distributed between the public and private parts of our 
health care system. No, the loss falls disproportionately on 
the part that is under the jurisdiction and control of the 
Federal Government. The Government Accountability Office, who 
we have here with us this morning, and others have said these 
characteristics are unsustainable. Eliminating waste, fraud and 
abuse that hemorrhages billions of dollars from our country's 
government-run health care program should be the foremost 
priority of this committee. And again, I will say it one more 
time: How can we protect the most vulnerable in our society if 
we don't protect the integrity of the system that was intended 
to serve them?
    If we are serious about bringing down the cost of health 
care, if we are serious about protecting the patient, if we are 
serious about avoiding another sequester, if we are serious 
about fixing the inequities in the payment system for 
physicians in Medicare, we ought to be all about eliminating 
this problem and eliminating it in this Congress, not waiting 
for another Congress, not waiting for another President. The 
time is now.
    The private sector has developed ways to combat fraud that 
really doesn't burden providers or patients. They are able to 
catch far more incidents of fraudulent activity. The Centers 
for Medicare and Medicaid Services has attempted to develop new 
efforts to recover funds but the current system to prevent 
improper payments is just simply not working, and I know we 
have some of the same witnesses we had here in December. I will 
use the Visa example again. I gave my credit card to my staff 
to go out and by lunch for our staff at Chick-fil-A last 
December. I am calling on my cell phone on the House Floor, 
hey, somebody is trying to charge $100 worth of Chick-fil-A on 
your credit card, is that oK, and I affirmed that it was. Why 
do we not have the same system of safeguards when we spend so 
many billions of dollars in our health care system?
    Now, in fairness, one of our witnesses, Dr. Budetti, thank 
you very much for being here this morning and thank you for 
coming in to brief my staff and myself earlier in the last 
Congress. I appreciate the efforts that you have underway. The 
Government Accountability Office has made recommendations, some 
dating back years and years, and they failed to be implemented. 
Well, it begs the question: Why is this acceptable?
    So if we are going to be developing new and innovative 
approaches to fight fraud, and it is becoming increasingly 
important that we do so, I do look forward to hearing the 
testimony from the witnesses today but let us hear that 
testimony with in mind the fact that we are going to solve this 
problem.
    Thank you, Mr. Chairman, for the indulgence and I will 
yield back the balance of my time.
    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. I appreciate your 
holding this hearing today and for focusing on the important 
topic of health care waste, fraud and abuse. Improving our 
health care system, both private and public, requires pursuing 
dollars that are wasted or diverted, dollars that add to our 
costs, but don't improve health.
    I have dedicated much of my career in Congress to improving 
the quality and efficiency of both the Medicare and Medicaid 
programs. Fighting fraud is critical to both of these and 
critical to being responsible stewards of taxpayers' dollars, 
an issue where we should be able to achieve bipartisan 
consensus.
    I am very pleased by the recent reports that have 
highlighted our progress fighting fraud and abuse. According to 
the Administration's most recent report on the Health Care 
Fraud and Abuse Control Program, health care fraud prevention 
and enforcement efforts recovered a record $4.2 billion in 
fiscal year 2012. For each dollar spent on health care-related 
fraud and abuse investigations in the last three years, we 
recovered $7.90, the highest return on investment in the 16-
year history of the program.
    We are now seeing the impact of provisions in the 
Affordable Care Act that help us move away from the traditional 
``pay and chase'' approach to a more proactive approach 
designed to prevent fraud before it occurs. Other 
Administration initiatives, such as implementing the Command 
Center, which brings together the Centers for Medicare and 
Medicaid Services, the Office of the Inspector General and the 
Federal Bureau of Investigation, and the Health Care Fraud 
Prevention and Enforcement Action Team, which is taking action 
against Medicare fraud in fraud hot spots across the country, 
are bringing more tools and resources in the fight against 
fraud.
    We also need to ensure that the public and private sectors 
are collaborating, because we know that schemes that affect 
programs like Medicare and Medicaid often are also perpetrated 
against private payers as well. The Administration has 
initiated the Health Care Fraud Prevention Partnership that is 
bringing together federal and state officials with private 
insurers and health care antifraud groups to do just that. The 
value of these new prevention-oriented approaches is that they 
target fraud and abuse before it occurs and leverage 
partnerships across government and the private sector to 
support this important work.
    Another tool in the health care fraud-fighting arsenal, 
which also is a form of public-private partnership, is the 
False Claims Act. This law incentivizes private parties to 
bring suit on behalf of the government to recover fraudulent 
payments and has been effective in helping get the federal and 
State governments reimbursed for a number of high-profile fraud 
schemes.
    We cannot rest on our laurels and be satisfied with the 
current successes in fraud fighting. The data clearly shows 
that we are moving in the right direction. But just as the 
fraudsters are constantly looking for the next new scheme, we 
too must continue our work, and I look forward to hearing from 
our panels of experts about the opportunities and challenges 
moving forward, and I want to yield the balance of my time to 
Ms. Schakowsky.
    Ms. Schakowsky. I thank the gentleman so much, and I 
appreciate his decades of work to make Medicare, Medicaid, the 
programs our citizens rely on, more efficient.
    But I have to say, the passion that I heard from Dr. 
Burgess, it is as if we don't share that, and I want to set the 
record straight, that we want to and have been cutting the 
waste, fraud and abuse and we need to build on our successes, 
the $4.2 billion in fiscal year 2012. I think we can start with 
that and go further.
    And I also want to say that it is as if the election didn't 
happen. As I recall, the $716 billion that Democrats were able 
to save through Obamacare that reduced the cost of Medicare 
without cutting benefits was used as a sledgehammer accusing 
Democrats of cutting Medicare and in fact we did reduce the 
cost. Rather than being applauded for that at the time, it was 
used to say that we are the ones that are really taking away 
something from Medicare beneficiaries when of course we 
weren't.
    So let us get on the same page here. We agree, we all agree 
that waste, fraud and abuse is a problem. We have begun and let 
us continue to do something serious about it.
    Thank you. I yield back.
    Mr. Pitts. The Chair thanks the gentlelady.
    We have two panels for today's hearing. On our first panel, 
we have Dr. Peter Budetti, Deputy Administrator and Director at 
the Center for Program Integrity at CMS, and Ms. Kathleen King 
and Ms. Carolyn Yocom, who are both Directors of Health Care at 
the Government Accountability Office. Thank you for coming this 
morning. Your written testimony will be entered into the 
record. I will recognize each of you for 5 minutes to summarize 
your testimony.
    Dr. Budetti, you are recognized for 5 minutes for your 
opening statement.

STATEMENTS OF PETER BUDETTI, DEPUTY ADMINISTRATOR AND DIRECTOR, 
CENTER FOR PROGRAM INTEGRITY, CENTERS FOR MEDICARE AND MEDICAID 
 SERVICES; KATHLEEN M. KING, DIRECTOR, HEALTH CARE, GOVERNMENT 
 ACCOUNTABILITY OFFICE; AND CAROLYN L. YOCOM, DIRECTOR, HEALTH 
             CARE, GOVERNMENT ACCOUNTABILITY OFFICE

                   STATEMENT OF PETER BUDETTI

    Dr. Budetti. Good morning, and thank you, Chairman Pitts 
and Ranking Member Pallone and members of the subcommittee for 
this invitation to appear before you today.
    As the Deputy Administrator of the Centers for Medicare and 
Medicaid Services for Program Integrity and Director of the 
Center for Program Integrity, I am now into my third year of 
having the privilege of overseeing program integrity efforts 
for the Medicare and Medicaid programs, which is a top priority 
for this Administration and for CMS, and it is an area where I 
am very pleased to say that new tools and a collaborative 
approach are indeed helping us move beyond pay and chase to 
preventing fraud before it happens.
    A key component of our fraud-fighting approach is what we 
call the Fraud Prevention System, or FPS. This system, this 
high-tech system, highly sophisticated system that we put into 
place in the middle of 2011, analyzes all Medicare fee-for-
service claims using risk-based algorithms and generates 
alerts. CMS and our program integrity contractors can then 
stop, prevent and identify improper payments using a variety of 
administrative tools and actions including prepayment review, 
claims denials, payment suspensions, revocation of Medicare 
billing privileges, and referrals to law enforcement.
    We have a poster for you here today that demonstrates the 
initial results from the first year of implementation of the 
Fraud Prevention System. Our numbers show that we did achieve a 
positive return on investment, saving an estimated $3 for every 
$1 we spent in the first year and that we have prevented or 
identified an estimated $115.4 million in improper payments. In 
addition, and very importantly, this system generated leads for 
over 500 new fraud investigations and provided new information 
for over 500 existing fraud investigations.
    To further enhance our program integrity efforts, we have 
implemented a risk-based screening process for newly enrolling 
and revalidating Medicare providers and suppliers. This system 
is designed to both make it easier for the legitimate providers 
and suppliers, some 20,000 of whom applied to be able to bill 
in the Medicare program every month, to make it easier on the 
enrollment side for them to get into the program while making 
it much harder for the bad guys to get in and makes it easier 
for us to find the bad guys if they do get in and kick them 
out.
    We have implemented the terms of the Affordable Care Act 
that required us to put into place risk-based screening so that 
people in the higher-risk categories are subject to greater 
scrutiny prior to their enrollment or revalidation in Medicare. 
Since March of 2011, our processes have validated or 
revalidated enrollment for nearly 410,000 Medicare providers, 
and because of this, we have deactivated some 136,000 
enrollments and revoked over 12,000 enrollments that were not 
appropriate or not timely in the program.
    We have also made major progress in engaging other federal 
partners to improve the collaboration in fighting fraud. Thanks 
to a variety of efforts, federal, State and local law 
enforcement health care fraud activities are being coordinated 
more and more and, as you have heard, and as I will talk about 
in a second, we are also engaging with our fraud-fighting 
partners in the private sector to improve the integrity of 
Medicare and Medicaid.
    We are working with our State partners to improve and 
enhance our program integrity activities in the Medicaid 
program and we have taken steps to ensure that someone who is 
caught defrauding the program in one State cannot simply move 
to another State. We have implemented the Recovery Auditor 
program in Medicaid, and the States are already reporting some 
$95 million in recovered payments in the first phase of 
implementation of that program.
    We have been working more closely with law enforcement, 
both through our new command center, which provides a 
collaborative environment so that we can work together and not 
just talk to each other one after the other, and we have had a 
string of successes in terms of building new models and 
engaging in new approaches to fighting fraud coming out of our 
collaboration in the command center.
    Medicare and Medicaid and health care fraud anywhere 
affects every American by draining critical resources from our 
health care system. The Administration has made stopping fraud 
and improper payments a top priority, and today new tools and a 
collaborative approach are moving us beyond pay and chase to 
preventing fraud before it happens. I look forward to 
continuing to work with you to make Medicare and Medicaid 
stronger, more effective programs by protecting their integrity 
and safeguarding taxpayer resources, and I thank you for this 
opportunity to appear before you, and I will be happy to answer 
questions later. Thank you, Mr. Chairman.
    [The prepared statement of Dr. Budetti follows:]

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    Mr. Pitts. The Chair thanks the gentleman and now 
recognizes Ms. King for 5 minutes for opening statement.

                 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 recent high-risk report on Medicare and Medicaid. I 
am joined by my colleagues, Carolyn Yocom and James Cosgrove.
    For many years, we have designated these programs as high 
risk because of their size, complexity and susceptibility to 
improper payments. Together, these two programs finance vital 
health care services for nearly 120 million Americans. Ensuring 
that they function effectively and efficiently should be a high 
priority.
    CMS has taken a number of important steps in Medicare to 
improve payment systems in traditional fee-for-service and 
Medicare Advantage. For example, CMS has implemented a 
competitive bidding program for durable medical equipment that 
pays selected providers at competitively determined prices. To 
date, it has produced savings while beneficiary access and 
satisfaction appeared stable in early assessments.
    However, we have also identified a number of opportunities 
for CMS to improve and refine payments to encourage appropriate 
use of services such as improving the accuracy of payments for 
Medicare Advantage.
    With respect to program integrity, CMS has made reducing 
improper payments one of their key priorities and has made 
progress in error rate measurement. CMS has also implemented 
provisions of the Patient Protection and Affordable Care Act to 
enhance its ability to screen providers before allowing them to 
enroll in Medicare. This should have prevented providers intent 
on defrauding the program from gaining entry. It has also 
implemented a fraud prevention system which uses analytic 
methods to screen provider billing and beneficiary utilization 
data before claims are paid to identify those that are 
potentially fraudulent. While these are important steps, we 
have made recommendations to CMS to enhance program integrity 
such as identifying measurable performance metrics and goals 
for the Fraud Prevention System.
    With respect to Medicaid, both Congress and the 
Administration have demonstrated commitment and leadership to 
making Medicaid fiscal and program integrity a priority. I 
would like to highlight two areas where there has been some 
progress but concerns remain. First, with regard to improper 
payments to providers, some positive steps toward improving 
transparency and reducing improper payments have been taken in 
recent years such as increased guidance to States regarding 
oversight of providers. However, key challenges remain 
including eliminating duplication between CMS and State program 
integrity efforts and refocusing national audits on cost-
effective approaches. Also, our work has identified areas where 
CMS could streamline and improve its oversight of States' 
improper payments.
