16

MEDICARE

In spite of a Medicare tax in 1983 to 2.9 percent of income (now at $61,200 level),
and new IRS rules that, put no income ceiling on the Medicare tax, the hospital
(Part A) fund is going to be insolvent by 2002, we are told.

What to do?

Obviously, the rate of growth is too high. Estimated outlays for FY 1996 are $195
billion, 11.7 higher than 1995. To bring this program into line outlays must be re-
duced to about 6 percent a year by the year 2002,

Is it because we have so many more aged? Not really. From 1991 to 1993, Medi-
care rolls increased by only 4%, but costa went up 23 percent.

How can that be done without destroying the program, which is quite popular
with beneficiaries?

There are many ways, some of which I'll outline here.

(1) Stop the enormous fraud in medical equipment (oxygen, wheel chairs, etc.)
marketed directly to the aged and paid for by icare.

(2) Reduce profits of medical labs providing services for the aged. All reports indi-
cate that their profit mark up is much higher with Medicare than with private ac-
counts.

(3) Drastically cut the multi-billion Medicare payments to teaching hospitals.

ledicare is an insurance plan, not a medical subsidy program.

(4) Excessive payments for MRI and CAT scan machine usage, many of which are
owned by doctors. Payments should be reduced and some planning introduced so
that Medicare doesn’t encourage continual purchase of machines which are over-
abundant in many areas.

(5) Enormous fraud by doctors and hospitals who cheat Medicare for greater prof-
it, adding and exaggerating procedures for greater payment.

(6) The GAO estimates that some $20 billion @ year is wasted or stolen in the
Medicare program.

(7) Uneven record of payment by different insurance contractors than others.

(8) Inappropriate payment by Medicare when beneficiary has a primary health in-
surance program at work or as a spouse.

If we want to reduce the yearly increase to 6 percent, all of the above must be
corrected. But if that doesn’t fully do the job, we must turn to weekly adjustment
of payments from Medicare to providers. Setting say a 7 percent increase as an im-
mediate goal, the computers will adjust their payments totals weekly, and made
only those proportionate payments that will yield the desired yearly increase. This
has successfully been done with physicians in Germany.

Doctors and Jos jitals who do not cooperate in treating Medicare payments under
any new system should have their license withdrawn by the state medical and hos-
pital boards,

We must understand that while Medicare (and Medicaid) are ostensibly insurance
plans, in reality they are the major subsidy of the hospital establishment. Both
plans (including state Medicaid funds) provide 40 percent of the cost of running
American’s hospitals. The results of this have been the excessive growth of hos-
pitals, which today have 34 percent empty beds, some and 3 times as much as hos-
pitals in Europe. Critics of reform who fear the closing of hospitals are wrong. That
retrenchment is probably necessary of the Medicare budget is to be stabilized.

MEDICAID

Medicaid, the system of providing health care for the poor, is a program in abso-
lute shambles. It is a program that will cost $169 billion in 1996—$96 billion federal
and $73 billion by the states, who are generally forgotten in figuring costs.

Medicaid is even more rife with fraud than Medicare. Because most doctors do
not want to participate, Medicaid “mills” take over, handling millions of poor pa-
tients with extensive billing fraud. Since there’s no co-payment, many beneficiaries
cooperate. “Upcoding,” the process of making treatment seems more complex is com-
monplace here, just as it is in Medicare.

One of the greatest costs for Medicaid is the excessive use of the emergency rooms
by beneficiaries instead of visiting family doctors, many of whom refuse to treat

em. (States should require this “charity” work.) ‘Such a visit might cost Medicaid
$35, but an emergency room visit is easily $200 or $300 or $400 for routine items
like a finger infection or checking a sore throat. Beneficiaries should be placed rou-
tinely in HMOs to cut out that expensive practice. Not only will HMOs save about
7 percent of the cost under normal circumstances, but it could cut the cost of Medic-
aid emergency room visits in half.

Co-payments should be instituted on all Medicaid visits, even if it is only $1 or
$2, just to help patients curtail fraud.



37

over 100 different job training programs. The programs get
changed about every 5 years. The names get changed and people—
a lot of people hope they forget their problems.

But Congress and the Labor Department have tried almost ev-
erything and the problems are still there. Look briefly at the sum-
mer jobs program. The General Accounting Office did a study in
1969 that noted that some people hired for the government sum-
mer programs lost. ground in their conception of what should be—
what people should have to do for wages paid and, in other words,
the programs as early as 25 years ago were undermining work eth-
ics.

Vice President Mondale had a 1980 task force on youth unem-
ployment and Mondale concluded that the experience in govern-
ment summer jobs program can actually, consequently handicap
young people in the job market since private employers strongly
prefer youth who have private work experience.

The National Academy of Science concluded in 1985 that govern-
ment make-work programs isolate advantaged youth, thus possibly
making it harder for them to fit into the real job market.

Here again, it is important to look at how these pi ms work
on a local basis. A few years ago, I went around and looked at some
of the programs being done here in DC, tried to figure out how the
District of Columbia, which has one of the largest programs in the
country, was spending its money.

One thing that the DC government was doing was giving pay-
checks to kids who went to the Marion Barry Youth Leadership In-
stitute. This was very much of an operation that helped Marion
Barry in his various reelection campaigns. There were a lot of polit-
ical elements to the institute, yet the Labor Department had no
trouble in financing this kind of activity as a summer job.

The Labor Department put out a list earlier this year talking
about some of the things that people were learning in summer jobs
programs. Right now, there was a big stress on education, on
things like that, but way up there, the top three or four items I
think was sex education. A few years ago when I went to the pro-
grams, I saw a fair amount of this. It has now apparently become
even more prominent and the Labor Department is talking about
this openly.

I am puzzled why we need a summer jobs program for teenagers
who could be up to age 20 or 21 to educate them about sex edu-
cation. This is one more example of how the program is constantly
looking for justification as a way to try to distract attention from
its fundamental failure to give good job skills and good training to
the individuals there,

I will make one quick comment. Congressman Towns in his open-
ing statement had said that he was looking for ideas, a way to
make these programs work better. You know, having looked at
these programs and followed them for many years, I just don’t
think there is a way to square these circles. There are many dif-
ferent solutions that have been tried. Many of the people that are
running these programs have the best of intentions, but I just don’t
think the government has the competence especially for job train-
ing.


33

Mr. Towns. Blow up VA hospitals?

Mr. Gross. The VA hospitals operate very poorly. The medical
profession thinks they are the worst of the whole medical group
and they provide services for veterans who don’t need the VA hos-
pitals for services.

Now, those who are indigent, those who are disabled, and I am
a veteran, have to have service somewhere. Since we don’t have the
national health insurance plan, they go to the VA hospitals. We
have too many. We have too many empty beds. We are blowing up
the Greenwich Hospital in my little town because it has too many
beds and they are empty and we are building a hospital half the
size. We should do the same thing with the VA hospitals.

The Hill-Burton Act started the growth of hospitals because we
needed the hospitals. Then about 1970, we had too many. Now, we
have way too many, so now we have got to, just as we’ve got to do
with government, start to retrench the hospital system in America,
including the VA. The VA is expanding when it should be retrench-
ing. And I’m a veteran.

Mr. Towns. There are a lot of reasons for that, Mr. Gross. I won’t
go into it. Let me just say to you, I must say to you that you have
made some wild allegations here and that you really show nothing
to back it up. The only thing you said is that “It is in my book and,
I forgot, I left my book home.”

And I think to make these kind of allegations without having—

Mr. Gross. Excuse me. I want to ask you a question, Congress-
man. You don’t think ——

Mr. Towns. No, I’m asking the questions. I’m saying you haven’t
answered mine.

Mr. Gross. Let me answer the question. If you provide a young
woman with a check, if she has a child without a husband, human
nature, whether the person is white, black, green, brown, French,
or otherwise, human nature will tend, tend to produce the child in
order to have sustenance.

People have to eat. They have to live. So someone says, “Here,
I am going to give you a check. I’m going to give you an apartment.
I am going to give you food stamps if you have a child out of wed-
lock.” The rationale is that a person is going to have a child out
of wedlock if they have no other source of income. And there is no
other source of income for many people in the rural areas and
inner cities.

Mr. Towns. Mr. Gross, I submit to you that there is no data say-
ing that people are having babies for profit. 1 mean, you are——

Mr. Gross, It is not profit. Sustenance. That is not profit.

Mr. Towns. What I am saying to you——

Mr. Gross. That’s survival. Excuse me.

Mr. Towns. There is nothing to back this up.

Mr. Gross. Well, let me give you a figure.

Mr. Towns. They are using the money, first of all—

Mr. Gross. It’s for survival. You’re saying profit, I’m saying sur-
vival.

Mr. Towns. It is survival.

Mr. Gross. There is no other way to get money.


42

a back brace, $140 nebulizer, all charged to Medicaid. I even got
a massage at a lower Manhattan health care clinic on my Medicaid
card.

But this—you know, a lot of what people have been talking about,
here is, you know, cutting, cutting the system. This is not a matter
of cutting the system. This is a matter of the system inviting
abuse. New York, like other—most States in the country on the
Medicaid card, there is no picture ID. There is no height or weight,
no description of eye color, hair color. Anything like that. There is
just the recipient’s name and the date of birth.

So when I walked into these clinics, there was—there is no rea-
son for them to even look at the card. And time and again, I would
walk in, they would take the card unexamined and swipe it
through the machine like Mr. Gross was talking about. I experi-
enced these Medicaid mills which are usually filthy dirty, the drug
addicts who are playing this scam.

They call it playing the doctors where they—where they go into
these clinics, amongst the women with the children, these ex-
tremely filthy clinics and they go in and they pretend to have ail-
ments, hay fever, asthma, depression, all types of things and they
obtain these expensive prescription drugs.

And it is—it has basically developed into a huge scam called
drug diversion which the Medicaid office in New York says costs
taxpayers up to $150 million a year. There is a recent FBI report
that says it costs the government between $300 and $600 million
a year. I found these—and it basically involves these Medicaid re-
cipients obtaining these glamour drugs, very expensive drugs and
selling them to black marketeers.

I was on the street for about 2 weeks when I found a very orga-
nized group of black marketeers operating out of a Rhon store
front in Brooklyn a video store and they operate two locks near
a clinic, very “skeevie” clinic and they distribute these lists which
I have with me of about 80 prescription drugs which they will buy
at a tenth of the cost.

Now, I went with two Medicaid recipients, I got my—went and

layed the doctors at the clinic, got my prescription drugs and
rought it in. They, you know, give me $5 or $10 for the drugs.
People who have been playing this, investigators say, can make vu}
to $300 a day. Again, it’s really on the backs of the system itself.
r 30 years of existence, there are no photos on the cards.
They have no—you know, they have very sophisticated equipment
that all these places have computers but they have nothing—and
they have a yearly limit, but they have nothing to guard against
what these recipients refer to as burning the card which is going
to many different clinics in a short period of time. I went to three
different clinics in 1 day and obtained the same prescription from
all three clinics and, you know, I can fill them at any pharmacy
with my Medicaid card.

These black marketeers are really the most—to me, the most
outrageous form of abuse. They are absolutely taking money di-
rectly from the most disadvantaged. I went into one of these stores,
1 also found another one that was operating out of a phony grocery
store in Manhattan and I went in there and they take my—they
say we are open 7 days a week, come back, bring your friends, and


10

build more inpatient hospitals. Sen. Murkowski’s recommendations are based on
two principles:

First, VA construction should focus on critical needs for delivering VA care
in the century to come. We must focus on ambulatory care and long-term care,
not brick and mortar and more hospitals. Second, because resources are scarce,
veterans will suffer if money is spent on lower-priority projects.

CAGW urges Congress to heed Sen. Murkowski’s advice.

Taxpayers are no longer amused by inadequate and irresponsible management of
our vernment, because their future is in jeopardy. The budget crisis cannot be ig-
nored, and that's why their amusement has been replaced with outrage. Members
of this subcommittee must be equally as outraged.

Restoring fiscal sanity to our nation is the most important job for the 104th Con-
gress. The country is awash in a sea of red ink, and every day slips perilously closer
to bankruptcy. The national debt is expected to rise to nearly $6 trillion by the end
of the century. Thi: not the legacy that we should leave to our children and
grandchildren. Spending has not been cut to the bone. Money is being wasted daily
and he clock is ticking. We're sitting on a fiscal time bomb that needs to be de-

fused.

You have an opportunity to continue the mission that Peter Grace and Ronald
Reagan started 15 years ago when President Reagan signed Executive Order 12369
in 1982 formally establishing the President’s Private Sector Survey on Cost Control,
and to deliver on the call for change made on November 8th.

If you don’t take the right steps now, there may never again be such an oppor-
tunity to make the fundamental changes that need to be made.

‘This concludes my testimony. I'll be glad to answer any questions you may have.

Mr. SHays. Mr. Gross, welcome to the committee, and we invite
your testimony.

Mr. Gross. Well, thank you.

I have written about government in three books, including “The
Government Racket: Washington Waste from A to Z,” published in
1992, when I first testified before Senator Glenn’s committee. At.
the time, Senator Glenn was contemplating a strong oversight of
the Federal Government but it never took place. Instead, we had
Vice President Gore’s Reinventing Government to which I contrib-
uted. But of course it was a very minor activity. It was not very
valuable. It represented less than 1 percent of the budget, in terms
of reducing the deficit.

Then I wrote a book in 1993 called “A Call for Revolution,” where
I laid out what I saw as the basic problems of the Federal Govern-
ment and asked for changes, including closing of some agencies and
reforming others.

Well, today I want to discuss the HHS, including of course Social
Security, even though it’s now being broken off as a separate agen-
cy. The HHS budget for fiscal 1996, including Social Security, is es-
timated at $773 billion which is virtually half the entire expendi-
tures of our government and 60 percent of all our expenditures if
we put aside the interest on the debt. The interest on the debt is
now taking 60 percent of all of the individual income taxes paid by
Americans.

Therefore, we have to understand that balancing the budget is
not just an academic exercise. It is the only way to keep America
from going bankrupt. Bankruptcy has been estimated to occur, ac-
cording to some economists, when the debt service equals all the
income tax paid by individuals. Then you no longer have an operat-
ing government.

Now, HHS is a monster, perhaps the most inefficient organiza-
tion in America and probably the most inefficient organization in
the history of western Democratic society. The reason is that it
spends so much money and does so little good for what it does.



52

Mr. SHays. One of the things that Mr. Joe Kennedy has learned
is that he can’t always get the witness to say what he wants him
to, especially a younger brother.

r. DOUGLAS KENNEDY. Was I not saying what Joe wanted me
to say?

Mr. Suays. I like the independence. It is a good characteristic.

Mr. Bovard, you raised some very interesting testimony and I
have to say that this is something that Members of Congress wres-
tle with. And as Republicans, we wrestle with it because we are not.
for—we are not for—we would like to see the private sector be in
housing and we would like to see the private sector meet the needs
of poor in public housing.

en we create public housing projects, that is something that
we feel has to be for some people but, ideally, we intuitively like
the Section 8 concept. Then what we find is that we have Section
8 project based and the curiosity is that, quite often, it is higher
than the market rate. And when we go back to examine what hap-
pened, we found out that when the government got involved, those
who started the developments were able to take out a lot of ‘tax
credits and so on. They were able in the beginning of the project
to take out a lot and then, from that point on, there was very little
to support continuing to provide quality housing at those particular
developments.

So I acknowledge that and I am troubled as well by the fact that
we also have vouchers where you are literally paying $12 and $13
and $1,400. There’s one case in my own community where you had
someone who was kicked out because they couldn’t pay their mort-
page and a family on public housing certificate moved into that

jouse and actually had a boat where the gentleman went out fish-
ing. It may be an unusual story, but it was frustrating for the
neighbors to lose their neighbor and see somebody come in on gov-
ernment housing.

We definitely need housing for people who can’t afford it and we
don’t have a lot of different options. We can have the public hous-
ing that exists run by the government, owned by the government
or we can have it owned by the private sector, and the government
contributing.

So are you suggesting that we just abolish our housing programs
or tell me how we can make it work?

Mr. Bovarp. If someone could show me a way that HUD would
become efficient and responsible, I would love to see it. But——

Mr. Suays. So you discount HUD. But tell me how we meet. the
needs of people who are poor who can’t have housing?

Mr. Bovarp. I think it would be far more effective instead of
having house subsidies. I think the Charles Murray solution——

Mr. SHays. What solution?

Mr. Bovarp. I think the Charles Murray solution, which is get-
ting rid of welfare programs in general, would result very quickly
in a far better living environment in low-income American neigh-
borhoods. You know something that is not mentioned about public
housing is the crime rates in those areas are often 20 times higher
than they are in other parts of the United States, 20 times higher
than national average, so the government comes in and puts a pub-
lic housing project in there-———


50

Mr. DouGLas KENNEDY. Yes. That is basically it. You’ve also got
the black marketeers who really are making the profit. Most of the
scams in the 1980’s involved doctor fraud and I saw incredible po-
tential for abuse there.

They—the doctors—when I went into the Medicaid clinics, no-
body ever asked me or nobody ever told me how much the visit
would cost. I had no idea. And Medicaid recipients do not get their
bills sent so you have no idea how much these doctors are actually
charging.
They ake this card. The machine is just like any machine you
would see in a clothing store and they swipe it through the ma-
chine. I have no idea what they are writing. I wouldn’t even—after
I've given them my card, they can be charging me for weeks later
on this and so you have the incredible potential for abuse with the
doctors, you have the doctors writing false prescriptions, you have
the recipients and yeu have the black marketeers.

Mr. KENNEDY of Massachusetts. So just so I get this, when the
doctors as you've just explained can scam this by recognizing that
they are going to get to bill the Medicaid system for fraudulent.
claims ‘and they can do—they can provide you with several doctor
visits and get paid for those doctor visits by the Medicaid system
for visits that were bogus to begin with. No. 1.

No. 2, the addict would then get this prescription that they don’t
need which they could maybe get, as you mentioned, a stomach
ulcer medicine which then they can go down the street and sell it
to some guy who is goin to buy it for 10 cents on the dollar and
they are going to pocket the difference. I was a little confused.

joes the pharmacist, when you say you took the same prescrip-
tion around to the pharmacist three separate times, doesn’t the
pharmacist keep the prescription?

Mr. DoucLas KENNEDY. Well, that’s if I get—I said I could get
three different prescriptions for the same drug in 1 day from the

loctors.

Mr. KENNEDY of Massachusetts. From three different doctors?

Mr. DouGLas KENNEDY. From three different doctors. The phar-
macist——

Mr. KENNEDY of Massachusetts. So you would have the same
sore throat three different times to three different doctors?

Mr. DouGLas KENNEDY. Now, the interesting thing —

Mr. KENNEDY of Massachusetts. Which you could do anyway.
That is not just a Medicaid scam. That would be true with John
Hancock or anybody else, right?

Mr. DouGLas KENNEDY. Right. But the—the difference between
Medicaid recipients and John Hancock is that the—there is a com-
puter that tells you, that has—you know, that tells when the card
is being swiped through, but there is—it doesn’t centralize it and
it would be—you know, they have the technology to centralize it to
know when somebody is burning a card but for some reason they
haven’t implemented that.

Mr. KENNEDY of Massachusetts. OK. Well, I think that as I men-
tioned, you deserve a tremendous amount of credit for the courage
that you have shown and for the knowledge that you have provided
and shared with not only the people of New York, but the people
of the country by coming forward and testifying about this.



56

And so, I would like to begin simply by saying that I’ve heard
a lot about what hasn’t worked this morning. I was struck, how-
ever, by the fact that there were very few criteria given as to what
people expected to work. I think in the absence of these criteria,
we can get a couple of things confused. One is the question of cost-
benefit, which is to say, when you look at the budget, you must
analyze it in tandem with the national need and make a rational
calculation as to what you are doing with respect to expenditures
meeting the expectation of what sort of benefit you expect to get.
And the second, of course, is cost-effectiveness, the question of
what are you spending and if you stop spending, would you get as
much for the buck as you get if you have a stable program. So, the
question of cost-effectiveness, when it is weighted on cost, is very
important.

And in the discussion about programming, policy, and cutbacks,
these two are constantly confused as they were, I think, this morn-
ing. I’m here to say that I think we live in an atmosphere where
there has been a lot of cutbacks and I think that simply to talk
about downsizing all of these programs amounts, in my humble
opinion, to an ideology rather than a rational calculation of what
it is one ought to do. And that is not just my feeling.

Paul Peterson at the Brookings Institution has written a book on
federalism entitled “When Federalism Works.” He says that a pol-
icy based essentially on budget reductions ignores the cost-benefit
equation which is at the heart of calculations of efficiency. He said
where there is waste, and there is a cost-benefit analysis to deter-
mine whether the elimination of these resources is outweighed,
there you have a rational calculation.

So, I take Paul Peterson at his word, that there is something
which is sorely missing from the discussion and I think that what
we've been hearing, is what people feel rather than any sort of
analysis.

1 would, therefore, like to think that a lot of what I heard falls
into the category of what the administration is already doing with
the National Performance Review and I won’t review that. I simply
say that it is in my prepared testimony. I allude to it in some brief
general ways and then, with respect to some of the specific things
that I think they are doing, to downsize programs, to merge var-
jous programs, to cut costs, to make a rational cost-benefit analy-
sis, to make a rational cost-effective analysis and, therefore, to ask
final questions about efficiency.

I won’t pretend, however, having said that, that the National
Performance Review escapes the point I made about ideology be-
cause, to some extent, there is no rational reason why we ought to
enter into an operation of downsizing all of the Cabinet level agen-
cies of Government simply because we feel like it. There is a ques-
tion of, well, what causes this, and I think that you cannot sepa-
rate that from public opinion polling and other kinds of things,
election results, the so-called mandate philosophy.

Not a question of administrative efficiency.

Serving the poor, let’s understand that all of these human service
programs, and I think that all of these are human service program
and I think that we will not be able to separate very easily the fact


60

B. Recent Growth
More, recently, however, there has been a renewed growth in poverty, since be-
tween 1979 and 1989 4 million peorle slid into poverty. The Census Bureau now
indicates that between 31-33 million are officially classified as poor.
Why? A powerful reason is the nature of the private economy and the changes
in the nature of the labor force. Between 1979 and 1989: There was:
A. Depression in the industrial mfg. belt states
B. Drought plagued mid-western states
C. economic recession of 1991 hist Eastern states
D. jobs left
E. vernment de-funded burb,
. demographic change—continuing suburban migration.
At the same time, there was no cotrelation between welfare benefit levels and
these the economic performance in wage levels and poverty these states.

C. Consequences

Therefore, reductions in some resource supports as a strategy to fight waste, fraud
and abuse contributes to the impediments to successful policy implementation. Like-
wise, reduction in resources creates impediments to the achievement of program
goals. Funding reductions: Ideology as administrative strategy. If the issue Pett
ciency not ideology, then funding reductions as an across-the-board strategy will not
work as an answer to “waste, fraud and abuse.”

THE WORKING POOR

Cutting human resource spending will deepen poverty, especially without spend-
ing on child care and job training, will simply add to the poor, shifting the bodies
from the idle poor to the working poor. Many mothers will not attend job training
or become employed without adequate child care, they many will become ineligible
for welfare Manpower Research Demonstration Project studies have found. (Thomas
Corbett, “Child Poverty and Welfare Reform,” Focus no. 15, Spring ’93, Institute on
Research and Poverty, University of Wisconsin.)

What are the estimates for adding to the working Poor: How many are we talking
about? The number growing and now constitutes about 9 million—over 40% of the
poor. Thus, even with an increase in the minimum wage, without adequate job
training to upgrade skills, they are just added to the working poor.

TABLE 9.—WORKERS AS A PROPORTION OF POOR PERSONS: 1978-1990

Number of poor 15 Worked full-time or
rs and

Year over part-time Percent
(thousands) thousands)

21,783 8,770 40.3

20,474 8419 aul

20,857 Ba15 40.3

21,316 8,440 396

21,352 8,864 Als

21,954 9112 Als

22,286 9,108 40.9

23,465 9,440 40.2

22,812 9,119 40.0

21,260 8,631 406

19,517 1792 39.9

7 . aa . mote 16,907 6,545 388

1978 ... 16,194 6,599 33.0

oe URE: US. urn tthe Cann, Caran Pepsin Roar, “Povey the Ute State: 1900,” Sn 40, Wo. 175 (Washingt,

Factors such as the globalization of the economy, increasing use of technology and
other factors, have placed wages on a path of divergence and falling wages for the
lowest quintiles in the wage structure mean that the working poor have been ex-
panding.

