    [Senate Hearing 115-585]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 115-585

        EXAMINING CMS'S EFFORTS TO FIGHT MEDICAID FRAUD AND OVERPAYMENTS

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

                                    HEARING

                                   before the

                                  COMMITTEE ON
                   HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
                              UNITED STATES SENATE

                         ONE HUNDRED FIFTEENTH CONGRESS

                                 SECOND SESSION

                                   __________

                                AUGUST 21, 2018

                                   __________

            Available via the World Wide Web: http://www.govinfo.gov

                           Printed for the use of the
            Committee on Homeland Security and Governmental Affairs

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                         U.S. GOVERNMENT PUBLISHING OFFICE

    34-574 PDF                WASHINGTON : 2019

            COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

                        RON JOHNSON, Wisconsin, Chairman
    JOHN McCAIN, Arizona                 CLAIRE McCASKILL, Missouri
    ROB PORTMAN, Ohio                    THOMAS R. CARPER, Delaware
    RAND PAUL, Kentucky                  HEIDI HEITKAMP, North Dakota
    JAMES LANKFORD, Oklahoma             GARY C. PETERS, Michigan
    MICHAEL B. ENZI, Wyoming             MAGGIE HASSAN, New Hampshire
    JOHN HOEVEN, North Dakota            KAMALA D. HARRIS, California
    STEVE DAINES, Montana                DOUG JONES, Alabama

                      Christopher R. Hixon, Staff Director
                    Gabrielle D'Adamo Singer, Chief Counsel
                  David N. Brewer, Chief Investigative Counsel
                    Jerome F. Markon, Senior Policy Advisor
                   Margaret E. Daum, Minority Staff Director
                      Brandon E. Reavis, Minority Counsel
                      Courtney C. Cardin, Minority Counsel
                         Laura W. Kilbride, Chief Clerk
                         Thomas J. Spino, Hearing Clerk

                                C O N T E N T S

                                     ------
    Opening statements:
                                                                       Page
        Senator Johnson..............................................     1
        Senator McCaskill............................................     2
        Senator Peters...............................................    14
        Senator Hassan...............................................    17
        Senator Carper...............................................    20
        Senator Heitkamp.............................................    23
        Senator Daines...............................................    25
        Senator Jones................................................    28
        Senator Hoeven...............................................    31
    Prepared statements:
        Senator Johnson..............................................    47
        Senator McCaskill............................................    48

                                   WITNESSES
                            Tuesday, August 21, 2018

    Hon. Seema Verma, Administrator, Centers for Medicare and
      Medicaid Services, U.S. Department of Health and Human Services     7
    Hon. Eugene L. Dodaro, Comptroller General of the United States,
      U.S. Government Accountability Office..........................     9

                         Alphabetical List of Witnesses

    Dodaro, Hon. Eugene L.:
        Testimony....................................................     9
        Prepared statement...........................................    66
    Verma, Hon. Seema:
        Testimony....................................................     7
        Prepared statement...........................................    52

                                    APPENDIX

    Health Care Spending Chart.......................................    88
    Medicaid Spending Chart..........................................    89
    Improper Payments Chart..........................................    90
    Information submitted by Mr. Dodaro..............................    92
    Responses to post-hearing questions for the Record:
        Ms. Verma....................................................    93

        EXAMINING CMS'S EFFORTS TO FIGHT MEDICAID FRAUD AND OVERPAYMENTS

                                  ----------

                            TUESDAY, AUGUST 21, 2018

                                         U.S. Senate,
                               Committee on Homeland Security
                                      and Governmental Affairs,
                                                        Washington, DC.
        The Committee met, pursuant to notice, at 10:02 a.m., in
    room SD-342, Dirksen Senate Office Building, Hon. Ron Johnson,
    Chairman of the Committee, presiding.
        Present: Senators Johnson, Hoeven, Daines, McCaskill,
    Carper, Heitkamp, Peters, Hassan, Harris, and Jones.

                 OPENING STATEMENT OF CHAIRMAN JOHNSON

        Chairman Johnson. Good morning. This hearing will come to
    order.
        I want to thank Administrator Verma and General Dodaro.
        Well, we certainly appreciate you coming before us. This is
    a follow up hearing to our June 27th hearing, where we really
    explored the Government Accountability Office (GAO) report on
    overpayments, primarily Medicaid, $37 billion, and we have the
    Administrator here talking about some program initiatives she
    announced in June. So we will have you testify, and then we
    will have the General comment on how we can make these programs
    kind of long-lasting.
        I would ask consent that my written statement be entered in
    the record,\1\ and I have a couple of charts that is in front
    of everybody.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Senator Johnson appears in the
    Appendix on page 47.
    ---------------------------------------------------------------------------
        Do the witnesses have the charts as well? It would be nice
    if they did.
        But just three charts kind of laying out the macro program
    in terms of health care spending,\2\ and this is a modification
    of a chart I have shown repeatedly that really lays out the--I
    know this is a little more complex chart than I normally like
    putting up, but it tells a pretty good story.
    ---------------------------------------------------------------------------
        \2\ The chart referenced by Senator Johnson appears in the Appendix
    on page 88.
    ---------------------------------------------------------------------------
        The top line, the green line, is just an inversion of a
    chart that shows what percent of health care spending is paid
    directly by the patient. The fact that we have gone from about
    21 percent in 1940 to 89 percent paid by other people--in other
    words, less than 11 percent now is paid directly by the
    patient. We have taken out the discipline of the free-market
    system, and I think that is one of the reasons you see the
    increase in health care cost.
        But there is a very interesting series of articles in the
    Wall Street Journal. They describe the American health care
    system in 12 graphs. The most recent one was written by Joseph
    Walker, and his chart really starts in 1970, and he just shows
    the percent of total health care expenditures as a percent of
    gross domestic product (GDP). And when you put these things in
    similar scale, you see that they somewhat track.
        But he points out he does it in 12 different time
    increments, starting in 1970, shortly after the initiation of
    Medicare and Medicaid, where back then, total health care
    spending was around 5 percent of GDP. So over the next couple
    of decades as Medicaid eligibility widened, you can just see
    the increased expenditures as a percent of GDP.
        Come around 1993, 1999 was the rise of health maintenance
    organizations (HMOs), and you can actually see the curve
    flatten out there for about 6 or 7 years. But then for whatever
    reason--I cannot explain it, and by the way, this is not the
    be-all-end-all in terms of what causes. Obviously, within
    medicine, we can do a whole lot more things that obviously
    increases expenditures as well, but again, this is just one
    take on it.
        You start seeing a rapid rise again right around the year
    2000 when HMOs were starting to be moved away from by
    providers. Hospitals began to merge. Again, the decline of
    HMOs--and we also, in 2006, had the Medicare drug benefit,
    which happens in that same timeframe, where you see a pretty
    stark increase from somewhere of 12 percent of GDP to close to
    17 percent, and then the recession hit. People did not have
    enough money. Again, people do not have a lot of money, so
    spending kind of leveled out. And then right around the
    implementation of Obamacare, you see the curve start to
    increase again.
        But, again, I just thought that this was a pretty
    interesting graph.

               OPENING STATEMENT BY SENATOR MCCASKILL\1\

        Senator McCaskill. Does the third-party payment include
    insurance companies?
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Senator McCaskill appears in the
    Appendix on page 48.
    ---------------------------------------------------------------------------
        Chairman Johnson. Yes. This is insurance companies and
    government.
        Senator McCaskill. OK.
        Chairman Johnson. So, again, the point there is when
    consumers separate from the----
        Senator McCaskill. So what you are saying is back when the
    people were paying directly and did not have insurance, they
    were paying 80 percent of the cost of their health care because
    they did not have insurance?
        Chairman Johnson. Right.
        Senator McCaskill. And that now, they are not--they buy
    insurance instead?
        Chairman Johnson. Again, what I am saying, direct payment
    for the product.
        Senator McCaskill. OK.
        Chairman Johnson. OK.
        Senator McCaskill. But they are paying for insurance.
        Chairman Johnson. Oh, but we pay for all this----
        Senator McCaskill. Yes. OK.
        Chairman Johnson [continuing]. Through taxes, through
    insurance. OK. But, again----
        Senator McCaskill. It is getting a little confusing because
    third-party payment sounds like it is the government, and the
    vast----
        Chairman Johnson. Right.
        Senator McCaskill. The majority of that is insurance
    companies, private insurance companies.
        Chairman Johnson. Right, which is why I am----
        Senator McCaskill. Private free-market competitive
    insurance companies, correct?
        Chairman Johnson. Right, well, again, this is accommodation
    of government and----
        Senator McCaskill. I just want to make sure we are being
    clear here that the third party is the ``free market..''
        Chairman Johnson. Understand. That is why I am explaining.
    The point I am making is when you separate the consumer of the
    product from the direct payment of the product.
        We care deeply what our taxes are. We care deeply how much
    our insurance rates are, but when I go in to get a procedure,
    the provider does not even know what it costs. The accounting
    department does. The insurance guy knows. The Centers for
    Medicare and Medicaid Services (CMS) knows, but the rest of us
    are clueless.
        Senator McCaskill. Correct.
        Chairman Johnson. And, again, the results, we have gone
    from 4 percent of GDP to about 17 or 18 percent, and it is just
    going to continue.
        So I generally make the point if we can reconnect the
    consumer of the product to the payment of the product, bring
    free-market disciplines back into health care as much as
    possible, I personally think that would make a restraint.
        Next chart.\1\ And this is just, again, the macro level. We
    have seen this in our last hearing, the growth in Medicaid
    spending.
    ---------------------------------------------------------------------------
        \1\ The chart referenced by Senator Johnson appears in the Appendix
    on page 89.
    ---------------------------------------------------------------------------
        This chart shows in 2017, the Federal Government spent,
    according to the Congressional Budget Office (CBO), about $430
    billion. Total spending in 2017 is about $600 billion. You
    project out another 10 years, CBO is estimating in 2027, the
    Federal Government will spend $723 billion on Medicaid. Total
    spending will be somewhere in the $1.1-$1.2 trillion. So,
    again, it just shows why we need to control the cost of
    Medicaid so that the people who really do need it, that the
    funds are available.
        And the final chart,\2\ then, is just the subject of this
    hearing, to kind of bring this plane in for landing, the
    improper payments. You can see were about $14.4 trillion before
    the implementation of Obamacare. Now it is $37 billion. In my
    own mind, I think the fact that States are being reimbursed 100
    percent from Medicaid expansion is certainly one of the causes
    of that when you take a look at the amount of ineligible
    payments being made. One State in particular, California, it
    just is screaming for greater controls, and that is really why
    we have the administrator here.
    ---------------------------------------------------------------------------
        \2\ The chart referenced by Senator Johnson appears in the Appendix
    on page 90.
    ---------------------------------------------------------------------------
        And, again, let me emphasize I really do appreciate the
    initiatives that you have announced. We need a little more meat
    on the bones there in terms of we need more audits, 50 State
    audits, but in general, whatever these initiatives are,
    whatever controls you put in place, I am hoping remain in
    place. That this is not just a 1 or 2-year program or a one-
    administration program. That we really do implement these
    things long term, provide the control, because we simply cannot
    afford to waste $37 billion out of this program. There are
    people in need that really rely on this.
        So, with that, I will turn it over to my Ranking Member,
    Senator McCaskill.
        Senator McCaskill. Thank you. Thank you, Mr. Chairman.
        Thank you, Administrator Verma and Mr. Dodaro. Gene, thank
    you always for being here and all the good work. I know you are
    going to introduce your State auditors. You have told me you
    had State auditors in the house. So I will let you introduce
    them, but I am sending love to the State auditors. See, they
    have important work they can be doing here, and I am glad that
    we are going to cover that topic today. I think they are
    underutilized as being our partners in accountability for the
    Medicaid program.
        Two months ago, we held a hearing to talk about the rate of
    improper payments in the Medicaid program. I have said it
    before, and I will say it again. This Committee has a
    responsibility to ensure that the Medicaid program, which
    provides vital health care to over 70 million Americans,
    regardless of preexisting conditions, spends taxpayer dollars
    appropriately and efficiently. This is true especially as
    managed care increasingly demands a greater proportion of
    Medicaid dollars.
        In fact, both GAO and the Department of Health and Human
    Services (HHS) Office of Inspector General (OIG) published
    reports on continued weaknesses and program integrity risks and
    Medicaid managed care. Clearly, there is a need for greater
    transparency on how managed care organizations spend Federal
    dollars and greater program integrity and oversight in Medicaid
    in general.
        Importantly, there is also a need to distinguish between
    improper payments and outright fraud. I think often, we are
    conflating those two terms, and when we throw out the figure
    $37 billion and improper payments, I think the notion that is
    conjured up in most Americans' minds is ``Oh my gosh, there are
    $37 billion worth of frauds and cheats out there, and we are
    somehow giving them money.''
        That is not the case with improper payments. The reality is
    that fraud accounts for only a portion of the total improper
    payments, most of which result from provider screening and
    enrollment errors.
        Many times, the improper payments, once they are pointed
    out, become proper payments because the error was just in the
    enrolling of the recipient and information surrounding that,
    not on whether or not they are actually entitled to the health
    care benefits they are receiving.
        We have to address this problem and distinguish between
    beneficiary fraud and bureaucratic bungling. Those are two
    different issues, and we should not use one to beat up the
    other because the recipients are not deserving of the title
    that somehow they are responsible for $37 billion in improper
    spending.
        Even as we discuss Federal efforts to prevent fraud in the
    Medicaid program, we have to talk about other factors that lead
    to negative health outcomes for Americans, particularly as we
    look at health care spending. There are so many other issues
    that are impacting the level of health care cost in this
    country besides the viability of the Medicaid program. The
    Medicaid program is not driving health care costs up. There are
    a number of different factors, including misplaced incentives
    and unbridled greed of the pharmaceutical industry.
        First, we can fight back against skyrocketing prescription
    drug prices. Earlier this year, I released a report--and I hope
    you have read it, Administrator--that shows the average price
    of the 20 most popular brand-name Medicare Part D program drugs
    have risen 10 times the rate of inflation for 5 years running.
        And last month, I released a second report showing that if
    the Federal Government could negotiate directly on prices for
    these drugs, like they do in every other country, except the
    good old United States of America where the American people are
    being asked to provide all the profits to these companies, the
    taxpayers could save up to $2.8 billion a year.
        Second, we can stop the over-prescription of opioids. For
    too long, opioid manufacturers have used illegal marketing and
    sales techniques to expand their market share and increase
    dependency on powerful and awfully deadly painkillers.
        We need to do more to ensure the perpetrators of the opioid
    addiction crisis are held accountable. I would like us to
    revisit the Drug Enforcement Administration (DEAs) ability to
    hold the distributors accountable and stop the shipments that
    are outside the bounds of reasonable before they occur, so we
    are not sending thousands and thousands of pills to a community
    that is very small.
        Finally, we need to keep the consumer protections built
    into the Affordable Care Act (ACA). In the latest attempt to
    strip millions of Americans of their health insurance,
    Republican Attorneys General (AG), including the Attorney
    General of my State, have gone to court to take away every
    single consumer protection in the law and the additional
    payments that seniors get on prescription drugs to fill the,
    ``donut hole.''
        This is decidedly not what the American people want. In
    fact, as of 2016, an estimated 27 percent of adults under the
    age of 65, 52 million Americans, had preexisting conditions
    that would make it difficult, if not impossible, to obtain
    affordable health care coverage if they did not have health
    insurance at work.
        I can tell you that when I talk about this issue in the
    town halls of my State, even the reddest parts of my State
    where I am not very popular, every head nods. The notion that
    we are going to take away these consumer protections with
    nothing in place to secure protections is outrageous.
        You and I agree, Mr. Chairman, on the need to lower costs
    in Federal health care programs, and you and I agree on
    transparency in pricing.
        I have told the story in this hearing many times. I am a
    U.S. Senator. I had my knee replaced. Nobody could tell me what
    it cost. I did this myself personally calling my doctor, the
    hospital, the insurance company. I kept insisting on a number.
        I finally got numbers from all three of them. Guess what?
    None of them agreed on what it cost. I can go within a quarter
    mile of my home in St. Louis and find the best cheeseburger,
    know how much it costs, know how big it is, see pictures of it,
    know how clean their bathrooms are, how good their service is,
    but I cannot go online and find out what is comparable apples-
    to-apples prices for a knee replacement and what the reviews
    are of each facility and each doctor and how much I am going to
    have to pay out of pocket. Why is that so hard? Why can we not
    bring pricing--the American people are really good shoppers. We
    cannot expect them to bring down the price of health care if
    they have no idea what that price is.
        The silos of profit are working overtime in this building
    to keep us from busting these silos and letting the American
    people decide whether or not they are getting a good deal on
    their health care. I think that is some place that the Chairman
    and I have 100 percent agreement, and I would love to work on a
    bipartisan basis to see if we cannot bring transparency to
    pricing within our health care system.
        Thank you, Mr. Chairman.
        Chairman Johnson. So let me give a quick answer to your
    question. You asked why do we not know that? Because we are not
    paying for it. The consumers are not paying for it directly.
        Where they are in the private sector, for example, Walmart,
    the State can look at, for example, a shoulder replacement.
        Senator McCaskill. Well, I disagree with you.
        Chairman Johnson. They are contracting with a particular
    provider, and they know exactly what that cost--and that is the
    private sector. But, again, they are the ones paying for it,
    and so they actually know.
        Senator McCaskill. No, we are paying for it with higher
    insurance premiums.
        Chairman Johnson. I know, but we are doing--when I say pay
    directly for it.
        Senator McCaskill. Yes.
        Chairman Johnson. We are paying indirectly through taxes
    and through insurance payments. Again, you do not have the
    price transparency forced on them by the marketplace.
        Postscript to my thing. I meant to mention this. Medicaid--
    oh, by the way, the improper payments of Medicaid are a little
    bit different than other improper payments in other agencies
    because they are 99 percent-plus as all overpayment. They
    represent 26 percent of all government improper payments, even
    though Medicaid is about 9.6 percent of total Federal spending.
        So, again, one of the reasons we are focusing on Medicaid
    is it is just so out of whack in terms of its representation.
        And oh, by the way, Medicare Part D providers do negotiate
    with drug companies. So there is certainly drug----
        Senator McCaskill. Not with the government.
        Chairman Johnson. Yes. I mean, the providers do. The ones
    that you actually contract to buy your drugs from, they do
    negotiate prices. That is sometimes left out of the equation.
        With all that being said, it is the tradition of this
    Committee to swear in witnesses. So if you will both stand--
        Senator McCaskill. We will quit debating and swear in the
    witnesses.
        Chairman Johnson. That is kind of fun, isn't it?
        Do you swear the testimony you will give before this
    Committee will be the truth, the whole truth, and nothing but
    the truth, so help you, God?
        Mr. Dodaro. I do.
        Ms. Verma. I do.
        Chairman Johnson. Please be seated.
        Now I got to find my script. Do we have introductions?
        [No response.]
        OK. We did not have real big introductions. So our first
    witness will be the Administrator of CMS, Seema Verma.

