[House Report 104-641]
[From the U.S. Government Publishing Office]
Union Calendar No. 320
104th Congress, 2nd Session - - - - - - - - House Report 104-641
FRAUD AND ABUSE IN MEDICARE AND MEDICAID: STRONGER ENFORCEMENT AND
BETTER MANAGEMENT COULD SAVE BILLIONS
__________
EIGHTH REPORT
by the
COMMITTEE ON GOVERNMENT
REFORM AND OVERSIGHT
together with
ADDITIONAL VIEWS
June 27, 1996.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT
WILLIAM F. CLINGER, Jr.,
Pennsylvania, Chairman
BENJAMIN A. GILMAN, New York
DAN BURTON, Indiana
J. DENNIS HASTERT, Illinois
CONSTANCE A. MORELLA, Maryland
CHRISTOPHER SHAYS, Connecticut
STEVEN SCHIFF, New Mexico
ILEANA ROS-LEHTINEN, Florida
WILLIAM H. ZELIFF, Jr., New
Hampshire
JOHN M. McHUGH, New York
STEPHEN HORN, California
JOHN L. MICA, Florida
PETER BLUTE, Massachusetts
THOMAS M. DAVIS, Virginia
DAVID M. McINTOSH, Indiana
JON D. FOX, Pennsylvania
RANDY TATE, Washington
DICK CHRYSLER, Michigan
GIL GUTKNECHT, Minnesota
MARK E. SOUDER, Indiana
WILLIAM J. MARTINI, New Jersey
JOE SCARBOROUGH, Florida
JOHN B. SHADEGG, Arizona
MICHAEL PATRICK FLANAGAN, Illinois
CHARLES F. BASS, New Hampshire
STEVEN C. LaTOURETTE, Ohio
MARSHALL ``MARK'' SANFORD, South
Carolina
CARDISS COLLINS, Illinois ROBERT L. EHRLICH, Jr., Maryland
HENRY A. WAXMAN, California
TOM LANTOS, California
ROBERT E. WISE, Jr., West Virginia
MAJOR R. OWENS, New York
EDOLPHUS TOWNS, New York
JOHN M. SPRATT, Jr., South Carolina
LOUISE McINTOSH SLAUGHTER, New York
PAUL E. KANJORSKI, Pennsylvania
GARY A. CONDIT, California
COLLIN C. PETERSON, Minnesota
KAREN L. THURMAN, Florida
CAROLYN B. MALONEY, New York
THOMAS M. BARRETT, Wisconsin
BARBARA-ROSE COLLINS, Michigan
ELEANOR HOLMES NORTON, District of Columbia
JAMES P. MORAN, Virginia
GENE GREEN, Texas
CARRIE P. MEEK, Florida
CHAKA FATTAH, Pennsylvania
BILL BREWSTER, Oklahoma
TIM HOLDEN, Pennsylvania
ELIJAH CUMMINGS, Maryland
------
BERNARD SANDERS, Vermont (Independent)
James L. Clarke, Staff Director
Kevin Sabo, General Counsel
Judith McCoy, Chief Clerk
Bud Myers, Minority Staff Director
_________________________________________________________________
Subcommittee on Human Resources and Intergovernmental Relations
CHRISTOPHER SHAYS, Connecticut,
Chairman
MARK E. SOUDER, Indiana
STEVEN SCHIFF, New Mexico
CONSTANCE A. MORELLA, Maryland
THOMAS M. DAVIS, Virginia
DICK CHRYSLER, Michigan
WILLIAM J. MARTINI, New Jersey
JOE SCARBOROUGH, Florida
MARSHALL ``MARK'' SANFORD, South
EDOLPHUS TOWNS, New York Carolina
TOM LANTOS, California
BERNARD SANDERS, Vermont (Ind.)
THOMAS M. BARRETT, Wisconsin
GENE GREEN, Texas
CHAKA FATTAH, Pennsylvania
HENRY A. WAXMAN, California
Ex Officio
WILLIAM F. CLINGER, Jr.,
CARDISS COLLINS, Illinois Pennsylvania
Lawrence Halloran, Staff Director
Kate Hickey, Professional Staff
Member
Thomas Costa, Clerk
Cheryl Phelps, Minority
Professional Staff
(ii)
LETTER OF TRANSMITTAL
----------
House of Representatives,
Washington, DC, June 27, 1996.
Hon. Newt Gingrich,
Speaker of the House of Representatives,
Washington, DC.
Dear Mr. Speaker: By direction of the Committee on
Government Reform and Oversight, I submit herewith the
committee's eighth report to the 104th Congress.
William F. Clinger, Jr.,
Chairman.
(iii)
C O N T E N T S
----------
Page
I. Summary..........................................................1
II. Background.......................................................3
III. Findings.........................................................7
IV. Recommendations.................................................16
VIEWS
Additional views of Hon. Cardiss Collins, Hon. Edolphus Towns,
Hon. Henry A. Waxman, Hon. Tom Lantos, Hon. Robert E. Wise,
Jr., Hon. Major R. Owens, Hon. Louise Slaughter, Hon. Bernard
Sanders, Hon. Karen L. Thurman, Hon. Thomas M. Barrett, Hon.
Barbara-Rose Collins, Hon. James P. Moran, Hon. Gene Green,
Hon. Chaka Fattah, and Hon. Elijah E. Cummings................. 19
(v)
Union Calendar No. 320
104th Congress Report
HOUSE OF REPRESENTATIVES
2nd Session 104-641
_______________________________________________________________________
FRAUD AND ABUSE IN MEDICARE AND MEDICAID: STRONGER ENFORCEMENT AND
BETTER MANAGEMENT COULD SAVE BILLIONS
_______
June 27, 1996.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______________________________________________________________________
Mr. Clinger, from the Committee on Government Reform and Oversight,
submitted the following
EIGHTH REPORT
On June 20, 1996, the Committee on Government Reform and
Oversight approved and adopted a report entitled ``Fraud and
Abuse in Medicare and Medicaid: Stronger Enforcement and Better
Management Could Save Billions.'' The chairman was directed to
transmit a copy to the Speaker of the House.
I. SUMMARY
Fraud and abuse are serious drains on Medicare and Medicaid
programs. The General Accounting Office (GAO) estimates that as
much as 10% of annual Government outlays in Federal health care
programs are lost to fraudulent and wasteful provider
claims.\1\ If that estimate is correct, it would mean almost
$32 billion was lost in FY 95. Given that Medicare and Medicaid
together account for $269.16 billion in Federal health care
spending in FY 1995, Federal losses to these programs
associated with fraudulent and abusive practices approached $27
billion. Finding new ways to curb these losses has been a major
bi-partisan concern in recent years.
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\1\ GAO Report: ``Health Insurance: Vulnerable Payers Lose Billions
to Fraud and Abuse,'' GAO/HRD-92-69, 5/7/92, p. 1.
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Both the Medicare and Medicaid programs are vulnerable to
fraud and abuse. There are strong incentives to overprovide
services; weak fraud and abuse controls to detect questionable
billing practices; few limits on those who can bill; and
ineffective enforcement tools. The Medicare program is
particularly vulnerable because the Department of Health and
Human Service's (HHS) Health Care Finance Administration (HCFA)
continues to pay higher than market rates for certain services
and supplies. This makes the program an attractive target for
increasingly sophisticated, multi-state or national fraud
schemes.
Medicare is also vulnerable because perpetrators know there
is little chance of being caught. Federal enforcement
activities have been uncoordinated and ineffectively carried
out, and HCFA's anti-fraud-and-abuse controls fail to
systematically prevent the unquestioned payment of claims.\2\
Screening of claims for medical necessity and other criteria is
inconsistently applied. Vendors sanctioned for fraud or abuse
are not effectively barred from continued participation in
Federal health programs because the exclusion sanction is under
utilized. This points to insufficient coordination between
those charged with enforcing existing anti-fraud statutes.
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\2\ GAO Report: ``Medicare Spending: Modern Management Strategies
Needed to Curb Billions in Unnecessary Payments,'' GAO/HEHS-95-210, 2/
95, p. 1-2.
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HCFA, the HHS-OIG, and DOJ have outlined initiatives for
curtailing fraudulent and abusive practices in Medicare and
Medicaid programs. However, the extent to which these
initiatives will result in improvements to the Federal
Government's health care anti-fraud capabilities is uncertain.
HCFA has under development the Medicare Transaction System
(MTS) to centralize claims review and processing functions now
handled by 72 contractors.
The GAO characterized MTS a system ``at risk'' \3\ in terms
of cost and scheduling. Meanwhile, near-term opportunities for
more effective anti-fraud programs may be missed while HCFA
places most of its hopes on the far-off prospect of the MTS.
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\3\ Status of the Medicare Transaction System: The Health Care
Financing Administration's Planned Data System to Control Fraud and
Abuse, Oversight Hearing Before the Subcommittee on Human Resources of
the House Committee on Government Reform and Oversight, HRIR hearing of
11/16/95. (Prepared written statement of Frank Reilly, GAO's Director
of Information Resources Management, p. 2.)
