229

“2.

{In one of the largest health-care fraud cases in U.S. history, National Health
Laboratories Inc. of San Diego, California, agreed to repay $110 million for false
claims it had submitted to Medicaid and Medicare. “The company had induced
doctors to order lab tests which were medically unnecessary by assuring the doctors
the tests would be free or of nominal charge. In fact, the company was billing
government insurers for the tests without the referring physicians’ knowledge." In
defending themselves, employees of National Health Laboratories contended that
overcharging was common in the industry, investigators said.">”

A man was sentenced in California to more than four years in prison, ordered to pay
$895,373 in restitution, and fined $450 for submitting false Medicare claims. "He
received almost $1 million by using various physicians’ provider numbers to bill for
blood circulation tests he never performed. He diverted notices of payment to 38 mail
drops he controlled by putting false beneficiary addresses on claims. He attempted to
avoid arrest by using stolen license plates on his car and an assumed identity, but was
arrested when he purchased $250,000 in gold bullion and coins. Another $325,000 in
California and Florida bank accounts was also seized,"%6

"A Florida osteopath and his wife were excluded from the Medicare and state health
care programs for 10 years because of conviction for obstruction of justice and filing
more than $800,000 in fraudulent Medicare and private insurance claims. The pair
filed claims for medically unnecessary or non-performed tests, much of them for
services supposedly performed for the wife's parents. The osteopath used an
independent laboratory for the tests but filed claims indicating the services were
rendered in his office, in order to obtain higher reimbursement. He tried to conceal
the fraud by presenting falsified documents to a grand jury.... Both the osteopath and
his wife received prison sentences and were ordered to make restitution of
$584,500."99

"Two medical groups associated with a Washington state hospital agreed to pay the
government $850,000 in settlement of allegations that they submitted inflated
Medicare claims for laboratory services. Investigation showed that thousands of
profile tests ordered by physicians were split, or ‘unbundled,’ into components which
‘were then billed individually to Medicare. In this way they received a higher
reimbursement."10

‘ “In Texas, a laboratory owner was sentenced to 3 months in prison, followed by 90
days in home confinement and 3 years supervised probation for fraudulent Medicare
billing. The man operated a mobile clinic which offered free screenings for senior

5% Cohn, Gary, "Health Care Fraud Gets More Scrutiny," The Baltimore Sun, December 4, 1993, p. 3C.
57 New York Times News Service, "S Top Medical Labs' Records Subpoenaed in U.S. Billing Probe:
Medicare, Medicaid Focus of Investigation,” The Baltimore Sun, August 28, 1993, p. 15C.
3 HHS, O1G, Semiannual Report, Api 1, 193 - September 3, 1993p. 18

Ibid. p. 21.



COM YN DAH PR WN =

RPBBEBSPSSEVIABTBEBHSAS

59

38
SEC. 208. CIVIL PENALTIES FOR VIOLATIONS OF FEDERAL

HEALTH CARE OFFENSES.

(a) IN GENERAL.—Chapter 63 of title 18, United
States Code, is amended by adding at the end the follow-
ing:

“$1348. Civil penalties for violations of Federal
health care offenses

“The Attorney General may bring a civil action in
the appropriate United States district court against any
person who engages in conduct constituting a violation of
Federal health care offense, as that term is defined in sec-
tion 24 of this title and, upon proof of such conduct by
a preponderance of the evidence, such person shall be sub-
ject to a civil penalty of not more than $50,000 for each
violation or the amount of compensation or proceeds which
the person received or offered for the prohibited conduct,
whichever amount is greater. The imposition of a civil pen-
alty under this section does not preclude any other crimi-
nal or civil statutory, common law, or administrative rem-
edy, which is available by law to the United States or any
other person.’’.

(b) CLERICAL AMENDMENT.—The table of sections
for chapter 63 of title 18, United States Code, is amended

by adding at the end the following item:
“1348. Civil penalties for violations of Federal health care offenses.”.


123

-2-

The Benefit Quality Assurance Program would provide a level
funding stream for a five-year period. This proposal would
HCFA the flexibility to invest in new and innovative strategie
to combat fraud and abuse. It would help HCFA to shift emphasis
from post-payment recoveries on fraudulent claims to pre-payment
strategies designed to ensure that more claims are paid correctly
the first time.

The HHS Fraud and Abuse Control Fund would allow the Department
to reinvest savings from settlements and court awards in Medicare
and Medicaid fraud cases, after the programs had been made whole,
through a fund that can be used to finance further fraud
investigations.

Experience has shown that investment in anti-fraud and abuse
activities yields a high return. our proposals would help
provide stable funding for these activities and thus help assure
that we reap this benefit.

While legislative changes are certainly important, ve have nade
great strides in curbing fraud and abuse under current law. HCFA
has pioneered initiatives aimed at prevention, early detection,
and coordination. We have financed cutting-edge computer
technology through our contractors. We support the development
of "state-of-the-art" technology -- increasingly sophisticated
information systems -- used by us and our private partners to
detect and to deter fraud and abuse.

Focusing on Fraud: The South Florida Workgroup

A successful partnership was created to tackle serious fraud and
abuse problems in South Florida. Medicare and Medicaid
expenditures in Florida are among the highest in the nation, and
fraud and abuse is a serious factor in a variety of health care
settings. To address this problem, ve established a joint
initiative including HCFA, our claims payment contractor, the
Florida State Medicaid agency, the HHS Office of the Inspector
General, and the Florida Attorney General’s Office Medicaid Fraud
Control unit.

‘The workgroup was formed to provide support and recommendations
to HCFA and the Florida contractors about what could and should
be done to combat the chronic fraud and abuse in South Florida.
The group's effort represented an unprecedented degree of
coordination. As a result of its work, ve have identified over
$100 million in savings and recoupments over five months. HCFA
is looking carefully at areas identified as particularly
vulnerable to fraud including home health services, durable
medical equipment and independent physiological laboratories.

o =: Because of fraud-related investigations, HCFA suspended
payment to 44 South Florida providers since this summer,



25

4
1 General referred to in subsection (a) may exercise powers
2 that are available to the Inspector General for purposes
3 of audits, investigations, and other activities under the In-
4 spector General Act of 1978 (5 U.S.C. App.).
5 (ce) COORDINATION AND REVIEW OF ACTIVITIES OF
6 OTHER FEDERAL, STATE, AND LOCAL AGENCIES.—
7 (1) PRoGRAM.—The Inspector General and the
8 Attorney General shall—
9 (A) jointly establish, on the effective date

10 specified in section 110(a), a program to pre-
u vent, detect, and control health care fraud and
12 abuse in violation of any Federal law, which
13 takes into account the activities of Federal,
14 State, and local law enforcement agencies, Fed-
15 eral and State agencies responsible for the li-
16 censing and certification of health care provid-
17 ers, and State agencies designated under sec-
18 tion 102(a)(1); and

19 (B) publish a description of the program in
20 the Federal Register, by not later than 180
21 days after the date of the enactment of this
22 Act.

23 (2) ANNUAL INVESTIGATIVE PLAN.—Each In-

24 spector General referred to in subsection (a)(1) and
25 the Attorney General shall each develop an annual


154

Mr. Fox. Thank you.

Just following up on Congressman Green’s point before, is there
a welfare fraud hotline number that we should be able to give our
constituents? Is there a hotline?

Dr. Smits. Welfare? You mean health care?

Mr. Fox. I mean health care fraud. Excuse me.

Dr. Smits. Yes.

Mr. GOULD. It’s 1-800-HS—TIPS. That’s the national number.

Mr. Fox. OK. So they can call anywhere in the United States.

Mr. GouLp. Anywhere in the United States. And we then screen
those calls and then send them back out to the appropriate place.

Mr. Suays. If the gentleman would yield.

Tom, I would like you to call that number right now and tell me
if it’s busy.

Mr. GREEN. Mr. Chairman, if the gentleman would yield?

Mr. Fox. Yes, I would.

Mr. GREEN. We had that problem. And I’ve asked my constitu-
ents—because we have publicized that number—to send us a copy
of their complaint, and then we will follow up without having to
go through the toll-free number.

Mr. ScHiFF. Would the gentleman yield 1 more second?

Mr. Fox. Yes. I will have to ask for more time.

Mr. ScuirF. I appreciate that. I cannot say that this is through
the 1-800 number, but let me tell you the No. 1 observation that
I’ve received from senior citizens now receiving Medicare on this
subject, and that observation is that they noticed some inaccuracy
in the billing, that there was some product that they didn’t receive
or had some other question about it.

And they made a call—and I suspect often that call was to the
contractor handling the local regional Medicare system—and basi-
cally they were told, “It’s too small. Don’t worry about it.” And I’ve
heard that a number of times. And the impression is that the bu-
reaucracy running the Medicare system doesn’t want to be both-
ered to have to go back and look and correct bills, and so forth.
When all that adds up, that can be, obviously, quite a sum of
money.

I thank the gentleman for yielding.

Mr. Fox. Following up.

Mr. SHays. Excuse me. The gentleman’s time is up. [Laughter.]

Mr. Fox. Mr. Chairman, I would ask unanimous consent.

Let me say at this point, panel, let’s assume that the line was
busy or we wanted to also follow up like my colleague from Texas,
what would you recommend to Congressmen and Senators, as far
as if we get constituent letters saying, “We know about fraud,”
what do we do with them?

Dr. Smits. We’re very pleased to receive them in the administra-
tor’s office. Send to Mr. Vladeck or myself.

Mr. Fox. At HCFA?

Dr. Smits. Yes.

Mr. Fox. That’s where they should first start, and if the Attorney
General is to get involved, you then send the case over.

Dr. Smits. Yes.

Mr. Fox. Is that the process?


149

Mr. GREEN. I appreciate the opportunity for the hearing today.
At our last hearing on this issue, Mr. Vladeck, with the Health
Care Financing Administration, had a flow chart on the steps to in-
vestigate fraud.

I guess, a lot of Members of Congress, as we talk about Medicare
fraud in our districts, there’s just a great deal of effort or support
from our seniors who want to become active. That chart has helped
us be able to talk to not only seniors but also, I found out, particu-
larly in my own family, sometimes it’s not the seniors who deal
with the hospital bills, it’s the children who can catch what no one
else may see.

I know we have a toll-free number, and I’ve publicized that in
newsletters and town hall meetings. Like, in Texas, I know it’s the
responsibility of the contractor. I know the toll-free number. Is that
just a Texas number, or is it national? And is there a way we can
even do both, contact the contractor in Texas, at the local jurisdic-
tion, but also the national number? Because, again, if we’re talking
about the estimated $40 billion, we have to use every resource we
have.

Dr. Smits. Well, our contractors do exchange information with
each other. So a specific episode should be reported to the local toll-
free number. But, yes, those numbers are available nationally.

Those tips are very important to us. I think it is helpful to teach
people what are the signs. Particularly, services that were not pro-
vided is one of our biggest. I mean, errors occur in some bills that
are still just errors, but we do need to have people very alert.

I agree with you. Every time I go to New York, I get a pile of
EOMBs, and now I’m personally responsible for them since I work
for Medicare, but just to explain and go over and help with the
problems. And I think teaching everyone how to detect real trouble
in those bills is very important.

Mr. GREEN. And I know we try to do it. If you could share with
not only our committee but I would hope other Members of Con-
gress anything that we can provide to our own constituents to help
them. I know it may be available through local Medicare offices to

lo that.

Because, again, the double payment or the services that are not
provided is probably the biggest complaint or question. Somebody
will bring in a bill, in our district offices, and say, you know, “I
never saw this physician,” or “I don’t know who this is,” and things
like that.

Dr. Smits. The other thing we need to have people understand
is that, when they give us a tip, there are many instances where
we are silent because we are working so hard on it. We’ve had
some circumstances where we were very actively—we or someone
else was very actively investigating real fraud, and the consumer
gets worried because nobody has told them that the tip has been
responded to. We need to work some with consumer groups to fig-
ure out how to handle that.

Mr. GREEN. Just some kind of saying, “Yes, we’re considering it,”
or something like that.

Dr. Smits. Right.


COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT
WILLIAM F. CLINGER, JR., Pennsylvania, Chairman

BENJAMIN A. GILMAN, New York CARDISS COLLINS, Illinois

DAN BURTON, Indiana HENRY A. WAXMAN, California

J. DENNIS HASTERT, Illinois TOM LANTOS, California
CONSTANCE A. MORELLA, Maryland ROBERT E. WISE, JR. West Virginia
CHRISTOPHER SHAYS, Connecticut MAJOR R. OWENS, New York
STEVEN SCHIFF, New Mexico EDOLPHUS TOWNS, New York
ILEANA ROS-LEHTINEN, Florida JOHN M. SPRATT, Jr., South Carolina
WILLIAM H. ZELIFF, Jn, New Hampshire LOUISE McINTOSH SLAUGHTER, New
JOHN M. McHUGH, New York York

STEPHEN HORN, California PAUL E. KANJORSKI, Pennsylvania
JOHN L. MICA, Florida GARY A. CONDIT, California

PETER BLUTE, Massachusetts COLLIN C, PETERSON, Minnesota
THOMAS M. DAVIS, Virginia KAREN L. THURMAN, Florida

DAVID M. MCINTOSH, Indiana CAROLYN B. MALONEY, New York
JON D. FOX, Pennsylvania THOMAS M. BARRETT, Wisconsin
RANDY TATE, Washington GENE TAYLOR, Mississippi

DICK CHRYSLER, Michigan BARBARA-ROSE COLLINS, Michigan
GIL GUTKNECHT, Minnesota ELEANOR HOLMES NORTON, District of
MARK E. SOUDER, Indiana Columbia

WILLIAM J. MARTINI, New Jersey JAMES P. MORAN, Virginia

JOE SCARBOROUGH, Florida GENE GREEN, Texas

JOHN B. SHADEGG, Arizona CARRIE P. MEEK, Florida

MICHAEL PATRICK FLANAGAN, Illinois CHAKA FATTAH, Pennsylvania
CHARLES F. BASS, New Hampshire BILL BREWSTER, Oklahoma

STEVEN C. LaTOURETTE, Ohio ‘TIM HOLDEN, Pennsylvania

MARSHALL “MARK” SANFORD, South ——
Carolina BERNARD SANDERS, Vermont
ROBERT L. EHRLICH, JR. Maryland (Independent)
James L. CLARKE, Staff Director
KEVIN SABO, General Counsel
Jupirk McCoy, Chief Clerk
Bup Myr, Minority Staff Director

SUBCOMMITTEE ON HUMAN RESOURCES AND INTERGOVERNMENTAL RELATIONS
CHRISTOPHER SHAYS, Connecticut, Chairman

MARK E, SOUDER, 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, Illinois
LAWRENCE J. HALLORAN, Staff Director and Counsel
KATE HICKEY, Professional Staff Member
ROBERT NewMAN, Professional Staff Member
‘THomas M. Costa, Clerk
CHERYL PHELPS, Minority Professional Staff

a


119

Mr. Suays. I also would agree with Mr. Towns that it is unfortu-
nate that we didn’t schedule this hearing so the IG could be here.
The IG is away, but their testimony is very important. We just felt
we needed to move quickly, because we would like to get some of
your provisions in our Medicare health bill and also the provisions
that have been worked out by Mr. Schiff and others.

So, at this time, Dr. Smits, we welcome your testimony. We will,
without objection, include your full statement in the record.

Hearing no objection, so ordered—the statements of any other
Member who comes to testify, any witness and any member of this
committee, as well—without objection, so ordered.

STATEMENTS OF HELEN SMITS, M.D., DEPUTY ADMINIS-
TRATOR, HEALTH CARE FINANCING ADMINISTRATION, AC-
COMPANIED BY BILL GOULD, SPECIAL ASSISTANT TO THE
ADMINISTRATOR; AND GERALD STERN, SPECIAL COUNSEL
FOR HEALTH CARE FRAUD, DEPARTMENT OF JUSTICE

Dr. Smits. Thank you. It’s a pleasure to be here to talk about
this very important issue. I will just very briefly summarize my
comments.

I would like to begin by saying that Ms. Judy Berek, the special
advisor to the administrator on these issues, is very sorry she can’t
be here today. She had a very recent death in the family and is
still in New York. I would also like to say for the record how much
I appreciate the qualities Ms. Berek has brought to us in this area.
She has a pragmatic, tough-minded approach to fraud that I think
has taught us all, and her approach has really improved, over the
last year, our approach to this very important issue. I think fraud
is like disease, if you don’t mind my using a doctor analogy. You
can prevent it. You can engage in early detection so that treatment
is easy, or, once you have a severe case, you can treat it.

The treating physician is here to my left, and I will leave treat-
ment to him. But I would like to talk a little about some of what
we are doing and some of what we are learning about prevention
and early detection.

The first element of prevention is that we need to make every
effort to ensure that every payment under the Medicare and Medic-
aid programs is appropriate. The area where we have seen some
of the worst problems is in suppliers of durable medical equipment.
We have begun a much more rigorous review of qualifications, of
whether or not they are legitimate businesses. As a result, as you
probably know, we have excluded fairly 1: numbers of them
‘rom the program, particularly in south Florida where we are cur-
rently focused.

One area I would like you to think about, though, that worries
us, is that, in many cases, businesses dissolve an Teappear with
a new president, different name, a first cousin is brought in to be
the cover. We need ways to track individuals, to identify that there
were five owners last time and to see whether any of those owners
who have been identified as participating in fraud are participating
in the new corporation. I think that is a very important issue in
prevention that we are beginning to look at.

Prevention also means better payment methods. We certainly
agree that the legislated method we have now for pricing durable


68

47

(b) IMPOSITION OF CrvIL MONETARY PENALTY ON
EMPLOYER BILLING FOR SERVICES FURNISHED BY EX-
CLUDED EMPLOYEE.—Nection 1128A(a)(1) of the Social
Seeurity Act (42 U.S.C. 1320a-7a(a)(1)) is amended—

(1) by striking “or” at the end of subparagraph

(C);

(2) by striking “; or” at the end of subpara-
graph (D) and inserting “, or’; and

(3) by adding at the end the following new sub-
paragraph:

“(E) is for a medical or other item or serv-
ice furnished by an individual who is an em-
ployee or agent of the person during a period
in which such employee or agent was excluded
from the program under which the claim was
made on any of the grounds for exclusion de-
seribed in subparagraph (D);”.

(c) Deposit OF PENALTIES INTO HEALTH CARE
FRaubD AND ABUSE CONTROL ACCOUNT.—Section
1128A(f)(3) of such Act (42 U.S.C. 1320a-7a(f)(3)) is
amended by striking ‘‘as miscellaneous receipts of the
Treasury of the United States” and inserting “in the
Health Care Fraud and Abuse Control Account estab-
lished under section 104 of the Health Care Fraud and
Abuse Prevention Act of 1995”.


234

-26-

WA person “was sentenced for participating in an embezzlement scheme perpetrated by
former employees of the Virginia Medicare carrier that netted an estimated $100,000,
The employee, including the supervisor of a special carrier project in which Medicare
beneficiaries were paid by manually drawn checks, wrote checks which friends
forged, cashed and gave back 50 percent of the proceeds. A woman who admitted
cashing 17 checks was sentenced to 12 months incarceration and ordered to repay
more than $70,150."119

“A former employee of the Rhode Island Medicare carrier was sentenced for
embezzling more than $30,000 from the program. Her duties included microfilming
undeliverable reimbursement checks, After beneficiaries complained about not
receiving checks, investigators showed that she had embezzled 44 checks over a 5-
month period and cashed them at local barks for her own use,""20

ML “A former hospital official in Pennsylvania and several others were convicted of
‘embezzling Medicare and {Department of Health and Human Services] block grant
funds paid to the hospital. After his release from prison, the former official received
$128,000 from a life insurance policy but made no payment on a fine of $23,350 and
restitution of $159,570, as he had been ordered. Instead, he distributed the money to
friends and relatives, and attempted to keep the money secret from the probation
department. He was told by the court to pay the fine immediately and submit a plan
for restitution, or he would have to retum to prison for 6 to 9 months."!2!

CONCLUSION

If Medicare's centralized, non-competitive, single-payer system is at the heart of,
billions of dollars in wasted resources, eliminating waste, fraud, and abuse requires that
competitive market forces be introduced into the Medicare system. Free market forces
and incentives would reduce Medicare's excessive costs and improve the quality of health
care for seniors. Moreover, we would finally provide seniors with a medical system that
develops greater quality rather than a system that increasingly consumes more and more
health dollars

‘The following specific recommendations are crucial to ensure that Medicare is

protected, preserved, and strengthened:

1) Increase Medicare's anti-fraud and abuse efforts and prosecute Medicare fraud more
vigorously;

2) Establish a national health-care fraud data base that includes information on final
adverse actions taken against health-care providers;

9 HHS, O1G, Semiannual Report, October 1, 1993 - March 31, 1994, p. 18.
120 Idem.

21 idem.


152

representing diverse backgrounds.

The result of their hard work, from holding hearings
to critically evaluating documents and written comments,

was compiled into this report that I hold in my hand.

Included in this report are positive recommendations
to reform Medicare. Their first recommendation focused
on the need to combat waste, fraud, and abuse. Concern
by the public for abuse by greedy, unscrupulous
professionals must be alleviated. Guilty persons must be
dealt with harshly. Current set fines are not sufficient
because they can easily become merely a cost of doing
business. Loopholes in current law that allow fraud abuse

to thrive must be permanently closed. Civil monetary


79

Mr. Suays. I welcome our chairman of the committee, but before
calling on him, I am pleased to call on my ranking member, a gen-
tleman who has been involved in this issue for a long time and has
had a tremendous impact, Mr. Towns.

Mr. Towns. Let me just say, thanks a lot, Mr. Chairman, but I
am prepared to yield to the chairman of the full committee.

Mr. CLINGER. No, go ahead, please.

Mr. Towns. Mr. Chairman, thank you for convening today’s leg-
islative hearing on two important bills that will significantly im-
prove Federal enforcement of Medicare and Medicaid fraud and
abuse and save taxpayers billions of dollars in unnecessary spend-
ing under finance and delivery of health care.

H.R. 1850 and H.R. 2326 both are the result of oversight work
initiated during the 103d Congress and continued under the leader-
ship of you, Mr. Chairman. This oversight has established the ex-
tent of fraud and abuse in the Federal health care system, the ef-
fectiveness of current enforcement efforts, and opportunities to im-
prove enforcement of fraud and abuse violations.

H.R. 1850, which I introduced 4 months ago, is virtually the
same legislation that I offer along with my colleague, Mr. Schiff,
of New Mexico. That amendment actually enjoyed the unanimous
support of this committee and nearly unanimous support of the full
committee.

H.R. 2326 was introduced earlier this month, again by Mr. Schiff
and Subcommittee Chairman Mr. Shays, and successfully incor-

rates provisions of my bill that enhance coordination of Federal,

tate, and local enforcement efforts, and establishes supplemental
resources to carry out enforcement activities. However, H.R. 2326
also includes significant new provisions that create and define Fed-
eral criminal offenses and adjust sections of the Medicare and Med-
icaid programs to enhance the prevention and detection of health
care fraud.

Chairman Shays, I am pleased to be an original cosponsor of
H.R. 2326, which I think appropriately builds on my legislation as
well as the hearing record. However, while I am encouraged that
this bill can create a comprehensive structure for the detection, in-
vestigation, and prosecution of health care fraud, I am open to any
suggestions from our witnesses today that can improve this legisla-
tion. I think, when we think of fraud and abuse, anything that we
can come up with that is going to curtail, I think we should try to
find a way to support it.

I regret that we were unable to have anyone from the Office of
the Inspector General of the Department of Health and Human
Services here today to participate in the exchange of views. May I
add that they have been very cooperative, Mr. Chairman, and I
hope that you would leave the record open for 5 days for additional
comments. Also, I would like to ask for permission to place a state-
ment. in the record which has been submitted by the Department,
as well.

Finally, Mr. Chairman, given the increasing likelihood that we
will see drastic cuts in Federal support for Medicare and Medicaid
in the near future, it may be that our most responsible contribution
to Medicare and Medicaid reform, as subcommittee members, will


Como NAH PR WN HE

Nn a
REBBEBSCSERIARARSERES

15

11

(C) Use.—Amounts in the Expenses Sub-
account shall be available to the Inspector Gen-
eral, under such terms and conditions as the
Inspector General determines to be appropriate,
for—

(i) paying expenses incurred by their
respective agencies in carrying out activi-
ties under subsection (a); and

(ii) making reimbursements to other
Inspectors General and Federal, State, and
local agencies in accordance with sub-
section (g).

(3) RESERVE SUBACCOUNT.—

(A) Deposits.—An amount otherwise re-
quired under paragraph (2)(A) to be deposited
in the Expenses Subaccount in a fiscal year
shall be deposited in the Reserve Subaccount,
if—

(i) the amount in the Expenses Sub-
account is greater than $500,000,000; and

(ii) the deposit of that amount in the
Expenses Subaccount would result in the
amount in the Expenses Subaccount ex-

eeeding 110 percent of the total amount

“HR 1850 TH


230

-2-

citizens, He or one of his employees would obtain their Medicare numbers and bill
the program for unnecessary tests or tests not performed."!*!

AM “In Obio, a physician was sentenced on the basis of a negotiated plea whereby he had
agreed to cooperate with the government in exchange for dismissal of charges under
pretrial diversions for his sister/employee, and for his corporation. During a 4-year
period, be billed Medicare more than $1.5 million and was paid $560,000, over 60
percent of which was for laboratory services supposedly performed in-house. A
carrier utilization review showed he billed as much as 600 percent more than his peers
in some areas. He was accused of billing Medicare, the Civilian Health Medical
Program of the Uniformed Services, and private insurers for laboratory services not
performed or not medically necessary, double billing and money laundering."!°2

MEDICAL BILLING COMPANIES BILKING THE TAXPAYER

Setting up a Medicare billing company is an easy way to scam the program.
According to a Knight-Ridder article, "Scamsters used rented mailboxes and beepers as
business phones. They billed Medicare with the stolen names and Social Security
‘numbers of Medicare patients.""®> The newspaper uncovered a half-dozen phony
‘companies that had submirted fraudulent billings, including one that listed a golf course
sand trap as its address. The same article noted that it was easy to fill out a four-page
form that asks for a name, address, phone number, and a statement saying the operator
hasn't been in trouble with Medicare before. Most of the time, Medicare never checked
the information.!TM Once the billing company is set up, the flood gates of fraud are open.

‘M_ In Dade County, Florida, alone, 500 phantom companies tried to bill Medicare in the
space of two months during 1994 “and many of them got away with $6.7 million
before the government stopped mailing them checks.... Most of the companies didn't
‘even have telephones and operated out of mail drops.... [A] company which collected
$100,000 from Medicare stated in billings that some of its patients lived in a vacant
south Dade warehouse."!08

1 “The Florida Medicare carrier agreed to pay the government $10 million to settle
ions that the company mishandled and caused massive backlogs in Medicare
claims, submitted false claims and increased costs to Medicare. In December, 1988,
the company, the second largest Medicare processor in the nation, switched to a new
‘computer system to process Medicare Part B claims. Beginning in early 1989,
computer deficiencies created a backlog of payments for these claims. In an effort to
reduce the backlog, the company bypassed computer audits and edits, created false

101 HHS, O1G, Semiannual Report, October 1, 1994 - March 31, 1995, p.9.
¥2 ibid, p. 10.
11 ‘Dubocg, Tom, "Medicare, citing fraud, plans to scrutinize billing companies,” some operating out of
mail drops, blked agency out of millions,” The Fresno Bee, September 2, 1994, p. C18.
Idem.

103 Idem.



197

Beyond that, Mr. Chairman, we would offer one perfecting note with respect to
the proposed federal database of final adverse actions against health care
providers. Among the “information to be reported” regarding a given action
should be the Taxpayer Identification Number, or absent that, the Social Security
Number of the subject of the action. The inclusion of that identifying
information—particularly the Taxpayer 1.0. number—is essential to private
payers’ efficient use of such a database, in that it is the primary basis on which
they would readily idently ther claims exposure to any provider reported to the
database.

Again, Mr. Chairman, thank you for the opportunity to comment on these
Proposals, and for your and the Subcommittee's dedication to developing a
practical and effective approach to health care fraud.

We hope that our comments are helpful to that effort, and we will be happy to
continue to work with the Members and staff in its furtherance.

13722
9728085


128

-1-
instructions.

Conclusion

As you can there are many areas where we agree. HCFA is
committed to working with our partners and the Members of this
Subcommittee to confront the challenge of fraud and abu:
As technology changes and our health care system becomes more
complex, HCFA continues to ensure access to high-quality, cost
effective health care to 70 million of our most vulnerable
Americans -- the aged, disabled and citizens with low incomes.
Similarly, the Department of Labor continues to ensure that the
promise of health coverage, which nearly 100 million workers, as
well as their dependents, receive through over 4.5 million
employer-sponsored health benefit plans, is kept.

For the past thirty years, HCFA has efficiently paid the health
care bills of virtually all senior citizens and today pays for
the care of about 20 nt of the nation’s children. However,
just as medical care improves and changes, so must the Medicare
and Medicaid programs.

payers and Medicare and Medicaid beneficiaries deserve our
jurance that each benefit dollar is being spent for needed care
and services. HCFA continues to demonstra‘ the commitment,
authority, and leadership to provide this assurance.

partnerships between government and private industry and
sophisticated information technology, we can save Medicaid and
Medicare from vaste.



134

The expansion of the criminal anti-kickback statute {section
206 of H.R. 2326) to cover the inducement of the referral of
business that is paid for by any government health care program
will also have a significant beneficial effect on our enforcement
efforts. Our anti-kickback enforcement efforts have confronted
significant obstacles because of the limited coverage of the
current Medicare/Medicaid anti-kickback statute. Defense counsel
routinely argue that the statute does not apply unless the
majority or totality of a provider's business is paid for by

Medicare/Medicaid. For this reason, kback prosecutions are

vigorously defended and require extensive prosecutorial
resources. In addition, because of the limited coverage of the
existing statute, many providers are not deterred by it and are
unwilling to make restitution for the fraud they commit.

Administrative subpoena authority for the Department of
Justice and the grand jury disclosure provision contained in
sections 210 and 211 of H.R. 2326 will greatly improve the
ability of prosecutors and civil attorneys to share evidence to
support criminal and civil health care fraud cases. These tools
should eliminate the need for wasteful duplication of effort in
pursuing alternative remedies in the health care cases. The
resources saved as a result of these, and other provisions in the
proposed statute, should be available to investigate and
prosecute additional health care fraud cases.

The Department of Justice does, however, have serious

reservations about a few of the specific provisions of H.R. 2326.


252

8. Department of Justice

Office of Legislative Affairs

(Othe of he Aesinet Anceaey Gerard Washingon, 2, 20530

October 6, 1995

Honorable Christopher Shays
Chairman
Subcommittee on Human Resources

and Intergovernmental Relations
Committee on Government Reform

‘and Oversight
U.S. House of Representatives
Washington, D.C. 2051

Dear Mr. Chairman:

‘This responds to your request at the hearing on September
28, 1995, for the Department's views on certain proposals
relating 'to Medicare. For purposes of this request, we have
reviewed H.R, 2389, the "Safeguarding Medicare Integrity Act of
1995." The Department of Justice has a very active health care
fraud enforcement program which we believe would be undermined by
certain of the bill's provisions. We understand that some or all
of these proposals may be considered by the Congress in
connection with its deliberations on H.R. 2425, the "Medicare
Preservation Act."

‘ oli. Abuse

‘Although Section
106 is xather complex, it seems that this Section would create a
Pund consisting of monies from the following sources: monies
currently used by the Health Care Financing Administration to
fund the anti-fraud activities of the Medicare carrier and
internediazy Fraud and Abuse Units; proceeds of administrative
penalty actions; criminal fines; and penalties and damages (after
Yestitution and relators' awards) recovered under the False
Claims Act. Pursuant to the bill, these funds would not be used
to supplement the health care fraud enforcement activities of law
enforcement agencies. Rather, the funds would be used to "enter
into contracts with private citizens" for the review of
activities of providers, audits of cost reports, education of
providers, beneficiaries, and others

The Department of Justice has several concerns about this
Fund for private anti-fraud activities. First, by establishing
an Anti-Fraud and Abuse Trust Fund to finance private contractors
but not law enforcement and federal health care program agencies,

100/200 ¥i0 roa erre rts zozG © oc:et 96/00/07


189

crime of health care fraud itself. You have incorporated a civil
cause of action for any victim who is victimized by the illegal remu-
nerations violations, but one of the key Principles in an all-payer
approach is not to expect the government to do the private side’s
work, in its entirety, for it, but to better equip the private payers
to go after the problem.

To the extent that private payers were given a simple Federal
civil cause of action, that would create another avenue through
which they could take effective action without directly relying on
law enforcement resources.

As we said in June, one of the upshots of this all-payer approach
is that the better equipped the private payers are to investigate
and prosecute and obtain recoveries, the more the government is
going to realize a reciprocal benefit, because, in most cases, the
provider who is defrauding Medicare, Medicaid, CHAMPUS, and
the like, is defrauding Blue Cross-Blue Shield of Tennessee, Aetna,
Employers Health, and vice versa.

So you’ve got the Government taking a strong approach on one
hand, and if the private payers are better juipped to do the same,
then both are going to realize the benefits of each other's anti-fraud
efforts.

I will close with that, Mr. Chairman, but again I will thank you
and Mr. Schiff and Mr. Towns for your consistent attention and
your commitment to doing something. I think you are very much
on the right track.

you.
[The prepared statement of Mr. Mahon follows:]


178

AARP
=

Bringing lifetimes of experience and leadership 0 serve all generations.
STATEMENT
of the
AMERICAN ASSOCIATION OF RETIRED PERSONS
on

HR. 2326:
THE HEALTH CARE FRAUD AND ABUSE
PREVENTION ACT OF 1995

Presented by

LOVOLA BURGESS
AARP Immediate Past President
and
Member, Board of Directors

before the

Human Resources and Intergovernmental Relations Subcommitee
of the
Government Reform and Oversight Committee

of the
United States House of Representatives

WASHINGTON, D.C.

September 28, 1995

For further information contact:
‘Michele Kimball of Tricia Smith
Federal Affairs Department
(202) 434-3772

American Association of Retired Persons 601 E Steet, NW. Washington, D.C. 20049 (202) 434-2277
Eugene 1. Lehrman President Horace B Deets Excentive Director


14

53

(b) EFFECTIVE DaTE.—The amendment made by
subsection (a) shall apply to the annual notice mailed
under section 1804(a) of the Social Security Act for years
beginning with 1997.

SEC. 305. REQUIRING USE OF SINGLE PROVIDER NUMBER
IN SUBMISSION OF CLAIMS FOR PAYMENT
UNDER MEDICARE AND MEDICAID.

(a) USE OF SINGLE NUMBER UNDER MEDICARE.—
Section 1842(r) of the Social Security Act (42 U.S.C.
1395u(r)) is amended to read as follows:

“(r)(1) Not later than 1 year after the date of the
enactment of the Health Care Fraud and Abuse Preven-
tion Act of 1995, the Secretary shall establish a system
which provides for a unique identifier for each individual
or entity who furnishes items or services for which pay-
ment may be made under this part.

“(2) No payment may be made under this title for
any item or service furnished by an individual or entity
unless the claim for payment with respect to the item or
service includes the unique identifier provided to the indi-
vidual or entity under the system established under para-
graph (1).”.

(b) PROVIDING MEDICARE NUMBER FOR SUBMIS-
SION OF MEDICAID CLaIMs.—Section 1902(x) of such Act
(42 U.S.C. 1396a(x)) is amended—

oHR 2326 I


256

requires the Secretary of HHS to issue advisory opinions
concerning, inter alia, what constitutes a violation of the
criminal Medicare anti-kickback statute. The Department of
Justice opposes this provision on both legal and practical
grounds.

First, the Department of Justice hes the exclusive authority
to enforce all federal criminal laws. This authority extends to
all prosecutorial decisions, including those based on the
Medicare anti-kickback statute. In that regard, the rendering by
an agency other than the Department of Justice of opinions
concerning the prosecutive merit or lack of prosecutive merit cf
a particular case would be beyond that agency's authority.
Furthermore, we feel that it would be inappropriate for the
Department of Justice to defer to another department's judgment,
such as HHS, regarding what constitutes a prosecutable case under
any criminal provision of the United States Code.

Second, we believe that the rendering of advisory opinions
ig generally ill-advised. This is especially true where, as in
the instant case, a viclation of the statute depends on proof of
a knowing and willful intent to do the act proscribed. For
obvious reasons, a putative defendant's presentation of the
relevant" facta is apt to be slanted and incomplete and,
therefore would be a poor basis on which to render a prosecutive
judgment. Assuming that HHS is not going to conduct an
investigation of each advisory opinion request which is filed,
the prosecutor will, in all likelihood, have inadequate
information on which to base his or her decision.

Third, we are concerned that advisory opinions would produce
unnecessary problems in the context of a subsequent criminal
and/oz civil prosecution by introducing additional factual issues
into these cases relating to the interpretation and applicability
of the advisory opinion at issue.

In sum, we believe that the rendering of advisory opinions
would immunize the individuals who committed the conduct to which
the opinion relates, and would engender complex litigation in
other cases in which che defense would rely on advisory opinions.

Section ol 1: This Section
would mandate the establishment of a voluntary disclosure
program. Since the Inspectox General of HHS Tecently announced a
pilot voluntary disclosure program, in conjunction with the
Department of Justice, we question the need for this provision.

This Section provides that the Secretary of HHS may waive,
reduce, ox mitigate any sanctions against individuals who make
voluntary disclosures, including statutory sanctions which
include criminal remedies. As noted above, the Attorney General
has the exclusive authority tc enforce federal criminal laws.

5

1007/9008 vio roa Opts YTS toz eat 98/90/07


Cm NY DAH PB WN =

i)

11

32

11

(B) amounts transferred from the Reserve
Subaccount under subsection (¢)(2).

(2) Deposirs.—Except as provided in sub-
section (c)(1), there shall be deposited in the Ex-
penses Subaccount all amounts received by the
United States as—

(A) fines imposed in cases involving a Fed-
eral health care offense;

(B) civil penalties or damages (other than
restitution) in actions under section 3729 or
3730 of title 31, United States Code (commonly
referred to as the “False Claims Act’’), that are
based on claims related to the provision of
health care items and services;

(C) administrative penalties under titles
XI, XVIH, and XIX of the Social Security Act;

(D) proceeds of seizures and forfeitures of
property for acts or omissions in violation of
any Federal law related to the provision of
health care items and services; and

(E) money and proceeds of property that
are accepted under section 105.

(3) Use.—Amounts in the Expenses Sub-
account shall be available to the Inspector General

and the Attorney General, under such terms and


224

-16-

Health and Medical Program of the Uniformed Services. He billed for counseling
sessions that never occurred or inflated time. He was ordered to serve 6 months home
confinement and 750 hours community service."

"A Florida ophthalmology group agreed to pay $2.5 million to resolve civil claims
arising from two fraudulent Medicare billing schemes. The first scheme involved
billing for services under an erroneous code to obtain maximum reimbursement for
laser surgeries. The second scheme involved a contract with a billing service which
resubmitted to Medicare fraudulent claims for individual procedures already
reimbursed under global payments. The billing service, which is now defunct,
solicited medical groups throughout the country and contracted to review their billing
records to ensure full reimbursement. The billing service kept $0 percent of any
additional reimbursement it identified and received for a group."?!

X “A Califomia orthopedic surgeon agreed to pay a total of $581,500 to settle charges
of submitting false claims for Medicare reimbursement. The surgeon billed for
services performed while he was out of the country, and billed for x-ray and physical
therapy services that were performed by unlicensed, untrained personnel. The
surgeon was convicted of theft from the Medi-Cal program in 1987 for filing similar
false claims and was excluded from the Medicare and state health care programs for
25 years."72

4M “A county hospital in Maryland agreed to pay $275,000 to settle government claims
related to fraudulent Medicare billings. The hospital billed for physical therapy
services for which physician certification orders were altered or nonexistent. A
teview of 392 Medicare claims showed that 236 were improper."”3

HL "A private non-profit corporation in Michigan and its president paid a total of
‘$150,000 for submitting false claims to Medicare. The corporation charged for
physical therapy services for community mental health clients when they actually
provided exercise therapy and counseling to improve motivation, endurance, general
health and socialization -- which are not covered by Medicare. The corporate
president duped two local doctors into permitting use of their provider numbers for
billing purposes. The doctors tured over to him the payments received."

3. A California Superior Court judge rejected an offer to allow a convicted
‘ophthalmologist to spend a year performing eye surgery in an impoverished country
and ordered him to begin serving his 16-month prison sentence. The ophthalmologist
‘was convicted in 1991 in state court on 36 counts of grand theft for billing Medicare
for services he did not perform. He intentionally caused astigmatisms by sewing a

79 idem.
11 HHS, O1G, Semiannual Report, April |, 1993 - September 30, 1993, pp. 23-24
HHS, O16, Semiannuol Report, October 1, 1993 - March 31,1994, p. 14



103

Honorable Christopher Shays
October 5, 1995
Page 3

Advisory Board established in both bills will benefit from the representation of state prosecutors.
However, as chief legal officers of our states, we are concerned about the limitation on
prosecutorial discretion contained in section 104(4) of H.R. 2326. Although we recognize that
the intention of the provision is to prevent “bounty hunting" and ensure faimess, the prosecutor's
judgment as to the remorse of the defendant, the risks of litigation and tne benefits of prompt
resolution of cases is important, and should not be limited in this way.

‘The new criminal provisions contained in H.R. 2326 appear to provide effective new
tools for the fight against health care fraud, In particular, the new health care fraud offense
should be a valuable addition to the current mail and wire fraud offenses frequently used by
prosecutors.

‘Thank you again for giving us an opportunity to comment on H.R. 2326 and H.R. 1850.
‘We look forward to working with you on these bills and future anti-fraud initiatives.