     TESTIMONY OF HONORABLE SEEMA VERMA,\1\ ADMINISTRATOR, CENTERS
                   FOR MEDICARE AND MEDICAID SERVICES

        Ms. Verma. Chairman Johnson, Ranking Member McCaskill, and
    Members of the Committee, thank you for the invitation to
    discuss CMS's efforts to increase accountability in the
    Medicaid program. I appreciate this Committee's recent work on
    this issue and share your commitment to improving program
    integrity in the Medicaid program.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Ms. Verma appears in the Appendix on
    page 52.
    ---------------------------------------------------------------------------
        Before coming to CMS, I spent most of my career working
    alongside States to help them reform and strengthen their
    Medicaid programs, whether it be seniors living in the
    community through the support of personal care services or the
    respite care that allows a parent to keep their child with a
    disability living at home. I have seen firsthand the difference
    that the Medicaid program makes in people's lives.
        I believe that Medicaid is more than a safety net. It is
    the lifeline, one that needs to be preserved and protected for
    those who truly need and qualify for it. For all of Medicaid's
    recipients, we work to provide for the best quality of life,
    quality of care, and access to care so that they may live
    healthier, more fulfilling, and more independent lives.
        However, I believe that Medicaid should be stronger to
    ensure that no deserving Americans fall through the cracks. We
    must and we can serve them better. The status quo is not
    acceptable.
        When the Federal Government established the Medicaid
    program, it was intended to be a partnership between the
    Federal and State governments to care for society's most
    vulnerable citizens, with both jointly contributing toward the
    cost. However, that relationship has changed over the years.
        With Medicaid being an open-ended entitlement, the program
    has grown and grown, and States have spent more and more. In
    1985, Medicaid spending consumed less than 10 percent of State
    budgets and totaled just over $33 billion. In 2016, that number
    had grown to consume 29 percent of total State spending at a
    total cost of $558 billion.
        However, despite our growth in spending, more than one-
    third of doctors will not even see a Medicaid patient, and as
    the program has greatly expanded, it has led to longer waits
    for care and increased program integrity risks.
        Our vision for Medicaid is to reset and restore the balance
    to the Federal-State relationship, while at the same time
    modernizing the program to deliver better outcomes for the
    people we serve. This vision for transforming the Medicaid
    program is centered on three principles: greater flexibility,
    stronger accountability, and enhanced program integrity.
        So let us start with flexibility. Every State has different
    needs and challenges, and that is why Washington should not
    design a cookie-cutter Medicaid program. Instead, CMS has
    offered States unprecedented flexibility to design health
    programs that meet the needs of their residents. CMS has
    significantly reduced the time States have had to wait for
    approval of their State plan amendments and waivers, and at the
    request of many States, we have released new guidance on how to
    incentivize community engagement in order to improve health
    outcomes.
        We are also equally committed to our second pillar,
    strengthening accountability. That is why this year, CMS
    released our first ever Medicaid Scorecard, which compiles
    health outcome metrics. This is the first effort to publicly
    report on States and Federal administrative performance. It is
    time to be transparent about what our investment in Medicaid is
    buying.
        And that brings us to our third pillar, enhancing program
    integrity, the topic of today's hearing. In June, we announced
    a new Medicaid program integrity strategy that will bring CMS
    into a new era of enhancing the accountability of how we manage
    Federal taxpayer dollars in partnership with States.
        First, CMS has launched new eligibility audits. The
    expansion of Medicaid under the Affordable Care Act provided an
    unprecedented level of financial support for newly eligible,
    able-bodied adults. This created an opportunity for States to
    shift cost to the Federal Government and requires us to ensure
    States are accurately determining eligibility. These new audits
    will include assessing the effects of Medicaid expansion and
    its enhanced Federal match rate on State eligibility policy.
        Second, we are taking steps to strengthen our oversight of
    State financial claiming and managed care rate-setting. Through
    our strengthened oversight, CMS has already recovered billions
    from one managed care State. CMS will also audit States
    contracting with managed care organizations, and we will be
    closely reviewing financial reporting to ensure that rates are
    appropriate and that costs are not inappropriately shifted to
    taxpayers.
        Third, we are working to optimize how we use State-provided
    claims and provider data in our program integrity efforts. For
    the first time, as of last month, every State, DC., and Puerto
    Rico are now submitting data on their programs to the
    transformed Medicaid Statistical Information System (T-MSIS).
    We are now shifting from simply collecting the data to using
    advanced analytics and other innovative solutions to improve
    data and maximize the potential for program accountability and
    integrity purposes.
        Moving forward, we must continue to bolster our existing
    efforts and optimize the use of data to drive better health
    outcomes and improve program integrity efforts. Medicaid is too
    vital a program to let fraud and inappropriate spending
    threaten its sustainability, but as long as the program remains
    an open-ended entitlement and there is a 90 percent match rate
    for the expansion population, States have an incentive to find
    new ways to draw down Federal dollars. CMS will need to
    continually adapt and adjust our oversight policies.
        Ultimately, we need to work together to consider structural
    changes to the Medicaid program that would control spending and
    incentivize fiscal responsibility while maintaining high-
    quality care.
        Thank you for the opportunity to testify before your
    Committee, and I look forward to answering your questions.
        Thank you.
        Chairman Johnson. Thank you, Administrator Verma.
        Our next witness really does not need an introduction, the
    Comptroller General of the United States, the head of the
    Government Accountability Office, Mr. Gene Dodaro.

    TESTIMONY OF HONORABLE EUGENE L. DODARO,\1\ COMPTROLLER GENERAL
      OF THE UNITED STATES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

