Health Care Financing Administration: Three Largest Medicare Overpayment
Settlements Were Improper (Testimony, 03/28/2000, GAO/T-OSI-00-7).
Pursuant to a congressional request, GAO discussed the results of its
investigation of the Health Care Financing Administration's (HCFA)
negotiated settlements of large overpayments to three Medicare providers
between 1991 and July 1999.
GAO noted that: (1) GAO found nothing improper in the settlement of 93
of the 96 settlement agreements; (2) however, HCFA acted inappropriately
in several respects as to the 1995, 1996, and 1997 settlements of the
three largest overpayments; (3) the former HCFA Administrator's
participation in the largest settlement raised conflict-of-interest
concerns; (4) HCFA unilaterally chose not to obtain Department of
Justice approval of the settlements and ignored its own regulations and
internal guidance; (5) HCFA appears to have disregarded permissible
settlement criteria established by regulation; (6) the settlement
agreements contained questionable provisions; and (7) HCFA executed
settlements without the benefit of legal counsel.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: T-OSI-00-7
TITLE: Health Care Financing Administration: Three Largest
Medicare Overpayment Settlements Were Improper
DATE: 03/28/2000
SUBJECT: Overpayments
Health care programs
Conflict of interests
Program abuses
Fraud
Debt collection
Claims settlement
Internal controls
Noncompliance
Malfeasance
IDENTIFIER: Medicare Trust Fund
Medicare Program
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March 28, 2000
GAO/T-OSI-00-7
health care financing administration
Three Largest Medicare Overpayment Settlements Were Improper
Statement of Robert H. Hast
Acting Assistant Comptroller General
for Special Investigations
Office of Special Investigations
Testimony
Before the Permanent Subcommittee on Investigations, Committee on
Governmental Affairs, U.S. Senate
United States General Accounting Office
GAO
Madame Chairman and Members of the Subcommittee:
I am pleased to be here today to discuss the results of our recent
investigation of the Health Care Financing Administration's (HCFA)
negotiated settlements of large overpayments to three Medicare providers
between 1991 and July 1999. (See HCFA: Three Largest Medicare Payments Were
Improper [GAO/OSI-00-4, Feb. 25, 2000].) These settlements constituted 66
percent of all Medicare overpayment settlements since 1991 for which HCFA
provided us records. In these three settlements, HCFA accepted $120 million
for debt exceeding
$332 million-about 36 percent of the total principal.
The depletion of the Medicare Trust Fund has been the subject of significant
scrutiny in recent years. As we have reported previously, fraudulent and
abusive practices have raised concerns about program vulnerabilities. HCFA,
an agency within the Department of Health and Human Services (HHS) that
administers the Medicare program, is required to ensure that debts owed the
program-generally caused by overpayments to providers-are paid.
Historically, rather than collect the entire debt, however, HCFA often
enters into settlement agreements with providers and accepts less than the
full amount owed.
HCFA provided us with copies of 96 agreements reflecting Medicare
overpayment settlements that it negotiated from 1991 through July 1, 1999,
in which the overpayment exceeded $100,000. We found nothing improper in the
settlement of 93 of the 96 matters. We did determine, however, that HCFA
acted inappropriately in several respects as to the 1995, 1996, and 1997
settlements of the three largest matters.
In brief, we found that (1) former HCFA Administrator Bruce Vladeck's
participation in the largest settlement raised conflict-of-interest
concerns, (2) HCFA unilaterally chose not to obtain Department of Justice
approval of the settlements and ignored its own regulations and internal
guidance, (3) HCFA appears to have disregarded permissible settlement
criteria established by regulation, (4) the settlement agreements contained
questionable provisions, and (5) HCFA executed settlements without the
benefit of legal counsel.
Actions by the HCFA Administrator Raised Conflict-of-Interest Concerns
We determined that HCFA Administrator Bruce Vladeck had directed
subordinates to settle the three matters and that he had a prior
professional association with two of the three providers immediately prior
to being appointed HCFA Administrator. Mr. Vladeck's participation in the
largest settlement-$25 million accepted for $155 million in overpayments to
a hospital-raised conflict-of-interest concerns because he had previously
served on the hospital's Board of Directors. In this instance, we learned
that Kevin Thurm, then Chief of Staff to the HHS Secretary and the current
Deputy Secretary, had instructed Mr. Vladeck to inquire about the status of
the overpayments. As a result, Mr. Vladeck suggested to Charles Booth, then
Director of Payment Policy, that "time was more important than money" and
instructed him to move faster. Mr. Booth had told
Mr. Vladeck that quickening the process could cost HCFA an extra
$8 million to $10 million. Despite this being HCFA's largest settlement and
unlike other settlements we reviewed, HCFA kept no records or documentation
about it, not even a copy of the settlement agreement. We were fortunate to
obtain records that the fiscal intermediary maintained. Mr. Vladeck also
failed to disclose his previous affiliation with the other provider, a home
health agency. In this instance, Mr. Vladeck did not reveal on the financial
disclosure forms he filed upon his appointment that he had sat on the
Advisory Committee to the home health agency. We could not resolve our
questions about Mr. Vladeck's involvement in these settlements given his
refusal to meet with us.
