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


KEEPING THE PROMISE: HOW BETTER MANAGING MEDICARE CAN PROTECT SENIORS' 
                      BENEFITS AND SAVE THEM MONEY

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

                                HEARING

                               BEFORE THE

                         SUBCOMMITTEE ON HEALTH

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 4, 2014

                               __________

                           Serial No. 113-123
                           
                           
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]                           


      Printed for the use of the Committee on Energy and Commerce

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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               FRANK PALLONE, Jr., New Jersey
JOSEPH R. PITTS, Pennsylvania        BOBBY L. RUSH, Illinois
GREG WALDEN, Oregon                  ANNA G. ESHOO, California
LEE TERRY, Nebraska                  ELIOT L. ENGEL, New York
MIKE ROGERS, Michigan                GENE GREEN, Texas
TIM MURPHY, Pennsylvania             DIANA DeGETTE, Colorado
MICHAEL C. BURGESS, Texas            LOIS CAPPS, California
MARSHA BLACKBURN, Tennessee          MICHAEL F. DOYLE, Pennsylvania
  Vice Chairman                      JANICE D. SCHAKOWSKY, Illinois
PHIL GINGREY, Georgia                JIM MATHESON, Utah
STEVE SCALISE, Louisiana             G.K. BUTTERFIELD, North Carolina
ROBERT E. LATTA, Ohio                JOHN BARROW, Georgia
CATHY McMORRIS RODGERS, Washington   DORIS O. MATSUI, California
GREGG HARPER, Mississippi            DONNA M. CHRISTENSEN, Virgin 
LEONARD LANCE, New Jersey                Islands
BILL CASSIDY, Louisiana              KATHY CASTOR, Florida
BRETT GUTHRIE, Kentucky              JOHN P. SARBANES, Maryland
PETE OLSON, Texas                    JERRY McNERNEY, California
DAVID B. McKINLEY, West Virginia     BRUCE L. BRALEY, Iowa
CORY GARDNER, Colorado               PETER WELCH, Vermont
MIKE POMPEO, Kansas                  BEN RAY LUJAN, New Mexico
ADAM KINZINGER, Illinois             PAUL TONKO, New York
H. MORGAN GRIFFITH, Virginia         JOHN A. YARMUTH, Kentucky7
GUS M. BILIRAKIS, Florida
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
ED WHITFIELD, Kentucky               JOHN D. DINGELL, Michigan
JOHN SHIMKUS, Illinois               ELIOT L. ENGEL, New York
MIKE ROGERS, Michigan                LOIS CAPPS, California
TIM MURPHY, Pennsylvania             JANICE D. SCHAKOWSKY, Illinois
MARSHA BLACKBURN, Tennessee          JIM MATHESON, Utah
PHIL GINGREY, Georgia                GENE GREEN, Texas
CATHY McMORRIS RODGERS, Washington   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. Henry A. Waxman, a Representative in Congress from the State 
  of California, opening statement...............................     5
Hon. Fred Upton, a Representative in Congress from the State of 
  Michigan, prepared statement...................................    49

                               Witnesses

Kathleen King, Director, Health Care U.S. Government 
  Accountability Office..........................................     7
    Prepared statement...........................................     9
James Cosgrove, Director, Health Care U.S. Government 
  Accountability Office..........................................    25
    Prepared statement...........................................     9
Robert Vito, Regional Inspector General for Evaluation and 
  Inspections, Office of Inspector General, U.S. Department of 
  Health and Human Services......................................    25
    Prepared statement...........................................    27

 
                    KEEPING THE PROMISE: HOW BETTER 
                     MANAGING MEDICARE CAN PROTECT
                 SENIORS' BENEFITS AND SAVE THEM MONEY?

                              ----------                              


                         TUESDAY, MARCH 4, 2014

                  House of Representatives,
                            Subcommittee on Health,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10:00 a.m., in 
room 2123, Rayburn House Office Building, Hon. Joseph R. Pitts 
(chairman of the subcommittee) presiding.
    Present: Representatives Pitts, Shimkus, Murphy, Gingrey, 
Bilirakis, Pallone, Barrow, Christensen, and Waxman (ex 
officio).
    Staff Present: Clay Alspach, Counsel, Health; Sean Bonyun, 
Communications Director; Noelle Clemente, Press Secretary; 
Sydne Harwick, Legislative Clerk; Sean Hayes, Counsel, O&I 
Katie Novaria, Legislative Clerk; Christopher Pope, Fellow, 
Health; Chris Sarley, Policy Coordinator, Environment and 
Economy; Heidi Stirrup, Health Policy Coordinator; Josh Trent, 
Professional Staff Member, Health; Tom Wilbur, Digital Media 
Advisor; Ziky Abablya, Minority Staff Assistant; Kaycee 
Glavich, Minority GAO Detailee; Amy Hall, Minority Senior 
Professional Staff Member; Karen Lightfoot, Minority 
Communications Director and Senior Policy Advisor.

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.
    In fiscal year 2014, the Medicare program will cover nearly 
54 million Americans, and the Congressional Budget Office, CBO, 
estimates that total Medicare spending will be approximately 
$603 billion, $591 billion of which will be spent on benefits. 
According to the Department of Health and Human Services fiscal 
year 2013 Agency Financial Report, the improper payment rate 
for Medicare fee-for-service, FFS, was 10.1 percent last year.
    Adding in the improper payments for Parts C and B with 
error rates of 11.4 percent and 3.1 percent respectively, 
improper payments totaled over $49.8 billion. Independent 
estimates of the real costs of waste, fraud and abuse in 
Medicare are much higher.
    Why are these figures important? The Medicare Trust Fund is 
set to go bankrupt sometime in the next decade. Absent 
congressional action, the Congressional Research Service, CRS, 
has stated Part A benefits cannot be paid out while the trust 
fund is insolvent. That is simply unacceptable. We cannot 
afford a future where our seniors' hospital bills go unpaid. 
Every taxpayer dollar must be protected.
    Some of my colleagues have suggested that merely 
eliminating the multibillion dollar losses due to inefficiency 
and fraud will alone fix the insolvency problem. That claim is, 
frankly, false. While reducing waste, fraud, and abuse, and 
managing the program more effectively, should be an 
administration priority, that alone is not enough to address 
Medicare's spending problem. However, critics are correct that 
a congressional solution is needed. We must do everything in 
our power to safeguard the money in the trust fund until such 
time as Congress accepts its responsibility to make structural 
changes to save the program for the millions who depend on it.
    Medicare uses a variety of contractors to assist in paying 
provider claims, delivering benefits and carrying program 
integrity and oversight functions. Many of these contractors 
have valuable experience fighting fraud efficiently managing 
health insurance programs. Yet sometimes Federal law or 
administrative barriers prevent us from using their expertise 
to prevent waste, fraud, and mismanagement in the Medicare 
program. Other times, all that is missing is a dose of common 
sense and leadership.
    This committee has, for years, studied the problem and 
reviewed potential new programs to help CMS fight waste, fraud, 
and abuse. This is not one of these hearings. Today's hearing 
is an opportunity to hear from experts about the challenges CMS 
faces in administering the program. In fact, today's hearing is 
a first step toward a broader long-term effort to build 
consensus about the best ways to modernize the Medicare program 
in its management, operations, and accountability. And the best 
way to strengthen Medicare is to help improve and modernize the 
business model of the agency that oversees the Medicare 
program, CMS.
    The purpose of today's hearing is to examine how CMS 
currently uses and oversees these contractors to lessen program 
vulnerabilities and protect seniors' benefits by increasing 
accountability and cost-effectiveness. Long term, I hope to 
work with my colleagues to identify barriers in Federal law and 
within CMS itself that prevent contractors from fighting waste, 
inefficiency, fraud, and abuse, and I hope we will address 
them.
    I am pleased to have witnesses from both GAO and the HHS 
OIG with us today to discuss the types and functions of 
Medicare contractors and how the program can better manage them 
to meet its goals. I would note that the HHS OIG is releasing 
two new reports today on these topics, and I look forward to 
the testimony of all of our witnesses.
    With that, I will yield back and recognize the ranking 
member of the subcommittee, Mr. Pallone, for 5 minutes for an 
opening statement.
    [The prepared statement of Mr. Pitts follows:]