        Mr. Dodaro. Thank you very much, Mr. Chairman, Ranking
    Member Senator McCaskill, and Members of the Committee. I am
    very pleased to be here today to talk about the Medicaid
    program, the risks that we have identified, the steps CMS is
    taking to address those risks, and additional actions we
    believe are necessary in order to ensure the integrity of the
    Medicaid program going forward.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Mr. Dodaro appears in the Appendix on
    page 66.
    ---------------------------------------------------------------------------
        There are three areas that I want to cover briefly in my
    opening remarks. First, are the demonstrations. Demonstrations
    allow CMS to give States flexibility to spend money that
    normally would not be covered under the Federal matching
    requirements. One-third of total Medicaid spending now is under
    demonstration projects, which have been approved in three-
    quarters of the States.
        Our concern is that many of these demonstration projects
    were formed on questionable practices and are leading to more
    spending on Medicaid than would be normal under the original
    program constraints. Also, the evaluations are done as to
    whether or not the demonstrations are proving to lead to
    effective policy operations in the future have limitations.
        CMS has taken some action in this area. I am very pleased
    that they are now limiting the amount of spending that could be
    accrued under these demonstrations and carried over to the next
    year. That one change alone has saved $100 billion in Federal
    and State Medicaid money from 2016 to 2018, according to CMS's
    estimates.
        We think additional steps that CMS is planning to take will
    better ensure the budget neutrality of these demonstrations and
    we also believe that there needs to be more efforts made to
    make sure the evaluations are reasonable, timely, and lead to
    information that can help inform policy decisionmaking going
    forward. So I am pleased they are taking action, but more
    action is needed in this area.
        Second, are supplemental payments. These are payments that
    are made over and above reimbursement of claims for Medicaid or
    encounters under the managed care portion. In fiscal year (FY)
    16 these payments totaled $48 billion. We have raised concerns
    in the past about the need for more accurate and complete
    reporting on States' funds used to meet their own match, and
    without this information, there is the possibility that the
    States could be shifting cost to the Federal Government without
    even CMS knowing about it.
        In addition, these payments, particularly the non-
    disproportionate health care payments, are supposed to be made
    to ensure that they are economical and efficient, and we
    believe there needs to be better criteria for that and it needs
    to be well articulated going forward. And there also needs to
    be the proper focus and attention on supplemental payments.
        I know CMS is coming up with guidance or planning some
    policy guidance to be issued next year, and we are hoping that
    this policy guidance will address the recommendations that we
    have made in these areas.
        And the last area concerning supplemental payments that
    needs to be addressed is to make sure that the payments are
    clearly tied to Medicare spending as opposed to local sources
    of funding in these areas. What we have found in the past is
    that in some cases, the supplemental payments were given to
    local providers who provided a large share to help the State
    meet their match and not necessarily because they had the
    highest level of uncompensated care for Medicaid recipients. So
    this is important to clarify and ensure payment integrity.
        The last area is the audits that need to be done. Ms. Verma
    mentioned audits they are planning to put in place. These are
    very important. I am glad they are resuming after a 4-year
    hiatus--the beneficiary eligibility determinations. The managed
    care is my big concern. Of the $36 or $37 billion in improper
    payments, most of that is in the fee-for-service (FFS) and
    beneficiary eligibility determination. Only $500 million of
    that is in managed care. Managed care has grown over the years
    without a lot of good payment integrity and oversight processes
    in place. CMS is planning to start that, but I think State
    auditors are a tremendous, untapped resource.
        Two State auditors with us today have volunteered on their
    own to come to this hearing. Beth Wood, the State Auditor of
    North Carolina is on my left; she is also the president of the
    State Auditors Association. Daryl Purpera, the State auditor
    from Louisiana is with her. He will be the next president
    taking over that association for State auditors.
        But with Medicaid expenses expected to continue to rise
    rather dramatically--it is one of the fastest-growing programs
    in the Federal Government--we cannot afford to have the State
    auditors on the sidelines here. They need to get in the game.
    They need to have a substantive and ongoing role, and I think
    it will pay huge dividends.
        Administrator Verma and our team have had conversations on
    this, and all our recommendations, I am pleased we are having a
    very constructive dialogue on these issues.
        This afternoon, our team will has arranged a meeting
    between the State auditors and CMS to hopefully start a
    dialogue that will lead to a very good role for them.
        So I am very pleased to be here today. To us, this is a
    very important program for the American people, and we need to
    do everything we can to ensure the integrity of it and its
    survival in the future.
        Thank you very much, Mr. Chairman.
        Chairman Johnson. Thank you, General Dodaro.
        One thing I failed to mention, but I have another sheet
    here, the dais, and this is right out of the GAO testimony.\1\
    You were talking about State auditors. In neither one of your
    testimonies, you really talked about some of the State
    gimmicks. This is one, and this is pretty darn abusive. I am
    not naming the State here, but this is where the Federal
    Government has paid $155 million to the pot, the State put $122
    million, for a total of $277 million that was paid to a county
    health facility. The county health facility takes $6 million
    and then paid back $271 million back to the State.
    ---------------------------------------------------------------------------
        \1\ The portion of Mr. Dodaro's testimony referenced appears on
    page 84.
    ---------------------------------------------------------------------------
        Obviously, on paper, it looks like the State Government is
    actually providing a match, but in reality, the Federal
    Government is paying the $155 million.
        And there are other gimmicks, whether it is sales tax,
    whether it is loans to cities, that type of thing. I think that
    is probably a hearing in and of itself, but hopefully, maybe
    during questions and answers, somebody might raise this. If
    not, I will at kind of the tail end.
        But with that, I appreciate the attempts of our Members,
    and out of respect for their time, I will defer my questioning,
    starting with Senator McCaskill.
        Senator McCaskill. Thank you, Mr. Chairman.
        Let me start with a little bit on preexisting conditions.
        Ms. Verma, you have worked with insurers in the health care
    industry for years. Does it surprise you that GAO's review of
    the data from insurers show that the aggregate application
    denial rate for the first quarter of 2010 was 19 percent; that
    is, 19 percent of the people who tried to get health insurance
    on the private market were denied because of preexisting
    conditions? Does that figure surprise you?
        Ms. Verma. I am aware of that data, yes.
        Senator McCaskill. OK.
        I am assuming that there is nothing inherently in place if
    the lawsuit that the Administration is supporting and that my
    State Attorney General is supporting is successful, there is
    absolutely nothing that can be done that would change the
    market reverting to that, correct, unless the Congress took
    action?
        Ms. Verma. So I cannot speak to a pending lawsuit, but what
    I will say is that I am deeply concerned about individuals with
    preexisting conditions, and I think that we need to have
    protections in place for those individuals. And so as the
    Administrator of CMS, my job is to implement the law, and if
    the law changes in some way, I would work with Congress to make
    sure that we had protections in place for people with
    preexisting conditions.
        Senator McCaskill. Well, there is no reason a lawsuit could
    not have exempted preexisting conditions. Did you weigh in with
    the Department of Justice (DOJ) and ask them to in their
    filings specifically say that they wanted severability so that
    preexisting condition protection would remain?
        Ms. Verma. I cannot speak to a pending lawsuit.
        Senator McCaskill. If people cannot get affordable coverage
    due to denials because they--or rescissions--because they
    forgot to put ``acne'' on their application or some other
    clerical error, which was certainly the case pre-ACA, is there
    any system in place for a place those people can go and get
    insurance?
        Ms. Verma. I strongly support individuals that have
    preexisting conditions.
        Senator McCaskill. I just want you to walk us down what
    happens if the Administration is successful in their lawsuit
    and if this Congress--and we cannot even get the Majority
    Leader to have a vote on bipartisan legislation that would
    strengthen the exchanges that we have a lot of Republicans
    supporting.
        In fact, I think that one of the leadership in the
    Republican Party actually said in the press last week, ``I do
    not know what we would do if the lawsuit was successful. We
    have no plan in place, legislatively, to pick up this
    problem.''
        So what I am trying to get at here, if people do not have
    any place they can go and get insurance, what happens to their
    health care?
        Ms. Verma. I think it is very important that people that
    have preexisting conditions have the appropriate protections in
    place so that they can access the coverage that they need.
        Senator McCaskill. But the point I am trying to make is
    they will not have prevention. They will not have maintenance.
    They will only have really emergency care. So, in other words,
    diseases progress to the point that hospitalization is
    necessary, and then, of course, we all pay, right?
        Ms. Verma. I agree with you that those individuals should
    have the appropriate protections in place, and if the law
    changes in any way, shape, or form around that, we would work
    with Congress to address that issue to make sure that they had
    the appropriate protections in place.
        Senator McCaskill. Well, it would be great if we could do
    that here this month. It would be great if the Majority would
    allow us to vote on a provision that would make sure those
    protections were in place if the lawsuit was successful.
        I certainly am willing to stay here weekends, 24/7, to make
    sure those protections stay in place. There does not seem to be
    any sense of urgency about the fact that this lawsuit is moving
    its way through the courts and could blow up, I mean, all of
    the rural protections, women paying more than men.
        I love it when men say, ``Well, I should not have to cover
    the cost of women having babies,'' and I always like to point
    out, ``You have something to do with it.'' It is not fair that
    women should have to pay more because they are the ones bearing
    children.
        The four largest insurance companies denied health
    insurance to more than a half a million people based solely on
    preexisting conditions based on information that was brought
    out in 2010, and that is one in seven applicants that were
    denied.
        Let me get to improper payments and State auditors in the
    time I have left.
        Mr. Dodaro, you talked about this in your opening
    statement. We talked about CMS's auditing plan. In response to
    the Chairman's suggestion to you of private auditors, you
    suggested that CMS should engage State auditors for these
    efforts instead. Would you make sure that we have on the record
    for the Committee and make sure that--and I am sure that
    Administrator Verma is aware of this--that State auditors are
    already required to do the single audit every year? State
    auditors are already accustomed to looking at Federal programs
    and the integrity of those Federal programs in their State.
    Could you explain why this would be a seamless transition to
    add to the single audit responsibilities--taking a look at
    managed care and Medicaid particularly?
        Mr. Dodaro. Yes. The State auditors can have very deep and
    longstanding knowledge of the State Medicaid programs. In most
    States--and Administrator Verma mentions this in her
    statement--if not the number one budget item in the State, it
    is number two, and in some States, it is almost 30 percent of
    the entire budget of the State. So it is a very important
    responsibility.
        Under Federal law, the Single Audit Act, as you mentioned,
    and OMB circulars, the States are required to perform an audit
    every year of the Medicaid program along with other State
    programs----
        Senator McCaskill. Child support.
        Mr. Dodaro [continuing]. That receive Federal money. Yes.
        Senator McCaskill. There are all kinds of programs.
        Mr. Dodaro. The Temporary Assistance for Needy Families
    (TANF) program, for example.
        Senator McCaskill. I mean, frankly, our State's budget--and
    most States' budgets--is dominated by passthrough money from
    the Federal Government.
        Mr. Dodaro. Yes.
        And in the OMB guidance on this, there is a circular that
    specifies what compliance issues need to be checked by the
    State auditors who are doing those audits.
        Some of the States contract out those audits. Some do them
    themselves. So the OMB compliance supplement is one vehicle
    that CMS could use.
        Also, the single audits are always intended to be the base.
    That is, you start there, and then you can add other audits
    that focus and do more in-depth work, which is what I think
    could be done in a managed care arena.
        In this area, CMS is starting to do audits on some of their
    programs, but they are on a 3-year cycle where they are
    covering one third of the States each year. So they will not be
    finished with their cycle until 2020 or 2021, and if they use
    the State auditors, they would have knowledgeable people to
    start with. They could cover all the States every year if they
    really wanted to.
        I am not saying that there should not be a role for
    contract auditors too, but to me, the State auditors are an
    unused resource that could be very helpful.
        Senator McCaskill. And by the way, they have a bigger
    megaphone in each of their States. Their results and findings
    are telegraphed in a very bold way to the policymakers in those
    States. So, as you are working with the States to encourage
    flexibility and waivers to allow them all to make their own
    decisions, this is such a sensible partnership. It makes so
    much sense, and it will save us a lot of money because I
    guarantee you, State auditors, having some experience
    contracting audits and some experience using auditors on my
    staff, I will tell you, you will save a boatload of money if
    you go through the State auditors as opposed to hiring private
    contractual independent auditors.
        Thank you, Mr. Chairman.
        Chairman Johnson. I do want to quickly point out the
    limitation of State auditors, though. They are probably not
    going to be where you have a State really trying to expand
    eligibility to get the 90 percent match on Medicaid expansion
    or in the case of these gimmicks. I do not think you are going
    to have State auditors blowing the whistle. You would need
    Federal oversight.
        Senator McCaskill. That is just not true. State auditors
    blow the whistle on gimmicks that involve Federal spending on a
    daily basis.
        I will show you. In fact, I would ask the leadership of the
    State auditors organization, why do not you give us examples
    across the country so we can get some sampling of the kind of
    audits that are done to shake up State policymakers about the
    way Federal dollars are being spent.
        Chairman Johnson. Again, I am not saying they will not blow
    the whistle on some, but you certainly need a Federal oversight
    role here. That is the point I am making.
        Second, you started out your questioning really about
    Obamacare and guaranteed issue. We do have plans. There is a
    plan right now. I would love to vote on it, Graham-Cassidy-
    Heller-Johnson, which would more equitably distribute the
    Medicaid expansion and the advanced premium tax credit to the
    States. It is pretty much ready to go. It definitely preserves
    guaranteed issue.
        By the way, I argued strenuously but unsuccessfully during
    the debate as well to have things like invisible high-risk
    pools in Maine that literally cut the costs for young people,
    their premiums, to a third of the current level and half for
    elderly individuals, while not doing away with guaranteed
    issue.
        There are ways of doing this, and I am happy to have the
    debate. And I would love to take a vote on it as well.
        That being said, our next questioner is Senator Peters.

                  OPENING STATEMENT OF SENATOR PETERS

        Senator Peters. Thank you, Mr. Chairman, and both of our
    witnesses, thank you again for being here today.
        Administrator Verma, I was pleased in your opening comments
    when you talked about how Medicaid is absolutely essential to
    providing health care to folks in this country, and I hope that
    you are focused on the goal, which I hope all of us have, is
    that no matter who you are, no matter where you live, you
    should have access to quality affordable health care in this
    country. That should be our focus.
        And as we are looking to make Medicaid more efficient,
    which we should, we have to make sure taxpayer dollars are
    being used the best way that they can. We look at that in the
    spirit of strengthening the program and the ability to make
    sure that those folks continue to get that care.
        And when I raise that, I mean in particular to an epidemic
    that I am very concerned about, which is the opioid epidemic,
    which without question is a public health crisis in this
    country that we have to deal with, and Medicaid is front and
    center in dealing with it. In fact, most folks rely on Medicaid
    for substance abuse counseling. So, in that spirit, I have a
    few questions for you, and we all know that there is no silver
    bullet when it comes to addressing this crisis.
        But many health experts are looking at medication-assisted
    treatment (MAT), as kind of the gold standard for treating
    folks who are suffering from this addiction. We have seen this
    approach be used successfully in other countries over the
    years; in fact, in France in the 1990s which had a very serious
    heroin epidemic, used this treatment to dramatically reduce--in
    fact, by over 80 percent--the amount of deaths associated with
    overdose.
        So my first question is to you, What steps are you taking
    at CMS to expand access to medication-assisted treatments?
        Ms. Verma. Well, thank you for your question. I appreciate
    it.
        On a couple of issues in terms of dealing with the
    devastating effects of the epidemic and substance use disorder
    at large, as we look at this issue, one of the major steps that
    we have taken is to make sure that individuals on the Medicaid
    program have access to treatment, and we know that there has
    been some barriers to obtaining care with some of the existing
    Medicaid policy around institutions for mental disease (IMDs).
    Those institutions were not available to individuals on the
    Medicaid program.
        And so one of the things that we have done is to put out
    guidance to States in particular around waivers so that they
    could have a waiver of this law and to allow Medicaid
    recipients to obtain care at the IMDs. We think this has been
    an important step in terms of improving access to care.
        The previous Administration had taken action on this but
    had put in place a lot of up-front barriers requiring States to
    put a lot of different things in place before they could even
    start accessing the treatment. So we have changed this around,
    allowing individuals to have that immediate access to care
    while asking States to put together a comprehensive plan that
    would include addressing medication-assisted therapy.
        By doing that already, we have approved 11 waivers today.
    We have nine that are continuing to pend that we will be
    hopefully addressing very soon.
        In terms of your question on Medicaid-assisted therapy, I
    think that is an important issue, and I would like somebody
    from my staff to follow up with you as soon as possible on some
    of our efforts on that, so thank you for the question.
        Senator Peters. Well, I appreciate that. We will follow up,
    and you actually answered my second about the guidance to the
    States, so I appreciate that. We have to keep pushing that out
    to make sure that the States are responding appropriately and
    have proper guidance from CMS.
        The second question relates to community health centers who
    have been adapting their services, as you know, to respond to
    the opioid crisis, particularly the extent to which they offer
    Medicaid-assisted treatments.
        Health centers disproportionately serve populations on
    Medicaid or without any insurance whatsoever, which together
    account for nearly half of non-elderly adults with opioid
    addiction. They are also located in medically underserved rural
    and urban areas, which are typically, as you well know, the
    hardest hit by the crisis.
        The survey found that health centers in Medicaid expansion
    States are more likely to provide Medicaid-assisted treatment
    than those in non-expansion States, and they are more likely to
    increase the number of providers who can prescribe these
    medications and are much less likely to rely on Federal grants
    for the training.
        In addition, they distribute the Naloxone, the life-saving
    drug for reversing the effects, at almost twice the rate as in
    non-expansion States, and this tells us that when more folks
    affected by the opportunity crisis can pay for their services
    through Medicaid versus no insurance, health centers can
    provide more and better treatment to other folks as well.
        So my question is, How would you describe the role of
    Medicaid in treating individuals that suffer from opioid
    addiction, and what can we do to make that even stronger?
        Ms. Verma. So, generally, I would say that across the
    board, with all of CMS's programs, whether it is Medicare,
    Medicaid, or exchange programs, having access to coverage
    increases an individual's ability to access treatment, and we
    certainly acknowledge the important role that community health
    centers play in serving our safety net populations. And we
    appreciate their efforts.
        Senator Peters. So you see Medicaid as a positive resource
    for individuals who are suffering from opioid addiction?
        Ms. Verma. It can be.
        Senator Peters. It can be? How can it be--why would it be a
    negative?
        Ms. Verma. I think there has been some concerns that have
    been raised in terms of having providers in the program that
    may not have been screened appropriately that were providing
    medications inappropriately, and that is not necessarily an
    issue that is just a Medicaid issue. It is also across all
    potential insurers as well.
        Senator Peters. So, no question, there are problems with
    efficiencies and whether or not there is fraud, whether or not
    there is inappropriate prescribing, but on balance, these are
    programs that are absolutely essential for us to deal with this
    crisis. Would you agree?
        Ms. Verma. I think it is important for people to have
    access to treatment.
        Senator Peters. OK. Thank you.
        Chairman Johnson. Senator Hassan.