Very truly yours,

G24

‘Attomey Gene! Fagging
Chair, NAAG Health Care Task Force



39

18
1 health care providers, suppliers, or practitioners, or
2 against health care benefit programs, in order to provide
3 a central repository of such information to assist in the

4 prevention, detection, and prosecution of health care fraud

5 and abuse.

6 (b) REPORTING INFORMATION.—

7 (1) IN GENERAL.—For purposes of establishing
8 and maintaining the data base under this section,
9 each Government agency shall report any final ad-
10 verse action taken against a health care provider,
11 supplier, or practitioner, or against a health care
12 benefit program, together with the information de-

13 scribed in paragraph (2).

14 (2) INFORMATION TO BE REPORTED.—The in-
15 formation referred to in this paragraph is as follows:
16 (A) The name of any health care insurer,
17 provider, supplier, or practitioner or health care
18 benefit program which is the subject of the final
19 adverse action reported under paragraph (1).
20 (B) In the case of a final adverse action
21 taken against a health care provider, supplier,
22 or practitioner, the name (if known) of any
23 health care benefit program with which the in-
24 surer, provider, supplier, or practitioner is af-
25 filiated or associated.


250

U.S. Department of Labor Wenge De. 20200

oct «6 BS

‘The Honorable Christopher Shays

Chairman, Subcommittee on Human Resources
and Intergovernmental Affairs

Committee on Government Reform and Oversight

U.S. House of Representatives

Washington. D.C. 20515

Dear Chairman Shays:

Jt is my understanding that you have lefi the official record open following your
September 27, hearing on H.R, 2326, the Health Care Fraud and Abuse Prevention Act of
1995. 1 would like to take this opportunity to comment on the bili for inclusion in the record.
Since its inception in 1978, the Office of Inspector General (OIG) at the Department of Labor
hhas been heavily involved in combatting health care fraud, As you are aware, the Department
of Labor administers, operates, or oversees many worker-related health care programs. The
O1G has conducted many criminal investigations involving fraud in the Federal Employees’
Compensation Act (FECA) program, which provides medical benefits and disability
compensation to Federal employees who are injured; the Black Lung Benefits program, which
provides medical costs and monthly compensation to former coal miners disabled from
pneumoconiosis (black lung); and the Longshore and Harbor Workers’ Act program, which
provides benefits to certain injured and disabled maritime employees. The Department also
has oversight responsibility for all employee health benefit plans that are covered under the
Employee Retirement Income Security Act (ERISA).

1 applaud your efforts in the bill's anti-fraud provisions. The establishment of an
inter-agency coordinated approach to health care fraud promises to have a significant impact.
In fact, in this era of diminishing fiscal budgets, it is imperative that the law enforcement
comtnunity coordinate even more than it ever has before. Specifically, 1 would also like to
thank you for recognizing the investigative roie that the OIG at the Department of Labor has
in this area. I look forward to working with Inspector General Brown, other Inspectors
Generai. and the Department of Justice in the fight against health care fraud.

In addition to our statutory responsibility to monitor Departmental programs, the OIG
has additional responsibilities carried out by the Division of Labor Racketeering which was
created in an effort to combat the influence of organized crime in labor unions and employee
benefit plans. Our initial entry into ERISA health care fraud involved investigations of multi-
employer, union benefit plans. Those early investigations disclosed that organized crime
elements had infiltrated benefit plans through the control of certain unions by organized cnme
families. These organized crime individuals siphoned millions of dollars out of legitimate
union plans through excessive administrative costs. unauthorized participants, kickbacks from
service providers, or outright embezzlement of plan assets. We have noted that the
individuals engaged in these criminal activities are becoming more sophisticated and have
branched off into new areas of criminal activity.


246

in terms of getting at fraud. If we just focus on Medicare or Medic-
aid, what is the liability?

Mr. MaHon. Several key points: 57 percent of the health care
dollars spent in the United States every year are private sector dol-
ars.

Mr. SHays. How much?

Mr. Manon. Fifty-seven percent. That’s 39 percent private insur-
ance and 18 percent patient out-of-pocket payments.

Mr. Suays. Right.

Mr. MAHON. Government-program expenditures are 43 percent,
of which Medicare and Medicaid are a portion. Then you have
CHAMPUS and the other Federal employee plans. That’s the first
key point: looking at where the money is coming from.

Then the fundamental truths about how providers commit the
crime. They defraud more than one payer simultaneously, to stay
below the radar screen with each one as much as possible. They de-
fraud public and private programs simultaneously, and not exclu-
sively. If they do it to one, they do it to the other.

d everyone is looking for sufficient resources to combat the
crime. Mr. Schiff, I think, just made one of the most compelling
points: It is a labor-intensive investigation and prosecution process.
f the objective is to put out of business a provider who is defraud-
ing Medicare or Medicaid, does it really matter whether that pro-
vider is put out of business by the IG’s investigation and prosecu-
tion or through a private payer’s criminal prosecution or civil judg-
ment that renders that provider ineligible to participate in Medi-
care?

The private payers have been investigating health care fraud for
many years now, oftentimes very aggressively, and oftentimes they
have confronted many roadblocks when it came to getting criminal
action taken. They are very close to the crime. They understand
how it’s done. They’ve got the expertise and, in many cases, the
manpower to go after it. They can be a very effective adjunct to
government efforts, and they can work to the Government’s advan-
tage.

Mr. SHAys. Thank you. That’s very helpful.

Ms. Burgess or Mr. Schatz, do either of you have any other com-
ments? I found this hearing very interesting. I am going to again
emphasize that the more you can do to get us to deal with this
issue on the Medicare bill this year, the better it will be for all of
us: 1 really would try to emphasize again that that would be very

e .

If there are no other comments from anyone, we will adjourn this
hearing.

(Whereupon, at 12:25 p.m., the subcommittee adjourned.]

[Additional information submitted for the hearing record follows:]


164

‘Supplemental Statement for the Record
HHS Office of Inspector General
Background Information on OIG Hotline

The U'S, Department of Health and Human Services (HHS), Office of Inspector General (OIG)
hotline was instituted in 1979 to facilitate the reporting of allegations of fraud, waste, and abuse in
Department's programs. In examining the experiences of the past 16 years of hotline operations, the
OIG found that a majority of callers were seeking information, and a much smaller number of callers
were reporting incidents of suspected fraud. This trend has continued as shown by statistics from
June though September of this year, when a monthly average of 2,620 inquiries have been received
with 770 of these being referred for further review. Statistics are not yet available for the number of
calls currently being received, however, in Fiscal Year 1994 there were more than 93,000 calls to the
hotline

In early 1995, with the inception of Operation Restore Trust, Inspector General June Gibbs Brown
requested a review of hotline operations with the goal of providing enhanced services and
capabilities. To accomplish this, a contract was let to design a state-of-the-art hotline that would
attempt to meet the many demands placed on it for service. Based on the recommendations made by
the consultants, an action plan consisting of three major components was developed. In furtherance
of this plan another contractor was hired, a new telephone system installed, and an enhanced
‘computer tracking system developed, all with the goal of enhancing the ability to report, detect and
prevent fraud.

Due to the limited Federal staff resources available, the first component involved selecting a
contractor to staff the hotline, enabling the OIG to provide a flexible response to the variable
demands placed upon the system. The contractor selected brought many years of government
experience in OIG efforts to combat fraud and waste. Using the contract as the vehicle, we were able
to shift resources to meet peak demands for service.

Also, a new toll-free hotline number, 1-800-HHS-TIPS, was implemented to give people an easily
remembered method for contacting the hotline to report fraud. In addition to its existing Post Office
‘box and to keep pace with the advances of technology, a toll-free FAX line was also installed giving
people an additional option of transmitting information to the hotline.

‘The second component in the OIG effort to provide the best possible service to the widest spectrum
of callers in the most efficient manner was the selection of the FTS2000 AT&T InfoWorks data base
platform. This computerized menu driven system is intended to direct calls to the appropriate entity
for dealing with the most commonly asked questions or complaints. InfoWorks has the ability to
answer up to 400 calls simultaneously, thereby limiting the cost of personnel resources, and virtually
eliminating frustrating busy signals experienced by callers in the past. The scripting for infoWorks
is based on more than 16 years of experience managing the HHS hotline. The majority of calls that
are received do not involve actual instances of fraud, but rather procedural or technical questions.
‘The InfoWorks menu system directs calls that have a high probability of fraud to an operator by
means of term recognition. We are thereby able to provide appropriate service to the majority of
people calling our hotline, while preserving our limited staff resources for those callers who are
reporting actual instances of fraud.

louse Government Reform and Oversight Commifice, Subsommities on Human Resources and tntesgovernmenial AMais—Page T


Ceo NAH RW HN

64

43

(1) by redesignating subsections (c) and (d) as
subsections (d) and (e), respectively; and

(2) by inserting after subsection (b) the follow-
ing:

“(e) A person who is privy to grand jury information
concerning a health care offense—

“(1) received in the course of duty as an attor-
ney for the Government; or

“(2) disclosed under rule 6(e)(3)(A)(ii) of the
Federal Rules of Criminal Procedure;

may disclose that information to an attorney for the Gov-

ernment to use in any civil investigation or proceeding re-

lated to a Federal health care offense (as defined in sec-

tion 24 of this title).”’.

SEC. 212. MISCELLANEOUS AMENDMENTS TO TITLE 18,
UNITED STATES CODE.

(a) LAUNDERING OF MONETARY INSTRUMENTS.—
Section 1956(c)(7) of title 18, United States Code, is
amended by adding at the end thereof the following:

“(F) Any act or activity constituting an offense
involving a Federal health care offense as that term
is defined in section 24 of title 18, United States
Code.”’.

(b) ENHANCED PENALTIES.—Section 2326(2) of title
18, United States Code, is amended by striking “sections


203

3

‘The following horror stories show the true depth and breadth of Medicare fraud.
While some of these stories may seem humorous on the surface, they are not. Each story
of Medicare being defrauded is a disgrace to working men and women in this country,
and represents a serious breakdown of our system.

Under the Medicare and Medicaid anti-kickback statute, i is illegal to offer
payments to physicians deliberately to induce them to refer business under Medicare or
any state health-care program. Kickbacks are especially egregious because they
‘encourage medical providers to replace concer for the patients welfare with the profit
motive, Consider the following:

+ According to the HHS IG, a former billing clerk and 14 former patients of a Georgia
chiropractor were sentenced in a kickback scheme that cost Medicare and other
insurance companies millions of dollars. Bills were submitted for 169 people who
‘were supposedly treated in one day.

+ Inarepon issued by Sen, William Cohen (R-Maine) in 1994, a doctor received
kickbacks in the form of cash payments, jewelry, and other gifts in exchange for
referrals, The total amount of kickbacks was estimated at $125,000.

‘Am area of growing concem for the IG is Durable Medical Equipment (DME).
DME is reimbursable by Medicare and Medicaid only if prescribed by physicians as
medically necessary. Aggressive sales practices, such as telemarketing, are used to entice
Physicians into signing letters of medical necessity. According to the HHS IG, post
office boxes or store fronts were used to disguise hundreds of bogus companies. For
example:

«Ina March 1995 article, The Healthcare Financial Ventures Report wrote that
payments to about 2,000 DME suppliers have been suspended by HCFA because of
suspicion of improper claims or billing fraud.

«Peter Vilbig, a writer for The Las Vegas Review, reported that angora underwear,
microwaves, and air conditioners were used as ploys to get Medicare beneficiaries to
give their identification numbers to a Brooklyn, New York firm, Medicare was
‘apparently billed for expensive hospital beds and the company used part of the money
to buy the promised item.

In 1992, GAO reported that funding for Medicare's contractors, who are
responsible for combating fraud and abuse, had not been commensurate with the rapidly
growing number of claims. In 1995, GAO concluded that “[B]etween 1989 and 1994, the
requirement for contractors to review a portion of claims in process dropped from 20
percent to 5 percent due to reduced funding,” This means that Medicare pays more
claims with less scrutiny than at any other time over the past five years. Here are some of
the results:


148

Furthermore, we need to let the public know in clear
terms where they should go to report Medicare fraud.
I believe these bills take us in that direction and J look
forward to the testimony of the witnesses to show us
how to make this legislation better.

I thank the Chairman.


Coe IYI AH PF WN

Nn NON ee
RPBRPEBREREBSCZSrRIADEBSREEAS

35

14

(d) RESTRICTION ON DEposits.—In the case of a
Federal health care offense, the attorney for the Govern-
ment may not, in exchange for payment by a defendant
of a fine or other monetary amount to be deposited in the
Account, reduce the exposure of the defendant to a term
of imprisonment by moving for dismissal or reduction of
charges, agreeing to dismiss charges, agreeing not to bring
charges, or recommending a lesser sentence.

(e) ANNUAL REPORT TO CoNnGRESS.—Not later than
180 days after the end of each fiscal year (beginning with
fiseal year 1996), the Secretary of Health and Human
Services and the Attorney General shall submit a report
to the Committee on Government Reform and Oversight
of the House of Representatives and the Committee on
Governmental Affairs of the Senate on the operations of
the Account during the fiscal year, including a description
of the deposits made into the Account and the payments
made from the Account during the year.
SEC. 105. ACCEPTANCE OF GIFTS, BEQUESTS, AND DEVISES.

The Attorney General or any Inspector General re-
ferred to in section 101(a) may aécept, use, and dispose
of gifts, bequests, or devises of services or property (real
or personal), for the purpose of aiding or facilitating ac-
tivities under this title regarding health care fraud and

abuse. Gifts, bequests, or devises of money and proceeds

HR 2926 TH


oOo I AH PF WN

RPBBEPBSSEDREESBELS

67

46
TITLE II—ANTI-FRAUD INITIA-

TIVES UNDER MEDICARE AND

MEDICAID
SEC. 301. REVISION TO CURRENT PENALTIES.

(a) PERMISSIVE EXCLUSION OF INDIVIDUALS WITH
OWNERSHIP OR CONTROL INTEREST IN SANCTIONED EN-
TITIES.—Section 1128(b) of the Social Security Act (42
U.S.C. 1320a-7(b)) is amended by adding at the end the
following new paragraph:

“(15) INDIVIDUALS CONTROLLING A SANC-

TIONED ENTITY.—Any individual who has a direct
or indirect ownership or control interest of 5 percent
or more, or an ownership or control interest (as de-
fined in section 1124(a)(3)) in, or who is an officer,
director, agent, or managing employee (as defined in
section 1126(b)) of, an entity—

“(A) that has been convicted of any of-
fense described in subsection (a) or in para-
graph (1), (2), or (3) of this subsection;

“(B) against which a civil monetary pen-
alty has been assessed under section 1128A; or

“(C) that has been excluded from partici-
pation under a program under title XVIII or
under a State health care program.”.


190

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196

Absent from H.R. 2326, however, are two points that would sig
private payers’ fraud-fighting ability and effectiveness:

(1) the aforementioned private civil cause of action for the crime of health cara
fraud itselt. This would give private payers an efficient legal tool comparable to
the government's False Claims Act and would represent a channel through which
they could combat fraud without a direct reliance on law enforcement resources;
and

icantly enhance

(2) the establishment in federal law of immunity from civil liability for insurers’
good-faith reporting of suspected fraud and sharing of investigative information.

H.R, 2326 establishes such immunity for the reporting of information to a new
federal database of final adverse actions (for which immunity is somewhat
superfiuous, in that those actions constitute public-record information) as well as
tor replies to administrative subpoenas, but it fails to address the area in which
such good-faith immunity is most needed: active investigation:

‘Again, such a concept is not new; it merely represents the application at the
federal level of what so many state laws recognize as an essential ingredient of
fighting fraud effectively.

One example of such federal application has appeared in a draft health care
fraud bill recently assembled by Representative Tom Coburn of Oklahoma,
himselt a practicing physician. In the course of providing for the provision of data
by health insurers to the HHS Secretary and to the Attorney General, the Coburn
draft included the following language:

(iii) Qualitied immunity for providing information. —The provisions of
Section 1157 (a) of the Social Security Act (relating to limitation of
liability) shall apply (i) to a person providing information or
communications to the Commission, the Secretary or the Attorney
General in conjunction with the performance of their duties under
this Act or (ii) to health plans sharing information in good faith and
without malice with any other health plan with respect to matters
relating to health care fraud detection, investigation and prosecution
[emphasis added}

The inclusion of such a provision in any new anti-fraud measure would go a long
way toward removing what is both a real and perceived liability risk that often
discourages private payers from acting against given frauds.

Also absent, but essential to a cohesive effort, is any provision for the
coordination of law enforcement efforts and the sharing of data with private
payers—a feature of virtually every “all-payer” proposal offered in Congress in
recent years. From a practical standpoint, law enforcement will have to rely on
private-payer input in identifying, investigating and successfully prosecuting
health care fraud on a broader scale



104

STATEMENT OF
THE NATIONAL ASSOCIATION
OF
MEDICAID FRAUD CONTROL UNITS
PRESENTED TO THE
HOUSE SUBCOMMITTEE ON HUMAN RESOURCES
AND INTERGOVERNMENTAL RELATIONS
COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT
WASHINGTON, DC
HEARING

SEPTEMBER 28, 1995,


167

HEARING ON H.R. 2326
HEALTH CARE FRAUD AND ABUSE PREVENTION ACT
SUBCOMMITTEE ON HUMAN RESOURCES
STATEMENT AND QUESTIONS PREPARED FOR
CONGRESSMAN BILL MARTINI
SEPTEMBER 28, 1995

THANK YOU MR. CHAIRMAN. | WANT TO JOIN IN
CONGRATULATING YOU, CONGRESSMAN SCHIFF,
AND RANKING MINORITY MEMBER MR. TOWNS FOR
THE EXCELLENT JOB YOU HAVE DONE CRAFTING
THIS IMPORTANT PIECE OF LEGISLATION.

1 HAVE SAID IT BEFORE AND | WILL SAY IT AGAIN,
THEIR SHOULD BE ZERO TOLERANCE OF WASTE,
FRAUD AND ABUSE IN FEDERALLY FUNDED
PROGRAMS.

THE MEDICARE AND MEDICAID PROGRAMS PROVIDE
MANY ESSENTIAL SERVICES TO MILLIONS OF
AMERICANS. HOWEVER, AS WE HAVE HEARD FROM
THE INSPECTOR GENERAL AND MANY OTHERS
BEFORE THIS SUBCOMMITTEE, THESE PROGRAMS
MAY BE DEFRAUDING THE AMERICAN TAXPAYER
OUT OF SOME $24 BILLION A YEAR.

OVER THE PAST FEW MONTHS, | HAVE
CONTINUALLY RAISED CONCERNS ABOUT ONE
PROGRAM IN PARTICULAR, THE NON-EMERGENCY
MEDICAL TRANSPORTATION (NEMT) PROGRAM,


126

_—

reported that their Medicare cards (containing their
Medicare number) were either lost, stolen, or
misappropriated.

In onse, the Medicare contractor has adjusted its
automated claims processing system to reject clains for
services to beneficiaries who have received excessive line
items of service during the past 30 days. ‘The system is now
rejecting about 1,300 claims per day with annualized savings
projected at $60 million.

If the claim is rejected, a denial message is printed on the
Explanation of Benefits and sent to the beneficiary stating
that usage has exceeded normal limits and that documentation
of the need for the service must be submitted for an appeal
of the denial. To date, no appeals have been received.

© Further adjustments to the automated Medicare clains

‘ing system eliminate payment for certain procedures
blish boundaries on usage for other procedur

These satonated reviews have saved an erage of $600,000

Per month. Annualized savings have been estimated to be $10

million,

© For fiscal year 1995, the Medicare contractor has identified
and sought repayment for $12 million in overpayments.

ECFA Is Improving Its Capacity to Prevent Billing abuse

We are taking a significant step in improving contractor ability
to detect billing abuses by installing a new set of edits based
on a year long study we have conducted with Administar. These
changes will benefit the Medicare Program and its beneficiaries
by reducing spending for inappropriately billed services by
approximately $300 million per year.

Health Care Fraud and Abuse Prevention Act of 1995

I would like to take this opportunity to comment on zeae

ts of H.R. 2326. Much of the bill would be administered
by the Inspector General or the Department of Justice. I will,
in general, defer to than on comment pertaining to these
sections.

We support the general principle behind the Health Care Fraud and
Abuse Control Account, which is similar to the Fraud and Abuse
Control Fund proposed by the Administration and contained in H.
R. 2280, introduced by Mr. Dingell. We believe such accounts can
ba very helpful in providing funding for fraud and abuse
prevention, detection, and investigation.



251

Because of our record of success with multi-employer union benefit plans, both the
Congress and a umber of State Insurance Commissioners urged us to expand our scope of
investigations into certain non-union ERISA-covered benefit plans. This included varieties of
fraudulent multi-state schemes associated with Multiple Employer Welfare Arrangements
(MEWAs). What we have found in these investigations is that many of the same individuals
who were engaged in criminal activities in the area of union plans, had moved into MEWA
and other ERISA-related health insurance schemes.

I am of the opinion that H.R. 2326's amendments to the U.S. Criminal Code will
greatly enhance the abilities of law enforcement agencies to combat health care fraud. In
particular, | am pleased to see that health care fraud will be made a 10-year felony. 1 also
support the new bribery and embezzlement statutes which now will apply to all aspects of
health care fraud, The bill’s broad definition of "health care benefit program” will include
ERISA plans, and { believe that this will prevent fraudulent health insurance operators from
avoiding prosecution by taking advantage of the confusion surrounding the preemption clause
of ERISA. It is for this reason that { strongly support the inclusion of ERISA benefit plans
under the definition of "health care benefit program’ in H.R. 2326.

‘The ERISA bar found at Section 411 is a very effective deterrent against fraud. This
bar prevents persons convicted of certain enumerated crimes from holding any welfare plan
position (including employment as a paid “consultant"), ‘This bar would be even more
effective if Section 411 were amended to include the new health care crimes in H.R. 2326.

In line with these improvements, | might suggest one other area which could
strengthen the battle against health care fraud. We have found the Racketeering Influenced
and Corrupt Organizations (RICO) statute to be very effective in prosecuting health care
fraud. The RICO statute bases prosecutions on certain enumerated crimes; that is, certain
crimes are set forth in the RICO statute itself which can be used as predicates to a RICO
prosecution. If violations of the new criminal provisions were added to RICO predicate
crimes, the law enforcement community would have an even more effective investigative
‘weapon in its arsenal.

Mr. Chairman, my staff and | are ready and willing to work with the Committee to
combat health plan fraud. If you or your staff would like to be briefed on our efforts in the
area of health care fraud, I may be contacted on (202) 219-7296.



45

24
(2) EXPENSES SUBACCOUNT.—The term “Ex-
penses Subaccount” means the Health Care Fraud
and Abuse Expenses Subaccount of the Account.

(3) FEDERAL HEALTH CARE OFFENSE.—The

1

2

3

4

5 term “Federal health care offense” has the meaning
6 given such term in section 24(a) of title 18, United
7 States Code.

8 (4) HEALTH CARE FRAUD AND ABUSE CONTROL
9 UNIT.—The term “Health Care Fraud and Abuse
10 Control Unit” means such a unit established by a
Bt State in accordance with section 102(b).

12 (5) INSPECTOR GENERAL.—Except as otherwise
13 provided, the term “Inspector General” means the
14 Inspector General of the Department of Health and

15 Human Services.

16 (6) RESERVE SUBACCOUNT.—The term “Re-
17 serve Subaccount” means the Health Care Fraud
18 and Abuse Reserve Subaccount of the Account.

19 SEC. 110. EFFECTIVE DATE.

20 (a) IN GENERAL.—Except as provided in subsection
21 (b), this title shall take effect after the expiration of the
22 180-day period which begins on the date of the enactment
23 of this Act.


87

Opening Statement of Willlam F. Clinger, Jr.
Chairman
Committee on Government Reform and Oversight
Subcommittee on Human Resources and Intergoveramental Relations
Hearing on H.R. 2326 - The Health Care Fraud and Abuse Prevention Act of 1995
September 28, 1995

At the outset, I would like to commend Chairman Shays and
Congressman Schiff for their work in drafting H.R. 2326 — the Health Care
Fraud and Abuse Prevention Act and for bringing it before the Subcommittee
today. H.R. 2326 truly represents a bi-partisan effort to address a serious
problem, and I also want to thank everyone who contributed to the bill.

The legislation we have before us today —- the Health Care Fraud and
Abuse Prevention Act of 1995 ;- is the result of a series of hearings conducted
by this Subcommittee to examine the problem of waste and fraud in the
Medicare and Medicaid programs.

As I stated at one of the hearings earlier this year, it is estimated that
Medicare and Medicaid will lose approximately $26 billion this year alone to
fraudulent activities. Without question, fraudulent activity drives up the cost of
these programs and makes it increasingly difficult for all individuals to afford
quality health care. Despite this alarming fact, the government has not taken
full advantage of anti-fraud statutes wl allow the government to "exclude"
fraudulent providers from participating in the Medicare program.

After hearing testimony from members on both sides of the aisle, the
Health Care Financing Administration, the General Accounting Office, and
others, Chairman Shays and Mr. Schiff have drafted what I consider to be a
well-balanced, forthright bill to address this very serious problem. I am
pleased to be an original sponsor of H.R. 2326.

What this legislation does, for the first time, is establish health care fraud
as a federal crime, and it sets out specific penalties for perpetrating fraud. As a
result, H.R. 2326 will make it easier for the government to prosecute while
making it harder for excluded providers to continue doing business with the
government. By establishing civil penalties, "exclusion" and jail time as real


4

(1) DESIGNATION OF STATE AGENCIES AND ES-
TABLISHMENT OF HEALTH CARE FRAUD AND ABUSE
CONTROL UNIT.—The Governor of each State—

(A) shall, consistent with State law, des-
ignate agencies of the State which conduct, su-
pervise, and coordinate audits, civil and crimi-
nal investigations, inspections, and evaluations
relating to the prevention, detection, and con-
trol of health care fraud and abuse in violation
of any Federal law in the State; and

(B) may establish and maintain in accord-
ance with paragraph (2) a State agency to act
as a Health Care Fraud and Abuse Control
Unit for purposes of this section.

(2) HEALTH CARE FRAUD AND ABUSE CONTROL
UNIT REQUIREMENTS.—A Health Care Fraud and
Abuse Control Unit established by a State under
paragraph (1)(B) shall be a single identifiable entity
of State government which is separate and distinct
from any State agency with principal responsibility
for the administration of health care programs, and
which meets the following requirements:

(A) The entity—

(i) is a unit of the office of the State

Attorney General or of another department

HR 1850 TH


HEALTH CARE FRAUD AND ABUSE

THURSDAY, SEPTEMBER 28, 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 10:05 a.m., in room
2203, Rayburn House fice Building, Hon. Christopher Shays
(chairman of the subcommittee) presiding.

Present: Representatives Shays, Souder, Schiff, Chrysler, Mar-
tini, Fox, Towns, Green, and Fattah.

Ex officio present: Representative Clinger.

Staff present: Lawrence J. Halloran, staff director and counsel;
Kate Hickey, and Robert Newman, professional staff members;
Thomas M. Costa, clerk; Cheryl Phelps, minority professional staff;
and Jean Gosa, minority staff assistant.

Mr. Suays. I would like to call this hearing to order. I would like
to welcome our witnesses and our guests.

The purpose of today’s hearing is to examine legislation to fight
fraud_and abuse in health care programs: H.R. 2326, the Health
Care Fraud and Abuse Prevention Act of 1995, introduced recently
by the gentleman from New Mexico, Mr. Schiff, and H.R. 1850, the
Health Fraud and Abuse Act of 1995, introduced in June by the
gentleman from New York, the ranking member of this subcommit-
tee, Mr. Towns.

This is the fourth hearing of this subcommittee on health care
fraud and abuse. What we have learned in past hearings compels
our consideration of these bills today. We learned how easy it is for
a scam artist to steal enormous amounts of money from public and
private health plans.

We heard about the ripoff of Medicaid in New York to the tune
of $150 million a year in prescription drug diversion; the two pro-
vider firms that submitted false claims to Federal health programs
paid fines and settlements of $379 million, in one case, and $111
million in another, and yet continued to bill Medicare and Medic-
aid; and that the Medicare program often pays more than market
prices for medical services and supplies. Nearly $1 billion per year
could be saved on oxygen concentrators alone if Medicaid paid the
same lower price as paid by the Veterans Affairs Department.

We also heard the numbers. Of the more than $1 trillion spent
by our Nation on health care this year, the Department of Justice
estimates that up to 10 percent, or $100 billion, is siphoned off by
those who prey on the system. That’s $274 million lost each day.

qa)


150

Mr. GREEN. What is the most usual way you discover fraud? Is
it independent investigators, or is it through the tips that you get
or complaints?

Dr. Smits. I will yield to Mr. Gould on what is the most produc-
tive. It is certainly tips from consumers, tips from honest providers
who often have an idea that something is going on, the physician
who says, “There’s something weird about this home care agency.”
And I’m very pleased that the profession has been working hard on
increasing their sophistication about that. And computer-based
analysis, which spits out unusual claims and detects unusual pat-
terns.

Mr. GOULD. Also, the work that we’ve done in terms of creating
fraud units in each of the Medicare contractors. That is a real key
point in that the contractors now, we work with them to identify

ey areas that they do look behind, audits, reviews, at the contrac-
tor level, along with the work of the IG, the Justice Department,
U.S. Attorney. We're looking at this as a full team effort. I mean,
every component is important, and we're trying to address it from
that point of view.

Mr. GREEN. If you could, I think I would be interested in it, and
maybe other Members would be, on that kind of relationship you
have that crosses jurisdictional lines, in some cases, to see what we
might be able to do to help, and if you have any suggestions, obvi-
ously.

Mr. Chairman, with what time I have left, I know we have legis-
lation—and I’m glad Texas is part of the Operation Restore Trust—
but is there any redundancy or conflict between H.R. 2326 and also
the administration’s bill, and how can we address it?

Dr. Smits. I think we would have to answer that for the record.

Mr. GREEN. OK.

Mr. SHAYS. So that will be followed up in the record.

r. Fox.

Mr. Fox. Thank you, Mr. Chairman. I first want to thank you
and Mr. Schiff and Mr. Towns for your legislation which moves for-
ward a very important issue. I know that, in my district, seniors
and others are very concerned about the fraud, abuse, and waste,
and this legislation and the effort of the panel helping us move for-
ward is appreciated.

May I submit my statement for the record?

Mr. Suays. It will be submitted for the record.

(The prepared statement of Hon. Jon Fox follows:]


42

21

(f) DEFINITIONS AND SPECIAL RULES.—For pur-

poses of this section:

(1) The term “final adverse action” includes

the following:

(A) Civil judgments in Federal or State
court related to the delivery of a health care
item or service.

(B) Federal or State criminal convictions
related to the delivery of a health care item or
service, as determined in accordance with proce-
dures applicable to the exclusion of individuals
and entities under section 1128(j) of the Social
Seeurity Act.

(C) Actions by State or Federal agencies
responsible for the licensing and certification of
health care providers, suppliers, and licensed
health care practitioners, including—

(i) formal or official actions, such as
revocation or suspension of a license (and
the length of any such suspension), rep-
rimand, censure or probation;

(ii) any other loss of license of the
provider, supplier, or practitioner, whether
by operation of law, voluntary surrender or

otherwise; or


161

So I wouldn’t want to try and take one particular part out if every-
body else is going to be in.

I do think that this is not our money.

Mr. Towns. That’s the point.

Mr. STERN. Well, that’s the point with respect to whether the
money should go into the control account. I do agree with you that
you can’t take somebody else’s money and put it into the control
account. But whether or not the fraud and abuse control authori-
ties that were being given to attack health care fraud should cover
ERISA, as well as other health care plans, I think they should.

Mr. Towns. We want to try to, wherever there are problems and
conflict, we want to make certain that we work them out. I think
that the atmosphere and climate is just terrific in the fact that we
all are committed to the same goal and that we want to sort of get
there, and try to make the strongest possible bill.

Mr. Stern, the Justice Department does not support Section
104(d) of H.R. 2326, which prohibits the Government from reducing
jail time in exchange for payment. What do you understand to be
the goal of this provision? Does the HHS IG share your concerns?

Mr. STERN. I actually have not talked to the IG about that par-
ticular provision. I understood the goal to be what we discussed
earlier, that you don’t want to have somebody able to plead guilty
and get off with payment of money and then just go right back into
the program.

. Towns. Let me rephrase that. I understand what you're say-
ing, and I’m very sensitive to that issue. But how might this goal
otherwise be accomplished? That’s what I’m really saying. How can
we do this?

Mr. STERN. We are trying to do it now by making certain that
we prosecute the individuals. Even though the company itself may
plead guilty and make a payment, you still are trying to go after
the individuals. So that’s one issue.

As a separate issue, with respect to the company itself, whether
the company should be able to plead guilty and still stay in the
plan, and that is a question with respect to the exercise of the au-
thority of the HHS, when it comes to excluding somebody from the
Medicare program, there we have to be very careful that we do not
make—“we,” that is, as a joint group, HHS and the Justice Depart-
ment—a tradeoff.

Clearly, the Justice Department view is, we do not tradeoff. We
do not, in our negotiations, do any negotiating with respect to ex-
clusion. That is supposed to be left to the agency. All we’re sup-
posed to be doing is the criminal and civil side.

So I think there are two different issues here, Mr. Towns. I hope
I haven’t confused them with you. But I think the way the lan-
guage was written, it ended up causing a bigger problem, that is,
by prohibiting the prosecutor from even negotiating a settlement
with an individual, where there might be criminal or civil pen-
alties. And that’s what I was talking to Mr. Schiff about earlier.

Mr. Towns. One last question, Mr. Chairman.

Mr. SHays. That’s fine.

Mr. Towns. Mr. Stern, do you believe it is possible that the ex-
pansion of the authority of the DOD, Labor, OPM, and Veterans’


73

52

1 SEC. 304. REQUIRING ANNUAL NOTICE TO MEDICARE

2
3
4
5
6
7
8
9

10
i
12
13
14
15
16
17
18
19
20
21
22
2B
m4
25

BENEFICIARIES OF NEED TO PREVENT
FRAUD AND ABUSE AGAINST MEDICARE PRO-
GRAM.

(a) IN GENERAL.—Section 1804(a) of the Social Se-

eurity Act (42 U.S.C. 1395b-2(a)) is amended—

(1) by striking “and” at the end of paragraph
(2);

(2) by striking the period at the end of para-
graph (3) and inserting “, and”; and

(3) by inserting after paragraph (3) the follow-
ing new paragraph:

“(4) a description of the costs to the medicare
program of waste, fraud, and abuse, together with
suggestions for steps which medicare beneficiaries
may take to help combat waste, fraud, and abuse
against the program, including the toll-free tele-
phone number operated by the Secretary and the In-
spector General of the Department of Health and
Human Services for reporting information on fraud
and abuse against the program and the potential
availability of a reward for individuals reporting in-
formation which leads to a criminal prosecution and
conviction for health care fraud under title 18,
United States Code.”.


82

LR. 1850, WHICH I INTRODUCED FOUR MONTHS AGO, IS
VIRTUALLY THE SAME LEGISLATION THAT I OFFERED ALONG WITH
THEN RANKING MEMBER OF THE SUBCOMMITTEE, MR. SCHIFF, AS AN
AMENDMENT TO THE ADMINISTRATION'S HEALTH CARE REFORM
PACKAGE IN THE 103RD CONGRESS, THAT AMENDMENT ENJOYED THE
UNANIMOUS SUPPORT OF THIS SUBCOMMITTEE, AND THE NEARLY
UNANIMOUS SUPPORT OF THE FULL COMMITTEE.

H.R. 2326 WAS INTRODUCED EARLY THIS MONTH BY REP. SCHIFF
AND SUBCOMMITTEE CHAIRMAN SHAYS, AND SUCCESSFULLY
INCORPORATES PROVISIONS OF MY BILL THAT ENHANCE
COORDINATION OF FEDERAL, STATE AND LOCAL ENFORCEMENT
EFFORTS, AND ESTABLISHES SUPPLEMENTAL RESOURCES TO CARRY
OUT ENFORCEMENT ACTIVITIES. HOWEVER, H.R. 2326 ALSO INCLUDES
SIGNIFICANT NEW PROVISIONS THAT CREATE AND DEFINE FEDERAL
CRIMINAL OFFENSES, AND ADJUST SECTIONS OF THE MEDICARE AND
MEDICAID PROGRAMS TO ENHANCE IN THE PREVENTION AND
DETECTION OF HEALTH CARE FRAUD.


HEALTH CARE FRAUD AND ABUSE

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
ON

H.R. 1850

TO IMPROVE FEDERAL ENFORCEMENT AGAINST HEALTH CARE FRAUD
AND ABUSE
AND

HLR. 2326

TO IMPROVE FEDERAL EFFORTS TO COMBAT FRAUD AND ABUSE
AGAINST HEALTH CARE PROGRAMS, AND FOR OTHER PURPOSES

SEPTEMBER 28, 1995

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

oe

U.S. GOVERNMENT PRINTING OFFICE
40-028 CC WASHINGTON : 1997

For sale by the U.S. Goverment Printing Office

i) Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-054984-1



108

Congress enacted P.L, 95-142, not only because of the widespread evidence of fraud in
the Medicaid Program, but also because of the horrendous tales of nursing home patient abuse
and resident victimization -- and the Units are justly proud of their record in protecting the frail
and vulnerable institutionalized elderly.

In the past decade, we have scen a rapid increase both in the number of fraudulent
schemes and the degree of sophistication with which they are committed. Although the typical
fraud schemes such as billing for services never rendered, double billing, misrepresenting the
nature of services provided, providing unnecessary services, false cost reports and kickbacks still
regularly occur, new and ofien innovative methods of thievery have continued to appear.

Medicaid fraud cases run the gamut from a solo practitioner who submits claims for
services never rendered to large institutions which exaggerate the level of care provided to their
patients and then alter patient records in order to conceal that lack of care. MFCUs have
prosecuted psychiatrists who have demanded sexual favors from their patients in exchange for
prescription drugs, nursing home owners who steal money from residents, and even funeral
directors who bill the estates of Medicaid patients for funerals they did not perform.

Over the past few years, these so-called “typical” schemes have given way to more
innovative ones. Recently, the Units have identified serious fraud problems in several industries
including laboratories, home health care, medical transportation, medical supplies, pharmacies,
and imaging centers. The incidence of illegal drug diversion has risen sharply over the years,
carrying with it a dramatic financial impact on the Medicaid program.

More and more states are enrolling their Medicaid population into managed care plans.
While proponents of the managed care system believe that it is the best method for providing
low cost high quality health care to more people, the experience of the fraud units reveal that
‘no health care plan is immune from fraud and indeed fraud does occur in managed care plans.

4


182

Accounting Office has indicated that the use of such a system could yield significant

program savings in the first 5 years of implementation

Adequate Enforcement Resources. Adequate resources for fighting fraud and abuse are
equally as important as prevention and deterrence mechanisms. Having the right
enforcement tools and enough financial means to investigate and prosecute fraudulent
and abusive activities are essential if we are to save money and curb the instances of

health care fraud and abuse.

Privacy Safeguards. Providing officials with the right enforcement tools - such as

subpoena authority
However, such authority must be weighed carefully against an individual's right to

important in the fight against health care fraud and abuse

confidentiality of personally identifiable medical information, AARP believes that
safeguards to maintain an individual's privacy with regard to personal medical records

must be established prior to or concurrently with health care fraud and abuse legislation.

Identifying Appropriate Care. AARP also believes that more emphasis should be placed
‘on providing the most appropriate care for an individual as one way in which to make the
ceatire health care system more efficient. Resources should be made available to help

identify what procedures and services are most appropriate and provide the best outcome
‘when treating a particular illness. For example, can a medication work just as well as a

surgical procedure in some instances? If'so, an unnecessary and costly treatment can be


131

Department of Justice

‘STATEMENT
oF
GERALD M. STERN
SPECIAL COUNSEL, HEALTH CARE FRAUD

DEPARTMENT OF JUSTICE

BEFORE
THE
SUBCOMMITTEE ON HUMAN RESOURCES
AND INTERGOVERNMENTAL AFFAIRS
“COMMITTER ON GOVERNMENT REFORM AND OVERSIGHT

UNITED STATES HOUSE OF REPRESENTATIVES

CONCERNING
H.R.2326
HEALTH CARE FRAUD AND ABUSE PREVENTION ACT OF 1995
AND
H.R.1850

HEALTH FRAUD AND ABUSE ACT OF 1995

PRESENTED ON

SEPTEMBER 28, 1995


159

Dr. Smits. Yes. It’s old-fashioned legislation that’s based on an
assumption that you start with a fair price and you can raise it an-
nually, but nobody thought about giving us rights to lower it.

Mr. Suays. In the report that the GAO submitted to us, I think
in September of this year, it said, in some cases, it took 995 days
to change the pricing mechanism, you know, the actual price of cer-
tain products, which is just incredibly an outrage.

et ScHIFF. Most businesses would be out of business if they had
that.

Mr. Suays. Mr. Towns.

Mr. Towns. Yes, if you would yield further.

Mr. Suays. Definitely.

Mr. Towns. Couldn’t this be placed in H.R. 2326?

Mr. Suays. It is in our bill. My concern is, it’s not in the Medi-
care bill, the House bill.

Mr. Scuirr. Does our bill go far enough in addressing it? Does
our provision in H.R. 2326 address it enough? Are you familiar
with it?

Dr. Smits. I’m sorry.

Mr. Suays. It is in our legislation. It is not in the House Repub-
lican effort on Medicare nor is making it a Federal offense. So ’m
off the criminal issue; I’m on to what I think is a very significant
issue as it relates to how we price these products and how long it
takes us to change the Brice so that we’re not giving a generous
reimbursement to a product that long since has been reduced in
price.

So my only point, to my colleague from New Mexico, is that,
again, this is something—and I’m saying it for the record, because
I believe that we have got to work overtime to get that into our
legislation.

es the gentleman, Mr. Towns, have a comment?

Mr. Towns. No. I agree with you. I think that the antiabuse is
very, very important, and I think it can be placed in.

Mr. Suays. I’m basically going to go my second round now, Tom,
and then ’'m going to yield to Mr. Towns.