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Waste, fraud and abuse in Medicare and Medicaid will never
be completely eliminated. However, billions could be saved by
stronger enforcement and better management--actions which would
not place excessive demands on available budgets.
Findings in brief:
1. There is insufficient coordination among Government
agencies combatting waste, fraud and abuse in the Medicare and
Medicaid programs.
2. HCFA does not require Medicare Part B contractors to use
software capable of screening out claims for inappropriate
medical services.
3. HCFA is reluctanct to exercise its statutory ``inherent
reasonableness'' authority to adjust reimbursement rates for
durable medical equipment and supplies because the process is
costly and cumbersome. This makes Medicare an attractive target
for fraud and abuse. As a result, the Government too often pays
more than the market price for certain equipment and supplies
costing taxpayers billions of dollars.
4. HCFA's Medicare Transaction System (MTS) project is
vulnerable to cost overruns and schedule delays due to the
agency's lack of a disciplined management process.
Recommendations in brief:
1. Congress should require HCFA, HHS IG, DOJ, State
Medicaid Fraud Control Units and other appropriate law
enforcement entities establish a joint program to coordinate
fraud detection and prevention activities, and to apply the
exclusion sanction against vendors more effectively.
2. HCFA should require its contractors to use
autoadjudication prepayment screens to ensure that Medicare
does not continue to pay claims for medically unnecessary
services.
3. Congress should revise HCFA's ``inherent reasonableness
authority'' to require a price adjustment for a Medicare item
or service within 1 year of initiating a review of that item or
service through the issuance of an interim final regulation.
4. HCFA should develop a comprehensive management plan to
address the cost and scheduling challenges associated with the
Medicare Transaction System (MTS). Until that plan is
developed, HCFA should focus greater resources on effective,
near-term anti-fraud efforts.
II. BACKGROUND
Total health care spending in the United States reached
$949.4 billion \4\ in FY 94, and waste, fraud and abuse in
health care programs have become issues affecting every
American. According to GAO, 10% of every health care dollar
spent in this Nation is lost to fraudulent and wasteful
provider claims.\5\ Applying this estimate to all health care
spending, which includes Medicare and Medicaid, means that more
than $100 billion, or more than $274 million a day, was lost to
fraud and abuse in FY 95.
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\4\ ``National Health Care Expenditures,'' Health Affairs, Project
Hope, p. 1.
\5\ See Supra note 1.
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Medicare and Medicaid programs together represent more than
one-quarter of all U.S. health care spending. Federal outlays
to Medicare in FY 95 were $159.8 billion \6\ while Federal and
State outlays to Medicaid were $156.2 billion.\7\ Other Federal
health care programs such as Civilian Health and Medical
Program of the United States (CHAMPUS) and Federal Employee
Health Benefit Plan (FEHBP) cost the Federal Government $3.3
billion and $16.2 billion \8\ respectively in FY 95. Applying
GAO's 10% estimate to Medicare and Federal Medicaid outlays
means that about $26.9 billion was lost to fraud and abuse in
FY 95.
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\6\ Historical Tables, Budget of the United States Government,
Fiscal Year 1997, p. 59. $89.07 billion was the Federal share of
Medicaid in FY 95.
\7\ Congressional Budget Office (CBO), 3/96 ``Baseline Report:
Medicaid.''
\8\ Appendix, Budget of the United States, Fiscal Year 1997, p.
923.
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Medicare, the Nation's largest single payer of health care
costs, provided health coverage for approximately 37 million
elderly and disabled in FY 95.\9\ Medicare spending in Part A,
which includes hospital inpatient, home health and skilled
nursing services, represents nearly two-thirds of total program
spending; Part B, which includes hospital outpatient, physician
and laboratory services, represents about one-third of total
spending.\10\
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\9\ See Supra note 2 p. 2.
\10\ The Henry J. Kaiser Family Foundation: ``The Medicare
Program,'' 12/95, p. 1.
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Medicaid, which is jointly financed by States and the
Federal Government, provided health and long-term care coverage
for 33.5 million low income women, children, elderly, blind,
and disabled Americans in FY 95.\11\ Although women and
children represent almost 73 percent of Medicaid's
beneficiaries, they represent 28 percent of the program's
costs. Most of Medicaid spending is provided to the disabled
and the elderly who represent 28 percent of its population but
59 percent of the program's costs.\12\
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\11\ The Henry J. Kaiser Family Foundation: ``Medicaid Facts,'' 12/
95, p. 1.
\12\ Ibid.
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Both programs fall within the administrative jurisdiction
of the Health Care Financing Administration (HCFA) within the
U.S. Department of Health and Human Services (HHS). Under
Medicaid, States have the predominate responsibility to
exercise fraud and abuse controls. Curbing Medicare fraud and
abuse is a Federal responsibility.
Medicaid is ``. . . highly vulnerable to fraud because of
its size, structure, target coverage.'' \13\ GAO reports show
that medical professionals or businesses that engage in
fraudulent and abusive practices have targeted both Medicaid
and Medicare resulting in unnecessary expenditures by both
programs as well as by private health care insurers. The
opportunities for fraud and abuse exist because each program
provides incentives to submit claims for services that are not
needed, not provided, or overpriced.\14\
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\13\ GAO Report: ``Medicaid: A Program Highly Vulnerable to
Fraud,'' GAO/T-HEHS-94-106, 2/25/94, p. 1.
\14\ Agency Oversight Hearing on HHS: The Mission of HHS: Oversight
Hearing Before the Subcommittee on Human Resources of the House
Committee on Government Reform and Oversight, HRIR hearing of 3/22/95.
(Prepared written statement of Sarah Jagger, Director of Health
Financing and Policy, General Accounting Office, p. 87.)
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Medicare contracts with 72 private companies to handle
claims screening and processing and to audit providers. Certain
characteristics of the program and the way it is administered
create a climate ripe for abuse by some providers. For many
supplies and services, Medicare reimbursement far exceeds
market rates.\15\ Scrutiny of incoming claims is often
inadequate to reveal overpricing or oversupply. And providers
are allowed to participate in the program without sufficient
oversight of their qualifications or their business and
professional practices.\16\
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\15\ See Supra note 2 p. 3.
\16\ Ibid.
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In testimony before the Human Resources and
Intergovernmental Relations (HRIR) Subcommittee, GAO stated,
``HCFA should be a leader in developing effective ways to
manage health care expenditures. With Medicare, this would
entail such things as: exploring opportunities to improve case
management in settings such as nursing homes where fraud and
abuse have been a recurring problem; seeking ways to strengthen
requirements for providers that request authorization to bill
the program; and developing and requiring contractors to
implement better computerized checks to flag questionable
claims or providers.
``With respect to Medicaid, we find similar problems that
need to be addressed. Being a state-administered program,
however, HCFA's role shifts from that of direct program
management to one of leadership. This would entail documenting,
guiding, coordinating, and encouraging the states' efforts.
HCFA could also address other--overarching concerns revealed by
our study, such as whether--and how--state laws, federal
requirements, and other factors inhibit prosecution or attempts
to recover payment of claims subsequently determined not to be
authorized by law. Moreover, while all jurisdictions have
resource constraints that limit oversight, investigation, and
prosecutorial efforts, an absence of federal leadership has
kept states from making the best use of the resources they do
have.'' \17\
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\17\ Agency Oversight Hearing on HHS: The Mission of HHS: Oversight
Hearing Before the Subcommittee on Human Resources of the House
Committee on Government Reform and Oversight, HRIR hearing of 3/22/95.
(Prepared written statement of Sarah Jagger, Director of Health
Financing and Policy, General Accounting Office, p. 92.)
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GAO stated in its March 1995 testimony, ``Administrative
reform proposals from this and the last Congress present
features that would help correct [HCFA's] systemic weaknesses
and oversight problems . . .'' and that HCFA's adoption of ``.
. . broad-based administrative reforms would significantly
enhance the detection and pursuit of fraudulent and abusive
providers.''
Distinctions should be made among waste, fraud and abuse
since these terms are often used interchangeably. These are the
generally accepted definitions:
Waste: the incurring of unnecessary costs as a
result of inefficient practices, systems or controls by
management. Example: HCFA's failure to require its Medicare
contractors to use automated prepayment computer screening for
medical necessity of provider claims could save millions, even
hundreds of millions, of dollars annually.\18\
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\18\ GAO Report: ``Medicare: Millions Can Be Saved by Screening
Claims for Overused Services,'' GAO/HEHS-96-49, 2/96, p. 3.
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Fraud: gaining something of value through
intentional misrepresentation or concealment of material facts.
Example: Prescription drug diversion schemes cost the Medicaid
program billions of dollars; New York State alone estimates
that it loses $150 million a year to fraudulent prescription
drug operations.\19\
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\19\ Waste in Human Service Programs: Other Perspectives: Oversight
Hearing Before the Subcommittee on Human Resources of the House
Committee on Government Reform and Oversight, HRIR hearing of 5/23/95.
(Testimony of Doug Kennedy, New York Post Investigative Reporter.)
(Original transcipt p. 82, in subcommittee files.)
