Testimony  Before the United States  House Committee on Ways and  Means 

Subcommittee on Oversight 
 
 
 
 
 
Combating Fraud in Medicare: A Strategy  for  Success  
   
Testimony of:  
 
Gloria L.  Jarmon  
Deputy  Inspector General for Audit Services  
Office of  Inspector General  
U.S.  Department of  Health  and  Human  Services  
 
 
 
 
 
 
 
 
July  17, 2018
  
10:00  a.m.
  
Longworth House  Office  Building,  Room 1100 
 
 
    Testimony of:  Gloria  L.  Jarmon  
Deputy  Inspector  General for  Audit  Services  
U.S. Department  of  Health  and  Human  Services, Office of  Inspector  General  
 
Good  morning, Chairman  Jenkins, Ranking  Member  Lewis, and  distinguished  Members of  the 
Subcommittee. I am Gloria Jarmon, Deputy  Inspector  General  for  Audit  Services, U.S. 
Department  of Health  and  Human  Services  (HHS or  the Department).   Thank  you  for  your 
longstanding commitment  to  ensuring that  Medicares  59  million  beneficiaries are  well served  
and  the taxpayers approximately $700  billion  annual investment  is well spent.  I appreciate the  
opportunity to  discuss  the Office  of  Inspector  Generals  (OIGs) strategy to  promote  program  
integrity and combat  fraud  in  Medicare.  
 
Introduction  
 
Congress created  OIG in  1976  as an  independent  body to oversee  HHS programs.  A key 
component  of  OIGs mission  is to  promote integrity and  efficiency in  Medicare  and  other  
Federal  health  care  programs.  Our  multidisciplinary team  of auditors, investigators, 
evaluators, and  attorneys strategically  focuses on  fraud  prevention, detection, and  
enforcement  efforts.   Our work  generates  specific  recommendations  to the Centers for  
Medicare  & Medicaid  Services (CMS) for  mitigating  or  eliminating  program vulnerabilities and  
improving  program operations.  
 
Medicare  spending represented  more than  15  percent  of  all Federal  spending  in  2017.1   As the 
number  of  beneficiaries continues to  rise,  and  if  per  capita  health  care  costs  continue  to 
increase, Medicare spending can  be expected  to increase. The  2018  Annual Report  by 
Medicares  Board  of Trustees estimated  that  the Trust  Fund  for  Medicare  Part  A  will be  
depleted  by  2026. The  Annual Report  also projected  that  spending for  Medicare  Part  B  will 
grow by more than  8  percent  over the  next  5  years, outpacing  the U.S. economy, which  is 
projected  to  grow by 4.7  percent  during that  same time.   
 
My testimony today discusses  Medicare  fraud  and  improper  payments.   I will also discuss ways  
in  which  OIG  is  engaged  in  prevention, detection,  and  enforcement  activities related  to  
Medicare.   Finally, I will describe  how OIG uses risk  assessment  to  ensure  efficient  use  of our 
resources and  effective oversight  of the Medicare Program.   
 
Fraud  and  Improper  Payments  in  Medicare   
 
We must  foster sound  financial stewardship  to  ensure  that  Medicare  continues to serve  a 
growing population  of  senior  citizens and  individuals with  disabilities well  into  the future.   
                                                           
1  Henry J Kaiser Family Foundation, The Facts on Medicare  Spending and Financing,  
https://www.kff.org/medicare/issue-brief/the-facts-on-medicare-spending-and-financing/.  Accessed July 12,  
2018.  
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House Committee on  Ways and Means, Subcommittee on  Oversight  
July 17, 2018   Combating fraud  and  reducing improper  payments are  critical to  protecting the financial  
integrity of  Medicare.  It  is important  to stress that  while  all monetary loss  from fraud  
constitutes improper  payments,  not  all  improper  payments are  fraud.   A comprehensive  
program  integrity strategy that  focuses on  prevention,  detection,  and  enforcement  helps 
address  multiple  sources of improper  payments,  including fraud.   
 