Dr. Smits. Mr. Shays, could we submit a response for the record
on that. You do have a way for us to downgrade the prices; you
don’t have competitive bidding, which is something we are very in-
terested in getting in. So perhaps we can work with you.

Mr. Towns. That’s exactly what I’m talking about.

Dr. Smits. We can work with you, before the record closes.

Mr. SHays. Well, let’s just pursue it a little bit more. Do you
want to pursue the whole issue of competitive bidding? Is your
point, right now, that our legislation will not address that competi-
tive bidding issue?

Dr. Smits. No. It lets us look at the market better and move fast-
er in reducing. We can move faster, but it doesn’t allow us to do
things like bidding, which is what the VA does, which is why we
are sometimes compared to VA prices. I think we ought to have
ways to do competitive bidding. We’re a big buyer. Why shouldn’t
we get the benefit of being a big buyer‘

ir. SCHIFF. If the Chair would yield 1 second.

That’s the whole point of our agreeing here that this is not a par-

tisan issue or a pride of authorship issue. If your agency has a sug-




191

Mr. Chairman, Members of the Subcommittee.

The National Health Care Anti-Fraud Association appreciates the invitation to
appear before you again today and to comment on H.R. 2326—the “Health Care
Fraud and Abuse Prevention Act of 1995"—and on H.R. 1850, the “Health Care
Fraud and Abuse Act.”

‘As we noted in the Subcommittee's June 15, 1995 hearing, NHCAA is a 10-year-
old private-public non-profit organization that combines the anti-fraud operations
of private-sector health care payers with those of the public-sector agencies
responsible for investigating and prosecuting health care fraud.

Our mission is to improve the private and public sectors’ detection, investigation,
civil and criminal prosecution, and ultimately, prevention of heath care fraud [See
APPENDIX |, Fact Sheef.

As before, Mr. Chairman, NHCAA’s comments today are intended to reflect only
a general private-payer perspective—i.e.. we are not representing the point of
view of any public-sector agency or of any individual private-sector organization.

AN "ALL-PAYERTM APPROACH IS ESSENTIAL
TO FIGHTING ANY HEALTH CARE FRAUD
EFFECTIVELY

In NHCAA's June 15 testimony, we urged the Subcommittee to consider that the
most effective way to protect the public interest in addressing fraud against the
nation’s health care payment systems is through a so-called “all-payer" approach,
recognizing (1) that the public impact of health cara fraud extends far beyond its
effect on the Medicare, Medicaid and other government programs and (2) that
any effective new anti-fraud effort must be tailored to certain realities of the crime,
specifically:

+ that private-sector health care expenditures exceed those of government
health-insurance programs, representing 57 % and 43 %, respectively, of the
nation's total health care outlay

+ that in most cases, dishonest providers who defraud government programs
also defraud private health insurers, and vice-versa;

+ that the typical health care fraud scheme is aimed at multiple private and
Public payers simultaneously; and

+ that any deficiencies in current taw notwithstanding, it already is far more
dangerous for dishonest providers to defraud Medicare and Medicaid than to
steal from private payers.


211

In 1992, GAO reported that hospitals owed Medicare over $170 million in
overpayments, but contractors did little to reclaim the money. HCFA, moreover, was
unaware of contractor inaction because it had no systems to monitor this information.”
Contractors paid an estimated $2 billion in claims that should have been paid by other
health insurers.

‘The administration has recommended granting HCFA authority for competitive
open bidding of Medicare claims processing contracts to reduce costs improve quality of
service, and eliminate inefficiencies and conflicts of interest. According to the
administration, savings could total $985 million over five years.

In 1992, GAO reported that Medicare was one of several government programs it
considered highly vulnerable to waste, fraud, abuse, and mismanagement. In early 1995,
GAO reported that HCFA “has made various regulatory and administrative changes
‘aimed at correcting flawed payment policies, weak billing controls, and deficient program
‘management. However, these worthwhile improvements still are not sufficient to protect
Medicare against continued program losses... the Medicare program remains highly
vulnerable to waste, fraud and abuse."?

Medicare fraud is not a victimless crime. Taxpayers and program beneficiaries
will continue to be the prey for the vultures that continually circle the Medicare system
looking for easy pickings.

GAO reports that:

3 In 1994 more than $300 million in fines, damages, and penalties for fraud, kickbacks,
‘and abusive billing practices was paid by a national psychiatric hospital chain which
‘was charged with committing fraudulent practices. This was the largest such
settlement ever paid to the federal government.°

Medicare was overbilled tens of millions of dollars for lab tests by two of the nation’s
Jargest clinica) laboratories from 1988 to 1991."

‘M_ One nursing home resident was billed for therapy charges of $8,425, more than one-
half of which -- $4,850 -- was for charges added by the billing service for submitting
the claim. “Such practices escape notice because for institutional providers, Medicare
allows almost any patient-related costs that can be documented."!?

: GAO, High-Risk Series: Medicare Claims (GAO/HR-93-6), December, 1992, p. 7.
Tem.

9 GAO, High-Risk Series, February, 1995, pp. 6-7.
1 ibid, p.20.

1 idem.

GAO, Medicare, Modern Management Sirategies Could Curb Fraud, Waste and Abuse, (GAO/T-
HEHS-95-227). July 31, 1995, p.3.


109

Recent global settlements of cases involving multiple state and federal entities have
encouraged cooperative federal/state efforts to protect the Medicare/Medicaid programs from
health care providers or vendors whose activities know no borders.

BLOCK GRANT/ MFCU FUNDING

Under current legislation, Units are funded with 75% federal funds and 25% state
matching funds on a yearly grant basis except for the first three years of a Unit's operation when
a Unit receives 90% federal funding. 90% federal funding provides an incentive for establishing
a fraud control unit and is also intended to provide a new Unit sufficient time to become fully
operational. The federal match is part of the Medicaid program's administrative costs, which
are contained in the budget of the Health Care Financing Administration (HCFA). The funds
for the fraud control units are subsequently transferred to the HHS Office of Inspector General
(OIG) for distribution to the states. OIG has administrative oversight responsibility for this grant
program and certifies and re-certifies the Units to insure that they comply with federal
regulations.

We believe that maintaining program integrity functions are essential if any changes occur
in the structure of the Medicaid program. State Medicaid fraud enforcement should continue
to bea federal priority in the states’ administration of their Medicaid program. Funding for the
state Medicaid Fraud Control Units should continue to go to their sponsoring agencies and
should not be included as part of a larger Medicaid grant that is distributed to the states.

‘This continued funding mechanism would maintain the separate and distinct character that
hhas made the Units successful in detecting and prosecuting Medicaid fraud. Federal oversight
should continue to be vested with the Office of Inspector General of the Department of Health

and Human Services to maintain law enforcement sensitivity on oversight issues.


30

9

1 of a State, unless the Inspector General establishes that
2 the plan—
3 (1) is inconsistent with the program established
under section 101(¢)(1); or

(2) will not enable the agencies of the State
designated under subsection (a)(1) to prevent, de-
tect, and control health care fraud and abuse in vio-
lation of any Federal law.
(e) ReporTs.—Each Health Care Fraud and Abuse

a a oS

10 Control Unit shall submit to the Inspector General an an-
11 nual report containing such information as the Inspector
12 General determines to be necessary.

13 (f) SEMIANNUAL REPORTS OF INSPECTOR GENERAL
14 oF HEALTH AND HUMAN SERVICES.—The Inspector Gen-
15 eral shall include in its semiannual reports to the Congress
16 under section 5(a) of the Inspector General Act of 1978
17 (5 U.S.C. App.) an assessment of the Inspector General
18 of the effectiveness of States in preventing, detecting, and
19 controlling health care fraud and abuse.

20 SEC. 103. PAYMENTS TO STATES.

21 (a) IN GENERAL.—For each year for which a State
22 has an annual plan approved under section 102(d), and
23 subject to the availability of appropriations, the Inspector
24 General shall pay to the State for each quarter an amount
25 equal to 75 percent of the sums expended during the quar-


213

years before any tax cut was proposed, and even AARP recognizes Medicare must be
‘saved from bankruptcy. Even if we had a balanced budget today, Medicare would still be
going broke, and changes would be required to save it.

While the focus is on the next seven years, what about the long-term future? In
just 16 years, the first of the baby boomers will be eligible for retirement. In the next 35
years, the number of Americans over the age of 70 will double.! At the same time, the
‘number of workers supporting Medicare will shrink. Just five years ago, there were
almost five workers for each retiree. In just 35 years, there will be fewer than three
‘workers for each retiree.'¢

The consequences of failing to act now are devastating: massive increases in
payroll taxes or drastic cuts in Medicare spending, along with major increases in
premiums for senior citizens,

‘How we deal with Medicare's crisis will speak volumes about who we are as
‘Americans and what kind of society we value. At stake is whether today’s senior citizens,
not to mention those of us who are following close behind, will have a viable health-care
system for decades to come. Waste and fraud will only rob us all ofa better future if we
‘continue to assume it is an unavoidable result of a well-meaning, big government
Program.

15 Bipartisan Commission on Entitlement and Tax Reform, Final Report, Sanuary, 1995, p. 13.
1 (bid p. 16.


89

Mr. Suays. I thank the gentleman.

The vice chairman, Mr. Souder: do you have any comments?

Mr. Souprer. I have no formal statement. I, too, want to con-

tulate the chairman and Mr. Schiff and Mr. Towns for their
leadership and for the hearings we have been through. They have
been exasperating to me, as they are to the constituents in Indiana
and other places who are concerned about the fraud, and I appre-
ciate your efforts.

Mr. Suays. I thank the gentleman.

The author of this legislation, Mr. Schiff.

Mr. ScuirF. Mr. Chairman, I am mindful of the fact that we have
witnesses, but I would like just a few minutes here for an opening
statement.

Mr. Suays. Sure.

Mr. ScuirFF. I just want to say, first, we all know the seriousness
of the problems of fraud, waste, and abuse, victimizing the whole
health care system, as well as Medicare, in particular.

Second, I want to emphasize what has already been said now
several times ahead of me but is worth emphasizing again, nobody
supports fraud, waste, and abuse. There is no reason for partisan-
ship on this issue. We might disagree on other policy matters;
there is no reason for policy disagreement here.

I want to stress that, in putting together H.R. 2326, I worked
closely with you and your staff. I took elements that Mr. Towns
and I had drafted together when I served as ranking member of
this subcommittee. I talked with officials from the Clinton adminis-
tration agencies and got all of the input I could, because I think
that we all need to work together on this.

I want to briefly state how H.R. 2326 is put together. It is put
together, essentially, in three parts. The first part is an exact du-
plication of the amendment to the health care bill that Co: S8-
man Towns and I wrote last year. In the second part of the bill are
proposed changes in the criminal law, which I put together after
talking with numerous law enforcement agencies who deal with
health care fraud. And the third provision came largely from sug-
gestions from the Department of Health and Human Services on
what would improve their operation.

I want to conclude by stating that not only do I think that there
is no room for Partisanship in this, I think there is no room for
pride of authorship. Since there are a number of different bills, I
think it would be fine to take the best of all bills. H.R. 2389 was
introduced on September 21 by Congressman Thomas. It is my un-
derstanding that that bill may be included in the Budget Reconcili-
ation Act. It deals with the same subject.

I have contacted the Ways and Means Committee and brought
H.R. 2326, our bill, to their attention, because there is no conflict
between the two bills. I think they address some issues and we ad-
dress some issues. The bills are quite compatible with each other.
And I have invited the Ways and Means Committee to take our
bill, or such portions of the bill that they think they want to move
with at this time, in a combined anti-fraud provision in the Budget
Reconciliation Act.

I will just conclude, finally, with Mr. Towns’ statement that I am
willing to talk with everybody on this issue. And if there are pro-


199

Mr. ScHATZ. To the President.

Mr. SHays. How about the Speaker, as well?

Mr. SCHATZ. Well, we will make sure that he is aware of what
is going on. That happened to be the target we chose. But, in any
event, there will be bright orange postcards arriving at the White
House in the next several weeks, making the point that this is
something that is critical to Medicare reform.

The GAO, of course, has reported Medicare was one of the Gov-
ernment programs it considered highly vulnerable to waste, fraud,
abuse, and mismanagement. That was 1992. And again, earlier this
year, while HCFA has made changes, they are still not sufficient
to protect Medicare. You are aware of the various examples. In
fact, in our report, we cite your own article from the Christian
Science Monitor reporting an example of fraud and abuse.

It’s a big system. Health care itself is a big system. It’s con-
stantly changing. There was discussion earlier about durable medi-
cal equipment and the pricing of some of the new technology that
comes in. We held a hearing with the Coalition to Save Medicare
several weeks ago, and Richard Kusserow, who is the former IG at
HHS, made the point that, when you are looking at new tech-
nology, they can price it any way they want, because it seems to
run through the system quickly.

People want to get the better care. And then they charge high
prices, and they are unable, as was discussed in the previous panel,
to really reduce that when competition starts coming in. I agree
with the previous panel, that’s a very, very important area, because
the numbers that you're talking about are in the billions, without
any question.

ir. Chairman, your bill is a very, very important step in combat-
ting the pervasive problem of waste, fraud, and abuse in health
care. It has real teeth. It requires that the detection and prosecu-
tion of health care fraud be at the heart of the program.

I want to cite just three provisions, while we do support the bill,
three very important and significant ones: establishing health care
fraud as a crime, defining the crime and establishing ines and im-

risonment; expanding the definition of fraud to include theft, em-

ezzlement, false statements, bribery, graft, ill remuneration,
and obstruction of criminal investigations of health care fraud; and,
finally, establishing rewards for information leading to prosecution
and conviction of a Federal health care offense.

The director of the FBI, Louis Freeh, has previously testified, I
believe it was over in the Senate, that drug dealers and organi:
crime, the Russian mafia, are all getting into the area of health
care fraud. Clearly, they think this is an easier way to make
money.

Throwing a few of them in jail for a long period of time, I think
would be a great deterrent to what has previously been viewed as
a simple white collar crime; it’s easy to get away with it; nobody’s
watching the store. The chances of being audited under Medicare
are 3 in 1,000, versus an IRS audit which is 2 in 100. It’s very,
very low-level.

me area that we would agree that more money should be spent
is in providing more resources to the IG’s office and to making sure
that your bill does, in fact, work.


84

FINALLY, MR. CHAIRMAN, GIVEN THE INCREASING LIKELIHOOD
THAT WE WILL SEE DRASTIC CUTS IN FEDERAL SUPPORT FOR
MEDICARE AND MEDICAID IN THE NEAR FUTURE, IT MAY BE THAT OUR
4 MOST RESPONSIBLE CONTRIBUTION TO MEDICARE/MEDICAID REFORM
AS SUBCOMMITTEE MEMBERS WILL BE TO CRAFT LEGISLATION THAT
CURBS THE RAMPANT FRAUD AND ABUSE IN THE FEDERAL HEALTH
CARE SYSTEM AND PROTECTS FEDERAL RESOURCES. FOR THIS
REASON, I FIRMLY ENDORSE THE CONCEPT AND GOALS OF THESE
BILLS, AND LOOK FORWARD TO WORKING CLOSELY WITH YOU IN

STRENGTHENING THIS BIPARTISAN LEGISLATION.


CO YHA AWN =

NN NNR NNR ee Be ese we ee Be ee
Ae BN Ss FOC HM ABA BE HNH HK DTD

12

8
General an annual report containing such informa-
tion as the Inspector General determines to be nee-
essary.

(6) SEMIANNUAL REPORTS OF INSPECTOR GEN-
ERAL OF HEALTH AND HUMAN SERVICES.—The In-
spector General shall include in each semiannual re-
port of the Inspector General to the Congress under
section 5(a) of the Inspector General Act of 1978 (5
U.S.C. App.) an assessment of the Inspector General
of how well States are preventing, detecting, and
controlling health care fraud and abuse.

(ce) PAYMENTS TO STATES.—

(1) IN GENERAL.—For each year for which a
State has a plan approved under subsection (b)(4),
and subject to the availability of appropriations, the
Inspector General shall pay to the State for each
quarter an amount equal to 75 percent of the sums
expended during the quarter by agencies designated
by the Governor of the State under subsection
(b)(1)(A) in conducting activities described in that
subsection.

(2) TIME OF PAYMENT.—The Inspector General
shall make a payment under paragraph (1) for a
quarter by not later than 30 days after the end of
the quarter.

“HR 1850 TH


Medicare fraud can be stopped. According to GAO's high risk report in 1992,
many Medicare beneficiaries call in to complain about waste and abuse, but contractors
have often failed to investigate these complaints. When contractors do respond, results
can be fruitful: follow-up on complaints about eye-care services, for example, led to a
provider's agreement to refund over $2.5 million to the federal government.

If Medicare's centralized, non-competitive, single-payer system is at the heart of
billions of dollars in wasted resources, eliminating waste, fraud, and abuse requires that
competitive market forces be introduced into the Medicare system. Free matket forces
and incentives would reduce Medicare's excessive costs and improve the quality of health
care for seniors. Moreover, we would finally provide seniors with a medical system that
develops greater quality rather than a system that increasingly consumes more and more
health dollars.

‘The Schiff/Shays Health Care Fraud and Abuse Prevention Act of 1995 is
legislation with real teeth, The bill requires that the detection and prosecution of health-
care fraud be at the heart of the program. The following provisions in the bill will go a
Jong way in saving lives as well as tax dollars:

‘+ require audits by the inspector general of Health and Human Services, Department of
Defense, Office of Personal Management, Veterans Administration and Attorney
General

‘+ require that the IG and Attorey General to establish a joint program to prevent,
detect and control health-care fraud which includes state agencies and local law
enforcement

+ establish health-care fraud as a crime, define the crime and establish fine and
imprisonment

‘+ expand the definition of fraud to include theft, embezzlement, false statements,
bribery, graft, illegal renumerations and obstruction of criminal investigations of
health care fraud, and

‘+ establish rewards for information leading to prosecution and conviction of a federal
health care offense

CAGW also commends the Majority leadership in the House for "The Medicare
Preservation Act," which looks at all aspects of Medicare reform including eliminating,
waste, fraud, and abuse.

Mr. Chairman, the most important provision in your bill is the establishment of
health-care fraud as a crime. Too often people think of fraud as a victimless crime. This
could not be further from the truth. Not only does the taxpayer get left holding the bag,
but seniors are put at risk by receiving wrong or inadequate care. We owe more to the
people who built our highways and railroads and fought our wars than a system that is
open to treating seniors like chattel. Health-care fraud must be punished severely and
swiftly.


CoN DH PB WH He

2 oN NON ee
RBREBBERBSESIERDETDSATS

54

33
“$227. Illegal remuneration with respect to health

care benefit programs

“(a) Whoever knowingly and willfully solicits or re-
eeives any remuneration (including any kickback, bribe, or
rebate) directly or indirectly, overtly or covertly, in cash
or in kind—

“(1) in return for referring any individual to a
person for the furnishing or arranging for the fur-
nishing of any item or service for which payment
may be made in whole or in part by any health care
benefit program; or

“(2) in return for purchasing, leasing, ordering,
or arranging for or recommending purchasing, leas-
ing, or ordering any good, facility, service, or item
for which payment may be made in whole or in part
by any health care benefit program, or attempting to
do so,

shall be fined under this title or imprisoned for not more
than 5 years, or both.

“(b) Whoever knowingly and willfully offers or pays
any remuneration (including any kickback, bribe, or re-
bate) directly or indirectly, overtly, or covertly, in cash or
in kind to any person to induce such person—

“(1) to refer an individual to a person for the

furnishing or arranging for the furnishing of any


171

QUESTIONS:

1.

AS YOU CAN GUESS, | WOULD LIKE TO KNOW
YOUR FEELINGS ABOUT THE NEMT PROGRAM
AND SPECIFICALLY THE MARTINI AMENDMENT?

AM CONCERNED ABOUT REPORTS WHICH
REVEAL THAT WASTE, FRAUD, AND ABUSE IN
THE MEDICARE AND MEDICAID PROGRAMS MAY
COST THE AMERICAN TAXPAYER OVER $24
BILLION ANNUALLY. MY QUESTION IS ARE
THESE ESTIMATE TRUE AND WILL H.R. 2326
HELP TO CURB THE RAMPANT ABUSE THAT
PLAGUES THE CURRENT SYSTEM?


eo

a

96

DEPARTMENT OF HEALTH & HUMAN SERVICES, Ottics of Inspector Genera!

Wasningion, 06. 20201

27 ee

‘The Honorable Christopher Shays, Chairman
‘Subcommittee on Human Resources and Intergovernmental Affairs
‘Committee on Government Reform and Oversight

House of Representatives

‘Washington, D.C, 20515

Dear Mr. Shays:

‘The Inspector General, June Gibbs Brown, is very appreciative of your invitation to
testify at the hearing before your Subcommittee to be held on September 28, Were it not
for a prior commitment in another city, she would have been happy to deliver testimony
in person, Since Ms. Brown cannot be in Washington on the day of the hearing, we
request your permission to submit the enclosed statement for the record as an alternative.

‘The Office of Inspector General (OIG) statement endorses the provisions of H.R. 2326,
the Health Care Fraud and Abuse Prevention Act of 1995, sponsored by Representative
Steven Schiff and you and describes some suggestions through which the bill could be
made even stonger in curbing fraud in Federal health care programs. We have also
referred positively to similar provisions in H.R. 1850 sponsored by Representative
Edolphus Towns, the Ranking Minority Member. For example, we strongly endorse the
proposals in H.R. 2326 and H.R. 1850 to establish a new and comprehensive fraud and
abuse contro! program applicable to all payers. {n our statement, we have addressed in
particular the following provisions in H.R. 2326 that expand current authorities of the
Inspector General:

+ timpose strict liability upon employers wito hire and bill forthe services of
individuals who have been excluded from participation in Government health care
programs; and

+ to impose a new permissive exclusion authority against individuals who own or
control sanctioned entities.

‘Along with other provisions, we also endorse requiring carriers and fiscal interm
to reimburse the Medicare Trust Funds for any health care program funds paid to
‘excluded providers once the cartier or intermediary has been notified of the exclusion.

On behalf of the Inspector General, f thank you for the time, thought, and attention to
detail you and Mr. Schiff and your staffs have given to H.R. 2326 and also convey our
appreciation to Mr. Edolphus Towns for inviting us to review and comment on H.R. 1850
as well. We have been positively impressed by the efforts of both the majority and


185

adequate to the task is a question that should be seriously examined before moving ahead

with this legislation

The best solution, we believe, would be to develop a comprehensive, pre-emptive federal
privacy law that applies to all settings where personally identifiable health information is
collected, stored, used or released. This would include such areas as fraud prevention,
electronic payment systems, electronic medical records, and the creation or maintenance
of hard copy or electronic databases containing personal health information. Such
legislation should precede or be enacted concurrently with legislation dealing with health

care system fraud and abuse.

nd Proy care

ind
The Republican House Leadership's proposal to curb fraud and abuse would increase
beneficiary outreach efforts, provide for higher criminal and civil monetary penalties,
and create an anti-fraud and abuse task force, as well as an anti-fraud and abuse trust

fund. Though these are all necessary steps in fighting fraud and abuse, AARP believes

the proposal does not go far enough

In particular, the Leadership’s proposal lacks the requirement for a single provider
‘number, a provision that could go a long way toward preventing fraud and abuse. Also

lacking is any provision to amend the U.S. Code to include a criminal code provision that


255

prosecution must often rely on circumstantial evidence to prove
the intent required by the statute.

To further heighten the prosecution's burden of proof, as
would occur upon enactment of Section 201(c}, would seriously
undercut the government's health care enforcement efforts in the
anti-kickback arena. To require the government to prove that the
remuneration was paid for the "significant purpose of inducing"
referrals, is tantamount to immunizing a range of conduct which
was, in truth, intended to induce referrals. moreover, the
phrase "significant purpose’ is vague and will result in
unnecessary and burdensome litigation. In sum, the proposed
amendment will seriously undercut our anti-kickback enforcement
efforts.

Instead, we believe Congreas should be expanding our anti-
kickback authority to cover the inducement of the referral of
business that is paid for by any government health care program
and to provide a civil anti-kickback remedy. Our anti-kickback
enforcement efforts have confronted significant obstacles because
of the limited coverage of the current Medicare/Medicaid anti-
Kickback statute. Defense counsel routinely argue that the
statute does not apply unless the majority or totality of a
provider's business is paid for by Medicare/Medicaid. They also
contend that the absence of an explicit civil anti-kickback
remedy limits the government's opportunities to recover damages
and civil penalties. To rebut these arguments, kickback
prosecutions now require extensive prosecutorial resources.
Nevertheless, we were able to prosecute and settle two major
anti-kickback cases in the last year obtaining convictions and
settlements of $379 million in one case and $161 million in the
second case, which returned significant savings to the Medicare
Trust Pund and the Treasury. To limit our ability to bring such
cases, rather than to strengthen our statutory authority, would
seriously impair our health care fraud law enforcement efforts.

Section 202: Clarification of and Additionn to Exceptions
fo Anti-kickbagk Penalties, Thies Section would immunize from
prosecution the payment of remuneration with the intent to induce
referrals, provided that the health care item or service involved
is provided, inter alia, through an organization that assumes
financial risk, or is a disease management program.

These statutory safe harbor provisions are very broad and
may result in immunizing kickback activity which should be
prohibited. Indeed, a large number of health care providers
could arguably be construed as engaged in ‘disease management."
We believe that additional safe harbors should be narrowly draw
and should be crafted only after a careful study of the practices
which could be encompassed by the provision.

Section 204: Issuance of Advisory Opluicna, This Section
4

200/800 ‘vio coa evte VIS oz = -zeisT 86/90/07


170

| WOULD LIKE TO COMMEND THE NATIONAL
MEDICAL TRANSPORTATION ASSOCIATION FOR ITS
LEADERSHIP ROLE IN OUR EFFORT TO REFORM THE
NEMT PROGRAM.

MR, CHAIRMAN AT THIS TIME | WOULD LIKE TO
SUBMIT FOR THE RECORD, A COPY OF MY
AMENDMENT AND A COPY OF A LETTER OF
SUPPORT FROM THE NATIONAL MEDICAL
TRANSPORTATION ASSOCIATION. IN ADDITION, |
WOULD LIKE TO SUBMIT A STATEMENT ON BEHALF
OF CONGRESSMAN BAKER FOR THE RECORD.

1 LOOK FORWARD TO WORKING WITH THE
CHAIRMAN AND THE RANKING MINORITY MEMBER
ON THIS IMPORTANT INITIATIVE IN AN EFFORT TO
ROOT OUR WASTE, FRAUD AND ABUSE IN THE
MEDICAID SYSTEM. A SYSTEM THAT IS VITAL TO
THE AMERICAN PEOPLE.


241

Government for cutting the anti-fraud resources along with other
measures and programs that are designed to achieve economy. In
the case of anti-fraud, we certainly think that’s a false economy.

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

Ms. Burgess.

Ms. BurGESS. Mr. Towns, I think it’s going to depend a great
deal on the State as to how it’s approached. I have gone back on
the Medicaid Advisory Committee in New Mexico because I’ve been
very much concerned with the block grants, very much concerned.
We're a poor State, and I’m very concerned as to what will happen.

I certainly am going to take all of this back to that committee,
and certainly there will be a great deal of urging. Many of us feel
strongly that this must be dealt with, that it’s very, very impor-
tant, and we will do the best we can within the State to see that
it is Properly looked at. I don’t know what will happen, frankly.

Mr. Towns. Mr. Mahon, will the all-payer approach we propose
to adopt lead to private payer assets being deposited into the
health care fraud control account? If so, is the Government entitled
to these funds, in your opinion?

Mr. MAHON. No, I would hope not, Mr. Towns. One of the points
we made in our statement is the importance of giving the private
payers some reasonable shot at restitution in cases that they refer
criminally. Years ago, the problem was getting cases investigated
criminally, let alone prosecuted and convicted. Given the law en-
forcement initiatives of recent years, the problems now tend to
occur somewhat further down the line, often in the sentencing
phase, when it comes to restitution. It’s something that isn’t taken
into account up front.

One of the potential byproducts of setting up the trust accounts,
which is a very common feature of anti-fraud bills today and one
that I think everyone is pretty much resigned to, is the fact that,
in a way, you are putting the law enforcement agencies in competi-
tion with the private victims when it comes to the available assets
ina given case. I was delighted to see, both in your language and
in H.R. 2326, the notation that funds were to be other than restitu-
tion.

The question you asked Mr. Stern earlier about ERISA plans’ as-
sets being deposited, from our perspective, the fundamental point
in incorporating or including the Labor Department IG is that, ab-
sent any direct anti-fraud activity by the agency that has jurisdic-
tion over those self-funded plans, the typical self-insured company
plan that also administers its own claims is just as vulnerable to

ealth care fraud as is a commercial insurance company or the
Medicare program or a Blue Cross-Blue Shield plan.

So we think, in any coordinated effort, there should be some ac-
knowledgement made of the exposure of the self-funded plans.

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

Let me thank all of you for your statements and also your an-
swers.

Mr. Suays. I thank the gentleman.

Mr. Martini.

Mr. MartTINI. Yes. Thank you, Mr. Chairman.

It’s not so much of a question as it is, I guess, an observation
and a comment. I first would like to thank the panelists for their


Ki)

54
1 (1) by striking “(x)” and inserting “(x)(1)”;
2 and
3 (2) by adding at the end the following new
4 paragraph:
5 “(2) Tf an individual or entity submitting a claim to
6 the State for payment for providing medical assistance
7 under the State plan has a unique identifier assigned by
8 the Secretary pursuant to section 1842(r) for purposes of
9 title XVIII, the individual or entity shall include the iden-
10 tifier with such claim.”.

11 SEC. 306. LIABILITY OF CARRIERS AND FISCAL

12 INTERMEDIARIES FOR CLAIMS SUBMITTED
13 BY EXCLUDED PROVIDERS.
14 (a) REIMBURSEMENT TO SECRETARY FOR AMOUNTS

15 Pam TO EXCLUDED PROVIDERS.—

16 (1) REQUIREMENT FOR FISCAL
17 INTERMEDIARIES.—

18 (A) IN GENERAL.—Section 1816 of the So-
19 cial Security Act (42 U.S.C. 1395h), as amend-
20 ed by section 151(b)(1)(A) of the Social Secu-
21 rity Act Amendments of 1994, is amended by
22 adding at the end the following new subsection:
23 “(1) An agreement with an agency or organization

24 under this section shall require that such agency or orga-

25 nization reimburse the Secretary for any amounts paid for


237

your proposals for enhancing the remedies available to the OIG under the Civil Monetary Penalties
Law (CMPL) and the permissive exclusion provisions of the Social Security Act. The CMPL,
section 1128A of the Social Security Act, was enacted in 1981 as an alternative administrative
remedy to civil prosecution under the False Claims Act. It provides a means to administratively
impose civil monetary penalties and assessments, and exclusions fom program participation, on
individuals and entities who submit false or improper claims for payment to Medicare, Medicaid and
the other State health care programs. The permissive exclusion authorities for sanctioning aberrant
health care providers, set forth at section 1128(b) of the Social Security Act, allow for the exclusion
of individuals or entities from program participation if, under certain criteria, the OIG determines an
exclusion to be warranted. Permissive exclusions may be taken based on convictions for non-
Medicare/Medicaid health care fraud, State licensing suspensions and revocations, or controlled
substance violations.

Amendments to the O1G's CMPL Authorities

We We sony ‘support your proposal to expand the OIG's Civil Monetary Penalty authority to impose
upon employers who hire and bill for the services of individuals who have been
excluded from participation in government health care programs. Currently, the CMPL holds an
excluded provider strictly liable (i.e., liable without proof of knowledge or intent) for claims
submitted, or caused to be submitted, for services that he or she renders while excluded. However,
some excluded individuals have continued to treat program beneficiaries, and have improperly
caused the Medicare and Medicaid programs to pay for their services, by seeking employment with
participating providers who agree to bill for their services. Expanding application of the strict
liability standard to the employers of excluded providers will enhance our ability to protect program
beneficiaries, while protecting the financial integrity of the programs themselves. Such a provision
also encourages health care employers to ascertain the program participation status of employees
prior to submitting claims for payment for services rendered, ordered, or directed by such
individuals.

An additional amendment to the CMPL that would significantly enhance our enforcement authority
would be to expand the reach of the CMPL to include all Federal health care programs. Currently,
the CMPL only reaches those who submit or cause the submission of claims to one of four Federal
programs: Medicare Medicaid, the Maternal and Child Services Block Grant program, and the
Social Services Block Grant program. Thus, under current law, the OIG cannot impose civil
monetary penalties and assessments against, for example, someone who submits false claims to the
CCHAMPUS program or the Federal Employees Health Benefits Program. Modifying the CMPL to
apply to health care providers who defraud other Federal health care programs would enable the
Government to protect additional beneficiaries from harm, and additional Federal programs from
financial loss.

Another modification to the CMPL that would greatly aid our enforcement efforts is extension of the
CMPL's strict liability standard to excluded providers who order or prescribe items or services for
program beneficiaries, even if they directly furnish no services to beneficiaries. Currently, excluded
providers who submit or cause the submission of claims for services furnished during their exclusion
periods are strictly liable for those claims, However, we have seen egregious cases of excluded
individuals who continue to profit from the Medicare and Medicaid programs by ordering or
prescribing items or services from others, such as fab work or pharmaceuticals, Expanding the

Subcommiée on Human Resources and Inlergovenmetal Aifairs, September 28, 1995--Page 2


218

=10-

A Georgia hospital agreed to pay $75,000 and undertake corrective action in the
future in lieu of legal proceedings for violations of the Medicare/Medicaid anti-
kickback statute. It was established by the OIG that the hospital had offered illegal
remuneration to physicians, such as below-market leases for office space, to induce
the referral of patients to the hospital.

1 A home infusion company paid $500,000 to reimburse Medicare for damages and for
investigation costs to avoid action against it for certain business practices with
physicians. "The company used several business arrangements to induce physician
referrals, including offering restricted stock for physicians in infusion centers the
company managed and otherwise tying their profits to referrals to the company.".7

3 "A Pennsylvania laboratory agreed to pay $2.4 million in settlement of claims that it
defrauded Medicare by manipulating doctors into ordering medically unnecessary
tests. In mid-1987, the laboratory informed its doctor-clients that they would
automatically receive the results of ferritin test, which estimates iron storage, with
every basic blood test series they ordered. The doctors were billed a nominal fee for
the series, but the ferritin tests were billed separately to Medicare at the maximum
rate allowable. Since Medicare covers only tests which doctors have said are
medically necessary, the laboratory was causing false claims to be submitted when it
‘substituted its judgment for the doctor's judgment."3#

DURABLE MEDICAL EQUIPMENT SCAMS

DME is a growing area of fraud, scandal, and concem. DME is reimbursable by
Medicare and Medicaid only if prescribed by physicians as medically necessary. This
requirement is easily circumvented through aggressive sales practices, such as
telemarketing, pressuring physicians into signing certificates of medical necessity,
persuading physicians to act in complicity with a fraudulent scheme, or forging physician
signatures»?

DME fraud continues to be a serious problem and often involves the most
intricate schemes. Authorities recognized the need for a new anti-fraud initiative after a
spate of such cases in southern Florida. Post office boxes or store fronts were used to
disguise hundreds of bogus companies."0

26 HHS, O1G, Semiannual Report, October 1, 1993 - March 31,1994, p. 18.
Idem.

3 pid, p. 14.

39 Gaming the Health Care System, p. 6.

4 Vilbig, Peter, "Federal Government Targets Medicare and Medicaid Fraud,” The Las Vegas Review
Journal, July 11,1995, p. 3C.


36

15
from sales of other property received as gifts, bequests,
or devises shall be deposited in the Account and shall be
available for use in accordance with section 104(b)(3).
SEC. 106. REIMBURSEMENTS OF EXPENSES AND OTHER
PAYMENTS TO PARTICIPATING AGENCIES.

(a) REIMBURSEMENT OF EXPENSES OF FEDERAL
AGENCIES.—The Inspector General and the Attorney
General, subject to the availability of amounts in the Ac-
count, shall jointly and promptly reimburse Federal agen-
cies for expenses incurred in carrying out section 101.

(b) PayMENTS TO STATE AND LocaL Law En-
FORCEMENT AGENCIES.—The Inspector General and the
Attorney General, subject to the availability of amounts
in the Account, shall jointly and promptly pay to any State
or local law enforcement agency that participated directly
in any activity which led to deposits in the Account, or
property the proceeds of which are deposited in the Ac-
count, an amount that reflects generally and equitably the
participation of the agency in the activity.

(ec) Funps USED To SUPPLEMENT AGENCY APPRO-
PRIATIONS.—It is intended that disbursements made from
the Account to any Federal agency be used to increase
and not supplant the recipient agency’s appropriated oper-
ating budget.

HR 2326 TH


181

mechanisms. Moreover, it is essential that enforcement authorities be provided with

adequate resources to investigate and prosecute fraudulent and abusive activities

Single Provider Number. Many unscrupulous providers could be prevented from
abusing the Medicare program if they were limited to only one provider number and if
the requirements for obtaining a provider number were strengthened. Today, itis simply
too easy to obtain not just one, but several provider numbers. Often abusive providers
who have been caught inappropriately billing under one number will continue billing
under another number. In addition, some who have been convicted of defrauding the
Medicare program in one jurisdiction will merely pick up and move to another area,

applying and obtaining a new provider aumber without being discovered.

Enhanced Claims Auditing. Simply put, itis too easy to defraud and abuse the system
and get away with it. For instance, many providers who participate in the Medicare and
Modicaid programs know that the chance of their claims being audited is relatively small.
‘The Health and Human Services Department has indicated that, on average, only 3 out of
every 1,000 claims are audited for miscodings and inconsistencies. AARP believes
auditing practices can and should be strengthened. Knowing that their claims are being
audited carefully may deter some unscrupulous providers from even attempting to
defraud the Medicare program. It is our understanding that commercially available

software can analyze millions of possible code combinations. In fact, the General


220

-12-

firm. “Investigators say the company billed Medicare for expensive hospital beds and
used part of the money to buy the promised item.”*?

A “The president and owner of an Arkansas DME company was sentenced to 12 months
home detention for billing Medicare for equipment not requested or supplied. He also
billed for hospital beds he claimed to have put in the homes of Medicare recipients,
when he really delivered sealift chairs. The owner pled guilty, agreeing to pay the
government $1.5 million to settle claims against him and his company."4*

“In California, five persons, including three physicians, were sentenced and another
five pled guilty in a DME kickback scheme. A DME company was set up to pay
physicians, independent contractors and sales agents for referral of patients for
prescriptions for transcutaneous electrical nerve stimulators (TENS). The company
billed Medicare $2 million for the TENS units, and was paid $475,000."

"The owner of several DME companies was sentenced in Georgia to a year and a day
for defrauding Medicare and Medicaid. The owner engaged telemarketers to contact
beneficiaries, ask about physical problems and offer DME at no charge. The
telemarketers were given a list of physicians ranked from 1 to 5, with a 1 indicating
they would sign anything and a 5 if they refused to sign DME certifications. The
telemarketers asked the beneficiaries about physicians who treated them, to identify a
more compliant physician ifthe first one they named was rated aS.’ The owner was
fined $5,000 and ordered to serve 300 hours public service. Recoveries totaled
$199,500."

“A Michigan DME company and its four co-owners agreed to pay $626,000 to settle
allegations that the company submitted false and inflated claims for Medicare
reimbursement. They convinced senior citizens that they needed DME such as
transcutaneous electronic nerve stimulators, claiming they would owe no co-payment
because Medicare would pay the entire cost. They never attempted to collect
deductibles and co-payments, thereby inflating by 20 percent each claim submitted
for Medicare-eligible customers."*!

"The prosthetist owner of a California orthopedic center was charged with submitting
false Medicare claims for 44 orthotic bilateral contracture devices for nursing home
residents that he never provided. After the investigation was underway and the carrier
began withholding reimbursement, the prosthetist set up a second business under a
friend's name and submitted more false claims under the friend's provider number."!?

47 Vitbig, Peter.

4 HHS, O1G, Semiannual Repor, April 1, 1993 - September 30, 1993, p. 30.
“8 HS, O1G, Semiannual Report, October 1, 1993 - March 31, 1994,
3 HHS, O1G, Semiannua! Report, Apri, 1994 September 30,1994 2
1 idem.

3 fdem.



48

27
“$1347. Health care fraud

“(a) Whoever, having devised or intending to devise
a scheme or artifice, commits or attempts to commit an
act in furtherance of or for the purpose of executing such
scheme or artifice—

“(1) to defraud any health care benefit pro-
gram; or
“(2) to obtain, by means of false or fraudulent
pretenses, representations, or promises, any of the
money or property owned by, or under the custody
or control of, any health care benefit program,
shall be fined under this title or imprisoned not more than
10 years, or both. If the violation results in serious bodily
injury (as defined in section 1365 of this title), such per-
son shall be fined under this title or imprisoned not more
than 20 years, or both; and if the violation results in
death, such person shall be fined under this title, or im-
prisoned for any term of years or for life, or both.

“(b) As used in this section, the term ‘health care
benefit program’ means any public or private plan or con-
tract under which any medical benefit, item, or service is
provided to any individual, and includes any individual or
entity who is providing a medical benefit, item, or service
for which payment may be made under the plan or con-

tract.”.

BR 2326 TH


uy

62

cy, any aspect of the provision of health care serv-

ices and activities of providers of such services under

any Federal health care program (as defined in sec-
tion 1128B(F)(1)).”.

(b) EXTENSION OF AUTHORITY TO INVESTIGATE
AND PROSECUTE PATIENT ABUSE IN NON-MEDICAID
BoaRD AND CARE FACILITIES.—Paragraph (4) of section
1903(q) of the Social Security Act (42 U.S.C. 1396b(q))
is amended to read as follows:

“(4)(A) The entity has—

“(i) procedures for reviewing complaints of
abuse or neglect of patients in health care fa-
cilities which receive payments under the State
plan under this title;

“(ii) at the option of the entity, procedures
for reviewing complaints of abuse or neglect of
patients residing in board and care facilities;
and

“(iii) where appropriate, procedures for
acting upon such complaints under the criminal
laws of the State or for referring such com-
plaints to other State agencies for action.