    Second, supplemental payments, that is, payments above and 
beyond regular Medicaid payments for services, continue to be a 
large and growing problem. In fiscal year 2011, States reported 
spending at least $43 billion on supplemental payments up from 
$32 billion in fiscal year 2010. While a variety of actions 
have helped curb supplemental payment arrangements, gaps in 
oversight remain. In 2010, CMS implemented new transparency and 
accountability requirements for certain Medicaid supplemental 
payments known as disproportionate share, or DSH payments. 
However, similar standards for calculating, reporting and 
auditing non-DSH supplemental payments have not been 
established. Although Medicaid payments are not always limited 
to the cost of providing Medicaid services, when payments 
greatly exceed Medicaid costs, it raises questions about their 
purpose, relation to Medicaid service and whether such payments 
contribute to beneficiaries' access to quality care.
    Congress, HHS and CMS have taken steps to improve the 
fiscal integrity of Medicaid. However, more federal oversight 
is needed, particularly in the areas of addressing improper 
payments and oversight of supplemental payments. In both cases, 
CMS oversight has been hampered by data systems that do not 
provide complete and timely data.
    Mr. Chairman, this concludes my prepared remarks. I would 
be happy to answer questions.
    [The prepared statement of Ms. King follows:]

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    Mr. Pitts. The Chair thanks the gentlelady and now 
recognizes Ms. Yocom for 5 minutes for an opening statement.
    Ms. Yocom. Chairman Pitts and Ranking Member Pallone and 
members of the subcommittee, Ms. King and I combined our 
statements so I am available to answer any questions regarding 
Medicaid.
    Mr. Pitts. Thank you. I will now begin questioning and 
recognize myself for 5 minutes for that purpose.
    Dr. Budetti, it is often said that CMS uses a pay-and-chase 
model to fight fraud in our Nation's entitlement programs. That 
is, CMS will unknowingly process a fraudulent payment and then 
try to recover payment down the road. My understanding is that 
CMS still largely operates reactively. Are you aware of any 
single claim using the Fraud Prevention System that stopped a 
claim before it was paid?
    Dr. Budetti. Mr. Pitts, the history certainly has been of a 
predominantly pay-and-chase approach, and that is what the 
Fraud Prevention System is changing, and I would like to point 
out something that is really quite different with the Fraud 
Prevention System than the way we have done things in the past 
because in the past, most of our screening was done on a single 
claim-by-claim basis, and what the Fraud Prevention System 
allows us to do, it is triggered by claims that into the 
system, but then what happens is, we are able to combine not 
just one claim but the pattern of claims that we are seeing and 
the pattern of beneficiaries being served and the pattern of 
services being billed as well as lots of other forms of 
information to produce, if you will, a picture of an entire 
book of business, and that book of business then is given a 
risk score, and based upon that risk score, we then are able to 
take action, and that is the basis of the $115 million in 
savings, which includes many ways of stopping the payments.
    Mr. Pitts. So the answer is no?
    Dr. Budetti. No, the answer is yes. We have definitely been 
implementing systems that are stopping payments from going out 
the door triggered by incoming claims but looking at a broader 
perspective. For example, one of the ways we like to stop 
payments is to kick somebody out of the program once we have 
identified the fact that they don't belong in the program.
    Mr. Pitts. Thank you.
    Ms. King, Dr. Budetti testified before the Health Oversight 
and Government Reform Committee on April 5, 2011, that most of 
the $60 billion in improper payments accounted for in 2010 were 
not ``usually fraudulent nor necessarily payments for 
inappropriate claims'' but rather, indications that errors were 
made by the Provider in filing a claim or inappropriately 
billing or a service. In that same year, his former boss, 
Donald Berwick, put the number at $98 billion. Frankly, I 
haven't seen one indication that CMS truly knows how much it 
loses each year much less whether a majority of these payments 
are not usually fraudulent. Do you agree with Dr. Budetti's 
assertion that most of the payments are not fraudulent but 
merely billing errors by providers?
    Ms. King. Mr. Chairman, I would like to distinguish between 
improper payments and potentially fraudulent payments. Improper 
payments are those payments that should not have been made for 
any reason, and they include both overpayments and 
underpayments, and each year HHS measures the rate of improper 
payments. It is true that most of the problems related to 
improper payments are related to inadequate or missing 
documentation, so a large part of that is they have not 
supplied the proper documentation or the documentation is 
inadequate.
    But i would like to point out the difference between 
improper payments and fraud. There is no measure of fraud in 
the Medicare program, in part because you can't determine 
everything that is fraudulent because a lot of fraud is 
committed and it doesn't hit the improper payment screens. For 
example, if I sell my beneficiary number to someone and they 
use it to obtain services, and if those services are billed 
correctly, they are not going to show up as an improper 
payment. And fraud is actually only determined by a court of 
law because it involves a deliberate attempt to deceive and to 
cheat.
    Mr. Pitts. Thank you.
    Ms. Yocom, in GAO's most recent report, you note that 
States have increasingly used supplemental payments through 
sophisticated financing arrangements such as provider taxes. 
Increased scrutiny of such payments has raised significant 
concerns from the States who believe they have limited 
resources to fund their already strained Medicaid programs. 
Given the drastic expansion of the Medicaid program in 2014, do 
you not see a further increase in the use of such State funding 
arrangements?
    Ms. Yocom. Mr. Chairman, our work has shown that there has 
been an increase in the use of supplemental payments rising 
from about $23 billion in 2006 up to about $43 billion in 2011. 
We do have some outstanding recommendations for CMS involving 
in particular the use of non-DSH supplemental payments, which 
currently there is not enough reporting and transparency 
regarding their oversight, approval and use.
    Mr. Pitts. Thank you. My time has expired. The Chair 
recognizes the ranking member, Mr. Pallone, 5 minutes for 
questions.
    Mr. Pallone. Thank you, Mr. Chairman.
    Dr. Budetti, if Congress fails to act in the next couple 
days, sequestration will result in a 2 percent cut in the 
Medicare funding, and I know that funding for fraud and abuse 
work is not exempt from this cut. Can you tell me yes or no, 
though, is the funding for your program integrity work at CMS 
exempt from the sequester? Just yes or no.
    Dr. Budetti. No, sir. My understanding is it is not exempt.
    Mr. Pallone. All right. Then can you tell me if your budget 
takes a 2 percent cut as required in the sequester, is it 
logical to assume that this cut will have a negative effect on 
the staff and activities that are currently being used to fight 
fraud?
    Dr. Budetti. All of our activities, Mr. Pallone, to fight 
fraud and to reduce improper payments depend upon our 
resources, and anything that reduces our resources is going to 
mean that we will have lowered ability to carry out our 
mission.
    Mr. Pallone. According to your own HCFAC report, fraud and 
abuse activities have had an eight to one return on investment 
over the past 3 years. Is it true a cut to program integrity as 
a result of the sequester could negatively affect the ability 
to return fraudulently obtained monies to the Medicare trust 
fund?
    Dr. Budetti. That is a serious consideration because what 
we have learned over the years of the Health Care Fraud and 
Abuse Control program is that the more we do spend looking for 
fraud, the more we find, and so the return on investment has 
actually gone up the more we spend. So cutting back would be 
expected to have just the opposite effect.
    Mr. Pallone. Thank you. Now, I wanted to ask you, waste, 
fraud and abuse are not unique to public programs. It is fair 
to say that many, if not all, the fraudulent practices that we 
are addressing in public programs at the federal and State 
level are also issues for private health payers and sharing 
information and collaboration between the public and private 
sector are critical to these efforts. So could you tell us 
about the work CMS is doing to increase collaboration and 
coordination both internally between Medicare and Medicaid and 
externally with private payers?
    Dr. Budetti. We have joined with the Attorney General and 
the Secretary joined together to establish the Public-Private 
Partnership for Health Care Fraud Prevention. We have a number 
of health plans and antifraud associations and other private 
sector partners that we are working together with as well as 
State agencies and other law enforcement agencies to work 
together on a problem. This is in recognition of the fact that 
actually health care fraud knows no boundaries and it attacks 
everybody, and we have already had the first serious 
interactions between the parties in the public-private 
partnerships, health care fraud prevention partnership, and we 
are building on that, and the intention is that we will be 
sharing best practices, data, analytic tools across the public 
and private sector. This is a very exciting and very important 
step forward for us to marshal resources throughout the health 
care system to fight fraud.
    Mr. Pallone. Thanks.
    Let me go to Ms. Yocom and ask her about CMS. CMS through 
its Medicaid Integrity Institute and other programs is working 
to partner with States and help to build State-level antifraud 
capacity. Can you give us a sense of how they are doing and are 
their program oversight activities that CMS has taken that 
appear to be effective, in your opinion?
    Ms. Yocom. Sir, there has been some improvements in the 
improper payment rate in Medicaid. It has decreased by about a 
percent, and in terms of dollar value, from about 21.9 to about 
19.2 billion.
    There is more to be done. Our recommendations and our 
outstanding work is focusing on having CMS collaborate more 
with States to both augment their program activities and to 
support their program activities. Our work has found that those 
collaborative audits have actually been the most successful of 
the efforts that have happened to date.
    Mr. Pallone. Did you want to comment on what I mentioned 
before in terms of, you know, dealing with the private sector 
as well and what they are doing?
    Ms. Yocom. I don't think we have work that I can respond to 
you on that.
    Mr. Pallone. All right. Thanks so much. I yield back.
    Mr. Pitts. The Chair thanks the gentleman and now 
recognizes the vice chairman of the committee, Dr. Burgess, 5 
minutes for questions.
    Mr. Burgess. Thank you, Mr. Chairman.
    Ms. King, let me ask you a quick question that deals with 
third-party liability payment. Congress intended that Medicaid 
be the payer of last resort. My staff has been in contact with 
you about improving Medicaid third-party liability. To what 
extent do you feel that it is necessary to address this?
    Ms. King. Sir, Medicare or Medicaid?
    Mr. Burgess. Medicaid.
    Ms. King. GAO's work on third-party is pretty dated at this 
point. We have some studies----
    Mr. Burgess. So the answer would be, you think it would be 
worthwhile to look into this?
    Ms. King. Yes.
    Mr. Burgess. As I understand, the last report was in 2006.
    Ms. King. Correct.
    Mr. Burgess. It demonstrated a significant problem. Will 
you be willing to work with my staff to see if we can't move 
the needle on this one a little bit?
    Ms. King. We certainly would.
    Mr. Burgess. Thank you.
    Dr. Budetti, at this committee's last hearing on fraud, we 
asked the Government Accountability Office to provide a list of 
recommendations to combat waste, fraud and abuse in Medicare 
and Medicaid that had yet to be implemented. So in a sense of 
fairness, maybe you can give us an update on some of these 
things. I am going to ask for really brief answers like yes or 
no answers to these questions. Have you implemented the GAO 
recommendation from February 2009 that CMS should expand the 
types of improper billing practices that are grounds for 
revoking a home health provider's billing privileges?
    Dr. Budetti. Dr. Burgess, I don't have the specifics on the 
individual programs right in front of me. I can tell you that 
the vast majority of the GAO recommendations are in some kind 
of process of our responding to them, but I would be delighted 
to give you a specific answer----
    Mr. Burgess. I wish you would.
    Dr. Budetti. --for the record afterwards.
    Mr. Burgess. It is a possible no but may be an incomplete. 
Yes or no, have you implemented the GAO recommendation from 
March of 2010 to require the agency to evaluate RAC audits to 
correct the vulnerabilities identified in the agency? Those are 
the recovery audits.
    Dr. Budetti. Well, again, I can't speak to the individual 
one right offhand but we do have lists, we do track these and I 
will be delighted to get that to you.
    Mr. Burgess. I have a list myself, happily, and I am 
anxious to track this with you because it is important. The GAO 
makes recommendations. We are here fighting the same problem we 
fight year after year after year. It is important that we make 
some progress: I will tell you what. In the interest of time, 
we will leave the GAO reports and maybe you can work with my 
office to get us answers.
    Now, it is referenced several times under the President's 
Affordable Care Act under subtitle (e), Medicare and Medicaid, 
CHIP program integrity provisions, several provisions that were 
signed into law by the President. Maybe we can just briefly run 
through those and you can tell me if those have been 
implemented. The face-to-face encounter with the patient that 
is required before a physician may certify eligibility for 
durable medical equipment.
    Dr. Budetti. I believe that one has been implemented.
    Mr. Burgess. So that is a yes? Ding, ding, ding. Good for 
you. Implement criminal background checks for fingerprinting 
for providers and suppliers considered at risk.
    Dr. Budetti. We have not finished the implementation of 
that for a number of reasons, in part related to the FBI's own 
internal rewarding of its contracts, but we are in the process, 
very much in the process of putting that into place, sir.