INCREASING CHILD POVERTY

As a consequence, we have been adding to child poverty: Poverty against chil-

dren—‘which is now twice that in any other industrial country in the world” (Ste-

ven Greenhouse, “The coming Crisis of the American Workforce,” The New York
Times, June 7, 1994, p. 14F) 1985 Report of the Select Committee on Children,


48

First of all, I think I would like to say to you sort of, I think it
is very courageous to put yourself at risk to get this information.
I think that’s the reason why I value what you are saying. You ac-
tually went out and you have firsthand experience and can back it
up with documentation and we appreciate that.

You also testified that waste of another sort is created through
the haste of the downsizing. Can you give some examples of that?
Tm sorry. No, it was not you. That was not your testimony. I’m get-
ting a little mixed up. It was not your testimony. That was some-
body else’s testimony.

Mr. DoucLas KENNEDY. I can answer that.

Mr. Towns. You want to answer it?

Mr. DouGLas KENNEDY. No, no.

Mr. Towns. Let me ask you this, though. I do want to ask, you've
heard the testimony of Mr. Gross which basically said, and I want
to quote him because I think it is so important to say what he said
accurately. Do you agree with Mr. Gross that the program should
be dismantled because of the fraudulent activities you undercov-
ered?

Do you agree with the fact that it should be dismantled?

Mr. DouGLas KENNEDY. Did he testify that the Medicaid——

Mr. Gross. I didn’t testify to that at all, Mr. Congressman. I
never said—I said that the Medicaid program should have clinics
for the children. And I never said——

Mr. Towns. I am not asking you.

Mr. SHays. I’m in a quandary here. I have someone speaking
from the audience, Mr. Gross.

Mr. Gross. He said I said something. He invented that conversa-
tion.

Mr. DoucG.as KENNEDY. I can answer—

Mr. SHays. Just suspend 1 second. I’m very happy to have you
come up again if you want to make a note and correct something
on the record. It’s just we have someone that transcribes and it is
important that they get it on the record.

Mr. Gross. But I never said that——

Mr. SHays. Mr. Gross, you have to suspend.

Mr. Gross. I said put them into HMO’s.

Mr. SHays. Mr. Gross, you have to suspend.

Mr. Gross. This isn’t the first time——

Mr. SHays. You have to stop, Mr. Gross.
pot: Gross. I have testified many times. I never have some-

ir. SHays. Mr. Gross, I need to make this very clear to you. I
can’t give you a privilege that someone else doesn’t have. I have
said to you this: You don’t like anything you have heard. If some-
one has said something you don’t agree with, I am very happy at
the end for you to come back at this table and put it on the record.

When you shout from the audience we get—we get no—

Mr. Gross. I didn’t know I had that privilege.

Mr. SHays. You need to suspend.

Mr. Gross. I will accept that privilege.

__ Mr. SHAys. You didn’t listen. I said it earlier and you kept jump-
ing.


20

very simple. They Bet $7,000 a year. At the end of 3 years, they
get their high school diploma and their journeyman’s papers in sur-
veying, metallurgy, computer work, whatever. Their salary is
raised to $20 to 5,000 a year at the end of the program. Now,
that’s for everybody in America. We would reduce the number of
college graduates.

The second program is the GI bill. There would be no trainin;
outside the industry. It would be for 1 year. The corporation woul

et half the minimum salary. Let’s say the minimum salary is
£15,000. The corporation gets $7,500. The corporation or the indus-
try could be an upholstery shop in Harlem, gets $7,500, the person
works for a year at the end of which his training is done.

Mr. SuHays. I always thought the GI bill was aid to go on to col-

lege.

Mr. Gross. We had 12 programs. I took advantage of all 12.

Mr. SHays. Let me just say the other mistake I made is somehow
we don’t have the red light that says when my 5 minutes is up and

‘ou are going to be the caller here and my 5 minutes are up, and
thank you both.

Mr. Towns.

Mr. Towns. Let me begin by saying, Mr. Gross, you took advan-
tage of all 12 of them, no wonder you are saying some of the things
you are saying now. It is understandable.

Mr. Schatz, a recently released GAO report entitled “School Fa-
cilities, America’s Schools not Designed or Equipped for the 21st
Century,” found that schools in inner cities and schools with 50
percent or more minority population were more likely to have un-
satisfactory environmental conditions, such as lighting, physical se-
curity, and less likely to have technology elements.

How do you feel, based on your testimony, that these inequities
should be addressed?

Mr. ScHaTz. Mr. Towns, I think there is a question as to how the
local communities spend that money and I can point right here to
the District of Columbia where I live and my daughter goes to pub-
lic school. We see right here where the administration of our school
system in the District has decided to build a new administrative
office for the teachers and has refused to eliminate schools that are
no longer needed. They have refused to eliminate teaching posi-
tions that are no longer needed.

So I don’t think it is a matter of how much money is being spent,
I think it is a matter of how it is spent. And I think that may be
true in a lot of other communities around the country. We have
plenty of money to spend. And as I said earlier, I don’t think that
spending the money solves the problem. I think that a lot of it gets
eaten up in the middle.

If you reduce, for example, the bureaucracy at the Department
of Education, you could free up. a lot more money to solve these
problems. I don’t have any difficulty with spending that kind of
money to fix these inner city schools. But again, right here in the
District, you have got fire code violations and the city administra-
tion has refused to move that money around to pay for those situa-
tions. And I think if you can’t basically protect your kids, you've
got a problem, not necessarily with the Federal spending, but how
it gets done down at the local level.


38

And the thing that is really tragic here, there are few things sad-
der than the government making a false promise to help a youn
person, promising that person that that person will have a job ski
after the training program and then the person gets in their pro-
gram and he is worse off before than he was without the training.

tudies for both CETA and JTPA have shown for young males,
many of them have been worse off because of training. And that
is a kind of tragedy that we have to avoid in this country.

Mr. SHays. I thank you, Mr. Bovard.
[The prepared statement of Mr. Bovard follows:]

PREPARED STATEMENT OF JAMES BOVARD, JOURNALIST AND AUTHOR,

Iam James Bovard, a journalist and author. I have written on numerous areas
of federal boondoggles, and have written three books on federal government icy:
Lost Rights: The Destruction of American Liberty (St. Martin’s 88, 1994), The
Fair Trade Fraud (St. Martin’s Press, 1991), and The Farm Fiasco (ICS Press,
1989). I am a frequent contributor to the editorial page of the Wall Street Journal,
Playboy, the American Spectator, and other publications.

Twill confine my comments today to two programs that illustrate the pervasive-
ness of waste, fraud, and abuse in federal programs—housing subsidies and summer
job training programs,

The Section 8 program is costing taxpayers over $7 billion a year to subsidize the
rent of over 2 million households. HUD Secretary Henry Cisneros is calling for more
“income integration” in American cities and suburbs. Roberta Achtenberg, HUD’s
Assistant Secretary for Fair Housing, declared on National Public Radio last year,
“We are compelled by statutory prescription as well as constitutional mandate, to
see to it that every American has open and free housing choice.” But the only people
today who have “free housing choice” are those who have HUD Section 8 vouchers
and certificates that force other taxpayers to cover all or most of their rent.

In a June 23, 1994, Federal Register notice, HUD declared that Section 8 subsidy
levels were set’at levels needed to pay for “rental housing of a modest (non-luxury)
nature.” But this is a farce. On Nantucket Island in Massachusetts, HUD is offering
to pay over $1700 a month for apartments for lucky subsidized families. In West-
chester County, New York, HUD authorizes subsidizes of over $1500 a month.

Locally, HUD will Byne to $1385 in rental subsidies per apartment in Washing.
ton, DC, in Prince George’s, Frederick, Calvert, and Charles counties, Maryland,
and in Loudoun, Prince William, Spotsylvania, Stafford, Fairfax, Arlington, Fau-
quier counties in’ Virginia. But, according to local realtors, there is only one problem
with such rental subsidies: many, of these counties have few, if any, apartments
renting for such high prices. And $1385 a month is far above average rents in this
area.

Section 8 seeks to end the stigma of being on welfare by treating welfare recipi-
ents like a privileged class. Section 8 certificates are entitling welfare families to
move into an apartment complex in Silver Spring, Maryland, that includes a heated
pool with water jets, microwave ovens, and “deluxe modem kitchens with convenient

reakfast bars.” Pamela Price told the Los Angeles Times in March that “this is like
Christmas” after she used her new Section 8 certificate to move into a luxurious
apartment complex with a heated swimming pool, four spas, six tennis courts, and
two air-conditioned racquetball courts.

When newspapers in Ventura, California and Davenport, Iowa published articles
last year on the level of HUD Section 8 subsidies, HUD was bombarded by com-
pisints from outraged private citizens. Patty Jenkins of Ventura wrote HUD: “What

‘ind of incentive is it for us to see the government shell out more of our tax dollars
to ‘assist’ people to live in a higher price residence than we can afford? Has this
country gone totally nuts?”

Not only do Section 8 recipients receive a large financial windfall—but HUD
forces landlords to treat Section 8 renters better than renters who pay their own
bills. Cleveland landlord Susie Rivers observed: “Every time you say, Section 8, the
first thing a person will think is ‘bad tenant.’ They say, ‘Here is somebody that will
destroy my property.’” HUD decreed that landlords can require only a $50 security
deposit from Section 8 renters—instead of the usual full month’s rent deposit re-
quired for unsubsidized renters. It would be difficult to concoct a rule better de-
signed to maximize the irresponsibility of a privileged class of renters.

Cisneros claims that redistributing poor people from public housing projects will
make a better society. HUD’s own studies show that crime rates in public housing



WASTE IN HUMAN SERVICE PROGRAMS:
OTHER PERSPECTIVES

TUESDAY, MAY 23, 1995

HOUSE OF REPRESENTATIVES,
SUBCOMMITTEE ON HUMAN RESOURCES AND
INTERGOVERNMENTAL RELATIONS,
COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT,
Washington, DC.

The subcommittee met, pursuant to notice, at 10:09 a.m., in room
2247, Rayburn House Office Building, Hon. Christopher Shays
(chairman of the subcommittee) presiding.

Present: Representatives Shays, Morella, Souder, Chrysler,
Towns, and Kennedy.

Staff present: Lawrence J. Halloran, staff director and counsel;
Doris F. Jacobs, associate counsel; Robert Newman, professional
staff; Thomas M. Costa, clerk; Liz Campbell, minority staff assist-
ant; and Chery] Phelps, minority professional staff.

Mr. Suays. I would like to call this hearing to order and to wel-
come our participants and our guests and to my colleagues who are

ere.

This hearing continues our very deliberate, constructive over-
sight of the Cabinet departments within the subcommittee’s juris-
diction: HHS, Labor, HUD, Education and Veterans Affairs.

Today, we will have the opportunity to hear from authors and
journalists who have gained a reputation for identifying wasteful
spending and fraud in some of the Nation’s most important and
most expensive human service programs. Previously we heard from
the five Cabinet Secretaries on the mission and the challenges con-
fronting each department. The Inspectors General, the General Ac-
counting Office, and others have also testified on opportunities to
improve service and reduce expenditures across the broad and var-
ied spectrum of programs in these departments.

This hearing will bring another perspective to a problem that
drains needed resources from government and undermines our con-
fidence in government. While there may be different political views
on the size and scope of the Federal Government, there is a long-
standing bipartisan agreement on the need to confront waste and
fraud. Precise estimates are not possible, but there can be no doubt
that waste and fraud affect every American in every congressional
district. Evidence that profiteers find government largesse easy
prey dates back almost to the founding of the republic. As the gov-
ernment has grown, so has the problem.

In 1992, the House Government Operations Committee issued a
report concluding that waste, fraud, and abuse cost the government

ql)


31

Mr. CHRYSLER, You mentioned—I'm going to change subjects on
i uu again. You mentioned $773 billion is spent on essentially HHS.

ow many people are on that program?

ir. GRoss. How many Americans?

Me CHRYSLER. Americans, yes.

Mr. Gross. Well, it is very hard to get a number because there
is no correlation of computers, but about 35 million are on Medic-
aid. About 40 million are on Medicare and disability benefits. And
15 million are on AFDC and 30 million are on food stamps. But no-
body knows the undifferentiated number.

And Ms. Vee Burke in her report says there is no cross-correla-
tion as to how many specific individuals are involved. But if you
add those numbers up, they talk about half of America. But I don’t
think it is half because so many people are both on AFDC and
Medicaid, et cetera.

I would guess with Social Security, et cetera, we are probabl
talking about 60, 70 million Americans, perhaps more with
spouses. Probably one in three Americans are involved in those
programs.

Mr. CHRYSLER. OK. A little bit later on today, I am going to have
a press conference and present a bill to eliminate the—dismantle,
actually, the Department of Commerce. It will be the first time
that a complete Cabinet level position has been eliminated. Have
your Bot any suggestions?

Suays. The gentleman’s time is expired, if you would keep
the, answer fairly brief.

Mr. Gross. Yes. Well, when the Constitution was written, we
had five Cabinet agencies. Under Harry Truman, we had eight, and
we now have 14, going on 15 with the EPA. Now, I was alive and
working at the time of Harry Truman. I don’t think America needs
twice as many Cabinet agencies as it did under Harry. So I would
say close about six or seven.

Integrate Commerce and Labor, then add that part of Commerce
that you keep. Maybe put that part of Education that’s left in
there. Have the Department of Natural Resources absorb Energy
and Interior. And as a big reformation, I would give most of the
land of the west back to the States. The Federal Government owns
almost nothing in Connecticut. It owns 82 percent of Nevada and
62 percent of California. Why? We took it from the Indians and the
government, Washington, kept it. Give it back to California. They
could develop it much better.

Mr. SHays. Well, I am not sure I would be eager to see that hap-
pen. I'll ask Mr. Towns.

Mr. Towns. Mr. Shays.

Mr. SHays. Let me just say we will go to the next panel after
Mr. Towns.

Mr. Towns. Mr. Chairman, I promise not to take the entire 5
minutes, but I do just want to make certain that I am clear on a
couple of things.

Mr. Gross, you testified under oath that all doctors and hospitals
are criminals.

Mr. Gross. No. I don’t really mean all.

Mr. Gross. You said——


17

Aside from the aged and disabled, two-thirds of the Medicaid
dren. Vast sums are wasted on their care when we should be ectabli
clinics which can operate at a much cheaper cost,

‘Among the aged, who use more than hell the Medicaid funds, the nursing homes
are too expensive ($35,000 per patient per anum in Connecticut) for example, for
several reasons:

(1) Profit margins in private nursing homes are much too high. Medicaid should
cut those in half.

(2) Too many nursing homes are privately-owned. The states should start pro-
arama to have them botome voluntarily non-profit inalitations like our etiar fos.
pitals,

(3) Federal regulations on nursing homes require hospital-like environments
which are not always necessary. Redesigning those rules will lower the cost.

(4) Home-care for the aged costs about 3s the amount of nursing home care and
should be encouraged, even with subsidies to save billions.

Dentistry, whick is provided by Medicaid in 48 states, is another area of enormous
fraud. Medicaid needs a fraud unit just to handle that. Dental care is not provided
to Medicare patienta at all, for example.

AFDC

‘This primary welfare program, which provides cash mainly to single mothers with
children, most out of wedlock, costs approximately $30 billion a year, about 43 per-
cent paid by the states. The cash benefits vary from $120 a month in Mississippi
to some $700 a month in New York.

This is only one part of the federal welfare system, even if it is usually the enti
point, for 81 different welfare programs from six different cabinet agencies. Accord-
ing to the Congressional Research Service study “Cash and Non-Cash Benefits for
People of Limited Income” (Vee Burke, author) showed a $290 billion cost in Fiscal
1992, which is approximately $380 billion in Fiscal 1995.

AFDC program has been the major stimulus for out-of-wedlock birth, crime,
drug addiction, and dependency in America—conditions created by Uncle Sam an:
this misdirected program. Fraud is commonplace as we read in local newspapers
(NYC welfare workers stole $3 million recently with the help of beneficiaries), and
little of it is detected. Checks in some cities found welfare recipients who were fugi-
tives from the law.

ach of the 81 welfare programs from AFDC to rural rental assistance—has its
own computer system, and no one in government knows who is receiving what. Im-
mediately, these computers should be connected and no household should be allowed
to receive more than $30,000 in all benefits.

The formula to reimburse the states for AFDC money is backwards. Connecticut,
which pays an average of $7000 a year to AFDC households, receives 50% back from
Washington. Their net cost is $3800 per family a year. Arkansas pays an average
of $2500, 78% of which is covered by Washington because they are a “poor state.”
So each case costs them a little over $500 a year net. Connecticut is paying 7 times
‘as much, a ridiculous formula whose percentage federal sharing shoul id be reversed,
It makes no sense mathematically.

‘The new regulation in New Jersey, which cuts benefits for a second child born
to a welfare mother, is helpful. The state has announced an 11 percent drop in birth
rate among those families in just one year!

Other reforms (no housing for mothers under 18) will also help, but there will be
no appreciable change in the welfare system until it is closed completely. FDR did
just that in the 1930s with home relief. He substituted the WPA (Works Progress
‘Administration) which provided a job for every able bodied person and did magnifi-
cent work in the Depression. Of the 81 welfare programs, all should be closed except
for the blind and disabled. A string of day care centers should be built for you:
children, where mothers can both work and leave their children. They can also wo.
in schools, hospitals, etc. Similarly, men can rebuild the inner cities and rural
slums.

There is no other answer. Surely, we have achieved what we paid for—millions
of poor, out-of-wedlock children who contribute disproportionately to dysfunctional
behavior, It is time to stop the AFDC and substitute work.

This short testimony is a bare overview of the problems faced by the HHS and
Congress. In summary, that agency and its programs are, in general, poorly-de-
signed and executed and need major overhaul and oversight.

Mr. SuHays. I thank both gentlemen for your testimony. And
would throw out a question as it relates to the Department of Edu-

ients are chil-
hing pediatric



23

up, crime and drug addiction. And these are university studies
comparing apples and apples, people in the same communities,
those who are working and have two-parent homes and those who
are on AFDC.

Mr. Towns. Mr. Gross, I challenge that.

Mr. Gross. Well, I didn’t write the studies.

Mr. Towns. Let me ask you another question. Do you believe
then that the elimination of this program will end out-of-wedlock
births, crime, and drug addiction? You really believe that?

Mr. Gross. I not only believe it, I know it, because the univer-
sities who are Cornell, et cetera——

Mr. Towns. No further questions, Mr. Chairman.

I yield back. No further questions.

Mr. Gross. Thank you.

Mr. Suays. Martin, if you would, would you cite the studies?

Mr. Gross. I don’t have it in front of me, but in my book, “A Call
for Revolution” is the chapter——

Mr. SHays. Do you have your book with you?

Mr. Gross. I haven't a copy. It cites the studies.

b Mr. Suays. I haven’t known you to travel without copies of your
ook.

Mr. Gross. I don’t have the copies. The reason is quite simple.
The reason is quite simple, that the history of western civilization
has shown that the nuclear family is the greatest discipline——

Mr. Suays. Let me——

Mr. Gross. (continuing). jiscipline in our society.

Mr. Suays. I would like the copy of the study, Sut I call on Mrs.
Morella.

Mr. Towns. Mr. Chairman, could I just ask a question?

Mr. Says. Sure.

Mr. Towns. This is a hearing where we actually have a witness
under oath here. I think that for statements like this to be made,
there must be some evidence submitted.

Mr. Gross. I pointed out that there were university studies indi-
cating it. I will get the studies for you.

Mr. Towns. But Mr. Gross, are you prepared to submit that at
this hearing?

Mr. Gross. Obviously not. I don’t have a copy of my book.

Mr. Suays. OK. Let me just ask you which book is that?

Mr. Gross. “A Call for Revolution.”

Mr. SHays. Maybe we could get “A Call for Revolution” where it
is cited and——

Mr. Gross. In the subtitle, it says, “How Washington is Stran-
gling America.” AFDC is one case in point.

Mr. Suays. Mrs. Morella.

Mrs. MORELLA. Fine.

I will try to be brief in my questioning. I wanted to get back to
the education bit. Seems to me that a democracy, particularly a de-
mocracy such as ours, relies totally on the education of its people
and where you have suggested that it just isn’t working, the pro-
grams in the Department of Education with the exception of maybe
one program, it seems to me that we have on a Federal level a re-
sponsibility for establishing standards.


19

Mr. Scuatz. But still the eligibility is too broad. What we find
often is that programs get started and then everybody wants a
piece of it as opposed to the Program getting started and monitor-
ing its effectiveness and then deciding where it should go after
that.

And that’s one of the things that I think your leadership on this
subcommittee and I know Mr. Towns as well has looked at this, it
has to be very, very closely monitored. It’s one of the reasons we
supported a 2-year budget, because you can spend 1 year spending
the money and another year watching how it’s spent.

Unfortunately, there aren’t enough of these types of hearings and
oversight where you can really sit down and think about how that
money should go. As I said, in recommendations that the Grace
Commission made 10 years ago, which were based on previous rec-
ommendations——

Mr. SHays. Do you have any specific recommendations or maybe
I could ask Martin, and if you wanted to come back, any specific
recommendations on what we would do with job training programs?
How we can make them more effective?

Mr. Gross. I was on a job training program——

Mr. Suays. Can you talk a little closer to the microphone.

Mr. Gross. I am a veteran of World War II and I was in a job
training Program when I got out of college. I wanted to be a re-

orter and there were too many people trying to be reporters. I
found out about the GI bill which gave a local weekly newspaper,
the West Side News in Manhattan, $25 a week to train me for 1
year. The employer also gave me $25. The government paid him an
additional $25.

Mr. Suays. So it was actually the employer provided —

Mr. Gross. Job training outside of employment is a farce. It is
a fantasy because the people who are incapable or not interested
in handling academic subjects at school are not good subjects for
training off the job. But they are magnificent subjects for training
on the job because you have a realistic situation.

I would close all 154 programs and have two. And those two pro-
grams would be as follows. No. 1, the German apprentice system
which is not a haphazard, here and there, school-to-work kind of
nonsense. It takes care of all the German children, 70 percent of
whom do not go to college. Only 30 percent go to college. The other
goes directly into the job market.

They get $7,000 a year for 3 years of apprentice training, which
includes the last years of high school. The Chamber of Industry of
Germany runs it in cooperation with the government. A letter to
the editor just about 6 months ago from the President of the Han-
over Chamber of Industry —

Mr. SHAYS. What paper was this?

Mr. Gross. Wall Street Journal—talked about the fact that this
is what made Germany, that the 70 percent didn’t go walking the
streets. They went directly into—

Mr. Suays. What would be the—

Mr. Gross [continuing]. The apprentice program. Everybody.

Mr. SHays. The German model— .

Mr. Gross. But the exact German model. Because if you vary it
into American-type government programs, it fails. The program is


32

Mr. Gross. If I said that, I retract it. Many. Many hospitals and
doctors cheat.

Mr. Towns. Let me go over this again. You said the Federal Gov-
ernment has stolen Social Security funds.

Mr. Gross. Oh, yes, that’s for sure.

Mr. Towns. Are you making criminal charges?

Mr. Gross. Oh, no. The Federal Government can’t commit a
crime. I mean, they passed legislation. It’s not a crime. The Federal
Government takes the surplus, every dollar of the surplus—last.
year, $58 billion; this year, $65 billion—and they put it into certifi-
cates—

Mr. Towns. According to you, you said stolen.

Mr. Gross, Well, I think—why isn’t it stolen? They can’t pay it
back. If you borrow money from the bank and you know——

Mr. Towns. I don’t want to—

a Mr. Gross. If you can’t pay it back, it is part of the $4.8 trillion
lebt.

Mr. Towns. You are saying according to your testimony, you are
making a criminal charge

Mr. Gross. No, No. The Federal Government cannot commit a
crime. It is legislation. We have legislation that permits the gen-
eral fund to take every nickel of the surplus because the funds are
intermixed, so there is no segregated ——

Mr. Towns. You said stolen and——

Mr. Gross. The word “stolen” means——

Mr. Towns. Do you want to take the word “stolen” back?