“(B) For purposes of this paragraph, the term

‘board and care facility’ means a residential setting

which receives payment from or on behalf of two or

+S 1088 15


Ce I AH PF WN

Snes

13
14
15
16
17

18

20
21
22

53

32

“(A) an administrator, officer, trustee, fi-
duciary, custodian, counsel, agent, or employee
of any health care benefit program;

“(B) an officer, counsel, agent, or em-
ployee, of an organization that provides services
under contract to any health care benefit pro-
gram; or

“(C) an official, employee, or agent of an
entity having regulatory authority over any
health care benefit program; and
“(2) the term ‘health care benefit program’ has

the meaning given such term in section 1347(b) of

this title.”.

(b) CLERICAL AMENDMENT.—The table of chapters
at the beginning of chapter 11 of title 18, United States
Code, is amended by adding at the end the following new
item:

“226. Bribery and graft in connection with health care.”
SEC. 206. ILLEGAL REMUNERATION WITH RESPECT TO
HEALTH CARE BENEFIT PROGRAMS.

(a) IN GENERAL.—Chapter 11 of title 18, United
States Code, is amended by adding at the end the follow-
ing:

“BR 2326 IH


204

“ae

+ GAO reported that a therapy company created a "paper company" with no space or
employees and added $176,000 to its Medicare reimbursements over a six-month,
period while providing no additional services.

‘+ Although speech and occupational therapy rates range from under $20 to $32 per
hour, Medicare inas been billed rates as high as $600 per hour, according to a report
by the GAO.

+ Severai days atter patients had died, a speech therapist submitted false ciaims to
Medicare for "services rendered,” according to Sen. Cohen's 1994 report.

Prescription marketing schemes are another area of vulnerability for Medicare
iraud, When the deciding factor for the physician becomes which drug offers the greatest
financial reward rather than the patients’ well-being and comfort, not only are the health
care needs of patients underserved, the costs of government programs and private health
insurance programs are unnecessarily inflated. Consider these examples:

+ In Michigan, large quantities of sample and expired drugs were dispensed to nursing
home patients and pharmacy customers without their knowledge. Wher complaints
‘were received from nursing home staff and patients’ relatives regarding the
ineffectiveness of the medications, one of the scam artists stated, "those people are
old, they'll never know the difference and they'll be dead soon anyway.”

‘And, Mr. Chairman, we cite your own valued contribution to uncovering
fitany of horror stories as cited in the Christian Science Monitor on June 26, 1995:

+ A Georgia health care company forced employees to make political contributions,
then billed Medicare for reimbursement. The company also billed Medicare for golf
trips, vacations, and a new car for the CEO's son. After indictment, the company
declared bankruptcy. The court appointed receiver is still recciving Medicare
Payments.

These are not the only schemes perpetrated by scam artists. Other areas rife with
abuse are: false, unnecessary, and non-existent tests, nursing homes and home care,
ambulance and taxi services, selling tainted medical supplies, and outright embezzlement
of Medicare funds.

I could go on and on with examples of Medicare waste, fraud, and abuse. But in
the interest of time, and the need to take better care of taxpayers’ money, T want to
discuss some of the solutions. H.R. 2326, the "Health Care Fraud and Abuse Prevention
‘Act of 1995" is an important step in combating this pervasive problem of waste, fraud,
and abuse in health care and specifically Medicare. 1 was very pleased to see the
introduction of this bill. For too long, the battle to reform Medicare has been one of
sound-bites and accusations. Tackling Medicare reform is a true sign of keeping the
commitment to change made to American taxpayers last November.



138

Mr. SHays. Thank you, Mr. Stern. We do appreciate your co-
operation. It has been very helpful.

At this time, I would call on Mr. Schiff, if he has any questions,
and then we will go to our ranking member.

Mr. ScuiFF. Thank you, Mr. Chairman.

Once again, I want to fully acknowledge that this bill was writ-
ten with Mr. Shays and his staff and, of course, takes up from
what Congressman Towns wrote, and has input from various peo-
ple in law enforcement and from HCFA.

I would like to ask this question. I would like to ask if any of
the panelists have had time to review H.R. 2389, which was filed
on September 21? I know that’s not immediately the subject of the
hearing, but I have the belief that H.R. 2389 is on the fast track
to be in the Budget Reconciliation Act, and I just wonder if you
have had time to review it. If not, I would understand. It was only
filed a few days ago. But may I ask the panelists if you are ac-
quainted with it?

Dr. Smits. I’m acquainted with it, but “acquainted” is about as
far as it goes. We would certainly be glad to submit a commentary
for the record. All of these bills appear to be moving very much in
the same direction. As you note, there is not conflict. So the ques-
tion really is the details, and for that I would really like the time.

Mr. SHays. Dr. Smits, we do have 7 days, and it would be helpful
if you would be able to submit some reaction to it.

ir, SMITS, We would be pleased to.
(The information referred to follows:)


w

CoO TAH

49

28
(b) CLERICAL AMENDMENT.—The table of sections
at the beginning of chapter 63 of title 18, United States

Code, is amended by adding at the end the following:
“1347. Health care fraud.”,

SEC. 203. THEFT OR EMBEZZLEMENT.

(a) IN GENERAL.—Chapter 31 of title 18, United
States Code, is amended by adding at the end the follow-
ing:

“$669. Theft or embezzlement in connection with
health care

“(a) Whoever embezzles, steals, or otherwise without.
authority willfully and unlawfully converts to the use of
any person other than the rightful owner, or intentionally
misapplies any of the moneys, funds, securities, premiums,
eredits, property, or other assets of a health care benefit
program, shall be fined under this title or imprisoned not
more than 10 years, or both.

“(b) As used in this section, the term ‘health care
benefit program’ has the meaning given such term in sec-
tion 1347(b) of this title.”.

(b) CLERICAL AMENDMENT.—The table of sections
at the beginning of chapter 31 of title 18, United States
Code, is amended by adding at the end the following:

“669. Theft or embezzlement in connection with health care.”.


215

“7.

ORGANIZED CRIME AND THE DRUG TRADE

Organized criminal enterprises have penetrated virtually every legitimate segment
of the health care industry.2” Louis J. Freeh, director of the FBI, told a Senate committee
that the health-care system is being infiltrated by corrupt criminal enterprises in this
country. “Health care fraud is a very serious crime problem in the 1990s,” he testified
before the Special Committee on Aging. “Today, we see cocaine dealers turning into
health care fraud entrepreneurs. The Russian Mafia, as well as other organized crime
‘groups are engaged in creative schemes to siphon money from government and private
health-care trust funds."

‘Cocaine distributors in southern Florida and southem Califomia are turning imo
Medicare fraud junkies. The chance of being imprisoned and caught are substantially less
when defrauding the health-care system. “Drug dealers who are committing health care
fraud know that they likely will face only minor punishments because law enforcement is
not yet equipped with the laws needed to effectively attack this problem.”23

The criminals’ imaginations are the only limits to the list of schemes being
perpetrated. The common factor in each investigation is the corruption of the business
side of medical care. The system is built on payers who must trust those who submit
claims for medical services, medications, treatments, and supplies, whether it is a
‘government agency, private insurer, or private citizen.

1 _"A New York physician was excluded from the Medicare and state health programs
for 15 years after being convicted of distributing a controlled substance. The
physician had accepted thousands of dollars of payoffs from drug dealers in exchange
for writing thousands of illegal prescriptions. The drug dealers used the prescriptions
to obtain controlled substances from pharmacies. The physician has been sentenced
to 12 years and 7 months in prison."*$

XL “A Pennsylvania endocrinologist was sentenced to 34 months imprisonment and 3
years probation, and fined $20,000 for Medicare fraud and illegal drug distribution.
‘The endocrinologist took blood and urine samples which he never sent to the lab, but
hr billed Medicare as if tests had been performed. He was also illegally prescribing
and distributing Dexedrine. In a subsequent civil judgment, he and his organization
‘were ordered to pay $2.3 million."26

1 ‘Sastement of Louis J. Freeh, director, Federal Bureau of Investigation, before the Senate Special
‘Committee on Aging, March 21, 1995, p. 2

‘2 “FBI Chief: Criminal Element Infiltrating Health Care," National Underwriter Life and Health, April 3,
1995,

2 ‘Sestement of Louis J. Freeh, p. 2.

25 Department of Health and Human Services (HHS), Office of Inspector General (OIG), Semiannual

Report, April |, 1993 - September 30, 1993, p. 21,
26 seid, pp. 17-18.


INTRODUCTION

"The problem is that nobody is watching,’ the doctor testified. ‘Because of the
nature of the [Medicare] system, I was able to do what 1 did. The system is extremely
easy to evade. The forms I sent in were absolutely outrageous. I was astounded when
some of those payments were made."! This statement was made in 1981 by a
Philadelphia cardiologist before the Senate Special Committee on Aging. He was
convicted in the early 1980's and was again arrested in 1994 for defrauding both public
and private health insurers. People who defraud the system understand what they are
doing and know the chances of getting caught are slim.

‘The Medicare program is a sitting duck for con artists, thieves, and degreed
opportunists. Because of its size, diabolical complexity, and lax management practices,
this $177 billion leviathan has become the equivalent of a Gucci-clad matron sauntering
down the street sporting a flashing neon sign that says, "Please rob me! Those with a
notion to defraud Medicare know that these three factors alone guarantee that the risks of
‘gaming the system are worth taking because Medicare is where the easy money is.

In Fiscal Year 1993, Medicare processed almost 700 million claims. That's nearly
two million per day, about 250 million more than it processed five years earlier, and
nearly six times the number of tax returns processed by the Internal Revenue Service.
Physicians, supply companies, and diagnostic laboratories have about three chances out
of 1,000 of having Medicare audit their billing practices in any given year?

Medicare fraud is perpetrated by billing companies, providers, suppliers, even
organized crime and drug dealers, There are scams invotving kickbacks, durable medical
‘equipment, prescription marketing, nursing homes and home-care providers, tainted
‘medical supplies, ambulance and taxi services, and embezzlement. Medicare fraud is as
varied as the imaginations of the criminals who game the system. Citizens Against
Government Waste's (CAGW) new report, Medicare Fraud: Tales from the Gypped,
details 89 examples.

June Gibbs Brown, inspector general of the Department of Health and Human
Services, said, "Fraud and abuse permeate all aspects of Medicare.” She said up to $17
Dillion, $46 million per day, or 10 percent of Medicare's budget, will be wasted because
of fraud

Is there any American surprised that 10 percent of Medicare spending is lost to
waste, fraud, and abuse? Is there anyone surprised that Medicare spending is growing at
‘a pace of 10 percent per year and rapidly approaching bankruptcy?

1 Minority Staff, Senate Special Committee on Aging, Gaming the Health Care System, July 7, 1994, p. 6.
2 General Accounting Office (GA), High Risk Series: Medicare Claims (GAO/HR-95-9), February,
1995, p.27.

3 Congressional Quarterly, Congressional Monitor, August 1, 1995, p. 7.



216

8.

A. “An Ohio dentist was sentenced to | 1/2 years confinement, to be served
consecutively, on 15 counts of selling controlled drugs to patients.... This case was
developed from Project Pharm-Div, a joint [Office of Inspector General] OIG and
Cincinnati police department undercover operation. The project aimed at identifying
‘and prosecuting individuals involved in the abuse of pharmaceutical drugs, fraud
against Medicare and Medicaid, and various frauds involving the misuse of Social
Security numbers. To date, 16 individuals and entities have been prosecuted in
federal and state courts as a result of the project."27

rolling laboratories, which operate in vans that move from place to place,
advertise for free health screening. In practice, the patients' insurance companies are
billed for unnecessary tests or no tests at all. Unscrupulous providers who can obtain
the insurance information bill companies for patients who have never been seen.
Tests on a single individual have involved billings as high as $40,000."2"

X The elderly and Alzheimer’s patients have been exploited by nursing home and
hospice operators who fraudulently billed services. incontinence supplies and
medications. These criminals prey on these victims because of their lapses of
memory or difficulty understanding these illegal activities 2°

KICKBACK SCAMS

Referrals are an integral part of the health-care system, especially Medicare,
because of the countless specialties in the medical profession. The giver and receiver
may violate federal anti-kickback statutes if referrals of Medicare or Medicaid are made
in exchange for something of value. Under the Medicare and Medicaid anti-kickback
statute, itis illegal to offer payments to physicians deliberately to induce them to refer
‘business under Medicare or any state health-care program.

Kickbacks are especially egregious because they encourage medical providers to
replace concem for the patient's welfare with the profit motive. Kickbacks can result in
totally inappropriate medical care, including unnecessary surgery, hospitalization, tests,
and equipment. Consider the following:

"The former billing clerk and 14 former patients of a Georgia chiropractor were
sentenced in a kickback scheme costing Medicare and more than 30 insurance
companies millions of dollars... Claims were submitted for patients and their

27 HHS, O1G, Semiannual Report, October 1, 1994 - March 31, 1995, p.9.

2 Garret, Thomas M., Klonoski, Richard J., and Harold W., "American Business Ethics and
Health Care Costs," Health Care Management Review, Vol. 18, issue No, 4, September 22, 1993.

39 Statement of Louis J. Freeh, p. 2.

3 ‘Statement of Gerald M. Stern, p.2



Como YN AH Bw HK =

eau AAR BHR S

8

57
SEC. 307. STUDY OF FINANCIAL SOLVENCY AND INTEGRITY

STANDARDS FOR PROVIDERS AND SUPPLI-
ERS.

(a) Stupy.—The Secretary of Health and Human
Services shall conduct a study of the feasibility and desir-
ability of imposing qualifications on individuals and enti-
ties providing items and services for which payment may
be made under the medicare and medicaid programs relat-
ing to financial solvency and fiseal integrity to protect the
programs from waste, fraud, and abuse.

(b) ReportT.—Not later than 1 year after the date
of the enactment of this Act, the Secretary shall submit
a report to Congress on the study conducted under sub-
section (a), and shall include in the report such rec-
ommendations as the Secretary considers appropriate for
financial solvency and fiscal integrity standards for provid-
ers and suppliers under the medicare and medicaid pro-

grams.


88

possibilities to fraudulent providers, this legislation will serve as a valuable
deterrent against health care fraud.

The bill also calls for coordination between the Inspectors General,
Attorney General and State agencies to establish a joint program to prevent,
detect and control health care fraud. Increased coordination between all
responsible agencies will enable the government to have significantly greater
success in fighting fraud.

Addressing health care fraud and abuse is particularly important now
given Congress’s efforts to save Medicare from bankruptcy and reign in the
unsustainable growth rates of the program. Indeed, cracking down on fraud
and abuse is a priority that my own constituents have identified as an important
first step in any plan to save thé Medicare system.

Finally, I would like to point out that H.R. 2326 is supported by the
Health and Human Services Inspector General, the General Accounting Office,
and the National Health Care Anti-Fraud Association.

1 want to again thank Chairman Shays and Congressman Schiff for their
efforts to bring this legislation before the Subcommittee today.

we


Cm NAH B® WN

boy NNN ee
BREBBRESSCxeri_ARDRESETS

43

22
(iii) any other negative action or find-
ing by such State or Federal agency that
is publicly available information.

(D) Exclusion from participation in Fed-
eral or State health care programs.

(E) Any other actions as required by the
Secretary.

(2) The term “Government agency” includes—

(A) the Department of Justice;

(B) the Department of Health and Human
Services;

(C) any other Federal agency that either
administers or provides payment for the deliv-
ery of health care services, including (but not
limited to) the Department of Defense and the
Department of Veterans Affairs;

(D) State law enforcement agencies;

(E) State Medicaid fraud and abuse con-
trol units described in section 190:(q) of the
Social Security Act; and

(F) State or Federal agencies responsible
for the licensing and certification of sealth care
providers and licensed health care practitioners.

(3) The term “health care benefit program” has

the meaning given such term in section 1347(b) of

BR: 2528 1H


129

Mr. SHays. Thank you.

Mr. Stern.

Mr. STERN. Thank you, Mr. Chairman and other members of the
subcommittee, for this opportunity to discuss health care fraud en-
forcement and the two bills pending before this subcommittee.

I think I testified before you before, and at that time informed
you that the Attorney General, back in 1993, had named health
care fraud as her No. 2 new initiative, right behind violent crime.
We created, back in November 1993, an executive level health care
fraud policy group, which I chair. The members include the Inspec-
tor General of HHS, and now that Judy Berek is on board at
HCFA, they attend, as well, our monthly meetings.

We have made a very strengthened, coordinated effort against
health care fraud. I think it is beginning to pay off in some of the
things you just heard from Dr. Smits.

The bill that you have here today will assist us in one very big
way: It will make health care fraud a Federal crime for the first
time. We have, up to this date, had to use mail fraud, wire fraud,
other hooks, to try to attack health care fraud. I think it is a very
strong and important message that you would be giving, that
health care fraud, in and of itself, is a Federal crime.

There are other provisions of the bill which I applaud and have
done so in our written testimony. In particular, I appreciate the ex-
pansion of the criminal “antikickback statute to cover the induce-
ment of the referral of business that would be paid for by any Gov-
ernment health care program. At the moment, we are just limited
to Medicare or Medicaid.

We appreciate also the administrative subpoena authority for the
Department of Justice and the grand jury disclosure provision,
which will allow us to share that information, on the civil side as
well as on the criminal side, in a much easier fashion.

We do have a few reservations about some provisions of the bill.
I have raised those with the staffs already. If I might, I might refer
to a few of them right now. There is provision 104(d) of H.R. 2326,
which we believe would constitute a severe restriction on the au-
thority of the Attorney General to enforce criminal and civil statu-
tory remedies and would usurp the prosecutorial discretion of the
Attorney General.

I would be happy to answer any further questions about that, if
you would like to question me on it. The provision itself is in a por-
tion of the bill that relates to the trust fund and is an attempt to
limit, I think, the ability to try and use a bounty-hunting method
to recover moneys rather than criminal penalties. I applaud that
goal, but the way the bill is drafted it would totally interfere, I be-
lieve, with the ability of our prosecuting attorneys to settle the
cases as the facts provide.

I also have to indicate the Department of Justice is concerned
with a provision of Section 210. We applaud your effort to give the
Attorney General the right to use subpoena power. In fact, we sup-
ported that. The way the bill is written, though, it provides for the
Attorney General or the FBI to do that. The way we would prefer
that is that the FBI, working through the Attorney General, would
do that. That is particularly important.


118

agencies. If 75% funding applies to other state agencies, Section 102(a)(1) would significantly
increase the federal government's cost for existing health care fraud enforcement. Historically,
many of the programs that may be contained within this section have not been funded by the
federal government. This section could be construed to include, for example, state licensing
agencies, state insurance bureaus; and state workers compensation fraud enforcement activities.

As you know, the Units are restricted to investigating and prosecuting provider fraud,
not beneficiary fraud. Section 102(a)(1) would allow the Units to prosecute beneficiary fraud.
This expansion of authority and responsibility, if it is intended to apply to the MFCUs, would
dilute their primary mission of prosecuting provider fraud and would make state health care
fraud enforcement less effective and efficient. ‘The mission, funding, and oversight for the
MFCUs should be maintained as described in S. 1088.
Health Care Fraud and Abuse Control Accounts

HLR, 2326 and H.R. 1850 establishes a health care fraud and abuse control account 19
assist in enforcement efforts. We have concems about whether state prosecutions involving
federal health care programs would require the transfer of state money to this account, For
example, would state forfeiture proceeds and investigative costs be required to be forwarded to
this account? Such a proposal would run afoul of many state laws requiring such monies to be
deposited into specific state accounts.
Revisions to Criminal Law and Anti-Fraud Initiatives

‘We applaud the proposals in H.R. 2326 and 1850 that create new criminal laws for health

care fraud. ‘These efforts will assist those in law enforcement to combat fraud and abuse, target
wrongdoers and provide increased deterrence. In particular, we applaud the proposed illegal

remuneration and obstruction statutes in sections 206 and 207 respectively.


122

Mr. Chairman and Members of the subcommittee:

I am happy to be here today to discuss H.R. 2326, the "Health
Care Fraud and Abuse Prevention Act of 1995," as well as to
provide updates on the Health Care Financing Administration’s
(HCFA's) efforts to combat fraud and abuse in the Medicare and
Medicaid programs.

HCFA is committed to preventing fraud and abuse in the Medicare
and Medicaid programs. However, we must recognize that fraud and
abuse is pervasive throughout the health care industry in this
country; Medicare and Medicaid are not the only target
private sector faces at least as great a problem as
government. As a result, public/private partnerships thet, bring
nking and the best practices are the key to
ducing fraud and abuse. HCFA is continuing its acknowledged
leadership in using innovative and aggressive strategies while we
work closely with our partners in the private sector and the
States.

We also note the leadership role of the Department of Labor
through its Pension and Welfare Benefits Administration and
Office of Inspector General in combating health care fraud in
private employment-based health benefit plans. We urge that, to
the extent health care fraud provisions include these private
plans, this bill reflects the Department of Labor’s important
role.

The "Health Care Fraud and Abuse Prevention Act of 1995" speaks
to many of HCFA’s concerns in combatting fraud and abuse in
health care pi ms. In fact, in a number of areas, the bill
reflects activities that HCFA and ite Federal partners, the HHS
Office of Inspector General and the Department of Justice, are
already engaged in. I would like to compliment Mr. Schiff, Mr.
Shays, Mr. Towns and their cosponsors for advancing the debate by
introducing this bill. Before I begin my comments about the
bill, I want to provide you with an update on HCFA’s activities
in this area.

Since Mr. Vladeck testified before you in June, the
Administration has proposed legislation, "The Medicare and
Medicaid Program Integrity Act of 1995," to create the Benefit
Quality Assurance Program for Medicare and the HHS Fraud and
Abuse Control Fund.

Under the Benefit Quality Assurance Program, HCFA vould establish
specialized, multi-year contracts for program integrity
activities. At present, funding for HCFA program integrity
activities is subject to the variability of the budget process.
This instability makes it difficult for HCFA to inveat in
innovative strategies to control fraud and abuse. Our
contractors also find it difficult to attract, train, and retain
qualified professional staff, including auditors and fraud
investigators.



210

Medicare turns 30 years old in 1995, Instead of enjoying the prime of its life like
many 30-year olds, Medicare is in critical condition. This “illness” is life-threatening to
the program which brings essential health care to our parents and grandparents,

reserving, protesting, and strengthening Medivae must be te number one
priority for Congress and the administration. Medicare's Public Trustees have concluded
that the program is faltering. The Trustees have given us a date for Medicare's certain
demise if its current rate of spending is not reduced: 2002. They've told us that if we
don't act today, never mind the long-range effect on baby boomers and their children; our
parents and grandparents, who currently receive benefits, will be cut off in just seven
years.

Medicare, which is made up of two separate programs, Medicare Part A and
Medicare Part B, was created in 1965 to provide health-care insurance benefits to the
aged and eligible populations who otherwise might not be able to obtain adequate health
insurance coverage in the event of injury or illness.

Medicare Part A provides hospital and other institutional insurance for eligible
disabled persons and persons 65 or older. This coverage is premium-free and is financed
through mandatory payroll taxes. Part A finances the hospital insurance (Hl) portion.

Medicare Part B, Supplementary Medical Insurance (SMI), is an optional program
which covers most of the costs of medically necessary physician and other services. All
ppersons 65 years or older can choose to enroll in the SMI program by paying a monthly
premium. Even though this is a voluntary program, non-participating taxpayers finance
most of the spending. "The current contribution level ($46.10 per month as of January 1,
1995) constitutes just 29 percent of the actual cost of the Part B program. The remaining
71 percent is provided by the taxpayers."

‘The Health Care Financing Administration (HCFA) is the hub of the Medicare
system. HCFA contracts with 80 private insurance companies to process Medicare
claims annually and protect funds through review activities called payment “safeguards.”

‘According to the General Accounting Office (GAO): HCFA has not provided
effective oversight of the contractors it uses to administer Medicare and safeguard
program funds. HCFA has litte information on fundamentals, such as the computerized
‘edits and payment criteria used by contractors."> Medicare pays more claims with less.
scrutiny that at any other time over the past five years.*

Butler, Stuart M, Moffit, Robert E., and Liu, John C., “What to do About Medicare,” Heritage
Foundation, June 26, 1995, p. 3.

3 GAO, Medicare: Inadequate Review of Claims Payments Limits Ability to Control Spending,
(GAOMEHS-£4-42), April, 1994, p. 3.

© GAO, High Risk Series, February, 1995, p. 7.


127

~6-

However, we have concerns about the sources and use of funds in
the Control Account, for example, the bill as drafted would
include in the Control Account monies collected as civil money
penalties (CMPs) that are unrelated to program integrity. ‘These
include administrative penalties under Medicare and Medicaid,
such as those levied on skilled nursing facilities as
intermediate sanctions in place of termination.

These penalties are used to address quality of service issues
rather than program integrity and are not related to the
activities conducted by the Inspector General or the Department
of Justice. Since these penalties are not related to program
integrity, we suggest they be excluded from this Account.

We support the permissive exclusion authority in section 301.
This authority would alleviate the problem of allowing
individuals whose companies have defrauded the Medicare progran
from obtaining new companies vhich bill the Medicare program.

The bill’s provision relating to inherent reasonableness, section
303, points toward a significant problem with how Medicare now
sets the prices it pays for medical equipment and supplie
While we are proceeding with the initiative described in this
section, our current inherent reasonableness process, determined
by statute, is cumbersome and lengthy and prevents us from

nding flexibly to changes in the medical marketplace. In
many instances, Medicare is forced to pay prices far in excess of

1 prices. Medicare’s current payment

policies are largely determined by statute, and we endorse giving
Hedicare statutory authority to set its payment rates for medical
equipment and supplies to better reflect the impact of market
forces.

We strongly support involving our beneficiaries in combatting
fraud and abuse. As we testified in June, we believe
beneficiaries are our “eyes and ears," and they provide us with a
great many leads about potential abusive or fraudulent
situations. Beneficiaries are regularly advised about how they
can help combat fraud and abuse through material we send them
when ve pay a claim. We include this information in the Medicare
. next edition of which will be sent to all
beneficiaries early in 1996. In fact, since we are already
actively informing our beneficiaries about fraud and abuse and

as an important first line of defense, we believe that
a statutory mandate is unnecessary.

Regarding the contractor liability provision in section 301, our
contractors are already under definite instructions not to pay
claims from excluded providers. While we are not aware that
there is any significant problem in this area, making contractors
liable for such claims, where a pattern of problems is
demonstrated, could help insure compliance with these


233

25+

corporate names. Seven of his employees were also sentenced on charges related to
the unlawful sale of pacemakers, impeding the ability of the Food and Drug
Administration to regulate the medical device industry, offering gratuities to
physicians, and committing mail fraud against hospitals. Because of the pacemaker
tampering, during the investigation, federal authorities issued advisories to physicians
receiving the devices warning of facts uncovered, including expiration dates lapsing
before devices were implanted, improper sterilization, recycling of pacemakers, and
mislabeling of pacemakers intended for animal use only. The owner also was given a
20-year exclusion from Medicare and Medicaid which cannot be appealed, and was
ordered to never again operate a medical device company. A physician who did
business with the man was also sentenced, and other sentencings are expected."!16

"Georgetown University Hospital has agreed to pay the U.S. government more than
$2.5 million for failing to refund Medicare overpayments, and several other District
hospitals are being investigated for health care fraud, U.S. Attorney Eric Holder
said.... The investigation into the hospital's handling of Medicare credits began after
an audit of the hospital's patient accounts department revealed that the hospital was
‘zeroing out’ Medicare credit balances. A subsequent audit established that this
practices resulted in GUH improperly retaining over $1 million of federal Medicare
funds, the U.S. Attorney's office said."!!”

HL “The owner of a Silver Spring eye surgery center has agreed to pay $750,000 in
restitution and penalties to settle federal charges he submitted false Medicare
claims.... The payment by the ophthalmologist, Seymour J. Dubroff, is the result of a
1 1/2-year investigation by Health and Human Services. He was accused of
submitting to Medicare $180,000 in bills for eye surgery that in some cases was not
performed and in others was not reimbursable under federal rules. Under the
agreement, the federal agency will not try to bar him from participating in
Medicare.... The government said it found fraud in 185 bills submitted on behalf of
his patients between 1986 and 1990. The case began with a tip from one of Dr.
Dubrofi’s patients who had received a statement from Medicare that showed excess
payments."18

EMBEZZLEMENT OF MEDICARE FUNDS

Embezzlement, a common white collar crime, is penetrating the Medicare system.
For example:

U6 HHS, O1G, Semiannual Report, April 1, 1993 - September 30, 1993, p. 17.

117 Metaler, Krista, “Georgetown U, Hospital To Repay Medicare Money,” The Washington Times,
December 24, 1993, p. C4

118° Meisol, Patricia, "Surgeon Senles Claim," The Baltimore Sun, une 1, 1993, p. 1B


14.

More than 20 different Medicare provider numbers were obtained by a medical
supply company which served nursing facility patients. “The companies, all in the
‘same state, were nothing more than shells that allowed the supplier to spread its
billings over numerous provider numbers to avoid detection of its overbillings."**

Although speech and occupational therapy rates range from under $20 to $32 per
our, Medicare has been billed rates as high as $600 per hour. Extraordinary markup
in the charges for services is the result of certain weaknesses in payment rules
permitted by Medicare.’?

"A speech therapist submitted false claims to Medicare for services ‘rendered to
patients’ several days after they had died."

1 "Five clinical labs (to which Medicare paid over $15 million in 1992) have been
under investigation since early 1993 for the alleged submission of false claims. The
labs’ mode of operation was to bill Medicare larger sums over 6 to 9 months;
whenever a lab received inquiries from Medicare, it went out of business."6!

& A California supply company billed Medicare for $5 million worth of surgical
dressings for patients who never underwent surgery,

“A Georgia health care company forced employees to make political contributions,
then billed Medicare for reimbursement. The company also billed Medicare for golf
‘tips, vacations, and a new car for the CEO's son. After indictment, the company
declared bankruptcy. The court appointed receiver is still receiving Medicare
‘payments."6

X “InIillinois, a physician's wife was sentenced to 2 years probation and community
service, and ordered to pay restitution of $5,200 and a fine of $3,000 for defrauding
Medicare and Medicaid. The woman, who served as office manager and billing clerk
for her husband, devised a scheme to file Medicare and Medicaid claims for services
not rendered. She admitted submitting approximately 370 fraudulent claims over a 2
1/2-year period."

XE “A Florida man was sentenced to 13 months incarceration for impersonating a
physician and submitting false claims to Medicare, the Civilian Health and Medical
Program of the Uniformed Services and private insurance programs. After a

38 Idem.
2 GAO, High-Risk Series, February, 1995, p. 8.
© Gaming the Health Care System, p. 6.
$1 GAO, Medicare, Modern Managemen Sratesis p.6
© Gaming the Heath Care System, p
‘Christopher, “To Fix eth Cae, ‘Stop Fraud,” Christian Science Monitor, June 26, 1995, p.20.
“ HHS, OIG, Semiannual Report, April 1, 1993 - September 30, 1993, p. 18.


151

OPENING STATEMENT
CONGRESSMAN JON D. FOX

SUBCOMMITTEE ON HUMAN RESOURCES AND
RELATIONS
SEPTEMBER 28, 1995

Mr. Chairman, I thank you for the opportunity to
allow me to sit in on this hearing, which focuses on
corrective legislation to combat waste, fraud, and abuse

in the Medicare and Medicaid programs.

As we take on our heralded effort to reform Medicare
and Medicaid, we must first focus on eliminating the
current waste, fraud, and abuse that currently exists in
this programs. For example, back in my district, I turned
to the people of Montgomery County, Pennsylvania to
help me formulate positive solutions to the crisis facing

Medicare by creating a voluntary Task Force of citizens


155

Dr. Smits. I would like, just for the record, to note, a friend of
mine, who is an excellent geriatrician, called not long ago and
asked why his carrier was investigating him in such depth. And
the answer was that a patient had complained she was billed for
services that were never delivered. There was an excellent written
record that they had been delivered. She had forgotten. So you
have to develop the complaint before you can refer it to the law en-
forcement officers.

Mr. Fox. Right. But I think many of us here in Congress have
gotten those complaints from constituents saying, “I don’t know
how I got billed for this,” that didn’t remember receiving the serv-
ice.

Let me ask you this, if I may, Doctor: What deterrent strategies
or tools would HCFA be able to implement with a steady stream
of funding, vis-a-vis postpayment recoveries or prepayment strate-

gies?

Dr. Smits. I think we've heard a lot of them. You need to inform
consumers. If, indeed, the fraud hotline was busy, we need to be
sure that we have adequate resources to run the line well. You
need continued computer development. As I indicated, some of the
computer methods that are used by organizations like mutual
funds to predict the stock market can be used to find fraud in this
vast quantity of claims, but that’s expensive.

Mr. Fox. Would it be of any assistance if we offered a reward to
seniors for having reported such alleged acts of abuse, and if they
are founded, then they receive some kind of economic benefit?

Dr. SMITS. That’s an interesting question. You don’t want to
promise rewards to everyone, because then all the people who for-
got that the doctor had come on Thursday will expect money. Per-

aps an annual amount of money could be given to the people
whose information has led to the most results. There certainly have
been instances where some of the very big recoveries that have
been mentioned from Justice began with consumers saying,
“There’s something odd here.”

I do think there should be some way to reward them. I’m not
sure exactly what that should be, but I think it is a good direction
to go in, as long as we're not promising everyone.

Mr. Fox. Right. So some kind of incentive might be good.

Dr. Smits. Yes.

Mr. Fox. In your view, are current civil and administrative pen-
alties an effective deterrent to waste, fraud, and abuse?

Dr. Smits. I think I have to refer that to the expert on the panel.

Mr. STERN. Well, first there are administrative penalties that I
think Mr. Fox is referring to, and there are also criminal penalties.

Mr. Fox. Right.

Mr. STERN. My feeling is that it’s more important that we have
the resources and the tools to go after the cases than to work on
the penalty side of it. The penalties, I think, are severe enough.
Mr. Shays asked earlier about the sentence in the case with respect
to the Bard folks. We got a recent sentence against Dr. Rutgard in
California. After a 5-month trial, he was sentenced by the judge to
11 years in jail, and we repatriated $7.5 million that he had sent
overseas.


CONTENTS

Hearing held on Se tember 28, 1995
Text of

Text of Ht zt 2328
Statement of:

ess, Lovola, past president, American Association of Retired Persons;

Alliam J. Mahon, executive director, National Health Care Anti-Frau

Association; and Thomas A. Schatz, president, Citizens Against Govern-

ment Waste

Smits, Helen, M.D., Deput

uty Adm: inistrator, Health Care Financing Ad-
ministration, accompanied by Bill Gould, Special Assistant to the Ad-
ministrator; ‘and Gerald Stern, Special Counsel for Health Care Fraud,

Department of Justice ..
Letters, statements, etc., submitted for the record by:
Burgess, Lovola, past president, American “Association of Retired Persons,
prepared statement of ...
Clin Hon. William F., a Representative in Congress from the State
of Pennsylvania, prepared statement of ....
Collins, Hon. Cardiss, a Representative in Congress from the State of
Illinois, prepared statement of
Fox, Hon. Jon D., a Representative in Congress from the State of Penn-
sylvania, prepared statement of ..
Green, Hon. Gene, a Representative in Congress from the State ot
Bett pared statement of
HHS OIG supplemental statement
Mahon, William J., executive director,
Azeciation, ns Be pared statement of...
i, @ Representative in Congress
Moree vorsey, + pre pared statement of ....
Schatz, Thomas . president, Citizens Against
pared statement of
Shaye Hon. Christop!
mnecticut:
Prepared statement of ....
Prepared statements of |
neys General, and the National “Association of ‘Medicaid Fraud
Control Units
Smits, Helen, M.D.,
ministration:
‘Address of regional office
Comments concerning H1]

Information concerning
statement of

Stern, Gerald, Special Cor
Justice, pi

Towns, Hon. Edolphus, a Repre:
of New York, prepared statement of ..

Bon

176

119

178
87
91

151

147
164

190
167
201


249

‘The Office of Management and Budget advises that there is no
objection to the submission of this report from the standpoint of
the Administration's program.

Sipcerely,

CN le


253

the bill arguably could be read to transfer to private
contractors traditional law enforcement responsibilities,
although we doubt this was the sponsor's intent.

Second, although the need for funding for federal health
care fraud enforcement efforte has grown, the bill providea
funding for private entities but no funding for law enforcement
agencies. The number of health care fraud prosecutors and
investigators simply has not kept pace with the dramatic increase
in the number of criminal and civil health care fraud
investigations and prosecutions presently handled by the
Department of Justice. This problem will only grow more acute in
the future. For example, the Federal Bureau of Investigation has
1760 health care fraud matters under investigation, up From 1051
in 1993. In addition, the Department of Justice receives health
care fraud cases from numerous agencies other than the Federal
Bureau of Investigation, such as the Department of Health and
Human Services ("HHS") and the Department of Defense as well as
private insurers. Further exacerbating the demand on resources,
the bill itself imposes expanded duties upon the Department of
Justice and HHS, such as the requirement that all requests for
special fraud alerts be investigated and acted upon. The
efficacy of any health caze fraud enforcement program depends on
adequate resources for law enforcement.

ur third concern involves the source of the funds for the
new Anti-Fraud Fund. Specifically, the Department of Justice
does not endorse depositing criminal fines into the Fund.
Criminal fines are not presently deposited into the Treasury but
rather into the Crime Victims Fund tc be used to assist and
compensate victins of crimes ail over the country. We do not
support diverting fines from thie critical law enforcemant
activity

1

Forge. This Section requires the establishment of a Health Care
Anti-Praud Task Force, which would hava a separate “accounting of
its finances," and have a separate staff, distinct from the rest
of the Department of Justice components. The Attorney General
would be required to consult with an Advisory Group in connection
with the establishment of the Task Force. We believe that it is
unnecessary to Separate the Department's health care fraud
enforcement effort from the rest of the Department's enforcement
activities in this manner. Such a structure represents an
unnecassary administrative burden that could serve to detract
from our overall enforcement efforts. By mandating fully staffed
operational segments of the Task Force, the proposal limits the
discretion of individual United States Attorneys to respond to
changing investigative and prosecutorial needs, which may vazy
greatly over time and between judicial districts.

Moreover, the proposed structure risks disrupting the
present health care fraud enforcement effort which has had so
many demonstrated successes. The Attorney General in 1993 named

400/800) v0 roa errs ¥Is 2ozg = TeisT 98/90/07


145

Dr. Smits, what were the lessons learned from the coordinated
efforts in the south Florida work group?

Dr. Smits. I think I’ve mentioned some of them. The exclusion
of problem suppliers. We identified and withheld payment on some
clusters of services that appeared to be inappropriate, that were
being inappropriately highly used in south Florida, relative to what
we saw elsewhere in the country. We benefited greatly from the
fact that it’s a joint Medicare-Medicaid effort. Our carrier there has
excellent data systems.

Mr. Gould is trying to pass me notes, but I think he should com-
ment himself since he’s much more directly involved.

Mr. CHRYSLER. Sure.

Mr. SHays. Mr. Gould, we are happy to have you participate in
this hearing.

Mr. GOULD. One of the major findings is the fact that we have
to work together as a coordinated team—I think it’s a thing that
you’ve mentioned throughout this hearing today—and not only as
Federal agencies, but Federal agencies in concert with State agen-
cies.

One of the major things that occurred in Pulling together the
task force in south Florida is that we pulled together not only a
program task force but also an enforcement task force made up of

‘ederal and State officials. This has to be a unified effort.

People who defraud the system do it on both the Medicare and
Medicaid systems, and we need to be able to share information eas-
ily between both Federal and State agencies. So I think that’s an-
other major piece of the finding from this kind of work and actually
became the foundation for the work of Operation Restore Trust.

Mr. CHRYSLER. Mr. Stern, how will the establishment of specific
criminal statutes for health care fraud increase the Department of
Justice’s ability to prevent and deter fraud and abuse?

Mr. STERN. The major point, I think, Mr. Chrysler, is the one I
mentioned earlier, that having an actual health care fraud offense,
which we do not now have on the books, sends an important,
strong message that this is now a Federal crime that we are paying
attention to, Specifically as a Federal crime, and we do not have to
use mail fraud or wire fraud or money laundering or some of the
other hooks that we have to use. I think that, in itself, is an impor-
tant message.

There are specific provisions that I talked about. Expanding the
antikickback statute gives us additional tools with respect to Fed-
eral health care plans, which are not now covered, other specifics
like that. But I think the more important message is the general
one that health care fraud is now a Federal offense.

Mr. CHRYSLER. What proposals would the Department of Justice
offer in place of section 104(d) to combat the efforts of fraudulent
providers to avoid conviction and mandatory exclusion through the
Plea-bargaining process?

Mr. STERN. Well, I don’t have any specific |. ge to deal with
that. Mr. Schiff may be as close to resolution of that as I can get.
I should point out, though, that I think one of the issues you were
concerned about is, if a company pleads guilty, that somehow the
company can pay money, plead guilty, and yet stay in the program.
The only way we deal with that at the moment is to go after the


106

Medicaid program, the mandate to Medicaid Fraud Control Units (MFCUSs) specifically includes
the authority to prosecute the abuse or neglect of patients in all residential health care facilities
that are Medicaid providers. The Units are staffed by professional teams of attorneys,
investigators and auditors specifically trained in the complex litigation aspects of health care
fraud. The enabling federal legislation emphasizes the necessity of having an integrated multi-
disciplinary team in one office in order to successfully prosecute these complex financial crimes.
‘The Units are required to be separate and distinct from the state Medicaid programs and are
usually located in the state Attorney General’s office, although some Units are located in other
state agencies with law enforcement responsibilities such as the state police or the state Bureau
of Investigation. The Omnibus Reconciliation Act of 1993 required ail states to have a Medicaid
Fraud Control Unit by this year, unless a state can demonstrate to the Secretary of the

Department of Health and Human Services, (HHS) that it has a minimum amount of Medicaid

fraud and that resicents of health care facilities that receive Medicaid funding will be protected
from abuse and/or neglect.