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Abuse: any practice not consistent with rules,
regulations or ethical standards which provides unfair gain for
those with access to programs or responsibilities in the public
trust. Example: Medicare was billed $8,415 for therapy to one
nursing home resident of which over half, or $4,580, was for
charges added by the billing service for submitting the claim--
a bill-padding practice which is permissible under Medicare
rules.\20\
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\20\ See Supra note 2 p. 4.
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Waste, fraud and abuse in Medicare and Medicaid will never
be completely eliminated. Any major reductions in these
unacceptable losses, however, would contribute to the long-term
financial solvency and stability of these at-risk Government
programs, both which are growing at an average annual rate of
approximately 10%.\21\
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\21\ See Supra note 7.
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The need to confront waste, fraud and abuse in the Nation's
health care plans more aggressively is recognized by both
Democrats and Republicans. In the 103d Congress, the
Subcommittee on Human Resources and Intergovernmental Relations
(HRIR), chaired by Rep. Edolphus Towns (D-NY), held three
hearings on waste, fraud and abuse in Medicare and Medicaid.
Two hearings focused on Medicaid fraud and prescription drug
diversion, recommending that HCFA develop a strategy to address
drug diversion which includes designating a unit within HCFA to
provide assistance to State Medicaid agencies. A hearing of
HRIR Subcommittee on July 27, 1994 marked up Section 5401 of
H.R. 3600, the Health Security Act, directing the Secretary of
HHS and the Attorney General to establish a program to
``prevent, detect and control health care fraud and abuse.''
\22\
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\22\ Activities of the House Committee on Government Operations,
Report 103-884, 1/2/95, p. 218 & p. 294.
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This bi-partisan effort in the subcommittee continued in
the 104th Congress. The HRIR Subcommittee, chaired by Rep.
Christopher Shays, held eight hearings that considered waste,
fraud and abuse in health care programs:
1. HRIR Subcommittee hearing on Department of Health and
Human Services, March 1, 1995.
2. HRIR Subcommittee follow-up hearing on Department of
Health and Human Services, March 22, 1995.
3. HRIR Subcommittee hearing on Waste in Human Service
Programs, May 23, 1995.
4. HRIR Subcommittee hearing on Keeping Fraudulent
Providers Out of Medicare and Medicaid, June 15, 1995.
5. HRIR Subcommittee hearing on H.R. 2326, the Health Care
Fraud and Abuse Prevention Act of 1995 and H.R. 1850, the
Health Care Fraud and Abuse Act of 1995, September 28, 1995.
6. HRIR and Government Management, Information, and
Technology (GMIT) joint Subcommittee hearing on the Oversight
and Review of Medicare's Transaction and Information Systems,
November 16, 1995.
7. HRIR Subcommittee hearing on Screening Medicare Claims
for Medical Necessity on February 8, 1996.
8. HRIR and GMIT joint Subcommittee hearing on H.R. 3224,
the Health Care Fraud and Abuse Prevention Act of 1996, H.R.
1850, the Health Care Fraud and Abuse Act of 1995 and H.R.
2480, Inspector General for Medicare and Medicaid, May 2, 1996.
As noted above, the subcommittee reviewed four pieces of
legislation introduced in the 104th Congress to address the
challenges of combatting fraud and abuse in health care
programs, including Medicare and Medicaid: H.R. 2326, H.R.
3224, H.R. 1850 and H.R. 2480.
The Health Care Fraud and Abuse Prevention Act of 1996,
H.R. 3224, was introduced by Congressman Steven Schiff (R-NM),
vice chairman of the Government Reform and Oversight Committee,
and Congressman Christopher Shays (R-CT), HRIR chairman. In
Title I: Federal enforcement authorities are required to
coordinate their efforts more effectively and establish a
control account, funded by fines and damages, to help defray
Federal and State costs of prevention and detection of fraud
and abuse. In Title II: all health care fraud, whether in
public or private programs, would become a Federal crime for
the first time. In Title III: new tools are provided for the
HHS Inspector General (IG) to better combat Medicare and
Medicaid fraud and abuse.
In the 103d and 104th Congress, language similar to H.R.
3224 was drafted to combat the pervasive waste, fraud and abuse
in the health care industry. Senator William Cohen (R-ME)
issued an investigative staff report \23\ in July 1994 which
recommended:
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\23\ ``Gaming the Health Care System: Investigative Staff Report,''
Senator William Cohen, ranking member, Senate Special Committee on
Aging, p. 4.
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Making all health care fraud and abuse a violation
of Federal law.
Establishing a data base available to all program
administrators, private insurers and law enforcement groups
which will identify persons or providers who have been found
guilty of fraud.
Establishing standard penalties for fraud which,
for a first time offender, require mandatory exclusion from the
programs for a specified period of time as well as assessment
of civil monetary penalties.
Strengthening certification standards and
procedures for providers.
Enhancing provider responsibility and
accountability for electronic media claims; requiring
contractors to utilize automated computer screening of provider
claims.
Making HCFA's pricing of medical equipment and
services more current, competitive and market sensitive in its
reimbursement of provider claims.
Improving anti-kickback laws.
Congressmen Shays and Schiff have also introduced H.R. 3225
which would require HHS to adopt timely, market-sensitive
pricing of equipment and services to avoid overpayment of
claims made by health care providers.
The Health Care Fraud and Abuse Act of 1995, H.R. 1850, was
sponsored by Congressman Edolphus Towns (D-NY), ranking member
of the HRIR Subcommittee. Title I of H.R. 3224 is similar to
H.R. 1850 which calls for increased coordination among Medicare
and Medicaid law enforcement agencies.
The Inspector General for Medicare and Medicaid Act of
1995, H.R. 2480, was sponsored by Congressman Jack Quinn (R-
NY). This bill creates a separate IG office for Medicare and
Medicaid.
Other legislation with new health care anti-fraud
provisions includes The Medicare Preservation Act of 1995, H.R.
2491, and The Health Care Availability and Affordability Act,
H.R. 3103. Some provisions of H.R. 3224 were included in these
two bills. Both measures passed the House.
III. FINDINGS
1. There is insufficient coordination among Government agencies
combatting waste, fraud and abuse in Medicare and Medicaid
programs.
Overlapping jurisdictions of Federal, State and law
enforcement agencies responsible for investigations and
prosecutions of Medicare and Medicaid fraud present significant
coordination problems. The agencies that share jurisdictions
include: DOJ, including the FBI and U.S. attorneys; HHS IG;
HCFA Office of Program Integrity; Department of Defense IG;
Drug Enforcement Agency; Internal Revenue Service; State and
local authorities; and State Medicaid Fraud Control Units
(MFCUs). Additional groups involved in combatting health care
fraud are: Medicaid contractor fraud units; Medicaid
administrators; U.S. Postal Inspectors; Veterans Affairs IG;
Department of Labor IG; Office of Personnel Management IG; and
others.
During a June 1995 hearing, Dr. Bruce Vladeck, HCFA's
Administrator, was asked how these multi-jursidictional
agencies approach Medicare and Medicare fraud cases and ensure
preventing abusive providers from continuing to bill the
programs. He reported, ``Again, as you know, the process of
excluding providers from the [Medicare] system is one that
under law is the responsibility of the Inspector General. I
would defer to her in talking about that process.'' \24\ He
further explained, ``To be blunt, I think there was some
history within the Health Care Financing Administration growing
out of past history of an attitude that fraud and abuse
problems are the Inspector General's, the FBI responsibility,
and we [HCFA] have other things to do.'' \25\
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\24\ Keeping Fraudulent Providers out of Medicare and Medicaid:
Oversight Hearing Before the Subcommittee on Human Resources of the
House Committee on Government Reform and Oversight, HRIR hearing of 6/
15/95. (Testimony of Dr. Bruce Vladeck, Administrator of the HCFA.)
(Original transcript, p. 22, in subcommittee files.)
\25\ Ibid p. 21.
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Vladeck added, ``As a part of our emphasis--as a central
part of our emphasis on the importance of program integrity, we
have invested enormous resources and energy in substantially
strengthening our working relationships with the Inspector
General, with the Department of Justice, with the components of
the Department of Justice such as the FBI and the U.S.
attorneys, not only in Washington where it is critically
important, but more importantly in the field, at the level of
relationships between individual contractors, individual U.S.
attorneys offices, local FBI offices and so forth. We have
somewhat more about that in my statement, but frankly, I am
happy to defer to my colleagues from the Inspector General and
from the Department of Justice to tell you more about how some
of those relationships work.''
Chairman Shays rejected Dr. Vladeck's statements responding
that ``candidly I am concerned by the attitude that I think is
coming across to me, and that is revoking of billings is the
responsibility of the Inspector General.'' \26\
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\26\ HRIR hearing of 6/15/96. (Testimony of Rep. Christopher Shays,
chairman of the HRIR Subcommittee.) (Original transcript, p. 39, in
subcommittee files.)
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Chairman Shays wanted to know why HCFA did not more
aggressively urge inclusion of the exclusion sanction more
often in fraud cases settled by the Department of Justice.
The chairman asked Dr. Vladeck, ``Is it your attitude that
when you see someone who has defrauded the system, do you not
weigh in and say . . . there is no way we should allow this
person to continue to be in the [Medicare] system?'' \27\ Dr.