Mr. Gross. Of course not. No, No. When we borrow the money,
we know we can’t pay it back because it is part of the $4.8 trillion
debt which we can never pay back, maybe 100 years from now. We
have no intention of paying it back. And how do we pay it back?
We go to the market and borrow money and we pay the interest
on the money you took from us.

Mr. Towns. Let me ask a question——

Mr. Gross, It’s—excuse me. It’s bad motivation. May I say, the
motivation of Federal Government in taking the Social Security
surplus, my money, is very bad motivation.

Mr. Towns. Let me ask you this: You know, again, I just want
to make sure the record is clear. What is the legal definition of
steal?

Mr. Gross. I just told you, the Federal Government cannot com-
mit a crime.

Mr. Towns. No, no, no. You are not answering it. If you are not
going to answer this, jet me move on.

Mr. Gross. It is ridiculous.

Mr. Towns. Let me ask you something else——

Mr. Gross. The Federal Government is taking the money when
it has no intention of paying. So, therefore, in common parlance,
it is stolen.

Mr. Towns. Actually, you are making criminal charges.

Mr. Gross. You can’t. The government cannot commit a crime.

Mr. Towns. The other thing that would be your solution to the
problem, you are saying blow up most VA hospitals. Is this your
recommendation for improving the quality of services to America?

Mr. Gross. Well, of course. You see, the VA hospitals now——


14

Greenwich Hospital, where I live, is being destroyed because it
is too large. They are tearing it down to build a hospital half the
size because that’s what we need, yet the first one was built with
Federal funds.

Doctors cheat enormously on Medicare when they put down little
decimal numbers which determines the check that is sent to them.
They cheat regularly. The GAO estimates $20 billion a year. It’s
probably $40 billion a year. The insurance contractors send out dif-
ferent payments. There is no coordination.

If we want to reduce the increase in the cost of Medicare to 6
percent a year, we must cut down on the waste and fraud. But we
also must do something else that is very simple, something that,
Germany did with its doctors. They decide on the total budget of
their medical plan for doctors each year and the computer changes
the checks dependent upon the increase the government decides on.

If we want to go from 10 percent rise in Medicare costs—actually
last year it was 11.7 percent, which I found out from the annual
report—to 8 percent this year, then as the bills come in, the com-

uter merely changes the increase to 8 percent. No matter what
Pills come in, at the end of the year, you are done.

Medicaid——

Mr. Suays. I am going to ask you to stop now.

Mr. Gross. I just wanted to mention Medicaid. Thirty seconds.

Mr. Suays. I learned a lesson from awhile ago. I should have re-
membered your written statement would be shorter than your sum-
marized one. And that is not a criticism.

Mr. Gross. That’s all right.

Medicaid is rife with fraud and one of the reasons is that the
payment to the doctors is so low that the doctors—most doctors
won't take it—they set up Medicaid mills. Many of them have gone
to jail. They produce an enormous amount of bills for the govern-
ment, hiking everything up, through volume. Sometimes they even
fake the volume.

What we need, of course, is something quite different. We need
a different program for the aged. Right now they are mostly in pri-
vate nursing homes. In Connecticut, we pay $35,000 per patient
per year. We need clinics for the children because the children
to the emergency room in Hartford and Stamford in my State. The
bill can be $203 to look at a sore throat of a child. There should
be Pediatric clinics which will cost us $25 a visit for the Medicaid
and not $300 or $250.

Everyone in America on Medicaid should be in an HMO which
saves 7 percent off the top. When you eliminate fraud and you start
to do things efficiently, you can cut $50, even $70 billion a year off
Medicaid.

So I tried to touch a few points. Just in summation, I must say
that no program in the history of the western world has ever been
run as poorly as the HHS.

Thank you.

[The prepared statement of Mr. Gross follows:]

PREPARED STATEMENT OF MARTIN GROSS, AUTHOR

Members of the Committee:
I have appeared before Congress several times to discuss vital issues of govern-
ment, always with the large working middle class of America in mind.


58

Let me just use one example from Prof. Lawrence Mead, who, in
his recent book, The New Paternalism, discusses welfare reform,
analyzing the program of Gov. Tommy Thompson of Wisconsin.
Gov. Thompson’s views have been very important in this welfare
debate, and his State has been used as a model. Yet Prof. Mead,
who is now at Princeton, looked at JOBS data from Wisconsin for
several counties and decided what would really make this program
work. Let me quote him: “The way to effect such change is not by
cutting welfare bureaucracies but by beefing them up substantially.
At bottom, reform is an administrative problem,” unquote.

I think, therefore, that we have to look in this sense at the ques-
tion of administrative reform and add to the capacity of the admin-
istrators who administer the welfare bureaucracy to do a lot of
things. One thing that we discussed this morning was the question
of the connection between welfare reform and jobs. How do you get
jobs out of the welfare system?

Last year I testified on the question of welfare. And one of the
women who testified with me was the head of the National Welfare
Rights organization from Detroit. She says something like this.
“T’ve gone through a lot of job training programs, and I could paper
these walls with certificates. But what I lack, and what many of
the people who are in my organization lack, is a sufficient connec-
tion to the labor force.”

So I think that we ought to talk about the connection between
welfare and the labor market, as an important issue. If you do a
good job of bringing welfare recipients into the labor force, you are
making the bureaucracy work more efficiently, and I think in many
cases you are talking about adding resources to that.

I will stop there, Mr. Chairman, and prepare myself for any
questions that I may be able to answer.

[The prepared statement of Mr. Walters follows:]

PREPARED STATEMENT OF RONALD WALTERS, CHAIRMAN, POLITICAL SCIENCE
DEPARTMENT, HowarD UNIVERSITY

The reduction of waste, fraud and abuse are important objectives of congressional
oversight in that their elimination may remove impediments to the proper function-
ing of governmental programs and create additional resources to place at their dis-
posal. f will address this issue in the framework of my own understanding of this
problem, which is that:

Waste—is a symptom of administrative inefficiency;
Fraud—is reflective of program maladministration and client abuse;
Abuse—is practiced essentially by clients of programs;

1. WASTE, FRAUD AND EFFICIENCY

The objective of perfecting the operations of the programs through their adminis-
tration is consistent with the practices of public administration and good govern-
ment. However, approaches to this problem that only counsel a strategy of reflexive
reductions in program budgets and functions is inconsistent with either the objec-
tives of good government or efficiency in administration. It amounts in the final
analysis to changes determined by ideology rather than good judgement.

While some waste and fraud may be eliminated by Program reductions, much
more is required and may be illustrated by the program of this Administration in
its “National Performance Review” which has among its objectives, the two goals of
achieving administrative efficiency and the elimination of waste.

A. General Achievements
1. Federal agencies are already cutting red tape, streamlining management oper-
ations and re-engineering program functions;


6

change would be an additional $1 billion in spending over 5 years.
And we question whether that really is the way that will actually
save money and improve services.

Mr. Chairman, many of CAGW’s members are veterans. Their
service to our country was invaluable and now they are assisting
in America’s latest battle, the war on our nearly $5 trillion debt.
According to a recent GAO report, the Department of Veterans Af-
fairs overpays hundreds of millions of dollars in compensation and
pension benefits. In 1994, VA detected $372 million that it had er-
roneously paid to compensation and pension beneficiaries. VA col-
lects on average about 30 percent of its outstanding overpayments.
The outstanding overpayment balance has increased from $304
million in 1985 to $619 million in 1994.

Again, echoing recommendations made by the Grace Commission
10 years ago, GAO recommends that procedures be established to
focus on preventing pension and compensation overpayments,
Hopefully this time, these management recommendations will be
taken seriously so 10 years from now we are not sitting here re-
viewing another report on the VA’s overpayment problems.

Senator Murkowski has recommende: that VA put more empha-
sis and priority on outpatient care. In the last Congress, the Appro-
priations Committee agreed with Senator Murkowski, that it was
unwise to build more inpatient hospitals and we urge the sub-
committee to look at that as well when you are considering the VA
budget this year.

Mr. Chairman, restoring fiscal sanity to our Nation is the most
important job for the 104th Congress. If you don’t take the right
steps now, there may never again be such an opportunity to make
the fundamental changes that need to be made.

This concludes the summary of my testimony, Mr. Chairman. I
will be happy to address any questions arising from this or my
written statement.

Thank you.

Mr. Suays. I would like to note for the record that your testi-
mony has a great deal more to it and you have in fact summarized
it and we appreciate your summary.

(The prepared statement of Mr. Schatz follows:]

PREPARED STATEMENT OF THOMAS SCHATZ, PRESIDENT, CITIZENS AGAINST
GovERNMENT WASTE

Good morning, Mr. Chairman. Thank you for the opportunity to testify today be-
fore the Subcommittee on Human Resources and Intergovernmental Relations. My
name is Tom Schatz and I represent the 600,000 members of Citizens Against Gov-
ernment Waste (CAGW).

CAGW was created 11 years ago after the late Peter Grace presented to President
Ronald Reagan 2,478 findings and recommendations of the Grace Commission (for-
mally known as the President’s Private Sector Survey on Cost Control). These rec-
ommendations provided a blueprint for a more efficient, effective, less wasteful, and
smaller government.

Since 1986, the implementation of Grace Commission recommendations has
helped save taxpayers more than $250 billion. Other CAGW cost-cutting proposals
enacted in 1993 and 1994 will save more than $100 billion over the next five
CAGW has been working tirelessly to carry out the Grace Commission's mission to
eliminate government waste,

Mr. Chairman, you and the members of this subcommittee face one of the most
important tasks confronting this Congress—restructuring or eliminating the depart-
ments and agencies under your jurisdiction. Not only do you have an opportonit
to save tax dollars, but you also have the chance to truly reduce the size of the fed.


29

Mr. Gross. Why not?

Mr. SouDER [continuing]. In New York City when they did try
to do some welfare-to-work programs where they did that——

Mr. Gross. But that’s a program. You see, programs involve bu-
reaucracy, training, education, indoctrination. I am just saying, you
say to a woman on welfare today in New York City or Boston or
anywhere, you say, tomorrow morning at 8 o'clock, you show up at
the hospital and you're going to work and then get a paycheck.
Meanwhile, you leave your child at the day care center which was
just built by WPA. France has day care for everybody in France.
Maximum cost is $5 a day. Minimum cost is zero.

Mr. SoupeERr. There is an unwillingness to acknowledge that a lot
of what is happening at the grassroots level in the homeless area
or in the welfare area becomes very closely related to mental
handicaps, drug and alcohol abuse, and other things out there in
addition. I am not going to—

Mr. Gross. Obviously—obviously—

Mr. SouDeER. I will grant that a certain percentage could be ad-
dressed that way.

Mr. Gross. Exactly. For example, we are trying to fight the nar-
cotic war. It is an absolute failure and it will always be a failure.
In Europe now, they are starting to medicalize, not privatize, drug
treatment. You walk into a clinic, and you put yourself into treat-
ment. You get your narcotics free of charge. You don’t have to kill
anybody to get the money to buy drugs because you get it free.

America is a backward Nation. We have this constant fight of
private and public and we don’t understand how the two can come
together intelligently. That’s why we have 154 job training pro-
grams. And I must say that I exposed that in 1992. And the 154
programs are just pure nonsense. The government itself announced
that the program of jobs lost to Mexico is a total failure. Four out
of five got no jobs and the one out of the five got a lousy job.

Mr. SOUDER. Well, there won’t be 154 for very long.

Mr. Gross. Good.

Mr. Suays. Mr. Chrysler.

Mr. CHRYSLER. Thank you.

This subject is right down my alley, Tl tell you. First of all, the
veterans hospitals, how can we get the VA to come to the Congress
with a proposal that says, yes, the people that went and served
their country and risked their life put their life on the line, we
have a contract with them to take care of their medical needs in
their lifetime?

How can we get the Veterans Administration to come to us and
say, OK, we will take care of—the Congress will take care of these
medical needs and we will take care of every veteran, pay for their
health care needs, but we don’t need all this brick and. mortar and
all these hospitals and all this expansion of hospitals——

Mr. Gross. The Veterans Administration is a disaster. As a

oung man, when I had no health insurance, and being a veteran
} went to a VA hospital. Pure disaster. The answer is to close most
of the VA hospitals, you know, blow them up, because I think they
are of no great value. Have medical care for every service-con-
nected disability until the day the person dies——

Mr. CHRYSLER. Any possible——


65

In general, I think some of the savings that we see proposed
right now as a result of Reinventing Government at $63 Bitton, I
think that’s substantial. When you look at Department of Housing
and Urban Development taking one dozen oF the Section 8 pro-
grams and rolling them up into one, I think that’s substantial.

I think it remains to be seen whether or not some of these inno-
vations will actually work, but I think the tendency to try to elimi-
nate, for example, 29 programs that are not functioning in HUD
and cut another 37 that conceded to be not functioning, this is the
way I think anyone who is interested in waste, fraud’ and abuse
would be going.

So I think the administration has a head of steam in that direc-
tion and I may not agree certainly with what they are doing. But
if you ask what sort of solution also are there, I think you have
to take seriously what some of the Cabinet Secretaries are doing
right now.

ir. TOWNS. You testified that some approaches to ending waste,
fraud, and abuse in Federal programs are determined by ideology
rather than good judgment. Can you give us some examples of cur-
rent policy changes or recommendations that sort of highlight that
concern?

Mr. WALTERS, I am nearly shell-shocked because I listened to a
lot of them this morning and that is a perfect example of what I
was talking about, recommendations to eliminate entire agencies.
Why is that it we should be talking about eliminating the Depart-
ment of Commerce at a time when we are entering a century of
global economic competition? To me, it makes very little sense.

I just came back from Paris. I had meetings with members of the
parliament, European parliament. They are asking me, why are
you people weakening your social safety net when you are suffering
from the same forces of the globalization of the economy that we
are, except we are strengthening ours. I just don’t get it, Mr. Chair-
man.

It seems to me that we are going in the wrong direction on a lot
of this and it’s not driven by good judgment. At least the Euro-
peans can’t understand it. Maybe we can sell it to them, but they
don’t understand how it is that many of their workers are also ex-
posed to the flight of capital and to decisions made in the capital
market which produce pockets of poverty for which the government.
has to subsidize. That’s something that all of the industrial nations
are suffering from, and their good judgment tells me that they need
a strong social safety net in order to deal with that global economic
competition because that’s going to be the lay of the land, and yet
we here are weakening our social safety net and talking about de-
stroying the Department of Commerce. I just don’t get it.

It seems to me that Secretary Brown, in the last few years he
has been in office, promoted 28 billion dollars’ worth of contracts
for American companies. Now, I don’t know if that would have hap-
pened if we didn’t have the Department of Commerce. Maybe it
would be. But I don’t think so, because I saw Secretary Brown in
South Africa. I also saw the people in OPIC put $100 million to try
to help facilitate contracts by American companies. I saw the deals
that he was able to sign. I saw the support that he had from his
agency.


67

thing that I am reading here says, studies show that AFDC chil-
dren are three times as likely to bear children out of wedlock and
then to go on welfare themselves, to continue the cycle of poverty.
They are also more likely to give birth as teenagers. If they do
marry, they are 92 percent more likely——

Mr. Gross. And in the next paragraph.

Mr. Suays. Antisocial behavior is another uninvited guest in the
AFDC. Welfare children are also two to three times—so on and so
forth. I don’t see anything.

Mr. Gross, I don’t give the name of studies. I have the studies
at home. I will submit them to you.

Mr. Suays. I will just say to you, just for the record, I have rare-
ly ever had somebody make a statement as you know who testifies
who is not able to give the studies. I just want to make this point.
You said it was in your book.

Mr. Gross, I thought the names of the studies were there. Obvi-
ously, they are not. These are the details of the studies I will pro-
vide, but the actual studies, I think one is Cornell, and I think the
other is the University of Washington. I have the studies at home,
I will send them to you. You know, I’m known as a good reporter.
I have written three books on the government with no refutation
on any fact that I’ve ever had.

Mr. SHays. You and I have talked about the fact that your books
aren't footnoted. It would make a lot easier.

Mr. Gross. That’s my publisher.

Mr. Towns. Furthermore, let the record reflect that that is a
commentary.

Mr. Suays. But the record is corrected on both issues.

Mr. Gross. On Medicaid, Mr. Kennedy, did a wonderful job of
discussing the actual abuse and fraud, and what I did was a policy
discussion on how to make it work for the patient, No. 1.

I never said it should be closed. Quite the opposite, I want to
make it work. It doesn’t work because the remuneration from the
government to the provider is very low.

Mr. Suays. I’m going to say Sor the record, your statement is
very clear on specific questions and solutions on Medicaid and we
will include that.

Mr. Gross. Including HMO, and the point raised by several peo-
ple about people losing their health insurance if they go off welfare,
it’s very true. That’s why I advocated eliminating welfare, provid-
ing jobs for everybody with the health insurance policy.

Mr. SuHays, If you don’t mind, I truly would like to go.

Mr. Gross. Mr. Towns, my desire was the opposite of what you
said, it was to make Medicaid work so that the hospitals and the
providers couldn’t abuse it.

Mr. SHays. The record will note on that point and the record will
also note we are still waiting on the studies.

Mr. Gross. These details of studies, I will send you the studies
themselves.

it: Suays. All right. This hearing is adjourned. Thank you, gen-
tlemen.

{Whereupon, at 12:49 p.m., the subcommittee was adjourned.]

1e)


26

Mrs. MoreELLA. There are political problems attached to that.

Mr. Scuatz. Oh, yes, absolutely.

Mrs. MORELLA. Congress has begun to look at it, but you would
recommend that that is an appropriate thing to do. I know my time
is going to begin to run out. I am just curious about——

Mr. SHAys. That is a gentle way of putting it.

Mrs. MorELLA. You know, when the White House Conference on
Aging was held, Mr. Gross, the President made a speech and I was
on the steering committee and the policy committee and was there.
He seemed to feel that the way he could handle the Medicare insol-
vency in 7 years is purely through waste, fraud, and abuse curtail-
ment.

Do you see that as the solution?

Mr. Gross. No, I do not. I do not because handling abuse from
doctors where it is very common and from hospitals, where it is
very common they cheat all the time, virtually all the time. You
would need a giant FBI to do it. The FBI director, Mr. Freeh, re-
cently stated in a press release that there is $40 billion of fraud,
not just waste but fraud in the medical system. Until the medical
profession cleans its own house, you are going to find difficult.

I think the only way is to reduce the amount of money that goes
to providers by computer. Should doctors refuse to treat Medicare
patients as a result of the lowered amount, they should have their
licenses suspended by the States. And I don’t think that is very dif-
ficult because I think the Governors of most States would agree.

Now, Medicaid is different problem because the Medicaid reim-
bursement is so low that doctors don’t want the patients. There-
fore, they go to Medicaid mills where the abuse is enormous. Many
doctors go to jail each year as a result, but not enough. There the
answer is HMO’s—twofold. HMO’s and well baby clinics, pediatric
clinics. Half—I’m sorry, two-thirds of the nonaged on Medicare are
children and the money is now being wasted in emergency rooms.

They don’t go for an emergency. The hospital becomes the family
doctor which makes no sense. Why? They don’t have a doctor be-
cause the doctors won’t take them. So you need reformation of the
medical profession before you can reform the government system.
But the government can circumvent that by having clinics for well
babies, and cutting down the profits of nursing homes, which are
abnormally high.

Nursing homes do very well in the stock market. But meanwhile,
that is all public money—mostly public money. So the system is
just rife with fraud. You are not going to solve it with the fraud.
You have to change the reimbursement system for doctors and hos-
pitals.

Mrs. MoRELLA. So the AFDC, I am not going to ask a big ques-
tion about AFDC. I just want to plant the concept of the
woman——

Mr. Suays. But he can give you a big answer.

Mrs. MoRELLA. No.

Mr. Suays. I’m going to ask——

Mrs. MorELLA. There should be something for the woman who
has a child and no day care available.


3

to be done. However, the thing that bothered me most is that peo-
ple came before us and talked about fraud and abuse but they did
not have any suggestions or recommendations as to how we might
be able to deal with it effectively other than cutting it.

I think that sometimes in order to reform something, you can’t
cut it. You have to, in some instances, even fund it at the level or
even fund it more, additional funds for it in order to straighten it
out and then to be able to move forward and to do the kind of
things that programs were designed to do, to help people and
strengthen them in terms of helping them gain the tools to help
them lead a productive life.

So, I am hoping that not only we will get some facts about what
is going on, but at the same time, I hope we get some recommenda-
tions and suggestions as to how we might be able to strengthen
some of these programs. I look forward to the testimony and am

oing to cut my opening statement short since I was the one who

lelayed the 10 o'clock starting time.

Mr. SHays. You are putting that on the record now.

Mr. Towns. I am going to actually put that on the record. So I
am going to cut my statement short to be able to get to the wit-
nesses as soon as possible.

So thank you very much, Mr. Chairman.

Mr. SHays. I thank the gentleman. And I also want to reiterate
your point, that it would be very helpful to have our witnesses doc-
ument their concerns and also to have any suggestions of how we
can deal with their concerns.

I will ask unanimous consent at this time that all Members of
the subcommittee be permitted to place any opening statements in
the record and that the record remain open for 3 days for that pur-

pose,

Without objection, so ordered.

Mr. SHays. And I would now ask my colleague, Connie Morella,
who represents a good art of this district.

Mrs. MoRELLA. Thank you very much, Mr. Chairman.

And, again, I won’t waste time with regard to an opening state-
ment. I really think that this is an important hearing because we
have looked at what many of the departments are doing, examined
the programs under the jurisdiction of this subcommittee, and now
this is a logical next step to have the recommendations of those
people who have been studying waste, fraud, and abuse in the var-
ious agencies to share their recommendations.

On the Civil Service Subcommittee, we have been looking at this
whole concept of contracting out. Do we actually save money by
contracting out? And do we really look at the important criteria in
so doing?

This is appropriate, I think, in all of the agencies. The kind of
dilemma that we have looked at in civil service is applicable to all
of them. And then we suddenly open the newspaper one morning
and find out that a front page story describes wasteful spending on
contracts out of the Department of Defense.

Now, I know that we don’t have the Department of Defense
under scrutiny this morning in our deliberations. However, this
hearing to examine fraud and abuse in the Federal Government
immediately brought to mind that concept, alleging that billions of


2

300 billion in recent years. The report added government waste has
not only bilked the taxpayer of billions of dollars, but it has created
a public cynicism about government at a time when effective gov-
ernment is needed the most.

In prior Congresses, this subcommittee, under the leadership of
my predecessors, including the former Chairman, Mr. Towns, held
several hearings on waste and fraud in health care and public
housing. With increased bi t pressures and justifiable public de-
mand for greater accountability, the need for vigilant oversight of
the public purse is just as pressing today. This year, the HHS
budget, including Social Security, will exceed the gross domestic
product of 97 percent of the nations of the world. That should be
a measure of our responsibility to ensure the integrity of public
spending.

The terrible trio of waste, fraud, and abuse have been attributed
to government programs so often and so imprecisely that I want to
state clearly what 1 take those terms to mean. Waste is the incur-
ring of unnecessary costs as a result of inefficient practices, sys-
tems, or controls by management. Fraud is gaining something of
value through intentional misrepresentation or concealment of ma-
terial facts. Abuse is any practice not consistent with rules, regula-
tions, or ethical standards which provides unfair gain for those
with access to programs.

In our earlier hearings, witnesses pointed to shocking examples
of waste, $115 million in Pell grants and Stafford loans to ineligible
noncitizens. Other student loans defaults of more than $57 billion
since 1965. I said billion. And losses in Medicare and Medicaid that
could be as high as 10 percent of health care spending or more
than $20 billion.

The witnesses before us today will help the subcommittees iden-
tify specific instances and examples of waste, fraud, and abuse.
Each has published his views on government spending and we ap-
preciate and sincerely appreciate their willingness to share their
conclusions with us. The witnesses are, panel one: Thomas Schatz,
president, Citizens Against Government Waste; and Martin Gross,
author. Panel two: James Bovard, journalist and author; Douglas
Kennedy, reporter, the New York Post. Panel three: Mr. Ronald
Walters, chairman, Political Science Department, Howard Univer-

sity.

