[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







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                     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.
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    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.
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    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.
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    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.
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    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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