No Department of Justice Approval Sought
Two months prior to initiating the first of these three improper
settlements, HCFA (and Mr. Vladeck) was notified that Justice had rejected a
HCFA-proposed settlement for $3 million of a $58-million overpayment to a
hospital. Justice rejected the proposal in September 1993 because it was
"not sufficient" and "out of line with settlement amounts from comparable
institutions." It then took over the negotiations with the hospital, which
continued until March 1994 when the hospital rejected Justice's offer to
settle the matter for $12 million. After the hospital's rejection, Justice
returned the matter to HCFA for collection. Ultimately, a $10-million
settlement was made.
Permissible Claims Criteria Disregarded
Although HCFA chose not to seek a clarification or actual approval from
Justice, it is not entirely clear that the Federal Claims Collection Act
actually required Justice approval. The applicability of the Federal Claims
Collection Act to the three settlements that we investigated depends upon
whether the amount of overpayments determined by the fiscal intermediaries
constitutes a "claim" or "debt" within the meaning of the act. The Federal
Claims Collection Standards, which implement the act, make clear that
Justice approval is required only when a debt or claim is compromised. In
the claims context, we have previously said that "compromise" means
accepting less than the full amount owed in full satisfaction of the claim.
Based upon the facts in the three improper settlements, we believe it is
clear that HCFA accepted less than the full amount of the overpayments. It
is not, however, as clear whether such overpayments constituted a claim or
debt within the meaning of the act. The standards use the terms "claim" and
"debt" interchangeably and define them as "an amount of money or property
which has been determined by an appropriate agency official to be owed to
the United States...." The term "appropriate agency official" is not defined
in the standards. However, the meaning of this phrase is critical to whether
the act applied to the settlement agreements under discussion here.
HCFA's regulations and manuals recognize that circumstances may exist in
which compromise of a debt is appropriate. HCFA's Guide states,
"[C]ompromise of debts should not be considered until all administrative
collection action to collect a debt in full has been exhausted, unless it
becomes clear at some point during the collection activity that further
action to collect the debt in full is not in the best interest of the
Government."
Circumstances that could lead to such a determination include HCFA's
inability to collect the debt in full, a legal issue that raises doubts as
to HCFA's ability to prove its case in court for the full amount, or the
further cost of collecting the debt would exceed the amount of the debt.
Although these provisions were promulgated pursuant to the Federal Claims
Collection Act, we believe that government agencies should normally consider
elements like these before agreeing to settle significant claims. It does
not appear that these settlements, however, were negotiated after careful
consideration of these factors. In apparently failing to consider these or
similar elements before entering into these multimillion-dollar settlements,
HCFA acted improperly, regardless of the applicability of the act and its
associated regulations. Moreover, had HCFA considered these factors, it is
unlikely that settlement would have been appropriate.
For example, HCFA appeared not to consider that all of the providers were
able to pay the amounts owed. One of the providers, the home health agency,
had established a reserve fund to pay most of the amount owed; and the
fiscal intermediaries had already withheld the amounts owed by the other two
providers by offset, so that no additional payment was necessary from them.
Further, it does not appear that there was a substantial risk of loss should
HCFA or its intermediaries litigate these claims. In all three cases, the
provider either claimed that it provided covered services or incurred bad
debts; however all three providers lacked documentation to support any of
these claims. Therefore it is unlikely that any of the providers could have
mounted strong defenses. Moreover, the fiscal intermediaries, who would
represent HCFA in any legal action to collect these debts, were confident in
their ability to prevail. Although a risk in litigation always exists,
consideration of "litigation risk" does not appear to justify settlement.
Even if settlement had been appropriate, HCFA regulations require that the
amount accepted in compromise be reasonable in relation to the amount that
can be recovered by enforced collection proceedings. Since it appears there
was little litigation risk to HCFA to collect the full debt, the significant
compromise of the amounts owed in these three matters is apparently
unjustified.
Consideration of the cost of collection also would not justify these
settlements. Under both HCFA and the Federal Claims Collection Standards,
costs of collecting should not normally carry great weight in the settlement
of large claims. It is unlikely that the cost of collecting these debts,
which collectively approximated $332 million, could outweigh their recovery.
Settlement Agreements Contained Questionable Provisions
Moreover, two of the agreements explicitly permitted the providers to
continue to be reimbursed for costs regardless of whether they were actually
incurred. The settlement with the home health agency permits it to be
reimbursed in the future for costs that might not be covered by Medicare,
although capped at a specific level. Similarly, the 1996 agreement with the
hospital permits it to be reimbursed for bad debts without documentation as
otherwise required by regulation. Mr. Booth disregarded the objections of
knowledgeable HCFA and fiscal intermediary officials who protested the
settlements as setting bad precedents.
HCFA Eschewed Legal Review of Settlements
After we advised HCFA in advance of the specific questions we would be
asking about its claims collection processes and compliance with the Federal
Claims Collection Act, neither Chief Financial Officer Michelle Snyder nor
Chief Counsel Sheree Kanner could answer those questions. Even more
troubling is that after these interviews, we gave HCFA the opportunity to
respond in writing to these questions, but the written response from Deputy
Administrator Michael Hash was unresponsive to our questions.
The chronologies of the three improper settlements and our legal analysis of
the applicability of the Federal Claims Collection Act to these settlements
and the Medicare program can be found in our February 25, 2000, report.
GAO Contacts and Acknowledgement
For further information regarding this testimony, please contact Robert
H. Hast or Donald Fulwider at (202) 512-7455. William Hamel made a key
contribution to this testimony.
(600649)
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