Vladeck responded, ``We generally weigh in when we are asked.''
\28\ He added that, ``Historically, there has been no
participation by us in the settlement.''
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\27\ Ibid p. 40.
\28\ HRIR hearing of 6/15/95. (Testimony of Dr. Bruce Vladeck,
Administrator, HCFA.) (Original transcript, p. 40, in subcommittee
files.)
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The need for greater coordination between the Government
agencies overseeing the Medicare and Medicaid programs was
expressed by several witnesses. Rufus Noble, Inspector General
for Florida's Health Care Administration, said, ``There remains
tremendous need to improve coordination among the various
organizations that have responsibilities for identifying,
investigating and prosecuting health care fraud and abuse.
While some intergovernmental coordination and information
sharing between public and private organizations occur, more
could be done.'' \29\
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\29\ HRIR hearing of 6/15/95. (Prepared written statement of Rufus
Noble, Inspector General, Florida Agency for Health Care
Administration, p. 3, in subcommittee files.)
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Sarah Jaggar, Director of GAO's Health Financing Division,
in a March 1995 hearing said that ``. . . numerous
jurisdictions have responsibility over Medicaid fraud and abuse
matters. It is not unusual for a prescription drug fraud case
[for example] to involve five or more state, local and federal
agencies in its investigation, prosecution and resolution.''
\30\
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\30\ HRIR hearing of 3/22/95. (Testimony of Sarah Jaggar, Director
of Health Financing and Policy, General Accounting Office.) (Original
transcript, p. 20, in subcommittee files.)
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William Mahon, executive director, National Health Care
Anti-Fraud Association, told the subcommittee that ``fraud is
most effectively addressed through cooperative public-private
efforts. Dishonest providers do not defraud either public or
private health care programs exclusively nor do they defraud
only one payer at a time. Any discussion of health care fraud
must also acknowledge the reality that the public's loss to
health care fraud is two-fold . . . once through fraud against
tax-funded government program, and again when private health
insurance plans are the target.'' \31\
---------------------------------------------------------------------------
\31\ HRIR hearing of 6/15/95. (Prepared written statement of
William Mahon, executive director, National Health Care Anti-Fraud
Association, p. 3, in subcommittee files.)
---------------------------------------------------------------------------
In testimony, HCFA claimed the benefit of ``unprecedented''
\32\ coordination between HCFA, Medicare contractors, State
Medicaid agencies, State Attorneys General and the HHS IG in
their joint anti-fraud initiative called the South Florida
Workgroup. Another special project led by the HHS IG, Operation
Restore Trust, emphasizes ``improved communications between
federal and state agencies.'' \33\
---------------------------------------------------------------------------
\32\ H.R. 2326, the Health Care Fraud and Abuse Prevention Act of
1995 and H.R. 1850, the Health Care Fraud and Abuse Act: Oversight
Hearing Before the Subcommittee on Human Resources of the House
Committee on Government Reform and Oversight, HRIR 9/28/95 hearing.
(Prepared written statement of Dr. Helen Smits, deputy administrator,
HCFA, p. 3, in subcommittee files.)
\33\ Ibid.
---------------------------------------------------------------------------
Operation Restore Trust was launched by the administration
in May 1995. It is a major demonstration project that involves
HCFA, HHS-OIG, DOJ, U.S. attorneys, and the State Medicaid
Fraud Control Units. Operation Restore Trust has targeted four
areas of excessive and unnecessary spending growth in the five
States which comprise more than a third of all Medicare and
Medicaid beneficiaries--New York, Florida, Illinois, Texas, and
California. A comprehensive evaluation of the effectiveness of
this program has not yet been conducted.
Dr. Helen Smits, HCFA's deputy administrator, testified
that ``this joint effort [Operation Restore Trust] should yield
substantial savings to the government. We must recognize that
fraud and abuse is pervasive throughout the health care
industry in this country; Medicare and Medicaid are not the
only targets. The private sector faces at least as great a
problem as the government. As a result, public/private
partnerships that bring together the best thinking and best
practices are the key to reducing fraud and abuse.'' \34\
---------------------------------------------------------------------------
\34\ Ibid, p. 1.
---------------------------------------------------------------------------
In his subcommittee testimony, Gerald Stern, DOJ Special
Counsel for Health Care Fraud reported that ``the Attorney
General in 1993 determined that health care fraud enforcement
would be her number two new initiative, behind violent crime.''
The Special Counsel also advised the subcommittee that the
Department of Justice's program would involve ``increased
resources, investigations and prosecutions, greater cooperation
among investigative and regulatory agencies, and coordinated
use of all available sanctions, criminal, civil, and
administrative.'' However, Sterm opposed any legislative
restriction on procecutorial discretion on the use of the
exclusion sanction.
In a September 1995 report, GAO found that ``despite the
egregious cases of Medicare fraud, corporate providers have
been allowed to continue their program participation. In one of
the more significant Federal health care fraud prosecutions to
date, a clinical laboratory company acknowledged over $100
million in fraud committed as part of a nationwide scheme
against Medicare, Medicaid and CHAMPUS over a four year period.
The lab was allowed to negotiate a civil settlement including
language that specifically permitted its continued
participation in all three programs.'' \35\
---------------------------------------------------------------------------
\35\ See Supra note 2 p. 15.
---------------------------------------------------------------------------
2. HCFA does not require Medicare Part B contractors to use software
capable of screening out claims for inappropriate medical
services.
The Social Security Act (SSA) \36\ requires Medicare to pay
only for items and services that are reasonable and necessary
for the diagnosis and treatment of a medical condition. The SSA
also requires Medicare contractors to apply appropriate
safeguards against unnecessary utilization of items and
services furnished by health care providers and suppliers.\37\
---------------------------------------------------------------------------
\36\ 42 U.S.C. Section 1842(b)(3).
\37\ Section 1842 (a)(2)(B) of the Social Security Act.
---------------------------------------------------------------------------
HCFA regulations mandate that contractors conduct
prepayment and postpayment reviews of claims to identify
inappropriate services and take corrective action when
indicated. Prepayment medical review can identify certain
claims before they are paid if they are subjected to
autoadjudicated computer screening. The screens compare the
diagnosis on the claim with the acceptable diagnostic
treatments specified in the medical policy. For example, the
autoadjudicated screen would deny the claim for a chest x ray
if the patient diagnosis was a sprained ankle.
In a survey of 17 of 29 Medicare Part B contractors, GAO
found more than half were not using medical necessity
prepayment screens.\38\ GAO reviewed six groups of procedures
that rank among the most costly Medicare services and reported,
``Most of the contractors we surveyed routinely pay claims for
procedures suspected to be widely overused without first
screening those claims against medical necessity criteria.''
\39\
---------------------------------------------------------------------------
\38\ See Supra note 18 p. 3.
\39\ Ibid p. 7.
---------------------------------------------------------------------------
GAO attributes the infrequent use of medical necessity
prepayment screens to a lack of leadership on HCFA's part. GAO
stated, ``HCFA does not have a national strategy for using
prepayment screens to deny payments for unnecessary service
among Medicare's most highly overused procedures. Moreover, the
agency does not ensure that contractors implement prepayment
screens or other corrective actions for these procedures.''
\40\
---------------------------------------------------------------------------
\40\ Ibid p. 13.
---------------------------------------------------------------------------
According to GAO, HCFA required contractors to review 15%
of all claims before payment in 1991 but reduced the mandatory
number of claims reviewed to 4.6% in 1995.\41\ This is despite
a 32.5% increase in claims and a $54 billion increase in
outlays. Medical review as a percentage of contractor budget
has decreased from 10.7% to 7.1% in 1995.\42\
---------------------------------------------------------------------------
\41\ Ibid p. 4.
\42\ According to Medicare Contractor Activities charts supplied by
HCFA dated 10/17/95.
---------------------------------------------------------------------------
GAO's review of just 7 of the 17 contractors revealed that
between $29 million and $150 million was paid for claims that
may have been medically unnecessary.\43\ GAO concluded in their
report that because the remaining contractors were not using
medical necessity screens for some of these procedures, they
may also have paid millions of dollars in Medicare claims for
services that should have been denied.\44\
---------------------------------------------------------------------------
\43\ See Supra note 18.
\44\ Ibid.
---------------------------------------------------------------------------
In the first quarter of FY 95, fewer than one-half of the
17 contractors surveyed were using prepayment screens according
to GAO.\45\ Ten of the contractors lacked a screen for
echocardiography, although it is the most costly diagnostic
test in terms of total Medicare payments.\46\
---------------------------------------------------------------------------
\45\ Ibid p. 7.
\46\ Ibid p. 8.
---------------------------------------------------------------------------
GAO found ``for widely overused procedures, such as the six
we tested, autoadjudication screens can be a low-cost,
efficient way to screen millions of claims against basic
medical necessity criteria. Contractor officials said that
these screens are much less expensive to implement than screens
that suspend for manual review. Consequently, as funding for
program safeguards declines, autoadjudication screens can be
used to maintain or even increase the number of claims
reviewed.'' \47\
---------------------------------------------------------------------------
\47\ Ibid p. 12.