There is no easy answer to wasteful spending and fraud against
well-meaning programs. Fixing these problems won’t balance the
budget and I want to make the point that we are not going to bal-
ance the budget on waste, fraud, and abuse. Reducing waste and
fighting fraud certainly will help scarce budget resources go further
and a more efficient Federal Government will have the means to
keep its promises to the elderly, the sick, and the disabled while
sustaining the confidence of all citizens.

That is our goal and I thank, again, our witnesses. And at this
time, I call upon my distinguished colleague, Mr. Towns, who is a
pleasure to work with.

Mr. Towns. Thank you very much, Mr. Chairman.

Let me begin by applauding you for moving forward with this
hearing on fraud and abuse. As you know in the last Congress, we
looked at these issues and felt that there was much that needed


15

Today, I would like to look at various aspects of the activities of the Department
of Health and Human Services (HHS), by far the largest of all government agencies.
According to their most recent budget report, they expect revenue from the Treasury
of $773,675,000,000 ($773 billion) in Fiscal 1996, almost half the entire federal
budget. It represents some 60 percent of the working federal budget after payment
of interest on the national debt.

The HHS is involved in a multitude of operations from the Food and Drug Admin-
istration to Indian Health to the National Institutes of Health. But for today’s pur-

s, I will concentrate on four largest of the HHS operations: Social Security,

[edicare, Medicaid, and Aid to Families with Dependent Children (AFDC).

In addition to the projected $773 billion intake, we should also consider that the
states spend a great deal in matching funds on Medicaid and AFDC, and amount
that will soon approach $100 billion a year.

SOCIAL SECURITY

In my new book, THE TAX RACKET, I have devoted a chapter to the Social Secu-
rity Tax. The key question here is, of course, its solvency, As of January 1995, the
povernment had “borrowed” $413 billion from the Social Security Trust Fund (a

kkeeping item with no fiscal integrity) and given the fund federal notes of in-
debtedness, part of the $4.8 billion national debt.

‘As we know, that borrowed money has come from the giant surpluses generated
each year since 1983, when the FICA taxes were raised. That was done to create
some $2 trillion in surplus CASH by the year 2015-2020 when the baby boomers
will be ready to retire. Unfortunately, there will be no cash on hand. Instead, the
government will either have to raise FICA taxes or go into the market and borrow

e money that has been put into the General Fund and spent.

‘This is not sound policy. As we know, when they speak of a “balanced budget”
by the year 2002, that does not include the $65 billion a year that is being borrowed
on a regular basis.

What should we do to make Social Security secure? The retirement age is being
raised, with talk of it going to 70. However, no one has figured out how the aged—
pushed out of the job market—will live decently from the time they retire from work
and are waiting for Social Security payments at age 70.

There is only one answer to the Social Security dilemma, and it will have to be
addressed very soon. Right now, we are living in borrowed time.

e answer is to not spend the surplus of $2 trillion (as we're now doing from
the General Fund), but to invest it. The SSA should no longer be part of the govern-
ment, but separated as an independent quasi-governmental agency like the Federal
Reserve with a Board named by the President and confirmed by Congress. They,
not Congress, should determine Social Security taxes and benefits and manage the
fund,

What should they do?

(1) Make retirement no later than 67.

(2) Prohibit the government from borrowing any FICA funds.

(3) Arrange for payback of the money already borrowed.

(4) Invest the annual surplus—not in Treasury debt but in outside negotiable in-
struments: Fannie Mae, Ginne Mae, Freddie Mac (all of which have had huge
gains), and perhaps in top-rated commercial bonds. If the average surplus of $65

illion a year is invested over the next 25 years at just 6% return, there will be
trillions available for the baby boomers, instead of zero as presently projected.

(5) Move a little each year toward the Chilean system in which contributors in
that nation choose either the foverpment investment plan or one of 12 private in-
vestment groups, all regulated by the government. (If one fails, the pensioners re-
ceive the government minimum.) These private investment ps have achieved an
average gain of 14 percent over the last decade, while our Social Security contribu-
tions are reduced daily through non-investment.

Under such a plan, the monthly returns could reach $2000 a month average in-
stead of the present inadequate $698 average.

In terms of additional oversight, the SSI disability system, which is part of Social
Security, has had an abnormal growth in “disabled” children because of loose defini-
tions. Those enrollments should be drastically cut back. The same is true of drug
addicts and alcoholics, who will still receive SSI payments for 3 years. That shoul
be curtailed immediately.

But most important to Social Security is its fiscal and investment independence
and the development of an investment strategy to increase benefits and/or reduce
FICA taxes and keep it solvent for the baby boomers and beyond.


5

testing first in every category of educational achievement, which of
course we are not.

CAGW is well aware that the Department has increased its ef-
forts to coordinate and consolidate its programs, but that’s what
the Grace Commission called for 10 years ago and here we are still
trying to do what needs to be done. The President’s fiscal year 1996
budget, to its credit, called for elimination of such programs as
Olympic scholarships and the Eisenhower Leadership Program,
Teacher Corps, law school clinical experience, and in some cases
programs that he asked for elimination of last year yet Congress
saw fit to continue spending money on. So sometimes the problem
lies at both ends of Pennsylvania Avenue.

More needs to be done to improve management of education pro-
grams. Again, looking back at the Grace Commission’s_ rec-
ommendations, they called for improved collections of student loans
and better tracking of students after they leave school. Again last
fall, Citizens Against Government Waste in its Risky Business re-
port cited inaccurate and incomplete data processing and record-

eeping systems. One of the things that might be done to keep
track of students is an exit interview after school so that they can
tell the school where they are going and that’s one way to find out
where they are because that’s something that the Department of
Education doesn’t do very well.

We know how much is being lost. You mentioned $51 billion.
Quite a few students obviously could benefit from that kind of
money if it had not gone down the tubes over the years.

Direct student loans may not be the answer. The government-run
programs such as the one that was passed last year by Congress
may not be more efficient than one that has involved the private
sector over the years. And that program most be closely monitored
by your subcommittee.

‘ou may wish to consider an entirely different approach. Make
student loans unsubsidized but broadly available and managed by
the Department of the Treasury, not the Department of Education.
After all, these are simply loans and having the education bureauc-
racy manage loans to those who buy education services is in fact
a conflict of interest. Are they more interested in lending the
money or keeping track of it? A banker as such, in other words the
Treasury Department, would probably keep much better track of
that money.

The ultimate question, Mr. Chairman, is whether we even need
a Department of Education. Richard Lyman, President of Stanford
University, summed up our Nation’s educational woes when he
said, “The 200-year-old absence of a Department of Education is
not the result of simple failure during all that time. On the con-
trary, it derived from the conviction that we do not want the kinds
of educational systems that such arrangements produce.” Cen-
tralization is not the answer. Local communities can do a much
better job.

In the name of reinventing, the President in his 1996 budget has
proposed combining nearly 70 programs from four agencies—pri-
marily Education and Labor—into a work force development sys-
tem for adults and youths and he is to be congratulated on making
that effort. It would be administered by the States, but the net


21

Mr. Towns. Isn’t that a State function? Wouldn’t the State make
that decision as to those priorities?

Mr. ScHATZ. Well, you’ve got 95 percent of the money being spent
at the State and local level, more of it spent at the local level. And
you've got communities that should also be making those kinds of
decisions. If you block grant a number of these programs in the De-
partment, and if Congress would agree to eliminate those that are
no longer effective, you could free up money to solve those prob-
lems. Everybody should have that opportunity.

Promoting edueational excellence, as the Department of Edu-
cation is supposed to do, is a wonderful goal in promoting the
equality, but you can’t do that if the local communities don’t spend
the money wisely.

Mr. Towns. I agree with that. This is a hearing on waste, fraud,
and abuse. Isn’t it waste and abuse of our children who require
adequate equipment and don’t have it?

Mr. ScHaTz. I am not disagreeing with you, Mr. Towns. I’m say-
ing that there is enough money in the budget to solve those prob-
lems. It is obviously not being spent in the proper way. But you
spent $350 billion since 1980 and you've still got the ongoing prob-
lems that these communities had 20, 30 years ago. So money is not
solving the problem. It’s the way it is being spent.

Mr. Towns. Let me ask the question a different way. What do
you see as an appropriate Federal and State partnership? Are you
saying that the Federal Government should be out of it altogether?

at are you really saying here?

Mr. ScHatz. Well, I mean, I can speak for myself. I went to
school in the 1960’s mostly and there was no Department of Edu-
cation and I think most of us, which is essentially the majority or
almost all the baby boomers, seem to be doing pretty well and we
did it without a Department of Education.

And I think that there’s, again, the historic aspect of that, that
before we had the Department and we had the Health Education
and Welfare Department. But nonetheless it appears that as the
bureaucracy has aroun, the ability to spend this money wisely has
greatly diminished or we wouldn’t be having all those reports about
what’s wrong with the system. So I think that if you’re going te
really solve this problem, one of the ways to do it is to greatly re-
duce or eliminate the whole department.

Mr. Towns. The reason I’m having some problems with what you
are saying is the State makes those decisions, which you agree on.
Isn’t a Federal presence necessary to ensure national priorities?

Mr. ScHatz. Well, again, Mr. Towns, I am not sure those have
solved the problems either. Setting national goals and overtaking
local community operations and local community goals also does
not seem to be working all that well. It seems the more the Federal
Government steps in, the more strings are attached and the less
gets done locally.

Mr. Towns. All right. ’'m having some problems with you. Let
me just move on to you, Mr. Gross.

ir. GRoss. Can I give a very quick suggestion on education?

Mr. Towns. I would be delighted to hear it.

Mr. Gross. I am a firm believer in the public school system. I’m
a product of it. I went to a public grade school, and I went to City


WASTE IN HUMAN SERVICE PROGRAMS:
OTHER PERSPECTIVES

HEARING

BEFORE THE

SUBCOMMITTEE ON HUMAN RESOURCES
AND INTERGOVERNMENTAL RELATIONS

OF THE

COMMITTEE ON GOVERNMENT
REFORM AND OVERSIGHT
HOUSE OF REPRESENTATIVES

ONE HUNDRED FOURTH CONGRESS
FIRST SESSION

MAY 23, 1995

Printed for the use of the Committee on Government Reform and Oversight

ee

U.S. GOVERNMENT PRINTING OFFICE
25-774 CC WASHINGTON : 1996

For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402

ISBN 0-16-052885-2
a



44

The black marketeers, or “non-men” (i.e., dealers of non-controlled substances)
also make a hefty profit off the taxpayer by reselling the drugs to pharmacies or
drug suppliers.

‘veryone involved in the scam makes money,” one investigator told me. “Only
the taxpayer loses.”

Some investigators say the fraudulent game is being fueled by the ease with
which street scammers can use a card belonging to someone else.

Like most states, New York’s Medicaid card has no pertinent information aside
from the card holder’s name and date of birth.

It has no photo, no description of hair color or eye color and no height or weight.

With little information to go on and motivated to handle as many patients as pos-
sible, most clinics are unconcerned with anything about the card except the mag-
netic strip on the back.

Time and again I would walk into a clinic, hand over my card and watch as the
clinic worker would swipe the cards unexamined, through the Medicaid card ma-

‘ine.

‘There is a yearly limit of visits, but there is no safeguard against what card rent-
ers refer to as “burning the card,” going to many clinics in a short period of time.

I often “hit” three different clinics in one day, obtaining the same prescriptions
from all three with not so much as a peep from the machine.

And the yearly limit does nothing to discourage scammers who can easily obtain
another card.

After I lost one card, I was back on the street within hours with a new one. I
was also twice offered rented cards at clinics by other patients, “just in case you've
reached the limit,” one card seller told me.

Usually unscrupulous recipients rent their own cards directly. Other times, street
scammers obtain stolen or borrowed cards (with or without the knowledge of the
legal card holder) and then rent them to underworld figures, who want to

rs.’
I rented mine for $200 for three weeks, which worked out to a little under $10

a day.

“Pind the right doctors, and you can get anything you want with this card,” said
the man who rented me the card.

By using a method he taught me I ended up with more than 30 prescription dry;
for ailments ranging from asthma to hay fever to back aches, ulcers and head colds.

Tn just a few weeks, my take included:

« One back brace. Cost to Medicaid: $80.

© One nebulizer machine for asth: Cost to Medicaid: $140.

Three prescriptions for the antihistamine Claratin for allergies. Cost to Medic-
aid: $157.20.

¢ Four asthma inhaler pumps. Cost to Medicaid: $93.40.

© One bottle of pepcid for ulcers. Cost to Medicaid: $42.69.

* One Beconase-AQ, a spray for sinuses. Cost to Medicaid: $31.76.
$98. Two prescriptions for the antihistamine Seldene for allergies. Cost to Medicaid:
¢ Dozens of cough medicines, antibiotics, and antacids.

Thad none of the symptoms for which these drugs are supposed to be prescribed.
In fact my regular physician had checked me out weeks before and pronounced me
in perfect health.

ill I never left a doctor’s office empty-handed.

T even found some clinics encouraging the practice by accepting multiple cards
from one recipient until one of them was accepted by the computerized card ma-
chine.

“You'll have to go back and get another one,” a receptionist at a Marcy Avenue
clinic in Brooklyn told one patient, who did not have any extra cards and who had
reached her yearly limit.

A few times doctors were skeptical about my so-called ailments, but they always
wrote prescriptions for me.

One doctor asked where my ulcer was and when I pointed to the wrong part of
my stomach he refused to give me the Zantac I was requesting.

“1 won't give you that. I will only give you gomething else,” fe said.

He ended up writing three prescriptions—for stomach pains and asthma.

Some doctors ‘ired that I submit to tests before giving me scripts.

A doctor at the Interfaith Clinic on Throop Avenue in Brooklyn refused to give
me ulcer and hay fever medicine when I refused to undergo chest X-rays and blood

sts.

I thought he was simply being cautious, wanting to see test results before handing
out the medicine.

play the



8

CAGW urges you to consider reforming the student loan program. It should be
unsubsidized but broadly available, and managed by the Department of Treasury,
not the Department of Education. Having the education bureaucracy manage loans
to those who buy education services is simply a conflict of interest. A loan is a loan,
and bankers—essentially the function of our Department of Treasury—should man-
age oan. This will reduce costs and eventually Tower tuitions, once this new system
is phased in.

ere is little question that American education has declined over the past three
decades. Aside from special education and increased opportunities for the disadvan-
taged, which could have been done through an agency or department, there is a
clear, 30-year track record of federal educational ineptitude and self-interest. Today,
we ask you why we need a Department of Education.

CAGW believes as did the Founding Fathers that the federal government has no
business running the educational system. Currently, state and local communities
pay for 95 percent of the nation’s total education budget, while the federal govern-
ment hands out the remaining five percent, most of which never gets inside a class-
room or in the hands of students, Siphoned off by educationists at every level, fed-
eral dollars assure little else but increasing federal interference and control.

Richard W. Lyman, president of Stanford University, summed up our nation’s
educational woes when he said, “the two-hundred-year-old absence of a Department
of Education is not the result of simple failure during all that time. On the contrary,
it derives from the conviction that we do not want kinds of educational systems
that such arrangements produce.”

While our schools have deteriorated my co-witness, author and educator Martin
Gross, and others, have been in a lonely fight. Mr. Gross has written that the De-

artment of Education has not educated one child and that education should be a
local rather than federal concern. Mr. Gross will speak for himself, as well as those
who believe that Washington is not the place for our education tax dollars.

Congress has often viewed programs and departments as perpetual, without tak-
ing enough time to evaluate their effectiveness. The premise has been: How much
was spent last year, and how much are we supposed to spend this year, rather than
whether the money should be spent at all. This is, after all, not the government’s
money—it’s the taxpayer's. Every expenditure should be viewed from the ground
up—instead of making the assumption that everything is sacrosanct. CAGW agrees
with House Economic and Educational Opportunities Committee Chairman Bill
Goodling (R-PA) that the term reauthorization should be eliminated from the con-

sional vocabulary, because it assumes programs will continue from year to year.
hairman Goodling also suggests sunsetting ams, laws and regulations, allow-
ing real review as to whether they are needed. We agree.
merica’s schools are deteriorating from increased centralization of educational
decision-making. Since the Department of Education began in 1980, the focus has
been on Washington for answers through new government regulated programs and
appropriated funds. But our education and competitiveness problems—providing not
just the basics in education, but a real chance to get a job—require innovative solu-
tions that cannot be led by a centralized system.

The answer is right in our local communities—but we have been undercutting our
kids by letting someone else create the grand schemes for our schools. Over the past
three decades, the number of school districts in the United States has dwindled
from roughly 55,000 to 15,000. That means fewer local school officials, parents, and
students are involved in the design and curricula of their own schools. It has become
too easy for school districts to rely on Washington standards for education, rather
than t ing on the responsibility at home. As parents and taxpayers, Mr. Chairman,
we share the blame. It’s time to give back education to people who care more for
kids than for union contracts, and more for education than for political correctness.

In February of 1994, President Clinton called for the elimination of specific edu-
cation programs in his budget for fiscal year 1995, and CAGW applauded his efforts.
Unfortunately, many of these programs survived in a spend:happy Congress. Items
that the president tried to eliminate, but still survive, include: foreign language as-
sistance, consumer and homemaking education, and the Eisenhower leadership pro-

gram.

‘The Eisenhower Leadership Program is a eage study in porkology, Gettysburg Col-
lege wanted to offer courses in leadership. Of course, the school didn’t want to go
to the trouble of selling such a proposal to alumni, the State of Pennsylvania, tax-
payers, or others who might scrutinize the proposal. And, of course, the college
resident approached Sen. Arlen Specter (R-BA) and Rep. Bill Goodling (R-PA) to
ind ways to fund the program.

No public hearings were held and many budget procedures were circumvented. In
1992, the Eisenhower Leadership Program was on the federal payroll. By 1993,


7

eral government, and with it the degree to which our government intrudes in our
lives, Today, CAGW will focus on the billions of tax dollars that are doled out to
the Department of Education and the Department of Veterans Affairs.

By asking CAGW and others to recommend specific restructuring proposals and
terminations under your jurisdiction, you are making the first step in regaining the
trust of the American taxpayer. Discretionary spending is one-third of the federal
budget; it’s real money. It’s time to stop taking our tax dollars and start making
‘ous choices.

fe welcome this hearing and your willingness to take a fresh look at every pro-
gram under your jurisdiction.

Before I begin, let me first take this opportunity and commend the new majority
in the House for stepping up to the plate and delivering a balanced budget resolu-
tion to the American people. For too long Washington has buried its head in the
sand hoping yearly deficits would disappear. How times have chanj

Last week, the House made history and passed a budget resolution that could re-
make the federal government into a much smaller and less intrusive institution.
Budget Committee Chairmen John Kasich (R-OH) and Pete Domenici (R-NM) have
wisely taken on the entrenched bureaucracy and status-quo special interests by
serving up historic cuts that voters demanded last November. Some say that these
proposals will sorely test the political will of your colleagues, and that may be so
for the “Eeyores on The Hill.” But our view, Mr. Chairman, is that you have a joyful
challenge before you; a chance to return power and tax dollars from Washington ca-
reerists and special pleaders to the American people.

ading some of the media accounts of the House budget, you'd think you were
about to rip the schoolbooks out of the hands of America’s kids and close down the
college student loan program. What hogwash, Mr. Chairman. Utter hogwash. When
we step back from the rhetoric and take a critical look, what we see is not a future
of pain and suffering, but the hopeful end of the federalization of teaching standards
and educational curriculum, which have not come close to improving the level of
education in the United States.

Since 1980, when the Department of Education was established with a budget of
more than $14 billion and about 150 programs, the Department has mushroomed
to a spending level of nearly $33 billion and more than 240 programs. Since 1980,
the federal government has appropriated more than $350 billion to carry out the
Department’s programs, Mr. Chairman, can any member of Congress look their con-
stituents in the eye and tell them that the best times for American education have
occurred since 1980?

CAGW is well aware the Department has increased its efforts to increase coordi-
nation within programs and with other agencies, and if the Department stays intact,
these efforts must be accelerated. But like the deck hands on the Titanic, the effort
is not enough. The Department of Education is not part of the solution, Mr. Chair-
man; it is a major part of the problem with America’s schools. In fact, last year’s
report from the Office of Management and Budget on high risk areas cited the de-
partment’s inadequacies in financial controls, which were not sufficient to produce
reliable financial information necessary for sound decision-making.

Student Financial Aid programs, totaling. $12.9 billion in FY 1995, are among the
biggest boondoggles in government. CAGW’s Risky Business report in September of
1994 cited the inaccurate and incomplete data processing and record-keeping sys-
tems as major factors in the large number of loans to ineligible student borrowers
and tuition payments made to ineligible institutions. In addition, participating insti-
tutions have little incentive to prevent defaults or recoup defaulted loans because
schools, lenders and guaranty agencies all profit from defaulted loans. At least. $2.5
billion, and as much as $4 billion, is at risk each year in the student loan program.

If students take advantage of their education but fail to pay off their loans, there
is no punishment for most students. College graduates should not be let off the
hook, especially when their lifetime earnings are triple those of noncollege grad-
uates who are working to pay the bills for student loan scofflaws.

No American taxpayer owes another person the sweat of their brow so that, person
can go to college. Students who borrow the money from other taxpayers, or from fu-
ture generations should pay the loan and interest or pay the consequences.

Economist Milton Friedman said it best:

Everyone who has the capacity and desire to have a higher education should
be able to do so provided they are wil ng to undertake the obligation to pay
the costs of their schooling either currently or in later years out of the higher
income that their education will make possible. . . . We must have a system
under which those who are not able or do not go to college are not forced to
pay (through their taxes) for those who do.



57

that we are serving predominantly a poor population and, there-
fore, poverty.

I went on at some length in my prepared testimony about the
question of poverty because you will not be able to separate it out
from waste, fraud, and abuse, because you have to look not just at
the administrative side of the policy spectrum, but you also have
to look at the client side, the people that are being served. That’s
important because these people are the ones who are putting the
demands and placing the pressures on the system.

We just had a discussion about fraud and abuse in the Medicare
program but we didn’t really talk in that discussion, for example,
Mr. Doug Kennedy’s presentation about the fact that one of the
things that created this fraud was the system. What's placing pres-
sure on the system is the fact that there are 40 million people in
this country without health insurance and the fact that, for many
of these people, the only way they could get these pills and other
health services is to do it on the black market.

So, as much as we would like to cut funding for Medicaid and
Medicare and think that that would eliminate the problem, there
are other factors to be considered, which is to say, who are we serv-
ing, what is their condition, and what sort of demands are they
placing on the system. It’s not just a question of tinkering with the
system.

I would say the same thing with the Pell grants. We’ve had some
discussion this morning about Pell grants. I think that if you cut
out Medicaid, Medicare, and you cut down on Pell grants and I
could use any one of a number of other different kinds of examples,
the fact of the matter is that you begin to add to the people who
are already poor in this country.

I’m pointing out that there are people right now who are going
without services. You can put that on top of at least three decades
of resource withdrawal, especially in the inner cities of this coun-
try. What I mean by resource withdrawal is the fact that there has
been a pattern of people leaving the inner city, migration out, tak-
ing away the tax base, creating difficulties for urban governments
to do very much in the way of human services and that’s what we
are talking about. You’ve had a pattern of employment displace-
ment. Hundreds of thousands of jobs are taken out of the cities and
placed in the suburbs or in the Asian Rim or wherever. And of
course you've had the direct defunding of many cities. Congress-
woman Maxine Waters has indicated that $261 billion has been
taken out of the city’s direct funding in the last two decades alone.
So, there has been a pattern of massive resource withdrawal, and
if you put that on top of the substantial cuts in human service pro-
grams being proposed, you can’t help, Mr. Chairman, as far as I’m
concerned, but to exacerbate the question of poverty.

The last thing I would say is that if efficiency is the goal, then
rather than the cutting, what we ought to be talking about is add-
ing to these programs. | know that I’m here sort of whistling in the
wind because, again, the ideology that we are facing is not to add
to the programs but if it is efficiency that we are talking about,
then it is not just a question of cutting, it is also a question of mak-
ing these programs work. And to make programs work, sometimes
you have to add to management capability of these programs.