While the  full extent  of  fraud  is not  known, the  Improper  Payments Information  Act  of 2002  
requires  Federal  agencies to report  to  the President  and  Congress  information on  the 
agencies improper  payments  each  year. Medicare  and  Medicaid  accounted  for  $88.6  billion, 
or  about 98 percent, of  the $90.1 billion  in  improper  payments that  HHS reported  in  its fiscal 
year (FY)  2017  Agency Financial Report.  Traditional Medicare  fee-for-service accounted  for  
$36.2  billion, or about 40  percent,  of the improper payments that  HHS reported.  As  a 
percentage of total Medicare  fee-for-service  payments,  about  9.5  percent  was  improper.  
HHS attributed  about  66  percent  of  Medicare  fee-for-service improper payments  to  errors 
associated  with  insufficient  or  no documentation.  For these claims, the  medical records do  
not support  that  the  billed  services were  actually provided, were  provided  at  the level  billed,  
or  were medically necessary.   Medical necessity errors  accounted  for  about  18  percent  of  the  
errors.  Medical necessity errors occur when  the  billed services were  not  reasonable and  
necessary as required  by  Medicare  coverage and  payment  policies.  Although  improper  
payments may occur  in  all types  of health  care,  home health, skilled  nursing facility (SNF), and  
inpatient  rehabilitation  facility (IRF)  are  areas  of particular concern,  representing  33 percent  
of  the  overall  estimated  improper  payment  rate  for  Medicare  fee-for-service in  FY 2017.   
 
OIG has long  been  at  the  forefront  of measuring,  monitoring,  and  recommending actions to 
prevent  improper  payments, including developing  the first  Medicare  payment  error  rate in  
1996  at  a time when  there  were few error  rate  models in  Government.  In  addition to  OIGs 
reviewing and  reporting  on  HHSs annual  improper  payment  information, our audits, 
evaluations, and  investigations  identify improper  payments for  specific  services and  items,  
assess internal  control and  payment  vulnerabilities, and  make recommendations to prevent  
future  improper payments.   The Departments annual financial report, which  is  reviewed  by  
our office,  plays  a significant  role  when  we plan  our oversight  work, which  I will discuss in  the  
context  of  our approach  to risk  assessment.  The high  error  rates associated  with  home 
health, SNF, and  IRF claims have caused  us to  devote substantial resources to  conducting 
work  on  those  areas  of the program.  This  work  has resulted  in  fraud  convictions as  well as 
recommendations to  collect  improper  payments  and  take  corrective action to  prevent  future  
improper  payments.    
 
OIG drives positive  change by not only  identifying risks, problems, abuses, and  deficiencies, but  
also by recommending  solutions to address them.  OIG identifies opportunities  to  promote 
economy and  efficiency and  offers  recommendations to the  agencies that  operate HHS 
programs.  We follow  up  with  those  agencies to get  such  recommendations  implemented.  We 
actively track  recommendations that  remain  unimplemented,  and  each  year we include  the 
most  significant  recommendations in  our Compendium of  Unimplemented Recommendations. 
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House Committee on  Ways and Means, Subcommittee on  Oversight  
July 17, 2018   We systematically follow up  on our recommendations with  the  relevant  HHS management  
officials.  We frequently  plan  work  related  to  unimplemented  recommendations  to update  the 
results  of a  prior  review  or  to provide  further  evidence of a  vulnerability  in  the program.  We  
also follow  up  on  implemented  recommendations  to  verify that  corrective action  was successful 
in  addressing the problem.  
 