               Prepared statement of Hon. Joseph R. Pitts

    The subcommittee will come to order.
    The chair will recognize himself for an opening statement.
    In Fiscal Year 2014, the Medicare program will cover nearly 
54 million Americans, and the Congressional Budget Office (CBO) 
estimates that total Medicare spending will be approximately 
$603 billion; $591 billion of which will be spent on benefits.
    According to the Department of Health and Human Service's 
(HHS) FY2013 Agency Financial Report, the improper payment rate 
for Medicare fee-for-service (FFS) was 10.1% last year. Adding 
in the improper payments for Parts C and D, with error rates of 
11.4% and 3.1%, respectively, improper payments totaled over 
$49.8 billion.
    Independent estimates of the real cost of waste, fraud, and 
abuse in Medicare are much higher.
    Why are these figures important?
    The Medicare Trust Fund is set to go bankrupt sometime in 
the next decade. Absent Congressional action, the Congressional 
Research Service (CRS) has stated Part A benefits cannot be 
paid out while the Trust Fund is insolvent.
    That is simply unacceptable. We cannot afford a future 
where our seniors' hospital bills go unpaid. Every taxpayer 
dollar must be protected.
    Some of my colleagues have suggested that merely 
eliminating the multi-billion dollar losses due to inefficiency 
and fraud will alone fix the insolvency problem.
    That claim is, frankly, false.
    While reducing waste, fraud, and abuse-and managing the 
program more effectively-should be an Administration priority, 
that alone is not enough to address Medicare's spending 
problem.
    However, critics are correct that a Congressional solution 
is needed.
    We must do everything in our power to safeguard the money 
in the Trust Fund, until such time as Congress accepts its 
responsibility to make structural changes to save the program 
for the millions who depend on it.
    Medicare uses a variety of contractors to assist in paying 
provider claims, delivering benefits, and carrying out program 
integrity and oversight functions.
    Many of these contractors have valuable experience fighting 
fraud and efficiently managing health insurance programs. Yet 
sometimes federal law or administrative barriers prevent us 
from using their expertise to prevent waste, fraud, and 
mismanagement in the Medicare program.
    Other times, all that is missing is a dose of common sense 
and leadership.
    This Committee has for years studied the problem and 
reviewed potential new programs to help CMS fight waste, fraud, 
and abuse.
    This is not one of these hearings.
    Today's hearing is an opportunity to hear from experts 
about the challenges CMS faces in administering the program.
    In fact, today's hearing is a first step toward a broader 
long-term effort to build consensus about the best ways to 
modernize the Medicare program--in its management, operations, 
and accountability.
    And the best way to strengthen Medicare is to help improve 
and modernize the business model of the agency that oversees 
the Medicare program: CMS.
    The purpose of today's hearing is to examine how CMS 
currently uses and oversees these contractors to lessen program 
vulnerabilities and protect seniors' benefits by increasing 
accountability and cost-effectiveness.
    Long term, I hope to work with my colleagues to identify 
barriers in federal law and within CMS itself that prevent 
contractors from fighting waste, inefficiency, fraud, and 
abuse-and I hope we will address them.
    I am pleased to have witnesses from both GAO and the HHS 
OIG with us today to discuss the types and functions of 
Medicare contractors and how the program can better manage them 
to meet its goals.
    I would note that the HHS OIG is releasing two new reports 
today on these topics, and I look forward to the testimony of 
all of our witnesses.
    Thank you.

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

    Mr. Pallone. Thank you, Mr. Chairman, for holding today's 
hearing on the management of Medicare.
    For nearly 50 years, Medicare has served as the bedrock 
program for our Nation's seniors and disabled. What started as 
a basic benefit covering hospital stays and doctors' visits has 
continuously evolved and now encompasses comprehensive health 
care coverage that millions rely on. But in order to build upon 
the promise of the program, Congress and the Administration 
must continue to find ways to strengthen the program so it 
works better for beneficiaries and taxpayers alike.
    The Centers For Medicare and Medicaid Services, known as 
CMS, is tasked with the critical role of administering the 
program to 50 million beneficiaries. Since Medicare's 
inception, CMS has enlisted a number of different contractors 
in different ways throughout the program to help assist in that 
responsibility. In Parts A and B, they use contractors to help 
pay the millions of claims from providers as well as enroll 
providers. In Medicare Advantage, or MA, and the Part D 
benefit, CMS utilizes the private sector, specifically private 
insurers, to administer the benefits directly to beneficiaries. 
In addition, CMS enlists benefit integrity contractors to help 
further root out waste, fraud, and abuse.
    In all these instances, however, CMS is responsible for 
overseeing all of the contractors' performance and ensuring 
they bring value and quality to the program. It is also CMS 
role to conduct regular oversight of plans to ensure that the 
payments are legitimate and appropriate while simultaneously 
serving beneficiaries as well.
    That is why last summer I introduced the Part D 
Prescription Drug Integrity Act of 2013, which I believe can 
help CMS address potential factors contributing to prescription 
drug abuse. I wrote the bill on the heels of a report by HHS 
Office of Inspector General, the OIG, which found that Medicare 
is paying for prescription drugs prescribed by unauthorized 
individuals.
    Given that tens of thousands of these drugs are controlled 
substances, the study's findings raise questions about 
patients' safety because of the high potential for abuse and 
diversion. My bill would require plan sponsors to verify that a 
prescription for a drug on the controlled substances list was 
made by an authorized physician before paying for the drug. 
Under the current law, such a requirement does not exist.
    It would also require plan sponsors to have drug 
utilization programs in place that would restrict access if 
there was credible evidence of beneficiaries abusing or 
diverting drugs. In addition, the bill will provide CMS new 
tools to prevent the payment of claims by fraudulent 
prescribers or pharmacies.
    Now, I think we can all agree that this necessitates 
constant work. My bill is just one of many ideas to improve 
Medicare moving forward. The Affordable Care Act made great 
strides. It expanded benefits to seniors, brought payments to 
MA closer to traditional Medicare, and rewards plans for 
quality. It also gave CMS, the OIG and DOJ increased 
authorities to address fraud, and since its passage the 
administration has recovered nearly $20 billion to taxpayers, a 
record $4.2 billion in 2013 alone.
    Of course, just this last week this committee heard 
directly from CMS about the ways in which they hope to continue 
to strengthen Part D through a number of different policies, so 
I applaud the Administration for the work they have done to 
date, and I commend their strong commitment to fighting fraud, 
waste and abuse in the Medicare program.
    The data clearly shows that we are moving in the right 
direction, but as we will hear today, more can always be done. 
In fact, the OIG will issue two reports identifying a number of 
flaws and oversight of MA and Part D plans and the benefits 
they provide specifically regarding data collection. I look 
forward to hearing more about these recommendations. In fact, 
Mr. Waxman and I intend to encourage CMS to quickly adopt these 
improvements.
    So let me thank our witnesses for their participation and 
work on this topic. The GAO and OIG offer critical insights 
that informs both CMS and the Congress what will continue to 
need improvement. Together we must all commit to improving the 
quality and efficiency of Medicare and be responsible stewards 
of taxpayer dollars. Robust and aggressive oversight of 
contractors is critical to this mission.
    Thank you, Mr. Chairman. I yield back the remainder 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.
    For more than four decades, Medicare has been a critical 
program for ensuring the health and also the financial well-
being of seniors and people with disabilities. The program has 
evolved significantly over that time, adding benefits, adding 
coverage options and becoming a major force in the U.S. health 
care market. As the program has grown and changed, so too has 
the oversight role of the Centers For Medicare and Medicaid 
Services, or what we call CMS.
    CMS works with private contractors, especially in the 
original Medicare, the fee-for-service program, to perform the 
day-to-day program operations such as paying claims, enrolling 
providers and conducting first level appeals. In Parts C and D 
of Medicare, CMS contracts with private insurance companies to 
deliver Medicare's benefits. In either case, CMS is ultimately 
responsible for making sure that the Medicare Trust Fund 
dollars paid to these contractors are used appropriately and 
soundly.
    We know from past experience that without strong oversight 
from CMS, contractors have not always performed adequately and 
have the potential to abuse the public trust. I am glad we will 
be hearing from both the Office of Inspector General, OIG, and 
the Government Accountability Office, GAO today. These two 
organizations have been critical watchdogs for the Medicare 
program, alerting us to instances where Medicare's oversight 
should be strengthened and also areas where Federal 
intervention is necessary to ensure that taxpayers' dollars are 
being used appropriately.
    A lot has been achieved since passage of the Affordable 
Care Act to strengthen Medicare. Medicare growth rates have 
been at an all-time low. This success in reducing the rate of 
spending growth has been achieved at the same time that 
benefits have been increased and out-of-pocket costs have been 
reduced for beneficiaries. And fraud fighting activities have 
been more successful than ever. Just last week, HHS announced 
that the HEAT strike forces successfully recovered $4.3 billion 
in taxpayer funds, the highest annual amount recovered to date, 
for a total of $19.2 billion in recoveries over the last 5 
years.
    The Administration continues to work to improve the 
program. The Administration's proposed Part D regulation would 
make a number of changes to the program to strengthen program 
management and integrity. Some want to rescind this regulation, 
but if we are truly serious about program integrity, those 
proposed program integrity provisions are just the direction 
CMS should be taking.
    Two OIG reports that were released today note significant 
concern with the reporting of fraud and abuse incidents in the 
Medicare Advantage and Part D programs. There is wide 
variability in reporting and many have failed to report any 
potential fraud and abuse incidents at all. CMS needs to do a 
better job managing the private insurance companies that 
participate in Medicare.
    But Congress needs to do its part by giving CMS the funds 
to do its work. We all know that CMS' budget has been 
inadequate in recent years. For example, while CMS has added 
nearly 3 million beneficiaries to the Medicare program over the 
last 2 years, the funding provided by Congress to administer 
the Medicare program and fight fraud, waste, and abuse has 
remained essentially flat. Whether we are talking about 
appropriate funding for nursing home survey and certification, 
funding for claims, processing and provider education, or 
funding for implementation of the Affordable CARE Act we should 
not let our austerity get in the way of proper program 
management. But I am concerned that is just what is happening. 
Starving the agency is no more justified than voting to kill 
Medicare outright by enacting Chairman Ryan's voucher plan.
    All things considered, this Administration has done a 
remarkable job of improving program oversight and management, 
but we do have more work to do. So I am pleased that we will be 
hearing about those areas for improvement today.
    In closing, I would like to make sure that my message is 
clear. Is the Medicare program an effective program? Yes. Are 
there opportunities to improve Medicare management, oversight 
and overall performance? Of course. And we can do that without 
harming beneficiaries.
    Thank you, Mr. Chairman.
    Mr. Pitts. The chair thanks the gentleman. All members' 
written statements, opening statements will be made part of the 
record.
    We have one panel before us today. Ms. Kathleen King, 
Director, Health Care, U.S. Government Accountability Office, 
is our first witness; Dr. James Cosgrove, Director, Health 
Care, U.S. Government Accountability Office, is our second 
witness; and Mr. Robert Vito, Regional Inspector General for 
Evaluation and Inspections, Office of Inspector General, U.S. 
Department of Health and Human Services, is our third witness.
    Thank you very much for coming today. Your written 
testimony will be made part of the record. You will have 5 
minutes to summarize your testimony.
    At this point the chair recognizes Ms. King for 5 minutes 
for her opening statement.