                  OPENING STATEMENT OF SENATOR HASSAN

        Senator Hassan. Thank you, Mr. Chair and Ranking Member
    McCaskill, and thank you to both of our witnesses for being
    here today.
        And I just want to know, Administrator Verma, I appreciated
    very much your comments about the importance of protections for
    people with preexisting conditions. One of the things a number
    of us are eager to hear in the upcoming hearings on the Supreme
    Court nomination of Judge Kavanaugh is for him to clarify his
    position because he has written some remarks that indicate that
    he perhaps does not believe that it is constitutional to
    require coverage of those with preexisting conditions. So it is
    one of the things I am waiting to hear through the hearing
    process and the confirmation process.
        But I wanted to turn to an issue that I think many
    Americans are concerned about, Administrator. At the beginning
    of the month, the Administration finalized a rule to allow
    insurers to sell short-term junk health insurance plans to
    cover people for up to a year. These are skimpy plans, and some
    would hardly even describe them as health insurance at all.
    They would expose consumers to a tremendous risk and come
    without many of the most important protections established by
    the Affordable Care Act.
        These junk plans can deny coverage, exclude benefits, or
    charge higher rates to people with preexisting conditions, and
    they do not even have to cover all of the essential health
    benefits like maternity care or prescription drugs.
        This junk insurance rule is just one of a litany of actions
    that the Trump administration has taken to sabotage the
    Affordable Care Act. I really think putting politics over
    patients.
        I cannot understand why the Administration would finalize a
    rule like this, given how much the American people have made it
    clear that they value comprehensive coverage and protections
    for preexisting conditions.
        Administrator Verma, the Administration has said this junk
    insurance rule will provide people with more options, but if a
    person with heart disease is denied coverage by a short-term
    plan, how is this an option for them? If someone with asthma
    tries to buy a short-term plan and is told it will cover
    everything except their asthma medication, how is this an
    option for them?
        If a woman or an older adult tries to buy a short-term plan
    and they are quoted a price they cannot afford because of their
    age or gender, how is that an option for them?
        Ms. Verma. Thank you for your question.
        Short-term limited duration plans are about giving choices
    to Americans. Today, there are over 28 million Americans that
    are uninsured. They cannot afford Obamacare's high rates.
        Senator Hassan. Certainly, more people are insured today
    because of Obamacare than before Obamacare, correct?
        Ms. Verma. And rates have gone up over 100 percent. In your
    State alone, in New Hampshire, since 2014, rates have gone up
    64 percent.
        Senator Hassan. You know how much they went up between 2002
    and 2003, if I have my years right? It was, for some people,
    about 200 to 300 percent. So the rise in insurance premiums has
    not been a product of the Affordable Care Act alone.
        I have a son today who is alive because of the research and
    development (R&D) in the medical field that allows him to have
    a baclofen pump, somewhere between 10 and 15 different high-
    cost medications, a feeding tube, and a bunch of other things--
    and home nursing, right? He would not have been alive a
    generation or two ago.
        So let us just talk about these short-term plans, OK?
    Because the concern here is that we are saying to people,
    ``Hey, you can spend less money on a short-term plan,'' and
    then when they actually need coverage, they find out that the
    money they spent does not cover it. So how is that better for
    them?
        Ms. Verma. So there are individuals today that cannot
    afford anything because of the high rates. This is intended to
    give them a choice, an alternative.
        Now, I am not saying that this is for everybody, and what
    we have done is to strengthen the consumer protections. We make
    sure that individuals are aware of what they are buying and
    what the limitations are, but the reality is there are so many
    individuals in our country, 28 million people, and the rates
    have gone up over 100 percent. There is limited choice. There
    is limited networks.
        Many of the plans that are being offered have high
    deductibles that people cannot afford, and these----
        Senator Hassan. Which was also true before the Affordable
    Care Act.
        Ms. Verma. The short-term limited duration plans were
    available before Obamacare and at the beginning of Obamacare.
        Senator Hassan. They were available for much shorter times.
    They were intended as a stop-gap between jobs. They were not
    intended as something to mislead consumers about the coverage
    they would get, and there are other methods we could take, some
    of which you heard from the Ranking Member, that could help us
    reduce health care costs overall.
        So let me turn to some of the other ways where we could
    really be getting at health care costs. As drug prices continue
    to skyrocket, one particular area I continue to focus on is how
    we can stop big pharmaceutical companies from taking advantage
    of patients and our health care system. Big pharma is endlessly
    creative when it comes to ways to game the system and pad its
    pockets.
        So let us take the Medicaid rebate program. Drug
    manufacturers have to provide rebates or discounts to States as
    a condition of having their drugs covered by Medicaid. States
    then share that discount with the Federal Government.
        Manufacturers are supposed to give larger discounts for
    brand drugs, which are typically more expensive than generic
    ones.
        But true to form, some drug makers may have misclassified
    their drugs in order to shirk their obligation to provide that
    larger discount, leading to more than $1.3 billion in lost
    discounts from drug manufacturers from 2012 to 2016.
        People might remember this issue from when Mylan, the maker
    of EpiPen, misclassified the EpiPen as a generic drug.
        So, Administrator Verma, how is CMS tracking the
    classification of drugs in the Medicaid rebate program to see
    if there are any misclassifications?
        Ms. Verma. So, first of all, in terms of the
    classifications, I will add in terms of the Medicaid rebates
    that the Affordable Care Act actually capped the amount of
    rebates that manufacturers had to give. So, even as they have
    increased their prices, the Affordable Care Act actually capped
    the amount of rebates.
        But in terms of the misclassifications, I agree with you
    this has been a significant issue.
        Senator Hassan. Yes.
        Ms. Verma. We know in the case of Mylan that there was
    definitely an issue there. We worked around a settlement of
    that, that came to about $465 million that came back to
    taxpayers.
        What CMS has done is put out guidance to manufacturers to
    make it very clear to them what the requirements are regarding
    the classification.
        The problem that we have, however, is that we do not have
    any enforcement authority. So we can put out guidance, but if
    they are not----
        Senator Hassan. Right.
        Ms. Verma [continuing]. Classifying appropriately, then we
    are limited in the amount of action we can take.
        Senator Hassan. So that was going to be--and I realize I am
    running out of time, but my last piece of this question, I was
    just going to ask you, Would you support additional authority
    from Congress so that CMS can impose civil monetary penalties
    on drug makers who knowingly misclassify their drugs in the
    Medicaid rebate program?
        Ms. Verma. Yes, we would, and I think that our efforts
    around the Mylan settlement----
        Senator Hassan. Right.
        Ms. Verma [continuing]. Shows the amount of dollars that
    taxpayers are losing, and so we would be very supportive of
    that.
        Senator Hassan. Thank you very much.
        And thank you, Mr. Chair.
        Chairman Johnson. Senator Hassan, I do want to point out,
    short-term limited duration plans are a part of Obamacare.
        Up until just leaving office, those things were for a term
    of 364 days. On the way out the door, President Obama
    restricted those to 90 days. So individuals that have been
    seeing their premiums double, triple, quadruple, simply could
    not afford it, and they were being forced to buy these limited
    plans 90 days at a crack--so now what the Administration does
    is made those--return them to where they were, 364 days, and
    allowed renewability for up to 3 years. If people end up with a
    preexisting condition cannot renew them, you have the Obamacare
    exchanges.
        So, again, this is just giving an option. It is going to
    dramatically lower premiums for people that have been priced
    out of Obamacare markets. It is called freedom.
        Senator Hassan. Mr. Chair, if I may?
        Chairman Johnson. Sure.
        Senator Hassan. If they have an event that--with a
    preexisting condition during the time that they are covered by
    that short-term plan and it is not open enrollment on the
    exchange, they are stuck.
        And, second, what we also know is that by extending what--
    these short-term plans were supposed to be here between jobs.
    It is minimal coverage while you move to your next long-term
    plan. What we know is it is going to drive the costs up for
    everybody else. That is what we have good data about.
        So I am happy to have this debate, but the reason they are
    limited in duration is because you have people spending hard-
    earned money on junk insurance that does not cover lifetime
    illnesses and events.
        Chairman Johnson. And the reason they are needed is
    because----
        Senator Hassan. And then the rest of us will pay for it.
        Chairman Johnson. And the reason they are needed is because
    Obamacare for individuals have been priced out of the market,
    double, triple, quadruple the premiums. That is why. So we are
    trying to give some option to those people that have been--the
    forgotten men and women of Obamacare.
        With that, Senator Carper.

                  OPENING STATEMENT OF SENATOR CARPER

        Senator Carper. I am going to say something I had not
    planned to say. One of the things we, every now and then around
    here, actually work together, and to the best people we have
    Lamar Alexander and Patty Murray. And some of us were invited
    to participate less than a year ago in a series of hearings and
    a series of offsite coffees that preceded those hearings to try
    to figure out what are some things we can agree on to bring
    down the cost of coverage in the exchanges.
        And the witnesses included Governors. They included State
    insurance commissioners, folks from health insurance companies,
    providers, you name it, and they basically agreed on three
    things. It was kind of amazing. First, they said at the end of
    the day, what we need is to adopt an approach on reinsurance,
    maybe sort of like what we have in Medicare Part D, but that
    would be a good step.
        Second, they said that cost sharing reduction (CSR), we
    need to make sure the cost-sharing arrangement, so that they do
    not go away, that they are going to be around, the insurance
    companies can count on those. They have some certainty.
        The third thing--the witnesses agreed one after the other
    was that if we are going to get rid of the individual mandate,
    we have to come up with some combination of alternatives, which
    in their aggregate mimic the effect of the individual mandate.
        We have some witnesses who said the reduction in premiums
    in the exchanges could be 25, 30, or 35 percent if we would do
    those three things, and regrettably, we have never voted on
    that package, which is just beyond me.
        One of my best friends, this guy named Kasich from Ohio, we
    were freshman Congressmen together 400 years ago, and he was
    asked why he decided to extend Medicaid in the State of Ohio a
    few years ago, Medicaid expansion up to 135 percent. And he
    said, ``When I stand at the pearly gates someday in the future
    and I am trying to get into heaven and they ask me what did you
    do to deserve getting in''--and I am paraphrasing him, but he
    said, ``I just want to be able to say that when people needed
    health care, I helped them get it.''
        And when you read Matthew 25--my colleagues hear me quote
    Matthew 25 from time to time--it says, ``When I was hungry, did
    you feed me? When I was naked, did you clothe me? When I was
    sick and in prison, when I was thirsty, did you give me to
    drink when I was a stranger in your land?'' It does not say
    anything about health care. It does not say a word about when I
    did not have any access to health care, did you do anything
    about it.
        And Kasich says, ``Well, I want to be able to say we did
    something about it.''
        I think we have a moral imperative to the least of these in
    our society, and as we are talking about here today, we have a
    fiscal imperative because States face big fiscal challenges. We
    do in other States too, and frankly, we in the Federal
    Government face big fiscal challenges.
        And so the timing of this hearing is ideal and it is
    important. I have focused for years on improper payments. A
    bunch of my colleagues have worked in those fields with me, and
    so has Gene Dodaro and our friends at GAO.
        I have a question on program integrity, and I want to ask
    Mr. Dodaro.
        Ms. Verma, I always note Gene Dodaro--if you will notice,
    not a word on a piece of paper. He just sits there and gives a
    statement, and then he answers questions. For the first few
    times that he did it, first couple of years, I was like really
    amazed, and then I noticed this lady who has like a white coat,
    right behind him over his left shoulder. When he speaks, I see
    her lips move. [Laughter.]
        She is always there. So we welcome you both.
        A question for Gene. Earlier this year, as you may know,
    Senator McCaskill, Senator Johnson, and I introduced yet again
    more improper payments legislation, and it was called the
    Payment Integrity Information Act. And the bill takes a series
    of steps or at least attempts to take a series of steps to
    address the problems of improper payments across our
    government, including the formation of a working group that
    will enable Federal agencies to collaborate with each other and
    with non-Federal partners, such as State governments, to
    develop strategies for addressing key drivers of improper
    payments.
        And I would just ask, Mr. Dodaro, should this bill become
    law--and it just might--what would you advise this working
    group to focus on in order to combat improper payments in the
    Medicaid program? What advice would you have?
        Mr. Dodaro. First, I am very supportive of the legislation.
    I hope that it becomes law.
        Senator Carper. Would you like to be added as a cosponsor?
        Mr. Dodaro. Well, Senator, I do not think the rules will
    allow that.
        Senator Carper. All right.
        Mr. Dodaro. But from my vantage point, I think it is a good
    piece of legislation. I think it would advance the focus on
    improper payments. The advice I would give to the working group
    would be to focus on the managed care portion of the Medicaid
    program. That area has received very little attention over the
    years. CMS is beginning to take action on that area, and I am
    very pleased with what they are planning to do. But I think
    more needs to be done in that area.
        I would also encourage them to have some State auditors on
    their working group to work together with them as they develop
    their strategies. As the legislation is currently configured,
    most of the people on the working group appropriately are
    Federal officials, but I think they ought to bring in some
    State and local auditors as well.
        This was done on the Recovery Act, and I think to great
    success in helping to eliminate, minimize fraud, waste, and
    abuse, and I think it could be done here as well.
        So we have a lot of other more technical recommendations we
    can give the working group, but those would be my main points.
        Senator Carper. Good. Thanks.
        Another one for you, Gene, but Congress has mandated that
    States submit Medicaid data to CMS to create, I think, a
    national database of Medicaid data. It has an acronym, as you
    might imagine, T-MSIS.
        GAO has also found that States are delaying in providing
    Medicaid data to CMS, both for expenditures and for utilization
    of health care services.
        And I would just ask, what should Congress do to help
    States report data to this entity, T-MSIS? What should they do
    to help States reporting in a more timely, efficient, and
    accurate manner, and what resources do CMS and the States need
    to adequately report data to CMS?
        Mr. Dodaro. The States are beginning to report the data
    now, but I think our concern is that the data be accurate and
    complete. I know CMS is beginning to follow up on this. I think
    that it would be appropriate to ask CMS to regularly report to
    the Congress on the quality of the data and ask GAO to evaluate
    that as well. This would also allow States to do comparability
    assessments to compare their Medicaid program to other Medicaid
    programs to learn good lessons.
        The data are starting to come in now. This is a very
    important issue because in the past, the data was 2 and 3 years
    old. This requires monthly reporting, but the reporting data is
    only one step. The data have to be good. It has to be complete
    and accurate, and I think that is the next challenge here for
    CMS and the States.
        But Congress can help by regularly monitoring what is going
    on in this area and encouraging greater actions by the States
    as well as by CMS.
        Senator Carper. Good.
        Mr. Dodaro. And GAO will be happy to help. We will be
    watching this.
        Senator Carper. Good. Thanks. Thanks so much.
        Ms. Verma, if we have a second round, I will be pleased to
    ask some questions and direct them to you.
        Ms. Verma. thank you.
        Chairman Johnson. Senator Heitkamp.