---------------------------------------------------------------------------
HCFA's strategy to protect beneficiaries and the integrity
of the Medicare program relies on contractors ``. . . who have
the experience and expertise to identify potential abuse in
their area and to act quickly to report it. HCFA expects
contractors to identify items and services that are vulnerable
to abuse, develop appropriate local medical review policies,
educate providers and implement prepayment screens.'' \48\
---------------------------------------------------------------------------
\48\ Screening Medicare Claims for Medical Necessity: Oversight
Hearing Before the Subcommittee on Human Resources of the House
Committee on Government Reform and Oversight, HRIR hearing of 2/8/96.
(Testimony of Gary Kavanagh, deputy director of the Bureau of Program
Operations, HCFA.) (Original transcript, p. 78, in subcommittee files.)
---------------------------------------------------------------------------
GAO reported, ``HCFA has chosen to avoid the appearance of
interfering in local medical practice . . . (although) Medicare
legislation does not preclude HCFA from requiring its
contractors to screen claims for nationally overused
services.'' \49\
---------------------------------------------------------------------------
\49\ See Supra note 18 p. 13.
---------------------------------------------------------------------------
However, HCFA testified on its management initiative and
technologies to improve the claims review process. The
``focused medical review'' process, adopted by HCFA in 1993,
concentrates the analysis of claims data on local utilization
patterns. It requires each of the 29 contractors to target
services that are vulnerable to abuse in their local area and
prevent payment of unnecessary or fraudulent claims through
prepayment screening and development of local and model medical
review policies. In another example, on January 1, 1996,
Medicare contractors implemented coding screens based on
recommendations made by AdminaStar, a firm contracted by HCFA
in 1994 for that purpose.
3. HCFA is reluctanct to exercise its statutory ``inherent
reasonableness'' authority to adjust reimbursement rates for
durable medical equipment and supplies because the process is
costly and cumbersome. This makes Medicare an attractive target
for fraud and abuse. As a result, the Government too often pays
more than the market price for certain equipment and supplies
costing taxpayers billions of dollars.
A September 1995 GAO report stated: ``For many supplies and
services, Medicare reimbursement far exceeds market rates.''
\50\
---------------------------------------------------------------------------
\50\ See Supra note 2 p. 3.
---------------------------------------------------------------------------
Under the law, HCFA reimburses providers and suppliers of
durable medical equipment (DME) according to a fee schedule
that is annually adjusted for inflation.\51\ To change the
price for an individual item or service, HCFA must observe a
regulatory process establishing that the fee is not inherently
reasonable.\52\ Under this inherent reasonable (IR) process,
HCFA must, through an elaborate and detailed economic analysis,
prove the Medicare fee is ``grossly excessive'' or ``grossly
deficient.'' \53\
---------------------------------------------------------------------------
\51\ Section 1834(a)(10)(B) of the Social Security Act, 42 U.S.C.
1395m(a)(10)(B).
\52\ Ibid.
\53\ Section 1842(b)(8) and (b)(9) of the Social Security Act, 42
U.S.C. 1395u(b)(8) and (b)(9).
---------------------------------------------------------------------------
The economic analysis is mandated by the Omnibus Budget
Reconciliation Act of 1987 (OBRA `87) \54\ and requires HCFA to
document the following conditions:
---------------------------------------------------------------------------
\54\ Section 1842(b)(8)(B)(ii)(I)-(IV) of the Social Security Act,
42 U.S.C. 1395u(b)(8)(B)(ii)(I)-(IV).
---------------------------------------------------------------------------
The prevailing charges for a service in a
particular locality are significantly in excess or below
prevailing charges in other comparable localities.
Medicare and Medicaid are the sole or primary
sources of payment for this item or service.
The marketplace is not competitive.
There has been an increase in charges that cannot
be explained by inflation or technology.
The higher price does not reflect a new
technology.
The prevailing prices are substantially higher
than prices paid by other purchasers in the same area.
During a May 2, 1996 hearing, Michael Mangano, Principal
Deputy Inspector General for HHS testified, ``The most
important message I would like to leave today with this
committee is that the Medicare program is far too limited in
how they can act and how quickly they can act. When we identify
a particular piece of equipment that is just overpriced or what
we would call `inherently unreasonable,' Medicare can't really
react fast enough to the marketplace to adjust that price
downward. Instead, they have to use, at the current time, the
rule-making process, which usually takes about two to four
years. It is time-consuming and resource-intensive.'' \55\
---------------------------------------------------------------------------
\55\ Joint hearing on H.R. 3224, the Health Care Fraud and Abuse
Prevention Act of 1996, H.R. 1850, the Health Care Fraud and Abuse Act
of 1995 and H.R. 2480, Inspector General for Medicare and Medicaid:
Oversight Hearing Before the Subcommittee on Human Resources and the
Subcommittee on Government Management, Information, and Technology of
the House Committee on Government Reform and Oversight, HRIR and GMIT
joint hearing of May 2, 1996. (Testimony of Michael Mangano, Principal
Deputy Inspector General, HHS.) (Original transcript, p. 42, in
subcommittee files.)
---------------------------------------------------------------------------
According to a September 1995 GAO report, the IR process to
change the price of home glucose monitors took HCFA 995 days to
complete.\56\ HCFA has begun the IR process with another DME
item, home oxygen concentrators, which began in November 1994
\57\ and has not yet issued a final rule setting the new price.
The GAO study reported if Medicare were able to pay the same
price for oxygen concentrators as that paid by the Department
of Veterans Affairs, it could realize as much as $4.2 billion
in savings over 5 years.\58\
---------------------------------------------------------------------------
\56\ See Supra note 2 p. 8.
\57\ Ibid p. 9.
\58\ Ibid.
---------------------------------------------------------------------------
The complexity of the process and the length of time it
takes HCFA to complete the process once begun do not
effectively protect the Medicare program from waste. The
resources and time required to change a price make it an
inefficient procedure. GAO recently concluded, ``HCFA is slow
and often ineffectual in addressing problems involving
overpricing . . .'' \59\ Since 1992, HCFA has only invoked its
IR authority twice to adjust the prices of Medicare items--home
glucose monitors and oxygen concentrators.
---------------------------------------------------------------------------
\59\ Ibid p. 7.
---------------------------------------------------------------------------
The HHS IG characterized the current price adjustment
system as ``absurd.'' \60\ The IG concluded, ``While some of
these requirements [of the Social Security Act or the
Administrative Procedures Act] may serve useful purposes . . .
some may prevent program managers from taking appropriate
action to improve program operations.'' \61\
---------------------------------------------------------------------------
\60\ Ibid p. 7.
\61\ HHS IG letter to Representative Bill Archer, chairman of the
House Ways and Means Committee dated May 9, 1996, in subcommittee
files.
---------------------------------------------------------------------------
HCFA's inability to adjust prices in a timely manner
creates a climate for abuse by some providers and results in
billions of taxpayer dollars lost every year.\62\ As the HHS IG
so eloquently stated, ``when Willie Sutton was asked why he
robbed banks, he responded `Because that's where the money is.'
Today's criminals may be more sophisticated, but in a way they
remain true to their forebears. They go where the money is.''
\63\ The HHS IG estimates that timely adjustment of the prices
of home glucose monitors and oxygen concentrators could have
saved $10 million over 3 years and $4.2 billion over 5 years
respectively.\64\
---------------------------------------------------------------------------
\62\ See Supra note 2 p. 1.
\63\ HRIR hearing of 3/22/95. (Prepared written statement of June
Gibbs Brown, Inspector General, HHS, p. 10, in subcommittee files.)
\64\ Ibid p. 7.
---------------------------------------------------------------------------
In a February 1996 report, the IG found that Medicare
payments for enteral nutrients are excessive, because
reimbursement rates are set too high. Other examples of
excessive reimbursement rates include Medicare reimbursement
for Category I nutrients [the simplest and most widely used
formulas]. Medicare pays $0.61 per unit, while average cost to
a nursing home is approximately $0.43 per unit. The IG
estimates that if enteral nutrients were recognized as a food,
Medicare would save approximately $170 million annually.\65\
---------------------------------------------------------------------------
\65\ HRIR and GMIT joint hearing of 5/2/96 (Prepared written
statement of Michael Mangano, Principle Deputy Inspector General, HHS,
p. 9, in subcommittee files.)
---------------------------------------------------------------------------
The IG found in a March 1994 report that ambulatory
surgical centers were paying $126 for an intraocular lens (IOL)
insertion while the Medicare reimbursement was $200.\66\ In
addition, the IG reported in May 1993 HCFA's current
reimbursement for hospital beds does not reflect the useful
life of the bed. Medicare pays for the use of the bed on a
monthly basis and a typical bed can be rented 7.5 to 10 times
over its useful life, resulting in total Medicare payments of
around $7,000 while the bed could be acquired for an average of
$1,000.\67\ All of these examples resulted in excessive
payments to suppliers.
---------------------------------------------------------------------------
\66\ Ibid p. 12.
\67\ Ibid.
---------------------------------------------------------------------------
In FY 95, the Medicare program paid $5.99 billion in DME
claims.\68\ This multi-billion dollar industry derives
substantial benefit from HCFA's inability to adjust prices of
Medicare items and services on a more timely basis.