Since the inception of this pioneering program, the state MFCUs have successfully
prosecuted over 7,000 corrupt medical providers and vendors and elder abusers -- convictions
that would not have occurred without this vital piece of legislation. These 47 Units police 95%
of the nation's Medicaid expenditures with combined staff of approximately 1,150 and a total
federal budget of $69 million. This funding represents a small fraction of the total Medicaid
budget that the Units are responsible for policing. Unit size varies state-by-state and is dictated
to some extent by the size of state's Medicaid program.

In addition to the criminal consequences of MFCU cases (repayment of restitution,
overpayments, state exclusions, incarceration, and often the loss of certifications, the ability to
conduct business and professional licenses) the criminal convictions of the Units become the

2


Cm IYI AW eR WH &

BSertaanrsosas

66

45

(3) by inserting “section 1347 (relating to
health care fraud)” after “section 1344 (relating to
financial institution fraud),”.

(e) CRIMINAL FORFEITURE.—Section 982(a) of title
18, United States Code, is amended by adding at the end
the following new paragraph:

“(6) The court in imposing sentence on a per-
son convicted of a Federal health care offense as de-
fined in section 24 of this title, shall order that the
offender forfeit to the United States any real or per-
sonal property constituting or derived from proceeds
that the offender obtained directly or indirectly as
the result of the offense.”.

(f) REWARDS FOR INFORMATION LEADING TO PROS-
ECUTION AND CONVICTION.—Section 3059(¢)(1) of title
18, United States Code, is amended by inserting “or fur-
nishes information unknown to the Government relating
to a possible prosecution of a Federal health care offense
as defined in section 24 of this title, which results in a

conviction” before the period at the end.


52

31

for any other person or entity, the giving of which

2 violates paragraph (1) of this subsection, or at-
3 tempts to violate this subsection,

4 shall be fined under this title or imprisoned not more than
5 15 years, or both.

6 “(b) Whoever—

7 “(1) otherwise than as provided by law for the
8 proper discharge of any duty, directly or indirectly
9 gives, offers, or promises anything of value to a
10 health care official, for or because of any of the
11 health care official’s actions, decisions, or duties re-
12 lating to a health care benefit program, or attempts
13 to violate this subsection; or

14 “(2) being a health care official, otherwise than
15 as provided by law for the proper discharge of any
16 duty, directly or indirectly, demands, seeks, receives,
17 accepts or agrees to accept anything of value person-
18 ally or for any other persoa or entity, the giving of
19 which violates paragraph (1) of this subsection, or
20 attempts to violate this subsection,

21 shall be fined under this title, or imprisoned not more than
22 2 years, or both.
23 “(e) As used in this section—

24 “(1) the term ‘health care official’ means—


173

AL.

AMENDMENT TO H.R. 2326
OFFERED BY Mr. MARTINI

Page 47, insert after line 17 the following (and re-

designate the succeeding provisions accordingly):
1 (c) LaposiTion oF Civil Monerary PENALTY ON
2 Bune FoR CERTAIN Non-Emercency MEDICAL
3. TRANSPORTATION SERVICES UNDRR MEDICAID.—Section
4 1128A(a)(1) of the Social Security Act (42 U.S.C. 13208—
5 Ta(a)(1)), as amended by subsection (b), is amended—
6 (1) by striking “or” at the end of subparagraph
7 @);
8 (2) by adding “or” at the end of subparagraph
9 ); and
10 (3) by adding at the end the following new sub-
11 paragraph:
12 “(I*) is for a nonemergency medical trans-
13 portation serviec provided to an enrollee of a
14 State plan under title XIX if the provider of the
15 service knows or should know thet—
16 “() the enrollee to whom the service
7 is provided is not blind, severely disabled,
18 or medically incapacitated (in aceordance
19 with guidelines established by the Sec-
20 retary, except that an individual may not

21

be treated as scverely disabled or medically


101

NATIONAL ASSOCIATION OF ATTORNEYS GENERAL
Ne

‘Cumusrose T. Mauixen resent
Goal noay Conca! of New tees
Presomer-Euscr
SCOFT HansinARGra
Atorny Goma of Maschaece

. vice Passes
Honorable Christopher Shays Pha Paac Carron

InomeDuaTe Past PRESIDENT

‘Subcommittee on Human Resources and ‘CHARLES W. yRsON,
Intergovernmental Relations Atorey Generel ef Txmemee
‘Committee on Government Reform and
Oversi

ight
Room B-372
Rayburn House Office Building
Washington, D.C, 20515

Re: Statement for the Record-H.R 2326 and H.R. 1850
Dear Chairman Shays:

‘Thank you very much for the opportunity to comment on H.R. 2326, the Health Care
‘Fraud and Abuse Prevention Act of 1995 and H.R. 1850, the Health Care Fraud and Abuse Act.
Health care fraud is a priority for individual Attorneys General and for the National Association
of Attorneys General, and we welcome the opportunity to work with you, Representative Schiff,
Representative Towns, and the other members of the Subcommittee to improve law enforcement
efforts in this area.

‘Because time was too short to consult our colleagues, we are not able to speak on behalf
of the National Association of Attomeys General, but we would like to offer the following
specific comments based on our review of the bills. We have been working closely with Senator
Cohen in connection with his bill, S. 1088, and our comments are informed by those
discussions. Our comments will be directed to both bills unless otherwise noted.

In general, we very much appreciate your efforts to expand the jurisdiction of and reduce
‘bureaucratic limitations on state Medicaid Fraud Control Units (MFCUs). H.2. 2326 and H.R.
1850 are important steps towards a more coordinated and effective response to health care fraud.
As you know, MFCUs, most of which are located in the state Attorney General's office, are
responsible for investigating and prosecuting health care fraud by providers in the Medicaid
program. The Attomeys General have consistently supported the expansion of MFCU
jurisdiction from crimes solely involving the state Medicaid programs to heaith care provider
fraud committed against federally funded programs as well.


26

5
1 investigative plan for the prevention, detection, and
control of health care fraud and abuse in accordance
with the program established under paragraph (1).

(d) CoNSULTATIONS.—Each of the Inspectors Gen-

2

3

4

5 eral referred to in subsection (a)(1) and the Attorney Gen-
6 eral shall regularly consult with each other, with Federal,
7 State, and local law enforcement agencies, with Federal
8 and State agencies responsible for the licensing and cer-
9 tification of health care providers, and with Health Care
10 Fraud and Abuse Control! Units, in order to assist in co-
11 ordinating the prevention, detection, and control of health
12 care fraud and abuse in violation of any federal law.
13. SEC. 102. STATE ENFORCEMENT.

14 (a) DESIGNATION OF STATE AGENCIES AND EsTaB-
15 LISHMENT OF HEALTH CARE FRAUD AND ABUSE CON-

16 TROL UNIT.—The Governor of each State—

7 (1) shall, consistent with State law, designate
18 agencies of the State which conduct, supervise, and
19 coordinate audits, civil and criminal investigations,
20 inspections, and evaluations relating to the preven-
21 tion, detection, and control of health care fraud and
22 abuse in violation of any Federal law in the State;
23 and
24 (2) may establish and maintain in accordance
* 25 with subsection (b) a State agency to act as a


228

-20-

ineffectiveness of the medications, one of the scam artists stated, "those people are
old, they'll never know the difference and they'll be dead soon anyway."®!

¥_ In 1993, the Department of Justice “successfully pursued [a] case involving improper
‘marketing of pharmaceuticals, in this case Ayerst Laboratories’ frequent-flier
marketing program for physicians who marketed the drug Inderal LA.... Ayerst
enrolled 20,000 physicians in the ‘Patient Profile Program.’ This program awarded
doctors points toward airline certificates or other honoraria each time the doctor
placed a new patient on Inderal LA and completed a brief survey. "9?

"A pharmaceutical company agreed to pay $450,000 in settlement of civil and
administrative claims that it defrauded Medicare. The company created a ‘grant-in-
aid’ research program which offered physicians kickbacks in the form of grants in
exchange for performing small-scale studies of its antibiotic. From 1986 to 1991, the
physicians were paid fees of $500 to $2,500 to teat patients with the company's
antibiotic. Investigation showed that in most cases the research performed by the
physicians was not of scientific value. In addition, some physicians never completed
the research but received full payment from the pharmaceutical company."*?

FALSE, UNNECESSARY, AND NONEXISTENT LABORATORY TESTS

Medicare, Medicaid, state health programs, and private health insurers have
experienced increased costs because of the widespread use of marginally necessary or
totally unnecessary laboratory tests and procedures.

"Billing for useless laboratory tests and cheating both government and private
insurers is still occurring. In Maryland, a laboratory and its owner were found guilty
‘of numerous counts of fraud and theft. The defendants were charged with billing
government and private insurers for performing more than 8,000 unauthorized and
useless diagnostic tests totaling nearly $150,000. The owner was also convicted of
representing a laboratory which was in violation of the state's quality assurance laws.
He was sentenced to serve five years and ordered to pay $161,000 to Medicaid,
Medicare and several commercial health insurance companies."TM

‘ "The owner of a DME company in New York was sentenced to five months in jail for
Medicare fraud and ordered to pay $100,000 in restitution for falsifying blood tests to
justify claims for oxygen equipment and inflating hours of oxygen use to obtain
higher reimbursements."®5

9 Gaming the Health Care System, p.2.

% Sustement of Gerald M. Stem, p. 3.

92 HHS, OIG, Semiannual Report, October 1, 1994 - March 31, 1995, p. 19.

‘% Testimony of Thomas Temmerman, director, Bureau of Medical Fraud, before the Senate Special
‘Commitee on Aging, March 21, 1995, . 4.

95 Gaming the Health Care System, p.6.


236

Statement of
June Gibbs Brown, Inspector General
Department of Health and Human Services

1 appreciate the opportunity to comment on H.R. 2326 and H.R. 1850. ‘These bills enhance and
strengthen many of the enforcement tools in the Inspector General's arsenal for combatting fraud and
abuse--a problem which squanders our limited governmental resources and which can adversely
affect our program beneficiaries. Ata time when various health care cost savings are being
considered by the Congress, efforts to control fraud and abuse are highly appropriate, helping our
federally funded health care programs to operate efficiently, economically and effectively.

We strongly endorse the proposals in H.R. 2326 and 1850 to establish a new and comprehensive
fraud and abuse control program applicable to all payers. Such a program would strengthen the
current efforts of Federal and State governments, as well as private third party payers, to coordinate
their enforcement efforts. Ten years ago, the Office of Inspector General (OIG) helped establish the
National Health Care Anti-Fraud Association (representing both governmental and private third
party payers and law enforcement agencies) to coordinate governmental and private health care fraud
enforcement activities. Over the years, this govemmmental/private partnership group has been
extremely successful in fostering collaboration.

Moreover, the OIG has recently established with the Department of Justice and other enforcement
agencies an Executive Level Working Group to focus on health care fraud. and we have started to
see positive results. However, better communication and coordination of law enforcement activities
are clearly needed in the fight against health care fraud and abuse, and your proposed all-payer fraud
and abuse control program would foster such activities.

The proposals in £1.R. 2326 and H.R. 1850 to establish a Health Care Fraud and Abuse Control
Account would also improve our enforcement efforts significantly. We support a mechanism
whereby funding to combat fraud and abuse is increased without drawing down from the U.S.
‘Treasury, or burdening taxpayers further. Under the approach suggested in both of these bills,
financial recoveries derived from health care fraud eases such as criminal fines, civil penalties and
damages under the False Claims Act, and administrative penalties and assessments, would be
deposited into an account. 1o be made available for the future funding of fraud and abuse
enforcement activities. This plan makes the individuals who actually perpetrate fraud against, or
otherwise abuse our Federal programs, pay the costs of increased enforcement in those programs.
We would recommend that the legislation ensure full restitution to government health care programs
of monies lost due to fraud, as well as investigative costs incurred by the OIG, before any funds are
to be deposited into the account

Legal Remedies

H.R. 2326 contains several proposais for expanding current criminal, civil and administrative
authorities of the OIG. We applaud these efforts to strengthen available legal remedies, which assist
us in targeting wrongdoers and provide increased deterrence as well. We are especially interested in

‘Subcomanitee on Human Resources and Intergovernmiental Aa, Seprember 28, T995-Page b


104TH CONGRESS
ae” HR, 2326

To improve Federal efforts to combat fraud and abuse against health care
programs, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

SepreMBER 13, 1995.

Mr. ScHIFF (for himself, Mr. SHAYS, Mr. CLINGER, Mr. Fox of Pennsylvania,
Mr. ScHUMER, and Mr. Towns) introduced the following bill; which was
referred to the Committee on the Judiciary, and in addition to the Com-
mittees on Government Reform and Oversight, Ways and Means, and
Commerce, for a period to be subsequently determined by the Speaker,
in each case for consideration of such provisions as fall within the juris-
diction of the committee concerned

A BILL

To improve Federal efforts to combat fraud and abuse
against health care programs, and for other purposes.

1 Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

(a) SHorr T1TLE.—This Act may be cited as the
“Wealth Care Fraud and Abuse Prevention Act of 1995”.

(b) TABLE OF CONTENTS.—The table of contents of

Yaw pp WN

this Aet is as follows:

See. 1. Short title; table of contents.


105

‘The National Association of Medicaid Fraud Control Units is pleased to submit this
statement on the role of the states in investigating and prosecuting health care fraud and to
specifically address H.R. 2326 and H.R. 1850. As Congress considers metheds for controlling
health care costs, effective and efficient law enforcement to deter and punish corrupt providers
must be an important component in any effort to control and, hopefully, reduce the costs of
health care delivery. We appreciate the opportunity to comment on these bills and applaud your
efforts to combat health care fraud.

While the investigation and prosecution of health care fraud has only recently become a
top national law enforcement priority, the states have been combatting heaith care fraud for
almost two decades and are viewed as leaders in the detection and prosecution of fraud in the
health care industry. Medicaid, established by Congress in 1965, is the primary government
health care program for approximately 34 million of America's poorest and oldest citizens. For
the first decade after Medicaid was created, the system operated with few controls against fraud.
Unfortunately, safeguards combined with multi-billion dollar expenditure levels made a
substantial amount of fraud inevitable, ‘The result was an unprecedented theft of government
dollars as local prosecutors struggled with the difficult task of prosecuting these highly
sophisticated crimes. Congress came to recognize an urgent need to address this loss after much
media attention and Congressional hearings highlighted the theft of taxpayer dollars and the harm
suffered by Medicaid patients who were deprived of basic medical care. The result was
legislation to establish specialized state-based strike forces to police the Medicaid program.

In 1977, Congress enacted legislation, the Medicare-Medicaid Anti-Fraud and Abuse
Amendments, P.L. 95-142 which established the state Medicaid Fraud Control Unit Program.
‘The objective of this legislation was to strengthen the capability to detect, prosecute and punish
health care fraud. In addition to investigating and prosecuting providers who defraud the

1


162

inspectors will affect their efforts to go after fraud in their own pro-
grams? I’m concerned about spreading ourselves too thin here.

Mr. STERN. It could. It could, and we have expressed a concern
about that with the staff. Particularly, there is an example in the
bill where the State folks might be given the authority to go in and
investigate Federal crimes. I think there is enough State health
care fraud so that we don’t have to add an additional authority to
them to go after Federal crimes.

We discussed this with the staff, in terms of sort of a pending
jurisdiction theory. If somebody is working on health care fraud
and it slops over into an area outside of their jurisdiction, I cer-
tainly think they should be able to continue to work on it. But to
say to them, you now have wide-ranging authority to go after any
particular health care fraud, whether it’s your program or not,
whether it’s your State or not, I think does dilute their efforts.

Mr. Towns. Last—this is a very quick answer.

Mr. SHays. It’s a quick question with a long answer.

Mr. TOWNS. It’s a quick question and a quick answer, too.

The south Florida experiment seems to be working quite well.
Law enforcement authorities, everybody seems to be very pleased
with the sharing of information and the effectiveness of the pro-
gram, which you demonstrated here this morning in terms of this
information that’s coming forward.

Is there any real thought to move this forward in other areas
where there appears to be a high concentration of fraud? I under-
stand there are areas in the country where it seems to be quite
prevalent. Is this kind of effort being thought about, or is it so ex-
pensive that you can’t do it? Could you just answer that very quick-

Dr. Smits. Operation Restore Trust moves it forward into four
other areas where lots of Medicare beneficiaries reside. But, in the
long run, our ability to do this kind of thing well depends, in part,
on resources, and that’s why we believe there should be some form
of a trust fund that we can draw on, so that we can afford to have
the money to do the detection.

Mr. Towns. Thank you.

I yield back, Mr. Chairman. Thank you very much.

Mr. Says. I thank the gentleman.

We have another panel with three witnesses. I notice that our
colleague, Bill Martini from New Jersey, is here, and he is welcome
to make a comment or ask questions. If he wants time to gather
his thoughts, do either Mr. Schiff or Mr. Fox have any other follow-
up questions before?

Mr. ScuiFFr. Not a follow-up question, but one more quick obser-
vation.

Mr. Suays. Sure.

Mr. ScuiFr. And that is, I want to emphasize the importance of
an antihealth care fraud fund. Now, there is some dis: ment
about who should manage that fund. But the fund itself I think is
important for this reason: The agencies which investigate and pros-
ecute health care fraud are appropriated agencies, and they are
facing, at best, a freeze on their funding. But under everybody's
plan, the entitlement programs will still go up, like Medicare.


165

In the specific instances of Medicare or Medicaid fraud, a case is usually initiated by contacting the
Medicare carrier or intermediary. The carrier or intermediary fraud unit, funded for this purpose by
the Health Care Financing Administration, develops the facts and, when appropriate, refers the case
to the OIG for further investigation and potential referral for prosecution. Most matters handled by
the units do not reach the fraud threshold, and are dealt with administratively.

‘The last component in the OIG effort to prevent fraud was the enhancement of a computerized
iotiine tracking system to effectively track information received and ensure that all allegutions of
fraud are brought to a successful conclusion, This system records all pertinent information both for
tracking individual complaints and statistical reporting,

This integrated approach has enabled the OIG to operate a state of the art hotline to handle the
increasing volume of calls effectively and efficiently. Beneficiaries, providers, employees, and the
public in general benefit from this OIG effort to reach out for assistance in combating fraud, waste
and abuse in HHS programs. The hotline has become a team effort between HHS and its clients, the
‘American people, to ensure a sound future for government efforts to help those who truly need help,
and to punish those who would abuse the trust the system is based upon.

Tioase Goverament Reform and Oversight Conmites, Subsommiter on Human Resources and Inieigovernmental Atfair-—Page 2


169

A NUMBER OF FLORIDA NEWSPAPERS HAVE
PRINTED ARTICLES HIGHLIGHTING THE ABUSE IN
THE NEMT PROGRAM.

1 HAVE ON SEVERAL OCCASIONS NOTIFIED HCFA
AND SECRETARY SHALALA THROUGH THIS
SUBCOMMITTEE ABOUT PROBLEMS WITH NEMT.

YET, NOTHING HAS BEEN DONE TO CORRECT THE
SITUATION. THE ABUSE CONTINUES, AND
TAXPAYERS ARE LITERALLY BEING TAKEN FOR A
RIDE.

IT IS TIME FOR CONGRESS AND SPECIFICALLY THIS
COMMITTEE TO ACT.

OUR PROPOSAL IS SIMPLE, STRAIGHTFORWARD,
AND QUITE FRANKLY, IT’S THE RIGHT THING TO DO.

THE MARTINI AMENDMENT WOULD ENSURE THAT
ONLY INDIVIDUALS WHO ARE BLIND, SEVERALLY
DISABLED, OR MEDICALLY INCAPACITATED WILL BE
ELIGIBLE FOR NON-EMERGENCY TRANSPORTATION
SERVICES UNDER MEDICAID.

SECONDLY, THE REQUEST FOR TRANSPORTATION
MUST BE INITIATED BY THE DOCTOR'S OFFICE
RATHER THAN BY THE PATIENT.

FINALLY, THE TRANSPORTATION PROVIDER MUST
HAVE AT LEAST ONE PERSON WITH BASIC MEDICAL
TRAINING IN THE VEHICLE.


SS

bo NN Soe ee ee - —
RBBBESSRwWARBRESERES

34

13

sultation with the Attorney General) shall esti-

mate whether sufficient amounts will be avail-

able during such quarter in the Expenses Sub-
account for the uses described in subsection

(b)(3).

(B) TRANSFER TO COVER SHORTFALL.—If
the Inspector General estimates under sub-
section (a) that there will not be available suffi-
cient amounts in the Expenses Subaccount dur-
ing the last quarter of a fiscal year, there shall
be transferred from the Reserve Subaccount to
the Expenses Subaceount such amount as the
Inspector General estimates is required to en-
sure that sufficient amounts are available in the
Expenses Subaccount during such quarter.

(3) LIMITATION ON AMOUNT CARRIED OVER TO
SUCCEEDING FISCAL YEAR.—There shall be trans-
ferred to the general fund of the Treasury any
amount remaining in the Reserve Subaccount at the
end of a fiscal year (after any transfer made under
paragraph (2)) in excess of 10 percent of the total
amount authorized to be deposited in the Expenses
Subaceount (consistent with paragraph (1)) during
the fiscal year.


175

Mr. Suays. I thank the gentleman.

If there are no further questions, you have been wonderful wit-
nesses.

Mr. Towns. Mr. Chairman, I really appreciate this, I want you
to know.

Mr. Suays. This is an important issue, and we love your knowl-
edge and your input.

r. Towns. Dr. Smits, you talked about the trust fund, and I
think that that’s very important and a very important fund, but it’s
my understanding that H.R. 2326 would not include you.

Dr. Smits. But it would include the Department. We are one de-
partment. The Inspector General would be permitted to pass funds
to us for our program.

Mr. Towns. And the Attorney General. You’re talking about the
Inspector General and the Attorney General. I think that’s what it
says it would go to now. But you are on the front line.

r. Smits. I'm not sure I want to ask the Attorney General to
pass it across departments. The HHS Ins; rr General should be
able to provide it to us, to the program, for detection and preven-
tion. But perhaps qu would like to include some language that en-
courages them to do that, at least.

Mr. Towns. OK. Fine. Mr. Chairman, let the record reflect.

Mr. SHays. May the record reflect.

Again, I thank all three of you for coming and testifying.

Dr. Smits. Thank you very much.

Mr. STERN. Thank you.

Mr. Suays. If we could call on our next and last panel, and if
they would remain standing: Lovola Burgess, Bill Mahon, and Tom
Schatz, if you would all three come forward.

{Witnesses sworn.]

Mr. SHAYs. For the record, I would like to note that all three wit-
nesses have responded in the affirmative.

In deference to New Mexico, Ms. Burgess, you will go first.

Ms. BurGEss. Thank you.

Mr. SHAYS. Nice to have you here. For the record, we have stated
where you are from and your areas of expertise. Nice to have you
here, and we welcome your testimony.

Mr. ScuHiFF. Just before the testimony, may I have just 1 minute
of personal privilege?

ir. SHAYS. You may have as many 1-minutes as you want.

Mr. ScuiFF. I will only take one. You are very accommodating.
1 appreciate it.

I just want to mention that Ms. Burgess is the immediate past
president of the national American Association of Retired Persons
and is a constituent of mine. We have had numerous discussions
about numerous issues. At times, we don’t always agree, but we've
always had very mutually enlightening conversations.

And especially what I appreciate about Ms. Burgess is the fact
that she emphasizes that the issues are not generational issues,
that every generation has to keep in mind that this links to every
other generation, and all work for common goals and not to try to
pit senior citizens versus school children or get into any of that

ind of warfare, which I’ve always appreciated.

Thank you very much for that.


231

-2-

prescriptions and paid duplicate claims to providers, thereby increasing administrative
costs for the program."!0

XML “The former chief financial officer of a New Jersey medical center was excluded for
25 years for conviction of mail fraud and conspiracy that included Medicare and
Medicaid fraud. The officer was part of a network of conspirators who diverted
checks made out to the hospital, overbilled for collection notices sent overdue
accounts, invoices for goods never delivered, and paid and accepted
kickbacks. The officer filed false tax returns, failing to list fraudulent funds received.
Total financial damages from the conspiracy amounted to an estimated $2.5
million."107

XL “The Florida peer review organization (PRO) signed a court-ordered civil settlement
for $1 million for approving and backdating hospital payments, without required
reviews, on claims previously denied, More than a year ago, the PRO pled guilty to
related criminal charges, its contract with HCFA was prematurely terminated and
almost $2 million of the approved overpayments was withheld. The civil case was
initiated by former PRO employees. Of the $1 million settlement, $680,000 will be
used to pay amounts owed to the Internal Revenue Service, the employees pension
fund, and unpaid benefits due employees and former employees. Another $320,000 is
to be applied toward directly related false claims."!°5

“In Virginia, the twelfth and final person was sentenced in a scheme in which
Traveler's Insurance employees issued Medicare checks to friends who forged and
cashed them, The woman was sentenced to 4 months home confinement and 3 years
probation. She was ordered to pay a $2,000 fine, a $150 special assessment and
restitution of $11,101 for the two Medicare checks she cashed. Those previously
sentenced in the case included two Traveler's employees, a top manager of an
international beverage company, a former deputy sheriff and the chief buyer for a
drug store chain. The embezzlement involved 56 Medicare checks totaling
$250,000."109

‘LTA Massachusetts carrier paid $2.75 million to settle a qui tam suit initiated by a
former employee. The settlement was based upon submission of false Medicare
reports for Massachusetts, Maine, New Hampshire and Vermont. The carrier
misrepresented and inflated the number of claims and reviews it processed in periodic
reports submitted to HCFA. The carrier also received larger reimbursements from
Medicare as a result of the false data submitted."!"0

TAKING TAXPAYERS FOR A RIDE: AMBULANCE AND TAXI SERVICES

106 HHS, OIG, Semiannual Report, April 1, 1993 - September 30, 1993, p. 22
10? bid, p.20.

#08 bid, p.23.

109 HHS, OIG, Semiannual Report, October 1, 1994 - March 31, 1995. p. 11.
NO bid, pp. 16-17.


115

104TH CONGRESS
1st SESSION S. 1 088

To provide for enhanced penalties for health care fraud, and for other
purposes.

IN THE SENATE OF THE UNITED STATES

JULY 28 (legislative day, JULY 10), 1995
Mr. COHEN introduced the following bill; which was read nvice and referred
to the Committee on Finance

A BILL

To provide for enhanced penalties for health care fraud,
and for other purposes.

1 Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

(a) SHORT TITLE.—This Act may be cited as the
“Health Care Fraud and Abuse Prevention Act of 1995”.

(b) TABLE OF CONTENTS.—The table of contents of

YAU Bw WH

this Act is as follows:
Sec. 1, Short title; table of contents.
TITLE I—FRAUD AND ABUSE CONTROL PROGRAM

See. 101. Fraud and abuse control program.
See. 102. Application of certain health anti-fraud and abuse sanetions to all
fraud and abuse against any Federal health program


194

H.R, 1850

‘As H.R. 1850 has been substantially incorporated in H.R. 2326, some comments
herein will apply to both bills.

Standing on its own, H.R. 1850 by its nature does not address most of the
essential ingredients cited in the preceding section.

At the federal level, it limits the coordination of law-enforcement activities to those
of the various Inspectors General cited in the bill, Although it would empower
those 1.G.’s to act against fraud and abuse “in violation of any federal law,” from a.
Practical standpoint, the scope of those agencies’ efforts would be limited to
cases involving their respective programs.

By contrast, the addition in H.R. 2326 of the Attorney General to that list of
Inspectors General reflects a practical—and essential—jurisdiction over private-
payer cases.

At the state level, H.R. 1850 would grant to state health care fraud units similar
jurisdiction over fraud and abuse “in violation of any federal law in the state."
‘Absent a specific health care fraud violation (as contained in H.R. 2326), those
state units would theoretically be able to prosecute private-payer cases under the
federal mail-fraud statute. However, because both bills’ descriptions of those
state units make them appear congruent to the Medicaid Fraud Contro! Units that
exist in most states, the intent of this provision of both bills is unciear.

If the intent is in fact to broaden the MFCUs' jurisdiction to include private-sector
cases, it raises questions regarding the overlap of such jurisdiction with (1)
increased federal efforts and (2) the increasing number of state insurance fraud
bureaus with similar jurisdictions. It also raises resource-allocation questions that
are beyond the scope of private payers and more within the purview of the
Inspector General of the Department of Health and Human Services.

H.R, 1850 does reflect one essential ingredient not contained in H.R. 2326, That
is on page 9, subsection (d) entitled "Data-Sharing, which would provide for the
sharing “of data related to possible health care fraud” not only among federal,
state and loca! law enforcement agencies, but also among "health care providers
and insurers." Although we would question the inclusion of "health care
providers” in that list, the inclusion of health insurers is central to any effective
data-sharing program.


257

Accordingly, the Department of Justice opposes this provision.

We also do not endorse the provision in Section 104 that
would bar qui tam actions under the Palse Claims Act against
entities or individuals who make disclosures with respect to acts
or omissions which constitute grounds for imposition of
enumerated sanctions. First, the False Claims Act already
provides a reduction of liability of any person or entity where
that person or entity has voluntarily disclosed wrongdoing to the
government and satisfied other statutory criteria. Second, even
if such a restriction were appropriate, the statute as drafted
would presumably prohibit qui tam actions where the allegations
of wrongdoing were not disclosed but somehow were related to the
matters disclosed. That result is not warranted and unwi:
Finally, modifications of the qui tam provisions, if any, should
be done in the context of amendments to the Falee Cleims Act
generally and should not be limited to voluntary disclosures
involving health care fraud.

‘Thank you for the opportunity to provide our views on these
important proposals. Please do not hesitate to contact us if we
may be of additional assistance in connection with this or any
other matter. The Office of Management and Budget has advised
that there ie no objection from the standpoint of the
Administration's program to the presentation of & report.

Ades A;
‘Andrew Fois

Assistant Attorney General

Honorable Bdelphus Towns
Ranking Minority Member

Vig zozg—ee:ST 96/80/07

2100/2008 vio roa


225

Te

stitch too tightly in patients undergoing cataract surgery. "When the patients retumed
complaining of vision problems, he cut the stitch and normal vision retumed. The
stitch was billed to Medicare as a $2,000 comeal transplant. During a 4-year period,
he billed Medicare more than $1.3 million for over 680 eye operations."

"The owner of a New York retail optical store was sentenced to 6 months probation
and ordered to repay $24,000, with further prosecution underway for submitting false
Medicare claims. From January 1989 until June 1993 Medicare paid him $237,000,
of which $180,000 was overpayment. He billed for eyeglasses not provided or
misrepresented services to receive payment when none would have been allowed."
‘When confronted by federal agents, the optical dealer made a complete written
confession about his fraudulent dealings.

1M In February, 1992, « California oncologist was excluded for a period of 10 years
because he rendered over 3,900 excessive, unnecessary, and potentially risky services
to seven Medicare beneficiaries over a relatively short time period. An administrative
Jaw judge found that the doctor "had jeopardized the patients’ health while depriving
them of the opportunity to receive treatment that could have abated or cured their
cancers. Further, the doctor had caused the patients unnecessary suffering by having
them endure numerous, prolonged infusions of subtherapeutic dosages of
chemotherapy with repeated blood tests and vitamin injections of marginal
efficacy."7” The judge found that "the doctor's record of unnecessary and excessive
treatment, when combined with his refusal and inability to follow standard Medicare
billing practices, demonstrated the doctor's eagemess to generate U2 maximum
amount of Medicare billings and raised questions about whether services had been
provided as claimed in the patient records."

XA physician in West Virginia agreed to pay $1.25 million to resolve allegations of
fraudulent billing of Medicare, Medicaid, the Railroad Retirement Board, and the
Civilian Health and Medical Program of the Uniformed Services and violations of the
federal anti-kickback statute. "The physician submitted a large number of false
Medicare claims for unnecessary surgery, and had treated patients for glaucoma and
cataracts when they did not have these conditions. The hospital with which he hed a
kickback arrangement signed a civil settlement earlier."”?

XL In Pennsylvania, an ophthalmologist and his corporation agreed to pay $625,000 to
settle charges that he had submitted false Medicare claims. "The ophthalmologist
billed for procedures not performed or not medically necessary, and for upgrading
routine services Medicare would not have compensated. He did not even have the
equipment to perform one procedure for which he billed. As one of the terms of

15 HHS, OIG, Semiannual Report, October 1, 1994 - March 31, 1995, pp. 8-9.

% Ibid.,p. 10.

7 Bid. p. 8.

Idem.
% Ibid... 19.


136

consistent with the intent of H.R. 2326, be limited to health
care fraud investigations. Moreover, this authority should be
conferred on the Attorney General alone, who could then delegate
that authority as she deems appropriate. This will ensure that
United States Attorneys across the country, who will be called on
to represent the United States in lawsuits challenging the
propriety and legality of particular subpoenas, have been given
the opportunity to review those subpoenas before they are issued.
In addition, we believe that the testimony that is authorized
pursuant to this provision should be limited to testimony
concerning the production and authentication of the records which
are the subject of the administrative subpoena.

As drafted, H.R. 2326 includes within its purview private
sector, as well as public sector health plans. We note, in this
regard, that the definition of "health care benefit program* in
section 202 of the bill appears to be sufficiently broad to
include employee health and welfare benefit plans subject to the
Employee Retirement Income Security Act (ERISA), which is
administered principally by the Pension and Welfare Benefits
Administration within the Department of Labor. Because there are
approximately 4.5 million ERISA plans, covering nearly 100
million workers with private employment-based health coverage, we
believe that the bill should reflect the important role of the
Secretary of Labor in health care enforcement. Specifically, we
suggest revising the bill to make the Secretary of Labor also

responsible, co the extent that ERISA plans will now be covered.


177

AARP believes, however, that the financial resources available
through the new control account should be in addition to current
discretionary spending that is appropriated specifically to fight
fraud and abuse, and that this account should not be a replacement
for such funding.

We are pleased that H.R. 2326 recognizes that consumers and
employees can also be helpful in fighting fraud and abuse. Requir-
ing that an annual notice be sent to Medicare beneficiaries outlin-
ing the need to prevent and report instances of fraud and abuse
against the Medicare program, and implementing a new rewards
program is, I feel, a very good start.

The best solution, we believe, would be to develop a comprehen-
sive preemptive Federal privacy law that applies to all settings
where personally identifiable health information is collected,
stored, used, or released. Such legislation should precede or be en-
acted concurrently with legislation dealing with health care fraud
and abuse.

I would also like to comment briefly on the Republican House
leadership's proposal to curb fraud and abuse. Specifically, it would
increase beneficiary outreach efforts, provide for higher criminal
and civil monetary penalties, and create an anti-fraud and abuse
task force, as well as an anti-fraud and abuse trust fund.

However, AARP believes the proposal does not go far enough. In
particular, the leadership's proposal lacks the requirement for a
single provider number, a critical element, we believe. Also lacking
is any provision to amend the U.S. Code to include a criminal code
provision that specifically addresses health care fraud. AARP is
also very concerned that the leadership’s proposal weakens the
physician’s self-referral laws, laws that minimize provider fraud
and abuse.

In conclusion, it is important to note that while fraud and abuse
prevention and deterrence activities will most likely generate some
savings, improved enforcement will necessitate an added up-front
cost. This whole issue is a litmus test for Government effectiveness
and stewardship. Please do consider it.

Mr. Chairman, thank you for this opportunity to testify.

[The prepared statement of Ms. Burgess follows:]


58

37
SEC. 207. OBSTRUCTION OF CRIMINAL INVESTIGATIONS OF

HEALTH CARE OFFENSES.

(a) IN GENERAL.—Chapter 73 of title 18, United
States Code, is amended by adding at the end the follow-
ing:

“§1518. Obstruction of criminal investigations of
health care offenses

“(a) Whoever willfully prevents, obstructs, misleads,
delays or attempts to prevent, obstruct, mislead, or delay
the communication of information or records relating to
a violation of a health care offense to a criminal investiga-
tor shall be fined under this title or imprisoned not more
than 5 years, or both.

“(b) As used in this section the term ‘health care of-
fense’ has the meaning given such term in section 24 of
this title.

“(e) As used in this section the term ‘criminal inves-
tigator’ means any individual duly authorized by a depart-
ment, agency, or armed force of the United States to con-
duct or engage in investigations for prosecutions for viola-
tions of health care offenses.”

(b) CLERICAL AMENDMENT.—The table of sections
at the beginning of chapter 73 of title 18, United States
Code, is amended by adding at the end the following new
item:

“1518. Obstruction of eriminal investigations of health care offenses.”.


112

Prevention Act of 1995," which was introduced by Senator William Cohen. ‘This expansion of
jurisdiction would be cost neutral and would not require additional staff or resources. It is our
opinion that H.R. 2326 and 1850 would be best served by adopting the specific language of S.
1088, Section VI, as a substitute for Section 102. (Attached is a copy of Title VI, S. 1088).

We are unclear whether H.R. 2326 and 1850 is intended to expand the jurisdiction of
State Health Care Fraud Units and allow these Units to investigate and prosecute private
insurance fraud. Historically, the HHS Inspector General's Office, which has oversight over
the state MFCUs, has opposed such an expansion. The HHS Inspector General is the sole
oversight agency and the United States Attomey General has never had any oversight
responsibility over the state MFCUs. Section 102(c) would require health care fraud units to
submit yearly plans to not only the Inspector General but to the Attorney General. Further,
Section 101 would give the Attorney General and the Inspector General the authority to
determine and impose a plan upon state programs to prevent, detect and control health care fraud
and abuse. The HHS Inspector General has never imposed such a plan on the states. Due to
the successful role that Medicaid Fraud Control Units have played in the fight against health care
fraud, the Units should be an equal player with the HHS Inspector General and the Department
of Justice. In effect, we should be part of a law enforcement triad. ‘This would best take into
consideration the historical state enforcement role and allow for state input into national
initiatives.

Section 103(a) would fund, at a 75% level, state agencies designated by the Governor
pursuant to Section 102(a)(1) but would not provide funding to state health care fraud and abuse
control units pursuant to Section 102(a)(2). Since Section 103(a) refers to Health Care Fraud
Units submitting plans to be approved under Section 102(d) by the Inspector General, it would
appear that 75% funding is intended for the Health Care Fraud Units and not other state

8


won

14
15
16
7
18
19
20
21
22
23
24
25

16

55

a service under this title which is furnished by an individ-
ual or entity during any period for which the individual
or entity is excluded pursuant to section 1128, 1128A,
1156, or subsection (j)(2) from participation in the pro-
gram under this title, if the amounts are paid after the
Secretary notifies the agency or organization of the exclu-
sion.”

(B) CONFORMING AMENDMENT.—Section

1816(i) of such Act (42 U.S.C. 1395h(i)) is

amended by adding at the end the following

new paragraph:

“(4) Nothing in this subsection shall be construed to
prohibit reimbursement by an agency or organization
under subsection (1).”.

(2) REQUIREMENT FOR CARRIERS.—Section
1842(b)(3) of such Act (42 U.S.C. 1395u(b)(3)), as
amended by section 151(b)(1)(B) of the Social Secu-
rity Act Amendments of 1994, is amended—

(A) by striking “and” at the end of sub-
paragraph (I); and

(B) by inserting after subparagraph (I) the
following new subparagraph:

“(J) will reimburse the Secretary for any
amounts paid for an item or service under this part

which is furnished by an individual or entity during

«HR 2326 TH


Ceo YN DAH PF WH &

boyon Nv ee o ee ee
RBRPEBBREBGCaeDTARDEBEHS

28

7

ecution and assure it will assist such authority

or authorities in such prosecutions; or

(C) has a formal working relationship with
the office of the State Attorney General or the
appropriate authority or authorities for pros-
ecution and has formal procedures (including
procedures under which it will refer suspected
eriminal violations to such office), that provide
effective coordination of activities between the
Health Care Fraud and Abuse Control Unit
and such office with respect to the detection, in-
vestigation, and prosecution of suspected health
eare fraud or abuse in violation of any Federal
law.

(2) The entity conducts a statewide program
for the investigation and prosecution of violations of
all applicable State laws regarding any and all as-
pects of health care fraud and abuse under Federal
law.

(3) The entity has procedures for—

(A) reviewing complaints of the abuse or
neglect of patients of health care facilities in
the State, and

(B) where appropriate, investigating and

prosecuting such complaints under the criminal

oHR 2326 IH


94

Having expressed these serious concerns, Mr. Chairman, let me
close by affirming my support for the goals of H.R. 1850 and H.R.
2326 as real remedies to the chronic problems of fraud and abuse in
the Medicare and Medicaid programs. I look forward to working
closely with you and the ranking Democrat of the Subcommittee, Mr.

Towns, in strengthening this bipartisan legislation.

CAP


Cm IN AHWR WN

NPY NN ND DY He ee ee ee Be ee
As oN =| FSSC AAA RDH =

HR 1850 TH

5

of State government that possesses state-
wide authority to prosecute individuals for
criminal violations;

(ii) is in a State the constitution of
which does not provide for the criminal
prosecution of individuals by a statewide
authority, and has formal procedures, ap-
proved by the Secretary, that assure it will
refer suspected criminal violations relating
to health care fraud or abuse in violation
of any Federal law to the appropriate au-
thority or authorities of the State for pros-
ecution and assure it will assist such au-
thority or authorities in such prosecutions;
or

(iii) has a formal working relationship
with the office of the State Attorney Gen-
eral or the appropriate authority or au-
thorities for prosecution and has formal
procedures (including procedures under
which it will refer suspected criminal viola-
tions to such office), that provide effective
coordination of activities between the
Health Care Fraud and Abuse Control

Unit and such office with respect to the


Com IN AH PB YW DN =

BBRSSCEIVRARSERES

1

56

any period for which the individual or entity is ex-

cluded pursuant to section 1128, 1128A, 1156, or

subsection (j)(2) from participation in the program
under this title, if the amounts are paid after the

Secretary notifies the carrier of the exclusion; and”.