                 OPENING STATEMENT OF SENATOR HEITKAMP

        Senator Heitkamp. This should concern everyone. There is no
    doubt about it. The question is can we afford it, and if we
    cannot, how do we solve this problem? So no one here should
    pretend that we do not have a problem.
        But one thing that gets absolutely lost in the back-and-
    forth on Obamacare is we should be talking about health care.
    We should be talking about the increased cost of health care,
    and so if we could all just turn away from our politics for a
    minute and go directly to solving the problem, we would go a
    lot further.
        So there are three ways we can solve this problem. We can
    address waste, fraud, and abuse. We can improve efficiency in
    delivery, and we can reduce the amount of health care that is
    being accessed. All of those things would go a long way.
        The RAND Corporation did a study, and the study said 12
    percent of all the people in this country who have four or more
    chronic conditions cost the system 40 percent. What are we
    doing to address that?
        Seema, when you look at this, have you seen it increase?
    North Dakota is a 50 percent State. We were as high as 80 at
    one point before the Bakken boom. So are you seeing an increase
    in the amount of Federal share overall in traditional Medicaid?
        Ms. Verma. Yes. I mean, I think that is the concern that we
    have, and Senator Johnson brought this up in terms of where we
    are with the GDP.
        Our actuary projects that by 2026, we are going to be
    spending one in every five dollars on health care, so we are
    deeply concerned.
        Senator Heitkamp. Right, but that is not what I am asking.
        The State and Federal Government share the cost of the
    Medicaid program. So what percentage today overall, nationwide,
    of the Medicaid program does the Federal Government spend?
        Ms. Verma. Well, there are different matching rates,
    depending on the population that we are serving, right? So if
    we look at where we are over the next 10 years, our actuaries
    project that we are going to be spending about $998 billion----
        Senator Heitkamp. But what percentage of overall Medicaid
    spending is that?
        Ms. Verma. It depends on which program.
        Senator Heitkamp. Yes, but----
        Ms. Verma. For able-bodied adults, we are paying--the
    Federal Government is paying 90 percent, and it depends on the
    match rate.
        Senator Heitkamp. Yes. No, I mean, this is an important
    question because as we look at the economic challenges, State
    by State, some States are wealthier than other States. If you
    have a large State, that is not as wealthy.
        Maybe you can answer this: What is the current Federal
    Medical Assistance Percentages (FMAP) on average in Texas?
        Ms. Verma. I think the FMAP in Texas is probably a little
    bit--60s? About 65 percent.
        Senator Heitkamp. Yes. And if that goes up to 70, you are
    going to have increased cost.
        So this does not help me much because I do not know what is
    driving this other than utilization.
        And so this is supposed to be a hearing about waste, fraud,
    and abuse, and I think that I share Senator McCaskill's point
    of view about the need to work with State auditors. They have
    real skin in this game.
        I had my director of the Department of Human Services tell
    me that 28 percent of his budget went to pay for less than
    3,000 people in nursing homes. Now, that is something we need
    to talk about, and so instead of talking about all the things
    that we get bogged down into, let us talk about health care.
        So when you look at waste, fraud, and abuse, and you look
    at the programs, are you committed over at CMS, Ms. Seema, to
    responding and to having ongoing and consistent reports back to
    this group about the Medicaid program?
        Ms. Verma. Absolutely. And I think that this year since I
    have come to CMS, we have taken a lot of different actions.
        One of the things when I came to CMS, we inherited a
    backlog of----
        Senator Heitkamp. Yes, I know.
        Ms. Verma [continuing]. GAO and OIG recommendations.
        Senator Heitkamp. I do not think anyone should put any
    blame. We had 13 years of inattention, but we have an
    opportunity today to take that first step toward solving this
    problem. And I want to make sure that you are working with GAO
    to respond.
        There is a number of GAO requests, but this is a very high
    priority for our oversight.
        Ms. Verma. I completely agree. We have made this a priority
    in the organization. We meet with the GAO and OIG regularly. We
    have taken action. We have taken action on the backlog of
    disallowances. We have addressed some of the improper payments
    that were going on with the Medicaid program in California, for
    example, where we recovered by the end of this year, $9.5
    billion.
        We have also closed some of the loopholes in the designated
    State health programs up to the tune of $25 billion.
        The disallowances, that was $590 million that we went back
    and addressed.
        We are also doing some of our own audits around beneficiary
    eligibility as well as managed care audits. We are restoring
    the payment error rate measurement (PERM), the PERM audits as
    well. We started doing those.
        So we have taken a lot of actions, and I agree that we need
    to do more.
        Senator Heitkamp. Mr. Dodaro, let us assume that we run a
    perfect system and there is no waste, fraud, or abuse. How much
    do we reduce this number?
        Mr. Dodaro. Probably marginally.
        Senator Heitkamp. Yes. And that is the point, is that we
    need to spend every dollar critically, but at the end of the
    day, that is not going to solve our problem with this explosion
    of Medicaid costs.
        This is a product of aging, aging into the system. It is a
    product of increased percentage of older, oldest who have
    depleted their resources, where we need to take a look at
    investments and research that is going to help people live in
    their homes longer and not access these programs.
        We have real work to do here, and it frustrates me to no
    end that we do not begin to address the things that can, in
    fact, make a difference long term.
        And so I think that one of the next steps is how do you
    deliver health care in States like mine, and I want to publicly
    thank Ms. Verma for working with my office and working with me
    to talk about rural health care delivery.
        I know the article that was in the New York Times that
    relay the situation in Claire's home State was absolutely eye-
    opening, and it tells us we need to do better, especially for
    those seniors who rely on this program.
        But we have to start identifying those things where we can
    actually save money and save money long term without curtailing
    people's access to care.
        And I want to just say one thing. It is disingenuous--and I
    am not talking about you because you did not make this
    decision, but it is disingenuous of this Administration to say
    they believe in preexisting conditions, protections in Federal
    law for preexisting conditions, when they are currently in
    court arguing that they are unconstitutional. There is nothing
    consistent about that position.
        Now, I understand the complications with preexisting
    conditions and the complications with eliminating the
    individual mandate and preexisting conditions, but let us not
    pretend that there is any commitment here from the Department
    of Justice to preserve preexisting conditions as a protection
    for the American public because you do not go to court and
    argue that it is unconstitutional if you intend to preserve
    that protection.
        So it is not your decision, but I want that on the record.
        Chairman Johnson. Senator Heitkamp, thank you.
        A quick answer to your question, off of this chart,
    according to CBO, it is about 72 percent, the $430 billion, 72
    percent of the $600 billion total spend, when you combine the
    two types of Medicaid expansion and core Medicaid.
        And then there are multiple causes in terms of why health
    care spending is a growing--take a look at this first sheet.
    This is kind of an interesting one.
        Senator Heitkamp. I saw it.
        Chairman Johnson. I appreciate that. Senator Daines.

                  OPENING STATEMENT OF SENATOR DAINES

        Senator Daines. Chairman Johnson, I want to thank you for
    your continued attention to this important issue. I do hope the
    Democrats and Republicans can make some breakthroughs here.
    This is a chance for bipartisan ship.
        I respect Senator Heitkamp's comments. There are multiple
    factors driving up this spending, but the scope of this hearing
    is to take a look at Medicaid fraud, Medicaid overpayments, and
    that is, I think, an important place to start, where I think
    there is probably some of the lowest-handing fruit for us,
    perhaps in this area, that I hope we can agree on because if we
    fail to do this--these are important safety nets that we have
    in not only Medicaid, but I would argue Medicare.
        If Medicaid spins out of control in terms of spending, it
    puts all of these important safety nets at risk, and we need to
    insure we safeguard these important safety nets for those who
    truly need it.
        These improper payments in Medicaid, these exponential
    growth rates have been problems for years. I am struck by the
    fact that by--I think it is about 2022, Mr. Chairman, where
    Medicaid spending all in the Federal component, the FMAP, plus
    the State component exceeds Medicare spending--and about 2022
    is when those numbers cross is my understanding, some, what,
    $835 billion, all in number in Medicaid compared to $828
    billion in Medicare. And I do not think that is being talked
    about enough right now.
        We talk a lot about the challenges of ensuring we keep
    Medicare protected long term, but Medicaid spending will exceed
    Medicare spending all in.
        And the numbers, Administrator Verma, that you shared about
    California alone, that $9.5 billion, that is real money. I
    think about how hard we fight on Capitol Hill, like on the
    Land, Water, and Conservation Fund (LWCF), for example, to try
    to get that fully funded. We could take 5 percent of the
    California savings and fully fund LWCF.
        I think about the backlog in our National Parks. I chair
    the National Parks Subcommittee. We have about a $12 billion
    maintenance backlog, of deferred maintenance. That is debt in
    our National Parks. The California $9.5 billion recovery that
    you all have made just about takes care of our National Park
    deferred maintenance for the entire country. so these are
    important discussions.
        Administrator Verma, I applaud your efforts to improve the
    program's integrity. The waste, the fraud, the abuse in
    Medicaid is appalling, and now we have millions of healthier
    working-age individuals who are being added to this program.
        Enrollment in my home State of Montana has exploded and far
    exceeds the initial actuarial projections.
        My question is, Are you concerned that providing care to
    the expansion population could bring about even more misuse of
    taxpayer dollars?
        Ms. Verma. So if we look at Medicaid expenditures for
    adults, newly eligible adults, these are projected to amount to
    $806 billion over the period of 2016 through 2025, so it is an
    extraordinary amount of dollars.
        Senator Daines. On the expansion.
        Ms. Verma. On the expansion population alone.
        Senator Daines. Right.
        Ms. Verma. And if you look at the structure of that, it is
    90 percent eventually that the Federal Government will pay for
    this, and so I think that that diverts the focus from the rest
    of the Medicaid program, the most vulnerable populations.
        In terms of program integrity, this is why we are deeply
    concerned about this. We have always had program integrity
    efforts within the Medicaid program, but given now the change
    with the match rate--and it is not only 90 percent, but it is a
    completely open-ended entitlement----
        Senator Daines. Right.
        Ms. Verma [continuing]. The incentives are not in place
    necessarily for the State to focus on program integrity because
    as they are recovering dollars--for example, if they have
    budget cuts or if they are focusing on program integrity for
    the expansion population, they are only going to recover, only
    up to 10 percent. So that is why I think it is incumbent on the
    Federal Government to have a renewed and more focused attention
    on this.
        Senator Daines. Administrator Verma, you have worked both
    the State side as well as the Federal side. You have worked
    with Vice President Pence when he was Governor.
        So if you put your hat on, if you were a Governor, and you
    had basically an FMAP of 90 percent to 94 percent with the
    expansion population and you have, in Montana's case, about a
    65 to 66 percent FMAP with traditional Medicaid--you talked
    about the incentives of integrity--arguably, would not there be
    an incentive perhaps for the States? As much as I strongly
    believe in the principle of federalism and empowering the
    States, but with an open-ended entitlement on the expansion, do
    you think there perhaps is an incentive for States to move
    traditional Medicaid enrollees and move them on the expansion
    FMAP? Because the algebra is pretty simple.
        Ms. Verma. Yes, absolutely. And I think that is why we are
    focused on doing more audits around eligibility because we know
    that there have been problems with this.
        Some of the audits have shown--that the GAO have done, that
    we know that there has been system errors, whether some of
    these are worker errors, but you are right. At the end of the
    day, with that 90 percent match rate, States have a strong
    incentive to draw down more Federal dollars.
        I think also, in terms of their support of the program,
    that those are dollars that they are putting toward able-bodied
    adults that they are not putting toward vulnerable populations.
        We know that access to care in Medicaid has been an issue
    in terms of provider reimbursement. So those are dollars that
    they are not putting toward vulnerable populations, increasing
    rates to providers, and that they are putting for able-bodied--
    --
        Senator Daines. Arguably, we are subsidizing at a higher
    rate able-bodied individuals at the expense of what Medicaid is
    originally intended to protect, which are those who are truly
    the most vulnerable in our society that do not have any other
    options. It is just a concern.
        Ms. Verma. I think it is a concern.
        I think also the structure of how we have set this up, with
    a 90 percent match and an open-ended entitlement, it really
    does create an incentive for the States to spend more and more.
        So as we are looking at program integrity at large and we
    think about all of the efforts that we are taking and we
    appreciate the support of the GAO, the State auditors, but at
    the end of the day, we are constantly going to be--if we come
    up, we audit. We find problems; we correct them. States are
    going to figure out new ways, and until we change the dynamic
    and the structure of the Medicaid program from being an open-
    ended entitlement to one where States are responsible for a
    fixed amount of dollars, we are always going to have these
    issues around program integrity.
        Senator Daines. You mentioned GAO. Last question over to
    the General.
        General Dodaro, to follow up on our conversation about 2
    months ago, is GAO analyzing improper payments data pertaining
    to the expansion population?
        Mr. Dodaro. Yes. We have looked at that issue, raised a
    number of recommendations to CMS to address. For example, in
    some States, they have asked CMS to do the eligibility
    determination for them, but they need to check to make sure
    they have good quality controls in place. So that is a good
    step forward. They are putting that in place. We are checking
    it, and that should be OK.
        The other thing is that they need to make sure they are
    checking because some people can move between Medicare--or the
    Medicaid program itself and the exchanges, and they can go back
    and forth, depending on their income, their employment status
    as well, and that needs to be measured because there are
    different payments that accrue to them because of this.
        And then there are also inconsistencies in eligibility
    determination, both for financial and nonfinancial data, that
    need to be resolved.
        So we have looked at this. We have made recommendations.
    CMS is taking action. In most of them, we have closed it. In
    some areas, we are waiting for additional documentation.
        Senator Daines. Thank you.
        Mr. Chairman, I think there will be a spin in others who
    would seek to try to perhaps challenge the motives of what this
    Committee is trying to do, but I think--let us be clear. We
    want to make sure we protect and that we save Medicaid and
    Medicare, and by doing so, by eliminating the waste, fraud, and
    abuse or minimizing it, that is the best way to ensure those
    who need it the most will continue to see those benefits.
        Thank you.
        Chairman Johnson. Thank you, Senator Daines.
        Now, my staff tells me that Senator Jones is next. Is that
    true?