---------------------------------------------------------------------------
\68\ According to information provided by Michael Mangano,
Principal Deputy Inspector General for HHS, in response to verbal
request from HRIR Subcommittee on May 3, 1996.
---------------------------------------------------------------------------
4. HCFA's Medicare Transaction System (MTS) project is vulnerable to
cost overruns and schedule delays due to the agency's lack of a
disciplined management process.
The Medicare Transaction System (MTS) is HCFA's computer
modernization project for Medicare claims processing. The
single automated system will replace the nine current claims
processing systems used by Medicare contractors. It is
projected to be fully implemented in 1999.
The goals for MTS as reported by HCFA are: improved service
to beneficiaries and health care providers; enhanced program
safeguards; inclusion of managed care and other alternative
payment methods; and improved control of Medicare program
expenditures.\69\
---------------------------------------------------------------------------
\69\ HRIR hearing of 11/16/95. (Prepared written statement of Dr.
Bruce Vladeck, administrator, HCFA, p. 1, in subcommittee files.)
---------------------------------------------------------------------------
Currently, HCFA contracts with 44 fiscal intermediaries and
28 carriers which operate nine different computer programs to
process Medicare claims. According to Dr. Bruce Vladeck, the
current decentralized contractor arrangement is expensive
because every change in Medicare policy or procedures requires
modification of all nine systems.\70\
---------------------------------------------------------------------------
\70\ Ibid, p. 3.
---------------------------------------------------------------------------
In 1995 testimony before a joint hearing of the HRIR
Subcommittee and the Subcommittee on Government Management,
Information, and Technology, Dr. Vladeck reported that HCFA
began to develop MTS in the early 1990's to meet the need for a
``single national claims processing and information system for
the Medicare program.'' \71\
---------------------------------------------------------------------------
\71\ HRIR hearing of 11/16/95. (Testimony of Dr. Bruce Vladeck,
administrator, HCFA, p. 27, in subcommittee files.)
---------------------------------------------------------------------------
Criticism of MTS has focused on HCFA's management of the
risks associated with such a large procurement project.
According to testimony during the joint hearing, GAO supports
HCFA's decision to pursue MTS but has serious concerns about
possible cost overruns and unrealistic scheduling of the
project.
Frank Reilly, GAO's Director of Information Resources
Management, testified that HCFA has allowed the MTS to proceed
``. . . despite (1) difficulties in defining requirements, (2)
a compressed schedule containing significant overlap of system-
development phases, and (3) a lack of reliable information
about costs and benefits.'' \72\ Based on GAO's review of these
issues, Mr. Reilly concluded that the MTS goal to improve
processing of Medicare claims is at risk.\73\
---------------------------------------------------------------------------
\72\ HRIR hearing of 11/16/95. (Prepared written statement of Frank
Reilly, Director of Information Resources for Health, Education and
Human Services, General Accounting Office, p. 2, in subcommittee
files.)
\73\ Ibid.
---------------------------------------------------------------------------
HCFA's schedule for MTS set April 1996 as the completion
date for current requirements of the system, and August 1996 as
completion date for future requirements. Concurrently, HCFA's
contractor will begin building the system prototype to be
tested beginning in September 1997. After 24 months of testing,
HCFA expects the prototype to be perfected and fully
implemented.\74\
---------------------------------------------------------------------------
\74\ According to MTS timeline provided by HCFA staff in response
to a 8/2/95 information request from the HRIR Subcommittee.
---------------------------------------------------------------------------
GAO determined that MTS deadlines will not allow adequate
time for proper development of current and future requirements
as well as testing of the prototype system. In testimony, Mr.
Reilly said that ``the system's future capabilities may be
seriously constrained'' \75\ because the design may not reflect
key requirements.
---------------------------------------------------------------------------
\75\ HRIR 11/16/95 hearing. (Prepared written statement of Frank
Reilly, Director of Information Resources for Health, Education and
Human Services, General Accounting Office, p. 10, in subcommittee
files.)
---------------------------------------------------------------------------
Delays in the MTS schedule affect cost projections.
According to GAO testimony, the current cost projections are
based on 1992 estimates and have not been updated ``in over
three years.'' \76\ Mr. Reilly testified that ``in our
experience, problems related to requirements definition,
schedule and cost often contribute to extensive delays . . .
[and] . . . large cost increases.'' \77\
---------------------------------------------------------------------------
\76\ Ibid, p. 64.
\77\ Ibid, p. 62.
---------------------------------------------------------------------------
Private sector witnesses echoed concerns about risks in the
MTS project. Gary Rudin, corporate vice president of EDS'
Health Care Group, stated, ``MTS is heading towards development
of a new monolithic system that by the time it is implemented
may well be obsolete . . . We recommend that the MTS initiative
be revisited, considering the dramatic changes in health care
and technology over the last five years.'' \78\
---------------------------------------------------------------------------
\78\ HRIR hearing on 11/16/95. (Testimony of Gary Rudin, corporate
vice president of Health Group, EDS, p. 109, in subcommittee files.)
---------------------------------------------------------------------------
The chairmen and ranking members of each subcommittee have
requested that GAO continue its review of the MTS project
specifically focusing on minimizing risks and delivering the
project on a realistic schedule.\79\ That study is underway.
---------------------------------------------------------------------------
\79\ Joint letter from the Subcommittee on Human Resources and
Intergovernmental Relations and the Subcommittee on Government
Management, Information, and Technology to Charles A. Bowsher,
Comptroller General, General Accounting Office, dated 4/22/96.
---------------------------------------------------------------------------
IV. RECOMMENDATIONS
1. Congress should require HCFA, HHS IG, DOJ, State Medicaid Fraud
Control Units and other appropriate law enforcement entities
establish a joint program to coordinate fraud detection and
prevention activities, and to apply the exclusion sanction
against vendors more effectively.
Informal agreements or joint operations between Government
agencies cannot effectively combat Medicare and Medicaid fraud
on a continuing basis nor can they restore the trust of the
American taxpayers.
In testimony, Gerald Stern, DOJ's Special Counsel on Health
Care Fraud, asked for the subcommittee's assistance in the
Department's efforts to fight fraud in the Medicare and
Medicaid programs. He said ``better communication among all of
us has allowed us to choose the most the most appropriate
sanction or sanctions to address particular health care fraud
problems.'' \80\ Congress should expand permissive and
mandatory exclusion authority and HHS OIG and DOJ should use
the sanction in enforcement actions and settlements.
---------------------------------------------------------------------------
\80\ HRIR hearing of 6/15/95. (Testimony of Gerald Stern, Special
Counsel for Health Care Fraud, DOJ, p. 82, in subcommittee files; see
also, Prepared Written Statement of Gerald Stern, p. 16-17, in
subcommittee files.)
---------------------------------------------------------------------------
Congress should ensure effective coordination of public and
private anti-fraud enforcement by enacting legislation to
require annual enforcement planning and to permit greater
information sharing.
Legislation should require the IG and Attorney General to
establish a joint program to prevent, detect and control health
care fraud including State agencies and local law enforcement,
require IG and AG to consult with regularly State and local
agencies, and should establish health care fraud and abuse
control account in Dept. of Treasury.
2. HCFA should require its contractors to use autoadjudication
prepayment screens to ensure Medicare does not continue to pay
claims for medically unnecessary services.
Screening guidelines should be established to ensure
Medicare does not continue to pay claims for medically
unnecessary services. Sarah Jaggar, GAO's Director of Health
Financing, urged HCFA ``. . . to hold its contractors
accountable for implementing local policies and prepayment
screens . . . [in order] to control payments for widely
overused procedures.'' \81\
---------------------------------------------------------------------------
\81\ Ibid.
---------------------------------------------------------------------------
Ms. Jagger said, ``Problems with controlling payments for
widely overused procedures persist because HCFA lacks an
effective national strategy. Although the need for national
leadership is compelling, HCFA has not exercised its statutory
authority to take an active role in promoting more local
medical policies and prepayment screens for widely overused
procedures.'' \82\ According to Ms. Jaggar, ``If the use of
autoadjudication screens were expanded to all of Medicare's
contractors, the savings we identified would likely be hundreds
of millions of dollars . . .'' \83\
---------------------------------------------------------------------------
\82\ See Supra note 18.
\83\ HRIR and GMIT joint hearing of May 2, 1996. (Testimony of
Sarah Jaggar, Director of Health Financing Policy, GAO.) (Original
transcript, p. 12, in subcommittee files.)
---------------------------------------------------------------------------
3. Congress should revise HCFA's ``inherent reasonableness'' authority
to require a price adjustment for a Medicare item or service
within 1 year of initiating a review of that item or service
through the issuance of an interim final regulation.
Michael Mangano, Principal Deputy Inspector General for
HHS, testified in a May 2, 1996 hearing that ``We have issued
numerous reports on problems with . . . (durable medical
equipment) . . . and undertaken a large number of
investigations. In general, even when the IG or HCFA identifies
a particular piece of equipment as significantly overpriced
(i.e., as ``inherently unreasonable''), the Department or
carriers cannot adjust reimbursement levels without going
through the regulatory process that . . . is resource-intensive
and time-consuming . . .'' \84\
---------------------------------------------------------------------------
\84\ Ibid p. 3.