(b) CONFORMING REPEAL OF MANDATORY PAYMENT
RULE.—Section 1862(e)(2) of such Act (42 U.S.C.
1395y(e)(2)) is amended to read as follows:

“(2) No individual or entity may bill (or collect any
amount from) any individual for any item or service for
which payment is denied under paragraph (1). No person
is liable for payment of any amounts billed for such an
item or service in violation of the previous sentence. If an
individual or entity knowingly and willfully bills (or col-
lects an amount) for such an item or service in violation
of such sentence, the Secretary may apply sanctions
against the individual or entity in the same manner as
the Secretary may apply sanctions against a physician in
accordance with subsection (j)(2) in the same manner as
such section applies with respect to a physician. Para-
graph (4) of subsection (j) shall apply in this paragraph
in the same manner as such paragraph applies to such

section.”.

HR 2326 I


83

CHAIRMAN SHAYS, I AM PLEASED TO BE AN ORIGINAL CO-
SPONSOR OF H.R. 2326 WHICH I THINK APPROPRIATELY BUILDS ON MY
LEGISLATION AS WELL AS THE HEARING RECORD. HOWEVER, WHILE I
AM ENCOURAGED THAT THIS BILL CAN CREATE A COMPREHENSIVE
STRUCTURE FOR THE DETECTION, INVESTIGATION, AND PROSECUTION
OF HEALTH CARE FRAUD, I AM OPEN TO ANY SUGGESTIONS FROM OUR

WITNESSES TODAY THAT CAN IMPROVE THIS LEGISLATION.

IN PARTICULAR, I AM INTERESTED IN HEARING FROM MR. STERN
FROM THE JUSTICE DEPARTMENT ABOUT WHAT RAMIFICATIONS YOU
ANTICIPATE THE BILL WILL HAVE ON YOUR ENFORCEMENT EFFORTS.
MS. BURGESS, MR. MAHON, AND MR. SCHATZ, I ALSO WELCOME YOUR
VIEWS ON THE BENEFITS OR SHORTCOMINGS OF THIS LEGISLATION. I
REGRET THAT WE ARE UNABLE TO HAVE ANYONE FROM THE OFFICE
OF THE INSPECTOR GENERAL OF THE DEPARTMENT OF HEALTH AND
HUMAN SERVICES HERE TODAY TO PARTICIPATE IN THIS EXCHANGE OF
VIEWS.


227

-19-

after the patient's death and to nursing home residents he never met. He was ordered
to pay restitution of $10,000 and a fine of $25,000. “In reality, this guy was going
there and having lunch with the nurses,’ said Mike Dyer, regional inspector general
for the midwest region.""*

"In California, investigators believe a hospice company that cares for the terminally
ill may have billed for patients who had already died."*”

‘ "The husband and wife owners of two home health agencies in Texas were ordered to
repay $180,770 for defrauding Medicare by switching patients between the two
agencies to increase reimbursement, The agencies operated out of the same location,
employed the same nurses, and served the same patients. They frequently switched
patients about every 60 days to obtain the higher number of visits permissible in
billing for ‘new’ patients. Agency employees also altered dates and misrepresented
patient medical conditions in nurses’ notes."#8

A “In Indiana, a registered nurse was sentenced to 10 months home detention, 4 years
probation and 192 hours of community service, and ordered to pay $10,000 restitution
for submitting false reports of skilled nursing visits to the home health agency for
which she worked. The result was that the agency submitted the reports to Medicare,
which then over reimbursed about $100,000. Noting that the nurse had been
convicted in 1975 of mail fraud and in 1993 of theft from patients’ homes, the judge
‘ordered her not be invslved in any home-bound nursing care.”

PRESCRIPTION MARKETING SCHEMES

‘When the deciding factor for the physician becomes which drug offers the greatest
financial reward rather than the patients’ well-being and comfort, not only are the health-
ccare needs of patients underserved, the costs of govemment programs and private health
insurance programs are unnecessarily inflated. “Allowing pharmaceutical manufacturers
to offer incentives for the prescription of their products can skew physicians’ judgment in
breach of their fiduciary and ethical duties to their patients. The interest of the patient
can become subservient to the physician's financial interest and more effective or less
expensive drug equivalents are overlooked in order for the physicians to qualify for the
incentives... 90

‘In Michigan, large quantities of sample and expired drugs were dispensed to nursing

hhome patients and pharmacy customers without their knowledge. When complaints
‘were received from nursing home staff and patients’ relatives regarding the

dew, HUES, O1G, Semiarowet Report, October 1, 1993 - March 31, 1994, p.9.
Tem.
$8 HHS, O1G, Semiannual Report, October 1, 1993 - March 31, 1994, p. 8.

© HHS, OIG, Semianmual Report, October 1, 1994 - March 31, 1995, p. 11.
% Suaternent of Gerald M. Stern, pp. 2-3.


10471 CONGRESS
mame” ALR. 1850

To improve Federal enforeement against health eare fraud and abuse.

IN THE HOUSE OF REPRESENTATIVES

JUNE 14, 1995
‘Mr. Towns introduced the following bill; which was referred to the Committee
on Government Reform and Oversight

A BILL

To improve Federal enforcement against ‘health care fraud
and abuse.

1 Be it enacted by the Senate and House of Representa-
2 tives of the United States of America in Congress assembled,
3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the “Health Fraud and
5 Abuse Act of 1995”.

6 SEC. 2, HEALTH CARE FRAUD AND ABUSE.

7 (a) FEDERAL ENFORCEMENT BY INSPECTORS GEN-
8 ERAL.—

9 (1) AUDITS, INVESTIGATIONS, iNSPECTIONS,
10 AND EVALUATIONS.—The Inspector General of each

ll of the Department of Health and Human Services,


lll

HLR. 2326 AND 1850

Our comments on H.R. 2326 and 1850 will primarily address state law enforcement
issues since our members are state based law enforcement agencies. For sake of clarity, since
both H.R. 2326 and 1850 are similar, when sections of a bill are cited, it will refer to sections
of H.R. 2326,

State Enforcement

Section 102 recognizes and provides for state enforcement in the prevention, detection
and control of health care fraud and abuse. Section 102(a)(2) provides for the creation of health
care fraud and abuse control units subject to the approval of the Governor of each state. At
present, 47 states have Medicaid Fraud Control Units, the vast majority of which are housed in
a State Attorney General's Office. The Units have been extremely successful in combatting
health care fraud over the years, due in no small measure to the clearly defined mission of the
Units, i.e., the investigation and prosecution of Medicaid provider fraud and patient abuse in
facilities funded with Medicaid dollars.

For a number of years, Medicaid Fraud Control Units have been interested in expanding
their jurisdiction beyond the Medicaid program, specifically into other federally funded health
care programs such as Medicare, Based on the Units’ years of experience, a corrupt provider
will typically not only defraud the Medicaid program, but will defraud other government and
private health care programs at the same time. This year an unprecedented agreement was
reached between the National Association of Medicaid Fraud Control Units, the HHS Inspector
General's Office, the U.S. Attorney General, and the National Association of Attorneys General
to expand the jurisdiction of the Units into Medicare and other federally funded health care
programs along with expanding the Units authority to investigate abuse in board and care
facilities. This agreement is reflected in S. 1088, Title V1, "The Health Care Fraud and Abuse

7


81

OPENING STATEMENT OF REP. ED TOWNS
BEFORE THE GOVERNMENT REFORM AND OVERSIGHT
SUBCOMMITTEE ON
HUMAN RESOURCES AND INTERGOVERNMENTAL RELATIONS:
Legislative Hearing

HLR. 1850, the "Health Care Fraud and Abuse Act of 1995"
HLR. 2326, the “Health Care Fraud and Abuse Prevention Act of 1995"

September 28, 1995

MR. CHAIRMAN, THANK YOU FOR CONVENING TODAY'S
LEGISLATIVE HEARING ON TWO IMPORTANT BILLS THAT WILL
SIGNIFICANTLY IMPROVE FEDERAL ENFORCEMENT OF MEDICARE AND
MEDICAID FRAUD AND ABUSE, AND SAVE TAXPAYERS BILLIONS OF
DOLLARS IN UNNECESSARY SPENDING ON THE FINANCING AND
DELIVERY OF HEALTH CARE.

BOTH H.R. 1850 AND H.R. 2326 ARE THE RESULT OF OVERSIGHT
WORK, INITIATED DURING MY CHAIRMANSHIP IN THE 103RD CONGRESS
AND CONTINUED UNDER THE LEADERSHIP OF CHAIRMAN SHAYS. THIS
OVERSIGHT HAS ESTABLISHED THE EXTENT OF FRAUD AND ABUSE IN
‘THE FEDERAL HEALTH CARE SYSTEM, THE EFFECTIVENESS OF
CURRENT ENFORCEMENT EFFORTS, AND OPPORTUNITIES TO IMPROVE

ENFORCEMENT OF FRAUD AND ABUSE VIOLATIONS.


188

With respect to H.R. 2326 and the all-payer approach, you have
done admirable work in providing some o! the very essential ingre-
dients of such an approach. One is the creation of the Federal
crime of health care fraud and the related crimes of false state-
ments, obstruction of criminal investigations of health care fraud,
and so forth.

In the real world, those will make it easier for prosecutors to in-
dict cases. They will make it easier to explain the crime to juries.
And, in a very far-reaching way, they also take into account the
fact that the system is moving away from paper claims, in its en-
tirety, over the foreseeable future. Someday mail fraud may be a
thing of the past on which to rest a health care fraud case. So the
idea of a broad health care fraud crime is very useful, not only to
public programs but to private payers.

Some of the legal tools that you provide to Government investiga-
tors and prosecutors will have a benefit to private payers to the ex-
tent that Government agents employ them in the course of pursu-
ing private sector fraud cases: the administrative subpoenas, the
exchange of grand jury information, the ability to bring injunctions,
and so forth.

So I think you are doing a commendable job of reaching for a
well-rounded approach. The other thing I need to cite in that re-
gard is your extension of the antikickback illegalities not only to
other Government programs, but to dealings involving any health
care benefit plan. That is an essential aspect of creating a balance
between the public and private sectors’ ability to go after health
care fraud, and that should have some very strong merit from the
private payer side.

There are two things I would cite, Mr. Chairman, that represent,
to me, ideal inclusions in any all-payer bill. One is the provision
of immunity from civil liability, not simply for reporting final ad-
verse actions to a new data base or for reporting suspected fraud
to law enforcement, but for sharing investigative information be-
tween insurer and insurer. That’s a critical way in which fraud
schemes are detected much earlier in their life spans and through
which insurers can bring stronger cases to law enforcement.

Mr. Suays. If you would just yield a second.

Mr. MaHon. Sure.

Mr. Suays. Are insurance companies prevented now from shar-
ing that information?

r. MAHON. They are not prevented by antitrust laws, and State
laws generally tend to recognize the need for that sort of insurer-
to-insurer exchange. But because so many of the fraud cases today
are multistate in nature or nationwide in scope, it’s hard to rest
your hopes on any one State statute for protection in that regard.

What we have suggested is that it would be much more useful,
in the context of all of the current law enforcement initiatives and
requests of private payers, to establish a uniform Federal standard
of immunity from civil liability, so long as information is shared in
good faith and without malice, and so long as patient-privacy con-
siderations are taken into account.

Mr. SHays. Thank you.

Mr. MAHON. The second would be the provision of a simple and
clean Federal civil cause of action for private payers related to the


107

basis for further federal actions. ‘The federal actions that are reported to Congress by the Office
of Inspector General (OIG) of the Department of Health and Human Services (HHS) include the
underlying state convictions, judgments, forfeitures, civil settlements, federal program
exclusions, and civil monetary penalties. In fact, the majority of health care fraud convictions,
penalties, and exclusions reported to you are based upon MFCU convictions. The MFCUs are
the most efficient and effective law enforcement agencies in the battle against health care fraud
and patient abuse,

While this remarkable success in detecting and prosecuting Medicaid provider fraud is
widely recognized, it is perhaps less well known that the Units are the only law enforcement
agencies in the country specifically charged with investigating patient abuse and neglect. Patient
abuse can be classified into several categories, For example, providing inadequate medical or
custodial care or creating other health care risks may constitute patient neglect. Physical abuse
includes acts of violence such as slapping, kicking, hitting or punching a patient and sexual
abuse. Financial abuse includes the misappropriation of patients’ personal funds such as
commingling patient and facility funds or using patient funds to pay for facility operations.

Scores of investigations and years of cumulative experience have made it clear that the
abuse, neglect, mistreatment, and economic exploitation of nursing home residents is a problem
of far greater magnitude than previously thought. Qur national association, in collaboration with
the National Association of Attorneys General (NAAG), has therefore promulgated a model
patient abuse statute -- already adopted in several states -—- that would not only provide the
necessary prosecutorial tools and enhanced penal sanctions for combatting this type of shocking

misconduct, but would also serve as a powerful deterrent to potential patient abusers.


92

The issue is whether this hearing is at all relevant considering
the Republican-sponsored plan to overhaul the Medicare and Medicaid
systems and cut Federal support for these programs by over $450
billion in seven years. Mr. Chairman, neither H.R. 1850 or H.R.
2326 are included in the Republican-sponsored Medicare reform
Proposals which are under active consideration in the House Ways
and Means and Senate Finance Committees. Furthermore, Medicaid
reform legislation reported out of the House Commerce Committee
last week, and now being rushed to the Floor, did not contain any of

the provisions in H.R. 1850 and H.R. 2326.


180

We've all heard the stories of unscrupulous providers bilking the Medicare and Medicaid
programs, as well as private insurers, out of hundreds of thousands, even millions of
dollars. We've heard of the providers who double bill, provide unnecessary services or
no services at all, yet bill the insurance programs anyway. We know about the sham
operations set up specifically to defraud insurance programs, deceiving vulnerable
beneficiaries into revealing their policy numbers. And we've all read about the providers

who've billed the Medicare program for gourmet popcom and limo services

Clearly, there is a problem. Not only are limited health care doilars lost to fraudulent and
abusive providers, but such activities increase costs throughout the entire health care
system, Costs are increased for private and public insurance payers, and for consumers
as well. Consumers pay more out-of-pocket and are at a higher risk of personal injury
when care is not provided as needed or when inappropriate services or items are
furnished. In addition, unscrupulous providers find it easiest to prey on the elderly --

often the sickest and most vulnerable population,

Recommendations

Fighting fraud and abuse is not new to Medicare or other federal health care programs,
but reported incidents of fraud and abuse are growing rapidly and outweighing
enforcement authorities’ current ability to curb the problem, AARP believes that public

health care programs should be equipped with significant prevention and deterrence


183

avoided. While reducing the incidence of fraud and abuse should save money, far more
resources are expended on inappropriate or unnecessary care. Building a quality,

affordable health care system for the future will require heightened emphasis in this area

To this end, AARP welcomes the opportunity to comment on the legislation introduced
by Chairman Shays and Representative Steven Schiff -- HR. 2326, the Health Care
Fraud and Abuse Prevention Act of 1995, and on the fraud and abuse provisions in the

House Leadership's Medicare proposal.

The Health Care Fraud and Abuse Preventio £1995
‘AARP is pleased that H.R. 2326 would increase criminal and civil monetary penalties,
‘establish a health care fraud and abuse data base accessible to the public as well as to
enforcement officials, and require use of a single provider number in the submission of
claims. All of these actions should help to reduce the burden fraudulent and abusive

activities place on Medicare, as well as on other health insurance programs.

Creating a new criminal code provision that specifically addresses health care fraud,
establishing a health care fraud and abuse control program, and creating a health care
fraud and abuse control account are all measures that should significantly assist
authorities in investigating and prosecuting fraudulent providers. At present, this job is
difficult at best because of a lack of adequate enforcement tools and financial resources.

H.R. 2326 would provide a much needed boost to these anti-fraud and abuse efforts. It is


Co mI AH eB WN HS

yb oNNN NN ee a a a
RSBRRERBBRBREBSESEDWIARDEBSLS

60

39
SEC. 209. INJUNCTIVE RELIEF RELATING TO HEALTH CARE

OFFENSES.

Section 1345(a)(1) of title 18, United States Code,
is amended—

(1) by striking “or” at the end of subparagraph

(A);

(2) by inserting “or”? at the end of subpara-
graph (B); and
(3) by adding at the end the following:
“(C) committing or about to commit a
Federal health care offense (as defined in sec-
tion 24 of this title).’’.
SEC. 210. AUTHORIZED INVESTIGATIVE DEMAND PROCE-
DURES.

(a) IN GENERAL.—Chapter 233 of title 18, United
States Code, is amended by adding after section 3485 the
following:

“§ 3486. Authorized investigative demand procedures

“(a) AUTHORIZATION.—(1) In any investigation re-
lating to functions set forth in paragraph (2), the Attorney
General or the Director of the Federal Bureau of Inves-
tigation or their designees may issue in writing and cause
to be served a summons compelling the attendance and
testimony of witnesses and requiring the production of any
records (including any books, papers, documents, elec-

tronic media, or other objects or tangible things), which


Cem YN AH PB WN

won reer — _
RBBBEBSSEVADREBRAS

25

56

35
rectly or indirectly) the volume or value of any refer-
rals;

“(3) any amount paid by a vendor of goods or
services to a person authorized to act as a purchas-
ing agent for a group of individuals or entities who
are furnishing services reimbursed under a health
eare benefit program if—

“(A) the person has a written contract,
with each such individual or entity, which speci-
fies the amount to be paid the person, which
amount may be a fixed amount or a percentage
of the value of the purchases made by each
such individual or entity under the contract,
and

“(B) in the case of an entity that is a pro-
vider of services (as defined in section 1861(u)
of the Social Security Act, the person discloses
(in such form and manner as the Secretary of
Health and Human Services requires) to the
entity and, upon request, to the Secretary the
amount received from each such vendor with re-
spect to purchases made by or on behalf of the
entity;

“(4) a waiver of any coinsurance under part B

of title XVIII of the Social Security Act by a feder-


ke SO

18

14

(2) PAYMENTS TO STATE AND LOCAL LAW EN-
FORCEMENT AGENCIES.—The Inspector General,
subject to the availability of amounts in the Account,
shall promptly pay to any State or local law enforce-
ment agency that participated directly in any activ-
ity which led to deposits in the Account, or property
the proceeds of which are deposited in the Account,
an amount that reflects generally and equitably the
participation of the agency in the activity.

(3) FUNDS USED TO SUPPLEMENT AGENCY AP-

PROPRIATIONS.—It is intended that disbursements
made from the Account to any Federal agency be
used to increase and not supplant the recipient
agency's appropriated operating budget.

(h) ACCOUNT PAyMENTS ADVISORY BOARD.—

(1) EstaBLisiMENT.—There is established the
Account Payments Advisory Board, which shall
make recommendations to the Inspector General re-
garding the equitable allocation of payments from
the Account.

(2) MeEMBERSHIP.—The Board shall consist
of—

(A) each of the Inspectors Generai referred

to in subsection (a)(1), other than the Inspector

HR 1850 LH


235

-27-

3) Take steps to protect Medicare better from fraudulent provider billing practices, such
as revise and strengthen national standards that suppliers and other providers must meet
in order to renew a Medicare provider number, prohibit Medicare from issuing more than
one provider billing number to an individual or entity, require Medicare to establish more
uniform national coverage and utilization policies for what is reimbursed under Medicare,
and require HCFA to review and revise its billing codes for supplies, equipment, and
services in order to update, clarify, and standardize billing codes;

4) Enact legislation to assure HCFA can adequately and consistently fund contractors’
safeguard activities:

5) Improve coordination between federal and state agencies to track, investigate, and
prosecute Medicare fraud;

6) Require providers to demonstrate their suitability as Medicare vendors before giving
them unrestricted billing rights;

7) Allow Medicare to price services and procedures more competitively;

8) Require HCFA to assume a more active management posture over contractors’
program operations; and

9) Streamline whistle blower procedures to ensure that seniors can report incidents of
fraud more easily, and provide incentives/awards to do so.


CoO YAH PF WN

Be Ss

13

21
22

47

26

ment Income Security Act of 1974 (29 U.S.C. 1131

or 29 U.S.C. 1141), if the violation or conspiracy re-

lates to a health care benefit. program;

“(5) the commission of, or attempt to commit,
an act which constitutes grounds for the imposition
of a penalty under section 303 of the Federal Food,
Drug, and Cosmetic Act, if the act or attempt re-
lates to a health care benefit program; or

“(6) a violation of, or criminal conspiracy to
violate, section 3 of the Anti-Kickback Act of 1986
(41 U.S.C. 53), if the violation or conspiracy relates
to a health care benefit program.

“(b) As used in this title, the term ‘health care bene-
fit program’ has the meaning given such term in section
1347(b) of this title.’”.

(b) CLERICAL AMENDMENT.—The table of sections
at the beginning of chapter 2 of title 18, United States
Code, is amended by inserting after the item relating to

section 23 the following new item:
“24. Definition relating to Federal health care offense defined.”

SEC. 202. HEALTH CARE FRAUD.
(a) IN GENERAL.—Chapter 63 of title 18, United
States Code, is amended by adding at the end the follow-

ing:


51

30
1 SEC. 205. BRIBERY AND GRAFT.

2 (a) IN GENERAL.—Chapter 11 of title 18, United
3 States Code, is amended by adding at the end the follow-
4 ing:

5 “§226. Bribery and graft in connection with health
6 care

7 “(a) Whoever—

8 “(1) directly or indirectly, corruptly gives, of-
9 fers, or promises anything of value to a health care
10 official, or offers or promises to give anything of
u value to any other person, or attempts to violate this
12 subsection, with intent—

13 “(A) to influence any of the health care of-
14 ficial’s actions, decisions, or duties relating to a
15 health care benefit program;

16 “(B) to influence such an official to com-
7 mit or aid in the committing, or collude in or
18 allow, any fraud, or make opportunity for the
19 commission of any fraud, on a health care bene-
20 fit program; or

21 “(C) to induce such an official to engage
22 in any conduct in violation of the lawful duty of
23 such official; or
24 “(2) being a health care official, directly or in-
25 directly, corruptly demands, seeks, receives, accepts,

26 or agrees to accept anything of value personally or


80

be to craft legislation that curbs the rampant fraud and abuse in
the Federal health care system and protects Federal resources.

For this reason, I firmly endorse the concept and goals of these
bills and look forward to working closely with you in strengthening
this bipartisan legislation. I think it’s something that’s time is long
overdue.

Thank you very much, and I yield back.

(The prepared statement of Hon. Edolphus Towns follows:]


142

should run the trust fund, if there is a trust fund—but when funds
are forfeited, what I have seen in enforcement of the narcotics laws
is, all too often, the forfeiture got ahead of the goal of a criminal
prosecution. And a forfeiture is a good idea, but—Mr. Chairman,
may I have 1 more minute?

Task unanimous consent for 1 more minute.

Mr. Suays. You don’t have to ask.

Mr. ScuirF. Thank you, but there are a number of Members
here, and I do want to conclude here.

I just want to emphasize this point. What I saw in the drug en-
forcement model is that, where there was a forfeiture, especially if
the forfeiture was used by law enforcement, the forfeiture became
the goal over and above the criminal conviction, and that’s what
I'm objecting to. I’m not objecting to forfeitures.

I've known cases where drugs were being transported in a car
that law enforcement agencies wanted that car for future under-
cover operations, so they dropped the drug charge so that the de-
fendant would agree not to contest the forfeiture of the automobile.
Well, the point is, that becomes then a cost of doing business for
drug runners. It’s no longer a criminal prosecution.

Mr. STERN. Right.

Mr. ScuiFF. And that is a serious issue which I would like to ad-
dress, but I do agree with you that that provision, at the least,
ought to be modified.

ir. STERN. Thank you very much.

Mr. Scuirr. Thank you, Mr. Stern.

Mr. Chairman, I yield back.

Mr. Suays. I thank the gentleman.

Mr. Towns.

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

Dr. Smits, in your written testimony, you pointed to Operation
Restore Trust as the administration’s initiative to coordinate and
focus Federal efforts to reduce health care fraud. What is the po-
tential impact of this legislation on Operation Restore Trust? Does
it affect it in any way?

Dr. Smits. I think it strengthens our ability to move forward
with the project and with similar projects. As I understand it, it
does create—one of our issues, as always, is resources. It does cre-
ate a fund which would be available to the Inspector General,
which could then be made available to us for some of these preven-
tive efforts.

These bills would help us continue to move forward. It mandates
our doing some cooperative activities that I think we’re doing quite
well already, but it helps to have that as a required activity rather
than simply something we've initiated. So my sense is, it would
move our efforts forward.

Mr. Towns. I am concerned about fraud and abuse. As was
pointed out earlier, I think we all are. And we recognize that that’s
something that we need deal with, and in any way that we can
save dollars that we need to do that.

However, I’m also concerned about coordination, because that
could be another form of abuse, if we don’t watch it, in terms of
agencies having the responsibility to move forward, in terms of in-
vestigation, and not wasting money in that regard, as well, in


185

In particular, the Department does not endorse section
104(d) of H.R. 2326, which would constitute a severe restriction
of the authority of the Attorney General to enforce criminal and
civil statutory remedies, and would usurp the prosecutorial
discretion of the Attorney General. It is appropriate for a
prosecutor, in exercising his or her discretion (in determining
whether to seek criminal charges, and what charges to seek), to
consider the fact that a person is willing to or has repaid the
victim of the crime for the losses that the offender caused, and
the defendant's remorse and willingness to assume responsibility
for his or her conduct. It is also appropriate for a prosecutor
to consider many other factors, including litigative risk, and
the benefits of the prompt disposition of cases. Section 104(d
of H.R. 2326 could be construed as prohibiting the Attorney
General from considering these factors, if any aspect of the case

disposition would result in the deposit of funds into the Control

Account. Accordingly, the Department of Justice opposes section
104(d) of H.R. 2326.

The Department of Justice also does not endorse the scope of
the investigative demand procedures contained in Section 210 of
H.R, 2326. That Section would provide that the Attorney General
or the Federal Bureau of Investigation could issue administrative
subpoenas calling for the production of records, as well as
compelling the testimony and attendance of witnesses, in
connection with health care fraud investigations or fugitive

investigations. We believe that this provision should,


13

9
(3) PAYMENTS ARE ADDITIONAL.—Payments to

a State under this subsection shall be in addition to

any amounts paid under subsection (g).

(d) Data SHARING.—The Inspector General shall es-
tablish a program for the sharing among Federal agencies,
State and local law enforcement agencies, and health care
providers and insurers, consistent with data sharing provi-
sions of subtitle B, of data related to possible health care
fraud and abuse in violation of any Federal law.

(e) HEALTH CARE FRAUD AND ABUSE CONTROL AC-
COUNT.—

(1) EsTaBLISHMENT.—There is established on

the books of the Treasury of the United States a

separate account, which shall be known as the

Health Care Fraud and Abuse Control Account. The

Account shall consist of—

(A) the Health Care Fraud and Abuse Ex-
penses Subaccount; and

(B) the Health Care Fraud and Abuse Re-
serve Subaccount.
(2) EXPENSES SUBACCOUNT.—

(A) ConTENTS.—The Expenses Sub-
account consists of—

(i) amounts deposited under. subpara-
graph (B); and


137

for health care fraud enforcement .

There are other issues about which we have concerns, such as
the use of fines and forfeiture proceeds as sources of funds for
the Control Account, and the breadth of the authority conferred
on four Inspectors General and on state agencies. (See, sections
101(a) and 102(a) of H.R. 2326 and section 2 of H.R. 1850.) We
have discussed these concerns and a number of technical
amendments with the Subcommittee's staff. We would be pleased to
work with you on these issues and on other technical and related
amendments, In that connection, we will continue to review these
and related legislative proposals and would appreciate the
opportunity to apprise you of any additional views that we may
have.

Mr. Chairman, this concludes my prepared remarks. Thank you
again for the opportunity to appear before you today. I would be
pleased to answer any questions that you or the other Members of

the Subcommitteé may wish to ask.


55

34

item or service for which payment may be made in
whole or in part by any health benefit program; or

“(2) to purchase, lease, order, or arrange for or
recommend purchasing, leasing, or ordering any
good, facility, service, or item for which payment
may be made in whole or in part by any health bene-
fit program or attempts to do so,

shall be fined under this title or imprisoned for not more

than 5 years, or both.

“(e) Subsections (a) and (b) shall not apply to—

“(1) a discount or other reduction in price ob-
tained by a provider of services or other entity under
a health care benefit program if the reduction in
price is properly disclosed and appropriately re-
flected in the costs claimed or charges made by the
provider or entity under a health care benefit pro-
gram;

“(2) any amount paid by an employer to an em-
ployee (who has a bona fide employment relationship
with such employer) for employment in the provision
of covered items or services if the amount of the re-
muneration under the arrangement is consistent
with the fair market value of the services and is not

determined in a manner that takes into account (di-


2

Medicare and Medicaid, representing about one-fourth of the Na-
tion’s health care bill, could lose up to $26 billion this year, or $71
million a day, from fraud and abuse. Losses of this magnitude pose
a major threat to the solvency of these essential programs. Yet, as
these programs grow, the losses continue to grow. We’re losing the

attle.

Individuals and organizations defrauding or abusing the systems
continue to operate. The lures are great. Few are caught. Penalties
are mild. Justice is slow. Prevention and enforcement resources are
inadequate. Communication among those authorities who deter and
detect those disobeying the rules is limited, at best.

The bills to be discussed today address these problems. This leg-
islation requires Federal enforcement authorities to coordinate
their efforts more effectively, establishes a separate account to pay
for enforcement funded by fines and penalties, makes public and
private health care fraud a Federal crime, imposes substantial
fines and prison sentences for health care fraud, establishes re-
wards for information leading to the conviction of health care
cheats, limits health care providers to one universal billing num-
ber, expands the authority to exclude abusive providers, and re-
quires HHS to adopt market-sensitive prompt pricing of equipment
and services.

H.R. 2326 is an all-payer anti-fraud and abuse bill, whether the
violations are against Medicare and Medicaid programs or against
private payers. This legislation is one of the most far-reaching anti-
fraud and abuse health care bills ever introduced, offering both
public and private payers major new prevention and deterrence
tools. The Congressional Budget Office estimates that aggressive
anti-fraud provisions such as these could save up to $4.1 billion
over 7 years.

In this Congress, we are committed to preserving Medicare and
Medicaid through reforms that assure a sustainable growth of
these programs. The growth of health care fraud is not sustainable.
The reforms in this legislation will ensure that, as Federal health
care spending grows, fraud and abuse will not grow with it.

In coming weeks, this subcommittee and other House and Senate
committees will finalize legislation to strengthen protections
against health care fraud. We look forward to working with Mr.
Schiff, who sits on the Judiciary Committee, and our colleagues on
the Commerce and Ways and Means Committees to enact the
toughest anti-fraud laws ever. And we obviously look forward to
working with our colleague, the ranking member, Mr. Towns.

We welcome our witnesses. We look forward to the comments
and suggestions of Lovola Burgess, past president of AARP, Wil-
liam Mahon of the National Health Care Anti-Fraud Association,
Thomas Schatz of Citizens Against Government Waste, Gerald
Stern of the Justice Department, and Dr. Helen Smits of the
Health Care Finance Administration.

[The prepared statement of Hon. Christopher Shays, and the
texts of H.R. 1850 and H.R. 2326 follow:]


om IAA KH eA WHE

Bers

174

HL.
2
incapacitated under such guidelines solely
on the basis that the individual is an aleo-
holic or is addicted to drugs),

“(ii) the service is not provided to
transport the enrollee to or from an indi-
vidual or entity providing medical assist-
ance to the enrollee, and the request for
the yervice is not initiated by such individ-
ual or entity, and

“(iii) during the time the service is
provided, at least one individual with first
aid or othcr medical training does not uc-
company the cnrollee.”.


198

Mr. Says. I thank the gentleman.

Tom, I sometimes call you Schatz or Schatz, which is it?

Mr. Scuatz. Schatz.

Mr. Suays. OK. I won. For the record, I get the last word.

Mr. ScHatz. Thank you, Mr. Chairman. I appreciate being here.

Mr. SHays. Thank you.

Mr. Scuatz. I, too, will certainly echo the support of this legisla-
tion and the wonderful cooperation, the bipartisan cooperation, on
this issue that is being displayed by this committee today. Given
the vitriolic nature of some of the debate over Medicare, it’s nice
to find an area where we can pretty much agree that things need
to be done and we can agree on how it needs to be done.

I will take just a few minutes, Mr. Chairman, to mention a re-

rt the Citizens Against Government Waste issued, that I would

ike to submit for the record, which is called, “Medicare Fraud:
Tales from the Gypped.” The report chronicles 89 examples of
waste, fraud, and abuse, and the information uncovered by the re-
port and our research shows that the problems of fraud in Medi-
care are indicative of the problems of fraud in health care, in gen-
eral.

As you know, Mr. Chairman, on Medicare itself, we do need to
have reform. We are all aware that the trust fund will be out of
money in the year 2002, and, in particular, in Medicare, action
needs to be taken quickly.

The Inspector General of HHS, June Gibbs Brown, has stated
that fraud and abuse permeates all aspects of Medicare, that up to
$17 billion, or $46 million per day, 10 percent of Medicare’s budget,
will be wasted because of fraud, and that ties with other estimates
of health care fraud, in general. I agree with you, Mr. Chairman,
that 10 percent is a very, very conservative estimate. We have
heard from some of the people over at HHS, it could be as high as
30 percent.

‘rom that standpoint, if you are talking $17 billion in Medicare
or up to $50 billion in Medicare, it’s a very serious issue, and it
should be the first thing in the Republican leadership's legislation,
not necessarily something that you are chasing the train with. We
have been trying to emphasize that, and we are happy that there
is certainly an effort in the leadership bill to deal with health care
fraud and abuse. I think we have learned today that some improve-
ments could be made.

Mr. Says. If the gentleman would just suspend for a second.

I would encourage all three of you to weigh in with any of the
leadership that you have contact with—particularly, AARP has
been in close contact, as your organization has. To pass this legisla-
tion hoping to get at fraud without having it be a criminal offense
and all-payer, as you point out, Mr. Mahon, it just would be very
unfortunate. I am concerned that we have a ways to catch up to
this group. So I hope that you would get your organizations to do

ai

Mr. ScHatz. Well, in fact, Mr. Chairman, we are in the process,
and letters have just hit our membership to ask them to write to
the President, urging him to make sure that the fraud and abuse
is dealt with in Medicare reform.

Mr. Suays. To the President?


221

-13-

ML “InNew York one of the owners of a DME company was sentenced for Medicare
fraud and income tax evasion, He was sentenced to 2 years imprisonment, suspended
‘on condition that he serve 3 months over 30 consecutive weekends. Two other
‘persons await sentencing in the case, in which Medicare was defrauded of $2.7
million. Until they are sentenced the owner is responsible for a repayment of
{$900,000 settled in a civit agreement."

Xf "An Illinois DME company and its president agreed to a $68,000 settlement of
allegations of billing Medicare for supplies not provided, falsifying physician's
signatures on medical necessity forms, adding and whiting out information on the
forms, and substituting equipment of a lesser type than that billed..... During the
investigation, the company vice president who actually ran its operations fled to Iraq.
‘The settlement included proceeds from the sale of the vice president's home and other
assets, and an additional amount from the president, the DME company and a related
company of which he was also president, for a total payment of $122,000."

XX. In Michigan, a pharmacy and its former office manager were found guilty of
Medicare and Medicaid fraud. "They had billed for urinary incontinence and
decubitis ulcer kits which were neither related to the patients’ conditions nor
medically necessary. They also billed for greater quantities than delivered. The
office manager was suspended from program participation in 1988 for 5 years
because of a racketeering charge involving illegal drugs, and he was office manager
of the pharmacy while under suspension. He has since set up several new businesses
in Florida."ss

FRAUDULENT BILLING: GAMING THE SYSTEM

In 1992, GAO reported that funding for Medicare's contractors, who are
responsible for combating fraud and abuse, had not been commensurate with the rapidly
growing number of claims. In 1995, GAO concluded that "[B]etween 1989 and 1994, the
requirement for contractors to review a portion of claims in process dropped from 20
percent to 5 percent due to reduced funding."S* This means that Medicare pays more
claims with less scrutiny than at any other time over the past five years. Here are some of
the results:

XX A therapy company created a "paper company” with no space or employees and
added $170,000 to its Medicare reimbursements over a six-month period while
providing no additional services. "The company simply reorganized its nursing home
and therapy businesses so that a large portion of its total administrative costs could be
allocated to Medicare."*?

$3 bid, p.24.

4 HHS, OIG, Semiannual Report, October 1, 1994 - March 31, 1995, p.20.
35 tbidap. 10.

56 GAO, High-Risk Series, February, 1995, p. 7.

51 GAO, Medicare, Modern Management Strategies, p. 6.


163

My point is, if you freeze those who are investigating fraud while
you spend more money on fraud, you’re inviting a disaster, because
the people out there know that there will be fewer people to patrol
for more money. That’s why we have to take some action to bolster
the resources of those who are investigating and prosecuting fraud.

Mr. Fox. Mr. Chairman.

Mr. Suays. The gentleman, Mr. Fox.

Mr. Fox. Thank you, Mr. Chairman.

Dr. Smits, just to follow up on the telephone, I know that the call
got through, which was good, and the chairman was, I think, very
timely to ask us to check it.

Mr, SHAYS. With that in mind, I’m going to ask the gentleman
to yield.

y counsel would. just explain exactly what happened.
ir. HALLORAN. All right, if I may. Our clerk called the number,
ge, an electronic menu of choices of what he was calling about,
ledicare-Medicaid fraud, Social Security, Head Start, Public
Health Service, FDA, Crime by an HHS employee, welfare or food
stamps, to write to the Department, to get a fax, or an OIG publi-
cation.

He chose menu item No. 1, Medicare-Medicaid fraud, and was
taken to another electronic menu that said, “Are you calling about
nursing homes in New York, Florida, Texas, or California, Medi-
care-Medicaid provider? Are you a Medicare beneficiary? Calling
about Medicaid, general fraud questions, or fax or address?”

He chose No. 4, Medicaid, off the menu, and got a tape that said
call a Government phone number, call HCFA at another 800 num-
ber, or wait for the address to write with your tip. He went back

to the main menu and identified himself as a Medicare beneficiary
and got a similar tape. And went back to the main menu, identified
himself as a rovider, and got a person to speak to about what he

was
tree HS OIG rates “supplemental statement follows:]


Coe NAH ph YW DN =

PRBRNXBSSEBDRAEERBHES
ROR = Ce IAA RB HH HK S

72

51

(8) The existence or nonexistence of any poten-
tial financial benefit to a health care professional or
provider which may vary based on their decisions
of—

(A) whether to order a health care item or
service; or

(B) whether to arrange for a referral of
health care items or services to a particular
practitioner or provider.

(9) Any other factors the Secretary deems ap-
propriate in the interest of preventing fraud and
abuse in health care programs operated or financed
by the Federal, State, or local governments.

SEC. 303. REQUIRING SECRETARY TO IMPLEMENT PRO-
POSAL TO EXPEDITE PAYMENT ADJUST-
MENTS BASED UPON INHERENT REASON-
ABLENESS.

Not later than 6 months after the date of the enact-
ment of this Act, the Secretary of Health and Human
Services shall implement its initiative of December 1994
to expedite the implementation of payment adjustments
for covered items under section 1834(a)(10)(B) of the So- ©
cial Security Act pursuant to the provisions of paragraphs
(8) and (9) of section 1842(b) of such Act.


Cwm XI Au eB WH AH

RBBRPBSEARAEBEAS

27

6

Health Care Fraud and Abuse Control Unit for pur-

poses of this title.

(b) HEALTH CARE FRAUD AND ABUSE CONTROL
Unit REQUIREMENTS.—A Health Care Fraud and Abuse
Control Unit established by a State under subsection
(a)(2) shall be a single identifiable entity of State govern-
ment which is separate and distinct from any State agency
with principal responsibility for the administration of
health care programs, and which meets the following re-
quirements:

(1) The entity—

(A) is a unit of the office of the State At-
torney General or of another department of
State government that possesses statewide au-
thority to prosecute individuals for criminal vio-
lations;

(B) is in a State the constitution of which
does not provide for the criminal prosecution of
individuals by a statewide authority, and has
formal procedures, approved by the Secretary,
that assure it will refer suspected criminal vio-
lations relating to health care fraud or abuse in
violation of any Federal law to the appropriate
authority or authorities of the State for pros-


Com YN DWH PR WN YH

RBB2YPSSSVIEAETBREHS

70

49

basis for an exclusion under section 1128(b)(7)

of such Act.

(2) PUBLICATION OF PROPOSED MODIFICA-
TIONS AND PROPOSED ADDITIONAL SAFE HAR-
BORS.—After considering the proposals described in
paragraph (1), the Secretary, in consultation with
the Attorney General, shal! publish in the Federal
Register proposed modifications to existing safe har-
bors and proposed additional safe harbors, if appro-
priate, with a 60-day comment period. After consid-
ering any public comments received during this pe-
riod, the Secretary shall issue final rules modifying
the existing safe harbors and establishing new safe
harbors, as appropriate.

(3) Report.—The Inspector General of the
Department of Health and Human Services (here-
after in this section referred to as the “Inspector
General”) shall, in an annual report to Congress or
as part of the year-end semiannual report required
by section 5 of the Inspector General Act of 1978,
describe the proposals received under paragraph (1)
and explain which proposals were included in the
publication described in paragraph (2), which pro-
posals were not included in that publication, and the


146
individuals who are the ones responsible for doing that at the com-

pany.

One of the most important cases recently was the Bard case,
which was a Fortune 500 company. They pled guilty. They were
able to pay a $61 million total payment and stay in the system.
But we went ahead with criminal prosecutions of the top six execu-
tives of the company and, within the last month, three of them
were finally convicted by a jury up in Boston.

These are very difficult cases, but we are not giving up on the
individuals, despite the fact that the companies themselves may
settle with us.