    STATEMENTS OF KATHLEEN KING, DIRECTOR, HEALTH CARE U.S. 
  GOVERNMENT ACCOUNTABILITY OFFICE; JAMES COSGROVE, DIRECTOR, 
 HEALTH CARE U.S. GOVERNMENT ACCOUNTABILITY OFFICE; AND ROBERT 
      VITO, REGIONAL INSPECTOR GENERAL FOR EVALUATION AND 
 INSPECTIONS, OFFICE OF INSPECTOR GENERAL, U.S. DEPARTMENT OF 
                   HEALTH AND HUMAN SERVICES

                   STATEMENT OF KATHLEEN KING

    Ms. King. Chairman Pitts, Ranking Member Pallone, and 
members of the subcommittee, my colleague, James Cosgrove and 
I, are pleased to be here today to discuss the role that 
contractors and private plans have in the Medicare program.
    CMS relies extensively on contractors to assist it in 
carrying out its responsibilities including program 
administration, management, oversight and benefit delivery. 
Contractors have played a vital role in the administration of 
the program since its enactment in 1965. In fact, Congress 
designed the original Medicare program so that it would be 
administered by health insurers or similar organizations 
experienced in handling hospital and physician claims. Congress 
also stipulated the process for selecting contractors which 
differed from the way that most other Federal contractors were 
awarded in that Medicare contracts were not awarded by a 
competitive process.
    Beginning in the 1980s, the Department of Health and Human 
Services asked Congress to amend its authority regarding the 
selection of contractors. It wanted to open the process to a 
broader set of contractors and increase its ability to reward 
contractors that were performing well.
    In the Medicare Modernization Act of 2003, Congress 
repealed the statutory limitations on the types of contractors 
that CMS could use and required compliance with the Federal 
Acquisition Regulations and competitive procedures to select 
new contractors. Congress also required CMS to develop 
performance standards for the new contractors called MACs, or 
Medicare Administrative Contractors, and gave CMS the authority 
to provide incentives to the contractors for good performance.
    The MACs are responsible for a wide variety of claims 
administration functions, including processing and paying 
claims, handling the first level of appeals and conducting 
medical review of claims. CMS is responsible for overseeing the 
MACs. Over time, Congress has also authorized the use of other 
types of contractors in Medicare for program integrity 
purposes, including investigating potential fraud and 
recovering overpayments.
    Unlike Medicare fee-for-service in which contractors 
process and pay claims, in Medicare Part C, known as Medicare 
Advantage, CMS contracts with private organizations to offer 
health plans that provide all Medicare-covered services except 
hospice care and may provide other services not available under 
fee-for-service.
    CMS first began contracting with private plans to provide 
care to enrolled beneficiaries in 1973. Over time, Congress has 
made various changes in the program, most notably paying plans 
on a risk basis. As of February 2014, nearly 30 percent of 
Medicare beneficiaries are enrolled in Medicare Advantage, 
which is an all-time high. While Medicare contract requirements 
and program parameters are largely derived from statute, CMS 
has responsibility to implement the program and ensure 
compliance with requirements.
    While Medicare Part C provides beneficiaries an alternative 
to obtaining their Medicare benefits through fee-for-service, 
Congress structured the Medicare Part D program to provide 
benefits only through private organizations under contract to 
Medicare. Prescription drug benefits are provided either 
through Medicare Advantage plans or stand alone private plans. 
Medicare pay sponsors a monthly amount per capita independent 
of each beneficiary's drug use.
    The Part D program relies on plan sponsors to generate 
prescription drug savings through negotiating price concessions 
with entities such as drug manufacturers, pharmacy benefit 
managers and pharmacies, and managing beneficiary use of drugs. 
As with Medicare Advantage, while CMS contracts with plan 
sponsors to provide the Part D benefit, it is responsible for 
administration of the program, including ensuring that payments 
made to plans are accurate and that the data plan sponsors 
submit on price concessions are accurate.
    Mr. Chairman, this concludes our prepared remarks. We would 
be happy to answer questions.
    [The prepared statement of Ms. King and James Cosgrove 
follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT] 

    Mr. Pitts. The chair thanks the gentlelady and now 
recognizes Dr. Cosgrove for 5 minutes for an opening statement.


                  STATEMENT OF JAMES COSGROVE

    Dr. Cosgrove. Chairman Pitts, thank you very much. Ms. King 
has submitted a joint statement for both of us covering GAO and 
as such I don't have a separate oral statement.
    Mr. Pitts. The chair thanks the gentleman and now 
recognizes Mr. Vito for 5 minutes for his opening statement.