---------------------------------------------------------------------------
Mr. Mangano reported, ``There are some things Congress can
do to improve the Medicare program . . . statutory improvements
can be made to allow greater program flexibility and to close
loopholes in the law. HCFA can promulgate rule-makings to
adjust prices to reflect market conditions . . .'' \85\
---------------------------------------------------------------------------
\85\ Ibid p. 5.
---------------------------------------------------------------------------
Mr. Mangano concluded: ``We recommend that the Congress
enact legislation which would allow HCFA to apply ``inherent
reasonableness'' in setting reimbursement amounts (this would
allow downward adjustments).''
This legislative language was introduced on March 29, 1996
by Representatives Shays (R-CT), Schiff (R-NM) and Barrett (D-
WI). H.R. 3225 would require the Secretary to issue an interim
final regulation adjusting the price for a Medicare item or
service within 1 year of initiating the review of that item
under HCFA's inherent reasonableness authority.
4. HCFA should develop a comprehensive management plan to address the
cost and scheduling challenges associated with the Medicare
Transaction System (MTS). Until that plan is developed, HCFA
should focus greater resources on effective, near-term anti-
fraud efforts.
On April 24, 1996 HCFA issued Request for Proposals (RFPs)
to design and build two claims processing MTS sites and one
analysis center.\86\ Issuance of these RFPs is on schedule with
HCFA's original timetable for MTS which suggests that HCFA has
not revised its schedule to reflect the concerns raised by GAO
in testimony.
---------------------------------------------------------------------------
\86\ ``HCFA Unveils Medicare RFP'', Federal Computer Week, 5/6/96,
p. 22.
---------------------------------------------------------------------------
HCFA's lack of response to GAO testimony is troubling to
both the HRIR and the GMIT Subcommittees. As noted earlier, GAO
is continuing to study the design and implementation of the MTS
system ``to determine the extent to which HCFA is managing the
MTS projecto as an investment that will maximize benefits,
minimize risks, and be delivered on schedule.'' \87\
---------------------------------------------------------------------------
\87\ Letter of May 23, 1996 to Reps. Shays, Towns, Horn and Maloney
from Patricia Taylor, Director, Health, Education and Human Services
Information Systems Issues, General Accounting Office. In subcommittee
files.
---------------------------------------------------------------------------
In the absense of a comprehensive MTS management plan, HCFA
should focus its resources on specific existing anti-fraud
techniques which would result in substantial savings for the
Medicare program. For example, HCFA should require its
contractors to implement prepayment screens to ensure Medicare
pays only for items and services that are reasonable and
necessary for the diagnosis and treatment of a medical
condition.
Another opportunity for immediate anti-fraud prevention is
the implementation of a unique identifier system for Medicare
providers and suppliers. This would limit providers to one
universal identification number and require use of the
universal number by every provider in the submission of a
Medicare claim. Implementation of this system would inhibit the
ability of fraudulent providers and suppliers to hide behind
multiple identifier numbers when submitting claims.
ADDITIONAL VIEWS OF HON. CARDISS COLLINS, HON. EDOLPHUS TOWNS, HON.
HENRY A. WAXMAN, HON. TOM LANTOS, HON. ROBERT E. WISE, JR., HON. MAJOR
R. OWENS, HON. LOUISE SLAUGHTER, HON. BERNARD SANDERS, HON. KAREN L.
THURMAN, HON. THOMAS M. BARRETT, HON. BARBARA-ROSE COLLINS, HON. JAMES
P. MORAN, HON. GENE GREEN, HON. CHAKA FATTAH, AND HON. ELIJAH E.
CUMMINGS
This investigative report (the Report) results from a Human
Resources and Intergovernmental Relations Subcommittee
examination of the high incidence of waste, fraud and abuse in
Medicare and Medicaid programs. The subcommittee sought to
determine the efficacy of Federal efforts to minimize excessive
or unnecessary health care expenditures. Toward this end, the
subcommittee considered issues related to the extent of fraud
and abuse in Medicare and Medicaid; current detection,
prevention and enforcement initiatives; and opportunities that
exist, as well as those which must be created by legislation,
to improve Federal efforts.
We generally support the Report. However, we are concerned
that in some instances, its characterization of deficiencies in
Federal anti-fraud efforts is based on information and
testimony that is more than a year old. The accuracy of that
information and testimony is not disputed. Nevertheless, we
find that it has limited utility as a current measure of the
effectiveness of the Administration's detection, prevention and
enforcement initiatives. A full understanding of the efficacy
of Federal efforts requires the consideration of the evolution
in those efforts as well as additional facts or factors that
the Report omits. Our additional views seek to strengthen the
Report by providing updated and clarifying information
regarding the Administration's anti-fraud and abuse objectives
and accomplishments.
Medicare and Medicaid together accounted for $269 billion
in Federal health care spending in fiscal year 1995. Of that
amount, the General Accounting Office (GAO) estimates that as
much as 10 percent, nearly $27 billion, was lost to fraud and
abuse. The subcommittee found that opportunities for fraud have
persisted for several reasons, including the tremendous
purchasing power of the Medicare and Medicaid programs;
traditional deficiencies in HCFA's administrative practices and
management controls; overlapping and unclear jurisdictions of
Federal and State agencies responsible for health care fraud
enforcement; inadequate or underutilized civil and criminal
statutes; a cumbersome and resource-intensive price adjustment
system; limitations in HCFA's authority to exclude fraudulent
or abusive vendors from participation in the programs; and the
propensity of opportunistic and sophisticated crimes against
the programs to outpace anti-fraud management practices and
technologies.
Although Medicare and Medicaid program losses due to fraud
and abuse cannot be totally eliminated, subcommittee consensus
was that an effective anti-fraud strategy can recapture
potentially billions of taxpayer dollars. Given the pending
shortfalls in the Medicare Trust Fund, reductions in budget
growth in both programs, and the general trend toward
government downsizing--the need to preserve scarce resources
and maximize the use of available budgets has never been more
acute. Additionally, we believe that the systemic corruption of
these programs, perpetrated by criminal providers, undermines
the quantity and quality of care available to Medicare and
Medicaid beneficiaries--the aged, the poor, and the disabled--
the most vulnerable American citizens.
Despite fraud and abuse problems, it is important to note
that at least 90 percent of Medicare and Medicaid claims are
legitimate, and that the majority of providers are honest and
support standards for participation and entry in the programs.
During a May 2, 1996 legislative hearing convened jointly by
the Human Resources and Intergovernmental Relations and
Government Management, Information, and Technology
Subcommittees, Mr. Rick Doherty, testifying on behalf of the
National Association for Medical Equipment Services, reminded
Members that ``[t]hese people are really fringe operators and
are not representative of the industry. The difficulty is
getting rid of those players without using a broad brush and
punishing the entire system and the legitimate providers, in
particular.''
The U.S. Department of Health and Human Services (HHS)
Health Care Financing Administration (HCFA) has administrative
oversight of the Medicare and Medicaid programs. As stated by
Sarah Jaggar, GAO Director for Health Financing and Policy
Issues in subcommittee testimony on February 8, 1996, ``HCFA's
primary responsibility is to pay for medically necessary
treatment in accordance with policies and good medical
practice.'' HCFA's responsibility as it pertains to controlling
fraud and abuse is confined to prevention. Responsibility for
investigating and prosecuting health care fraud and abuse is
dispersed among many agencies at both the Federal and State
levels. Among those Federal agencies with some jurisdiction in
anti-fraud and abuse enforcement efforts are the HHS Office of
the Inspector General (HHS-OIG); the Department of Justice
(DOJ); the Federal Bureau of Investigation (FBI); the Drug
Enforcement Administration; the Food and Drug Administration;
the Postal Inspection Service; and the Department of Labor
Office of the Inspector General. The Federal agencies principal
to the subcommittee's investigation were the Health Care
Financing Administration, the HHS Office of the Inspector
General, and the Department of Justice.
The longstanding difficulties in integrating the anti-fraud
functions of HCFA, the HHS-OIG, and DOJ have contributed to the
prevalence of unnecessary and excessive Medicare and Medicaid
spending. We concur with the Report's first finding that
``there is insufficient coordination among government agencies
combating waste, fraud and abuse in Medicare and Medicaid
programs.'' However, we also find that the Administration is
making significant progress in improving coordination. The
Report insufficiently acknowledges this progress, in part,
because the subcommittee took a snapshot of the
Administration's performance prior to its execution of
initiatives to improve coordination efforts.
For example, the hearing record establishing the existence
of deficiencies in the coordination of Federal anti-fraud
activities was built primarily on GAO and agency testimony
received by the subcommittee in March and June 1995, which in
turn reflected information gathered over past months. Operation
Restore Trust, the Administration's major health care anti-
fraud project, was put in place in May 1995. It is jointly
carried out by HCFA, HHS-OIG, and the Administration on Aging,
and involves an intergovernmental team that includes DOJ, the
U.S. Attorneys' offices, and the State Medicaid Fraud Control
Units, was put in place in May 1995. In its first year,
Operation Restore Trust appears to have improved coordination
between government agencies at Federal and State levels,
including improved information-sharing between Medicare and the
54 Medicaid programs in order to detect fraud schemes across
program lines. Although its effectiveness has not been
objectively evaluated, we find that consideration of
accomplishments of Operation Restore Trust is integral to any
assessment of Federal coordination efforts.