    Mr. Burgess. It has been almost 3 years since this was 
signed into law. It is important stuff. I would get the FBI, 
the Justice Department engaged because it was felt to be 
important by the President. He signed it into law. Let us see 
that it is implemented. How about implementing limitations on 
how much high-risk providers and suppliers can bill the 
Medicare program within the first year?
    Dr. Budetti. We are in the process of developing----
    Mr. Burgess. So that is an incomplete. How about 
implementing a temporary moratorium for new Medicare providers 
from enrolling and billing the Medicare program even though 
there are more than enough suppliers to furnish health care 
services in certain areas of the country?
    Dr. Budetti. That is a very important tool. We have been 
looking very carefully at the places to implement it, and we 
have--we are in the process of moving forward with that where 
we think it is appropriate as an adjunct to all of the other 
tools.
    Mr. Burgess. Well, an important tool but it is----
    Dr. Budetti. We have not implemented a moratorium yet.
    Mr. Burgess. It is languishing, and we are coming up on 3 
years, establish a compliance program for fee-for-service 
providers and suppliers.
    Dr. Budetti. We are still in the process of working on 
that, in part because the Inspector General has long since had 
very sound guidance for providers for voluntary compliance 
programs.
    Mr. Burgess. OK. I am running out of time. That is also an 
incomplete. Implement a surety bond on home health agencies and 
certain other providers of services and supplies?
    Dr. Budetti. The surety bond program is in place for DME 
but we are still in the process of implementing it beyond that.
    Mr. Burgess. For home health specifically, that is a no, 
and what about implementing checks to make sure that a 
physician actually referred a Medicare beneficiary for medical 
service before paying the claim?
    Dr. Budetti. We do have processes in place for doing that.
    Mr. Burgess. Incomplete, so one out of those seven things 
that were signed into law by the President that are always 
referenced as hey, these are important things that we want the 
Affordable Care Act to do to combat fraud, we are still waiting 
to see if they in fact will be effective.
    Thank you, Mr. Chairman. You have been generous. I will 
yield back.
    Mr. Pitts. The chair thanks the gentleman and now recognize 
the gentleman from Texas, Mr. Green, 5 minutes for questions.
    Mr. Green. Thank you, Mr. Chairman, for the time, and I 
appreciate our panel has taken the time to be here today.
    The rising cost of health care threatens our Nation's 
economy and puts more and more families at financial risk, 
although I have to say that I just read an interesting article 
in Time magazine last week that said Medicare is the ultimate 
cost saver in health care, but that is not part of my 
questions. I believe the key part of saving money is keeping 
people healthier longer. To achieve this, people must have the 
health care coverage necessary that they can be seen when they 
first get sick and not have to wait until it is so bad they 
need urgent care.
    My question is to GAO and CMS. Can the Government 
Accountability Office or CMS estimate the government or private 
sector costs from the administrative waste associated with the 
phenomenon in Medicaid known as ``the churn'' where people who 
are eligible for Medicaid are discharged from the rolls for 
bureaucratic or paperwork reasons or for some temporary changes 
in income that do not impact their long-term eligibility for 
Medicaid? Is there any studies that you all have been able to 
do on that?
    Ms. Yocom. We have not done any studies in that area. We 
have taken a brief look at express-lane eligibility and the 
extent to which that is a potential benefit. There are a few 
States that have reported some cost savings. From our 
perspective, those savings always have to be offset by ensuring 
that eligibility is correctly calculated.
    Mr. Green. Well, and I agree, and I know a lot of States 
have a 6-month eligibility, and if you have a senior citizen 
who forgets to return the letter, you know, instead of being 
treated for diabetes they will end with an episode and end up 
even costing more. Again, to GAO and CMS: Can GAO and CMS 
describe the costs to the State and federal budget associated 
with the ongoing determinations of whether people are eligible 
for Medicaid? For example, my State requires people on Medicaid 
to be determined eligible every 6 months, and despite the fact 
that most people who are on Medicaid are eligible for the 
program for much longer period of time and it requires adult 
Texans on Medicaid to show up in person for their 
redetermination, and I know we can cut our Medicaid rolls by 
making that happen. The problem is that that increases our 
costs by making someone who may be so ill or a senior citizen 
drop off and then get back on. Is there any quantification of 
that?
    Ms. Yocom. We have not done any quantification of the costs 
and benefits associated with that.
    Mr. Green. Because I know on a State level, oftentimes they 
can quantify that if they do this, this will cut our rolls X 
amount, but in the long run, those folks who are typically so 
ill, they will be back on and much more costly. I would sure 
appreciate it if there was an option on that.
    My last question to the GAO. Where should we assign the 
government expenditures for the following hypothetical? A 
Medicaid beneficiary with diabetes eligible for and enrolled in 
Medicaid is removed from the rolls because he or she failed to 
respond to a letter sent by the State to confirm their 
residency at a particular address. Two months later, that 
person has a diabetic event because the diabetes went unmanaged 
and is reenrolled in Medicaid at the time and now the costs are 
more expensive of inpatient and emergency care is billed to 
Medicaid. If that person were just covered by Medicaid for 
those two months, it would be more likely we wouldn't have seen 
those episodic costs. In your opinion, should these added costs 
be categorized as waste, fraud and abuse, and if not, where 
should we categorize that excessive waste and avoid unnecessary 
spending?
    Ms. Yocom. Sir, certainly getting care earlier is always 
beneficial to the patient. Our work on preventive services and 
taking a look at trying to balance costs and benefits, it is 
difficult to come up with an exact measure of cost and/or 
savings, and I don't believe that GAO has done that.
    Mr. Green. Well, I understand, and I have a couple of 
seconds left. The private sector in some of the studies we have 
seen, both from businesses who provide the health care can show 
that they can save money for that continuing care, for that 
continuing much more reasonable maintenance of an illness 
instead of waiting for that episode.
    So Mr. Chairman, I would hope we would look at that not 
only from the private sector but also for Medicaid and 
Medicare, and I appreciate the time. I will yield back.
    Mr. Pitts. The Chair thanks the gentleman and now 
recognizes the gentleman from Louisiana, Dr. Cassidy, 5 minutes 
for questions.
    Mr. Cassidy. Thank you, sir.
    Tagging off of what Mr. Pallone, now, in your testimony, 
you say that for every $1 spent, the program saves $7.90, and 
it begs the question, that if you have to take a 2 percent 
across-the-board cut, why are they going to cut the programs 
that would save you $7.90 per dollar spent? Is the management 
so inconsiderate of return on investment that they are going to 
cut something that saves $7.90 per dollar spent? That is the 
testimony you suggested.
    Dr. Budetti. Dr. Cassidy, thank you for that question. As 
you know, the specific cuts related to the sequester have not 
occurred yet. There has been a lot of internal planning and 
preparation for the way to do any cuts if they should take 
effect.
    Mr. Cassidy. I have limited time. So if the taxpayer is 
listening and the taxpayer is wondering what kind of management 
would cut a program which has an ROI of $7.90 per dollar spent, 
and that is your testimony, what was management thinking that 
this would even be on the table?
    Dr. Budetti. Well, what I would say, sir, is that the 
thinking is that our number one priority is making sure that 
beneficiaries get the medical care that they need, and if we 
have----
    Mr. Cassidy. But clearly, if Mr. Pallone is right, that the 
money you save goes back into the trust fund in order to 
support that medical care, I think the taxpayer has every right 
to wonder what in the heck he is spending money for. If we are 
cutting something with an ROI of $7.90 per dollar spent, do you 
see my concern?
    Dr. Budetti. I do see your concern. I also know that in the 
immediate short term, we have to worry about our principal 
mission, which is making sure that beneficiaries----
    Mr. Cassidy. So there is nothing else that can be cut 
between actually paying for medical services and something 
which gives you an ROI of $7.90 per dollar spent?
    Dr. Budetti. There are very few things that have been 
exempted under the terms of the sequester.
    Mr. Cassidy. I will tell you, it calls into question the 
wisdom of your management.
    Secondly, you create the impression that if we cut under 
the sequester all these valuable things, but then what Dr. 
Burgess just brought up, which I am sure is because of his 
staff's good homework, not his own, that only one out of seven 
of these things demanded by the Affordable Care Act, which 
passed in 2010, has been fully implemented. It doesn't seem 
like a sequester cut now is going to be that which is fatal to 
their implementation. It actually seems as if there is kind of 
a casual timeline anyway.
    Dr. Budetti. Sir, I would point out that there are a few 
more pages of provisions that actually have been implemented 
that----
    Mr. Cassidy. But I am speaking specifically about waste, 
fraud and abuse.
    Dr. Budetti. That is exactly what I am talking about. We 
have implemented many provisions in the Affordable Care Act 
that have greatly strengthened our ability to fight waste, 
fraud and abuse, and in doing so, we always have to establish 
our priorities and allocate our resources appropriately.
    Mr. Cassidy. Well, if we are going to establish priorities, 
then I would suggest that the taxpayer would like that you 
continue to spend money which gives you a $7.90 return on 
investment per dollar spent.
    Now, let me move on, and I don't mean to grill but this is 
obviously a process. We are all familiar with the New Yorker 
article about McAllen, Texas, under Medicare, the hospital in 
McAllen spent 180 percent of a cohort, of the amount spent on a 
cohort in El Paso. There is a follow-up article on that in 
Health Affairs in which Blue Cross Blue Shield patients, Texas 
Blue Cross Blue Shield, 7 percent less was spent for the cohort 
in McAllen than in El Paso. Under CMS, it is 180 percent more. 
On Blue Cross Blue Shield, it is 7 percent less. It seems like 
the problem may not be the docs, the patients or the hospital 
but it may be CMS's systems, just looking at the contrast 
between the two payers and the results they get. What comment 
would you have on that?
    Dr. Budetti. I would say that one of the advantages of our 
having established the strike forces under the joint Department 
of Justice and Health and Human Service aegis has been to look 
at the highest fraud areas very carefully.
    Mr. Cassidy. But why did Blue Cross Blue Shield figure this 
out prospectively and we are having to do strike forces to get 
it retrospectively?
    Dr. Budetti. The populations that are being served, sir, 
are very different. The situations are very different.
    Mr. Cassidy. Sixty-four years old and 65 years old, these 
are the same patients in the same hospital with the same 
doctors. Again, this seems somewhat of an indictment upon the 
system because there is not that much difference--I am a doc--
between something who is 64 and 65.
    Dr. Budetti. I don't have a specific answer for you on 
that, in that area. I would be happy to look for, you know, 
anything more specific, but I will say that we are focusing on 
the high-fraud areas and we are making major progress in 
identifying discrepancies like that and working together with 
law enforcement and with the private sector to do something 
about it.
    Mr. Cassidy. Thank you for your testimony. I yield back.
    Dr. Budetti. Thank you, sir.
    Mr. Pitts. The Chair thanks the gentleman and now 
recognizes the gentlelady from California, Ms. Capps, 5 minutes 
for questions.
    Mrs. Capps. Thank you, Mr. Chairman. I again thank the 
panelists for being here today.
    Dr. Budetti, Dr. Burgess asked about several projects CMS 
is implementing from the Affordable Care Act, and you didn't 
really have time to address them. Would you like to take a 
minute now to tell us what CMS has been implementing from the 
ACA?
    Dr. Budetti. There are many provisions of the Affordable 
Care Act that we have implemented. Some of the biggest ones 
involve the risk-based screening of providers and suppliers, 
which is a new way of identifying the suppliers and providers 
that are in the limited-risk group and are subjected to very 
detailed background checks but not to the same level of 
scrutiny as others. That is a very extensive program. We have 
established a program to alert States when someone is suspended 
or is terminated by one Medicaid program or by Medicare for 
cause so that other States can keep them from entering their 
program. That is an important step forward. We have implemented 
a number of aspects of our collaboration with law enforcement 
that have really moved things forward on that front. There are 
many provisions of the Affordable Care Act that have 
strengthened our ability to fight fraud, waste and abuse and we 
have implemented a great number of them.
    Mrs. Capps. Thank you. You know, the hearing is about 
fraud, waste and abuse. We know these are significant problems 
for both public and private health care payers. The scope and 
complexity of health care itself as well as the diverse payers 
and the systems we have to pay for it certainly adds to the 
challenge. Both CMS and GAO acknowledge that we don't really 
know the true scope and cost of waste, fraud and abuse to the 
Federal Government.
    My question has to do with how we can begin to get our 
hands around measuring the scope and the extent of the problem. 
Unless we do, we won't really know how to tackle it or how much 
to spend doing that. In that context, how do we measure the 
effectiveness of the efforts being undertaken now, just some of 
the problems that you just described?
    Dr. Budetti. Sure. We have taken steps towards developing 
the methodology for measuring probable fraud. We intend to 
implement that in one particular arena, which is home health, 
and to apply that methodology. It involves a very sophisticated 
approach because as Ms. King pointed out, people don't often 
volunteer that they have committed fraud so we can't do a 
simple survey, but we have made substantial progress toward 
having a methodology in place to estimate probable fraud. We 
intend to do that first in home health, and then once we have 
learned how well that works to apply it to other areas. We have 
done a very thorough job in the government of measuring 
improper payments, and improper payments encompass a wide range 
of reasons why a certain payment should not have been made, and 
we would very much like to move forward with a reliable measure 
of probable fraud.