                   OPENING STATEMENT OF SENATOR JONES

        Senator Jones. All right. Thank you, Mr. Chairman, and
    thank you for the witnesses for being here.
        Let me first--I just want to echo something that Senator
    Heitkamp said, and I know, again, it is not there. But I want
    to also talk about this preexisting condition issue because I
    have just spent the last couple of weeks in a couple of
    roundtables with listening to people affected, 900,000 people
    in Alabama affected by preexisting conditions. And that is just
    the people affected, not just their families.
        I agree with Senator Heitkamp that I am just stunned at the
    way that the Administration is saying they want to protect
    that, but at the same time taking actions that are scaring my
    citizens to death that they are not going to be able to have
    insurance.
        I just came from a Banking hearing involving sanctions, and
    the mantra of the Administration is watch what we are doing on
    sanctions, not what we are saying.
        Here, it seems to be just the opposite, that watch what we
    are saying and not what we are doing. So to the extent that
    either of you can have any influence, please try to alter the
    course of the Administration with regard to preexisting
    conditions. Thank you.
        Ms. Verma, let me ask you real quickly. The Medicare wage
    index is a real problem, and I know you have seen letters from
    members of my delegation. Alabama is at the lowest level on
    that, and we were hoping there might be a little relief in the
    most recent inpatient perspective payment system rule that came
    out in August, but we did not get that.
        How can we best work together to find a solution to that
    for my State? I mean, we are having rural hospitals closing
    left and right, and it is everywhere I go. The first thing they
    say is it is because we are just not getting the same amount of
    reimbursement.
        What can we do together to try to get that changed, short
    of a full-blown legislative fix that may or may not ever
    happen?
        Ms. Verma. Well, thank you.
        I appreciate the issue that is going on in Alabama with the
    hospitals, and I had an opportunity to meet with some of the
    hospitals and the hospital association----
        Senator Jones. Right.
        Ms. Verma [continuing]. And appreciated their input. And I
    am deeply sympathetic to the issue that they are facing in
    Alabama.
        I think the wage index is something that we are concerned
    about, and so what we did in our rule was to put out a request
    for information (RFI). That gives us an opportunity to hear
    what the impact has been on the wage index, and that is
    something that once we have that input, that gives us a basis
    of looking at the methodology.
        I am concerned when there are these types of disparities,
    and whether you are a hospital in a rural area, you are still
    paying the same amount for equipment.
        Senator Jones. Right.
        Ms. Verma. And so we do need to address that issue.
        I am concerned about the closing of hospitals, and I want
    to make sure that all Americans have access to care, whether
    they are in a rural community or whether they are in an urban
    community, so this is something that is important, which is why
    we started out with putting an RFI. And this is something that
    we are going to be looking at next year, so I appreciate it.
        Senator Jones. Great.
        Well, I am assuming from your answer that I can get your
    commitment to continue to work with our office and the other
    members of the delegation to try to address that.
        Ms. Verma. Absolutely. I look forward to working with you
    on this.
        Senator Jones. Wonderful.
        The other thing I want to ask, Ms. Verma, is about the
    Medicaid exemption that Alabama has just recently requested and
    I think has been sent back now.
        Alabama is trying to impose some very strict work
    requirements for Medicaid recipients I think in trying to
    oppose like 35 hours of work. Alabama has incredibly strict
    guidelines to begin with. It is very low, and the way I see our
    failure to expand Medicaid has essentially turned this work
    requirement into a work penalty.
        And I know that has been sent back, but I would like to
    have a little bit of information from you because I am strongly
    opposed to what the State is trying to do because it is a
    Catch-22 when people that are barely making above the poverty
    level are either going to have to work or have insurance. That
    is just it. So it is a real Catch-22.
        So how are you going to be looking at that? Are you going
    to be looking at factors about how it is going to impact the
    children, how it is going to impact families that need child
    care options? Are you looking at Head Start and those things?
    What is going to go into effect? How are you going to look in
    evaluating whether or not Alabama gets this exemption for what
    I think is an ill-conceived requirement?
        Ms. Verma. So let me speak generally to the issue of
    community engagement. Our guidance came from requests from
    States, many States trying to address generational poverty,
    trying to do something with the Medicaid program to address
    that issue to help people find a pathway out of poverty,
    independence, finding a pathway to have the dignity of work.
        It is also about improving health outcomes, and so that is
    really where this was borne out of, were these particular
    requests.
        We know that the old way has not worked when people have
    been living in poverty for so many years, and I think this is
    about trying something different, trying to improve the lives
    of Americans.
        When we put together the community engagement guidance to
    States, one of the things that we ask for is that they consider
    special populations so that there are some populations.
        This does not impact children. It does not impact people
    living with disabilities. It does not impact pregnant women. It
    does not impact individuals that are medically frail or
    individuals that are addressing substance use disorder.
        So when States are putting together their community
    engagement proposals, we have asked them to address these
    issues, address exemptions. There might be parts of the States
    that may not be appropriate or may not have jobs available, but
    I think at the end of the day, the work participation rates in
    the United States have gone down. They are some of the lowest
    that we have seen in many years, and we know that there is a
    lot of jobs that are available. So this is the idea of helping
    people to obtain independence and obtain the skills that they
    need.
        They can also participate--it is not only about work. It
    could be--community engagement means volunteer work. It could
    be job training. It could be participating in school. So there
    is a variety of different ways that individuals could
    potentially meet these requirements.
        In the case of Alabama, we have also asked what is the
    transition. We want to make sure that there is a pathway. So we
    have asked them to look at their proposal. We do not want to
    make sure there is some type of a subsidy cliff. We want to
    make sure that that is smoothed out, and so we have asked them
    to provide us some more information on that, and that is
    something that we will be looking at as we consider their
    proposal.
        Senator Jones. Well, I would urge you to take that laundry
    list of folks of impacted citizens that you looked at and look
    very carefully at Alabama because my belief, based on what I
    know, is that every one of those groups are going to be
    impacted significantly, particularly children of single parent,
    single moms who are going to have to go back to work and will
    either not get their health insurance. So I would just urge you
    to take a close look.
        I know that in the community surveys, there was some--I
    think roughly 800 comments, and 759 of those from hospitals and
    doctors and stakeholders were absolutely opposed to this
    because they did believe that it would significantly decrease
    and hurt health outcomes in the State of Alabama. So thank you
    for that in your consideration.
        So thank you.
        Thank you, Mr. Chairman.
        Chairman Johnson. Senator Hoeven.