                    STATEMENT OF ROBERT VITO

    Mr. Vito. Good morning, Mr. Chairman and members of the 
subcommittee. I am Robert Vito, Regional Inspector General for 
the Office of Evaluation and Inspections at the U.S. Department 
of Health and Human Services Office of Inspector General. Thank 
you for the opportunity to testify about CMS oversight of 
Medicare contractors.
    Two years ago, I testified before you about reoccurring 
problems that we had identified with CMS oversight of benefit 
integrity contractors. CMS relies on contractors to administer 
half a trillion dollars in Medicare spending every year. OIG 
understands that effective oversight of Medicare contractors is 
a continuous, demanding and often resource-intensive process 
for CMS. Unfortunately, some of the same problems we identified 
in the past with CMS's oversight of benefit integrity 
contractors also extends to other CMS contractors.
    Today the OIG is releasing two reports that highlight 
similar oversight problems with Medicare Advantage and Part D 
contractors. The OIG has found that CMS does not leverage data 
to improve oversight, does not investigate variation in data 
across contractors, does not address underperforming 
contractors timely and require corrective action plans, and 
does not share information with beneficiaries and other 
stakeholders that could assist antifraud efforts.
    Since 2008, we have repeatedly recommended that CMS require 
Part D plans to report fraud and abuse data. Rather, CMS merely 
encourages Part D plans to voluntarily report these data. Under 
this voluntary reporting system, less than half of the Part D 
plans have reported data and the reported data have varied 
significantly across plans.
    Due to CMS failure to investigate variation among Part D 
plans, we do not know if the plans are reporting incorrect 
data, have ineffective programs to detect fraud and abuse, or 
lack a common understanding of what constitutes a potential 
fraud and abuse incident. Further, without detailed information 
on fraud and abuse incidents, CMS is missing the opportunity to 
discover and alert plans and law enforcement to emerging fraud 
and abuse schemes.
    CMS has also made limited use of Part C data to oversee 
Medicare Advantage plans despite investments in contractors' 
review of the data. The Part C reporting requirement data are a 
significant resource for oversight and improvement of the 
Medicare Advantage Program.
    CMS has implemented regular and intensive reviews of the 
Part C data through its contractor, but conducted minimal 
follow-up on the data issues that it identified. For example, 
CMS has not determined whether outlier data reflected 
inaccurate reporting or atypical plan performance. CMS also has 
not used its contractor data reports and analysis to inform the 
selection of MA plans for audits or to issue compliance notices 
for performance concerns. This would be like taking your car to 
a mechanic, having them run diagnostic tests, and then not 
using the tests to determine if your car is running well and 
safe to drive.
    Our review of the Medicare administrative contractors found 
that CMS performance reviews of MACs were extensive but were 
not always timely, and even when CMS identified quality 
assurance standards that were not met, CMS did not always 
resolve the problem. There were two MACs that consistently 
underperformed, but these MACs had their contract option years 
renewed.
    Lastly, CMS is missing a critical opportunity to enlist 
millions of Medicare beneficiaries in the fight against fraud. 
MACs mail Medicare summary notices, or MSNs, to beneficiaries 
to show them what Medicare claims have been paid on their 
behalf. These notices can serve as a key fraud and detection 
tool when beneficiaries identify and report suspicious 
information contained on their MSNs. However, the OIG found 
that over 4 million notices were not delivered to the 
beneficiary.
    Further, CMS has not instructed MACs on whether or how to 
track or follow up on undelivered MSNs. It is critical that 
MSNs be timely and appropriately delivered to beneficiaries. If 
just one beneficiary sees something suspicious on their notice 
and reports it to Medicare, it may lead to a fraud case that 
saves millions of dollars.
    In conclusion, the OIG recognizes the challenging job CMS 
faces in the oversight of its contractors. OIG has recommended 
actions that CMS can undertake, and now CMS is considering some 
of these recommendations.
    Thank you again for your interest in this important area 
and for the opportunity to testify before this subcommittee 
today.
    Mr. Pitts. The chair thanks the gentleman.
    [The prepared statement of Mr. Vito follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] 
    