    Mrs. Capps. One sort of parallel question that hasn't been 
brought up. Measuring the impact of prevention--that is my 
background, public health--this is really hard to measure in 
any way. Can you share some of the metrics and benchmarks that 
you are using or working on in the area of preventive health?
    Dr. Budetti. Sure, and I appreciate the question very much. 
I think the best way to illustrate it is with an example. When 
we put into place one of our models in the Fraud Prevention 
System, we identified a pattern of behavior that raised very 
strong suspicions, and we ended up identifying a particular 
potential fraudster who fell into the same pattern that others 
had perpetrated, others had billed hundreds of thousands of 
dollars or even millions of dollars to the program, but this 
particular one, I believe, had only billed us for $4,000 but it 
was the same scam and it was clear that they were just starting 
up and getting going, and so we are faced with the question of 
how do we take credit for finding something that had only 
billed us for $4,000. Now, that is exactly where we want to be. 
I mean, I would rather it be at $2,000 but $4,000 is a lot 
better than $4 million, but yet if we just say that we stopped 
something that prevented that when somebody had already billed 
us for $4,000 doesn't sound very impressive. So we have to 
figure out the best way to put, as the statute requires us, to 
put a dollar value on prevention, and that is a challenge but 
we are taking it on.
    Mrs. Capps. I appreciate that. Thank you very much, and I 
yield back.
    Mr. Pitts. The Chair thanks the gentlelady and now 
recognizes the gentleman from Illinois, Mr. Shimkus, 5 minutes 
for questions.
    Mr. Shimkus. Thank you, Mr. Chairman.
    I am not sure if it was Ms. Yocom or Ms. King who made the 
statement of trying to define improper payments from fraudulent 
payments.
    Ms. King. That would be me.
    Mr. Shimkus. And, you know, we are almost in like bizarro 
world a little bit because improper payments, fraudulent 
payments, theft, abuse--Dr. Budetti, when you mentioned this 
$4,000, following this scheme of abuse, that is what credit 
card companies do every day. Dr. Burgess is right.
    Now, I know, sir, you have done a pilot program on the 
magnetic strip card, identification card, I think it was in 
Indiana. Not a lot of fraud there. One, I would ask if we could 
get a release of the findings of that pilot program. Also, you 
know, I have also been involved in the magnetic chip issue. 
There was a bill last year by Mr. Gerlach. I would encourage 
all my colleagues to look at that bill from last year, 2925. It 
will probably get reintroduced this year. If major financial 
institutions can call someone and ask about an improper payment 
that is outside their area within 12 hours of the payment being 
made, for the life of me, I don't understand why that is not a 
good system to help us identify improper payments and 
fraudulent payments. The billing on both ends, a statement 
released. Well, that is why we have a bill because we don't 
think you have effectively looked at it and we are slow, we are 
bureaucratic, we are not private sector and we just can't seem 
to get it done, and that hurts the payments to other folks. So 
that is my statement, that there is another bill coming to try 
to get us to move to a current world technology of a payment 
system that will help identify improper and fraudulent 
payments.
    A real crisis in Medicaid is the funding. That is why these 
hearings are important, but in Illinois, we have $1,922,000,000 
in backlog of unpaid bills that are sitting in our 
comptroller's office. There is another $700 million worth of 
bills that are being held by the State government before they 
give them to the comptroller, when then you add those up, that 
is $2.6 billion in unpaid Medicaid reimbursements to our 
providers. The delay in payment is 3 to 8 months, and of 
course, when they do pay, they are paying 70 percent of what 
the private sector is paying for the health care delivery. We 
are a disaster in Medicaid reimbursement to our health care 
providers, some smaller ones going broke or just saying we 
can't provide Medicaid anymore. Having said that, I know that, 
Ms. Yocom, the biggest challenge to the Medicaid program, 
through federal initiatives is the lag in Medicaid data from 
the States, and you have reviewed the discrepancy in the data 
from States and reported that CMS will need more reliable data 
for assessing expenditures and measuring performance in the 
Medicaid program. I would encourage you to get current data on 
Illinois.
    Can you please outline the GAO work on aligning the States' 
expenditure data which in your 2012 October report showed 
significant discrepancies and reported expenditures of more 
than $40 billion for fiscal year 2009? Even in Washington, $40 
billion is a bad discrepancy of reporting on payments.
    Ms. Yocom. Yes, sir. We did take a look at two expenditure 
systems that CMS operates. The first is an expenditure system 
that is the basis with which States claim their federal match. 
The second is a statistical system that takes the activities 
performed in the Medicaid program and looks at them from the 
perspective of the beneficiary. So it is beneficiary-specific 
payments. These two systems are not measuring the same thing, 
so there is some acceptance that they should be different, but 
we could not quantify the source of all the differences or the 
reasons why those differences occurred. At the end of the day, 
we ended up with about a 90 percent national match but on the 
State-by-State basis, there were significant variation across 
the different--in terms of the two systems.
    Mr. Shimkus. Thank you, Mr. Chairman.
    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.
    There was an earlier discussion about McAllen, Texas, and 
CMS's antifraud activities to root out fraud and unnecessary 
spending. Dr. Budetti, you mentioned the HEAT task force as 
catching fraud on the back end, but isn't it also true that 
many of the Affordable Care Act provisions you are implementing 
are catching fraud on the front end? For example, the Fraud 
Prevention System, the new provider screening requirements, the 
cross-checking between bad providers and Medicare and Medicaid. 
So is it not accurate to say that--so my sense is that it is 
not accurate to say that you are doing nothing in these high-
fraud areas on the front end, and I wondered if you could talk 
about how the front-end prevention is paying off.
    Dr. Budetti. Thank you, Ms. Schakowsky. One of the things 
that I am extremely pleased with is our growing collaboration 
with law enforcement. Our law enforcement colleagues are very 
fond of saying that they don't believe that they can prosecute 
their way out of the current fraud situation after the fact, 
and so they have been very active partnering with us on the 
prevention side and on the early detection side as well, and we 
have agents from both the Office of Inspector General and the 
FBI who are assigned to work directly with us and who have been 
very much involved in helping us build the Fraud Prevention 
System and the models in the Fraud Prevention System and how to 
follow up on it, and when we do that, we are taking an across-
the-board approach which says we want to stop as much as we can 
before it ever happens, and that is what we are able to do with 
activities under the Fraud Prevention System. We want to catch 
it early and take administrative action because if somebody has 
only stolen, say, $4,000, that may very well not be a case of 
law enforcement could ever pursue because of resources. But 
then we also want to work together when in fact some people do 
squeeze through and we have to chase after them after the fact. 
So our approach is to shift to moving beyond pay and chase but 
we cannot pay and chase in that sense.
    Ms. Schakowsky. I wanted to ask you also about the--I feel 
like sometimes we overlook the importance that beneficiaries 
can play in fighting fraud, and I am wondering if you could 
discuss how Medicare beneficiaries can help CMS identify fraud 
and what steps CMS may have taken to make it easier for 
beneficiaries to spot fraud or errors.
    Dr. Budetti. So I don't know if any of the members of the 
subcommittee have looked at their explanation of benefits 
recently, but when I got to CMS and we were reviewing the 
Medicare summary notices, we decided that we could do a better 
job of communicating both what the content was and the ability 
to highlight where there might be problems, and so over a 
period of time working with focus groups with Medicare 
beneficiaries and redesigning the Medicare summary notice, we 
have now produced a new statement that is going out for the 
first time this year. It has been available for people who 
would get their summary notices online previously but it is now 
going into the mail, and this will be much easier to read and 
much easier for individuals to look to see whether or not there 
is a problem with the billing that is attributed to their 
having gotten services and be able to raise questions.
    In responding to that, we have also vastly upgraded and 
made much more user friendly the 1-800-MEDICARE call system way 
of dealing with calls that come in that raise questions about 
possible fraud, and last year something like 50,000 of the 
calls that came in led to some level of escalation of our 
investigation to look behind an incoming call. So on both the 
summary notices and on the changes to the 1-800-MEDICARE call 
system and, on top of that, to our outreach to Medicare 
beneficiaries to inform them about these changes, we are very 
much engaging because our feeling is that, you know, 45 
million, 50 million beneficiaries out there fighting fraud with 
us is one of the----
    Ms. Schakowsky. Let me just say, I would like to see an 
example or two of the savings from beneficiaries.
    Dr. Budetti. I would be happy to.
    Ms. Schakowsky. Thank you.
    Mr. Pitts. The Chair thanks the gentlelady and now 
recognizes the gentleman from Kentucky, Mr. Guthrie, 5 minutes 
for questions.
    Mr. Guthrie. Thank you, Mr. Chairman, and thank you for 
coming and I appreciate your having this hearing on waste, 
fraud and abuse within the Medicare system and hope we continue 
to explore this.
    But before I begin my questions, I would just like to bring 
to the committee's attention a company in Kentucky that has a 
plan to bring savings to the Medicare program through the home 
health program integrity measures. The industry's 2010 proposal 
to limit outlier payments has been successful in saving the 
program roughly $900 million per year in the first 2 years 
alone. Almost Family's proposal will build on that, and that 
includes episode limits for a beneficiary to get at the bad 
actors who are billing for lengthy episodes of care in excess 
of three or four per beneficiary. Estimates predict this would 
save Medicare nearly $1 billion per year. We should look at 
this and other industry proposals for a way to save money 
within the system and get the bad actors that are fraudulently 
draining Medicare dollars. I found that a lot of industries 
with good actors who are trying to do service and do things 
correctly immediately want to point out the bad actors 
immediately want to point out the bad actors because that 
affects the whole Medicaid and Medicare program.
    I do have a question for Ms. Yocom and Dr. Budetti. I am 
interested in reviewing how the States use the funds in the 
health care law related to Medicaid IT payments. As you know, 
States are eligible to receive a 90 percent match from the 
Federal Government for the design and development of new 
systems through 2015. Has GAO initiated any integrity review of 
these funds and how they are expended to date?
    Ms. Yocom. We have not instituted an integrity review of 
the 90/10 matching States. There has been interest in that, and 
I believe we are planning to respond to that interest.
    Mr. Guthrie. What are you doing now with CMS to ensure--
this is a significant funding stream--that funds are being used 
appropriately? How are you managing that? I know you don't have 
a GAO study or initiative but how are you managing that to make 
sure it is being spent appropriately?
    Dr. Budetti. We are working very closely with the States 
and encouraging the States to implement their advances in data 
systems and technology because that is a major aspect of 
oversight of the Medicaid program. If you would like more 
details on that, I would be happy to get you a substantial 
amount of information on just what our approach is. But yes we 
do believe that having adequate and sophisticated data systems 
at the State level that can both analyze data and supply data 
better to the Federal Government that we need for oversight is 
one of our top priorities.
    Mr. Guthrie. Thank you for that answer, and I do have 2-1/2 
minutes I can yield, or yield to Dr. Burgess.
    Mr. Pitts. Dr. Burgess.
    Mr. Burgess. I appreciate the gentleman for yielding.
    Director Budetti, let me just ask you a couple of questions 
along the lines that Ms. Schakowsky was just asking. First off, 
do you have an app for that?
    Dr. Budetti. For----
    Mr. Burgess. When you talked about your new explanation of 
benefits and forms that you are providing people.
    Dr. Budetti. Well, that is a very interesting question, Dr. 
Burgess, because we have been looking into that possibility.
    Mr. Burgess. Well, I did a little research sitting here at 
the dais, and I typed the word ``Medicare'' into the app store 
and you don't have one but other people do, and it just seems, 
you know, knowing the way the world works, most people who get 
to the age where they are signing up for Medicare are going to 
be asking their 12-year-old grandson to help them navigate the 
smartphone. It may be something that is worth looking into.
    I thank the gentleman for yielding, and I will yield back.
    Dr. Budetti. In my case, I will rely on my 17-year-old 
grandson and my 5-year-old and my 4-year-old.
    Mr. Burgess. Great.
    Dr. Budetti. The Chair thanks the gentleman and recognizes 
the gentlelady, Dr. Christensen, 5 minutes for questions.
    Mrs. Christensen. Thank you, Mr. Chairman, and welcome to 
the panelists this morning.
    I want to follow up also on Congresswoman Schakowsky's 
question, and I am glad to know that the notices to 
beneficiaries have improved. I am sure they have improved a lot 
over the 16 years that I have been having to explain them. And 
you pretty much answered how beneficiaries can help detect 
fraud, and I know that many seniors are just as concerned as we 
are with program integrity and are glad to help in fighting 
fraud. My constituents participate in the Senior Medicare 
Patrol program, and they seem to be very active. How widespread 
is this program across the States and territories and has it 
shown itself to be helpful in ensuring or reporting and helping 
program integrity?