                  OPENING STATEMENT OF SENATOR HOEVEN

        Senator Hoeven. I would like to thank both of you for being
    here today.
        Administrator Verma, I want to bring up first something you
    and I have talked about previously, and that is Veterans
    Affairs (VA) reimbursement for long-term care for our veterans.
        In the VA MISSION Act, we included language that expressly
    allows nursing homes to take VA reimbursement for veterans that
    come into a nursing home or a long-term care facility, as well
    as for in-home care products and services and the continuum of
    care, to take VA reimbursement on the same basis as they take
    Medicare or Medicaid reimbursement.
        The reason that is important is because right now, only
    about 20 percent of the providers in North Dakota take VA
    reimbursement because if they take it, they are subject to
    small business contracting rules, which create a whole second
    set of inspections and regulatory red tape and bureaucracy that
    they have to comply with, which is difficult and costly.
        So, as a result, our veterans have limited choices, both in
    long-term care facilities, but also in their home-based or
    community care-type products and services in the long-term care
    world.
        And then they have to expend their own funds and dissipate
    their own savings until they are gone and then they qualify for
    Medicaid, and can get the long-term care services they need.
        So this is a very important issue for our veterans, and
    that is why we changed it in the VA MISSION Act. The key now is
    that VA is putting the regulations in place. And it is very
    important that we do not create new regulatory barriers in
    place of the old regulatory barriers there by not accomplishing
    what we are trying to do.
        So I am asking for your help and your support, and I have
    already approached the Department of Labor (DOL). The Secretary
    of Labor is on board with this. The Secretary of the VA is on
    board with this, and I want to make sure that you are on board.
    As these regulations are written, we want it to end up with one
    set of regulations and inspections and so forth, whether that
    be long-term care facilities, home based or institutional care,
    whether they are getting Medicaid, Medicare, or VA
    reimbursement.
        Ms. Verma. Yes. I think it is very important that our
    veterans have access to the care that they need and different
    choices about the care that they receive.
        As you know, President Trump started something called Cut
    the Red Tape, and as part of that CMS has initiated our effort,
    which we call Patients Over Paperwork. And as we are talking
    about the high cost of health care, one of the things that we
    know drives health care cost is all the increase burden of
    administrative costs. So we are very concerned about anything
    that provides--or increases burdens to the extent that it does
    not improve patient quality and safety.
        Medicare already has extensive regulations and guidelines
    for nursing facilities. So I think that as we are looking at
    this, it would be helpful for providers not to have to have two
    sets of regulations.
        We also have a system of evaluating these facilities to
    make sure that they are in compliance with our regulations. So
    that is already in place, and we would look forward to working
    with you on this to make sure that health care facilities do
    not have to comply with two sets of regulations. We understand
    that that is a significant burden for them.
        And to the extent that it decreases access to care for our
    veterans is something that we are very concerned about, and we
    would be happy to work with you on this.
        Senator Hoeven. Right.
        Thanks for your help and support on this on behalf of our
    veterans.
        As the Administrator for CMS, you are the person that is
    overseeing all the requirements for this reimbursement and
    certainly, if we trust you to do it for Medicare and Medicaid,
    that should work for VA reimbursement as well. So thank you for
    your help and support on this.
        In regard to the Medicaid program integrity strategy, I
    would ask both of you, What are the very critical pieces that
    you feel have to be implemented that have the most impact or
    the greatest benefit? And what has to happen with the States in
    terms of their cooperation to really make it happen?
        Administrator, you can start----
        Ms. Verma. Sure.
        Senator Hoeven [continuing]. And then if you could follow
    up as well, Gene.
        Ms. Verma. Well, there are many initiatives, and I can go
    through all of them. I think we provided that to you in our
    written testimony, and we agree with many of the GAO
    recommendations and are working to implement those.
        But I would say that we are always going to be working on
    program integrity. Our work is never going to be done. We need
    to make sure that every dollar goes to the right place. As
    costs are increasing, we cannot afford to not make sure that
    patients have access to the care that they need.
        That being said, I think the problems that we have are
    related to the structure of the Medicaid program because it is
    an open-ended entitlement, because there is so much Federal
    dollars that are involved here with the match rates, that we
    are always going to be chasing this until we go back and try to
    address the fundamental structure of the Medicaid program, to
    put it on a more sustainable path, to make sure that States
    have the appropriate incentives in place to address program
    integrity.
        Senator Hoeven. Now, when you say that, do you mean both
    FMAP as well as expansion, traditional FMAP as well as
    expansion?
        Ms. Verma. I think it is both. I think that the risk has
    increased now that we have a higher FMAP rate or that the
    Federal Government is paying 90 percent for the cost of able-
    bodied individuals.
        But even in the base Medicaid program, the structure of the
    program, because it is an open-ended entitlement, it
    incentivizes States to spend more and more, and now with the 90
    percent match rate, now there is more of an increased risk.
        I think that going forward, we have worked extensively with
    the States on program integrity issues and will continue to do
    that working with the State auditors, but because this program
    for the able-bodied adults is funded 90 percent by the Federal
    Government, I think the onus is going to be on us.
        A case in mind was California. We had an issue there with
    some of their payments to managed care organizations, and we
    found that they owed the Federal Government $9.5 billion. So, I
    mean, we are always going to have to be looking at this issue,
    but I think the problem is the structure of the Medicaid
    program. It is an open-ended entitlement.
        Senator Hoeven. On traditional FMAP, we are a 50-50 State.
    So on traditional FMAP, is that a problem, too, even at the 50-
    50 structurally or not?
        Ms. Verma. I think so, but it is more of a problem for the
    able-bodied adult. So I would support structural changes to the
    Medicaid program to address the open-ended entitlement issue,
    more of an issue, though----
        Senator Hoeven. So it is the open-ended aspect----
        Ms. Verma. The open-ended----
        Senator Hoeven [continuing]. That you think drives the
    challenge with cost savings.
        Ms. Verma. Correct.
        Senator Hoeven. Mr. Dodaro, your thoughts? Again, where do
    you really see that area where 10 percent of the effort gets
    you the 90 percent result kind of thing versus the reverse.
        Mr. Dodaro. There are two main things that I think are
    really important and potentially game changers here. Number one
    is I think we need to bring the State auditors into the picture
    because they have the ability to monitor this on an ongoing
    basis at the State level on the ground and can provide a great
    degree of accountability and transparency, no matter how the
    program is structured.
        The CMS actuary estimates that by 2025--about 7 years from
    now--total spending, Federal and State, will be $958 billion.
    So we are knocking on the door of a trillion dollars a year for
    Medicaid spending.
        Your main accountability people at the State level are
    there on a regular basis. This is a third of most States'
    budgets, so there are always incentives, no matter what the
    match is. The Federal Government and the State governments are
    all on a unsustainable long-term fiscal path. So there is going
    to be fiscal pressures and pulling and tugging, but you need
    that at the State level, number one.
        Senator Hoeven. Are they not there now?
        Mr. Dodaro. No.
        Senator Hoeven. They are not involved in that process?
        Mr. Dodaro. Not in any substantive way looking at improper
    payments on auditing managed care. Nobody is auditing managed
    care right now including the managed care providers, and this
    is about almost half of the Medicaid spending is managed care.
    How the providers are making the payments there, that has not
    been audited.
        CMS, now has there is a rule. They are trying to change
    this. We have been calling for this for years. They are going
    to start doing some audits, but they have limited resources,
    and they are only covering the audits on a 3-year cycle with
    the States. So it will take 3 or 4 years to get through all the
    States.
        The State auditors are there. They are doing financial
    auditing, but they are not doing performance auditing to focus
    on this area. It could be a game changer if we get them
    involved in a substantive and ongoing way.
        At the Federal level, Ms. Verma is right. We need Federal
    protection as well, and our recommendations have been to ask
    CMS to be more specific and stringent on approving State
    demonstrations, to get more information on the sources and uses
    of the money States are using to fund their share of the
    program, that they are not shifting cost. So the Federal
    Government needs to be vigilant.
        And while it is very appropriate--and I agree that States
    need flexibility--it has to also protect the Federal interest.
    And in the past, there have been approvals given to the States
    that have not protected the Federal Government's interest, and
    that is what is driving the cost.
        The Administrator and I have had conversations about this,
    and she agrees. And, hopefully, they are going to move in that
    direction.
        So you can give flexibility and accountability, but you
    also need to protect the Federal Government's interest.
        Senator Hoeven. Thank you.
        Chairman Johnson. Thank you, Senator Hoeven.
        Just during this hearing right here, I have already got
    about three, four, or five other ideas for more hearings. To
    start drilling down managed care would be one of these things.
        I have a lot of questions. Let us first start talking a
    little bit about what you were talking about with Senator
    Hoeven and Senator Jones about, and I would call it the
    unintended consequences of Medicaid expansion.
        Administrator Verma, you talked about the reduction in work
    participate rates. I read a really interesting article written
    by Nicholas Eberstadt addressing that 20 percent of working-age
    adult males are permanently out of the workforce. More than
    half are on some kind of pain medication, oftentimes using
    Medicaid.
        We issued a report based on that where we just in 3 days,
    when I asked my staff to take a look at the diversion, the use
    of the Medicaid card, get opioids and then divert that into the
    illegal drug market, more than 260 individuals or people being
    charged with exactly doing that. We found when we issued the
    report we got over 1,000. So that is an unintended consequence.
        But another unintended consequence is if you have health
    care, it is a huge incentive to work, quite honestly, if you do
    not have it. So now all of a sudden the Federal Government is
    providing that to a working-age childless--some say able-bodied
    adult and you give them the Medicaid card where they can get a
    little extra income by diverting drugs, you have created a
    lifestyle.
        So that also from my standpoint, when we talk about the 90
    percent match, is a huge incentive for States to draw down
    those Federal funds, right? They only have to hit 10 percent,
    and if you throw the gimmicks, which we will talk about later,
    on top of that, you can pretty well get 100 percent, OK?
        So talk to me about, both of you, what have we found in
    terms of the ineligible. What is the cause of that? California
    is a big problem there. I would think there is a huge incentive
    for States to transfer truly Medicaid-eligible individuals into
    Medicaid expansion if they can get away with it because they
    get a much larger match. Is that part of it? What else are you
    finding in terms of people that are ineligible that are part of
    that $37 billion improper payment?
        I guess I will start with whoever wants to take it first.
        Ms. Verma. Sure.
        So if we look at the issue of eligibility and making sure
    that the people that are in the program belong in the program,
    when we looked at some of the GAO reports, some of those are
    system problems.
        I am very concerned about system problems when we have
    invested at the Federal level millions, billions of dollars
    into these eligibility systems, and I think that we need to
    make sure that they are working appropriately. We certify these
    systems, and if we certify these systems and they are making
    mistakes, then I think that is a problem that we should hold
    individuals accountable for that. So there is that area of
    system issues.
        There is always going to be worker errors that may be
    inadvertent that may be part of it, and then there is also
    beneficiary fraud. So there are sort of two or three areas with
    that.
        What I am concerned about and one of the things that we are
    going to be looking at in terms of these eligibility reviews is
    looking at States where we have seen very high levels of
    enrollment that were beyond what was predicted. I think that is
    an issue.
        You brought up the issue of are they putting populations
    that really should belong in a different category of Medicaid
    with a lower match rate, are they doing that. I think there has
    been some instances where that has been found. For example, a
    pregnant woman, they should be in the other program. So those
    are things that when we do our audits that we are going to be
    looking for.
        In terms of individuals that are disabled, if an individual
    is receiving SSA or Supplemental Security Income (SSI), we
    should be able to have those types of feeds so that they are
    not being in the newly eligible category. So we need to make
    sure that the State systems are not doing that.
        There are some States that do not use the Federal
    disability determination when they are making determinations
    around disability. So I think in those States, that is
    something that we need to review as well because we are not
    able to look at whether they have already been classified under
    the Federal definition. So those are some of the things that we
    are going to be looking at.
        The other thing that I would add is that when the GAO
    reports were done, they were done early on when States had just
    implemented the new eligibility system, the modified adjusted
    gross income. So it is possible that over time, States have
    improved their eligibility processing.
        But something that we are concerned about, we have restored
    the payment error rate measurement audits. As GAO noted, those
    do happen every 3 years, but what we are doing is we are
    requiring States to do their own eligibility audits in the
    years in between. So those are some of the ways that we are
    going to address that, and I think our own audits will also
    address that issue.
        Chairman Johnson. General Dodaro.
        Mr. Dodaro. Yes. I think Administrator Verma has given a
    very good overview of the issues.
        I would just underscore the system problems. I think that
    is the only way, given the volume of what is going on over
    there, that you are really going to try to prevent these things
    up front. So there is an appropriate focus on this. There is
    appropriate matching, particularly for the income eligibility.
    There is good data that is available to cross-check against the
    self-reported data that people are providing.
        I am very pleased that after a 4-year hiatus, they are back
    doing the beneficiary eligibility audits before. I really did
    not agree with the postponement of that. It happened in the
    prior Administration, and I am glad to see this Administration
    has plans to start these audits.
        But when you make changes like we made in the Affordable
    Care Act, you should increase your internal control audits at
    the beginning, not step away and allow people to have extra
    time. So I think we have lost a lot of time over the last 4
    years.
        We are also starting more work in this area now. The time
    has passed, and we will be reporting to this Committee what we
    find in the future.
        Chairman Johnson. OK. We will have a second round because I
    have more questions.
        So with my limited time, let me go right to the audits. I
    think we should use every resource we have: State auditors;
    auditors within CMS, Federal Government; and then independent
    auditors. If we do that, particularly with independent
    auditors--this is for you, Administrator Verma--why not do all
    50 States this year? Why not do it?
        Ms. Verma. So if we did every State every year, that would
    triple our cost. So I think that is always the issue that we
    are going to have with all of this which is----
        Chairman Johnson. So what do you think your cost is right
    now in terms of auditing?
        Ms. Verma. In terms of auditing on the PERM, it is about
    $34 million a year, so that would triple our expenditures.
        Chairman Johnson. OK. When we are spending $430 billion,
    $30 million, I am happy to spend $90 million on doing it right
    off the bat. I am dead serious about that. I think you really
    ought to aggressively go after this.
        You are not going to have the audits honed the first year,
    but you have done it, and then we take a look at the results of
    that. I would highly recommend, let us get in all 50 States,
    and let us do the audits.
        Again, you have independent auditors out there. I guess it
    is back down to the Big Four. When I was going to college, it
    was the Big Eight. But I would highly recommend that. Let us
    get in there and get them done.
        And with that, I will turn to Senator McCaskill.
        Senator McCaskill. I will defer to Senator Carper.
        Senator Carper. Thank you.
        If I could just have 30 seconds. Thank you so much.
        This has been a really good conversation, and it is one,
    frankly, I would like to see continue.
        Gene Dodaro is really good about coming to Capitol Hill and
    meeting with us from time to time and going through his high-
    risk list that GAO produces every 2 years and see how we are
    doing in terms of making progress on that.
        I do not know if it might be possible for you. I do not
    know if you come to Capitol Hill very much, but if you do, you
    might be willing to meet with some of us and our staff, both of
    you, maybe together, and to pursue some of these. I would
    appreciate it.
        I would be remiss if I did not say one of the things I most
    like about the Affordable Care Act were the provisions that
    were originally sort of introduced by Senator John Chafee from
    Rhode Island back in 1993. He had this great idea for these
    exchanges and scale tax credits, individual mandate, all this
    and was introduced as legislation. It ended up as Romneycare
    and then ultimately ended up in the Affordable Care Act, and we
    call them the exchanges. Some people call it Obamacare.
    Actually, they are pretty good ideas.
        And one of the things that frustrates the heck out of me is
    how this Administration continues to try to undermine what was
    originally a Republican idea, but actually has promise to
    provide better health care and not just lay it all on the
    Federal Government.
        There are a couple of things that I would welcome the
    chance to discuss with you, and I suspect some of my colleagues
    would as well. And I would just lay that out there and hope
    that you will find time in your schedules to do that this year.
        Ms. Verma. I would be happy to visit with you anytime.
        Senator Carper. Good. Thanks so much.
        Chairman Johnson. Thank you, Senator Carper.
        Let me quickly step through my remaining questions, then,
    unless you want to go now.
        Senator McCaskill. Well, no, I can go after you. It does
    not matter to me.
        Chairman Johnson. Oh, no. Go right ahead.
        Senator McCaskill. Oh, OK. I was just trying to be sure.
        Naloxone prices. I asked the Assistant Secretary for Health
    at HHS in the Finance Committee in April to seek an explanation
    for the Naloxone delivery device price increases.
        According to you, CMS, Medicare Part D spending per dosage
    unit on Evzio increased over 500 percent between 2015 and 2016.
    This is Kaleo Pharma.
        With total spending in 2016 of over $40 million, that could
    pay for a lot of those audits.
        I asked them to formally seek an explanation for these
    price increases. Are you aware if there has been any outreach
    to Kaleo since April regarding the price increase for Naloxone?
        Ms. Verma. I cannot speak specifically, not necessarily
    from my department, but one of the things we are concerned
    about is making sure that we have transparency around all of
    these increases. It is one of the things that we took action on
    earlier this year, is to put out our Drug Dashboard, which
    provides transparency to the American public about the year-