    Mr. Pitts. We will now begin questioning. I will begin the 
questioning and recognize myself for 5 minutes for that 
purpose.
    Mr. Vito, CMS likes to tout that it has moved away from the 
pay and chase system. One of the programs they have pushed to 
support this claim is the fraud prevention system which 
Congress mandated in the Small Business Jobs Act of 2010. The 
system is supposed to scan claims on a prepay basis and 
proactively flag problematic claims for review. The last report 
found that the Inspector General's team could not validate most 
of the resulted savings from the program.
    Do you expect that to change this year?
    Mr. Vito. I don't know the answer, but I can tell you that 
we will be having a report and that report will do the same 
things that the last year's report did and that report, I 
believe, will be coming out probably in the next 3 to 4 months 
and you should have that in front of you and you will be able 
to see the results of our work.
    Mr. Pitts. Do you know how many claims, if any, CMS 
actually stopped before they were paid as a result of this 
system?
    Mr. Vito. I do not know that answer. I am not familiar with 
that review. But I know that that review is ongoing and that we 
will have results for you.
    Mr. Pitts. And do you have any ideas on how to make the 
system stronger?
    Mr. Vito. Well, we certainly have some ideas on how to make 
the system stronger. One of the ways is to require Part D plans 
to mandatorily report this information on fraud, waste and 
abuse. I think once they do that, then CMS will have data that 
will indicate the types of fraud incidents that are occurring. 
It will also tell you the amount of incidents. Once you have 
data, then you can analyze that data and use that data in 
conjunction with other data to find out more information that 
you never had.
    Mr. Pitts. Ms. King, CMS is developing a new integrity 
contractor called a United Program Integrity Contractor, UPIC. 
These contractors will focus on both Medicare and Medicaid 
integrity issues. And the Zone Program Integrity Contractors, 
ZPICs, and the Medicare Administrative Contractors, the MACs, 
will be folded into the UPICs. Is this an important change or 
are we just rearranging the deck chairs? Related, has your 
office seen better results from the ZPICs since they were 
developed out of the program safeguard contractors?
    Ms. King. Mr. Chairman, we did a review that was released 
last fall about the ZPICs and we found that they did have a 
positive return on investment. They spent a little over $100 
million and they returned or they saved about $250 million 
during that time. We did make some suggestions for improvement, 
but we did see a positive rate of return from them.
    And I think in terms of the consolidation of the program 
integrity contractors, the Medicare and Medicaid integrity 
contractors are going to be combined into one. We haven't 
evaluated that, but we did find fault with some of the Medicaid 
program integrity work. But I believe that the MACs are going 
to remain as they are and not be folded into that, because--
while they do have some program integrity functions, one of 
their primary purposes is processing and paying claims, and 
that will remain.
    Mr. Pitts. Dr. Cosgrove, do you have anything to add?
    Dr. Cosgrove. No, I don't. Thank you.
    Mr. Pitts. Continuing with the GAO, to help manage the 
program, CMS often uses cost-plus contracts. But if the 
contracting team at CMS writes a contract that measures the 
wrong things, like outputs instead of outcomes, then CMS has 
committed to spend millions of dollars perhaps on the wrong 
thing. How can this be prevented? Ms. King?
    Ms. King. You are right that they do often use cost-plus 
contractors under the FAR, under the Federal Acquisition 
Regulation, and that is one of the things that Congress 
authorized them to do during contractor reform. We are now 
looking at some of the incentives that are provided to the MACs 
under their contracts to see if perhaps there could be better 
incentives put in the contract.
    We evaluated recently the HCFAC program which is the fraud 
and abuse control program, and it is hard to measure outcomes 
there because we don't know what the baseline is. We don't know 
what the baseline is for fraud. So that is an inherent 
challenge.
    Mr. Pitts. My time has expired. The chair recognizes the 
ranking member, Mr. Pallone, for 5 minutes for questions.
    Mr. Pallone. Thank you, Mr. Chairman. I wanted to ask Mr. 
Vito a question.
    Today the OIG released the report on some of the 
shortcomings of the oversight of Part C, or Medicare Advantage, 
and it sounds to me like Medicare Advantage plans have a lot of 
work to do in order to improve their fight against fraud and 
abuse. First, can you tell me do we know how much fraud and 
abuse is happening in Medicare Advantage? And second, what kind 
of data is CMS collecting and what additional data does OIG 
believe should be collected?
    Mr. Vito. OK. In the Part D area, CMS has not voluntarily--
they have only voluntarily collected the information that we 
have requested. We have asked that they mandatorily report that 
information. That information would allow them to determine the 
number of fraud incidents that occurred. It would also let them 
know if the Part D plans had addressed those fraud incidents. 
By getting that information, it will provide information among 
all the different plans and then the plans can--then CMS can 
analyze that to find out which plans have higher numbers or 
lower numbers and they can look into the variation to see what 
might be going on there.
    Mr. Pallone. Well, I note from your report that while CMS 
did conduct some reviews on data reported under Part C, and now 
I am asking about Part C, the agency did not conduct follow-up 
with the data or look at outliers, and I think we all agree 
that it is not enough to simply collect the data, the agency 
must act on it.
    So what does the OIG recommend CMS do, and how should CMS 
best be following up on this outlier data? And now I am asking 
about Part C specifically.
    Mr. Vito. Well, CMS has collected, they had a contractor 
that identified outliers, identified inconsistency in the data, 
yet once they identified that, the contractor only shared that 
information with the plan and CMS, and CMS did not do anything 
with that data. They did not investigate that data. They did 
not review what the reason was behind that data. Was the plan 
reporting information that was incorrect, or were they atypical 
outliers?
    CMS can utilize the resources it has to do that extra step. 
For example, we saw some plans that had the same problem 
multiple years. Depending on the resources that CMS has, they 
can target the areas that are the most problematic, like the 
ones that had multiple years or the one that had three or four 
elements that needed to be looked at.
    So it is clear to us. We gave the example, it is like 
taking your car in and having all the diagnostic tests run on 
the car, and then not using the results of that to fix the car 
and make sure it is safe. Basically CMS has the information, 
and they are not using the information to get to the best 
answers.
    Mr. Pallone. All right. I can ask this of any of you. CMS 
has a duty to continue to improve the Medicare program while 
keeping costs down and fostering competition. It is also 
critical that they take every action within their authority to 
alleviate fraud, waste, and abuse.
    In its proposed rule issued in January, CMS proposed 
several provisions aimed at improving program management and 
integrity in the MA and Part D program, including requiring 
prescribers of Part D drugs to be enrolled in Medicare, 
providing CMS the authority to revoke an abusive prescriber's 
Medicare enrollment, and allowing CMS and its anti-fraud 
contractors to obtain information directly from pharmacies and 
pharmacy benefit managers that contract or subcontract with 
Part D sponsors.
    These provisions seemed like common sense to me. But could 
any of you talk about the problem that Medicare faces with 
respect to abusive prescribing practices? How serious a problem 
is it, what do we know about how well Part D plans are doing 
dealing with improper prescribing. Any of you could answer 
this. I will hear from you.
    Ms. King. I don't know the answer to the question 
specifically, but we do have some work looking at Medicare Part 
D program integrity contractors at this point and seeing how 
their practices measure up with best practices in the private 
sector. So that is a question that we should be able to shed 
some light on. But I don't have the answer today.
    Mr. Pallone. Mr. Vito, did you want to say anything about 
that?
    Mr. Vito. Yes. The Office of Inspector General has been 
looking at the Part D program for a long time. We have 
initially started to look at the controls that were existing in 
the program. We found that CMS had some controls, but they were 
limited and they needed to do more. We have pointed that out to 
them. We have a body of work that continues to show that they 
need to do more.
    The items that you referenced, many of them are direct 
results of work that the OIG has identified and pointed out. We 
have looked at the plans and found that some of them have not 
reported any information, and when they have reported, it 
varies significantly. They are the first line.
    We also then looked at the MEDICs. We found that the MEDICs 
could do more, that they weren't proactively analyzing data. 
They weren't doing a lot of the things that you asked about, 
such as the prescriber IDs. We found that CMS was paying claims 
that did not have a valid ID, a prescriber ID. And you also 
referenced reports where people were writing prescriptions and 
they didn't have the actual responsibilities to do that.
    So all these things that you mentioned here are things that 
the OIG has pointed out and think need to be improved and have 
made a lot of recommendations to have them done.
    Mr. Pallone. Thank you.
    Mr. Pitts. The chair thanks the gentleman and now 
recognizes the gentleman from Georgia, Dr. Gingrey, for five 
minutes for questions.
    Mr. Gingrey. Mr. Chairman, thank you very much. I would 
like to thank, of course, all of the witnesses for coming to 
allow the committee to better understand how Medicare is 
protecting seniors' benefits and how we can continue to reform 
the program to save the taxpayers money, while at the same time 
not overly burdening the providers. I am going to go to you, 
Mr. Vito, first. This is a hugely important issue that I am 
sure all members are hearing from their constituents, their 
physician provider constituents.
    ICD-9, those codes are set to be replaced by ICD, 
International Classification of Diseases, 10 codes this 
October. These new codes, as you know, include thousands of new 
diagnosis codes, adding, of course, new burdens for providers 
as they attempt to abide by the law. Many providers worry that 
the new complexity could be a target-rich environment for 
auditors who might confuse an error with malintent.
    I would like for you to comment on how your office thinks 
about this particular issue, this conversion in October. And I 
think that final rule has been issued to go to the ICD-10 code. 
The providers, the doctors, the people that I speak to in the 
11th District of Georgia, northwest Georgia, would beg CMS to 
delay this conversion from ICD-9 to ICD-10.
    Mr. Vito. Well, I would like to say that I believe that we 
have some planned work in that area. I cannot address your 
specific questions now because we need to do work to make the 
determination of what the issues are. But I do believe that we 
have work that is planned and it is in our work plan. And if 
you would like we could take that question back or I could have 
people come up and brief you from our office who are more 
familiar with that work.
    Mr. Gingrey. Well, if you can elaborate a little bit more, 
Ms. King or Dr. Cosgrove, because the providers even say that 
even the meaningful users of electronic medical records, it was 
my thought that, well, that would kind of solve the problem. It 
would just be automatic. And they say no, no, that is not going 
to help at all. Do any of you have any thoughts about that?
    Ms. King. It is not an issue that we have looked at yet. 
All of our work really is evidence-based. And while we agree 
that documentation errors are a big part of what contributes to 
improper payments, I think we would have to look at the 
implementation and then assess its effects before we could 
comment on that.
    Mr. Gingrey. Just for those that are here that may not be 
as up on this issue as you are, and hopefully as I am, but I 
mean, it is like a physician, if there is a code for a dog 
bite, now there would have to be a code--that code would have 
to be well, what was the breed of dog, and on and on and on. 
You get the idea. It gets a little ridiculous. That is where 
you have thousands of additional codes that they have to worry 
about.
    I have heard from my colleagues on the other side of the 