    Dr. Budetti. Dr. Christensen, when I got to my job at CMS, 
I decided that one thing we should do was invent the Senior 
Medicare Patrol and then I found out it already existed, so we 
worked very closely to help expand the resources available to 
the Senior Medicare Patrol for the first couple of years that I 
was on the job. It does extend to all States. There are 
programs operating, and I believe through the territories as 
well. It does involve many Medicare beneficiaries, and they 
receive extensive training in how to help seniors protect their 
identities, how to identify problems with potential fraud or 
abuse, and what to do about it and how to report it. So we 
consider this a very strong adjunct program of ours and we have 
taken a lot of initiative in helping to support that program.
    Mrs. Christensen. Thank you. I have a provider question as 
a person who has practiced medicine for more than 20 years 
before coming here, and having heard from my colleagues back 
then but also more so since I have been here about sometimes 
overzealous investigations and sometimes unwarranted 
investigations. But I am very interested, like my colleagues 
are, that efforts to fraud are effective, but also that they 
are fair to providers, especially those providing care to our 
Nation's most underserved communities who are sicker and where 
there are fewer resources, and I just want to say for the 
record, of course, and I am sure you will agree, that the vast 
majority of providers are honest actors who are not causing 
problems.
    I would like to find out what CMS is doing to ensure that 
providers are your partners and not necessarily adversaries, 
and how effectively are you able to distinguish between who the 
bad actors and the good guys are, so that some of my colleagues 
or former colleagues are not feeling that they are being 
treated fairly in some of these investigations.
    Dr. Budetti. First of all, this is a very high priority for 
us. I mentioned early on that we want to make the system easier 
and more efficient for the legitimate and vast majority of 
providers while making it much harder and more likely to spot 
the ones who don't belong in the program, and along those 
lines, I will give you one example, that in developing 
improvements in our enrollment processes, we worked very 
closely with the provider community. There is a long list of 
changes that we made to the enrollment system that came 
specifically out of group meetings that we had with providers, 
working side by side with them to have demonstrate to us online 
what the problems were that they were having with our system so 
that we could implement a fix to that problem. So that has been 
a big part of it. We have gotten a lot of positive feedback 
from the provider community in doing that.
    And in terms of the audits and the potential for problems, 
one of the big advantages of moving the Medicare and Medicaid 
program integrity operations together into the Center for 
Program Integrity is, it is allowing us to pursue coordination 
and integration of a wide range of audits precisely for that 
reason, to make sure that we are doing the job but we are doing 
it as respectfully and appropriately as possible.
    Mrs. Christensen. Thank you. And on the enrollment, I 
understand you are transitioning away from a paper-based system 
of provider enrollment. Do you feel that you are able to 
capture the rural providers and some of those providers that 
are in the poor, urban communities as well?
    Dr. Budetti. That is a very important consideration, and I 
will--I know that we have worked with large groups but I will 
be sure that we will check on what our outreach efforts have 
been.
    Mrs. Christensen. Thank you, Mr. Chairman. I yield back.
    Mr. Pitts. The Chair thanks the gentlelady and now 
recognizes the gentleman from Virginia, Mr. Griffith, 5 minutes 
for questions.
    Mr. Griffith. Thank you very much. I would like to pick up 
where Dr. Christensen left off because some of my providers 
don't feel like there is much of a partnership going on, and I 
would direct your attention specifically to the RAC program 
where I am advised that the American Hospital Association based 
on self-reported data indicates that nationally, 74 percent of 
the appeals are being overturned in favor of the hospitals when 
this comes up, and apparently in my region, it is 78 percent. 
And it would seem to me, I mean, one of the problems that they 
are having is, they feel like these independent contractors are 
taking the money and saying wait a minute, we are not going to 
release this unless you go through the process, push it to the 
end, and then if you win in the end, you will get your money. 
And so this is a real concern for them because while we all 
want to get the bad guys, the hospitals by and large in my 
district are not the bad guys, they are the good guys, and I 
may not know of some exception to that rule but I think they 
are all pretty good providers and they are trying to do the 
best they can. And 78 percent being overturned on appeal 
indicates there is a problem in the system. Wouldn't you agree?
    Dr. Budetti. So Mr. Griffith, I will say that we want to 
get it right, and we want to get it right for the good guys and 
we want it to be as efficient as possible. The very high--we 
have heard some very high appeal successes, but it is only a 
small fraction of total RAC determinations. So when appealed, 
the overturn rates seems to be growing, but still only a very 
small fraction of total RAC determinations are being appealed 
in the first place.
    But having said that, we do want to get it right and so we 
have put into place a number of checks to look back at what the 
guidance is that is going to the recovery auditors, what the 
number of documents that they are able to request. There are a 
lot of things that we are doing to make sure that the system is 
working.
    Mr. Griffith. Well, I would encourage you to do that. I 
would say, I don't come from a medical background. I was a 
country lawyer, and most of the time when people lose, if it is 
close, they don't appeal, and I understand that. When they 
appeal, it means that they really think they have been treated 
wrongly. That being said, in my profession, if you had a 78 
percent turnover rate, you would have a judge being removed, 
and that is what I am looking at is, that, you know, in this 
case, if we can't get it straightened out, we may have to look 
at a different system because that is not fair to the medical 
providers. And so I appreciate that.
    Also, one of the other complaints they had that ought to be 
simple to fix is that when they are denied, they get a letter, 
but when they win or they get it overturned, they don't get a 
letter so all of a sudden a check comes in and then they have 
to track down, well, why did we get this check. It sure would 
be nice if there was a tracking number or a letter that came 
with that that said we have decided you were right and here is 
your check. Can you fix that?
    Dr. Budetti. I will make every effort to look into that, 
sir. I have initiated a number of actions to, shall we say, 
improve our communications, and I will put this on the list.
    Ms. King. Sir, and if I might add?
    Mr. Griffith. Yes, ma'am.
    Ms. King. There has been a change in the design of the RAC 
program so that if the provider wins on appeal, the RAC doesn't 
get to keep the contingency payment, and that is a change from 
earlier. And I would also add that we have been asked to look 
into--well, we have work underway now that looks at what is 
happening in postpayment review and the coordination of those 
contractors that are doing that and whether there is 
duplication, and also to look at the communications that they 
are issuing. So we will have something to say on that later 
this year.
    Mr. Griffith. Well, I really appreciate that, and I hope 
that you all will continue to work to make this an easier 
process for the providers that are just trying to do what they 
do, and that is to help heal people.
    That being said, let me shift gears slightly and just ask 
if there isn't more you can do in the private sector. In our 
area, I represent southwest Virginia, which includes a big 
chunk of Appalachia, and we have had a problem with abusive 
drug usage, and some of the private companies are doing things 
that actually work to stop that such as they have one they call 
the lock-in program where if somebody is abusing, they don't 
stop giving them drugs if they need help but they don't let 
them go from doctor to doctor; they are locked in. Can we do 
things like that to try to look and see what the private sector 
is doing like the lock-in program? And there are others that I 
have here but my time is running out.
    Dr. Budetti. We have been looking at what the options are 
because we agree that where there are problems such as the ones 
that you mentioned, we should look to do the most we can. I 
will say that the constraints that we have, certain rules that 
do or do not apply in the Medicare program, we may have 
different options in terms of what we can pursue. I don't know 
if you have looked at this or not.
    Ms. King. We have actually looked at it and we have made 
recommendations that CMS consider that, and I think their 
response back to us has been that they believe there are some 
legal restrictions.
    Mr. Griffith. Well, let us just say you are at the right 
place to get those legal restrictions changed, and if you need 
something that helps catch the bad guys but makes it easier on 
the health care providers, we would be glad to oblige.
    Mr. Pitts. The Chair thanks the gentleman. The gentleman 
yields back. The Chair recognizes Ms. Ellmers, the gentlelady 
from North Carolina, 5 minutes for questions.
    Mrs. Ellmers. Thank you, Mr. Chairman, and thank you to the 
panel.
    I have a couple of questions for you, and I am probably 
going to run out of time, so I would ask that I be able to 
submit some of my questions to you and that you would be able 
to give me a written response within a reasonable amount of 
time.
    Dr. Budetti. Absolutely. We would be delighted to do that.
    Mrs. Ellmers. Wonderful. Well, let me start off with one 
question, and Ms. Yocom, I think this question is best suited 
to you, but feel free for anyone to answer.
    Back in 2008, when Congress passed Section 1940 as amended 
to the Social Security Act, Section 1940 required that the 
Department of Health and Human Services, through CMS, to ensure 
that each of the 50 States implement an electronic verification 
system for their Medicaid programs to ensure current and future 
beneficiaries meet the eligibility standards to qualify for 
assistance. My question for you is, since that time, being the 
5 years that have passed now, how many States have fully 
implemented this program?
    Ms. Yocom. I may have to provide that for the record. We 
did do work looking at that for long-term care eligibility, and 
I believe it wasn't all States yet.
    Mrs. Ellmers. OK. Well, my understanding based on the 
information that I have, is that there is one State out of 50 
that has put this in place, and that is the State of Florida. 
That is an incredible amount of time for this process to not 
have been put in place, and for me in North Carolina, this is 
significant. Why is it important to us? For every day that the 
electronig asset verification system is not in place in my home 
state of North Carolina, our state loses $275,000. At this 
point, 5 years in the process, this should have been put in 
place. So I guess I would ask, what is standing in the way? 
What possible reason could there be that only one State has 
fully implemented this process?
    Ms. Yocom. Again, we will provide additional for the 
record, but I do believe that a lot of it is around data 
systems and Medicaid and the need for them to be upgraded and 
improved.
    Mrs. Ellmers. OK. Well, my next question, I am going to 
shift gears a little bit here, and Dr. Budetti, this might be a 
question best suited for you. In the durable medical equipment 
competitive bidding process, the number of audits has increased 
dramatically. I have a number of 140 in 2010, up to 4,199 in 
2012. That is a significant number of audits. Now, the audits 
themselves are basically giving that facility 45 days to report 
all information to basically show medical necessity, and 
obviously their payment or actually taking back the payment 
would be based on that information. Having been a nurse for 
over 20 years, I know working in a physician's office that you 
are dependent upon that particular physician's office to 
provide that information and then the facility or the company 
that has provided the durable medical equipment is incumbent to 
report the information to you. In the current state of health 
care with fewer physicians, and physicians having to decrease 
their overhead, that is a big problem. What are you doing today 
to help decrease this administrative cost to these durable 
medical equipment companies and to physicians who are also 
facing this burden?
    Dr. Budetti. As you know, Congresswoman, durable medical 
equipment has been an area that has been subject to serious 
fraud in the past. It is one of the highest risk areas.
    Mrs. Ellmers. But sir, if I could interject----
    Dr. Budetti. But I will say----
    Mrs. Ellmers. One of the issues that we were delineating 
here is between improper payments and fraud. A clerical error 
involving a signature, a date or, an order, is simply not 
fraud. So having identified that already, how could a company 
be required to send back reimbursement, or a physician's office 
be required to send back reimbursement, and then have to go 
into an appeal process that could take up to 14 to 24 months to 
recoup that payment? Isn't that a little excessive?
    Dr. Budetti. So if there is a specific circumstance that 
you would like us to look into to get the details, I would be 
delighted to do that. I can tell you that this is an area where 
we do need to be sure that the durable medical equipment has 
been appropriately ordered by someone who is qualified to order 
within the Medicare program and that there is documentation for 
that. That is the legal requirement. If there is an individual 
circumstance that appears to be somewhat of, you know, a 
problem, why don't you contact us and we will be delighted to 
get that information from you and----
    Mrs. Ellmers. We will definitely do that.
    Dr. Budetti. --we will let you know where things stand.
    Mrs. Ellmers. I am over my time, so thank you very much.
    Dr. Budetti. You are welcome.
    Mrs. Ellmers. I thank the chairman for indulging me.
    Mr. Pitts. The Chair thanks the gentlelady and now 
recognizes the gentleman from Texas, Mr. Hall, 5 minutes for 
questions.
    Mr. Hall. Thank you, sir.
    Mr. Budetti, you mentioned the Recovery Audit Contractors, 
the RAC, how you are expanding that program into Medicaid, and 
I appreciate the fact that you and all the money you saved the 
government, all the fraud that they detect, and I see you as 
necessary with the abuse that is abound, and I have kind of a 
follow-up question to Dr. Christensen and Counsel McKinley.
    I have a company in my district that has been accused of 
owing multiple millions of dollars back to the government 
because RACs claimed that some of the services they provided 
were unnecessary, just some of the services. They are now 
working with CMS on a payment plan that they can afford if they 
ever get in front of a judge, and lawyers--and I also note that 
RACs are paid on commission. Is that correct?
    Dr. Budetti. The RACs are paid on a contingent-fee basis, 
yes, sir, so they only get to----
    Mr. Hall. Well, you know, that is one of the things that 
kind of got lawyers in trouble and probably brought about the 
tort reform, that they would file cases with little merit but 
an insurance company would pay it to save money by paying it 
and not having to go to court. And it has brought a lot of 
criticism for lawyers. I am a lawyer but I remember a story, if 
I might tell it. You know, in Orlando, if you have gone there, 
you land in an airplane and then you get on a train and you go 
on it to where the tickets are made there, Orlando, and going 
there the doors will close on you if you are not careful, and 
just before they closed one time, a guy hollered, I want you to 
know that I am a lawyer and just got my degree last Monday 
night, and then the doors closed and they went on down the 
tracks. Somebody said, I hate lawyers, they are all geeks, and 
another guy in the crowd said, I resent that. He said well, I 
am sorry, I didn't mean to offend you. He said I am not a 
lawyer, I am a geek.