A  Focus on  Prevention,  Detection,  and  Enforcement  
OIG  takes  a three-pronged  approach to fighting  fraud,  waste, and  abuse. This approach focuses  
on  prevention, detection, and  enforcement.  With  respect  to preventing  fraud  and  other  types 
of  improper  payments, CMSs Fraud  Prevention  System (FPS) serves  as an  important  tool that  
should  be improved  to increase its  effectiveness.  Data  analytics and  predictive  analytics can  
help  increase  the effectiveness of  fraud-detection  programs.   Once suspected  fraud  is  
identified, OIG special agents  and  other  professionals  thoroughly  investigate the  facts and, 
when  indicated,  OIG and  our  law  enforcement  partners  aggressively  pursue enforcement  to  
hold  perpetrators accountable and  recover  misspent  taxpayer  dollars. I  discuss these 
prevention,  detection,  and  enforcement  efforts in  more detail  below.  
Improvement of  CMSs Fraud  Prevention  System  Is Key  to  Preventing  Improper  Payments in  
Medicare   
In  June 2011, HHS launched  FPS.  Following  a  law  that  required  HHS to  use predictive  modeling  
and  other  analytics technologies  to  identify and  prevent  fraud, waste, and  abuse in  the  
Medicare  fee-for-service  program, the  Department  designated  CMS  to  develop  FPS.   FPS  is a 
key component  in  CMSs  strategy to go  beyond  detecting fraudulent  and  other types of  
improper  payments  and  recovering the lost  funds  to  preventing those claims from  being paid  in  
the  first  place.  
Although  OIG remains optimistic  about  FPSs  future  role  in  preventing fraud  and  improper 
payments, we have performed several audits that  have identified  ways  to improve  FPS. For  
example, when  performing work  to  certify the  actual and  projected  savings and  the return  on 
investment  related  to HHSs use of  FPS, we  discovered  that  HHS might  not  have the capability 
to trace the  savings from  administrative actions  back  to the specific  FPS model that  generated  
the  savings.  CMS  could  not track  those  savings because, according to CMS, that  capability was 
not built  into FPS.   In  addition,  CMS did  not  make use of  all  pertinent  performance results  
because it  did  not  ensure that  contractors  adjusted  savings reported  to CMS reflected  the 
amounts certified  by OIG, and  CMS did  not  evaluate FPS  model performance on  the basis of  the  
amounts actually expected  to be prevented  or  recovered.  As a result, FPS  is not  as  effective  as 
it  could  be in  preventing  fraud, waste,  and  abuse  in  Medicare.  
CMS concurred  with  our  recommendations that  it  make better  use of  its performance results 
to refine and  enhance  the predictive  analytics technologies of  the  FPS  models by  ensuring  
that  (1)  the  redesigned  FPS  allows  CMS  to  track  savings from  administrative actions back  to 
individual FPS  models,  (2)  contractors adjust  savings reported  to CMS  to reflect  only  FPS-
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House Committee on  Ways and Means, Subcommittee on  Oversight  
July 17, 2018   related  savings  amounts,  and  (3)  evaluations of  FPS  model performance consider  not  only  the 
identified  savings but  also the amount that  is likely to be recovered.  
 
OIG  will continue to  monitor  CMSs implementation  of  predictive analytics  technologies and  will 
assess HHSs reporting  of actual  and  projected  savings for improper  payments avoided  and  
recovered  and  the  related  return  on  investment. In  addition, we  will follow  up  on  corrective  
actions made  in  response to  past  OIG recommendations.  
OIG  Uses Sophisticated  Data Analytics  
 
The schemes to steal  money from  Medicare take many forms. They  can  be as simple as  billing 
for  services  not  provided  or  as  complex as  identity theft,  kickbacks, and  money laundering.   The 
perpetrators of fraud  schemes range from highly  respected  physicians to individuals  with  no  
prior experience in  the  health  care  industry  and  organized  criminal enterprises. Regardless, 
they are  all  motivated  by greed  and  often  put  profit  before  patients health  and  safety,  creating 
potentially dangerous patient  care  environments.  
 