aisle that if we could only fix waste, fraud, and abuse, then 
the Medicare program would be there, it would be solvent for my 
children, my four adult children, and my 13 grandchildren, and 
we wouldn't have to do anything else. Chairman Ryan of the 
Budget Committee has been criticized many times for trying to 
come up with innovative solutions to deal with the, what, $75 
trillion worth of unfunded liability in Social Security and 
Medicare as we go out into the future 50 years from now. But 
those are obligations. They are they are on the books.
    Tell me, and we can start, Ms. King, with you and work 
down, what are your thoughts in regard to if we could eliminate 
every dime of waste, fraud, and abuse, I know we can't, but if 
we could, do you think that that would save Medicare for the 
future generations?
    Ms. King. No.
    Mr. Gingrey. That is fine. As Mr. Dingell would say if he 
were here this morning, that is fine. Dr. Cosgrove?
    Dr. Cosgrove. I am going to echo the no. It is going to be 
a perpetual challenge to try to address waste, fraud, and abuse 
in the program. It is a large program and weeding it out is 
going to be a constant challenge. But given the demographics 
and the increase in technology----
    Mr. Gingrey. I am going to stop you right there. I want to 
make one closing comment. Mr. Vito, I apologize for that, but I 
did start with you.
    Mr. Chairman, the Administration's attempt to constrain 
fraud and abuse need to meet the program integrity 
recommendations provided by GAO. We must make sure that these 
attempts are not overly burdensome to providers. They do not 
overly penalize them for honest mistakes. It is clear, however, 
in my opinion, that program integrity provisions alone will not 
provide a sustainable Medicare program for the future. It is my 
hope that my colleagues take a more serious look at structural 
reforms for Medicare that will create a sustainable program 
that continues to provide health care services and peace of 
mind to our precious seniors.
    Thank you, Mr. Chairman, and I yield back.
    Mr. Pitts. The chair thanks the gentleman and now 
recognizes the gentlelady from the Virgin Islands, Dr. 
Christensen, for 5 minutes for questions.
    Mrs. Christensen. Thank you, Mr. Chairman, and thank you 
for this hearing.
    I want to associate myself with part of my colleague from 
Georgia's remarks about concerns about not placing undue 
burdens on our providers or mistakenly charging them with fraud 
and abuse. But thank you for this hearing.
    I have had the experience on the MD side, but I will say 
that working the operations of our Part B contractors have 
greatly improved in the Virgin Islands and Puerto Rico, but I 
still do get some complaints, and I hope that ours is not one, 
Mr. Vito, that is underperforming and still having their 
contract renewed. But despite the improvement, there seems to 
be a lot of, based on your testimony, Mr. Vito, a lot of room 
for improvement still.
    I have a couple of questions, the first one relating to the 
Affordable Care Act which strengthened the Medicare program in 
many aspects, not only enhancing program benefits but also 
bolstering antifraud and abuse programs. For example, the ACA 
provided new provider enrollment and screening authorities to 
help CMS weed out bad providers and gave CMS new authority to 
place a moratorium on provider enrollments in areas with high 
fraud concerns.
    So, Mr. Vito and Ms. King, can you tell us more about CMS 
using the new program integrity tools that were enacted in the 
ACA? Has the Medicare program improved as a result of these 
provisions in the Affordable Care Act?
    Ms. King. We looked at the provisions of the law and the 
new enrollment processes shortly after they were enacted and 
when CMS was in the process of implementing then. Since then, 
we have not gone back and taken another look. But I do know 
that CMS has used its authority to impose moratoriums on 
durable medical equipment and home health providers since then.
    Mr. Vito. Well, the Office of Inspector General is doing 
the exact job that you asked about. We currently are looking at 
the Medicare enrollment process, the enhanced provisions that 
came from the ACA, and we will have a report for you hopefully 
by the end of this year that will give you the details on how 
well they are doing and if there are any areas that need to be 
improved.
    Mrs. Christensen. OK. So that will give us areas where CMS 
should continue to focus.
    Mr. Vito. Yes, we will be able to tell you about how they 
are using their extra authorities and what results they are 
achieving.
    Mrs. Christensen. Are there legislative actions that any 
one of you would recommend Congress take in order to build upon 
the ACA and continue to strengthen the anti-fraud and abuse 
efforts in the Medicare program at this time?
    Ms. King. No, I don't think we have matters pending before 
Congress that we have asked you to act on in that arena.
    Mr. Vito. Well, we have a couple ideas for you. We have 
been recommending now that CMS implement a mandatory reporting 
requirement for Part D, and they have not done it. They don't 
need to have legislation to do it, but it might be that you can 
help them achieve that through legislation.
    In addition to that, we also think that there might be some 
flexibility that you want to give CMS when they award 
contracts. This will allow them to not be in a perpetual 
contracting recompete mode and focus on the people that are 
underperforming and allow the people that are doing a good job 
to remain in the program.
    This comes back to your question about the MACs. If the 
MACs aren't doing a good job, we want them to make sure that 
CMS takes action and to replace those. And CMS has done a 
fairly extensive job reviewing the MACs. They can do better in 
trying to address MACs that have underperformed though.
    Mrs. Christensen. Thank you. Ms. King, or Mr. Cosgrove, we 
know that Medicare Administrative Contractors or MACs have set 
up claims processing systems in such a way that they are able 
to compare claims data to Medicare requirements in order to 
improve or deny claims or flag them for further review. A 2010 
GAO report found that these prepayments edits saved Medicare at 
least $1.76 billion in fiscal year 2010, but that savings could 
have been greater had prepayment edits been more widely used 
and better disseminated across the MACs. This seems like common 
sense, especially given that these prepayment edits can 
minimize improper payments being made in the first place.
    Can you give us an estimate of how much greater savings 
could be if prepayment edits were more widely used and can you 
tell us more about your recommendations and whether CMS has 
implemented them?
    Ms. King. Thank you for that question. Use of prepayment 
edits are critically important to preventing improper payments 
because they do all kind of things. They screen to see if the 
provider is eligible to participate, if the beneficiary is 
eligible, and they also look at whether the service is covered 
by Medicare, and in some cases, they make decisions about 
whether the service is necessary in that situation.
    I don't think we have an estimate of how much more could be 
saved if there were greater implementation of prepayment edits, 
but we did make a number of recommendations to refine the 
process and make it clearer.
    Mr. Vito. I would like to say I would be remiss if I didn't 
say this. I think if Congress can consider funding the OIG 
fully, I think it would benefit the program. We have an eight-
to-one return, so you give us $1, we get $8 back. We have been 
in a hiring freeze. We have had budget crises. We are not able 
to do the work that we would like to do. And if you were able 
to fund us, we could achieve these results. So that is one 
thing that I didn't bring to your attention, but I would like 
to. Thank you for considering it.
    Mr. Pitts. The chair thanks the gentlelady, and now 
recognizes the gentleman from Illinois, Mr. Shimkus, for 5 
minutes for questions.
    Mr. Shimkus. Thank you, Mr. Chairman. It gives me a chance 
to promote one of my colleagues from Illinois, Mr. Roskam's 
bill, the PRIME Act, which addressing the pay and chase issue 
which was kind of mentioned in some of the opening statements. 
I want to make sure I put that on the record.
    Mr. Vito, using your car analogy, if one is a Cadillac 
where someone has payments of $3,000 a year, one is a Buick 
where that payment is $1,000 a year, and the Chevy, their 
payment per month is $350 a year, and you propose cost savings 
of $250 per month to all of these payments and the individual 
can't afford any of those cars, does that save them from losing 
their vehicles?
    Mr. Vito. I think in the analogy that you gave it doesn't. 
But that was not----
    Mr. Shimkus. No, I am just starting. I am just warming up 
here. So Sydne, if you would put the chart on here, so that is 
what Dr. Gingrey was talking about too. Ms. King and Dr. 
Cosgrove, and I think Mr. Vito, that is where we are at today. 
The red is the mandatory spending. The blue is the 
discretionary budget. When we have our budgetary fights and 
shutting down the government, it is only that blue section that 
we are fighting on. This is the whole debate.
    And Ms. King and Dr. Cosgrove, you answered correctly, we 
can save a couple billion dollars here and there, but that 
fundamentally does not affect the solvency of our mandatory 
programs.
    It is almost like pocket lint. Now, it is good to get that 
lint out of your pocket, but it doesn't fundamentally affect 
the solvency issue. In fact, my friend who just followed talked 
about Obamacare or the ACA. It took $716 billion out of 
Medicare. And we had a hearing last week on Medicare D and 
Medicare D is changing to pay for this expansion.
    So, I want to ask this question to Mr. Vito. I want to 
follow up. So in 2012, HHS is said to recoup $4 billion from a 
program integrity effort, but roughly half--OK, $4 billion and 
Medicare is $466 billion. This is 2012 numbers. But roughly 
half of that was due to settlements with pharmaceutical 
companies. And the agency spent about $1 billion in total 
costs. So that leaves about $1 billion in actual recouped money 
for a year.
    Can you give me a sense of what that amount is in the scope 
of the overall Medicare spending? If we are just using 2012, if 
we have $1 billion in savings, we have $466 billion in overall 
costs. It is good for a resume, but it is not really good for 
solving the problems of Medicare, wouldn't you agree?
    Mr. Vito. Well, we are responsible for doing our work, and 
our work is to identify fraud, waste, and abuse, as well as to 
make sure the programs are running as efficiently as possible. 
We are doing that. And you are right, that $1 billion--when you 
look at our results, we have good results and we are doing very 
hard work. I think, though, the point that you are trying to 
make is that it is a very challenging program and there is a 
lot of money at stake.
    Mr. Shimkus. Well, it is challenging because it is going 
broke and my colleagues on the other side will not accept that 
premise. They just will not accept the premise that we have to 
actuarially make some changes.
    Let me go to a specific part of the report. As part of its 
efforts to reduce Medicare fraud and abuse CMS relies on 
beneficiaries to report suspicious activity identified on their 
Medicare summary notices. Medicare summary notices are paper 
forms that summarize processed claims. Your office found that 
over 4 million Medicare summary notices mailed to beneficiaries 
were not delivered in 2012.
    In the time remaining and whatever else the chairman allows 
us, can you talk through that issue and that problem?
    Mr. Vito. Yes. An MSN is basically telling you what 
services that Medicare has paid for, and CMS says that it is 
the best defense against fraud that a beneficiary can do, is to 
look at their MSN. And when they look at their MSN, if they see 
services that they did not receive, then they can report it.
    In New York last year there was a case where a beneficiary 
looked at the MSN, or its family, noted that the services that 
were being billed to them, they did not receive them, and then 
they started the case. The case was a $10 million case. So when 
you look at MSNs, they are very critical pieces of information.
    I personally got an MSN not from Medicare, thank God I am 
not that old, but I did note that there was some indication 
that I was having a procedure that is only provided to women. 
But I looked at that and then I was able to call that in and 
then they resolved that.
    So that is one of the best tools. And if just one 
beneficiary looks at that and it results in $10 million, that 
is a great savings.
    Mr. Shimkus. Can you speak to the 4 million in the report?
    Mr. Vito. Yes, 4 million is a small number compared to the 
total.
    Mr. Shimkus. No, about them not being mailed out.
    Mr. Vito. Yes, I can. When we started this review, CMS had 
no idea on the number of MSNs that were not being delivered. 