    Something brought about bad things in the tort reform. 
Sometimes you know we do that. So I guess what I want to really 
ask you about, you acknowledge that part of your role is to 
strike an important balance to protect beneficiary access to 
necessary health care services and reduce the administrative 
burden on legitimate providers--I like that--while ensuring 
that the taxpayer dollars are not lost to fraud, waste and 
abuse, and I certainly support that. But what are some 
specific, concrete steps that CMS could take to work with 
legitimate providers who may inadvertently find themselves 
ensnared by some of these antifraud initiatives? I think there 
is a huge distinction that should be made between a provider 
who is committing fraud, for example, billing for services that 
weren't rendered, and just plain making a mistake, and that is 
the situation I have in East Texas where they have been called 
upon to make payments that they are unable to make now, and if 
they are not able to get to the legal service that can't reach 
them for over a year, they have nothing to do but to shut their 
doors, and they provide very wonderful services to people and 
they might have made a mistake but they need a way to pay their 
out of it or prove that they didn't make a mistake. And since 
you all are paid on commission, you are going to be filing 
those. I don't say that you just file anything that comes in 
the door but if you don't file, you are on a commission basis, 
you don't make any money if you don't file. Do you think this 
is the best way to pay these contractors?
    Dr. Budetti. Sir, the contingent-fee approach, of course, 
is a statutory requirement of the program.
    Mr. Hall. I know you didn't devise it, we devised it, but 
what do you think about----
    Dr. Budetti. But I will say that as I said before, about 
all of our programs, we want to get it right, and I think that 
one of the things that we are doing is greatly increasing our 
feedback to providers about exactly what the findings from the 
RAC program and what steps they can take to assure that they 
have the appropriate procedures in place in their billing and 
appropriate documentation and appropriate site of service so 
that we are giving them feedback. We are giving them 
comparative reports. We are giving them indications of what the 
RACs are finding and what the underlying data are behind what 
the RACs are allowed to look at by CMS. So we agree with you. 
We want the outreach to be even more successful in terms of 
educating the provider community, and we also want to be 
responsive to any specific problems like that and so again, 
sir, if there is something, a specific issue that you would 
like us to look into, we will be happy to do that, but we are 
building as much feedback as we can to try to make sure the 
program works as well as it can.
    Mr. Hall. But the alternative is to go to the courthouse, 
and these people can't get to the courthouse for a long time 
because of the loads of a particular area, the courts. So maybe 
I would like to talk to you sometime about that.
    My time is over. I thank the chairman.
    Mr. Pitts. The Chair thanks the gentleman, and that 
concludes the first round of questioning. We will go to one 
follow-up per side. Dr. Burgess, you are recognized 5 minutes 
for questions.
    Mr. Burgess. Thank you, Mr. Chairman.
    I think anyone who has watched this hearing this morning 
gets a sense of the enormous amount of time involved in all of 
these things, and what people have a hard time understanding is 
why it does take so much time. It takes the Government 
Accountability Office a little over a year to do a study and to 
deliver that back either to the legislative branch, where then 
it takes us time to come up with a legislative fix, or to the 
agency, and we see 3 years into the signing of the Affordable 
Care Act into law one out of seven of the antifraud provisions 
have actually been enacted, not to say that you are not working 
on the others but 3 years does seem like a long time frame, and 
I don't know what can be done to accelerate the process. I know 
when GAO gets a request from us, they want to do a good job. It 
does take time but somehow we need to make this all work and 
work to the extent that we are not just delivering money to 
organized crime.
    Let me just ask one last question, Dr. Budetti. To what 
extent are HHS and CMS using commercial public record database 
services such as those used by banks and retailers to verify 
the identity of providers and beneficiaries before claims are 
paid?
    Dr. Budetti. So we have put into place and are building a 
system that will be even more extensive than it has been in the 
past in terms of getting access to a variety of databases such 
as the ones that you refer to in order to verify the provider 
and supplier information and to identify them. That is part of 
the Automated Provider Screening System capabilities that we 
are continuing to build out, and it will allow us to look not 
just at licensure and Social Security death files and other 
things but also at a wider range of databases that we will have 
access to and the system is being used in specific ways right 
now and it will be phased in as the core way of enrolling 
providers. So on the enrollment and on the revalidation side, 
we are very definitely moving in that direction and we have 
already made a great deal of progress.
    Mr. Burgess. I assume at some point in the future it is 
going to be linked to payments and billing as well.
    Dr. Budetti. The Fraud Prevention System and the Automated 
Provider Screening System are specifically designed to be able 
to interact and talk to each other, if you will, so that the 
information we get from the one side can feed into the other 
side, and so yes, that is exactly the way that this is intended 
to operate.
    Mr. Burgess. Again, credit card companies figured this out 
25 years ago, and it seems like we ought to be farther along 
than we are now.
    Thank you, Mr. Chairman, for calling the witnesses. I will 
yield back my time.
    Mr. Pitts. The Chair thanks the gentleman and now 
recognizes the Ranking Member, Mr. Pallone, for a follow-up.
    Mr. Pallone. Thank you, Mr. Chairman.
    I wanted to ask Ms. King, we have heard in the past 
recommendations that CMS pilot or adopt certain technologies 
like smart cards, and I think Mr. Shimkus actually mentioned 
this. Since much of GAO's work centers around making sure that 
the government is prudently spending taxpayer dollars, I would 
like to ask you from the GAO perspective, what questions should 
CMS be asking before embarking on any activity that would give 
tens of millions and even billions perhaps of dollars to a 
handful of companies in one industry to create this technology? 
What would you recommend?
    Ms. King. Mr. Pallone, we have actually been asked to look 
into smart cards, and we have a request in-house that we hope 
to start soon, and I think from that, we should be able to 
answer some of those questions like what are the costs and 
benefits, what are the risks, what are the downsides to this. 
Because, you know, right now, as you know, Medicare has a paper 
card that displays the Social Security number, and we have 
recommended in the past that that be taken off of there, and 
CMS has estimated about $800 million to do that. We don't think 
that that estimate was credible and we asked them to do another 
one, but certainly any smart card effort would cost much more 
than replacing a paper card. So you are raising very legitimate 
questions, and we will be looking into it and advising both CMS 
and the Congress, we hope later this year.
    Mr. Pallone. Thank you.
    Can I ask Dr. Budetti, is there anything else that the 
committee or Congress should do to help you in your ongoing 
efforts or activities, if you just wanted to comment in 
general?
    Dr. Budetti. So Mr. Pallone, I appreciate the question and 
I have to say that we very much appreciate the support that the 
Congress has given us, and this is something that I think 
everybody agrees is important and so we will be delighted to 
continue to work with all the members on any ideas or any 
potential improvements that might come up. But we very much 
appreciate the support and the interest that is being shown in 
fighting fraud, waste and abuse because we all agree, this is a 
very important aspect of these programs, so thank you, Mr. 
Chairman, and thank you, Mr. Pallone.
    Mr. Pallone. I thank you and the whole panel, and I yield 
back, Mr. Chairman.
    Mr. Pitts. The Chair thanks the gentleman. The Chair thanks 
the panel for you testimony, for answering questions. It has 
been very informative. And at this time we will dismiss panel 
one and call panel two to the witness table, and I would like 
to thank the second panel for agreeing to testify before the 
subcommittee today, and I would like to quickly introduce our 
second panel as they come to the table.
    First, Mr. Darrell Langlois, Vice President of Compliance, 
Privacy and Fraud at Blue Cross and Blue Shield of Louisiana, 
and Mr. Thomas Green, Managing Partner of Greene LLP. Again, 
thank you all for coming. We have your prepared statements and 
they will be made a part of the record.
    Mr. Langlois, we will begin with you. You are recognized 
for 5 minutes to summarize your testimony.

  STATEMENTS OF DARRELL LANGLOIS, VICE PRESIDENT, COMPLIANCE, 
PRIVACY AND FRAUD, BLUE CROSS AND BLUE SHIELD OF LOUISIANA; AND 
         THOMAS M. GREENE, MANAGING PARTNER, GREENE LLP

                 STATEMENT OF DARRELL LANGLOIS

    Mr. Langlois. Thank you, Mr. Chair, Ranking Member Pallone 
and subcommittee members. I am Darrell Langlois, Vice President 
of Compliance and Privacy and Antifraud Activities with Blue 
Cross and Blue Shield of Louisiana. It is my pleasure to be 
here today to talk about a very important issue, and as I 
listened to the testimony and the conversation leading to this 
point, I want to tell you that health care fraud has far more 
reaching implications than simply the money and the dollars 
that are taken out of our system, and I would like to emphasize 
my testimony today on the fact that many times and at an 
alarming rate, we find that the health care fraud that takes 
place is beyond the dollar and it is impacting the patients, 
you know, your family, my family in ways that are 
unmentionable, and that I through the quality of care that is 
received that ultimately results in patient harm.
    In my 20-plus years of being in this field, working both 
nationally and locally, I can tell you I have been increasingly 
alarmed at what I have personally seen in my own State in cases 
that I have worked personally. These are not anecdotes. These 
are not stories read in the Wall Street Journal. These are 
stories and cases that I have worked personally, and it alarms 
me and concerns me, and I hope we talk a little bit about that 
today.
    My testimony is going to touch two broad topics: first, 
what my organization has done in this regard, and second, how 
the Affordable Care Act's MLR provisions are serving to limit 
and hold back some of the investment that has taken place in 
the past in respect to health care fraud.
    First, as far as my organization, we have structured a 
three-point strategy. It has evolved in the 20 years that I 
have been responsible for health care fraud at my organization, 
and is currently in this format. First, we believe that data is 
at the foremost and the forefront of what we must do. The 
implications, the indications and the analysis that must be 
done through data is apparent and foremost. The technology that 
is needed to ensure that we are successful in almost every turn 
in this regard is growing and evolving and some of it is there 
and available for us but we do need to see improvement in that 
area and we need to spend money in that area and we need to 
increase resources in that area to do some of the things that I 
think Representative Burgess and others have talked about in 
relation to other industries, how they have been more timely in 
that respect.
    The second is public and private partnerships. I have been 
fortunate to work very closely with the law enforcement 
entities in my State. I could name names and go on and on. But 
we have been one of two plans around this country that has been 
successful and be included in the government's HEAT cases there 
in the State of Louisiana, and that is a direct result of our 
willingness to work hand and hand with our public partners in 
this health care fraud fight, and we think that needs to 
continue.
    Finally, prepay is an avenue in which we must continue to 
follow. The pay-and-chase model has long been gone, long deemed 
unsuccessful, and I am proud and appreciative of the comments I 
have been hearing today, that that is something that no one is 
considering to be a success and no one is considering to be a 
strategy on a go-forward basis. We must keep the dollars out of 
the hands of those who are willing to defraud our system, and 
the best way to do that is to never pay the dollar in the first 
place on a prepay basis.
    The second part of my testimony is to address the MLR 
provisions of the Affordable Care Act. Today, as we understand 
it, only the recovery portions of what a private payer is able 
to recover are provided to us as a benefit in that calculation. 
As we have just said, prepay is where the strategy needs to be 
and where the focus needs to be. So to have a calculation that 
focuses on an antiquated or towards a strategy that no one 
wants to employ anymore seems to be something that we ought to 
consider changing. In that regard, we would offer that we 
broaden the perspective of what is allowed in this fight 
against health care fraud to something that is more than 
recoveries.
    Also, again, as I started my testimony, I mentioned to you 
that my alarming concern that I have seen in my 20-plus years 
of this has been around the quality-of-care issue. I can tell 
you about cases where patients have died. I can tell you about 
cases where I have spoken to family members who have had their 
family members irreparably harmed physically as a result of 
what physicians or other professionals have chosen to do in the 
name of seeking money. That is something that comes about 
through investigations and not solely in the quality 
improvement area, and I would encourage strongly that the 
committee and Congress consider that those are the things that 
improve our system and should be accounted for in our Medical 
Loss Ratio.
    That concludes my comments, and I will be prepared for any 
questions you may have.
    [The prepared statement of Mr. Langlois follows:]

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    Mr. Pitts. The chair thanks the gentleman, and Mr. Greene, 
you are recognized 5 minutes for opening statement.

                 STATEMENT OF THOMAS M. GREENE

    Mr. Greene. Thank you, Chairman Pitts, Ranking Member 
Pallone and members of this committee for inviting me to 
testify on innovations to fight fraud, waste and abuse. My name 
is Tom Greene, and my testimony today relates to my experience 
representing whistleblowers under the False Claims Act for more 
than 20 years. The vast majority of my False Claims Act cases 
have been in the health care industry. With respect to 
pharmaceutical marketing fraud litigation, I have also 
represented private payers including health insurance plans, 
Taft-Hartley funds and self-insured employers.