Mr. SHays. Would the gentleman yield just for a second. Just so
we have it on the record, what were the convictions of the three?
What was their penalty?

Mr. STERN. They have not been sentenced yet.

Mr. Suays. OK. Thank you.

Mr. CHRYSLER. Thank you, Mr. Chairman. That’s all.

Mr. Suavys. I thank the gentleman.

Mr. Green.

Mr. GREEN. Thank you, Mr. Chairman. I have a statement I
would like to have placed in the record.

Mr. Suays. It will be placed in the record.

[The prepared statement of Hon. Gene Green follows:]


CMI DAHA F WN

Boe Be ee ee
YAW PE wWwH HS

18
19
20
21
2
23
24
25

63

42
under investigation. Any failure to obey the order of the
court may be punished by the court as a contempt thereof.
All process in any such case may be served in any judicial
district in which such person may be found.

“(a) IMmuNiTY FRoM Crvit LiABILITy.—Notwith-
standing any Federal, State, or local law, any person, in-
cluding officers, agents, and employees, receiving a sum-
mons under this section, who complies in good faith with
the summons and thus produces the materials sought,
shall not be liable in any court of any State or the United
States to any customer or other person for such produc-
tion or for nondisclosure of that production to the cus-
tomer.”.

(b) CLERICAL AMENDMENT.—The table of sections
at the beginning of chapter 223 of title 18, United States
Code, is amended by inserting after the item relating to

section 3485 the following new item:
“486, Authorized investigative demand procedures.”

(e) CONFORMING AMENDMENT.—Section.
1510(b)(3)(B) of title 18, United States Code, is amended
by inserting “or a Federal Bureau of Investigation sum-
mons (issued under section 3486 of title 18),” after ‘“‘sub-
poena”’.

SEC. 211. GRAND JURY DISCLOSURE.

Section 3322 of title 18, United States Code, is

amended—

BR 3826 TH


Ce NY DA HW PR WN

yon a
EBBESSBURTDEBSES

20

16

pointed to fill a vacancy occurring before the expira-
tion of the term for which the individual is ap-
pointed shall be appointed only for the remainder of
that term.

(5) CHAIRPERSON AND BYLAWS.—The Board
shall elect one of its members as chairperson and
shall adopt bylaws.

(6) COMPENSATION AND EXPENSES.—Members

of the Board shall serve without compensation, ex-
cept that the Inspector General may pay the ex-
penses reasonably incurred by the Board in carrying
out its functions under this section.

(7) NO TERMINATION.—Seetion 14(a)(2) of the
Federal Advisory Committee Act (5 U.S.C. App.)
does not apply to the Board.

(i) DEFINITIONS.—In this section:

(1) AccOUN?T.—The term “Account” means the
Health Care Fraud and Abuse Control Account es-
tablished by subsection (e)(1).

(2) EXPE

BS SUBACCOUNT.—The term “Ex-
penses Subaccount” means the Health Care Fraud
and Abuse Expenses Subaccount of the Account.

(3) HEALTH CARE FRAUD AND ABU: ‘ONTROL

UNiT.—The term “Health Care Fraud and Abuse

” SHR 1850 TH


37

16
1 SEC. 107. ACCOUNT PAYMENTS ADVISORY BOARD.

2 (a) ESTABLISHMENT.—There is established the Ac-
3 count Payments Advisory Board, which shall make ree-
4 ommendations to the Inspector General and the Attorney
5 General regarding the equitable allocation of payments
6 from the Account.

7 (b) MEMBERSHIP.—The Board shall consist of—

8 (1) each of the Inspectors General referred to
9 in section 101(a), other than the Inspector General
10 of the Department of Health and Human Services;
11 and

12 (2) 10 members appointed by the Inspector
13 General of the Department of Health and Human
14 Services to represent Health Care Fraud and Abuse
15 Control Units, of whom one shall be appointed—

16 (A) for each of the 10 regions established
17 by the Director of the Office of Management
18 and Budget under Office of Management and
19 Budget Circular A-105, to represent Units in
20 that region; and
21 (B) from among individuals recommended
22 by the heads of those agencies in that region.

23 (ec) TERMS.—The term of a Member of the Board ap-
24 pointed under subsection (b)(2) shall be 3 years, except
25 that of such members first appointed 3 members shall

26 serve an initial term of one year and 3 members shall serve


157

Mr. STERN. I will have to get you that. As I recall, they were con-
victed of a number of crimes. So I will have to go and look back
now and get that for you. I can do it for the record.

Mr. SHays. I would want that for the record. Again, though, you
had to go the route of wire or mail fraud.

Mr. STERN. Or false claims.

Mr. SHAys. Or false claims?

Mr. STERN. Yes.

Mr. Says. Which is a Federal offense?

Mr. STERN. Yes.

Mr. SHays. OK. There are number of aspects of this bill that, ob-
viously, I think are important, but I’m coming to the conclusion
that one in particular, probably the centerpiece, has got to be mak-
ing it a Federal crime and giving you the right to pursue this, in
terms of theft, embezzlements, false statements, bribery, graft, ille-

al remunerations, and obstruction of criminal investigation, which
is what we put in our bill.

The Medicare bill being brought out by my House Republicans
does not include any of that. And it is something we have to work
overtime, I think, to get in, because otherwise we’re going to con-
tinue to have extraordinary fraud, with you having to come in the
back door, it seems to me.

My sense is that we are being fairly conservative when we esti-
mate that waste, fraud, and abuse, particularly fraud and abuse,
are only 10 percent. I am just hearing so many stories. How would
we characterize a doctor who sees 10 patients in the space of 10
minutes, pokes his head in a nursing home, and says, “Louise, how
are you doing today?” and then charges us $15 or $20, or more?
Would that be fraud, or would that just be abuse? ._

Dr. Smits. There obviously is some point at which a visit isn’t a
visit, and, in fact, there have been instances like that. It’s in the
grey zone, if you spend a minute. If you only spend a second, it’s

‘raud, but if you spend a minute, perhaps it’s abuse. But it doesn’t
matter, it’s inappropriate, and we shouldn’t be billed for it.

Mr. Suays. Well, it matters only in this sense, though. Would
that be criminal? Would you be able to go after someone criminally
on that issue?

Mr. STERN. It’s a question of intent. And we have cases where
it looks, on the face of it—NME is a good example—that the con-
tracts that they had with the doctors were for consulting. In fact,
they were sham contracts. No real consulting was going on in con-
nection with the amount of money given. And we have not only got
a conviction for NME, but we have convicted some of the people in-
volved in that, one of whom, as I recall, got an 8-year sentence.

So it’s a question of the facts in the respective case.

Mr. SHays. Again, you didn’t have the criminal statutes that we
would give you.

Mr. STERN. That’s correct.

Mr. Says. Would any of those criminal provisions that we are

iving you now enable you—I mean, would “false statements” be
ow you would go after someone like that?

Mr. STERN. Right now, what we do is, it was always either a mail
fraud or wire fraud connection we have to prove.

Mr. Suays. OK. But with the statute.


244

Mr. SCHATZ. That’s correct.

Mr. GREEN. You know, 15 years ago, it was some other date.

Mr. Scuatz. Well, let’s look at just the example of Social Secu-
rity, where, in 1982, they were supposed to fix it for the next 75
years. Of course, that’s not the case either. One of the things, clear-
ly, that, if you’re talking about Medicare reform overall, needs to
be looked at—I'm a baby boomer; I think many of the new Mem-
bers are in the same category—they are nct even looking at what
is going to happen when the baby boomers retire.

So, in the context of overall Medicare reform, if you’re talking 90,
270, a trillion in changes, there’s a big red ink line going far into
the future on Medicare itself.

Mr. GREEN. You’re right, and we have to do something to address
it. I guess the concern I have is that I am a cosponsor of our chair-
man’s bill, and in reading your testimony and looking at it, it al-
most—if you don’t necessarily agree with the Preservation Act,
then you’re for waste, fraud, and abuse. And that’s not what this
committee is avout. [ think you're going to see bipartisan support.

Mr. ScHatz. Let me state under oath, which I am, that that is
not what I wa« intending to say. It is not what I am saying right
now. And I certainly agree that, in this instance, the bipartisanship
on this issue is extremely, extremely important.

Mr. GREEN. Again, on your first page, going to the report, again,
T think you’ve documented a lot of the problems that we see and
we hear from our constituents, and I hear every day, and we try
to deal with. I ain frustrated with the bureaucracy, or whatever the
system, for not being able to deal with it.

During this year, the budget we passed here, under HHS there
was actually a small cut in the effort to root out fraud, waste, and
abuse. There wes no growth at all, but there was a small cut; not
dramatic, but a small cut. So that’s obviously not the way we need
to go. I want more investigators, more people auditing.

Mr. Scuatz. The Citizens Against Government Waste was cre-
ated following the Grace Commission report. Many of the rec-
ommendations dealt with management improvement. Just as we
are now finding, in terms of “scoring,” we know, and I believe Mr.
Kusserow, when he testified at our hearing, said, I think it was,
either $68 or $86 gets turned back in for every $1 you put into in-
vestigations.

I don’t care what CBO says, we know, and I’m sure everybody
on this panel knows, that you can get an awful lot of money back
by increasing resources to root out waste, fraud, and abuse, wheth-
er its the IRS, whether it’s in Housing, whether it’s in health care
fraud.

Mr. ScuirF. Would the gentleman yield for 1 second on that?

Mr. GREEN. I see I don’t have any time. I’ll be glad to yield.

Mr. Scuirr. { just want to emphasize your point, perhaps be-
cause I was a professional prosecutor for a number of years before
I came here, I think every agency has to look to see how it can do
things better. And I don’t know of any reason why prosecutors or
police forces ave immune from that. I think everyone has that obli-
gation. Still, investigation and prosecution is a relatively high, in-
tensive manpower commitment. You need people to do investiga-
tions; you need people to do prosecutions.


Como I AH PF WN

BsSseexetdaanranets

21
22
23

57

36

ally qualified health care center with respect to an

individual who qualifies for subsidized services under

a provision of the Public Health Service Act; and

“(5) any payment practice specified by the Sec-
retary of Health and Human Services in regulations
promulgated pursuant to section 14(a) of the Medi-
care and Medicaid Patient and Program Protection

Act of 1987.

“(d) Any person injured in his business or property
by reason of a violation of this section or section 226 of
this title may sue therefor in any appropriate United
States district court and shall recover threefold the dam-
ages such person sustains and the cost of the suit, includ-
ing a reasonable attorney’s fee.

“(e) As used in this section, ‘health care benefit pro-
gram’ has the meaning given such term in section 1347(b)
of this title.”.

(b) CLERICAL AMENDMENT.—The table of sections
at the beginning of chapter 11 of title 18, United States
Code, is amended by adding at the end the following:

“227, Illegal remuneration with respect to health care benefit programs.”,

(c) CONFORMING AMENDMENT.—Section 1128B of
the Social Security Act (42 U.S.C. 1320a-7b) is amended
by striking subsection (b).


243

and hospitals aren’t crooks, and therefore no one should go after
them in a criminal way. I think we need to, on our side of the aisle,
weigh in on that one.

Mr. Green.

Mr. GREEN. Thank you, Mr. Chairman. I appreciate my colleague
from New Jerse discussing the need for lobotomies.

I appreciate the panel being here today. Mr. Schatz, I have read
your statement and also skimmed the report. On the "first page of
your statement, in the last paragraph, you say, “Medicare and its
impending bankruptcy are too important to ignore the con-
sequences of a failing to act. Yet those who are fighting any reform
claim that each dollar spent in the program produces a dollar in
benefits for American seniors; no waste, no fraud, no abuse.” Who
has said that?

Mr. ScHatz. Mr. Green, there have been comments made
throughout; really, the atmosphere here in Washington that maybe
no changes need to be made to Medicare, or Medicere can survive
without changes.

Mr. GREEN. OK. Now, you say, no waste, no fraud, or abuse. I
want to know if anybody, on the Republican side or Democratic
side, said there was no waste, fraud, or abuse.

Mr. SCHATZ. Well, it was really just a statement, saying that as
a way of characterizing people. I’m not saying anyone specifically
said that. I didn’t quote anyone.

Mr. GREEN. OK. Now, we'll get to what I’m concerned about. OK.
You also talk about, on page 5, “commends the maj jority leadershij hip
in the House for ‘The Medicare Preservation “Act.” Do you thi!
those of us who are cosponsors of this bill, one of the bills here
today, if we don’t vote for the Medicare Preservation Act, that we’re
for waste, fraud, and abuse?

Mr. Scuatz. Absolutely not, Mr. Green. Mr. Towns’ bill, I have
already complimented him on his bill. I believe it’s very important.

Mr. Suays. He was almost fawning.

Mr. SCHATZ. The only difference really is the criminalization of
the health care aspect.

Mr. GREEN. I agree. In fact, I’ve never served in a prosecuting
office, but I know we need to provide that ability. I guess what
worries me, I want to know if anybody is supporting waste, fraud,
and abuse or saying there is none, even though we may have a
philosophical difference on the Preservation Act or ihe impending

ankruptcy in the year 2002.

And I guess I relate it to, if we don’t put any money into Medi-
care, by 2002 it will be bankrupt, but if I don’t put any money in
the Department of Defense tomorrow, they will be bankrupt. Is
that correct?

Mr. SCHATZ. Well, Mr. Green, this is now the, I believe, ninth
time the trustees have reported that Medicare will be bankrupt.
Next year, however, is the first time we will actually see red ink.
So I think it is clearly more serious than we have seen in the past.

Mr. GREEN. They have always given a deadline, though, in the
other eight times.

Mr. ScHATZ. Excuse me.

Mr. GREEN. They have said, if Congress does not do something
in this year, it’s 2002.


23

2
TITLE I—COORDINATION OF FEDERAL ENFORCEMENT

101. Federal enforcement by Inspectors General and Attorney General.

102. State enforcement.

103. Payments to States.

104. Health Care Fraud and Abuse Control Account.

105. Acceptance of gifts, bequests, and devises.

106. Reimbursements of expenses and other payments to participating
agencies.

107. Account Payments Advisory Board.

108. Establishment of health care fraud and abuse data base.

109. Definitions.

110. Effective date.

BERS PERE EE

TITLE II—REVISIONS TO CRIMINAL LAW

201. Definition of Federal health care offense.

202, Health care fraud.

203. Theft or embezzlement.

204. False Statements.

205. Bribery and graft.

206. Iegal remuneration with respect to health care benefit programs.
207. Obstruction of criminal investigations of health care offenses.
208. Civil penalties for violations of Federal health care offenses.
209. Injunctive relief relating to health care offenses.

210. Authorized investigative demand procedures.

211, Grand jury disclosure.

212. Miscellaneous amendments to title 18, United States code.

EEESEERE EELS

TITLE IIf—ANTI-FRAUD INITIATIVES UNDER MEDICARE AND
MEDICAID

301. Revision to current penalties.

302. Solicitation and publication of modifications to existing safe harbors
and new safe harbors.

303. Requiring Secretary to implement proposal to expedite payment ad-
Justments based upon inherent reasonableness.

804. Requiring annual notice to medicare beneficiaries of need to prevent
fraud and abuse against medicare program.

305. Requiring use of single provider number in submission of claims for
payment under medicare and medicaid.

306. Liability of carriers and fiseal intermediaries for claims submitted by
excluded providers.

307. Study of financial solvency and integrity standards for providers and
suppliers.

eee ee FF


144

give us enough resources to do good prevention are essential if
we're going to continue to move forward in the direction we're al-
ready moving in.

Mr. TOWNS. My staff person said I said the floor. Did I say the
floor? If I did, I meant out of committee; I didn’t mean the floor.
It has not passed on the floor. If I said that, I want to be corrected
right away.

Dr. Smits. I’m glad to hear that. That’s what I thought, too.

Mr. Towns. Mr. Stern, I would like to hear you address that as
well.

Mr. STERN, I think, to the extent that the bill that Mr. Schiff re-
ferred to, H.R. 2389, which is part of what I think you’re talking
about, there are some provisions of that bill that are very trouble-
some for us. As I mentioned, the limitations on our ability to bring
antikickback cases, the requirements with respect to advisory opin-
ions that are in that bill, that I think will interfere with our abili-
ties, will help the defendants in ways that are not good for our
anti-fraud efforts. There are a number of provisions in that bill
that we’re quite concerned about.

Mr. Towns. Mr. Chairman, will we have another round?

Mr. SHays. You definitely will have another round.

Mr. Towns. OK. Thank you. I yield.

Mr. Suays. I would just like to note for the record we have been
joined by Mr. Fox, who will have a statement that we will submit
for the record, and any of the other Members who have come, Mr.
Green and Mr. Fattah.

I think, Mr. Fattah, you have a competing hearing. Did you want
to just say anything before you have to leave?

Mr. Farrau. Thank you, Mr. Chairman.

I just wanted to note for the record that another one of the
standing committees that I sit on is meeting at this time, on the
next floor down, and I have to depart. But this is a very important
matter, one that not only do I share concerns with the chairman
and the ranking member, but my colleague from Pennsylvania and
I have spent some time talking about what we can do about health
care fraud.

This is not just a matter that relates to governmental programs.
It affects the private sector, too. Both have been victims of sus-
tained fraud by people who are committed to finding ways to take
dollars out of the health care system. I guess it’s somewhat like
Jesse James who said he robbed banks because that’s where the
money is.

Well, the money is in health care now, so we have criminal enter-
prises that are determined to find ways to get the money out of it.
And it is not just the Government that has suffered. We have enti-
ties right in my home town, private sector entities, who have been
victimized by health care fraud.

So I appreciate your holding these hearings, and I look forward
to working with you as we go about trying to figure out what we
can do about this. Thank you.

Mr. Suays. I thank the gentleman for his help and interest both.

At this time, Mr. Chrysler.

Mr. CHRYSLER. Thank you, Mr. Chairman.


90

posals on how H.R. 2326 can be improved, I would very much wel-
come hearing them.

Thank you very much, Mr. Chairman.

Mr. Suays. I thank the gentleman.

Mr. Chrysler.

Mr. CHRYSLER. I would just add that, certainly during town hall
meetings that I had in my district, we heard testimony that 86 per-
cent of the Medicare bills had errors in them, as they put it. And
the $44 billion in waste, fraud, and abuse definitely needs to be ad-
dressed. It’s the kind of thing that if we don’t address them, obvi-
ously, the fact that they are going on gives Government a very,
very bad name, and we're here to clean that up, and I applaud Mr.
Schiff’s efforts in this.

you.
Mr. Suays. I thank the gentleman.
Without objection, the statement of Representative Cardiss Col-
lins will be made part of the record.
[The prepared statement of Hon. Cardiss Collins follows:]


172

& NMTA .

National Medical Transportation
Association, Inc.

‘Septomber 27, 1995
‘Subcommittee on Human Resources and Intergoveramental Affaire
House Government Reform and Oversight Committee
‘Washington DC 20515

‘Dear Mr, Chairman,

‘The National Medical Transportation Association supports the Mertin! Amendment to HR
2526 to eliminate ware and abut isthe Medcald program en te evar that
transportation

‘art provided to individuals who are

‘sablod and in no0d of mobility ascletance.
The National Medical Transportation Association represents private-for-profit operators who
- ‘medical tr for the

Provide door. ‘medically nocessary nonemergency
stretcher bound, w) ‘bound, developmontally disabled, and the disabled and elderly
who need assistance in ambulating.
Sincerely yours,
ry

P.O, Bor 296 + San Bruno, Callfornia 94066 - (415) 877-9250 + FAX (415) 952-9989


44

23

1 title 18, United States Code, as added by section

2 202(b).

3 (4) The term “health care provider” means a

4 provider of services (as defined in section 1861(u) of

5 the Social Security Act) and any entity, including a

6 health maintenance organization or group medical

7 practice, that provides health care services (as speci-

8 fied by the Secretary in regulations).

9 (5) The terms “licensed health care practi-
10 tioner” and “practitioner” mean, with respect to a
ll State, an individual who is licensed or otherwise au-
12 thorized by the State to provide health care services
13 (or any individual who without authority holds him-
14 self or herself out to be so licensed or authorized).
15 (6) The term “Secretary” means the Seeretary
16 of Health and Human Services.

17 (7) The term “supplier” means a supplier of

18 items and services for which payment may be made
19 under part B of title XVIII of the Social Security
20 Act.

21 SEC. 109. DEFINITIONS.
22 In this title:
23 (1) AccouNT.—The term “Account” means the

24 Health Care Fraud and Abuse Control Account es-
25 tablished by section 104(a).

HR 2826 TH


85

Mr. Suavys. I thank the gentleman.

At this time, I would call on the chairman of the full committee,
Mr. Clinger.

Mr. CLINGER. Thank you very much, Mr. Shays.

I just want to associate myself with the remarks of Mr. Towns.
This is a significant thing that we can do, in the Government Re-
form and Oversight Committee, to address the critical problem that
we have with Medicare and the fact that it is threatened to go
broke within the next 7 years. This is something that we can do
here that will be most constructive in addressing that problem.

So I want to, first of all, commend you, Chairman Shays, Mr.
Schiff, and also Mr. Towns, for the leadership that you all have
shown in crafting this legislation, the Health Care Fraud and
Abuse Prevention Act, and for bringing it expeditiously to the sub-
committee today. I think, as Mr. Towns has said, it really does rep-
resent a bipartisan effort to address what is clearly an extremely
serious problem.

This bill is the result of your efforts, Mr. Chairman, in holdii
a series of hearings conducted to examine the problem of waste an
fraud in the Medicare and Medicaid programs. As a number of peo-
ple have stated at previous hearings, we estimate that Medicare
and Medicaid fraud will cost us about $26 billion this year alone
because of fraudulent activities.

This activity, without question, drives up the cost of these pro-
grams and makes it increasingly difficult for all individuals to af-
ford or to get quality health care. So, despite this very alarming
fact, the Government has not taken full advantage of the anti-fraud
statutes which allow the Government to exclude fraudulent provid-
ers from participating in the Medicare program. This is one of the
areas that you have, I think, very well addressed in this legislation.

We have heard testimony from members on both sides of the
aisle, the Health Care Financing Administration, General Account-
ing Office, and others, and the bill that you and Mr. Schiff have
drafted I consider to be a very well-balanced, forthright bill to ad-
dress this very serious problem. I am also pleased to be an original
cosponsor of H.R. 2326.

at this legislation does, most significantly, is to establish, for
the first time, health care fraud as a Federal crime. I think that
is the centerpiece, if you will, of this legislation. It sets out specific
penalties for perpetrating fraud. I think it will make it easier for
the Government to prosecute, while making it harder for excluded
providers to continue doing business with the Government. By es-
tablishing civil penalties, exclusion and jail time as real possibili-
ties to fraudulent providers, this legislation will serve as a valuable
deterrent against health care fraud.

As I indicated, addressing this issue of fraud and abuse is espe-
cially important now, given the efforts of this Congress to really en-
sure the safety of Medicare, to save it from bankruptcy, and rein
in the unsustainable growth rates of the program. Indeed, I think
cracking down on fraud and abuse is certainly a priority of the con-
stituents that I have talked with as I travel my district, and they
have identified that as a first step in any plan to save the Medicare
system.


254

health care fraud enforcement her number two new initiative,
behind violent crime. Since then, the Department has had a
coordinated health care fraud enforcement program, headed by a
Special Counsel for Health Care Fraud reporting directly to the
Deputy Attorney General. The Special Counsel has been chairing
an Executive Level Health Care Fraud Policy Group which has been
meeting monthly since November, 1993 to coordinate the health
care fraud efforts of the Department of Justice and HHS. As part
of this effort, the Department of Justice has increased its
investigations and prosecutions, facilitated greater cooperation
among investigative and regulatory agencies and coordinated the
uge of all available sanctions -- criminal, civil and
administrative.

At the loca} level, every United States Attorney's Office
has a criminal and civil health care fraud coordinator. They
lead health care fraud working groups in all judicial districts
experiencing significant health care fraud. These groups allow
all federal and state agencies working on health care fraud
enforcement collectively to share information on emerging
fraudulent schemes, develop joint enforcement strategies, and
decide priorities. Changing thie successful law enforcement
structure to create a separate nationally based health care fraud
task force would be counterproductive and risks omitting
particular agencies with strong records of health care fraud
enforcement .

O1_{o): td -kiakback
Pena: Ft ficant Pu:
This Section would overturn case law interpreting the
Medicare anti-kickback statute and serve to heighten the
government's burden of proof in criminal anti-kickback
prosecutions.

Kickbacks are pernicious because they corrupt the medical
providers! decisionmaking, often replacing profit for patient
welfare, Kickbacks have lead to grossly inappropriate medical
care, including unnecessary hospitalization, surgery, drugs,
tests and equipment, at great additional expense to the American
consumer and taxpayer.

The courts have interpreted the Medicare anti-kickback
statute (42 U.S.C. 1320a-7b) to prohibit the payment of
remuneration if "one purpose" of the payment is to induce
xeferrals of services which are paid for by Medicare. United
States v. Greber, 760 F. 2d 68 (3rd Cir. 1085). See also United
States vy. Kats, 871 F.2d 105 (9th Cir., 1989); Uni

874 F.2d 20 (ist Cir. 1989). In light of
this interpretation cf the criminal intent element of the
offense, the government is charged with the burden of proving
beyond a reasonable doubt that one purpose of a payment is to
induce referrals. as with many intent based prosecutions, the

3

400/700, ¥10 roa enre PIs zozg = test s60/0T


176

Mr. Suays. I thank the gentleman.

We look forward to your testimony. Why do I smile when I look
at your face?

Ms. BURGESS. I want you to know that Congressman Schiff and
I quite often disagree, but I want you to know, too, that I always
vote for him. [Laughter.]

Mr. Suays. Well, you know what, you take the words out of—
why don’t you continue.

STATEMENTS OF LOVOLA BURGESS, PAST PRESIDENT, AMER-
ICAN ASSOCIATION OF RETIRED PERSONS; WILLIAM J.
MAHON, EXECUTIVE DIRECTOR, NATIONAL HEALTH CARE
ANTI-FRAUD ASSOCIATION; AND THOMAS A. SCHATZ, PRESI-
DENT, CITIZENS AGAINST GOVERNMENT WASTE

Ms. BurcEss. I am Lovola Burgess, the immediate past presi-
dent of the American Association of Retired Persons, and I am still
on the board of directors. I appreciate very much the opportunity
to be here before you today.

You certainly have all heard the stories of unscrupulous provid-
ers who double-bill, who provide unnecessary services or no serv-
ices at all. And we have also all read about the providers who bill
the Medicare program for gourmet popcorn and limo services.
Clearly, we do have a problem.

Not only are limited health care dollars lost, but such activities
also increase costs throughout the entire system. Consumers pay
more out of pocket and are at a higher risk of personal injury when
care is not provided as needed or when inappropriate services or
items are furnished. In addition, unscrupulous providers find it
easiest, I think, to prey on the elderly often the sickest and most
vulnerable in the population.

We believe that many providers could be prevented from abusing
the Medicare program if they were limited to only one provider
number, requirements for obtaining a provider number were tough-
ened, and claims auditing practices were strengthened, also if there
were adequate resources for fighting fraud and abuse.

Having the right enforcement tools and enough financial means
to investigate and prosecute fraudulent providers are essential if
we are to save money and reduce fraud and abuse. Such authority,
though, must be weighed carefully against an individual’s right to
confidentiality of personally identifiable medical information.

is pleased that H.R. 2326 would increase criminal and
civil monetary penalties, establish a health care fraud and abuse
data base accessible to the public—and we think that’s important—
and require use of a single provider number in the submission of
claims. All of these actions should help to reduce the financial bur-
den fraudulent and abusive activities place on Medicare as well as
on other health insurance programs.

In addition, creating a new criminal code provision that specifi-
cally addresses health care fraud, establishing a fraud and abuse
control program, and creating a fraud and abuse control account
are all measures established by H.R. 2326 that should significantly
assist authorities in investigating and prosecuting fraudulent pro-
viders.


212

“4.

In mid-August, 1995, the U. S. Attomey for the Southem District of Florida
announced a major indictment against a $120-million Medicare scam which included an
integrated business of suppliers, providers, and physicians established for the main
Purpose of ripping off the system. Health-care fraud is so pervasive in southem Florida
that the FBI has established a special task force.

Many Medicare beneficiaries call in to complain about waste and abuse, but
contractors have often failed to investigate these complaints. When contractors do
respond, results can be fruitful: follow-up on complaints about eye-care services led to @
provider's agreement to refund over $2.5 million to the federal government.!?

Despite this evidence of fraud and waste and failure to take adequate steps to
eliminate the abuses, rhetoric and denial are the postures of choice in Washington. Some
‘members of Congress, along with their outside supporters, claim there is no crisis. Others
‘argue that the federal government will never let the system run out of money, as if the
‘American taxpayer is a never-ending source of cash for this vital, but floundering,
program. And then there are those, like Minority Leader Richard Gephardt (D-Mo.), who
can't resist the easy politics of fear.

But Republican attention to Medicare's problems is not some partisan plot. Mr.
Gephardt ought to familiarize himself with the authors of the 1995 Trustees’ Report,
which included such Republican friends as Treasury Secretary Robert Rubin, Labor
Secretary Robert Reich, Health and Human Services Secretary Donna Shalala, and Social
Security Commissioner Shirley Chater.

Other members of Washington's political establishment also seem to feel that itis
politically advantageous to demonize those who want to reform Medicare, Consider the
following:

Today, Medicaid and Medicare are going up at three times the rate of inflation.
We propose to let it go up at two times the rate of inflation, That is not a
Medicare or a Medicaid cut. So when you hear all this business about cuts, let me
caution you that is not what is going on.!#

If you didn't peek at the footnotes, you may have guessed that the previous quote
was from the Republicans in early 1995 when they proposed to reduce the growth of
Medicare spending. This quote is actually from President Clinton in a speech to the
American Association of Retired Persons (AARP) in 1993. Confusing rhetoric,
considering that the Republicans are proposing to do the same thing while the
administration is criticizing the Republicans for “cutting” Medicare and for using those
savings to pay for a tax cut for “the rich.” But the President's remarks were made two

1 GAO, High-Risk Series, December, 1992, p.7.
4 Address of President Bill Clinton to the American Association of Retired Persons, Culver City,
California, October 5, 1993.


202

2

In the 1993 Fiscal Year, Medicare processed almost 700 million claims, or nearly
(wo million per day. ‘That's 250 million more than it processed five years earlier. That's
nearly six times the number of tax returns processed by the Internal Revenue Service.
Physicians, supply companies, or diagnostic laboratories have about three chances out of
1,000 of having Medicare audit their billing practices in any given year.

In 1992, the General Accounting Office (GAO) reported that hospitals owed
Medicare over $170 million in overpayments, but contractors did little to reclaim the
money. The Health Care Financing Administration (HCFA), which contracts with 80
private insurance companies to process Medicare claims, moreover, was unaware of
contractor inaction because it had no systems to monitor this information, Contractors,
‘who are paid process paper and not to investigate claims, paid an estimated $2 billion in
claims that should have been paid by other health insurers.

‘The administration has recommended granting HCFA authority for competitive
open bidding of Medicare claims processing contracts to reduce costs, improve quality of
service, and eliminate inefficiencies and conflicts of interest. According to the
administration, savings could total $985 million over five years.

In 1992, GAO reported that Medicare was one of several government programs it
considered highly vulnerable to waste, fraud, abuse, and mismanagement. In early 1995,
GAO reported that HCFA “has made various regulatory and administrative changes
aimed at correcting flawed payment policies, weak billing controls, and deficient program
management. However, these worthwhile improvements still are not sufficient to protect
Medicare against continued program losses... the Medicare program remains highly
vulnerable to waste, fraud and abuse.”

‘The Medicare program is a sitting duck for con artists, thieves and credentialed
opportunists. Because of its size, complexity and lax management practices, the risks of
gaming the $177 billion Medicare system are worth taking because Medicare is where the
easy money is. Louis Freeh, director of the FBI, told a Senate subcommittee that the
health-care system is being infiltrated by corrupt criminal enterprises in this country.
Cocaine dealers are turning into health-care fraud entrepreneurs. Organized crime,
including the Russian Mafia, has also gotten involved in this high-tech pilfering of the
Treasury. According to Freeh, cocaine distributors in southern Florida and southern
California are turning into Medicare fraud junkies. The chance of being caught and
imprisoned are substantially less when defrauding the health-care system.

Medicare and health care fraud can be stopped. GAO compared what Medicare
actually paid providers against what would have been allowed by four commercial firms
that market computerized systems to detect miscoded claims, GAO invited each firm to
reprocess 200,000 statistically selected claims that Medicare paid in 1993. On the basis,
of this sample, GAO estimated that, had Medicare used this commercial software, the
government would have saved $3 billion over 5 years by detecting these billing abuses.


CON AH PF WH

RBREBRREBESSIRABDEBSRES

62

41

fully charged with a Federal offense and such indi-

vidual is avoiding prosecution or custody or confine-

ment after conviction of such offense or attempt.

“(b) SERVICE.—A subpoena issued under this section
may be served by any person designated in the subpoena
to serve it. Service upon a natural person may be made
by personal delivery of the subpoena to him. Service may
be made upon a domestic or foreign corporation or upon
a partnership or other unincorporated association which
is subject to suit under a common name, by delivering the
subpoena to an officer, to 4 managing or general agent,
or to any other agent authorized by appointment or by
law to receive service of process. The affidavit of the per-
son serving the subpoena entered on a true copy thereof
by the person serving it shall be proof of service.

“(e) ENFORCEMENT.—In the case of contumacy by
or refusal to obey a subpoena issued to any person, the
Attorney General may invoke the aid of any court of the
United States within the jurisdiction of which the inves-
tigation is carried on or of which the subpoenaed person
is an inhabitant, or in which he carries on business or may
be found, to compel compliance with the subpoena. The
court may issue an order requiring the subpoenaed person
to appear before the Attorney General to produce records,
if so ordered, or to give testimony touching the matter


86

Obviously, to the extent that we can reduce that $26-billion fraud
and abuse price tag, the less we will have to do in terms of consid-
ering curtailing or limiting any kind of services that are presently
provided.

So I would just point out also, Mr. Chairman, that, as I under-
stand it, your legislation is supported by the Health and Human
Services Inspector General, the General Accounting Office, and the
National Health Care Anti-Fraud Association. I think you are to be
commended for introducing this legislation and moving expedi-
tiously to see it enacted.

you.
(The prepared statement of Hon. William F. Clinger follows:]


121

s SERVICES

= STATEMENT OF
HELEN L. SMITS, M.D.


195

With respect to another essential ingredient, it is gratifying to see that in their
specification of deposits to the Health Care Fraud and Abuse Control Account,
H.R. 1850 and H.R. 2326 both stipulate that deposits from civil penalties and
damages shall be tunds “other than restitution.” As noted, that is an important
principle, and one that we hope the Subcommittee would consider applying more
broadly with respect to “proceeds of seizures and forfeitures of property.”

From the private payers’ standpoint, the potential problem inherent in establishing
such a self-funding mechanism for law-enforcement efforts is that it effectively
placas law enforcement and private-sector victims in a competition of sorts for the
assets available in any given case. Thus it is essential to incorporate adequate
restitution provisions up front

HAR. 2326

H.R. 2326 contains several measures that can benefit private payers directly and
others that can have a beneficial, if indirect, impact on private-sector cases. Ail
of these measures are contained in Title Il, "Revisions to Criminal Law."

Most notable from the private perspective are:

(1) the creation of the federal crimes of health care fraud and “false statements
felating to health care matters" and the establishment of strong penalties for their
commission;

{2) the application of “illegal remunerations" illegality to all-payer dealings, and
the establishment of a private civil cause of action for victims of such schemes.

Also of indirect benefit to private payers, to the extent that law enforcement
employs them in the course of private-payer cases, are the bill's enhanced law-
enforcement tools, specifically:

(1) the establishment of the crime of obstruction of criminal investigations of
health care offenses;

(2) the ability to obtain injunctive relief to bring ongoing fraud schemes to a halt;

(3) the availability of “authorized investigative demand procedures,” or
administrative subpoenas; and

(3). the ability of criminal prosecutors to share grand-jury information with their
civil counterparts.

Collectively, the establishment of these new violations and the provision of better
taw-enforcement tools can have both a beneficial impact on actual cases and a
deterrent impact on potential fraud perpetrators.


124

preventing the payment of $2.2 million in Medicare funds.

© The U.S. Attorney’s office, acting on information detailed
by HCFA contractors, has frozen more than $4 million in bank
accounts pending further investigation of several providers.

© As @ result of our coordinated effort to share information
on fraud activities with our contractors, the Florida
Medicare contractor conducted intensive medical review of
claims for outpatient therapeutic mental health treatment
programs. As a result of this review, the contractor denied
77 percent of services billed for 1994. Medicare saved $3
million in Dade and Broward counties alone in 1994.

HCFA hae also formed the Program Integrity Group to help identify
possible areas of program weaknesses and will help coordinate its
activities. The Program Integrity group consists of high level
HCFA officials whose expertise will help identify problems in the
Medicare and Medicaid provider enrollment process.

This group is currently examining ways cf limiting participation
of suppliers and providers to those that appear to be legitimate
business entities. When considering these options, however, we
are conscious of the need to asi 8 the reporting burden and
costs that new requirements may pose for honest providers.

Operation Restore Trust

‘The South Florida workgroup involved an unprecedented degree of
cooperation between public and private entities. Based on our
successful experience: in South Florida, HCFA and the Inspector
General have formed a new partnership of Federal and State
agencies to crack dovn on Medicare and Medicaid fraud and abuse.
We believe we can accomplish more by vorking together as partners
than we can each achieve alone with the same resources.

This partnership, Operation Restore Trust, is a demonstration
targeting five of the most populous states -- New York, Florida,
Illinois, Texas and California. These five states account for
nearly 40 percent of all Medicare and Medicaid beneficiarii
our partners include the Office of the Inspector Gener:
Administration on Aging, the Department of Justice, 5
government and private sector representatives.

‘The partnership will identify and penalize those who willingly
defraud the government. It will alert the public and industry to
known fraud schemes. The partnership will also help identity and
correct the vulnerabilities in the Medicare and Medicaid
programs. The initiative targets four types of health care
providers -- nursing facilities, hospices, home health agencies,
and durable medical equipment suppliers.



Com N AH Bw NS

10
11
12
13

15
16

18
19
20
21
22

24

31

10
ter by agencies designated by the Governor of the State
under section 102(a)(1) in conducting activities described
in that subsection.

(b) TiME OF PAYMENT.—The Inspector General shall
make a payment under subsection (a) for a quarter by
not later than 30 days after the end of the quarter.

(c) PAYMENTS ARE ADDITIONAL.—Payments to a
State under this subsection shall be in addition to any
amounts paid under section 106.

SEC. 104. HEALTH CARE FRAUD AND ABUSE CONTROL AC-
COUNT.

(a) ESTABLISHMENT.—There is established on the
books of the Treasury of the United States a separate ac-
count, which shall be known as the Health Care Fraud
and Abuse Control Account. The Account shall consist
of—

(1) the Health Care Fraud and Abuse Expenses

Subaccount; and

(2) the Health Care Fraud and Abuse Reserve
Subaccount.
(b) EXPENSES SUBACCOUNT.—
(1) ConTENTS.—The Expenses Subaccount
consists of—
(A) amounts deposited under paragraph
(2); and


156

So we have, on the penalty side, if the judges are willing to give
the severe sentences, the ability to get the severe sentences.

Mr. Suays. Would the gentleman just yield.

Mr. Fox. Certainly.

Mr. SHays. Under what basis, was it mail fraud or wire fraud
that you had to get him on?

Mr. STERN. Yes, you have to use mail fraud and wire fraud, ei-
ther one.

Mr. Suays. OK. Thank you.

Mr. Fox. Administratively, would you see any changes besides
the criminal penalties?

Mr. STERN. I don’t want to speak on HHS.

Dr. Smits. I think making it easier to exclude. Exclusion is a
very powerful penalty.

Mr. Fox. You mean prohibit—you mean, for those who violate,
whether it be hospitals or doctors, whatever, insurance companies,
that if they have defrauded the U.S. Government then they are
never allowed back in?
ri Smits. Right, or they are not allowed back in for 5 years or

years.

Mr. Fox. Do you think part of our strategy here, Congress work-
ing with the public, there needs to be greater publicity and priority
to the problem? I mean, do you think that’s part of the solution,
making it a public cause? For instance, national public service ad-
vertising saying you're a good American if you report this; you're
helping to save dollars for health care for those in need if you stop
the waste and abuse, and make it something that you hear from
every discipline.

Dr. Smits. People worry about it a lot but feel helpless. Yes, I
think some of that might be good.

Mr. Fox. A public ad campaign would not hurt either.

Dr. Smits. Yes. But I would like to go back to what I mentioned
early on, and that is, we need to look at the ownership issue; that
is, where a corporation defrauds and where we don’t move forward
with criminal cases against the individuals, we need to be certain
that we can track those individuals so they don’t get back into the
program in a reconstituted organization with a different name at
the top.

Mr. Fox. As Congressman Schiff was saying earlier, that’s one of
the problems we have. They go State to State. The legislation they
have, I think, addresses that.

Dr. Smits. Right.

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

Mr. Scuirr. If the gentleman would yield just 1 more second.

Mr. Fox. I will yield.

Mr. Scuirr. I think we have some FFovisions in H.R. 2326, sug-
gested by your agency, that directly address that issue.

Mr. Fox. Thank you, Mr. Chairman.

Mr. Suays. I thank the gentleman. I will call on Mr. Towns in
a second, but I’m going to just do my first round of questions.

First, just to clarify something, Mr. Stern, in the sentencing,
while the sentencing hasn’t been carried out, they have been found
guilty, what are the sentencing guidelines? What is the range the
judge has to work with?