40

What did they do? Immediately put out a press release announcing the forthcoming
raid. As a result, the raid had to be called off

Let’s give the D.C. government employees the benefit of the doubt and assume
that their action was the result solely of mind-boggling stupidity. The kind of man-
agers that would put out a press release like that sabotaging the hopes of public
housing residents to live in safety—should not be trusted with any responsi lity.
J would not even trust them to work at McDonald's without burning all the ham-

yurgers.

* * * * * * *

The issue of summer jobs programs has been « hot controversy in recent weeks,
Unfortunately, few People have stopped to examine the dire effects of these pro-
grams on generations of young Americans.

Government summer jobs programs have crippled many young people’s work eth-
ics and job prospects. The ‘General ‘Accounting Office noted as early as 1969 that
some people hired in the government summer programs “regressed in their concep-
tion of what should reasonably be required in return for wages paid.” Vice President
Mondale’s 1980 task force on youth unemployment concluded that experience in gov-
ernment summer jobs programs could actually subsequently handicap young people
in the job market, since private employers strongly prefer youth who have private
work experience. The National "Academy of Science concluded in 1985 that govern-
ment make-work programs isolate disadvantaged youth, thus possibly making it
harder for them to fit into the real job market.

Summer jobs programs tend to be slush funds for big city political machines. The
District of Columbia in past years spent some of the federal jobs money it received
to give paychecks to kids who went to the Marion Barry Youth Leadership Institute.
(There is no truth to the rumor that the Marion Barry Institute offered a special
class to teach kids how to plead entrapment if they were caught with drugs).

Washington, D.C. has one of the largest summer job programs, doling out checks
to over 16,000 youth. Larry Brown, the public affairs director of the D.C. Depart-
ment of Employment Services, explained in 1989: “We don't fire any of the kids—
it just doesn't do anything to help a 14 or 15 year old.” Youth who refuse to exert
themselves at one job site are simply transferred to another job site. This is not
untypical for how jobs programs run nationwide.

e summer programs often reveal a genius for divorcing jobs from work. The
Washington, D.C. government, rushing to expand the rolls last summer, sent 2500
youths (instead of the 1000 contracted for) to D.C. Artworks, a non-profit group that
Supervised young people playing drums, dancing, etc. Many youth were sent to the
wrong arts job sites; one disillusioned 21-year old, after waiting five hours for his
paycheck, “They tell kids not to sell drugs, that this is the alternative . . . this is
ridiculous.”

One of the favorite activities of the summer programs is “job shadowing”—having
a teenager follow a government worker round and watch ‘as he goes through the
motions of his jobs. Can anyone imagine a worse place for a young person to learn
about work than from a group of people that are widely reputed to be America’s
most lethargic laborers? Young people would receive far more discipline from work-
ing a few shifts at McDonald’s than from spending a summer watching government
employees shuffle between their tasks.

retary Reich, touting the need for an “aggressive campaign of academic enrich-
ment,” stresses that summer jobs programs are educating young. peo le. But, a
major 1992 federally-funded report by Public/Private Ventures, a Philadelphia-based
nonprofit corporation, concluded that the remedial education provided by summer
jobs programs had little or no long-lasting impact since temporary benefits “dis-
sipated” after the program ended. Clinton's proposed expansion of the jobs program
will provide a federal windfall to local public schools—rewarding them for their dis-
mal failure to educate students during the normal school year.

Reich, in an interview with this journalist in 1993, declared that the summer jobs
program is an “investment in the food work practices” of young people, But, Gar

jurtless, a training expert at Brookings Institution, observed, ere is too mucl
social work mentality in these programs—the administrators don’t want to give a
bad mark to anyone.” Robert Woodson of the National Center for Neighborhood En-
terprise observes, “The programs instill a false sense of work in kids and make it
more difficult for them when they go out and try to get a real job.”

Federal training programs have a long record of blighting young Americans’ eco-
nomic prospects. The liberal Urban Institute concluded that CETA (the Comprehen-
sive Employment and Training Act), which consumed over $35 billion between
1974-1983, produced “significant earnings losses for young men of all races and no
significant effects for young women.” A damning six-year DOL-financed study re-



28

Mr. SoupeEr. I am speaking of Medicare here in the sense of, if
somebody was looking at going to a nursing home, there are a cer-
tain number of days after a hospital release that wouldn’t that
be——

Mr. Gross. It is a short period, but long-term nursing care is al-
ways Medicaid-funded or private. We have a racket going in Amer-
ica where people my age will shift their assets to their wife or wife
to husband, which is done without taxation. They then become
bankrupt and then go—the husband can have a million dollars—
and then the wife goes to the nursing home free of charge as part
of Medicaid.

Now, the reason is because even upper middle-class people can-
not afford the $35,000 a year after taxes, which is like $60,000 a
year, for a nursing home. So the whole nursing home system has
to be changed from top to bottom.

I personally think we need a national catastrophic nursing care
insurance plan, which they put in years ago and then repealed. I
think we need it back begin. We are facing a nursing home explo-
sion. People now are living to 85 and 87. I was told that I have
a life expectancy of 86 now. Well, I won't if I continue to testify be-
fore Congress. But it is a whole situation which we are trying to
put under the rug. And we can’t do it.

Mr. SoupeEr. You have an interesting mix of on the one hand
critiquing Government waste and fraud and yet, when you come
down to it, many of your solutions require tremendous intervention
of Government——

Mr. Gross. Yes.

Mr. SouDER [continuing]. Whether it is a WPA program or—

Mr. Gross. Right.

Mr. SoupER. Why do you think——

Mr. Gross. That’s why the right-wing Republicans love me and
Ralph Nader loves me, Because I try to be a good American. And
the last person whose mold I think I am in is Harry Truman. I
wrote an article on the GI bill and Harry’s friend, a V.F.W. lobby-
ist, wrote it for him—he claims on an envelope—and gave it to
Harry the morning at the White House. The President looked at it
and said, “Great” turned to an assistant and he said, “Put this in
the legislation.” And the assistant said, “Mr. President, you’re mak-
ing a mistake.” And Truman said “What’s that?” And the aide said,

ou have no means test.” And Harry said, “They are all veterans.”

Well, they are all Americans, The problem we have in America
today is this constant looking into everybody's pocketbook to find
out what they can and can’t afford. We should have absolutely no
means test on anything except charity welfare.

Mr. SoupER. Why would you feel the WPA program would work
and yet other job training programs haven’t——

Mr. Gross. It wouldn’t be a job training program. It would be
work. They would start working the first hour that they showed up
with no indoctrination. My father showed up at Tremont Avenue
in the Bronx and was given a pick and an ax. He wasn’t told any-
thing.

Me. SoupbeEr. I mean, part of the problem is that you are compar-
ing a program from the 1940’s with how you would implement it
in the 1990’s, and it in fact——


45

But I was wrong. After I agreed to the Medicaid-covered tests, he wrote out the
prescriptions.

One investigator told me some doctors insist on tests because they often receive
kickbacks from the labs. Laws, he said, are very lax concerning kickbacks.

For some of my clinic visits, I just answered “Pm tired” when I was asked what
my ailment was.

“You don't have a sore throat?” asked a Washington Heights doctor.

“No, I don't,” I replied.

“Here, let me see,” he said.

“It looks sore to me, I'l give you some medicine.”

After five minutes, he handed me prescriptions for vitamins, cough syrup, and an
asthma pump inhaler, which erack cocaine users employ to open up their lings for
a better high.

“Come back in a month,” he said, “I will see how you are doing then.”

I found that the treatment offered for my “tiredness” varied from clinic to clinic—

nerally depending on the services available and whether they were covered by

[edicaid.

One doctor at Cabrini Hospital’s Stuyvesant Polyclinic sent me to the in-house
psychiatrist, Forty visita a year are available through Medicaid.

"The doctor at the Betances Family Clinic on the Lower East Side recommended
nutritional and ended up sending me to the clinic's physical therapist for a full body
massage, $59 a session—again with Medicaid footing the bill.

Most of the doctors in poor neighborhoods seemed to act more like prescription
givers than caregivers, secing patients for only a few minutes and writing on aver-
age three or four prescriptions each time.

“Theyil pretty much give you anything you want,” said Archic, a Medicaid recpi-
ent who was “playing the doctors” in Brooklyn.

“They don’t eare. They just want us to kegp coming back.”

The waiting rooms themselves were usually overcrowded and dirty.

‘The scene at a Washington Heights clinic was typical. About two dozen women
with children were crammed into the small waiting room with street scammers and
addicts.

The floor was caked with dirt and food and looked like it hadn’t been cleaned for
quite a while.

“Don’t eat, that,” one mother yelled after her three-year-old son picked up some-
thing from the floor and placed it in his mouth.

‘After I became familiar with “the game,” a Medicaid patient I met at a clinic sug-
gested I pretend to have asthma and try to get “the machine,” which he said he
could sell me for $40.

I went back to a doctor I had visited earlier in Washington Heights and told him
Thad been wheezing at night.

He lifted my shirt and asked me to inhale.

I took three breaths, making a slight moaning sound each time.

“Oh, you do sound bad,” he said.

I told him I wanted a machine, and he wrote me a prescription for a $140 pul-
monary aide,

Although Medicaid usually requires a month’s wait for the asthma machine—
known as a nebulizer—m r was nice enough to call the Medicaid office and
tell them I needed it that day.

Within a couple of hours, I walked out of an Upper East Side pharmacy with the
machine in hand. It was as easy as that.

Getting an $80 back brace was even easier. The doctor in the Chinatown clinic
wrote me a prescription for it after examining me for less than five minutes.

Thad been on the street for a couple of weeks when I discovered an organized
group of black marketeers operating out of a phony video store in Brooklyn.

I was introduced by two Medicaid recipients who were playing the doctors at a
particularly suspect clinic on Marey Avenue in Bedford-Stuyvesant.

‘The moment I set eyes on the clinic I knew it was bad.
ayThe waiting room was dark. The floor was ripped up and only male patients were

ere.

A few sat in the middle of the room watching “All My Children” on a small black-
and-white TV.

Two men sat in a corner near the window. One was bunched up with his right
hand tucked between his crossed thighs. The other, in a daze, ed his torso up
and down. Both looked like drug addicts.

That’s when I noticed Archie. He was sitting with another gy. whispering: They
Walked out before the doctor called their names, so after a little while, I followed
them.



27

Mr. Gross. No, no. You must have day care. In a WPA system,
you cannot have it without day care. You must have a day care sys-
tem and then you have work for all the women.

Mr. Suays. On that note, Mr. Souder.

Mr. SoupDEr. I wanted to follow up a little bit on the Medicare.
Mr. Gross, you said that in the teaching hospitals, that the goal of
the program isn’t to be a medical subsidy. Are not the teaching
hospitals, do they get the same rate as other doctors and are not
those—

Mr. Gross. That’s not the point. This is special money allotted
for the education of teachers, which is a very good goal but it
should have nothing to do with hospital insurance for the aged.
This is in addition to the money that the teaching hospitals get for
Medicare reimbursement. This is over and above that. This is a
grant. Now, that grant is fine if the government wants to do it, but
why should it come out of the Medicare funds?

Mr. SoupER. Do you know what the dollar total on that is? Do
you have any idea.

Mr. Gross. The last time I looked, which was 1992 or 1993, it
was $2.5 billion.

Mr. SoupEr. In the medical labs providing services for the
aged—

Mr. SHAyYs. Would the gentleman—you are having a little having
difficulty picking it up. Maybe you can move the other mike as
well. Move that glass. Maybe you could just move on over.

Mr. SoupER. This leads to another question that what I heard
constantly from doctors is that they were cost shifting, in other
words, from Medicare to others yet you seem to be implying that
they are overcharging.

Mr. Gross. Oh, yes, the General Accounting Office has issued a
report which I have at home on the medical laboratory profit being
double that, approximately double that, for the same services pro-
vided to private patients.

Mr. SoupER. I—

Mr. Gross. As you may know, I’m a Medicare patient. All of our
laboratory costs, 100 percent, are borne by the Federal Govern-
ment. There is no coinsurance or copayment.

Mr. SouDER. Do you believe that that is universal or do we have
pockets that are doing that?

Mr. Gross. No, that is universal. The General Accounting Office
said that, by and large, the profit margin is too high and the same
thing is true in the State of Connecticut. Our new Governor, John
Rowland, is trying to arrange, as is Mr. Pataki of New York, to cut
the profit margins of the nursing homes which are mainly private.
In Connecticut, it costs $35,000 a year per patient, and one of the
reasons is that they have a virtual hospital environment which
many of the aged don’t need.

These are Federal regulations that force the cost up and the
nursing homes are so successful that they do magnificently on Wall
Street. And that was not the intent of the Medicaid plan, to sup-
port Wall Street.

Mr. SoupER. Have you ever looked at the consistency of eligi-
bility in Medicare for nursing homes?

Mr. Gross. Medicaid.


64

Since then, we’ve grown up in a society where we see around us
tremendous affluence. Now, we are not talking about somebody out
on an island in Pago Pago someplace where you can sell them on
the question of working hard because there is no other model out
there. It is very different, the quality of poverty in the midst of af-
fluence is totally different.

One of the reasons it is different is because you have a popular
culture which works against you which tells young people you can
get it quick. There’s a lot of it and you don’t have to work for it.

0 it may be, I think, the right thing to do to say there are no
dead-end jobs but you can’t turn off the context within which peo-
ple live, and you can’t turn off the examples that young people see
around them every day.

They get one kind of education from their families and their com-
munities and their schools. They get another from society. So being
poor in America is qualitatively different than it is anyplace else
in the world almost.

Mr. SHays. OK. I have enjoyed and I’ve learned from your testi-
mony. I don’t know in the end if it should be qualitatively different.

Mr. WALTERS. That’s another question. But it is. I mean, that’s
what we have to work with.

Mr. SHAYS. Well, I tell you when Jesse Jackson was going around
the country telling—kicking kids in the rear end and saying, no-
body else is going to do it for you, you are going to have to do it
on your own, I think he made a greater contribution to make every-
body feel they were victims because. When you feel like a victim,
it seems to me you've given up.

Mr. WALTERS. I agree with you, Mr. Chairman, but it doesn’t
solve the problem.

Mr. SHays. I thank the gentleman.

Mr. Towns, thank you for your patience.

Mr. Towns. Thank you. I must admit that I was enjoying it in
terms of questioning because I think that it is just so important
that we really get to the heart of the problem. I think that one
thing that I found is that a lot of people don’t take those jobs be-
cause they will lose their health care, so I think that there is a lot
of things that we really must take into consideration because
health care is still very, very important.

So I think that we have to really examine why people don’t move
out, aside from the fact that I agree with you in terms of motiva-
tion. I think that’s very, very important and when someone picks
up and comes from another country all the way over here, I think
there is no question about it, that that person is highly motivated.

But health care is a big issue because some of these jobs that
people refer to as dead-end jobs, but I think it is not in terms that
it is a dead-end job. They look at it, in fact, if I take that job, I
lose my health care and what would I do if something happens.

Let me sort of move on, Dr. Walter. Do you support the goal of
the administration to reinvent the Federal Government?

Mr. Watters. I do. I think that it’s interesting to me that we are
asking questions about what to do at a time when it looks as
though the administration has made considerable progress in doing
many of the things that people would like to do.


4

dollars of taxpayers have been spent on fraudulent payments to de-
fense contractors. According to a GAO report, quote, during the 6-
month period in fiscal year 1993, defense contractors returned $751
million and, in fiscal year 1994, they returned $975 million, most
of which appeared to be overpayments that were detected by the
contractors. That is just a little drop in the bucket.

We are going to hear today about HHS, Education, VA, AFDC,
and HUD. I really look forward to our experts giving us their rec-
ommendations and profiting by them legislatively, administra-
tively, and in whatever way we can.

So, again, thank you, Mr. Chairman.

Mr. Suays. I thank the gentlewoman from Maryland and invite
the gentleman from Indiana, Mr. Souder, if you have any opening
comment.

Mr. Souper. I don’t have any opening statement. I just want to
say I am against government waste and also against some govern-
ment programs that aren’t even wasteful.

Mr. SHays. OK. Mr. Chrysler, we are catching you just as you
stepped in here, but I am delighted to have any opening statement.
you might want to make.

Mr. CHRYSLER. I would just say ditto to what Mark says.

Mr. SHays. I thank all of my colleagues and I would just get a
housekeeping measure out of way and would ask unanimous con-
sent that our witnesses be permitted to include their written state-
ments in the record and would encourage them certainly to sum-
marize parts of their statement.

And at this time, as you know, we swear in all our witnesses and
would ask both of you to stand up and I will administer the oath.

[Witnesses sworn.]

Mr. SHAys. For the record, I note that both witnesses have an-
swered in the affirmative. And Mr. Schatz, we will invite you to
give an opening statement and then we will go to Mr. Gross and
then we will take questions.

STATEMENT OF THOMAS SCHATZ, PRESIDENT, CITIZENS
AGAINST GOVERNMENT WASTE; AND MARTIN GROSS, AUTHOR

Mr. Scuatz. Thank you very much, Mr. Chairman.

I appreciate being here this morning on behalf of the 600,000
members of Citizens Against Government Waste. As you have stat-
ed, Mr. Chairman, you face a very important task restructuring or,
in some cases, maybe eliminating departments and programs under
your jurisdiction.

As you know, since 1980 when the Department of Education was
established with a budget of more than $14 billion and about 150
programs, the Department has mushroomed to a spending level of
nearly $33 billion and more than 240 programs. The Federal Gov-
ernment has appropriated $350 billion to carry out the mission of
the Department to ensure equal access to education and promote
education excellence throughout the Nation.

I think it would be difficult for Members of Congress to look their
constituents in the eye and tell them that the best times for Amer-
ican education have occurred since 1980. If money were the answer
to the Nation’s education problems, the United States would be


18

cation, but really the Labor Department as well, and it is the whole
job training program. And we could talk about a whole host of dif-
ferent issues.

My interest in this is that I believe that Congress should have
in some cases competitive grants, in other cases block grants. I
don’t believe that Members of Congress should try to get money for
a particular community because they happen to have more political
clout.

But I was faced with an experience recently where one of the job
training organizations in my district who does a very fine job was
given a grant of over $800,000 to help retrain 200 employees who
would be laid off from a major corporation that is moving from
Stamford, CT.

And we announced this grant and after we announced it, I
thought to myself, why would t this large successful company, a For-
tune 500 company, be given a grant—it wasn’t given directly to the
company. It was given to an employment, nonprofit organization.
Why wouldn’t the company have made that kind of payment and
why did the Federal Government step in?

The only conclusion I have is that we have so much money now
in our job training program that we are having a hard time getting
to those that are truly in desperate need and there is no other way
to pay for it. So my question is:

With 160 job training programs, would you eliminate them?
Would you block grant them? Would you reduce their scope? Would
you have them tied into the private sector in terms of the company
would only get paid if they made sure that the individual they
trained got a job in the end? So in other words, you would examine
output and outcome? That is my question.

I throw it first to you, Mr. Schatz.

tan Scuatz. Mr. Chairman, I certainly appreciate your view on
this.

Mr. SHAYS. I’m sorry to interrupt you, but we are spending over
$20 billion a year, combining that with some of our educational
loans over $24 billion a year in our educational loans and our job
training.

Mr. Bouarz. Clearly this has not been terribly effective if the
money is being thrown out as you say. Everybody agrees, I think,
on the goal which is to help people find jobs or retrain them when
they truly need it and it is an example of what else goes on
throughout the government, which is not targeting. You can look
at anything from rural electrification loans which—

Mr. SHAYS. What would be your specific suggestion?

Mr. SCHATZ. Our specific suggestion is to, first of all, target these
where they are most needed and whether that is by formula or
competition as opposed to, as you know, going where somebody
happens to be on a committee or an appropriations committee. We
see a lot of that, unfortunately, even now.

Mr. Suays. But in this case, this was a program already on the
books, and the nonprofit applied for it based on the 200 employees
that weren’t going to be moving with the company. So it wasn’t me
getting the grant, I just announced the grant.

Mr. Scuatz. I understand that.

Mr. Suays. So that was a competitive grant.


55

Mr. Suays. I understand you are not going to go after a mis-
demeanor.

Mr. DoucLas KENNEDY. Also, it is very—you know, the doctors
say they know are giving me phony prescriptions, but they protect
themselves by doing cursory exams.

Mr. SHays. What I am having a hard time understanding is that
these places are cheating the government significantly. I under-
stand that some of it is millions of dollars. I have to believe that
there is more to the story here and it is just troubling to me that
there are these facilities.

Mr. Doucias KENNEDY. You are talking about doctors them-
selves?

Mr. Suays. The doctors, the facilities.

Mr. DoucLas KENNEDY. The doctors themselves are protected be-
cause nobody would ever just give me a prescription without me
saying, I have an ulcer, I have hay fever, you know. They make me
say those words. They know what’s going on, obviously, but if
somebody is investigating, they will say, well, they got them on the
stand. Well, he said he had this, this is—you know, you look in the
book and this is the drug.

Mr. SHays. This is something we are going to follow up. That is
a real life example of people ripping off the system. You shouldn't
have been able to buy any of them. You bought a lot.

Mr. SHays. Mr. Towns, do you have any other questions of these
witnesses?

Mr. Towns. No, I don’t.

Mr. Suays. Mr. Kennedy?

Mr. KENNEDY of Massachusetts. No.

Mr. Suays. I think I want you to know you did extraordinarily
well in having your brother see the light.

Mr. KENNEDY of Massachusetts. Don’t get too carried away.

Mr. Suays. Well, I am Chairman. Maybe only for 2 years, but I
am Chairman. Thank you both.

Mr. DouGLas KENNEDY. Thank you.

Mr. SHaAys. We will call on our next witness. Mr. Walters, we
thank you for coming. We thank you for your patience. And if you
would remain standing, I would like to swear you in and we will
hear from you your testimony.

(Witness sworn.]

Mr. SHays. Excuse me, I said Mr. Walters. I apologize. You are
Dr. Walter and, Doctor, it is a privilege to have you here and I look
forward to your testimony.

You may give your testimony and then we have questions we
would like to ask you.

STATEMENT OF RONALD WALTERS, CHAIRMAN, POLITICAL
SCIENCE DEPARTMENT, HOWARD UNIVERSITY

Mr. WALTERS. Thank you very much, Mr. Chairman. I have lis-
tened with great interest to the discussion this morning, and I am
pleased that you will tolerate an academic who has spent the last
15 years teaching graduate courses in leadership and organization.
I have some acquaintance with the theory of a lot of what I think
has been talked about this morning.


62

teacher, and didn’t make a lot of money, but insisted that the kids
all get not only college degrees but advanced degrees. When I grew
up, my dad didn’t have to insist, it was assumed I would get a col-
lege degree. He never insisted I get a graduate degree but this
woman said to her kids, to get a graduate degree. All of her kids
are successful.

Now, that is one kind of experience for me. And I am thinking
that the other countless times when I have been talking to people
who are new to the country, for example, a taxicab driver from Bal-
timore. He bought a taxicab for $3,000, and the medallion for
$19,000. He was saving money. He was renting, and putting his
wife through nursing school. And the bottom line is, he worked 18
hours a day.

He said, this is a land of opportunity. For too many indigenous
poor people, it is not the land of opportunity. With so many who
come from other countries, it is land of opportunity and they ap-
proach their life differently. Admittedly, you can’t live on a mini-
mum wage if you work 40 hours, but you can if you work 70 hours
a week.

I feel like I’ve met the enemy and part of the enemy is me, can-
didly, because I’ve voted for these programs and I’ve taken away
a lot of the initiative that people have had to work harder.

How would you respond to that?

Mr. WALTERS. Mr. Chairman, there is no credible research that
I know that people on welfare, for example, are on welfare because
they lack initiative and that the program has created that condi-
tion.

Mr. Suays. You are missing my point. Initiative is different. I
think welfare recipients are geniuses at surviving because they sur-
vive on very little by working the system as hard as they can work.
Try to find public ousing, try to get food stamps, and they have
gone all around and they live with a friend. You are sort of break-
ing the rule. Have someone stay in but, in other words, they are
surviving just like everyone else.

I am not saying they are not surviving. They are surviving in a
system in a paradi; that has been established for them. But
wouldn’t you agree that when you look at some of the immigrants
that come to this country, Vietnamese in particular, the others, Ko-
reans, they have really viewed the world differently than some of
the people, black and white, who live here and grew up here and
are indigenous to the United States now.