    I am pleased to be here today to speak about the False 
Claims Act, which is an excellent model of how the United 
States can foster innovation in fighting health care fraud, 
waste and abuse.
    The False Claims Act is a dynamic fraud-fighting machine 
which encourages the participation of insiders with knowledge 
of fraud and the management. That is really good for everyone. 
And because whistleblowers can pursue cases, even when the 
United States does not intervene, the False Claims Act can 
foster new ways of fighting health care fraud.
    When I first filed what was the first off-label promotion 
False Claims Act case in 1996, the government attorneys were 
not convinced of the viability of that theory and declined to 
intervene. But once that case was settled in 2004, it set a 
precedent that kicked off $14 billion in other recoveries. All 
told, since 1986, more than $24 billion has been recovered by 
the government for health care fraud cases under the False 
Claims Act, thanks largely to courageous whistleblowers who 
often risk their own financial security.
    Today I make three recommendations to improve the 
effectiveness of the False Claims Act. One is to clarify the 
pleading standard for such cases because many courts have 
applied the standard for common-law fraud. A second would be to 
do more to encourage States to enact false claims acts. And 
there is one more thing that Congress could do by addressing 
one impediment to investigation and pursuit of False Claims Act 
cases that attorneys in my position find particularly 
troubling. Although we are working on behalf of the United 
States when we pursue these cases, it is often very difficult 
to gain access to data from CMS. Such data can be critical to 
proving a False Claims Act case because many whistleblowers are 
in marketing, sales or servicing, and it is unusual for them to 
already have the data in hand when they come to the attorney. 
Some of these cases fail not because the fraud is uncertain but 
because we can't get CMS data. Frankly, it is ridiculous not to 
facilitate our access to CMS data when billions of taxpayer 
dollars hang in the balance.
    Marketing fraud by pharmaceutical companies accounts for 
more than half of the health care money recovered under the 
False Claims Act, especially through off-label promotion of 
drugs. False or fraudulent off-label promotion is a serious 
problem which costs taxpayers billions of dollars through the 
payment of increased health insurance premiums, and this 
serious problem needs to be addressed by Congress, in part 
because private payers don't have a fraud-fighting tool as 
potent as the False Claims Act.
    Now, I believe that fraudulent pharmaceutical marketing can 
be stopped before it starts in five ways. First, fraudulent 
pharmaceutical marketing could be deterred by giving private 
payers a right of action because currently they are left to use 
ill-fitting options like RICO or patchworks of State laws. 
Second, marketing fraud can be deterred by giving teeth to the 
FDA Amendments Act clinical trial registration requirement. 
Third, it could be deterred by threatening the forfeiture of 
Hatch-Waxman Act patent extensions for particular drugs. As you 
know, these extensions are granted in part for cooperation with 
the FDA approval process. When drug companies do end runs 
around the FDA through off-label promotion, drug companies 
should forfeit these extensions. Fourth, pharmaceutical 
marketing fraud could also be deterred by making sure that 
pharmaceutical executives have some skin in the game 
personally. And lastly, I would like to recommend that Congress 
eliminate the incentives for medical device manufacturers to 
play games with the 510(k) approval process, which could be 
done by amending the Social Security Act to forbid 
reimbursement of off-label medical devices except in certain 
circumstances.
    I would be happy to expand on any of these issues that I 
have commented on this morning, and there is additional detail 
in my written testimony.
    I would like to thank you, Chairman Pitts and Ranking 
Member Pallone, for this opportunity to testify, and I am glad 
to respond to any questions that you might have.
    [The prepared statement of Mr. Greene follows:]

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    Mr. Pitts. The chair thanks the gentleman. I will now begin 
questioning and recognize myself 5 minutes for that purpose.
    Mr. Langlois, your testimony describes many of the 
important investment plans to prevent fraudulent payments and 
improve quality so you can attract customers. I would like to 
ask you to expound on this some more. If a plan expands its 
provider network based on their customers' desire to receive 
care from a particular doctor or physician practice, does the 
MLR classify the associated cost as an administrative expense 
and doesn't this penalize a plan for expanding consumer choice 
in doctors and providers?
    Mr. Langlois. It is my understanding that that is an 
administrative expense, and as such would have to factor into 
the overall cost of our products and the overall cost of health 
care, which would serve as the--as the costs go higher would 
serve to limit choices for our customers and those who 
participate in the program.
    Mr. Pitts. Now, plans often work to ensure that health care 
practitioners are properly credentialed to provide care. Are 
these quality-enhancing activities punished by the MLR rule?
    Mr. Langlois. Again, it is my understanding that those are 
considered administrative costs, which do not benefit that 
calculation and would serve to discourage to the extent it 
doesn't make reasonable sense to the organization, would 
discourage them from participating in that activity at some 
reasonable level.
    Mr. Pitts. So it would penalize a plan for ensuring 
credential providers are serving their customers?
    Mr. Langlois. Yes, sir.
    Mr. Pitts. Now, these are necessary and non-negotiable 
costs that we all want to encourage health plans to incur, and 
clearly are not the kinds of costs that Congress wants to 
curtail. Network expansion and credentialing providers are 
critically important and beneficial to customers, to consumers, 
and clearly enhances value for their premium dollars. I am not 
sure, by why is HHS classifying these expenses as 
administrative when they are expended specifically to improve 
the quality of a network that a patient can access?
    Mr. Langlois. I am afraid I don't have the answer to that 
question as I did not participate in the process.
    Mr. Pitts. Now, in your testimony, you write that ``The MLR 
regulations' treatment of fraud prevention expenses works at 
cross purposes with efforts by the Federal Government to 
emulate successful private sector programs.'' Could you expound 
on these comments?
    Mr. Langlois. Sure. As an organization under the current 
MLR calculation chooses to spend money or no spend money as it 
works today, if they choose to spend money and invest in this 
critical function, every dollar they spend works against them 
in the calculation of the MLR. Therefore, a choice has to be 
made according to many factors by those who have the 
opportunity to spend that money and they have to make it in 
spite of the fact that it is going to work against them in the 
MLR calculation knowing that it could be better for the 
organization and its members to go ahead in the money. My 
recommendation, of course, would be to take away that cross-
purpose and make it a dual win-win. Let us not only spend the 
money in a manner that is beneficial to the system and for our 
customers but let us also let it work for us during the MLR 
calculation, which serves to better our system overall.
    Mr. Pitts. Now, there remains significant interest in 
Congress about antifraud efforts in Medicare and Medicaid. We 
just heard from the Administration that fighting fraud in 
Medicare was a key goal of the Administration. Yet the MLR 
regulation excludes health plan investments and initiatives to 
prevent fraud from those activities that improve health care 
quality. Does this create a perverse incentive in the 
commercial insurance market to tackle fraud on the pay-and-
chase side rather than the prevention side just at a time when 
CMS is stepping away from the pay-and-chase model?
    Mr. Langlois. It certainly seems that way. Again, as I 
testified a few minutes ago, recovery processes are the old way 
of doing things, and for the calculation of the MLR to only 
afford a benefit in that regard does seem to be outdated and 
something that should be seriously considered to be changed. 
That is by far a method and an approach that my peers and this 
industry are going away from as quickly as possible for many 
reasons, but certainly I think that should change in our 
calculation.
    Mr. Pitts. Finally, members from both sides of the aisle 
have stated that Congress should promote policies that 
encourage young people to purchase health coverage. However, 
doesn't the MRI penalize enrolling young and healthy 
individuals in health plans since doing so makes complying with 
the MLR standard more difficult?
    Mr. Langlois. If you consider from the perspective that if 
the MLR calculation continues as it is and that continued 
investment in fraud or the lack thereof allowing fraud to 
further be perpetrated into larger extent, that will serve only 
to increase the overall cost of health care fraud, and we know 
that that is the primary factor for the young in which to 
engage and participate in the health system. So for those 
reasons, as you mentioned, I would say the answer is yes.
    Mr. Pitts. Thank you. My time is expired. The Chair 
recognizes the ranking member, Mr. Pallone, 5 minutes for 
questions.
    Mr. Pallone. Thank you, Mr. Chairman.
    A question for Mr. Langlois. You spoke in your testimony 
about concerns about the way antifraud activity is counted as 
part of the Affordable Care Act provisions for calculation of 
the MLR. But didn't NAIC, the National Association of 
Insurance--well let me ask you this. The Administration felt 
like it was taking a balanced approach in this, giving credit 
for dollars recovered but not for fraud prevention activity, 
and based on information on the Blue Cross and Blue Shield of 
Louisiana Web site, it looks like your return on investment for 
fraud-related activity is on the order of 10 to one. So the 
National Association of Insurance Commissioners, didn't they 
support this compromise regarding fraud and abuse work at the 
MLR?
    Mr. Langlois. I am not sure I understand.
    Mr. Pallone. The NAIC, which is the National Association of 
Insurance Commissioners, they supported this compromise, the 
idea that--I mean, I am asking you if they did--my 
understanding is that they did--that, you know, we take this 
balanced approach where you give credit for dollars recovered 
but not for fraud prevention activity, and my understanding is 
that they supported that balanced approach. Is that true, and 
is that a factor in the fact that you have this high return on 
investment for fraud-related activity?
    Mr. Langlois. I think I have two responses to the question. 
First of all, I have worked somewhat with the NAIC on an 
unofficial basis. We happen to be at the same location, and a 
gentleman was speaking on this very issue, and I made the same 
comments that I am making here today to him and asked if there 
could be reconsideration. I am not aware and did not 
participate in any request for it to be a balanced approach and 
that this was the result of that, but I will say that in my 
speaking directly to the NAIC on this matter, I have echoed the 
same comments I made today. They seemed receptive but of course 
indicated that there would be have to be further evaluation 
before any changes could be made.
    As to the dollars that you reference on our Web site about 
our activities, those dollars are largely not on a recovery 
basis. Those dollars are largely saved on a prepay basis and 
depends from year to year times and cases and situations will 
adjust to be flexible from year to year but the recoveries are 
not solely represented by the number you read. Those are a 
function, an aggregation of all savings that our office works 
towards.
    Mr. Pallone. Well, let me ask you this. Has Blue Cross and 
Blue Shield of Louisiana had to cut back on any of its 
antifraud activities as a result of the MLR requirements? Have 
you had to make any cutbacks?
    Mr. Langlois. Could I ask you to ask the question one more 
time? I missed the first part.
    Mr. Pallone. In other words, has Blue Cross and Blue Shield 
of Louisiana had to cut back on any of its, you know, basically 
reduce any of its antifraud activities as a result of the MLR 
requirements?
    Mr. Langlois. You know, the word ``cutback'' would seem 
to----
    Mr. Pallone. Or to reduce.
    Mr. Langlois. To reduce, and I would say that where we are, 
we have held steady. The organization has recognized since 1990 
that health care fraud is a problem and as such its investment 
has held steady, but as I mentioned earlier----
    Mr. Pallone. But then you haven't had to cut back or reduce 
as a result of that requirement?
    Mr. Langlois. We have not been allowed to go forward. We 
have not cut back but we have not been allowed to move forward 
with investments that are necessary as the technology 
increases, and we have been looking at technology that is 
something that we believe is needed but has been unable t move 
forward at this point.
    Mr. Pallone. I mean, I am just trying to point out that the 
NAIC, which represents the Nation's insurance commissioners, 
agrees with the current MLR calculation with respect to fraud.
    Let me ask you one more thing. You know, I was excited to 
learn about your participation in the Health Care Fraud 
Prevention Partnership being led by the Secretary and the 
Attorney General, and are there any activities being undertaken 
by CMS that you think have been particularly helpful or 
supportive of your efforts? Let me ask you that.
    Mr. Langlois. Actually, there was one initiative that I was 
a participant in with a small number of people that I looked up 
very fondly and was very hopeful that the process would carry 
out. As you might imagine, there are times when CMS recognizes 
that a provider is engaged in an activity that is worthy of 
their attention and so they will place a stop-payment or a hold 
on that provider until they can better determine what is taking 
place. There is a ton of Medicare supplemental private products 
that are on the market which my organization also sells. When 
CMS previously was stopping these payments, we were not made 
aware so a payment claim filed by a provider may not have made 
its way through CMS but was being passed on to us as the 
private supplemental payer and we were unaware of the activity 
that was taking place. There was an initiative that was begun 
to where that information could be shared, and as a result that 
provider would not see payments that could potentially have 
been fraudulent either from CMS or us, and I was very 
appreciative and fond of that process. Unfortunately, I think 
at this point the process hasn't made its way to fruition but 
we are hopeful that it will, and that was one that I very much 
looked forward to.
    Mr. Pallone. Thank you. Thank you, Mr. Chairman.
    Mr. Pitts. The Chair thanks the gentleman and now 
recognizes the vice chair, Dr. Burgess, 5 minutes for 
questions.
    Mr. Burgess. Thank you, Mr. Chairman, and Mr. Langlois and 
Mr. Greene, thank you both for being here today. I appreciate 
your time spent with the committee.
    Let me ask you as a representative of a private insurance 
company. You have heard the discussion and the size, the number 
of dollars that are involved at CMS in fraudulent or 
inappropriate transfers of funds. Do you have anything 
approaching that in the Blue Cross Blue Shield world?