OIGs use of  advanced  data analytics helps  us to more  effectively assess risk  and  pinpoint our  
oversight  efforts. We  use data analytics to analyze millions of  claims and  billions of  data  points.  
At  the  macro  level, OIG analyzes data  patterns  to  assess fraud  and  other  types of  risk  across 
Medicare  services, provider  types, and  geographic  locations  to prioritize  our work  and  more 
effectively deploy  our  resources.   At  the  micro level, OIG uses data  analytics, including near-
real-time data,  to identify  potential fraud  suspects for  more  in-depth  analysis and  to efficiently  
target investigations.  
 
We are  mindful that, even  as our program integrity efforts have  become more technology  
driven,  the nature  of health  care fraud  has become more  technologically  sophisticated.  
Therefore,  technology  is not a  silver  bullet.   Even  the  most  cutting-edge  fraud-prevention  
technologies are  of  little value if  not effectively  implemented, used,  and  overseen.    
 
Enforcement Efforts  Hold  Wrongdoers  Accountable  and  Maximize Recovery  of  Public Funds  
OIG partners with  the  Department  of  Justice and  HHS on  Medicare  Strike  Force teams and  
other health  care  fraud  enforcement  activities through  the Health  Care  Fraud  and  Abuse 
Control  (HCFAC)  program.  Over  its 22-year history, the HCFAC program has recovered billions  
of  dollars and  has  further protected  Federal health  care  programs by convicting criminals, 
excluding providers from  participation in  Medicare and  other Federal  health  care programs, 
and  recovering  audit  disallowances.  
Just  last  month, OIG, along  with  our State  and  Federal law  enforcement  partners, participated  
in  an  unprecedented  nation-wide  health  care  fraud  takedown  aimed at  combating  health  care  
fraud  and  the opioid  epidemic.  Enforcement  activities took  place across the Nation, 
representing the  largest  multiagency enforcement  operation in  history, both  in  terms  of the 
number  of  defendants charged and total loss amount.   More  than  600 defendants in  58  Federal  
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House Committee on  Ways and Means, Subcommittee on  Oversight  
July 17, 2018   districts  were charged  for their  alleged  participation  in  schemes involving approximately  
$2  billion  in  losses to vital health  care  programs,  including Medicare.  Of  those  subjects 
charged, 165  are  medical professionalsincluding  32  doctors who  were charged  for  their  roles 
in  prescribing  and  distributing  opioids  and  other dangerous narcotics.   More than  1,000  law  
enforcement  personnel  took  part  in  this operation, including more than  350  OIG special  agents.  
 
We will continue  to use enforcement  activities  to  hold  fraud  perpetrators accountable and  
recover stolen  or  misspent  funds.   In  addition, we  will continue to share  information about 
prescription-drug fraud  schemes, trends, and  other  matters  related  to  health  care fraud  with  
our partners  in  the Healthcare  Fraud  Prevention Partnership  and  the National Healthcare  Anti-
Fraud  Association.  
 
A  Risk-Based Approach  to Oversight   
Integrating risk  management  practices improves  decision  making in  governance,  strategy, 
objective  setting,  and  day-to-day operations.   It  helps to enhance performance and  provides  a 
path  to creating,  preserving, and  realizing value.   OIG uses risk  assessments to develop  and  
prioritize  our oversight  work  to maximize our positive impact  for  HHS  beneficiaries and  
taxpayers. With  particular respect  to OIGs audit  work, our  risk  assessment  process considers  
specific  risk  factors related  to the  potential  liability and  level  of  exposure  of  Medicare and  other  
HHS programs to fraud, waste, and  abuse.  The risk  factors related  to  fraud  are  based  on  the 
Government  Accountability Offices  A Framework  for Managing  Fraud  Risks in  Federal 
Programs2  and  the Committee of  Sponsoring Organizations  of the Treadway Commissions 
(COSOs) Fraud  Risk  Management  Guide. We consider  other  areas based  on  COSOs updated  
Enterprise  Risk  ManagementIntegrated Framework,  including:  
   governance  and  culture;  
   strategy and  objective  setting;  
   performance;  
   review and  revision  of  practices to  enhance  entity performance; and  
   information, communication,  and  reporting.  
 