They had no total. We actually went to each MAC and asked each 
MAC to tell us how many MSNs they had that weren't getting to 
where they needed to be. This is important because without 
knowing that, you don't know what the extent of the problem is. 
That is why we went out and did this.
    This had already been pointed out to CMS two times 
previously in annual reports, and CMS, they thought about doing 
it, but they found out that it costs money to have some people 
at the MAC doing this, so they made a decision not to do that.
    Mr. Pitts. The chair thanks the gentleman and now 
recognizes the gentleman from Florida, Mr. Bilirakis, for 5 
minutes for question.
    Mr. Bilirakis. Thank, you, Mr. Chairman. I appreciate it.
    The first question is for the panel. The IRS does an 
estimate of how much money they should be collecting and 
compares that to how much money they actually collect. This 
gives them a sense of how many people are not complying with 
the Tax Code, or are tax evaders. We report on how much money 
is recovered from fraud arrests, but without any measurement of 
the fraud problem, it is hard to know how much of a difference 
we are making.
    Have you ever done an official estimate of fraud in the 
Medicare program and has CMS ever done an official estimate, 
for the panel? We will start with Ms. King.
    Ms. King. We have not. Part of the difficulty is it is hard 
to measure what you don't know about. If, for example, I submit 
a claim for a service that was never provided and that claim 
looks totally legitimate, it is going to be paid. But that is, 
in fact, a fraudulent claim. So there are things like that that 
happen that are not captured.
    We have noted the lack of a reliable estimate of fraud in 
Medicare, and urged CMS to work on it, and I believe that they 
are starting on a pilot to measure the extent of fraud in home 
health. It is a difficult undertaking, but they are working on 
it.
    Mr. Bilirakis. So when do you expect the pilot to be rolled 
out?
    Ms. King. They talked about it in their most recent report 
that was released within the past few weeks, the health care 
fraud and abuse control annual report. I can't speak for them 
because I don't know their exact plans, but I would imagine it 
would take some time.
    Mr. Bilirakis. Dr. Cosgrove. I am sorry. Do you want to 
finish, ma'am? OK. Dr. Cosgrove.
    Dr. Cosgrove. Thank you. I don't have anything to add to 
Ms. King's statement.
    Mr. Bilirakis. OK. How about Mr. Vito?
    Mr. Vito. I think fraud is only when it is determined by a 
court of law. That is when fraud occurs. You could have 
indications of fraud, but it is only when it is finalized and 
the case has been adjudicated. I think that what we are trying 
to say is that CMS needs--they have data, and they need more 
data; and when they have that data, they need to analyze that 
data; and that would help them identify what is going on in 
their programs.
    For example, in the Part D area, if they got information on 
what the plans are reporting as incidents of potential fraud, 
then they can look behind that. They can use that data to 
compare it to fraud areas to see if the Part D program is 
actually doing a good job in detecting and preventing fraud, 
waste, and abuse. They can compare it to others.
    So for me, I think you are asking about data and the use of 
data to make informed decisions and to target your work; and 
that is what we are advocating with CMS, that they use the data 
they have and maybe enhance some more data so that they would 
be able to target their resources in the best manner.
    Mr. Bilirakis. Thank you. Next question. Many of the 
monetary criminal and civil penalties for fraud were 
established in the 1980s and 1990s. Do you think these monetary 
penalty amounts should be updated, Ms. King?
    Ms. King. I don't have any expertise to comment on that, 
sir.
    Mr. Bilirakis. OK. Dr. Cosgrove?
    Dr. Cosgrove. We have not done any work in that area.
    Mr. Vito. I am not a lawyer or a prosecutor. I can tell 
you, though, we have those people and we would be certainly 
willing to answer your question or meet with you to talk about 
your question.
    Mr. Bilirakis. Well, that is fine, but if the penalties 
were established in the 1980s and 1990s, that was a heck of a 
long time ago; so I would think it would need updating. But, 
yes, I would like to get with you, Mr. Vito, on that.
    Mr. Vito. I think we could certainly meet with you.
    Mr. Bilirakis. OK. Next question. GAO has Medicare listed 
on their high-risk programs. Medicare has probably been on the 
high-risk list longer than some of my staffers have been alive. 
Has CMS done anything recently or in the foreseeable future 
that would move Medicare off the high-risk program list? Who 
would like to respond first?
    Ms. King. I will, sir. We are in the process of updating 
our high-risk report for the next issuance. Medicare is 
inherently complex, it is an expensive program. It is, as 
noted, taking up a larger share of the Federal budget and of 
national spending each year; so it is an intrinsically complex 
program, but we are in the process of evaluating whether it 
should continue to be on the high risk list. It has, however, 
been there since 1990, since the very beginning of our high-
risk list.
    Mr. Bilirakis. Thank you. Thank you. Dr. Cosgrove.
    Dr. Cosgrove. I just want to comment on one of the efforts 
that CMS has underway regarding Medicare Advantage, the part C 
program. It is in the process of collecting encounter data from 
plans so that we better understand the services that they are 
providing to beneficiaries. I think their immediate plans are 
eventually to use this to improve the risk adjustments, the 
adjusting payments for health status. But the data has 
opportunities to go well beyond that and allow CMS to do a 
better job of oversight, and we currently have work on CMS's 
plans and efforts right now that we hope to be able to report 
later on in this spring.
    Mr. Bilirakis. Thank you. Mr. Vito, would you like to 
comment?
    Mr. Vito. I think that the Medicare program is certainly a 
complex program, and a large amount of resources at the OIG are 
focused on looking at that program. We have results that 
continue to point out that there are things that can be done. 
We have shown where better use of legislation and policy rules 
have resulted in savings that have been achieved of $19 billion 
of the recommendations that the OIG has made. So we think that 
it is a very challenging program. We think we need to devote a 
lot of resources on that program in every way, whether it is 
evaluation, auditing or investigating, and we could certainly 
use more funds to do that, but we definitely believe it is a 
challenging program; and we are going to do our best to keep 
our eye on it.
    Mr. Bilirakis. Mr. Chairman, I know my time is expired, so 
I will yield back.
    Mr. Pitts. The chair thanks the gentleman. That concludes 
the first round. We will go to one follow-up per side, I will 
recognize myself 5 minutes for that purpose.
    Private insurers and HM0s face many of the same challenges 
that Medicare does in managing its providers. In August of 
2012, CMS announced a public private partnership. Many in 
Congress applauded this overdue collaboration, but now about a 
year and a half later, private plans in Medicare have shared 
only the most basic information.
    How can CMS contractors be allowed to better cooperate and 
benefit from their knowledge of suspect and untrustworthy 
providers, for both Ms. King and Mr. Vito?
    Mr. Vito. OK. Well, in our Part D report, we recommended 
that CMS share the information on the possible fraud issues 
with plans as well as law enforcement. So we think there is 
benefit to continued sharing. You have to be careful what 
information you share, but I think there is a way to do this; 
and our office has that partnership; and we are working through 
that, and we would be able to, again, take any question that 
you have. I am not the expert on that, but we do have people in 
our office that would be willing to come and meet with you or 
handle any question you might have on that.
    Mr. Pitts. Any other comments? Dr. Cosgrove.
    Dr. Cosgrove. Yes, I guess I would just like to mention the 
Medicare Advantage encounter data that CMS is currently being 
collected because I think that will give CMS a broader view of 
what is going on and what is becoming a very significant part 
of the Medicare program, a much broader view than even one plan 
has. And those data, I think, hold a great deal of promise if 
CMS follows through and analyzes and uses those data.
    Mr. Pitts. How many contracting officers are there at CMS, 
and are they required to be subject matter experts in their 
areas of contracts? And what type of training do they receive? 
And how are they held accountable? How is their performance 
assessed? Ms. King?
    Ms. King. That is not an issue that we have looked at, and 
I don't know how many contracting officials there are there.
    Mr. Pitts. Mr. Vito, do you know?
    Mr. Vito. Well, we are in the process now of looking at 
CMS's contracting, and we are trying to provide you with a 
landscape look at how many dollars they have, the type of 
contracts and who is administering the contracts. In addition 
to that, we are also going to be looking at how the contracts 
have been closed or not closed; so we hope within the next, by 
the at the end of this year, that we will have a report that 
will provide some detailed information on just the general 
information about CMS and its contracting.
    Mr. Pitts. CMS has a range of contracting vehicles at its 
disposal. Some are very incentive-driven. Some are very 
flexible. Some are just cost-plus contracts. Can you talk a 
little bit about what parts of the contracting process could be 
streamlined and modernized in order to hold contractors more 
accountable and achieve better return on investment for 
taxpayers?
    Mr. Vito. Well, I will not be able to answer that right 
now. We have current work underway that also looks at 
contracting and how the contracting was handled in the ACA 
area. We hope that when we get that information, it will 
provide some of the answers to some of the questions that you 
have; and that is ongoing as well.
    Ms. King. The biggest contractors at CMS now are the MACs, 
the Medicare administrative contractors, and we did an 
evaluation of the implementation of contractor reform a few 
years ago; and there is a rigorous process set up to evaluate 
the contracts, and the IG has done more recent work on that and 
recommended some improvements; but they do have, under the FAR, 
under the Federal Acquisition Regulation, an intensive process 
for awarding the contracts and also for measuring the contracts 
and awarding fees under it.
    We are also looking, though, at whether they could be using 
some additional or different incentives in the program to drive 
better performance, and we should have a report on that later 
this year.
    Mr. Pitts. All right. The chair thanks the panel, and now I 
recognize the ranking member 5 minutes for follow-up questions.
    Mr. Pallone. Mr. Vito, I wanted to go back to my questions 
about Part D, specifically the CMS proposed rule to strengthen 
Part D with regard to fraud; and I have heard some concern that 
requiring physicians who wish to prescribe drugs to Medicare 
beneficiaries actually be enrolled in the program is too much 
bureaucracy and interference for physicians, and I just wanted 
to get your assessment of that.
    Do you believe that it is overly burdensome to require a 
physician writing prescriptions for which Medicare will pay be 
subject to some basic enrollment standards? What is your 
opinion on that?
    Mr. Vito. I think that we had previously made that 
recommendation; and if we did, that means that we think it is 
appropriate to do. I think it is always a challenge to find the 
right balance, and that is what we seek to do here to make sure 
that the program is properly safeguarded and that there is not 
too much burden. So those are the things that we consider when 
we make a recommendation.
    Mr. Pallone. All right. I appreciate your insight. As I 
mentioned in my opening statement, this is an important topic, 
and that is why I introduced the Part D Prescription Drug 
Integrity Act, and I think we can and have to do more in the 
Part D program to help address the prescription drug abuse 
epidemic.
    I have no further questions, Mr. Chairman. Thank you.
    Mr. Pitts. Chair thanks the gentleman. Members do have 
other questions. We will submit them to you in writing. We ask 
that you promptly respond to those questions in writing. And I 
remind members that they have 10 business days to submit their 
questions for the record. Members should submit their questions 
by the close of business on Tuesday, March 18.
    You have been addressing a very important issue. We thank 
you very much for your work and look forward to continue to 
work with you.
    Without objection. The subcommittee is now adjourned.
    [Whereupon, at 11:10 a.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]