Mr. WALTERS. Mr. Chairman, they wouldn’t be here if they didn’t
view the world differently. The research on that indicates that peo-
ple who generally come to this country are, by and large, motivated
or they wouldn’t be here. And you can’t compare immigrants who
come here to the general population.

Mr. SHays. But I am comparing them. When I came back from
the Peace Corps, a friend of mine came back with two individuals
and they ended up working at Howard Johnson’s. One was a bus
boy, one was a waitress, but they ended up making $600 a week
because they worked real hard and bought a car and so on.

Mr. WALTERS. That’s a real fine anecdote, Mr. Chairman.

Mr. SHays. But it goes on and on.

Mr. WALTERS. No, it doesn’t.


35

Mr. Says. Mr. Bovard, we will start with you and then we will
go to you, Mr. Kennedy, and I thank you both for coming before
this subcommittee.

STATEMENT OF JAMES BOVARD, JOURNALIST AND AUTHOR;
AND DOUGLAS KENNEDY, JOURNALIST, THE NEW YORK POST

Mr. Bovarp. I’m Jim Bovard, journalist and author. I've written
several books on numerous areas of Federal boondoggles. Most re-
cently called The Lost Rights: The Destruction of American Liberty,
as well as The Fair Trade Fraud and The Farm Fiasco. I write for
a number of places including Wall Street Journal, Playboy, The
American Spectator, and other publications.

I would like to make one quick comment about Martin Gross’
proposal for the United States to adopt a German style of licensing,
the German style of job creating. There are some good benefits to
that, but one defect of German citizen is they have strict licensing
for almost all professions. There are only two professions in Ger-
many that you can practice without a license: That is being a pros-
titute or being a journalist.

Mr. SHays. What about being a legislator?

Mr. BovarpD. I am not sure on that.

Tm going to confine my comments today on two programs that
illustrate the waste and fraud in Federal programs and those are
housing subsidies and job training programs. These are both pro-
grams that we have had that the Congress has recognized a lot of
problems in over the years and that Congress has tried again and
again and again to solve the problems and yet the programs are
widely perceived to be fundamental failures.

The Section 8 housing program is costing taxpayers about $7 bil-
lion a year to subsidize the rent of roughly 2 million households.
HUD Secretary Henry Cisneros is calling for more income mixing
in American cities and suburbs. And there has been a major drive
by the Clinton administration to expand the Section 8 pi m and
allow more people to move into nicer areas. But people have lost
track of the Section 8 subsidy levels, are often paid at levels far
higher than what another Americans can afford.

‘or instance, HUD is offering to pay $1,700 a month for an
apartment on the Island of Nantucket for welfare recipients. In
Westchester County, NY, HUD authorizes subsidies of over $1,500
a month. Here, this area, HUD is offering to pay up to $1,385 per
month in rental subsidies for an apartment in DC or in Prince
George’s, Frederick, Calvert, Charles County in Maryland and
Spotsylvania, Stafford, or Arlington Counties in Virginia.

But according to a lot of local real estate agents in some of these
counties, there are almost no apartments that rent for that high a
price. It is difficult to find an apartment for $1,385 in Frederick or
in Prince George’s. Yet these are the levels that HUD has pe;
this at. HUD has in some areas sought to end the stigma of bein,
on welfare by treating some welfare recipients like a privileg
class.

Pamela Price, a Section 8 recipient, told The Los Angeles Times
in March that “This is like Christmas” after she used her new Sec-
tion 8 voucher to move into a luxury apartment complex with heat-
ed swimming pool, four spas, six tennis courts, and two air-condi-


36

tioned racquetball courts. This is Section 8 housing. This is a pro-
gram that was designed to help people—to help people avoid being

omeless but, instead, it is financing areas that are much more lay-
ish than what most Americans can afford.

The Clinton administration sees Section 8 as symbol of social jus-
tice, but it is important to realize that the American government.
forces working Americans to pay taxes to support luxury housing
for welfare recipients, that is much nicer that Americans can pay
for their own housing.

HUD has vigorously pushed local housing authorities to include
various disabled renters in their subsidized housing programs.
There have been a lot of expansions of definition of mentally ill
renters recently that qualify. There was a case in Massachusetts
last summer of which a court ruled that a person who was a
pyromaniac had a right to subsidized housing. A person doesn’t
need really tight guidelines for public housing to realize that you
don’t want pyromaniacs to be put into a program like this. Yet with
the expansive concepts of mental disability and with the interpreta-
tion of the Fair Housing Act by the Clinton administration and by
some courts, these kinds of disasters have happened.

There have been a lot of proposals, a lot of the efforts to try to
solve the program problems with Section 8 over the years. There
have been a—it really hasn’t worked. We’ve had the program for
over 20 years. I think there is a higher level of discontent with the

rogram now than there ever has been and it is important, too, to
Toole at how local governments administer this program.

It would be easy for Congress to sit down and come up with some
new rules, some new guidelines and say, well, the answer is for
local HUD—local housing authorities to do A, B, C, and it is going
to work out fine. Well, the local housing authorities in some areas
are quite competent; in other areas, they absolutely boggle one’s
mind. For instance, drugs have been a terrible problem for public
housing, especially in many inner city areas.

The Washington papers last month carried the story of what
would have been the biggest Federal local police raid at a drug-in-
fested local public Project housing project here in a long time. Fed-
eral agents spent hundreds of thousands of dollars and invested
Massive amounts of manpower to go and get search warrants to
line up a big drug raid.

The raid was planned for Wednesday morning. I think the FBI
notified the United States—notified the Washington DC Depart-
ment of Public Housing on the evening before the raid just so they
would be informed of what was coming down the following morn-

ing.

What did the DC Department of Public Housing do? What they
did was send out a press release announcing the raid on the follow-
ing morning. You know, where do they find these kind of man-
agers? What kind of faith can you vest in someone who would
make a decision like that? I just—this is not something which can
be fine-tuned.

The other subject I want to look at briefly here is the job pro-
grams. There has been a lot of controversy. There have been a lot
of proposals to try to fix these programs. However, going back to
the 1960’s, early 1960’s we see the Federal Government has had


51

I think the question that Mr. Towns was trying to get ai is that
there are attempts these days in Washington to use circumstances
such as youve described to then suggest that the whole Medicaid
system should be thrown out.

Now, it sounded like that was an overstatement of what Mr.
Gross was trying to suggest.

Mr. Gross. That is a distortion, a distortion.

Mr. KENNEDY of Massachusetts. OK. In any event, the point is
that there are people, as I think you know, particularly, we see a
tax on the Medicaid system with cuts off literally $160 billion com-
ing out of the Medicaid system.

These kinds of abuses could end up contributing to the sense
that Medicaid is just a system full of fraud, that is, does not in fact.
take care of the poor in a way that was originally hoped and de-
signed to do.

Do you feel that with some of the solutions such as the photo
card, which you are suggesting, that in fact the Medicaid system
could, at least this aspect of it, could be cleaned up in such a fash-
ion as to largely reduce this kind of fraud and yet end up providing
the poor with the kinds of services that it needs?

Mr. DoucLas KENNEDY. Absolutely. I don’t think that——

Mr. KENNEDY of Massachusetts. That they need.

Mr. DoucLas KENNEDY. Being against fraud I don’t think is ideo-
logical. Anybody should be outraged by somebody stealing money
and the recipients can make a little bit of money off of this and it
is one of the few scams that they can actually make some money
off of it.

But I think anybody should be outraged by people stealing
money. They are taking money from people who need it and my ex-
perience was that there were people out there who really needed
it.

Mr. KENNEDY of Massachusetts. And you are answering half of
the question which is that, yes, there are these ripoffs and we want
those ripoffs to stop. The other half of the question was whether
or not you think the Medicaid system is providing a useful function
and in fact can—should continue to get support.

Mr. DoucLas KENNEDY. Well I don’t know if I am qualified to
be the one making that decision. In my experience, as I say, there
were people who seem to very much need medical care who had to
sit in the dirty waiting rooms with the drug addicts who are pull-
ing these scams. That was my—that was just my experience from
being out on the street. And that’s probably what I’m qualified to
say.

Mr. KENNEDY of Massachusetts. OK. Well, in any event, let me
just finish up here. As somebody——

Mr. DouGLas KENNEDY. Aren’t your 5 minutes up, Joe?

Mr. KENNEDY of Massachusetts [continuing]. Who may not be
any more qualified than you are, the fact of the matter—my hand
is kind of stuck here, Chris, that there are still a lot of people, poor
people in particular that very much depend on this system and
need it. And we should clean it up but we should not forget the
needs that those people have.


24

Would you agree that national standards should be established
by the Federal Government to make sure that all of those States
at least are adhering to certain levels? I am not saying we need a
Department of Education. I am not arguing that point, but I am
just saying this as a kind of a preface to looking at what programs
should be abandoned.

Do you agree with that, Mr. Schatz?

Mr. Scuatz. I’m not sure I agree. I think that in many cases the
standards have become quite politicized as opposed to being some-
thing that is really examined on a truly bipartisan basis. It seems
each year we come up with different standards. There was Goals
2000. Before that, there was President Bush’s goals.

If we could find a way to come up with something that was done
by an independent group where everybody did agree and everybody
would agree that it wasn’t because they were all Republicans or
Democrats or vice-versa, then I think there should be a role.

Mrs. Moret. To make sure that children start school at a cer-
tain point, must go through certain——

Mr. SCHATZ. At that level, certainly. But I think if you are talk-
ing about establishing curriculums for the entire country, I’m not
sure that is going to work.

Mrs. MorELLA. We are talking specifically basic standards that
all children are educated, mandatorily educated, and that they will
reach a certain level when they graduate. My point is that you are
going to find that some States are going to fall through the cracks
unless they get this kind of impetus from the Federal Government,
and T think that we need to be doing that kind of thing. You would
agree?

Mr. ScuHatz. As I said, at a certain level, a basic level, I think
that is true, but I think if you go too far with that, then you run
into the kinds of program problems we have.

Mrs. MorELLA. Was that done under HEW? Remember when we
had HEW?

Mr. Scuatz. I honestly don’t recall.

Mr. Gross. Yes, it was the Office of Education, 1977.

Mrs. MorELLA. Is that the kind of thing you envision occurring?

Mr. ScHatTz. I think it would be far more effective if you had less
bureaucracy and more funds back to the States.

Mr. Gross. But you face a grave danger in having the Federal
intervention because you noticed we just spent $2 million for the
Department of Education on a high school history curriculum and
the history curriculum was so bad that 99 Senators voted against
it just 2 weeks ago.

And the Federal Government—it isn’t politics. Politics has no
place in education. I think we should close the Department of Edu-
cation, eliminate all Federal contact with the citizens and their
communities, and start an enormous campaign to have each State
raise their educational standards. But the Federal Government is
poison for education because politics should not be part of the
school system.

Mrs. MoRELLA. Well, when you think of science and math stand-
ards that directly relate to our——

Mr. Gross. Yes, but you can’t restrict it to math and science. It
is going over to social studies and history. You are going to have,


54

Mr. DouGLas KENNEDY. The investigators in New York, they just
recently started an office of —

Mr. Says. Let me get to the question because I’m going to have
a number of questions, so the question is, though, you basically
broke the law. I’m just curious, did you think about what could
happen if someone said, hey, you are a Kennedy or you work for
the newspaper, and report you to the police?

Mr. DouGLas KENNEDY. Well, I wasn’t dressed as I am now, ob-
viously.

Mr. SHAYS. That’s important to know.

Mr. DouGLas KENNEDY. No. My hair was much longer and I had
a beard and I, you know—I——

Mr. SHays. So you didn’t go in with a suit.

Mr. DoucLas KENNEDY. No, I did not go in with a suit. The in-
vestigators know that thousands of people do this probably every
day. Nobody had ever been arrested for a card renting. There have
been three people that have been arrested for drug diversion in
New York. They served 30 days.

Mr. Suays. So when the story came out, did government officials
come and want to get your information? Did anybody want to fol-
low up on what you made public?

Mr. Doucias KENNEDY. The day after my story came out in Al-
bany, they passed similar laws to the ones I was——

Mr. Suays. The day after.

Mr. DouGLas KENNEDY. The day after, they were in session.

Mr. SHays. So it is a State offense to sell prescriptions. It is a
felony. It is a State offense to do what else?

Mr. DoucLas KENNEDY. Sell Medicaid supplies, it is a felony
now. To rent a card now is a crime. And they voted to put photos
on the ID’s, which Governor Pataki said they would do by the end
of year.

Mr. SHays. The 15 Medicaid mills that you went to, I think it
was——

Mr. DouGLas KENNEDY. Yes.

Mr. SHays [continuing]. Have they all been shut down?

Mr. DoucLas KENNEDY. No, they have not.

Mr. SHays. Have any of them been shut down?

Mr. DouGcLas KENNEDY. You know, I have a videotape of much
of what I did. I have a videotape of the doctors.

Mr. Suays. Let me just be clear on this. When you went through
and were able to get the prescriptions and the other paraphernalia,
you went back later and confronted them?

Mr. DouGLas KENNEDY. No, no. I actually took an undercover
video in with me to the doctors’. I had an undercover video when
I went into the store and I have them on tape pointing to this drug
list saying, I'll take this, I’ll take that. I’ve been handing out this
list in this particular soup kitchen. The investigators can’t do any-
thing with it. They have not broken any laws in New York.

Mr. SHays. You mean, your testimony before this committee is
that basically it is not illegal, that doesn’t jibe with me.

Mr. DouGLas KENNEDY. It is a misdemeanor to sell Medicaid
supplies, but the investigators don’t want to spend money on mis-
demeanors.


63

Mr. Suays. It does.

Mr. WALTERS. What you have to do is compare those people who
are very highly motivated, where they came from, and if you do
that, that’s a fair comparison because then you will be compar-
ing——

Mr. SHays. Motivation to motivation. I buy that argument. Get
me through the next one. They are more motivated.

Mr. WaLTERs. That’s right.

Mr. Suays. Does our present system instill motivation or discour-
age motivation?

Mr. WALTERS. I think when you say our system, you have to talk
about the entire system. My problem is that what we have done
is we have looked to programs like welfare and JTPA and some of
these programs to alleviate poverty. What we really ought to be
doing is looking at the economic system because it is the job of the
economic system to alleviate poverty and yet we place all of that
burden on these programs.

And I think that we ought to turn this around a little bit and
we ought to begin to ask ourselves, well, if a person can’t get a job,
what is it about the private market for jobs that discourages people
from doing that. And when you begin to look at that, you will find
several things—at least in the minority community. One thing you
will find is racial discrimination.

Mr. Says. True.

Mr. WALTERS. One thing you will find is poor schooling, the lack
of skills. There is a skill gap. Another thing you will find is igno-
rance of information about jobs and their availability. There are a
number of things that you will find. It’s not just a question of these
programs. You have to look at the entire system.

Mr. Says, If the gentleman would tolerate me.

Mr. Towns. Sure, I would be glad to.

Mr. Suays. I rebel when I hear a public official say, or an indi-
vidual, this is a dead-end job. I don’t use the word “hate” much,
but I come close to hating that mentality. And the reason is, if I
had said to my dad, “dad, I don’t want to do this, it’s a dead end
job,” my dad would say, “son, how many hours are you working, 10

ours? Well it just increased to 15.” Because he knows that in that
job, I learned to get up in the morning.

I learned that at McDonald’s, everybody criticizes McDonald’s. It
has got one of the best training programs around. It teaches people
how to be of service and how to contribute. Also, if you are moti-
vated, it will teach you how to go up the ladder. So maybe the con-
nection you would make is that it is not connected to welfare.
Maybe, but I am hearing from many proponents in the commu-
nities where I see welfare constantly talk to me about dead-end
jobs.

Mr. WALTERS. That is right.

Mr. Suays. And I think that is a very destructive way to think.

Mr. WALTERS, Mr. Chairman, I think what you have to do is put
yourself in the shoes—and maybe it is impossible for you to do—
of a welfare recipient. Someone who in the 1930's, for example, had
a family, as a matter of fact, whose entire community was 90 per-
cent of the labor force, that was labor force participation in the
black community, then.




43

still the problem with these people is there are no laws governing
the resale of Medicaid drugs.

One of the investigators said, what are we going to do, arrest a
euy for having a trunk full of ulcer medicine? But they are ripping
off the system for millions of dollars and, you know, it is very sim-
ple solutions to this particular issue that I’m talking about.

Putting photos on the cards is the most obvious one. Making the
resale of Medicaid drugs or Medicaid supplies a felony. This would
cover not only this $300 million scam that, I uncovered, but also,
you know, the scams that Mr. Gross was talking about where doc-
tors overbill, or the one you are probably familiar with, with the
Russian mafia Paying for the Medicaid card numbers and then
charging millions of dollars in Medicaid medical equipment. You
know, those are very simple solutions to this problem.

You know, putting—in New York, it is incredibly, they replace
these lost or stolen cards with the same number so you can go
back, you can rent your card out and then have somebody else—
and then, you know—and get the card with the exact same number
so you have two or three people using the same card, the same
number at once.

It’s just obvious potential for abuse, obvious potential for fraud
and, you know, very simple solutions to it. So that’s—that was ba-
sicall my experience and I really appreciate being here to be able
to tell it.

Thank you.

(The prepared statement of Mr. Kennedy follows:]

PREPARED STATEMENT OF DOUGLAS KENNEDY, JOURNALIST, THE NEW YORK Post

Mr. Chairman, members of the committee, I am honored to have been asked to
testify today,

Earlier this year I spent two months as an undercover reporter in the world of
Medicaid frau

I found a system in complete disarray. With few if any safeguards against fraud
and abuse, the program has all but invited unethical doctors, pharmacists and even
drug addicts to pilfer its funds.

I, for instance, participated in a widely practiced scam called “card renting,”
where I easily rented two Medicaid cards and used them to obtain thousands of dol-
lars in unneeded tests, exams and services. All at taxpayer expense.

After 30 years in existence, Medicaid has failed to require ID photos or any other
basic descriptive information on its cards, allowing thousands of unscrupulous re-
cipients to barter their cards for quick cash or drugs.

‘One of the cards I used was initially issued to a 42-year-old Hispanic man named
Jose. I, being white and only 27 years old, obviously fook nothing like the intended
Medicaid recipient.

Still, I spent weeks visiting more than a dozen health care clinics in Manhattan
gnd Brooklyn. I saw at least two dozen doctors and visited as many pharmacis.
Nobody ever questioned my age, race, or the authenticity of either of the cards.

T also discovered a growing and organized black market, where merchants buy
Medicaid drugs from recipients and, with little or no fear of prosecution, resell the
drugs for profit.

"The name of the fame fs drug diversion, and fraud experts say it costs New York
State alone up to $150 million a year.
jicliher severnment officals have put the tally between $300 million and $600 mil-
ion.

This booming business has spawned a scam street people refer to as “playing the
doctors,” in which card holders concoct fake ailments to obtain prescriptions for ex-
pensive drugs such as Prozac, Zantac, and Seldene.

Selling these so-called “glamour drugs” at a fraction of their real costs to the black
marketeers, the card holders can make up to $300 a day, according to New York
investigators.


41

vealed that young males enrolled in JTPA programs had significantly lower earn-
ings than a control group who did not participate in JTPA; the report bluntly con-
cluded that federal training “actually reduced the earnings of male out-of-school
ths.” Employment and Training Reporter newsletter reported in 1993 that Jon
eintraub, the staff director of the House Education and Labor Subcommittee on
Labor-Management Relations, asked the Labor Department “to isolate positive les-
sons that can be gleaned from the report . . . but that the department has not yet
lone 80.

Money-laundering tax dollars through the Treasury and into camouflaged welfare
checks for teenagers will not make the nation rich. In the long run, every make-
work program destroys more jobs than it creates, because it squanders the capital
that is necessary to support all jobs. If the sale of basketball shoes was the safe
determinant of the nation’s economic destiny, it might make sense to stimulate the
economy by giving paychecks to teenagers to play basketball.

CONCLUSION

For both housing subsidies and job training
romised again and again to fix
nue without end. The lesson is that the only way to fix such programs is to abolish
them, There are some things that government has competence for, and many things
for which government is totally incompetent. Unfortunately, housing subsidies and
job training are two of those areas.
Reform is the opiate of the welfare state. Neither housing nor job training pro-
ams will never be much better run than they are today. It is not 2 question of
fine-tuning but of conceding that the inherent limits of government competence have
long since been surpassed by today’s federal government.

Mr. SHays. Mr. Kennedy, we welcome your testimony and we
will note for the record that we have been joined by our distin-
guished colleague, Joe Kennedy, You want to introduce your broth-
er or just want to hear him talk?

Mr. KENNEDY of Massachusetts. I don’t know if he would like me
to introduce him,

Mr. DouGLas KENNEDY. Were you supposed to be up there, Joe?

Mr. Suays. I will leave it up to you, Doug. Would you like your
brother to introduce you?

Mr. DouGLas KENNEDY. I would like him to sit back there.

Mr. Suays. We are going to allow him to ask questions afterward
and, for the record, he can be a pretty tough questioner.

Mr. DoucLas KENNEDY. I am so honored to be here. My name
is Douglas Kennedy and I am an investigative reporter for The
New York Post and thank you so much for asking me, Chairman
Shays, to testify here.

It has been really enlightening to listen to the people that have
spoken so far and you know basically talking about sort of broader
forms of abuse. My experience, which I will discuss in a few min-
utes, is much more focused on specific—specific fraud and specific
abuse that is happening.

About 8 months ago, I had heard that on the streets of New
York, that some Medicaid recipients, unscrupulous Medicaid recipi-
ents were renting out their cards and that it created sort of a cul-
ture of Tipping off Medicaid for drugs and so on and so forth.

I wind up, ]—last month, I was arguing with one of these card
renters on the streets of the Upper West Side of Manhattan and
he was trying to rent me a card that was for a 42-year-old Hispanic
man named Jose. Obviously, I look nothing like that. He said, you
know, you will have no problem. I ended up using that card for a
person that was born in 1952—1955 at over 15 clinics in New York.
Never was I turned away. I always left the clinics with three or
four prescriptions. I obtained a number of goods and services. I got

ams, government officials have
ams problems. Yet. the boondoggles con-


66

So that if you didn’t have the Department of Commerce, the
question is, how would we keep up with the Europe that is consoli-
dating its economic strength in Europe since 1992. With the
Asians, and I was in Taiwan 2 years ago, that’s the fastest growing
market in the world. How can we compete if we are not led by a
Federal Government which is able to consolidate our resources.

So some these things don’t make such sense to me and I would
love to be educated as to how it is you are going to make America
better to make us more competitive economically in the future.

Mr. Towns. I am happy to hear you say that, sir, 1 must admit
that I share your concerns. The other thing that I noticed that you
mentioned in your testimony, you said, haste sometimes makes
waste. In other words, to move to do these things very quickly, you
know, we might be creating an additional problem for ourselves or
we might be involving some fraud and abuse by doing it so quickly.
You mentioned that in your testimony.

Could you sort of further elaborate on that?

Mr. WALTERS. Yes, I did, Mr. Chairman. I mentioned that I cited
an article in the New York Times, April 20, page A-19, about
blacks being prone to dismissal by the U.S. Government. This was
an article which said that in the downsizing, that it looked as
though African-Americans were being downsized disproportion-
ately. I was also visited a couple of weeks ago by a group from Wal-
ter Reed Hospital who were also, and this was the fiscal meeting
with the group sitting on that side of the table, they were rep-
resentatives of an organization called Blacks in Government.

They told me that the local—the regional NAACP has so many
complaints of discrimination now all of a sudden that they can’t
process them. They can’t handle them and these are coming out of
a lot of these agencies that are now downsizing. So these are some
things that I think indicate that in this atmosphere of downsizing
government, that the human rights of some people may be violated.

Mr. Towns. Thank you very much for your testimony. I think
you have been extremely helpful.

So, Mr. Chairman, I yield back.

Mr. Suays. I thank the gentleman.

Doctor, it has been a pleasure to have your thoughtful testimony
and I thank you very much for coming before the committee.

Mr. WALTERS. My pleasure, Mr. Chairman.

Mr. Suavys. I know you were the witness recommendation of Mr.
Towns and I’m happy he made that recommendation.