    Mr. Langlois. As to an evaluation of what those numbers 
are? Unfortunately, the best measure we have at this point is, 
we work very closely with the other antifraud activities around 
the country, both on the private side, and we also recognize 
the CMS side, and we measure our success according to what we 
are seeing other payers execute in the antifraud world. I get 
asked the question a lot, and I know it is maybe not the 
greatest of answers but I will tell you, do we know at any 
particular time how many people are speeding down the 
interstate, and the answer is, we don't, but we know it is 
happening and it is impossible to gauge that. So I don't have 
that but I can tell you that the returns on investments that we 
have been turning in the last 20 years has not slowed down, has 
increased, and again, I would just emphasize the stories and 
the cases we are seeing around quality have really brought an 
alarming sense to us.
    Mr. Burgess. Give us a sense of what you are talking about 
there. Can you give us an example?
    Mr. Langlois. In the quality?
    Mr. Burgess. Yes.
    Mr. Langlois. Real quickly, there are three cases that 
recently resulted in the State of Louisiana. The first was a 
cardiologist who in the name of money was placing stents in 
patients who had no business undergoing a knife or any 
surgeries at all. We testified. This was a great public-private 
collaboration. We as victims were brought in this case. The 
government was brought as a victim in this case. We both 
testified, and the cardiologist recently was ordered to head to 
prison just before Christmas 2012. There were millions of 
dollars involved, and as I spoke at a meeting in that area, I 
had a family member step up and said I just wanted to let you 
know that my brother was one who was unnecessarily operated on 
and was now irreparably harmed.
     This was not identified in a quality improvement program. 
This was not identified by a group of nurses who sit in the 
back of a particular area and work on a diabetic approach with 
someone. This was identified through hard-nosed investigative 
efforts both at the public side and the private side, and we 
brought it to bear. In another example, we had----
    Mr. Burgess. Let me stop you there for just a second, and I 
do want to hear your second example, but in the private 
insurance world, somebody is going to call a 1-800 number 
somewhere and get preauthorization for that procedure, are they 
not?
    Mr. Langlois. Yes, and in this instance, the cardiologist 
was willing to provide the information that would make that 
appropriate yes answer on the pre authorization. He was capable 
of giving the information that made that appropriate when in 
fact the information was not accurate. He owned not only the 
cardiology clinic but he owned the lab in which those 
diagnostic-type studies were done to justify the surgery in the 
first place, and he forged that information necessary to make 
the surgery.
    Mr. Burgess. Well, do you feel that that is something--I 
mean, was this just a one-off where one person is performing 
this or do you feel that there is a larger problem there?
    Mr. Langlois. No, you will find if you read the literature 
among the government health care fraud and you talk to others, 
I believe previous testimony was heard by Alanna Lavelle at 
WellPoint. She spoke about cardiology and stent procedures in 
her world, and she does not do business in Louisiana, so 
clearly this is not a perception or a one-off situation.
    Mr. Burgess. And what have you done as an industry to more 
carefully define and refine that so that you not only prevent 
the inappropriate transfer of funds but you also prevent the 
inapt delivery of care? I mean, basically that is up-selling 
someone who came in with a problem that was not of cardiac 
origin who then got a cardiac procedure. Am I correct?
    Mr. Langlois. Correct. The use of data analysis, again, the 
three points I talked about earlier, use of data analysis, the 
direct collaboration with the Federal Government and reviewing 
things on a more prepayment basis in refining those. We talked 
about--I was asked the question, have we cut back. We haven't 
cut back but of course we haven't extended forward the way we 
want to. If I were still doing the things 20 years ago today as 
I was doing then, I wouldn't be successful. We have had to 
evolve and move forward, and not being able to do that is some 
ways hurtful.
    Mr. Burgess. Give us quickly your other example.
    Mr. Langlois. Of course, this is throughout the country and 
probably throughout the world, but we had an internal-medicine 
practitioner who was willing to dole out OxyContin and various 
other controlled substances to patients despite in his own 
practice he had newspaper articles that articulated that his 
patients were distributing the same drugs he was prescribing on 
the street yet he continued to prescribe those drugs. There 
were at least eight deaths associated with overdosages and 
other things to the point that one of his patients actually 
sold the drug to another individual, who died as a result. So 
it wasn't even a patient of that doctor, yet death followed his 
prescription onto another unsuspecting individual. That 
individual has currently lost his license and is serving 16 
years in federal prison, again, another collaborative effort 
between public and private, not identified in a quality 
improvement arena, rather identified in an investigation angle, 
but certainly taking a bad doctor out of the system that we all 
had to pay for.
    Mr. Burgess. Thank you, Mr. Chairman. I will yield back.
    Mr. Pitts. The Chair thanks the gentleman and now 
recognizes the gentlelady, Dr. Christensen, 5 minutes for 
questions.
    Mrs. Christensen. Thank you, Mr. Chairman.
    Mr. Greene, I wanted to ask some questions around your 
testimony. Since 1986, over $35 billion, I understand, has been 
recovered through the False Claims Act for the government, and 
the majority of those recoveries come, as you have stated, as a 
result of whistleblower-initiated cases, health care-related 
recoveries from pharmaceutical companies, hospitals and 
clinical laboratories. Can you give us a few brief examples of 
what some of the kind of fraud involved were involved in those 
cases, and what other kind of cases other than the 
pharmaceutical, which you said represented the vast majority of 
dollars, what other kinds of cases have successfully returned 
money to the States or Federal Government?
    Mr. Greene. I can, and I touch on this in more detail in my 
written testimony but I can summarize here. First, I would like 
to say that the majority of health care recoveries under the 
False Claims Act come from whistleblower-initiated qui tam 
cases rather than cases initiated by the government. Qui tam 
cases outnumber the ones initiated by the government by five to 
one. Health care cases under the False Claims Act come in many 
different forms. You might have a hospital or nursing home that 
up-codes claims to get higher reimbursements or for billing 
services that were not actually performed, testing labs cause 
billing for unnecessary lab tests or again for tests not 
performed. There are cases that are based on violation of the 
Anti-Kickback statute or the Stark law where physicians are 
getting illicit payments or benefits for lucrative self-
referrals. Durable-equipment companies bill for equipment that 
was never delivered, and you can have medical supply companies 
that can be the basis for actionable fraud. One of my cases was 
just recently unsealed. It involves unnecessary delivery of 
oxygen supplies. So really, there are many different types of 
cases. Somebody usually sees this fraud occur and sometimes 
someone will step forward and blow the whistle.
    Mrs. Christensen. You know, and while the False Claims Act 
specifically deals with getting money back to the government, 
it seems to me that private payers, insurance companies, 
employer benefit plans can be equally victimized by these 
fraudulent practices, and I think we have heard some of that 
already in the testimony. Can you please elaborate on how 
private parties are affected and what recourse they have at 
this time?
    Mr. Greene. Well, I will start off by saying private payers 
don't have the potent tool, the False Claims Act, that the 
Federal Government has, but yet they can be the victim of 
frauds, they can be the victim of medical tests or products 
that are ordered as a result of kickbacks. Really, what they 
are faced with, the only thing they can rely on really are 
patchwork of State laws or RICO claims, and those are 
imperfect. If Congress would consider pass a private right of 
action, that might give private payers like Blue Cross sitting 
here at the table an opportunity to recover the costs that they 
spent as a result of fraud. Like I say, it has been difficult 
to try to put together a large group of health insurance plans 
across the country to bring these cases in the form of class 
actions. Courts are not always receptive to that, again, 
because of the patchwork of State laws that these claims are 
brought under or RICO. I think if we had a private right of 
action for third-party payers that perhaps offered double 
damages and an attorney fee-shifting provision, that would 
begin to give private payers the tools that they would need to 
recover some of the monies they have lost as a result of fraud.
    Mrs. Christensen. Mr. Langlois, I think you have answered 
most of my questions around MLR and the public-private 
partnership, so I don't know if you want to comment on the last 
question around False Claims Act not, you know, being an avenue 
where companies such as yours might be able to recover.
    Mr. Langlois. It is a great question, and I appreciate you 
bringing it up, and I respect Mr. Greene for his attempt to 
benefit us. We identified 2 years ago in my State, particularly 
myself and a State senator of Louisiana, the need for this, and 
we in the last legislative session actually passed a false 
claim trouble damage act provision at the State law level that 
allows whenever I am a victim of a health care fraud to bring 
about damages and penalties to those who do such similar to the 
federal level.
    Now, the way it works--and I won't belabor this point--but 
the way it works is, I retain the monies that I was a victim of 
and lost. The second and third level of payment from the 
trouble damage calculation returns to the State in its effort 
to fight and better fund health care fraud efforts. So I very 
much appreciate the point he made and I do think that there are 
opportunities there.
    Mr. Pitts. The Chair thanks the gentlelady and now 
recognizes the gentleman from Virginia, Mr. Griffith, 5 minutes 
for questions.
    Mr. Griffith. I guess my concern relates to the lawsuit 
type, and Mr. Greene, I am going to ask you, I know you are 
trying to ferret out people who are doing things that are just 
fraudulent outright but don't you think it might have a 
chilling effect on those folks who are using an off-label use 
in cases with patients who might have severe illnesses such as 
AIDS, rare diseases, cancer, etc.? Don't you think that if you 
take that too far that you can actually hurt some of the 
patients who may need an off-label use?
    Mr. Greene. Well, I think what you are pointing out, and I 
recognize and of course courts recognize that physicians have 
and will always have the right based on the exercise of their 
independent medical judgment to prescribe a drug for an off-
label use. There is nothing wrong with that.
    Mr. Griffith. But here comes the question, based on your 
written testimony. The question then becomes, though, that as I 
understand your testimony, your written forms says that if a 
company, though, has a study that says you can use this for a 
rare form of cancer and that some doctors have found it 
successful, that they may then open themselves up if the 
pharmaceutical--because if I am treating somebody in Abington, 
Virginia, I may not know that somebody in California or New 
York was successfully using-another physician was using an off-
label drug to successfully treat this particular condition or 
disease that may be very severe. How am I supposed to find that 
out if the pharmaceutical company is barred from sending out 
the information?
    Mr. Greene. Well, they are not barred from sending out the 
information, Doctor.
    Mr. Griffith. I am not a doctor; I am a lawyer.
    Mr. Greene. Sorry. There are guidances and guidelines that 
allow the dissemination of scientific articles. What I am 
talking about is fraudulent promotion of off-label uses. What I 
am talking about is when a drug company comes up with a 
marketing strategy that is signed off by the president of the 
company, as was the marketing for Neurontin, that they are 
going to do an end run around the FDA approval process and they 
are only going to publish positive results, not negative. So we 
are talking about fraud. We are not talking about interfering 
with a physician's right to prescribe off-label. We are not 
talking about a drug company's right to disseminate truly 
scientific articles that talk about off-label uses provided 
they comply with safe harbors.
    Mr. Griffith. And I appreciate that and understand the 
distinction. Now, as I was reading this and listening to it, 
one of the things that I noticed was, you talked about how much 
money was recovered on the Neurontin. Is that how you say it?
    Mr. Greene. Yes, sir.
    Mr. Griffith. I am just curious how many folks were 
negatively impacted. Were there deaths? Because I am not 
familiar with that.
    Mr. Greene. I don't have the----
    Mr. Griffith. Were there deaths?
    Mr. Greene. --answer to that question.
    Mr. Griffith. Do you know if there were deaths?
    Mr. Greene. There were.
    Mr. Griffith. There were?
    Mr. Greene. There were. Keep in mind, with regard to 
Neurontin, the FDA, it was approved for adjunctive therapy for 
epilepsy in December of 1993, and the FDA told the company back 
in 1992 when they looked at the clinical trial data that it 
showed that the subjects were suffering from depression, 
suicidal ideation, and it can lead to suicide, and the FDA told 
the drug company that this drug will have a limited widespread 
usefulness. But they approved it as adjunctive therapy for 
epilepsy. What did the company do? It turned around and it 
marketed it to bipolar patients. That was off-label, and they 
never disclosed what the FDA had pointed out to them.
    Mr. Griffith. So as you send out the positive and the 
negative? You are not against pharmaceutical companies sending 
out articles that highlight that this might also be helpful in 
some other disease area but that, you know, here is what we 
have got thus far?
    Mr. Greene. Provided they comply with the safe harbor 
guidelines. They can do that. They can disseminate truly 
scientific articles that describe accurately the results of 
their clinical research. The FDA has given them a safe harbor 
to do that. That is not fraudulent promotion.
    Mr. Griffith. All right. I thank you. I have 30 seconds if 
anybody wants it. I yield back.
    Mr. Pitts. The Chair thanks the gentleman. The Chair thanks 
the second panel for your testimony, and I remind members that 
they have 10 business days to submit questions for the record, 
and I ask the witnesses to respond to the questions promptly. 
Members should submit their questions by the close of business 
on Wednesday, March 6.
    Without objection, the subcommittee is adjourned.
    [Whereupon, at 12:40 p.m., the subcommittee was adjourned.]
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