    over-year increases in drug pricing. We think that is important
    that people have that information.
        Senator McCaskill. Do you agree that Secretary Alex Azar
    would have the ability to negotiate directly with Kaleo to
    reduce Part D spending if he chose to do so?
        Ms. Verma. Generally, what we want to do in our strategy
    around drug prices, something that we are very concerned
    about--there is a lot of effort going on--one of the things
    that we want to do is strengthen competition and negotiation.
    We think negotiation is important. That is why we have our Part
    D plans essentially in that role negotiating on our behalf, and
    what we want to do is strengthen their negotiating position.
        One of the things that we recently took action on was for
    Medicare Advantage plans, to give them more authority around
    negotiating with manufacturers for lower prices by giving them
    the ability to do step therapy for Part B drugs. So we think
    that is really important that we do everything that we can to
    increase the negotiating power of our Part D plans as well as
    Medicare Advantage plans.
        Senator McCaskill. So they have the ability in the Part D
    plans to negotiate now, but the Department of Veterans Affairs
    gets a much better price on this drug than any of the Part D
    plans. What do you attribute that to? Why is the VA able to get
    such a better deal than all of these private plans?
        Ms. Verma. They have a limited formulary. They have one
    formulary, and I think our concern with Medicare directly
    negotiating is that that would result in a single formulary.
    That would decrease----
        Senator McCaskill. Well, but maybe for opioid overdoses, I
    mean, we are not talking about the difference between a variety
    of different drugs we are talking about saving someone's life
    from an opioid overdose. It seems very weird to me that the VA
    can have this drug at a significantly lower price than Medicare
    Part D.
        I guarantee you if I put a jury of 12 in the box and tried
    that case, they would say, ``What is going on? Why cannot we do
    a single formulary price for a drug that reduces the impact of
    an overdose and saves lives?''
        Ms. Verma. So we want to make sure that all Americans,
    especially those on our Medicare program, have access to the
    most affordable drugs.
        The issue, though, with extending what is going on in the
    VA to the Medicare program is that that would limit choices for
    seniors.
        Senator McCaskill. Well, if you are dying of an opioid
    overdose, I do not think you care what brand it is. With all
    due respect, we are not talking about a drug where you are
    deciding how you are going to treat your allergies or how you
    are going to treat your high blood pressure or how you are
    going to treat your cholesterol. We are talking about a drug
    that reverses a death from overdose and the notion that that
    has gone up, and the reason it has gone up in price is very
    simple. It is because there is an increased demand, and so they
    can raise the price. And that is what they are doing.
        So I do not think the rationale for giving seniors choices
    frankly carries much water when we are talking about a drug
    like Naloxone.
        Ms. Verma. We want to make sure that our Part D plans, our
    Medicare Advantage plans have every negotiating tool at their
    disposal to make sure that seniors are getting the lowest price
    possible. So I agree with you on that point, but I----
        Senator McCaskill. Well, they are not.
        Ms. Verma. I also want to make sure that seniors have
    access to a variety of medications and that they can choose the
    plan that works best for them. I think that is important that
    all Americans have choice about their health care.
        Senator McCaskill. Sometimes an exception to the rule makes
    the rule frankly a better rule, and I would think Naloxone,
    with what is going on in this country right now, how many
    people are dying--I do not know how many families you have
    talked to, but in my job, it has been heartbreaking to talk to
    these families. And the notion that someone cannot get Naloxone
    because we are worried about choices for seniors and the Part D
    program and all the private companies, whereas we know we could
    drive a lower price because the VA has, that is what is really
    frustrating.
        Ms. Verma. Well, I agree with you, and the opioid epidemic
    has been devastating. I know I have attended a funeral for a
    young man, so I have been personally impacted by this. And I
    certainly understand the anguish that many American families
    are going through.
        I will note that in the Medicare program, these drugs are
    available, and we agree with you. And that is why we are
    working toward strengthening the negotiating position to make
    sure that Americans, especially our seniors, have access to
    these drugs at an affordable price and that they have choices
    about the types of plans that they pick, that it is going to
    work well for them and their families.
        Senator McCaskill. Well, I just know what I would do if I
    was Secretary Azar and if I were you. I would say, ``There is a
    lot of reasons for us to leave negotiating to these private
    plans that you can justify. I just do not know how you guys
    justify day in and day out the kind of price increase for this
    particular drug, particularly compared to another government
    entity that has done much better.''
        Mandatory reporting of fraud, waste, and abuse. In November
    2017, GAO issued a report that said CMS may have an incomplete
    view of the opioid-related risk in Medicare Part D because it
    does not require the plan sponsors to report over-prescription,
    waste, fraud, or abuse in this area.
        As a result, CMS, quote, ``is unable to determine whether
    its related oversight efforts are effective or should be
    adjusted.''
        Senator Rob Portman and I reached the same conclusion in a
    report we released in 2016, which found that mandatory
    reporting of waste, fraud, and abuse could in fact help CMS
    monitor plan sponsors.
        I asked Kim Brandt also in April of this year at the
    Finance Committee about the lack of reporting. She stated CMS,
    quote, ``was exploring making that mandatory.'' I pressed her
    to issue a rule requiring the reporting of fraud and abuse as
    soon as possible because this is much bigger than taxpayer
    dollars. This is about saving lives.
        We had 644 people in my State die just in 2016, and I
    personally watched my mother get addicted to opioids in the end
    of her life through the Medicare Part D program. I had to
    inject myself into her myriad of doctors to make sure everyone
    understood that much of the pain she was complaining about was
    the pain of withdrawal.
        What progress has CMS made about this reporting issue so
    that you have a better handle on the over-prescribing of
    opioids among the senior population?
        Ms. Verma. I think we have concurred with this
    recommendation, and this is something that we are looking at
    across the board. This will require rulemaking, and so as we go
    through rulemaking, we are exploring all the different options
    around this. But this is something that the agency is looking
    at, and as I said, we have concurred with the GAO
    recommendation around this.
        Senator McCaskill. Well, I asked in April. It is now
    August. I would like some kind of report from you other than
    ``We are looking at it'' because that is what I was told in
    April, and people are dying every day. And a lot of those
    opioids are making their way into hands of others. Seniors may
    get them, but then others get hold of them, and the addiction
    starts and has a very deadly ending.
        So I would like you to follow up and give me some kind of
    timeline as to looking at that issue.
        Ms. Verma. Sure. We will have my staff follow up with you
    and make sure you have updates on our progress.
        Senator McCaskill. Thank you.
        Chairman Johnson. Thank you, Senator McCaskill.
        Administrator Verma, in your testimony on page 11,\1\ you
    talked about intergovernmental transfers, which is why I had my
    staff try and find this, because you can describe these things
    in words, but I said I need some example where I see the
    dollars coming together.
    ---------------------------------------------------------------------------
        \1\ The testimony referenced by Senator Johnson appears in the
    Appendix on page 63.
    ---------------------------------------------------------------------------
        This is just one of many gimmicks. Can you talk about the
    other gimmicks and also talk about do we have any sense of how
    much that is really costing the Federal Government, kind of
    replenishing, and if we do not have that cost, who is going to
    calculate it for us? Because I think it is extremely important.
        I will start with Administrator Verma.
        Ms. Verma. So I agree with you. I think there are a lot of
    issues with intergovernmental transfers. One of the things that
    we are going to look at that we have put on our regulatory
    agenda is looking at supplemental payments, and that is where
    we are going to take action to address some of the GAO
    recommendations.
        But I think at large, when we are dealing with States, we
    need to understand where the matching dollars come from. We
    need to understand all of the back-end deals, how the match is
    being provided, and then what money goes back to the State and
    what money goes back to providers. I think we need to
    understand that, and we need to have transparency around that
    to make sure that those are appropriate.
        Chairman Johnson. This will be its own separate hearing,
    but again, I have heard of the sales tax, which is a good
    little gimmick. Everybody knows about it. Again, these things
    are all perfectly legal, but it is a way for States to get
    more. So they just charge the providers a sales tax, which they
    basically get back, but that is a cost to Medicaid then. And it
    gets reimbursed from the Federal Government or gets matched by
    the Federal Government.
        Another one is sort of the loans made to a city. So you
    make a million-dollar loan. They spend that on Medicaid, and
    then they pay that loan back when they get the match.
        But this one was shocking to me. I was thinking like a
    million-dollar loan, $2 million. I mean, this is literally $122
    million that the State put into it. The Federal Government puts
    in $155 million. This is a State that gets more than a 50
    percent match. The State gets $271 million back out of that
    thing. So this is massive.
        General Dodaro, do you have any idea? Do you have any idea
    what the volume of these gimmicks are?
        Mr. Dodaro. The potential for this range of gimmicks, as
    you are calling them, is almost limitless. I mean, the States
    have been very creative over the years, and as we were talking
    earlier about whether they are going to try to put people in
    the 90 percent match or the other area for individual people.
    That is peanuts compared to this type of cost shifting that is
    going on.
        No one knows, and one of the recommendations we have----
        Chairman Johnson. Has anybody ever really tried to figure
    it out, though?
        Mr. Dodaro. We have on an ad hoc basis over time, but you
    have to have the data. There is not accurate and complete
    reporting. This is one of the recommendations that we are
    hoping that CMS will implement--to get that information.
        There is also no reason in the world why there could not be
    a requirement that the State auditors audit the sources and
    uses of the money used to support the State match for the
    Medicaid program, so you have an independent reporting. In my
    opinion, that will completely stop the gimmicks.
        Chairman Johnson. Well, again, the gimmicks are known, and
    they are legal.
        In this case, is not this where the State auditors--they
    just have a conflict of interest. I mean, they work for the
    State.
        Mr. Dodaro. Well, they are independent.
        Chairman Johnson. Actually, you have a State Governor
    that----
        Mr. Dodaro. Yes. Well----
        Chairman Johnson. I understand. People will shake their
    hand, but tell them----
        Mr. Dodaro. I work for the Federal Government. I am
    independent, and thereby, the standards that we issue the GAO,
    generally accepted auditing standards, they are independent.
    They will call it the way they see it, and we just have to give
    them the resources and the support, and they will do the
    professional and independent----
        Chairman Johnson. OK. So you can expect a letter, and
    hopefully, Senator McCaskill will join this.
        Mr. Dodaro. All right.
        Chairman Johnson. You are going to get a letter from me
    asking GAO to study this and set up the auditing guidelines to
    really delve into this.
        Mr. Dodaro. OK.
        Chairman Johnson. With all the different types of gimmicks
    that we know about and how can we ferret that out and how can
    we get the data and how can we get the information on it.
        Did you want to chime in?
        Senator McCaskill. Well, I just think it is really
    important to understand that the role of State auditors is
    identical to the role of GAO. They are not there to take the
    side of--first of all, many of them are elected independently,
    and some of them are not. There is a few that are appointed,
    but most of them are elected independently. And the minute they
    start carrying water for their party or for defending things in
    their State that are a waste of taxpayer dollars, that is the
    end of their career. I mean, they are done.
        So to look at the State auditors in the context of State
    spending any differently than we look at GAO in the context of
    Federal spending is not fair to State auditors.
        Chairman Johnson. I am not trying to be unfair, and I am
    not questioning State auditors' integrity. I am just saying
    there is a conflict of interest there, and when all these
    things are legal, there is really nothing to report. That is my
    point, and I think we need to take a look at this and go, ``OK.
    I know it is legal. We are not calling it fraud, but it is like
    the next best thing.''
        Mr. Dodaro. Yes. But there are certain things that would be
    beyond the guidelines.
        For example, the local government portion of this is only
    to be 60--it cannot be more than 60 percent of the State match.
    So there are some guidelines that will be exceeded if they are
    shifting the cost to the local government's back in a shell
    game that comes back to them, and then the Federal Government
    has to match.
        Chairman Johnson. OK.
        Mr. Dodaro. CMS also has other authorities that they could
    impose and other requirements if they know what is going on.
        In some of the cases that we found about this when we went
    out and audited at the State and local level, CMS was unaware
    of this.
        So you cannot take action unless you are aware of it. So
    step number one is awareness with good auditing information.
        Chairman Johnson. So we are aware, and I am going to make
    sure that we are even more aware.
        Mr. Dodaro. Right.
        Chairman Johnson. Administrator Verma, this all gets back
    to data----
        Ms. Verma. Yes.
        Chairman Johnson [continuing]. And the GAO recommendations
    on data. Is that something that you are also in complete
    agreement with and completely dedicated, and can we get your
    commitment to do everything we can to get the data?
        Ms. Verma. We have, and we are. On the T-MSIS system which
    is where--for the first time, we actually have all 50 States
    reporting, Puerto Rico, and DC. I can tell you that when I am
    looking at waivers, for example, one of the questions that I
    always ask my staff is, Where are they on T-MSIS? Were they, A,
    reporting?
        Now that we have all the States reporting, my question is,
    What about the quality of their data? Because we think that
    that should be an important requirement when States are making
    that request.
        Going back, though, to the issue about these types of
    arrangements and where States are getting matches from, I think
    that this goes to my original point. It is the structure of the
    program. As long as you have an open-ended entitlement, States
    are creating all of these types of programs to try to draw down
    Federal dollars, which is why we took action around the
    designated State health programs (DSHP). This is an example
    where States were saying, ``We are spending money on this
    health care program. It is all funded by State dollars,'' and
    CMS had allowed those States to count those dollars as matching
    funds. So we cut that off. We closed that loophole. That was
    worth about $25 billion since 2005.
        And I think, as you said, some of these things are legal,
    and with the State auditors, with all due respect to them, it
    is not clear where the incentive is. In the case of California,
    where CMS identified $9.6 billion of dollars that were owed to
    the Federal Government, that did come from CMS.
        Chairman Johnson. And let us face it. There are plenty of
    people in this town that are just happy to spend the money and
    send it to States too and look the other way. So we need to
    start with the data.
        It drives me nuts. Even the spending off of that chart
    right there, the CBO has $430 billion. I think your numbers are
    like $395. I am an accountant. That kind of stuff drives me
    nuts. So we need to get the data. We need to understand the
    exact incentives, where the abuse is occurring. We need to
    report on it.
        So this will be another hearing in and of itself, but a
    letter to you.
        I think my final question really goes back to--General
    Dodaro, you were talking about the demonstration projects being
    budget-neutral. Again, the whole point of that is, hey, we got
    a better idea. This will be more efficient spending. So give us
    this waiver, and at worst, we will spend the same amount of
    money. At best, what we really ought to do is spend less. How
    far off of budget-neutral are we, or are we right back there
    going, ``We do not know''?
        Mr. Dodaro. No, in some of the cases, we have quantified
    the amount of money, and I will provide that for the record.\1\
    ---------------------------------------------------------------------------
        \1\ The information submitted by Mr. Dodaro appears in the Appendix
    on page 92.
    ---------------------------------------------------------------------------
        Chairman Johnson. I mean, can you give me some general
    sense right now? Tens of billions?
        Mr. Dodaro. Well, it is billions. It is billions, yes.
        Chairman Johnson. Again, none of this is in the $37 billion
    improper payment.
        Mr. Dodaro. No. It is not in the improper payment estimate.
        Chairman Johnson. Again, all of these things we are talking
    about, this is in core Medicaid right now and just people
    really taking advantage of the system.
        Mr. Dodaro. Yes, it was. For example, I just was handed a
    note from the team. We found almost $1 billion in excess in
    Arkansas, in one State alone.
        Chairman Johnson. Is that in 1 year or over 10?
        Ms. Verma. That was during the demonstration.
        Mr. Dodaro. That was during the demonstration period, so I
    am not sure.
        Ms. Verma. It was 5 years.
        Mr. Dodaro. Three-year----
        Chairman Johnson. Five years?
        Mr. Dodaro. Three-year demonstration period. This is a
    significant amount of money. That is why we have one of the----
        Chairman Johnson. There was a Dirksen study, a billion
    here, a billion there, you are talking about real bucks.
        Mr. Dodaro. Yes. This is significant, and I know CMS is
    looking at this. They are going to propose they need clarity
    about this.
        It was the longstanding policy, but it was not being
    implemented and enforced. And even when there were some
    exceptions for some hypothetical cost situations, there was not
    adequate documentation as to supporting even the hypothetical
    cost area.
        So this is an area that needs to be worked on, and I am
    hoping that CMS will continue to focus on this.
        Ms. Verma. And on the issue of budget neutrality, we will
    be taking action on that this week. So you will see those
    recommendations implemented.
        Chairman Johnson. OK. Well, those are the questions I have.
        Senator McCaskill, do you have any more?
        Senator McCaskill. No.
        Chairman Johnson. First, again, I want to thank you both. I
    think from my standpoint, this was just a great hearing. We had
    great questions from my colleagues here.
        This really is just the start.
        So, General Dodaro, we appreciate all the work you have
    already done. We will be asking you to do more.
        Administrator Verma, thank you for paying attention to this
    stuff, and we are going to want to put more meat on the bones
    in terms of this program integrity, what actual actions. If we
    need to codify some of these things, I think we probably
    should, and we will have to go to other committees to do so.
    But the goal here is to get the data, have an ongoing
    production of that same data, so this does not slip back in the
    cracks again, and then put in place the controls that are going
    to survive well beyond your tenure, well beyond this
    Administration. We are spending way too many dollars. People
    need these dollars, and we cannot afford literally to waste a
    dollar of it.
        So, again, I really do appreciate your testimony, you
    taking the time here. I look forward to your future involvement
    in our oversight work here.
        And with that, the hearing record will remain open for 15
    days until September 5 at 5 p.m. for the submission of
    statements and questions for the record.
        This hearing is adjourned.
        [Whereupon, at 12:12 p.m., the Committee was adjourned.]

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