Before we conclude, Mr. Gross, I’m happy to have you come and
set the record straight on one issue as it related to Medicaid. And
so you are welcome to come back here.

T have to be at another meeting, as does Mr. Towns, but also for
the record, it fits into the whole issue of really what studies you
were making reference to. I’m going to make two points. One is, I’m
going to make the point that your written testimony on Medicaid
was not that we should scrap it and I didn’t hear you say that.

Mr. Gross. Absolutely.

Mr. Suays. On that issue, I think you have some reason to be
concerned. But on the other issue of the documenting the studies,
I have the chapter that you made reference to and it doesn’t foot-
note any studies, it doesn’t say what those studies are. The only


11

For example, welfare. Now, the newspapers, the uninformed
Washington Post and New York Times write regularly about the
welfare cost of America being $28 billion, singling out the AFDC
as the program. The AFDC is the entry point for most people on
welfare to 81 Programs which have been cataloged by the Congres-
sional Research Service and read by three people: Ms. Vee Burke
who wrote it, her typist, and myself. It is a qocument of 200 pages,
a catalog of every welfare program in America. Her last report—
she does it every 2 years—was September 1993 for fiscal 1992. Her
total was $290 billion for welfare, not the $28 billion mentioned by
the New York Times.

There were 81 programs in six different cabinet agencies. Ms.
Burke pointed out that it was impossible for anyone, including the
President, to know who was on welfare and how much we were
spending. Each of the 81 programs had their own computer and
there is no computer that correlates it. People could be receiving
$80 or $90 or $100,000 a year in benefits and no one would know.

The welfare program is a-disaster, of course. Not only is it a dis-
aster financially at $300—by the way, today it is $384 billion using
Ms. Burke’s estimates of its growth. It is also disaster morally, fis-
cally, and it is a travesty of intelligence. Why? My father was a
manager of a laundry in the Bronx earning a very good living when
the laundry closed because of the depression. He walked the streets
for 10 hours a day. He was a worker type, but because he couldn’t
get a job, he went on home relief. Home relief was similar to the
AFDC but it had nothing to do with single parenthood. It was just
given to families. It was approximatel $15 a week, which meant
we could barely live, pay the rent and eat mostly potatoes during
that period. My father was disgusted, because he couldn’t find a

job.

Franklin Roosevelt sensed the despair of the Nation and closed
the home relief for able-bodied people and substituted the WPA, a
magnificent operation which saved America during. the depression.
By the close of the depression, there were 5.5 million men, mostly
men, women weren’t expected to work at the time, 5.5 million men
equal to 12 million men in today’s society.

My father got a pick and ax and worked on the streets in the
Bronx, for which he got $21 a week. At that time, the typical pri-
vate job paid $35 a week. Then the laundry business came back
and he went to work in it. But he never lost hope, maintained the
work ethic and kept the family alive.

My suggestion, which has nothing to do with fraud and abuse,
although it is part of it, but it has to do with giant waste, is that—
my recommendation is that of the 81 programs that Ms. Burke has
outlined in the six agencies, that 80 be closed immediately. Only
one program be maintained for the blind and disabled in America.
We should close the 81 programs, AFDC, housing, Pell grants, ev-
erything, and substitute a living wage on WPA which will change
the inner city overnight. There will be no advantage in having a
child out of wedlock because you won’t get any money for it. You
won't get any money for additional children. You only get money
for working.

Are there jobs? Well, my God, the inner cities can be totally re-
built as can the rural areas by the WPA, which solved the Dust


53

Mr. SHays. You've got to listen to my question.

Mr. Bovarp. Yes, I’m listening.

Mr. SHays. One option is a government-owned facility, whether
it is State or Federal, large or small, preferably small. That is one
way. The other way is private sector ownership with the govern-
ment providing some kind of assistance to enable a poor person to
live in that housing. Those are the two options that I see. I dis-
count the first as I would like to move away from that and go to
the second, but you are really trashing the second so I need to
know what the third option is.

Mr. BovarD. Weli, the third option is to get rid of housing pro-

grams.

Mr. SHays. Once we have done that, then the people who are liv-
ing in the public housing or in the Section 8 housing, where would
they live?

Mr. Bovarp. Well, the public housing, it would be easy to try to
model a solution after what they have done in England and give
the title to the property to the residents. There may need to be
some kind of transitional aid, but instead of giving housing sub-
sidies, per se, they would be far better, something I would not be
in favor of but it would be far less damage to go give some kind
of general income supplement as opposed to housing, because since
we have got the Section 8 program now.

HUD has put on layer after layer after layer of rules that pre-
vent private landlords from throwing out tenants who become trou-
blemakers, hooligans, drug dealers who do violence.

Mr. Says. My trouble with your comments are that I need to
know—as bad as I think and abusive as I think some Section 8
housing has become—what replaces it. And your testimony will
carry a little more weight with me when I know what replaces it.
And it may be just something we can talk about afterwards be-
cause you have given a lot of thought to it. You have pointed out
the abuses and I’m wrestling with this. What is the solution to it?

Mr. Bovarp. Well, I think it is important to realize, it is prob-
ably very unpopular to realize on Capitol Hill, but many times
nothing is better than a bad program. It is better to have nothing
than 3 program that drags down neighborhoods and helps ruin peo-
ple’s lives.

Mr. SHays. If you went to Bridgeport, CT now, you would find
that we have made major reforms in public housing. We have
taken down the 1,213-unit facilities, we have done scattered site,
and people are living in decent housing. The impact public housing
is in better condition than some of housing that is next to it. We
have actually upgraded housing with public housing in small doses,
so I would like to talk to you a bit more about it and get your reac-
tion to it.

Mr. Kennedy, I am intrigued by a number of things. One is you
have a clean face. You have a youthful manner about you. When
you went to these clinics and doctors’ offices, if you had been
caught, would you have been arrested? Did you take the chance of
being caught?

Mr. DouGLas KENNEDY. That’s a good question. It’s a great ques-
tion.

Mr. SHays. You basically broke the law.


59

2, Cumulatively, 34 bills have been passed containing NPR recommendations in
the last two years. It has created $63 billion in savings, while eliminating 150,000
employees.

Goal: 252,000 by 1999

Target: over-control and micro-management
However, “waste” of another sort is also occurring in that because of the haste with
which government is being downsized, there is evidence that in some agencies, civil
rights are being eroded. The result is that often, minorities, especially blacks are
being “downsized” at a far greater rate than other ethnic or racial groups.” Blacks
Prone to dismissal By U.S.,” New York Times, April 20, 195, p. A19)

3. In general in the Human Resource management field: “The Administration is
preparing a human resource management (HRM) reform legislative proposal la
drawn from the recommendations in NPR and National Partnership Council (
reports and from comments by the various stakeholders regarding the NPC report.
The legislation will directly contribute to reinventing government by making
changes in HRM law that give agencies the authority they need to achieve improve-
ments in their HRM systems.” (“Creating a Government That works Better and
Costs Less:” Report of the National Performance Review, Vice President Al Gore,
September 1994, p. 112.)

B. Specific Achievements

1. GSA—Purchase Cards for procurement—saving $250 m per year.

2. Education—Direct student Loans—saving $4.3 b in 5 yrs.

3. HUD—Reduce Section 8 vouchers and Certificates; and reduce Contract Rent
Payments; Reduce operating subsidies for vacant housing units.

4, Labor—Tougher penalties in Federal employees disability compensation pro-
gram. Creation of “one-stop” career management center for labor employment and
training; (requires program consolidation)

5. HHS—pending legislation would give SSA the authority to use federal debt col-
lection tools; provide for competitive contracting for Health Care Financing Adminis-
tration Contracting Authority;

‘These and a host of other measures, some sweeping in scope, will no doubt result
in better management in Federal financial and other resources such that waste,
fraud and abuse will be prohibited to a substantial degree in the management of
Federal programs.

2. SOME FRAUD AND ABUSE CREATED BY POVERTY

Some analysts, while attempting to increase the efficiency of programs rec-
ommend severe reductions in their budgets or wholesale elimination of programs al-
together. In they deny that. poverty of resources is implicated in the proper function-
ing of some government programs. Nevertheless, one of the major reasons why fraud
is so difficult to combat is that some programs do not have enough resources for
proper administrations. With respect to the clients, in various programs they are
the poor and their need creates a demand which often leads them to resort to either
legal or illegal means to obtain satisfaction of their human condition. Even the rac-
ist and sexist stereotype of the “Welfare Queen” omits the fact that she was a
woman who started out on welfare and was creative enough to gain what one might
call “upward mobility” within the system. But it should not be forgotten that she
was essentially a product of poverty. Those who profit from the deprivation of oth-
ers, however, have only the motivation of greed, criminal personality and other
flaws in their character. Thus, fraud and abuse of programs must be conceived in
the wider environment of the growth of poverty.

A. Poverty Growth

“Personal Responsibility” and the Behavior of the economy?

Because poverty is at the root cause of much abuse of program designed to cure
it. And so the growth of such programs is not generally a function of waste, fraud
and abuse, but the growth of poverty and the lagging performance of the economy.
Here, some of the following factors are relevant:

1. Decline: Percentage of all Americans in poverty declined from 23 to 11 percent
between 1959 and 1973—the same period as the expansion of government programs

2 Elderly: most pronounced among the elderly
. 1965—29% in poverty;
b, 1992139 in poverty.


13

Social Security. They had no way to live except by the charity of
the town or their children, if their children could afford to support
them. Social Security has been an enormous success up to this
point, but will become the first giant disaster of the 21st century.

Why? Well, there are two reasons. First, the money is not in-
vested. Now, I hear arguments by people in politics that the money
is invested. It’s a failure of mathematical philosophy. You cannot
spend the surplus of Social Security as we are doing now—$58 bil-
lion last year, $65 billion next year, going up to a $75 billion sur-
plus—which all goes into the general find

The money comes in Monday, goes into the general fund Tues-
day, and it’s spent on Wednesday. It’s not invested at all. It is
given a fake certificate of indebtedness. In my book on taxes, I

ave a list of all the bonds that they've given to the Social Security
fund. How do you redeem the bonds? You have to go out and bor-
row money which increases the national debt. Then the citizen who
has been payin the FICA taxes has to pay the interest on the
money that the Government is borrowing.

Mr. Suays. If I just ask you 2 minutes to close.

Mr. Gross. Surely.

Now, Social Security can be saved in a very simple way. As a
matter of fact, I think Mr. Simpson and Mr. Kerry proposed part
of it just yesterday. That is gradual privatization of the ,
meaning that you take the surplus beginning now, with $65 billion.
You give that portion back to the FICA recipients to invest pri-
vately, on a compulsory basis, in their own fund such as an IRA
or a Keogh. Then that we start to relieve the system because the
money gets truly invested.

And as a quick example, Chile does this with their entire fund
and for the last 10 years has had a 14 percent a year gain. We
have had a 16 percent per year loss because of the money stolen
by the Federal Government for the general fund. Our Social Secu-
rity plan is going bankrupt and Chile’s is getting rich. Thirty years
from now when you go on a cruise ship to Bermuda, they'll all be
Chilean old people and very few Americans.

Now, Medicare includes enormous fraud. As a senior citizen, I
can give ro some personal examples if pressed. The Medicare tax
rises each year. Now at the $61,000 level and then the law was
passed sending it up to $130,000 income level. Now it is unlimited,
yet we understand that the fund is going to go broke in 7 years.

Some of the fraud and waste includes medical equipment which
are marketed to the elderly who often don’t need it. Medical labs
earn twice as much profit from the Medicare fund as they do from
private funds. The teaching hospitals take $2.5 billion a year out
of the Medicare fund. I didn’t know that the aged fund was there
to support medical education.

MRI and CAT machines proliferate. We have more in the United
States than the whole world put together. They are subsidized by
the government, often owned by the doctors. We pay about $500
per scan. People get rich on it. We have too many. The Federal
Government, through Medicaid and Medicare, pays 40 percent of
the hospital bill in America. It subsidizes the expansion of hos-
pitals to the point where we have 35 percent empty beds while Ger-
many has 12 percent because they haven’t had this foolishness.


CONTENTS

Hearing held on May 23, 1995
Statement of:
Bovard, James, journalist and author; and Douglas Kennedy, journalist,
the New York
Schatz, Thomas, president, Citizens “Against Government Waste; and
Martin Gross, author ..
Walters, Ronald, chairman, Political Science Department, Howard Uni-
versity .. 7
Letters, statements, etc., submitted for the record b;
Bovard, James, journalist and author, prepared statement of .
Gross, Martin, ‘author, prepared statement of
Kennedy, Douglas, journalist, the New York Post, prepared statement

° a

Schatz, ‘Thomas, president, Citizens Against Government Waste, pre-
pared statement of

Walters, Ronald, chairman, Political Science Department, Howard Un
versity, prepared statement of .

am)

35

55

38
14

43

58


34

Mr. Towns. You have to understand, first of all, that you are
leaving out a whole lot of other factors that you should take into
consideration.

Mr. Gross. Which are?

Mr. Towns. The people come from limited backgrounds, having
no support system of any kind.

Mr. Gross. Right.

Mr. Towns. Not a lot of information ——

Mr. Gross, That’s what I said.

Mr. Towns [continuing]. As well as—my point is that——

Mr. Gross. Survival.

Mr. Towns. They were not having the babies for additional re-
sources.

Mr. Gross. Not additional. Only resources. The only resource.

Mr. Towns. The point is—the point is that that money has to go
for survival of that person.

Mr. Gross. Can I ask, sir——

Mr. Towns. And it is her baby.

Mr. Gross. Can I ask you, sir, about statistics?

Mr. Towns. No, I——

Mr. Gross. Excuse me. The white community had only 2 percent
illegitimacy when I was growing up. It now has as we talk 20 per-
cent out-of-wedlock births. Why? Because the white woman in Ken-
tucky or elsewhere knows that she doesn’t have to go and chase her
husband, that she can set up a household tomorrow by having a
child out of wedlock. No intelligent government is going to provide
that.

Mr. Towns. Let me just say this to you——

Mr. Suays. I would like to—

Mr. Towns [continuing]. Then I am going to leave you alone. You
are here to provide evidence, Mr. Gross.

Mr. Gross. Right.

Mr. Towns. Not conjecture and generalities and maybes. That is
not what you are here for. You have not given anything to back up
your statements and they are very wild. I want you to know that,
I assume you forgot and left your book home. So I hope you find
your book.

Thank you, Mr. Chairman I yield back.

Mr. Gross. You are talking about two studies.

Mr. Towns. I yield back, Mr. Chairman.

Mr. Gross. You are talking about two studies. If you have a copy
of my book, I will just read the two studies to you.

Mr. SHays. What we are doing is we are faxing the chapter to
our office and then we will insert that in for the record.

(The information referred to can be found in subcommittee files.}

Mr. Suays. And I thank both panelists and invite now our——

Mr. Gross. And if I was a little inflammatory, I don’t apologize.

Mr. Towns. I just think you made a lot of hasty generalizations.

Mr. SHays. Our next panel is James Bovard and Douglas Ken-
nedy, and I invite you both to come to the witness table and raise
your right hands.

(Witnesses sworn.]


22

College of New York. Public schools did a magnificent job in assimi-
lating Americans. It is now doing a very poor job in the same area.

The black community, for example, are old Americans who have
been here a lot longer than most white Americans and yet they had
the unfortunate situation of coming to the inner cities, in the north
particularly, at a time when public education was becoming poor in
quality and discipline and performance was low.

When I went to school in the Bronx, we had perhaps 15 percent
Afro-American children and they did fine during the 1940’s and
1930’s. This was when discipline was strong and the curriculum
was strong. I am going to be very pessimistic about the public edu-
cation system in America today, which works very well for middle-
class people whose parents are pounding on them to do their home
work and despite the schools’ permissiveness, the parents are not
permissive.

The Catholic schools, and I have some contact with the Catholic
schools in Connecticut——

Mr. Suays. I’m going to really-——

Mr. Gross, I am as——

Mr. SHays. Let me just explain, we are going to go through a sec-
ond cycle.

Mr. Towns, I am going to let him go beyond that. If you could
make your points a little more precise.

Mr. Towns. Thank you, Mr. Chairman.

Mr. Gross. The Catholic schools have done a better job than the
public schools and the question of the inner cities who start to pay
more attention to the parochial schools, Catholic, Lutheran, Jew-
ish, et cetera, and less attention to the public schools because I
don’t think that within your lifetime or mine, the public schools are
going to be redeemed in America.

Mr. Towns. You see, I have some real problems with that. I
think the best schools in the United States of America should be
the public schools.

Mr. Gross. Should be, of course. I agree with you.

Mr. Towns. I think that’s the way we should be moving.

Mr. Gross, But we are not going to get there.

Mr. Towns. Let me just move my time back, take my time back.

Mr. Gross, you testified, for example, that the AFDC program
has been the major stimulus for out-of-wedlock birth.

Mr. Gross. Right.

Mr. Towns. Crime, drug addiction, and dependency.

Mr. Gross. Right.

Mr. Towns. That is a pretty dramatic assertion.

Mr. Gross. Right.

Mr. Towns. I am not aware of any study that produced that as-
tounding finding. Could you give—under oath as you are, could you
give me some supporting claims?

Mr. Gross. Right. In my book, “The Call for Revolution,” I have
a chapter called “Welfare Savery.” And I cite two or three studies,
mentioning the names of these studies and the universities that
did the studies, that indicates that the children of AFDC single
mothers, when compared with people of the same race, same socio-
economic, and same ethnic background, have twice to three times
as much divorce when they grow up, illegitimacy when they grow


COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT
WILLIAM F. CLINGER, JR., Pennsylvania, Chairman

BENJAMIN A. GILMAN, New York CARDISS COLLINS, Mlinoia
DAN BURTON, Indiana HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut ROBERT E. WISE, JR. West Virginia
STEVEN SCHIFF, New Mexico MAJOR R. OWENS, New York
ILEANA ROS-LEHTINEN, Florida EDOLPHUS TOWNS, New York
WILLIAM H. ZELIFF, JR, New Hampshire JOHN M. SPRATT, JR., South Carolina
JOHN M. McHUGH, New York LOUISE McINTOSH SLAUGHTER, New
STEPHEN HORN, California York
JOHN L. MICA, Florida PAUL E. KANJORSKI, Pennsylvania
PETER BLUTE, Massachusetts GARY A. CONDIT, California
THOMAS M. DAVIS, Virginia COLLIN C. PETERSON, Minnesota
DAVID M. MCINTOSH, Indiana KAREN L. THURMAN, Florida
JON D. FOX, Pennsylvania CAROLYN B. MALONEY, New York
RANDY TATE, Washington THOMAS M. BARRETT, Wisconsin
DICK CHRYSLER, Michigan GENE TAYLOR, Mississippi
GIL GUTKNECHT, Minnesota BARBARA-ROSE COLLINS, Michigan
MARK E. SOUDER, Indiana ELEANOR HOLMES NORTON, District of
WILLIAM J. MARTINI, New Jersey Columbia
JOE SCARBOROUGH, Florida JAMES P. MORAN, Virginia
JOHN B. SHADEGG, Arizona GENE GREEN, Texas
MICHAEL PATRICK FLANAGAN, Illinois CARRIE P. MEEK, Florida
CHARLES F. BASS, New Hampshire FRANK MASCARA, Pennsylvania
STEVEN C. LATOURETTE, Ohio CHAKA FATTAH, Pennsylvania
MARSHALL “MARK” SANFORD, South

Carolina BERNARD SANDERS, Vermont
ROBERT L. EHRLICH, JR. Maryland (Independent)

JAMES L. CLARKE, Staff Director
KEVIN SABO, General Counsel
JUDITH McCoy, Chief Clerk

Bub MYERS, Minority Staff Director

SUBCOMMITTEE ON HUMAN RESOURCES AND INTERGOVERNMENTAL RELATIONS
CHRISTOPHER SHAYS, Connecticut, Chairman

MARK E. SHOUDER, Indiana EDOLPHUS TOWNS, New York
STEVEN SCHIFF, New Mexico TOM LANTOS, California
CONSTANCE A. MORELLA, Maryland BERNARD SANDERS, Vermont (Ind.)
THOMAS M. DAVIS, Virginia THOMAS M. BARRETT, Wisconsin
DICK CHRYSLER, Michigan GENE GREEN, Texas
WILLIAM J. MARTINI, New Jersey CHAKA FATTAH, Pennsylvania
JOE SCARBOROUGH, Florida HENRY A. WAXMAN, California
MARSHALL “MARK” SANFORD, South

Carolina

Ex OFFicio

WILLIAM F. CLINGER, JR., Pennsylvania = CARDISS COLLINS, Ilinois
LAWRENCE J. HALLORAN, Stoff Director
Robert NEWMAN, Professional Staff Member
THOMAS M. Costa, Clerk
CHERYL PHELPS, Minority Professional Staff

ap


46

Archie then told me about the store.

“They gave me $40 for my Zantac yesterday,” he said.

“Yeah,” said Wayne, a Colombian immigrant who said he just recently received
his second Medicaid card. “They gave me $30 for my Prozac.”

The merchants inside the store had distributed a list, in soup kitchens and Medic-
aid clinics around the city, of more then 80 Medicaid drugs they were willing to buy,
and what they would pay for them.

Archie showed the list to me.

‘The prices included:

$5 for a 10-mg bottle of the allergy medicine Claratin, $10 for the antibiotic Cipro,
and $12 for Prozac, all just one-tenth of their actual cost.

Archie and Wayne later brought me to the video store/black market drug store
at 327 Nostrand Ave., less than three blocks from the clinic.

We walked past racks of videos to the rear of the store, where three men stood
behind a glass partition.

T handed one of them a $30 asthma pump I had bought on my Medicaid card.
He gave me $5.

After the transaction, one of the employees directed me to another location, on
Essex Street in Manhattan.

Unlike the video store, the Essex Street “grocery store” was completely bare, with
not even a pretension of being a legitimate place of business.

I ended up visiting the location three different times, selling hundreds of dollars
of my Medicaid drugs:

On my final visit | brought in a video camera hidden in a gym bag.

‘The tape captures the merchants taking the drugs and handing over money.

One of the black marketeers explains he will “take any drug on the list,” as long
as the bottle’s expiration date has not been reached.

He even admits to distributing the lists at a, particular soup kitchen in Brooklyn.

“Tell your friends to come in,” he told me. “We are open every day but Sunday,
10 to 6. Tell your friends.”

But even with a videotaped transaction it is difficult to prosecute drug diverters.

In New York State for instance, prosecutors say the laws are so lax that only
three people have ever served jail time for the crime.

Federal laws are a bit stronger but they are rarely enforced.

Prosecutors say crack dealers and old-time drug felons are now attracted to Med-
icaid drug diversion to avoid tougher narcotics laws.

Despite the growth of the drug diversion scam Medicaid has done little to discour-
age it. Although there have been some busts on the federal level, the program
doesn’t even have routine safeguards in place to stem the tide of fraud.

For example:

« Lost and stolen cards are often replaced with cards carrying the same account
number, thus enabling unscrupulous recipients to rent their cards.

Medicaid patients sometimes are not asked to show their cards at clinics they've
ited previously, allowing Medicaid scammers to rent a card for one day and con-
tinue receiving services ong afterward.

© There’s no centralized information center to alert clinics when a patient is
“burning the card,” or when his reported symptoms are inconsistent with his medi-
cal history.

The most obvious way to stem card renting, drug diversion and the playing-the-

rs scam is to put photos on the Medicaid cards.

Investigators agree it would be much more difficult for a clinic to accept a card
with another person’s picture on it.

Other possible solutions include:

Making the resale of Medicaid supplies a felony.

Some investigators have given up pursuing drug diverters because the laws are
“too weak.” Tougher laws and tougher enforcement would obviously do a great deal
to discourage drug diverters.

« Limiting the number of clinic visits a patient can make in a short period of
time.

* Putting different account numbers on replacement cards,

« Forcing states to adopt Medicaid clearinghouses where doctors can check pa-
tient histories.

‘© Holding doctors responsible when they knowingly write bogus prescriptions.

« Implementing felony statutes for doctors who receive kickbacks for ordering un-
necessary tests and writing unnecessary prescriptions.

« Increasing financing for Medicaid fraud control.