To  assess the  severity  of  identified  risks, we generally evaluate  the  likelihood  of  a  risk  occurring 
and  the potential impact  or  result  of  the  risk.  For  example, rapid  growth  in  program authority 
or  spending may signal a  greater  likelihood  of fraud, waste,  or  abuse.   The number  of  
beneficiaries affected  by the  rapid  growth  may be  an  indicator  of impact.   Risks may be 
categorized  in  a  variety of  ways.  For example,  the  tool  we developed  to  manage reported  
recommendations uses strategic,  financial, informational, operational, and  compliance  risks to  
assist  us in  evaluating the potential  impact.  An  audit  ranked  as  high  risk  may be the target for  a  
followup  audit  to ensure  management  has taken  corrective action.  An  analysis of  the  high-risk  
                                                           
2  U.S. Government Accountability Office,  A Framework for Managing Fraud Risks in Federal Programs, July 2015.  
Accessed July 12, 2018. https://www.gao.gov/assets/680/671664.pdf.  
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House Committee on  Ways and Means, Subcommittee on  Oversight  
July 17, 2018   recommendations for  an  HHS agency or  program may lead  us to  new audit  areas.  
Our office uses a  variety of  other  information  to  help  identify  and  prioritize  audits, including an  
environmental scan  that  considers the expectations of external  stakeholders (including 
statutory mandates), OIGs strategic goals, and  an  analysis of  Department  operations and  
previous  audits  (including analyses to identify recurring  audit  findings  and  control  deficiencies).    
We use  the information  we obtain  throughout the year from  risk  assessments and  stakeholders 
to prioritize our work  and  develop  our Work  Plan. While  we have  traditionally published  a  
static  annual Work  Plan, this document  now reflects our  dynamic ongoing process,  and  we  
update  the plan  throughout  the year  to keep  the public  informed  of  our  currently  planned  
work.  It  is critical  that  we appropriately plan  an  agenda  of audits,  investigations,  and  
evaluations  given  the  limited  resources we have to oversee  more than  100  programs and  over  
$1  trillion  in  Federal  spending.  To  focus the  Departments attention on  the most  pressing  
issues, each  year OIG identifies the  top  management  and  performance  challenges facing the 
Department.  These challenges can  affect  one or  many HHS programs and  cover  a range  of  
critical HHS responsibilities that  include delivering  quality services and  benefits,  exercising 
sound  fiscal  management, safeguarding  public  health  and  safety, and  enhancing cybersecurity.   
Ensuring program integrity in  Medicare  remains  a  top  management  challenge for  HHS.   
Conclusion  
 
As discussed  earlier, the  schemes used  to  steal  money from Medicare  range from 
straightforward  false billings by physicians to  complex schemes  perpetrated  by organized  
criminal enterprises.  OIG will  continue  to develop  and  use cutting-edge tools and  technology  to 
provide  Medicare  oversight  that  prevents  and  detects  fraud, waste, and  abuse,  and  we will take 
appropriate action when  they  occur.   Specifically, we will continue  to  perform audits and  
evaluations aimed at recommending improvements to the Medicare  Program and  reducing 
improper  payments.   With  an  eye on prevention,  we will monitor  CMSs efforts  to  implement  
our previous recommendations and  to  improve  the  FPS. By  leveraging advanced  data  analytic  
techniques  and  using risk  assessments  in  our  work  planning, we will  detect  potential 
vulnerabilities and  fraud  early and  better  target  our resources to those  areas and  individuals 
most  in  need  of  oversight.   Finally, we will continue to focus  on the principle of  enforcement,  
holding  accountable those who commit  fraud  and  building  on  successes such  as the  takedown  
that  occurred  in  late  June.   
 
Thank  you  for  your ongoing leadership  and  for affording  me the opportunity to  testify  on this 
important  topic.  
 
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House Committee on  Ways and Means, Subcommittee on  Oversight  
July 17, 2018