                 Prepared statement of Hon. Fred Upton

    Today we examine the operating structure of Medicare--the 
relationships between the Medicare program and its contractors 
that are essential to ensure that the benefits and care our 
seniors depend on are delivered as intended.
    As we have warned many times, the financial sustainability 
of Medicare is under serious threat, putting the access to and 
quality of care for current and future seniors in jeopardy. The 
Medicare Part A trust fund is expected to run out as soon as 
2017, while the cost of the entire Medicare program is 
projected to reach a trillion dollars each year by the end of 
the decade.
    This is a problem that requires more than better program 
management or combating waste, fraud, and abuse, but that does 
not mean that the important work of improving program 
effectiveness should be neglected. We must safeguard every 
Medicare dollar to keep the promise of quality health care to 
our nation's seniors and future generations.
    The Government Accountability Office repeatedly has warned 
that the Medicare and Medicaid programs face a particularly 
high vulnerability to fraud, due to their ``size, scope, and 
complexity.'' The Medicare program receives 4.5 million claims 
per day from 1 million providers, who supply an extraordinarily 
wide range of services that must by law be reimbursed within 30 
days. The program therefore faces a substantial challenge to 
ensure that its funds are used appropriately.
    Medicare is implemented and audited by a patchwork of 
different contractors, established by succeeding waves of 
legislation over the past halfcentury. Its approach is loosely 
known as ``pay-and-chase'': one set of contractors fulfills 
claims, while others are then charged with following up to 
retrospectively investigate and identify payments that have 
been inappropriately made.
    In processing millions of claims, a tremendous amount of 
data gets collected, but information regarding payments is 
often fragmentary and scattered amongst separate organizations. 
As a result, oversight is poorly coordinated. The effectiveness 
of CMS contractors could be greatly enhanced by cooperation, 
but this is seriously impeded by federal law--sometimes with 
good reason, but in too many instances this is not the case.
    The purpose of this hearing is to reexamine existing 
arrangements and to further the discussion regarding what can 
be done to enhance contractor performance, accountability and 
efficiency. While most of this effort requires leadership and 
commitment from CMS, I hope that our witnesses today will take 
the lead in this discussion and that outside partners and 
friends of the Medicare program will subsequently feel 
encouraged to contribute their own recommendations and 
suggestions. This is just one small, but important step in 
securing the future of the Medicare program and ensuring that 
every taxpayer dollar spent through this program is used most 
effectively. Let's work together to keep the promise to our 
seniors.

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