Currently, New York has the largest Medicaid fraud office in the country, and
prosecutors there say forgo many cases because of lack of funds.



30

Mr. Gross. And try to eliminate almost all of the nonservice-con-
nected disabilities unless the veteran is a pauper, in which case
you can put him on Medicaid. The Veterans Administration is a
farce. I’m a veteran and I don’t think that I need VA help if I can
get a health insurance policy.

Those who can’t get health insurance because of a disability, dia-
betes or whatever, maybe not even service-connected, those who
are poor, you can provide vouchers for those people and eliminate
most of the VA Hospital system.

Mr. CHRYSLER. But we need the veterans to come to the Con-
gress. It is almost impossible for the Congress to go to them
and——

Mr. Gross. Some veterans believe they are patriotic just because
they served in the Army. I served in the Army but I don’t expect
the VA to support me. But if I didn’t have the money or I didn’t
have health insurance, I would expect that I could go to a VA Hos-
pital.

Mr. CHRYSLER. Tom, you've got an answer.

Mr. Scuatz. Yes. One of the things I would throw in here as we
talk about it, unfortunately, far too often is the base closing are
commissioned for veterans hospitals. It appears that is one of the
only ways you can do this kind of thing, truly based on what is
needed and. what the future needs might be. The baby boom gen-
eration is not going to need many veterans hospitals, yet we are
still building as if those things will be needed in the future.

Mr. CHRYSLER. On to a new subject. Job training, I think as
Mark indicates, we are not going to have all those job training pro-
grams for long, we are going to consolidate that down into four pro-
grams. I believe that one of those programs needs to be there to
train entrepreneurs and help entrepreneurs succeed, because with
every entrepreneur you can get to become successful in this country
you can create five, six, a dozen, maybe even 100 jobs by that type
of a job training.

And we know that 80 percent of all new jobs that are created are
created by people that have less than 100 employees and yet 95
percent of all new businesses that are created fail within the first
5 years so you only have a 5-percent chance of success.

What can we do to make that maybe a 10 percent or, heaven for-
bid, a 50-50 chance of success, which means we would create more
jobs than we would have people to fill?

Mr. Gross. I’ve never contemplated it, but it is a very interesting
idea. I’ve never contemplated helping potential entrepreneurs but
it is an interesting point, particularly since middle management is
being kicked out on the street every day and those are the people
who would make natural entrepreneurs.

Mr. CHRYSLER. Entrepreneurs will train every employee they
have. I had 1,200 employees. I trained every single one of them.
Never asked the government to train even one. Let me go find the
people in the street and I will put them to work and train them.

Mr. Gross. It would be particularly useful, I would think, for
people on welfare in the inner city where business activity is not
as large as it should be. Calvin Coolidge said the business of Amer-
ica is business. And even though I am not a Republican, I think
that Calvin Coolidge was right.


39

projects are up to 20 times higher than the national average. Cisneros apparently
assumes that public housing residents will be less likely to rob and steal if they are
surrounded by more affluent neighbors.

The Clinton administration sees Section 8 as a symbol of social justice. But, the
more the government forces working Americans to pay in taxes to support luxury
housing for welfare recipients, the lower quality of housing taxpayers themselves
will be able to afford. .

HUD has vigorously pushed local housing authorities to include mentally ill rent-
ers in subsidized housing across the country. Some of the mentally ill renters are
violent; one mentally ill renter in Massachusetts recently won a court victory last
summer (1994) on his right to subsidized housing even though he was judged to be

romaniac. Maybe that is HUD’s idea of a politically correct neighbor.

'UD is bending over backwards to portray Section 8 as noncontroversial. HUD
Secretary Henry Cisneros declared last year (1994), “There are almost cases in
America where people resist Section 8.” But when plans were announced in Chicago
in April for an expanded program to export public housing residents out of the city
limits, dozens of mayors of surrounding suburban towns and villages staunchly op-
posed the proposal. The image of violence around Section 8 has become so accepted
In some areas that a Washington DC rap band even named itself Section 8 Mob.

Section 8 recipients can pull down a neighborhood because of the paralyzing red
tape that HUD imposes on private landlords who want to evict recipients who are
trouble-makers, hooligans, or deadbeats. A Boston Globe editorial complained,
“Among the roughly 8,000 families receiving federally subsidized Section 8 rent cer
tificates in Boston, most are concentrated in Roxbury and Dorchester. The majority
gecupy homes owned by absentee landlords who are reluctant to evict tenants, even
for the most egregious lease violations. For landlords, the guaranteed subsidy pay.
ment proves a stronger incentive than the desire to maintain a safe building.” The
Boston Globe noted in April 1993 the disruption caused by Section 8 renters living
across the street from Mayor Raymond Flynn: “The subsidized tenants living in the
house across the street were nuisances, allegedly using drugs and making loud and
threatening noises, but little could be done about it. The landlord had paid no atten-
tion. The housing organization that provided the subsidy had thrown up its hands;
federal rules forbade it from removing the family from the program.”

In other cities, Section 8's links to crime and declining property values have be-
come political hot potatoes. Last August, the adverse impact of subsidized housing
in eastern New Orleans became a major issue in a race for the Louisiana legisla-
ture. Candidate Louis Ivon called for a moratorium on additional Section 8 housing
until the program was reformed to better protect surrounding homeowners and the
tenants themselves.

In many cities, crime and declining, property values caused by Section 8 clients
have become a major political issue. The St. Louis Post Dispatch, in a March 18
article entitled, “Housing Sul ies Set Off Exodus” (of middle-class homeowners),
reported that, as a result of Section 8 subsidies, “crime has soared” and “a growing
number of homeowners say Section 8 is undermining their neighborhoods. From the
Shaw neighborhood to the Hi-Pointe neighborhood to the Dutchtown South area,
people want the government to keep a closer eye on Section 8 landlords and ten-
ants.” The Post Dispatch also reported that “the rules for the Section 8 subsidized
housing program make it difficult to get rid of troublesome tenants. Section 8 recipi-
ents can't be punished—by losing their eligibility for rent subsidies, for example—
for bad behavior.” Both white and black middle-class residents staunchly oppose
dumping Section 8 housing in their neighborhoods.

In Haledon, New Jersey last fall, a public meeting on Section 8 exploded. As The

rd, a local newspaper, reported, e meetings were as rancorous as any ever
held in the borough. Residents denounced their neighbors in federally-subsidized
housing, accusing them of ruining property values and bringing a bad element to
the borough. The two meetings held to protest the ‘problem’ were standing room

only.”

HUD announced a special program last year to fight crime in and around Section
8 housing complexes. Unfortunately, the initiative consists largely of recommenda-
tions that local HUD officials, residents, and politicians form task forces to meet and
discuss the problem.

In considering any HUD program, we have to keep in mind the caliber of people
who will be administering it, e Mashington papers last week carried the story
of what would have been the biggest federal-local police raid at a drug-infested local
public housing complex in a long time. Federal agents had spent hundreds of thou-
sands of dollars and invested massive manpower to collect search warrants and to
line up the raid. The raid was planned for Wednesday morning. The Washington,

C department of public housing was told about the plans for the raid on Tuesday.


25

as New York City “Heather has Two Mommies,” a little booklet
they put out which was a promotion of lesbianism. So the Federal
Government and government itself, the local community sets its
own standards.

Mrs. MorELLA. That is a different issue, too.

I wanted to also pick up, Mr. Schatz, on a statement that you
have in your testimony on page 3 where you talk about student
loans, jumping now to the student loan program on a higher level,
where you said pie could see that they should be available and
managed by the Department of Treasury.

Now, are you saying that this means direct student loans or
would you have, as is partially done now and previously had been
done completely, the loans coming via the banks? We have a ques-
tion right now that we are looking at in terms of direct student
loans. Do you see it directly from Treasury going out to those stu-
dents that qualify?

Mr. SCHATZ. Well, it seems to me while there were certainly de-
fault problems and I think more of a problem of the way the sys-
tem was set, I think having the private sector involved has worked
better, although of course the new direct student loan program is
in fact new.

Mrs. MORELLA. It saves money, too, doesn’t it.

Mr. ScHaTz. Well, honestly, that remains to be seen at this point.
Whether the additional bureaucracy at Education will really save
money I think is unclear at this point. I think—I mean, the esti-
mates are there, but I’m not sure that they are going to actually
become true. So that’s why I am simply asking that that be some-
thing that this subcommittee look at very closely as you obviously
are.

Mrs. MorgELLa. I see. OK. Great.

Mr. Gross, you—well, I guess really Mr. Schatz, the VA, discuss-
ing something I have cared very much about and that is their
health care services, you mentioned that you would urge Congress
to heed Senator Murkowski’s advice on veterans’ health care.

I have felt that there should be more of an opportunity in a di-
rection that outpatient service be utilized and these Reople not be
hospitalized for periods of time. Is this the kind of thing you are
getting at?

Mr. Scuatz. Absolutely, Of course, that is what the Appropria-
tions Committee did last year. And for inpatient care, there is, of
course, a lot of discussion about possibly vouchers or other ways to
provide the care. We certainly don’t want to take that away from
veterans. But outpatient care is something that really that every
health care operation is looking more toward HMO’s and others
and I think it makes a lot of sense and it is less costly.

Mrs. More La. I think certainly it would be less costly and we
should move in that direction. Do you see the empty beds in veter-
ans hospitals utilized by the nonveteran constituency?

Mr. Scuatz. Interestingly, one of the Grace Commission’s rec-
ommendations was sharing between defense hospitals and veterans
hospitals depending on what was in the community as opposed to
overbuilding which is one of the things that seems to continue to
occur. And certainly if the care is available, it doesn’t make any
sense to spend all that money and have empty beds.


9

nearly $8,000,000 was appropriated. And during fiscal years 1994 and 1995, in
which significant budget cuts were made, the Eisenhower program received
$4,000,000 each year.

What is the Dwight D. Eisenhower Leadership Development program? Under Part
D of Title X of the Higher Education Act of 1965 as amended in 1992, the program
is, “to provide grants that establish prototypes that reach out to young Americans
and promote the practical study and teachings of leadership through programs spe-
cially prepared to' foster the development of new generations of leaders in the areas
of national and international affairs.”

This program continues to live despite the fact that the current and former ad-
ministrations have never asked for funding. The House stated in the FY 1995 Labor,
HHS and Education Appropriations bill, “the Administration has stated that the ac-
tivities supported by this program are part of many higher education institutions’
curriculum, and therefore the groeram is a low priority for Federal funding.”

But the program lives on. Grants doled out through this academic pork program
range in size from $25,000 to $500,000. Schools that have received money in the
past include such institutions as Harvard University and Wharton Business School

‘This one program is more than an example of wasted tax dollars: it is a moral
outrage. If you want to know what’s wrong with American education, follow the
money.

Congress usually has good intentions when appropriating money, but the power
to do good is also the power to do mischief with our tax dollars. The waste of tax
dollars for federal education programs is no exception,

‘The line must be drawn, Mr. Chairman, and these and other programs must re-
justify their existence—or at least their need for federal tax dollars—if they can.

‘The President has given it a try and come up short. His FY 1996 Budget talks
about consolidation between the Labor and Education departments, which is sadly
more appropriate than the White House would like Americans to realize. In the
name of reinventing, the President proposed to combine nearly 70 programs from
four agencies—primarily Education and Labor—into one “workforce development
system” for adults and youth, to be administered by the states. Now, one would ex-
pect some savings there, but looking at the fine print, CAGW found that the net
change would be an additional $1 billion in the Labor budget, We would suggest
that saying one thing and doing another will not work in Washington any longer.

Mr. Chairman, Lamar Alexander's advice about Congress does not apply nearly
80 well to you and your colleagues as it does to the Department of Education:

“Cut their pay, and send them home.”

Turning to the Department of Veteran’s Affairs (VA), CAGW recommends shifting
responsibility for VA home loans to the private sector, or to the Treasury Depart-
ment, and eliminating the federal subsidy. More than average Americans, veterans
are more qualified for, and far more likely to be granted, mortgages. There is no
reason to patronize or subsidize veteran home purchases.

Mr. Chairman, many of CAGW’s members are veterans. Their service to our coun-
try was invaluable and now they are assisting in America’s latest battle—the war
on our nearly $5 trillion debt. Wf our members are willing to put everything on the
budget chopping block, members of Congress should listen to them and do so.

cording to a recent General Accounting Office (GAO) report, the VA overpays
hundreds of millions of dollars in compensation and pension benefits. In 1994, VA
detected about $372 million that it ha erroneously paid to compensation and pen-
sion beneficiaries. VA collects, on average, about 30 percent of its outstanding over-
ayments. As a result, VA’s outstanding overpayment balance increased from over
$304 million in 1985 to about $618 million in 1994.

GAO recommends that procedures should be established to focus on preventing
pension and compensation overpayments. These include:

« Identifying beneficiaries who will soon become eligible for Social Security bene-
fits in a timely manner to better adjust their benefit payments.

* Collect, analyze, and use information on the specie causes or contributing fac-
tors of overpayments to develop strategies for targeting additional preventive ef-
forts.

Many tax dollars are being wasted on numerous VA medical facilities that are
built to serve those who served America. One Department of Defense audit found
a consistent lack of controls in the planning process for hospitals to assure that re-
quirements were sound and up to date before construction were approved.

Senator Frank Murkowski (R-AK) has recommended that VA put more emphasis
and priority on outpatient care. He believes the need for veterans’ outpatient care
facilities exceeds dramatically the need for inpatient care facilities. Last Congress,
the Appropriations Committee agreed with Sen. Murkowski that it was unwise to


61

Youth and Families listed eight programs that work and produce cost-effective re-
sults. (Setting Domestic Priorities, Brookings).

TABLE 5-4.—SELECTED COST-EFFECTIVE PROGRAMS FOR CHILDREN

Gadget authority, Savings in future of target
Program or intenention fiscal 1992 (ions expenditures per Pete
of dolars) dolar invested __PoPWatan served

Special supplementat food program for women, infants and chil-

dren (WIC) 26 3.00 50-60
Prenatal care o na, 338 15
Childhood immunization... 03 10.00 30-88
Preschool education (Head Start) .. 22 6.00 30
Compensatory education .... 67 4.90 50

‘SOURCE: House Select Committee on Children, Youth, and Families, Opportunites for Success: Cost Effective Programs for Chikren Update,
1900, 101 Cong. 2 sess. (GPO, 1990),

2. Not Available

Tages 1-4, 80 percent; age 5-14, 88 percent

CONCLUSION

As indicated, some waste, fraud and abuse can be attached by changes in the in-
ternal management culture of agencies which administer programs. However, when
it comes to clients of these programs, who create the demand and participate in
their fraud and abuse, their behavior may be immoral, but it is also related to their
quality of life and the deficiencies in the support systems that affect it.

For example, fraud and abuse in the ‘Medieai and Medicare programs such as

rescription drug diversion will not be solved until the 40 million people who now

lo not have health care are covered with some reasonable expectation that they do
not have to go on the open market to get the drugs they need. In addition, because
the Federal, State and Local governments and both Democrat and Republican ad-
ministrations have relied on largely on moral persuasion rather than a tough, sub-
stantive program to combat drugs, the diversion of prescription drugs will not be
abated until substantial funding for programs to treat drug abusers are is place,

These problems are interrelated and complex and simple solutions such as fund-
ing reduction, the elimination of agencies, or the scattering of functions because of
theorized duplication, will bring about the desired result without great care and
study of the function of programs, basic causes of the problems posed and the con-
sequences of hasty or ill-conceived changes.

Mr. Snays. Dr. Walter, I thank you.

We are not going to eliminate Medicare or Medicaid. The ques-
tion is, are we going to change it? We are not going to eliminate
welfare. The question is, can we and should we change it? And I
can tell you where I come down on this.

Speaking as a moderate Republican who has voted for a number
of these programs in the State House and here in Washington, I
have to recognize that we have helped create many of the very
problems that we are trying to eliminate. I go with some basic eco-
nomic tenets that have never been proved wrong to me. Whatever
you subsidize, you get more demand.

If a service is free, the service gets overutilized. People are
survivalists and if they think that the way to survive is to be on
welfare as opposed to the alternative, they are going to take wel-
fare as opposed to the alternative.

I will tell you two stories and you can respond to them. It illus-
trates the quandary. The most memorable encounter I have ever
had with any constituent was a woman who was about 38 years
old, and was an M.D. She said, that all of her brothers and sisters,
of whom there are six, have their advanced degrees, and she was
the oldest.

When her dad died at age 12, she became almost like a parent
at age 12 to her six brothers and sister. Her mother was a school


AT

¢ Sending Medicaid recipients copies of their bills.
if recipients had invoices they would know if a doctor was charging for treatments
not made.

Mr. Suays. I thank both gentlemen for their testimony. You
have, Mr. Kennedy, exhibited a talent that I find in your family of
being able to speak extemporaneously and get your story through
in a very fine way.

Mr. Towns, I will start with you. I will go with you, Mr. Ken-
nedy, and then I will conclude.

ir. TOWNS. Thank you very much, both of you.

Let me begin with you, Mr. Kennedy. Unlike most of the wit-
nesses appearing before us today, you actually participated in an
underground criminal system that thrived on problems in the ad-
ministration of the Medicaid system, in terms of actual fraud and
abuse in the system.

Did you see any evidence that this program provides meaningful
access to care for the poor at all?

Mr. DouGLas KENNEDY. I’m sorry, I didn’t hear the last part of
your question.

Mr. Towns. Did you see any evidence that this program provides
meaningful access to care for the poor at all?

Mr. Douc.as KENNEDY. I did see evidence of that. I also saw evi-
dence of what Mr. Gross was describing as these doctors bringing
in, 10, 15 patients per half-hour. I think most of the doctors knew
what I was doing. The guy that gave me the asthma machine ex-
amined me for 3 minutes. You can tell if a person has asthma.

Mr. Suays. If the gentleman would suspend. The doctor, just for
the record, knew what you were doing, knew that you were trying
to rip off the system?

Mr. DouGLas KENNEDY. Yes, exactly. I specifically asked for the
machines. That’s what these people who play the doctors do. They
ask for specific prescription drugs. All I did was basically moan
when I breathed in which is what you hear if somebody really has
asthma. He gave me the machine. The back brace was the exact
same thing.

There are definite ways to tell if people have chest colds, asthma,
and ulcers. And these doctors would give them these prescriptions.
It was very unfortunate because most of the doctors that I saw
seemed to be operating as prescription givers rather than
caregivers. I suppose that if som came in with a real problem,
they would treat them, but most of the time you are going in there,
you are seeing the doctor for a few minutes and they are en you
three or four prescriptions. That was my experience throughout
this ordeal.

Also, I saw many of these clinics encouraging this practice. They
would accept multiple cards from some patients. They would, you
know, I saw one woman who took a card. It had reached its yearly
limit and she said, you will have to go get another card because
this one’s not working.

Now, to me, that I was—there is some sort of logic to it, some
safety net for people who can’t go through the bureaucracy of get-
ting the—getting a Medicaid card, but there’s also incredible poten-
tial for abuse.

Mr. Towns. Right. Thank you very much.


49

Mr. Towns. Let me say something, then, Mr. Chairman. I
want—I don’t want to say anything. Let me just—this way, I know

rot. you-——

ir, SHAYS. Rather than quoting him, why don’t you just ask the
question.

Mr. Towns. Do you agree with Mr. Gross? I don’t think I could
be much more generic than that.

Mr. DouGLas KENNEDY. I saw a lot of people who obviously need-
ed care. These doctors who operate in these clinics, you know, this
doctor that gave me in some of the clinics I went in and I said I
was only tired. They are so used to giving out prescriptions for peo-
ple that they—the doctors said you don’t have a sore throat? I said,
no, I don’t have a sore throat. He said, let me see your sore—your
throat. It looks sore to me. He gave me a prescription for a sore

roat.

This doctor is making $185,000 a year off Medicaid. And he is
just handing out, you know—he’s handing out terrible medicine. He
is giving terrible medicine to the people who need it most and there
is no—the investigators in New York say there is absolutely no way
to prosecute these doctors for simply giving out bad prescriptions.
They have to wait until they start dealing narcotics.

ese—all these people want, all the investigators want is some
tougher laws from you and from the Federal Government to be able
to prosecute the doctors, to be able to prosecute the drug investiga-
tors and to make it—you know, to put some photos on the cards.
It’s very simple, as I said before.

Mr. Towns. Thank you very much for your testimony. I think
you have been extremely helpful because you are giving us infor-
mation from your practical experience and saying that, yes, the sit-
uation is bad, it needs to be strengthened, and you made some spe-
cific recommendations as to what we might do.

Thank you very much for your testimony.

Mr. SHays. Mr. Bovard, I am going. to make a point. I’m goin;
to ask Mr. Kennedy to go next. I will have questions for both o!
you and I appreciate your testimony as well. When you get an indi-
vidual who has actually gone through the system in the way that
Mr. Kennedy has, it invites a lot of questions. I hope you under-
stand.

Mr. BovarpD. Sure.

Mr. Suays. Mr. Kennedy.

Mr. KENNEDY of Massachusetts. Thank you very much, Mr.
Chairman.

First of all, I just want to reiterate what Mr. Towns talked about,
Douglas, had the sense that I think there is, you deserve a lot of
credit for having put yourself at risk and getting yourself into this
circumstance all for trying to expose some of the problems that
exist in the Medicare-Medicaid system.

When you went through these scams, it seems to me that there
were a number of people who were participants. You’ve got doctors
that are participating, you’ve got addicts and recipients that are
participating. Sounds to me as though you might have pharmacists
that are also participating.

Are those basically the three culprits that are trying to scam the
system?


12

Bowl by planting 10 million trees in the 30’s, which built any de-
cent looking post office in America, which built the dams, which
paved the million miles of road. Hospitals need work. Teachers
need assistance. We need to rebuild the tenements.

The present welfare program does not solve poverty. It creates
poverty. When the person starts to get a welfare check, he is now
poor. No one ever got rich on welfare unless they do welfare fraud.
Some of that exists, but, by and large, these are honest people who
are uneducated and fall into the government trap of dependency.

I say that every welfare bill that is now being contemplated by
Mr. Moynihan, et cetera, are pure and absolute nonsense. Nothin,
will come of it except one this reform and another reform and stil
another reform. The rolls will increase and the human despair will
increase and the crime will increase as well as illegitimacy.

All welfare programs in America must be closed, the WPA re-
instituted, and the only eligibility for the job is that you show up.
And once you show up, you get a living wage and, equally impor-
tant, you will receive an HMO health insurance policy which will
eliminate half of the Medicaid costs in America, which now total
$178 billion, in Federal and State funds.

Having said that about welfare, I might point out in terms of
fraud and abuse, some of it is just pure stupidity. In my town in
Connecticut, welfare families are getting $1,530 a month for rent,
are also getting $1,000 in cash, and they are also getting full
health insurance on Medicaid. There is absolutely no reason what-
soever for anybody on welfare in my community to work. But it is
a strange community. It is the very affluent community of Green-
wich, CT. We have about 225 families on AFDC living very much
like the people who bought their way into Greenwich, CT, which
excludes about 99 percent of America.

When I spoke to the head of the Housing Bureau in our town,
the Greenwich Housing Administration, which is part of HUD, I
said: “How can you pay $1,530 a month and be authorized to pay
up to $1,710?” She said, that’s what it cost to live in Greenwich,
which is an absolute non sequitur. We should have a ceiling on
HUD costs of perhaps $600 a month. Not because we want to pun-
ish anybody, but because we want to maintain the Protestant ethic
that built America, the Judeo-Christian ethic which meant family
and work. For the government to circumvent family and work is
pure immorality, sinfulness, and disaster.

No one in Europe understands how bad the welfare situation is
here because their social services extend to all the people, including
subsidized railroads and planes and schools and free universities
and day care centers. The European system is mild socialism for
the middle class and the poor that work. The American system is
an absolute abomination that only destroys those people it touches.
Except, of course, for the blind and disabled who we should not ex-
pect to work. Although, the organizations that handle disability
claims that some are perfectly able to work, but that they can’t get
jobs. The WPA would solve that.

The next travesty that has been under the control of HHS all
these years is Social Security. Social Security has been a boon to
the elderly. It is absolutely necessary. I am old enough to remem-
ber the 1930’s, when the aged people were just cast aside before