Second, the Report includes the June 15, 1995 testimony of
former DOJ Special Counsel for Health Care Fraud, Gerald Stern,
that in 1993 the Attorney General determined that health care
fraud enforcement would be a new DOJ initiative, second only to
violent crime enforcement. The Report also records the Special
Counsel's testimony that the health care fraud initiative
involves ``increased resources, investigations and
prosecutions, greater cooperation among investigative and
regulatory agencies, and coordinated use of all available
sanctions, criminal, civil, and administrative.'' However, the
Report does not describe any specific DOJ initiative to
integrate its activities with other enforcement entities, nor
its efforts to coordinate with HCFA's prevention priorities. We
note that the Special Counsel informed the subcommittee in his
June 1995 testimony that DOJ chairs an ``executive-level health
care fraud policy group'' which has convened monthly since its
formation in November 1993. This group includes senior level
personnel at HCFA, HHS-OIG and the FBI.
In addition, the Report recounts an exchange between the
subcommittee chairman and Dr. Bruce Vladek, HCFA's
Administrator, in an attempt to demonstrate that deficiencies
in coordination result in HCFA's failure to make effective use
of its authority to exclude fraudulent providers from
participation in the Medicare or Medicaid programs. We are
concerned that the Report's presentation of the disparate
responsibilities of the administrative (HCFA) and enforcement
(HHS-OIG and DOJ) agencies is incomplete, providing
insufficient detail regarding difficulties HCFA has encountered
in exercising its exclusion authority.
The HHS-OIG audits and investigates health care providers
accused of fraud against Medicare and Medicaid. The OIG is
authorized to conduct civil, administrative and criminal
investigations of fraud associated with these programs, and is
responsible for imposing the majority of health care
administrative sanctions authorized under the Social Security
Act. The Omnibus Budget Reconciliation Act of 1981 specifically
authorizes the OIG, acting on behalf of the agency, to impose
civil monetary penalties and assessments against health care
providers who have filed false or improper claims for
reimbursement under Medicare and Medicaid programs. The
Medicare and Medicaid Patient and Program Protection Act of
1987 provides the agency authority to exclude both individuals
and entities from participation in Medicare and State health
care programs for fraudulent activities. It amended the
existing mandatory authorities to cover program-related and
patient abuse convictions and require program exclusions of no
less than 5 years. In addition, it enacted discretionary
exclusion authorities to cover a variety of offenses.
The HHS-OIG refers investigative findings directly to the
Department of Justice or individual U.S. Attorneys for possible
criminal or civil prosecution. There is no specific Federal
health care fraud statute. However, DOJ prosecutors can use
traditional criminal and civil authorities, including mail and
wire fraud statutes, the False Claims Act, and false statements
statutes to prosecute health care fraud and abuse. Even if
health care fraud does not constitute criminal activity, DOJ
may try to recover damages by seeking payment of civil
penalties and restitution. Once DOJ has completed or declined
criminal or civil prosecution, HHS can consider imposing
administrative sanctions. Successful prosecutions may take
years, involve an investment of considerable staff time and
resources, and may never result in actual recovery of Federal
health care dollars lost to fraud.
Dr. Vladek's testimony that ``[h]istorically, there has
been no participation by [HCFA] in the settlement,'' refers to
these factors. The Report notes Dr. Vladek's statement that
HCFA has ``invested enormous resources and energy in
substantially strengthening [its] relationship with the
Inspector General, with the Department of Justice, [and] with
the components of the Department of Justice such as the FBI and
the U.S. Attorneys . . .'' Also, the hearing record establishes
that the DOJ Special Counsel for Health Care Fraud advised the
subcommittee in his June 15, 1995 opening statement that
``better communication among all of us has allowed us to choose
the most appropriate sanction or sanctions to address
particular health care fraud problems. Increasingly, we pursue
parallel proceedings so that responsible companies and
officials are convicted criminally and at the same time civil
damages--damages and penalties are recovered.''
Although oversight of the efficacy of Federal health care
anti-fraud and abuse activities is implicit in the Committee's
jurisdiction, we recommend that the Congress monitor whether
improved coordination between HCFA, HHS-OIG and DOJ can be
demonstrated; and whether that coordination appreciably impacts
detection, prevention and enforcement efforts.
We concur with the Report's second finding that ``HCFA does
not require Medicare Part B contractors to use software capable
of screening out claims for inappropriate medical services.''
It is important to note, however, that this is an explicit
policy decision and not a requirement with which HCFA is
failing to comply. We advocate greater use of auto-adjudicated
screens as a low-cost, efficient method of determining the
medical necessity of overused services. At the same time, we
note HCFA's concern that auto-adjudication is not appropriate
in all cases. This concern was supported in the testimony of
William Reis, a GAO official who accompanied Sarah Jaggar GAO
Director of Health Financing Policy before the subcommittee on
February 8, 1996: ``There are some procedures that simply
looking at the diagnosis is not an indicator of whether or not
that claim was medically necessary . . . The only way to know
if that claim was appropriate is for someone to review that
documentation.''
We support the Report's recommendation that HCFA require
its Medicare Part B contractors to autoadjudicate screens for
overused procedures. We also recommend that HCFA establish
guidelines that include a national strategy for greater
utilization of autoadjudicated screens where appropriate, as
well as policy for determining an effective mix between manual
and electronic methods.
We question the Report's characterization of HCFA's
difficulty in employing its statutory ``inherent
reasonableness'' authority as reluctance, as it does in its
third finding. We concur that durable medical equipment (DME)
is susceptible to pricing-generated fraud, and that the
statutory price-setting system is cumbersome and often results
in HCFA's paying excessive prices. The Report does not
sufficiently indicate that changing the fee schedule requires a
complex regulatory process to show existing prices are not
``inherently reasonable,'' and involves an extensive data
collection effort, consultation with industry representatives,
publication of a notice in the Federal Register, a 60-day
comment period, and publication of a final notice. We find that
the Administration has demonstrated an interest in correcting
this problem through its proposed balanced budget legislation.
We support the Report's recommendation that price adjustments
should be expedited through the issuance of an interim final
regulation. In addition, we recommend that Congress work with
the Administration to develop legislation that simplifies the
requirements associated with HCFA's inherent reasonableness
authority to enable HCFA to meet that expedited goal.
We concur with the Report's fourth finding that ``HCFA's
Medical Transaction System (MTS) is vulnerable to cost overruns
and schedule delays due to the agency's lack of a disciplined
management process. This finding correlates with the testimony
of Frank Reilly, GAO Director, Information Resources
Management/Health, Education and Human Services, during the
November 16, 1995 joint hearing with the Government Management,
Information, and Technology Subcommittee. Mr. Reilly informed
the subcommittees that ``while HCFA's approach to developing
MTS contains several strengths, it also contains important
weaknesses that are adding unnecessary risk. On the plus side,
HCFA is attempting to build as much flexibility as possible
into the system so it can be easily modified . . . HCFA also
plans to build, test and implement MTS in stages so that
problems that arise can be addressed more manageably. In
addition, the system will allow direct access to claims by
beneficiaries and . . . providers. The problems we see,
however, seem to come from the lack of a disciplined management
process. HCFA is not managing MTS as an investment.''
We note that GAO, while expressing criticism of the
project's significant risks, found that ``if management
exercises investment control and other `Best Practices' these
risks can be greatly reduced.'' We again express the concern
that the Report has made a static assessment of HCFA's
performance. For example, current efforts deployed by HCFA to
mitigate risk, including an integrated project schedule, an
incremental transition schedule, and independent verification
and validation of HCFA's development of the MTS project, are
not noted in the Report. Whether these reforms have effectively
reduced risk has not been established. GAO will continue its
review of the MTS project pursuant to an April 22, 1996 letter
from the chairmen and ranking members of the Human Resources
and Intergovernmental Relations and Government Management,
Information, and Technology Subcommittees, requesting an
evaluation of the extent to which HCFA is now managing the MTS
project as an investment that maximizes benefits and minimizes
risks.
We concur with the Report's recommendation that in the
advent of a comprehensive MTS management plan that is
consistent with GAO recommendations, HCFA should ensure that
effective, existing anti-fraud techniques receive the
appropriate level of available resources. We recommend
continued oversight of the efficacy of these interim
strategies.
Hon. Cardiss Collins.
Hon. Edolphus Towns.
Hon. Henry A. Waxman.
Hon. Tom Lantos.
Hon. Robert E. Wise, Jr.
Hon. Major R. Owens.
Hon. Louise Slaughter.
Hon. Bernard Sanders.
Hon. Karen L. Thurman.
Hon. Thomas M. Barrett.
Hon. Barbara-Rose Collins.
Hon. James P. Moran.
Hon. Gene Green.
Hon. Chaka Fattah.
Hon. Elijah E. Cummings.
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