179

Good Morning. 1 am Lovola Burgess from Albuquerque, New Mexico I am the
Immediate Past President of the American Association of Retired Persons (AARP) and a
‘Member of the Board of Directors. 1 appreciate the opportunity 10 appear before the
Subcommittee today to discuss H.R. 2326, the Health Care Fraud and Abuse Prevention
‘Act of 1995, and the fraud and abuse provisions included in the Republican House

Leadership’s Medicare proposal

Mr. Chairman, the American public views government's ability to address the growing
problem of fraud and abuse in our health care system -- particularly in the Medicare and
Medicaid programs ~- as a litmus test for government effectiveness and stewardship.
‘Showing the American public that we take the issue of fraud and abuse seriously and are
taking aggressive actions to curb the problem is necessary before they will be willing to

consider tougher actions to limit Medicare spending and reduce the deficit.

‘The Problem

‘The General Accounting Office (GAO) has estimated that fraudulent and abusive
activities represent as much as 10% of expenditures in our total health care system. This
could mean as much as $100 billion will be lost to fraudulent providers in 1995. In the
Medicare program alone, this could represent as much as $18 billion. In fact, no one
really knows exactly how much is lost to fraud and abuse -- it could be more, it could be

less.


CMU ON AW PR wWwH

nN NN KY YY eee Be ee ew ee
RBRPBBEBS SRF WIRARESRE

3

ment agencies, Federal and State agencies
responsible for the licensing and certifi-
eation of health care providers, and State
agencies designated under — subsection
(b)(1)(A); and

(ii) publish a deseription of the pro-
gram in the Federal Register, by not later
than June 30, 1996.

(B) ANNUAL INVESTIGATIVE PLAN.—Each

Inspector General referred to in paragraph (1)

shall develop an annual investigative plan for

the prevention, detection, and control of health

care fraud and abuse in accordance with the

program established under subparagraph (A).

(4) CoNSULTATIONS.—Each of the Inspectors

, General referred to in paragraph (1) shall regularly

consult with each other, with Federal, State, and

local law enforcement agencies, with Federal and

State agencies responsible for the licensing and cer-

tification of health care providers, and with Health

Care Fraud and Abuse Control Units, in order to

assist in coordinating the prevention, detection, and

control of health care fraud and abuse in violation

of any Federal law.

(b) STATE ENFORCEMENT.—

HR 1850 TH


Physicians, supply companies, or diagnostic laboratories have about three chances
‘out of 1,000 of having Medicare audit their billing practices in any given year according
toGAO. With this litle oversight, white-collar criminals view the meager fines and
penalties as merely the "cost of doing business.” Organized crime and violent criminals
are taking the lead of white-collar criminals and getting off the street and into an office.
Instead of using armor-piercing bullets, white-collar thugs use pocket protectors and fax
machines, Health-care fraud is a crime and must be treated as such. The criminalization
of health-care fraud must be the first step. A few high profile cases with long terms of
incarceration is the only way to send a message that this type of crime won't pay.

CAGW is concerned with a few provisions in this legislation, The bill requires
audits and reports to Congress by a number of agencies. This could have the effect of
fragmenting investigations, which could weaken enforcement. Spreading the
enforcement activities could have a deleterious effect of the final goal of eliminating
waste, fraud, and abuse in health care. The goal should be to bring the auditors together,
not separate them.

‘The federal government already knows how to audit. The HHS IG's 1995 Red
Book shows that they know where the money is being wasted. There are more than 30
recommendations in the 1G's Red Book that CAGW has endorsed, which could save
more than $14 billion. For example:

‘+ assess payment for oxygen concentrators
One-Year Savings = $568 million Five-Year Savings ~ $4.2 Billion

+ stop inappropriate payments for incontinence supplies
‘One-Year Savings = $107 Million Five-Year Savings = $535 Million

«Take steps to prevent inappropriate payments for physical therapy in physician's
offices.
‘One-Year Savings = $47 Million Five-Year Savings = $235 Million

+ Reduce Medicare payments for hospital outpatient services,
One-Year Savings = $90 Million Five-Year Savings = $645 Million

Tencourage and urge the members of this pane! to look at those recommendations
before creating any new bureaucracies to do virtually the same thing.

Putting the power of detection in the hands of the people who receive the care is a
crucial step in ensuring that Medicare survives for future generations. This bill
recognizes the importance of making the beneficiaries the critical point in detecting
waste, fraud, and abuse. Streamlining whistle blower procedures is also important. If
complaints get bogged down without any response, fewer and fewer people will be
inclined to blow the whistle in the future.


189

Dr. smits.

Many of the provisions of H.R. 2389 are included in H.R. 2425,
the "Medicare Preservation Act of 1995". Comments on H.R. 2425
follow.

‘The Health Care Financing Administration (HCFA) is committed to
combatting waste, fraud and abuse in the Medicare and Medicaid
programs. HCFA is continuing its acknowledged leadership in
using innovative and aggressive strategies while we work closely
with our contractors, law enforcement partners and the States.
HCFA‘’s role is to prevent and detect fraud and abuse, but it is
the HHS Office of Inspector General (OIG) and the Department of
Justice (DoJ) that must prosecute and enforce the laws. Thus,
federal partnerships that bring together the best thinking and
the best practices are the key to reducing fraud and abuse.

Focusing on Fraud: The South Florida Workgroup

A successful partnership was created to tackle serious fraud and
abuse problems in South Florida. Medicare and Medicaid
expenditures in Florida are among the highest in the nation, and
fraud and abuse is a serious factor in a variety of health care
settings. To address this problem, we established a joint
initiative including HCFA, our claims payment contractor, the
Florida State Medicaid agency, the HHS Office of the Inspector
General, and the Florida Attorney General's Office Medicaid Fraud
Control Unit. The workgroup has identified over $100 million in
savings and recoupments over five months.

Operation Restore Trust

The South Florida workgroup involved an unprecedented degree of
cooperation between public and private entities. Based on our
successful experience in South Florida, HCFA and the Inspector
General have formed a new partnership of Federal and State
agencies - Operation Restore Trust - to crack down on Medicare
and Medicaid fraud and abuse. We believe we can accomplish more
by working together as partners than we can each achieve alone
with the same resources.

The partnership will identify and penalize those who willingly
defraud the government. It will alert the public and industry to
known fraud schemes. The partnership will also help identify and
correct the vulnerabilities in the Medicare and Medicaid
programs. Tactics include stepping up criminal investigations,
civil and administrative penalties, and recovery actions.
Operation Restore Trust which is currently a five state
demonstration project illustrates that collaboration and
cooperation provides a multiplier effect. This lesson will be
most helpful as we intensify Operation Restore Trust.



147

Statement of Representative Gene Green
Subcommittee on Human Resources and Intergovernmental Relations
September 28, 1995

Thank you Mr. Chairman for calling this hearing
on Medicare fraud and abuse. As a co-sponsor of both
H.R. 2326 and H.R. 1850, I am pleased to have this
opportunity to discuss these bills in greater detail. The
bipartian efforts of last year have served as a starting
block for this year’s legislation and [ would commend
my Ranking Member, Mr. Towns of New York and
Mr. Schiff of New Mexico for their efforts.

It has been estimated that Medicare/Medicaid fraud
and abuse costs the taxpayers up to 10% of our yearly
federal health care expenditures. We need to clarify
federal jurisdiction over who should investigate and
prosecute fraud and follow up more closely to assure

that fraudulent providers cannot re-enter the system.


245

There is a dichotomy. There are many in Congress, and, of
course, many of our fellow citizens who say, “Let’s have more con-
victions. Let’s have more prosecutions.” And then, “Let’s cut the
budgets of those agencies that are doing that.” Well, they are
dreaming. If you want more investigations and prosecutions, allow-
ing for the fact that they have to look at how they can do things
better, you had better fund the agencies or it’s just not going to
happen.
yield back. I thank the gentleman.

ir. SHAYS. Does the gentleman have a comment?

Mr. GREEN. One other question. On page 4 of your report, and,
again, I like the report, and it goes with, T guess, the tenor of my
concern that the rhetoric sometimes in Congress gets ahead of the
real effort to solve the problem. I think some of our groups are en-
gaged in that oftentimes. I think, on this issue, we don’t need a lot
of rhetoric; we need to deal with passing the legislation, as we
talked about. I would hope that we could work together on it.

On page 4, where it says, “Despite this evidence of fraud and
waste and failure to take adequate steps to eliminate the abuses,
rhetoric and denial are postures of choice in Washington. Some
Members of Congress, along with their outside supporters, claim
there is no crisis. Others argue that the Federal! Government—”
again, you can say the level of crisis, but there’s a crisis, I think,
in Medicare fraud, and there’s no doubt about that. And that needs
to be dealt with.

Now, whether it’s 2002, or we can deal with Medicare overall and
say 2005, 2006, but fraud needs to be dealt with this year and not
necessarily in the overall. Again, sometimes we get in the same po-
sition as you do, and sometimes our rhetoric gets ahead of the is-
sues that we can probably do something about. I think we can,
bipartisanly, deal with fraud, waste, and abuse, without necessaril:
getting into, you know, $270 billion, or whatever we want to tall
about.

Thank you, Mr. Chairman.

Mr. SuHays. Well, I thank the gentleman. I will just echo his com-
ments that this clearly is something where it is, to use the words
of someone, a no-brainer for all of us.

In one of the reports of the GAO, in the short summary, they
say, “This final audit report points out that 26 percent of Florida
home health agencies’, HHAs, claims approved for payment by fis-
cal intermediaries in February 1993 did not meet Medicare reim-
bursement requirements.” Would you be surprised to read that
number of 26 percent, just slightly over a quarter, would any of you
be surprised?

Mr. Scuatz. No. I think that’s one of the reasons why, when we
say 10 percent, and certainly in some areas it’s going to be more
than 10 percent; in other areas it’s going to be less, that that is
certainly a conservative number.

Mr. SHays. One of the ways that the Republicans hope to slow
the growth of Medicare is to get more savings out of waste, fraud
and abuse.

My sense is, that that 10 percent number is very small. And it
leads me, Mr. Mahon, to the whole concept of the all-payer. I just
want a succinct statement again for why the all-payer is important


153

penalties must be placed on the employers of excluded
providers who bill Medicare. Lastly, we must take
advantage of technological advances to meet the
challenges of increasingly sophisticated fraudulent

schemes.

In response to these reform needs, my colleagues and
I introduced H.R. 2326, "The Health Care Fraud and
Abuse Prevention Act of 1995." This hearing is of vital
importance in addressing the inherent problems in our
health care system. I look forward to hearing from
today’s witnesses as we explore efforts that are part of a

solution to the crisis facing Medicare and Medicaid.


46

25
(b) DEVELOPMENT AND PUBLICATION OF DESCRIP-
TION OF PROGRAM.—Section 101(¢)(1) shall take effect
on the date of the enactment of this Act.
TITLE II—REVISIONS TO
CRIMINAL LAW

SEC. 201. DEFINITION OF FEDERAL HEALTH CARE OF-
FENSE.

(a) IN GENERAL.—Chapter 2 of title 18, United
States Code, is amended by adding at the end the follow-
ing:

“§24, Definition of Federal health care offense

“(a) As used in this title, the term ‘Federal health
care offense’ means—

“(1) a violation of, or criminal conspiracy to

violate section 226, 227, 669, 1035, 1347, or 1518

of this title;

“(2) a violation of, or criminal conspiracy to

violate section 1128B of the Social Security Act (42

U.S.C. 1320a-7b);

“(3) a violation of, or criminal conspiracy to

violate section 201, 287, 371, 664, 666, 1001, 1027,

1341, 1343, or 1954 of this title, if the violation or

conspiracy relates to a health care benefit program;

“(4) a violation of, or crimina! conspiracy te

violate section 501 or 511 of the Employee Retire-


247

U.S. DEPARTMENT OF LABOR

SECRETARY OF LABOR
WASHINGTON, DC.

oct 10 (955

‘The Honorable Christopher Shays
Chairman
Subcommittee on Human Resources

and Intergovernmental Relations
Committee on Government Reform and oversight
House of Representatives
Washington, D.C. 20515

Dear Chairman Shays:

While we have not completed our examination of its impact on
the Department of Labor's programs, we wish to express our views
on H.R. 2326, the "Health Care Fraud and Abuse Prevention Act of
1995." We believe this legislation takes necessary steps to
provide tougher defenses against fraudulent practices that drive
up the cost of health care. We recognize that billions of
dollars have been lost to health care fraud and abuse in the last
few years.

We note that 18 U.S.C. 24(a)(4), as amended by section
201(a) of this bill, would define “Federal health care offense”
to include “a violation of, or criminal conspiracy to violate
section 501 or 511 of the Employee Retirement Income Security Act
of 1974 (29 U.S.C 1131 or 29 U.S.C. 1141), if the violation or
conspiracy relates to a health care benefit program." A “health
care benefit program," in turn, is defined under 18 U.S.C. 1347,
as added by section 202(a) of this bill, to mean “any public or
private plan or contract under which any medical benefit, item,
or service is provided to any individual, and includes any
individual or entity who is providing a medical benefit, item, or
service for which payment may be made under the plan or
contract." Although the term “private plan" is not defined in
this bill, we are concerned that the bill could be broadly read
to include all health plans covered by the Employee Retirement
Income Security Act (ERISA). If the bill is interpreted in this
manner, its sanctions would apply to offenses committed against
private sector employment-based health benefit plans.

There are approximately 4.5 million such ERISA health plans,
providing coverage for about 120 million workers and their
families with private employment-based health coverage. Given
the significant impact H.R. 2326 as written would have on our
ERISA responsibilities and the scale of the ERISA plan universe,
we believe that this legislation should reflect the Secretary of
Labor's important role in health care enforcement. We suggest
revising the bill to make the Secretary of Labor also
responsible, to the extent ERISA plans will now be covered for

1


poe

Looking Glass

A CAGW SPECIAL REPORT)

MEDICARE FRAUD:
TALES FROM THE GYPPED

August 23, 1995

ee

1301 Connecticut Ave., NW, Suite 400, Washington, D.C., 20036 (202) 467-6300


226

18+

settlement, he agreed not to bill Medicare or any state health care program for 2
years."80

NURSING-HOME AND HOME-CARE FRAUD

Federal investigators are targeting what investigators call the fastest-growing area
of Medicare and Medicaid fraud: nursing homes and home-care agency fraud. While the
amount of nursing home and home-care fraud is unknown, “nursing home and home-care
payments totaled $55 billion in 1993 -- up from $38 billion in 1990."*" It is fertile
‘round for the unscrupulous opportunist.

Investigators have targeted DME scams involving hospitals and doctors for years,
but "many of the new cases involve the use of such equipment in nursing homes and
home care agencies."®? Home-care agencies have often been implicated for billing
Medicare or Medicaid for services never provided to patients or billing for services
rendered by untrained, unqualified staff. In some cases, Medicare and Medicaid funds
have been used to support other business interests of the home-care owners.

¥ According to Bill Lucas, HHS inspector general for the Texas region, 10 home health
agencies are being actively investigated. The suspected frauds average about $2
million.®

3 Gordon Barker of Michigan was indicted on nine counts of mail fraud, money
Jaundering, and conspiracy in what prosecutors said was $3.4 million in false
Medicare claims involving a home-care agency that Barker ran. According to the
indictment, “Barker sought reimbursement for physicians’ services when no
physicians were on staff."

"In Louisiana, Linda Faye Jenkins, Patricia May Sanders and four other people
pleaded guilty and are awaiting sentencing on charges that they funneled Medicare
and Medicaid money from a home health agency into dummy companies."#S

In Minnesota, speech therapist Gary Lee Huff, pleaded guilty to mail fraud involving
fraud against Medicare and Medicaid and was sentenced to 16 months of
incarceration. He contracted with a therapy company to bill Medicare and Medicaid
for his work in several nursing homes. Investigators say that on at least two.
‘occasions, Huff billed for nearly 20 hours of speech therapy per day with nursing
hhome patients. On another occasion, he billed for using flash cards with a blind
patient. He also claimed to have provided speech therapy to a patient several days



SCO wm YA UH eR wWDND

2

the Department of Defense, the Department of
Labor, the Office of Personnel Management, and the
Department of Veterans Affairs shall conduct au-
dits, civil and criminal investigations, inspections,
and evaluations relating to the prevention, detection,
and control of health care fraud and abuse in viola-
tion of any Federal law.

(2) PowERs.—For purposes of carrying out du-
ties and responsibilities under paragraph (1), each
Inspector General referred to in paragraph (1) may
exercise powers that are available to the Inspector
General for purposes of audits,. investigations, and
other activities under the Inspector General Act of
1978 (5 U.S.C. App.).

(3) COORDINATION AND REVIEW OF ACTIVITIES
OF OTHER FEDERAL, STATE, AND LOCAL AGEN-
CIES.—

(A) ProGRaM.—The Inspector General
shall—

(i) jointly establish, on the effective
date specified in subsection (j)(1), a pro-
gram to prevent, detect, and control health
care fraud and abuse in violation of any
Federal law, which considers the activities

of Federal, State, and local law enforce-


240

But we need your help. If we're going to get in this legislation,
instead of waiting until a year from now or 10 years from now,
we're going to need everyone who is interested in this subject to get
the attention of the Ways and Means Committee right at this mo-
ment. So that’s what I would be grateful from all three of your

groups.

With that, I thank the witnesses for their testimony and yield
back, Mr. Chairman.

Mr. Suays. I thank the gentleman.

Mr. Towns.

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

Let me, I guess, ask, “in your opinion,” because of the type of
question that it is. Of course, you know, in terms of Medicaid, in
particular, that the States will be receiving a lump sum to carry
out obligations and responsibilities. Being that they will have a
lump sum, and of course this lump sum will be less than what they
are getting now, do you think that, as a result of States trying to
meet their health care needs, they just might forget about law en-
forcement?

Mr. Scuatz. If I could address that first, Mr. Towns.

Mr. Towns. Sure.

Mr. ScHATz. It seems to me that they would have more ineentive
to detect and prosecute fraud because of the fact that they are get-
fing less money. They have to provide more with really less, if you
look at it. The point of working, I think, through a lot of these pro-
grams, overall, in this Congress, is that the money that reaches the
beneficiaries, at this time, goes through lots of layers, through the
Federal and State Governments, until it really reaches the people
it needs to reach.

One of the things that I believe the leadership, and there is, in
fact, a lot of bipartisanship over this, providing the States with the
money, is to give them both the responsibility and the incentive to
use that money more efficiently than it’s being used right now. And
I would certainly hope, in your role as the oversight subcommittee
on these issues, that you would make sure that that is being done.
Because certainly, if they are throwing the money away and they
come back here and ask for more, it’s not going to happen under
the current budgetary scheme.
he, can’t guarantee it; I just think, honestly, that’s what’s going to

pen.

Mr. Towns. Yes. Mr. Mahon.

Mr. Manon. I think it’s too soon to know all the implications or
the repercussions of it, Mr. Towns. But I certainly hope they would
adopt the point of view that Mr. Schatz outlined; that is, that they
need to safeguard as much as they can of every dollar they are get-
ting in these block grants.

Most of the States have existing Medicaid fraud control units in
place, so you would think and hope that they would simply keep
those units in place and have to restructure the flow of money into
those units. Rather than shared by Federal and State, presumably,
they would be funded by the State out of the block grant.

‘he only reason I’m not certain that would happen is because we
have examples, at the Federal level, of the HHS ics investigations
budget being cut year after year, so there is certainly precedent in


Cwm NAH eR WND

40

19
(C) The nature of the final adverse action.
(D) A description of the acts or omissions
and injuries upon which the final adverse action
was based.
(E) Such other information as required by
the Secretary.

(3) CONFIDENTIALITY.—The Secretary shall es-
tablish procedures to assure that in the submission
of information under this subsection the privacy of
individuals receiving health care services is appro-
priately protected.

(4) FORM AND MANNER OF REPORTING.—The
information required to be reported under this sub-
section shall be reported on a monthly basis and in
such form and manner as determined by the Sec-
retary. Such information shall first be required to be
reported on a date specified by the Secretary.

(5) TO WHOM REPORTED.—The information re-
quired to be reported under this subsection shall be
reported to the Secretary or such person or persons
designated by the Secretary.

(c) CORRECTION OF ERRONEOUS INFORMATION.—

(1) DISCLOSURE AND CORRECTION.—The Sec-
retary shall provide for a procedure through which

a person, to whom information within the data base


120

medical equipment is not satisfactory. We should not be paying
more than market prices, and we are very eager to work with the
appropriate committees on improving payment. I think we have
never thought of payment policy as part of fraud prevention before,
but it is. It is a very important part.

Legitimate suppliers, if we are paying too much, go ahead and
charge us too much, but it does make @ very tempting attraction
to the illegitimate, and it is important that we focus on that.

Early detection means working collaboratively with the law en-
forcement agencies to understand the principles, and to understand
what we ought to be looking for. It means listening very carefully
to beneficiaries and encouraging beneficiaries to tell us when they
see trouble. It means using all the eyes and ears we have.

One of Ms. Berek’s really important innovations is that we are
in the process of training the nursing home surveyors, not to be-
come cops, but to Spot potential fraud and to report it to the IG
when they spot it. We have eyes out there in a part of the indust1
where we know there are problems; we need to use those eyes well.

We also are moving into an era of improved computer models
and computer methods to detect fraud. We will be starting with a
new process called “AdminiStar,” which will improve many of the
screens that we use on claims, as of January 1. But what we really
see is a steady improvement over the next 4 or 5 years.

One of the things that I look forward to the most is that we real-
ly are close to the point where you can use high-speed computers
and what is called “fuzzy logic,” where the computer itself is detect-
ing the aberrant patterns.

‘hat has great advantages in terms of not allowing the fraudu-
lent provider to learn the pattern he is supposed to avoid. So I
think our methods are getting better all the time, and I think we
will see marked improvement in that area.

The heart of both prevention and early detection, though, as
again Ms. Berek has taught me, is, don’t pay and chase. In fact,
don’t pay when there is a question, because it is easier to hold on
to the money than it is to pay it out and recoup it.

So, as I say, I think we are only at the beginning of really getting
good at some of this, but with the kind of additional resources in
the various bills that have been proposed and the kind of continued
collaboration across agencies that we have started without man-
dates, but that we are happy to have mandated, that we will con-
tinue to improve and continue to rescue money which, I certainly
agree, needs to be available to provide care to our elderly and to
some of our most vulnerable citizens.

Thank you.

[The prepared statement of Dr. Smits follows:]


214

-6-

COMBATING HEALTH-CARE FRAUD

Attomey General Janet Reno has made health-care fraud her number two new
initiative after violent crime. "For the first time, there are criminal and civil health care
fraud coordinators in each United States Attorney's Office. By the end of the year, most
offices will be sponsoring health care fraud working groups.... At present, the FBI is
expending approximately 300 FBI agent work years handling these cases, up from 163
FBI agent work years at the end of last fiscal year. The FBI anticipates that this number
‘could rise to 450 by the end of the next year. As of June 1994, the FBI had 1,361
pending health care fraud cases, up from 657 in November 1992.""7

‘The Department of Justice had 1,041 criminal health care fraud matters open in
August 31, 1994, a 158 percent increase over the 621 matters pending in fiscal year 1993.
Eight hundred and ninety-nine civil health care fraud matters were pending as of August
31, 1994, a 119 percent increase over the 411 pending in fiscal year 1993."'8

The numbers of defendants charged and convicted have also increased. As of
August 1994, 224 defendants have been charged, a 67 percent increase over the 157
charged in fiscal year 1993. The number of defendants convicted also increased during
this period, and there were often long sentences. For example: two men who had
perpetrated a health care fraud in California involving millions of dollars and 1,400
insurance companies were sentenced to more than 20 years’ imprisonment each, plus
‘restitution and forfeiture orders.'®

GAO not only identifies problems with Medicare but it is also exploring possible
solutions. "We compared what Medicare actually paid providers against what would
hhave been allowed by four commercial firms that market computerized systems to detect
miscoded claims. We invited each firm to reprocess 200,000 statistically selected claims
that Medicare paid in 1993. On the basis of this sample, we estimated that, had Medicare
used this commercial software, the government would have saved $3 billion over $ years
by detecting these billing abuses."?0

‘Combating Medicare fraud is not a quixotic exercise. Fraud and abuse can be

17 Statement of Gerald M. Stem, Special Counsel for Heakh Care Fraud, before the House Small Business
Subcomminee on Regulation, Business Opportunities and Technology, October 12, 1994, pp. 1-2
idem.
19 Idem.
2% GAO, Medicare, Modern Management Strategies, p. 4.


Ra oe SS

RBREBBEBSSERVDRABDBEBEREAS

19

15
General of the Department of Health and
Human Services; and
(B) 10 members appointed by the Inspec-
tor General of the Department of Health and

Human Services to represent Health Care

Fraud and Abuse Control Units, of whom one

shall be appointed—

(i) for each of the 10 regions estab-
lished by the Director of the Office of
Management and Budget under Office of
Management and Budget Circular A-105,
to represent Units in that region; and

(ii) from among individuals _ ree-
ommended by the heads of those agencies
in that region.

(3) TERMS.—The term of a member of the
Board appointed under paragraph (2)(B) shall be 3
years, except that of such members first appointed
3 members shall serve an initial term of one year
and 3 members shall serve an initial term of 2 years,
as specified by the Inspector General at the time of
appointment.

(4) VaACANCIES.—A vacancy on the Board shall
be filled in the same manner in which the original

appointment was made, except that an individual ap-

*HR 1850 TH


a a

RNR NYY Fe ee eke Bee ee
BONS = SF ©DHAKDAARBHAS

14

10
(ij) amounts transferred from the Re-
serve Subaccount and deposited under
paragraph (3)(B).

(B) Deposirs.—Exeept as provided in

paragraph (3)(A), there shall be deposited in

the Expenses Subaccount all amounts received

by the United States as—

HR 1850 IH

(i) fines for health care fraud and
abuse in violation of any Federal law;

(ii) civil penalties or damages (other
than restitution) in actions under section
3729 or 3730 of title 31, United States
Code (commonly referred to as the ‘False
Claims Act’), that are based on health
eare fraud and abuse in violation of any
Federal law;

(ili) administrative penalties under the
Social Security Act:

(iv) proceeds of seizures and forfeit-
ures of property for acts or omissions that
constitute health care fraud or abuse in
violation of any Federal law; and

(v) money and proceeds of property

that are accepted under subsection (f).


(ON HONORED FOURTH CONDRESS

Congress of the United States
Pouse of Representatives
COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT
2187 Ravounn House Orrec BuLoNG
WassnoTon, OC 20615-6143,

STATEMENT OF REP. CHRISTOPHER SHAYS
CHAIRMAN, SUBCOMMITTEE ON HUMAN RESOURCES.
AND INTERGOVERNMENTAL RELATIONS,

COMBATTING FRAUD AND ABUSE AGAINST HEALTH CARE PROGRAMS
WITH LEGISLATION TO ENHANCE PREVENTION AND ENFORCEMENT TOOLS:

September 28, 1995

‘The purpose of today's hearing is to examine legislation to fight fraud and abuse in health
care programs: HR. 2326, ‘The Health Care Fraud and Abuse Prevention Act of 1995,”
introduced recently by the gentleman from New Mexico, Mr, Schiff, and H.R. 1850, “The Health
Fraud and Abuse Act of 1995,” introduced in June by the gentleman from New York, the Ranking
‘Member of this subcommittee, Mr. Towns.

This is the fourth hearing of this subcommittee on health care fraud and abuse. What we
learned in past hearings compels our consideration of these bills today. We learned how easy itis
for scam artists to steal enormous amounts of money from public and private health plans.

‘We've heard about’ the rip-off of Medicaid in New York to the tune of $150 million a
‘year in prescription drug diversion, the two provider firms who submitted false claims to federal
health programs, psi fines and settlements of $379 million in one case and $111 million in
‘another, and yet continue to bill Medicare and Medicaid; and the Medicare program often paying
more than market prices for medical services and supplies. Nearly $1 billion per year could be
saved on oxygen concentrators alone if Medicare paid the same lower price as paid by the
Veterans Affairs Department.

‘We've also heard the numbers. Of the more than 1 trilion spent by our nation on health
care this year, the Department of Justice estimates that up to 10%, or $100 billion, is siphoned off
by those who prey on the system, That's $274 milion lost each day!

Medicare and Medicaid, representing about one-fourth of the nation's health care bill,
‘could lose up to $26 billion this year, ot $71 million a day, from fraud and abuse. Losses of this
magnitude pose a major threat 10 the solvency of these essential programs. Yet, as these
programs grow, the losses continue to grow. We're losing the battle.


132

Mr. Chairman and other Members of the Subcommittee
Thank you very much for this opportunity to discuss
health care fraud enforcement and two bills pending before the

Subcommittee: H.R. 2326, the

ealth Care Fraud and Abuse
Prevention Act of 1995," and H.R. 1850, the "Health Fraud and
Abuse Act of 1995."

Health care fraud imposes an enormous cost to the health
care system and to our nation's economy as a whole. Indeed, it
may presently account for as much as 10 per cent of all health
care expenditures, or as much as $100 billion each year. Health
care fraud can also undermine the quality of health care provided
to patients, and at the same time increase the cost of care, a
price paid by individual consumers, health plans, and American
taxpayers.

For these reasons, the Attorney General in 1993 named health
care fraud enforcement her number two new initiative, behind
violence crime. Since then the Department has had a coordinated
health care fraud enforcement program, which involves increased
resources, increased investigations and prosecutions, greater
cooperation among investigative and regulatory agencies, and
coordinated use of all available sanctions -- criminal, civii,
and administrative.

From fiscal year 1993 to fiscal year 1994, the Department of
Justice, through its coordinated initiative against health care

fraud, increased health care fraud convictions from 73 cases to


110

Separation of MFCUs from the Medicaid agency was considered a critical component of
P.L. 95-142, which created the state Medicaid fraud control unit program.Congress recognized
that law enforcement functions can best be accomplished by law enforcement agencies. Further,
in analyzing the reasons for the Medicaid agency's failure to adequately police the program,
Congress recognized that there ‘were inherent obstacles. For example, the responsibility of
administering the program necessitates a close association with the provider community. This
is incompatible with and detrimental to the policing function.

‘The MFCU program has many of the currently discussed characteristics of a block grant
program. Most significant is the states’ ability to adopt individual enforcement approaches. The
philosophy of current federal grant oversight is to require each state to maintain the resources
necessary to operate an effective and efficient Medicaid Fraud Control Unit. We strongly urge
that this practice continue and be a requirement for any future block grant programs involving
Medicaid.

If the Medicaid statute is rewritten to block grant Medicaid funds, we believe that the
following requirements for state MFCUs, while not all inclusive, should be maintained:

© separate and distinct Unit funding status from the state agency that administers the

Medicaid program;

© strictly defined mission statement reflecting current grant oversight

requirements;

© funding and authority to continue patient abuse investigations and prosecutions;

© the Unit should be a single identifiable entity with staffing by experienced

attomeys, auditors and investigators;

© federal grant oversight by OIG/HHS; and

. Unit funding levels should be maintained.

6


69

48
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply with respect to sanctions imposed
for acts or omissions occurring on or after the date of the
enactment of this Act.
SEC, 302, SOLICITATION AND PUBLICATION OF MODIFICA-
‘TIONS TO EXISTING SAFE HARBORS AND NEW
SAFE HARBORS.
(a) IN GENERAL.—

(1) SOLICITATION OF PROPOSALS FOR SAFE
HARBORS.—Not later than one year after the date
of the enactment of this Act and not less than every
2 years thereafter, the Secretary of Health and
Human Services (hereafter in this title referred to as
the “Secretary”) shall publish a notice in the Fed-
eral Register soliciting proposals, which will be ac-
cepted during a 60-day period, for—

(A) modifications to existing safe harbors
issued pursuant to section 14(a) of the Medi-
eare and Medicaid Patient and Program Protec-
tion Act of 1987; and

(B) additional safe harbors specifying pay-
ment practices that shall not be treated as a
criminal offense under section 1128B(b) of the
Social Security Act and shall not serve as the


‘When CAGW published its Medicare fraud report, we had a number of
recommendations on how to eliminate waste, fraud, and abuse. Most important is the use
of market forces in public health care. Allowing Medicare and all health-care providers
to price services and procedures more competitively will bring costs down and eliminate
waste.

Other CAGW recommendations include:

Take steps to better protect Medicare from fraudulent provider billing practices, such
as revise and strengthen national standards that suppliers and other providers must
‘meet in order to renew a Medicare provider number, prohibit Medicare from issuing
more than one provider billing number to an individual or entity, require Medicare to
establish more uniform national coverage and utilization policies for what is
reimbursed under Medicare, and require HCFA to review and revise its billing codes
for supplies, equipment, and services in order to update, clarify, and standardize
billing codes;

‘+ Enact legislation to assure HCFA can adequately and consistently fund contractors’
safeguard activities; and

+ Require HCFA to assume a more active management posture over contractors’
program operations

‘The Schiff/Shays bill sends the message to Medicare criminals that there is a new
sheriff in town. We urge this Committee to move rapidly to bring this legislation before
the full House. If you don't take the right steps now, there may never again be such an
‘opportunity. This concludes my testimony.

ll be pleased to answer any questions you may have.


24

3

1 TITLE I—COORDINATION OF

2 FEDERAL ENFORCEMENT

3. SEC. 101, FEDERAL ENFORCEMENT BY INSPECTORS GEN-
4 ERAL AND ATTORNEY GENERAL.

5 (a) AupDiITS, INVESTIGATIONS, INSPECTIONS, AND
6 EVALUATIONS.—

7 (1) IN GENERAL.—Except as provided in para-
8 graph (2), the Inspector General of each of the De-
9 partment of Health and Human Services, the De-
10 partment of Defense, the Department of Labor, the
i Office of Personnel Management, and the Depart-
12 ment of Veterans Affairs, and the Attorney General
13 shall conduct audits, civil and criminal investiga-
14 tions, inspections, and evaluations relating to the
15 prevention, detection, and control of health care
16 fraud and abuse in violation of any Federal law.

17 (2) LimiraTION.—An Inspector General, other
18 than the Inspector General of the Department of
19 Health and Human Services, may not conduct any
20 audit, investigation, inspection, or evaluation under
21 paragraph (1) with respect to health care fraud or
22 abuse under title V, XI, XVIII, XIX, or XX of the
23 Social Security Act.

24 (b) PowERS.—For purposes of carrying out duties

25 and responsibilities under subsection (a), each Inspector


143

terms of all these different agencies investigating the same situa-
tion and, of course, using techniques and skills that sometimes can
waste our dollars.

f Has anyone talked about the coordination of these kinds of ef-
forts?

Dr. Smits. One of the reasons I described it the way I did, in
terms of prevention, early detection, and treatment, is to make
clear that HCFA’s responsibility is, in a sense, to be the CDC of
fraud. We should be brilliant at early detection and at prevention.
We are not investigators; we do not develop cases. We learn from
our colleagues, because we get better at prevention if they teach us,
but we have no-desire-to take over those activities. We need to con-
tinue to work together.

It really is like medicine. If all the attention and all of the re-
sources are on treatment, then we will continue to get the disease;
we will all develop the disease. If we really can put some of the
resources and some of the attention back to the preventive side, we
will all be ahead, because money we don’t spend is money we still
have for the Government and for the patients who need it.

Mr. Towns. I agree with you. I just want to make certain the
point is clear that information that you have, that we would make
certain that information flows to the various agencies that need
that information to be able to help correct whatever the problem
might be. That’s the thing I’m talking about. I think that, if that
happens, I think youre right; I think we can prevent some things
from happening. At the same time, I think that, if they do occur,
we don’t waste resources in terms of dealing with it.

We've had some stories where law enforcement offices have
locked up each other, that kind of thing. That’s a waste of re-
sources. Bo we don’t want to continue that, because we can’t afford
the luxury of that. That’s the reason I’m saying, make certain that
information flows where it should flow so we don’t have those kinds
of problems.

Dr. Smits. Feedback is very important. I have staff who say, “Oh,
Ive referred a whole lot of cases to the Inspector General, and
nothing happens.” In tracking some of what they have referred, we
found there are major cases going forward, and we need to know
about that. We need eno feedback to know what information
helps and what doesn’t. I think that loop is much better now, and
I think bills that mandate us to maintain that loop are very impor-
tant.

Mr. Towns. As both of you know, the House and Senate have

assed Medicare and Medicaid reform initiatives, intending to cut

‘ederal support for these programs by over $450 billion over 7
years. How would these initiatives impact your current fraud and
abuse enforcement efforts, and what is your understanding of how
this legislation fits into the reform plans? I ask both of you that.

Dr. Smits. It’s very hard to say, particularly because of the dra-
matic change in the structure of the Medicaid program. By making
the Medicaid program different across States, it would make our
cooperation even harder to come by.

I hadn’t really thought about the Medicare proposals in that con-
text. I wouldn’t see that it specifically makes it more difficult, al-
though I would agree that provisions which help us, particularly


239

Mr. SHays. My staff tells me that much of what’s in that book
deals with the whole market pricing issue, a good amount of it. So
while we focused a lot on the issue of criminal law, the market
pricing issue, to me, is just getting reinforced, evidently, in that

ok.

Mr. Schiff, we will start with you.

Mr. Scuirr. Thank you, Mr. Chairman. Mr. Chairman, I’m going
to be brief, because I think the witnesses’ testimony stands for it-
self. But I want to make a point that you were getting at a moment

0.

We have several factors converging at once. The first is, we know
that Medicare is going to be addressed immediately, in some fash-
ion, in legislation, because it has to be. That’s not actually advocat-
ing one side’s policy versus another but recognizing it has to be ad-

ress

Second, we know that health care fraud has to be addressed at
the same time, and that is the present plan in the Budget Rec-
onciliation Act.

By the way, I drafted this legislation with Congressman Shays,
broadly, for all health care. It was suggested that it was overly
broad; the U.S. attorneys will never get to every case. That may
be trué, but why should we limit where the U.S. attorneys can pick
and choose. Because someone who is defrauding the Government
program is defrauding the private programs, and vice versa. So
why not have the broad range of options to Federal prosecutors?

The point I want to make is that—and there is a great deal of
haste now. There’s a great deal of provisions in the Budget Rec-
onciliation Act, some of which are contentious, some of which
aren’t. But there’s a lot of competition now for the attention of the
Ways and Means Committee staff members and the congressional
Members.

Here is the point I want to make: I would be very grateful, and
I think it’s appropriate, if each of your three organizations would
get in on this right now. I mean, right after lunch wouldn't be too
soon, I can tell you that. The fact of the matter is, I am concerned
that just because of the press of other business, the Ways and
Means Committee may stand on H.R. 2389. And there is a lot in
H.R. 2389 that I agree with. There are a couple points that I would
question. Similarly, there are some questions about H.R. 2326.

Here is the point where it’s not a matter of pride of authorship;
it’s a matter of using the Budget Reconciliation Act to achieve our
common goal. What I would ask the three of you to do, through
your organizations, is, through whatever contacts you have with
Ways and Means Committee members or staff, to immediately
bring to their attention that there is also H.R. 2326, there is also
H.R. 1850, I believe, Congressman Towns’ bill.

These include provisions that we know are not in H.R. 2389. The
health care fraud criminal statute is one. The single provider iden-
tification number is another. And say, “Look at this. All of these
ideas can be integrated into one e1 larged portion of anti-fraud.”
H.R. 2326 largely does not conflict with H.R. 2389. You could put
them together in one bill right now and have very little, if any, con-

flict.


Cem NIN DAH PB WKN =

Se UF ARBREAS

20
21
22
23
24
25

10

6

detection, investigation, and prosecution of

suspected health care fraud or abuse in

violation of any Federal law.

(B) The entity conducts a statewide pro-
gram for the investigation and prosecution of
violations of all applicable State laws regarding
any and all aspects of health care fraud and
abuse in violation of any Federal Jaw.

(C) The entity has procedures for—

(i) reviewing complaints of the abuse
or neglect of patients of health care facili-
ties in the State; and

(ii) where appropriate, investigating
and prosecuting such complaints under the
criminal laws of the State or for referring
the complaints to other State or Federal
agencies for action.

(D) The entity provides for the collection,
or referral for collection to the appropriate
agency, of overpayments that—

(i) are made under any federally fund-
ed or mandated health care program re-
quired by this Act; and

(ii) it discovers in carrying out its ac-

tivities.

HR 1850 IH


141

Mr. ScuiFF. All of the witnesses may.

Mr. STERN. Mr. Schiff, yes, I have reviewed it.

Mr. ScuiFF. How do you view H.R. 2389 in terms of accomplish-
ing what is all of our goal here? Do you feel that it does enough
all by itself? Subject to the observations you have made about H.R.
2326, do you think that they could be combined? Do you have any
view of that that you would express at this time?

Mr. STERN. We are trying to put together an administration posi-
tion with respect to HE 2389. I think we would be able to submit
that at some point within the 7-day period. But, generally speak-
ing, I believe there are some restrictions on our abilities in H.R.
2589 that are very severe, and I am very concerned about some of

em.

Specifically, I can recall, off the top of my head, from having read
the bill very carefully, restrictions with respect to bringing
antikickback cases. Some of our biggest cases in the past 2 years
have been antikickback cases: NME, CareMark, together, $379 mil-
lion in one; $161 million in the other.

H.R. 2389 would put a new burden on the prosecutor, changing
the present law, as interpreted by the courts, and would limit our
ability to bring these kickback cases. So I am quite concerned
about that.

Mr. ScHIFF. Well, since the administration, you believe, will pre-
pare a formal response to H.R. 2389, I would like to respectfully
suggest that you look at H.R. 2326 with H.R. 2389 and with the
other bills that are there. There are a number, as you well know.

My point is this: One can agree or disagree with individual provi-
sions, but I think from all these bills we might be able to put to-
gether a comprehensive and effective antihealth care fraud bill. As

said, it is not important to me whether paragraph one comes from
my bill or H.R. 2389; I think we can put it all together. And I am
encouraging everyone to work toward that same goal.

On your specific observations, let me say that, on the restriction
on plea-negotiating, I want to say I believe you said, Mr. Stern, if
I may, that I was a U.S. attorney. I was actually a county district
attorney.

Mr. STERN. I apologize.

Mr. SCHIFF. t’s all right. Apology is accepted, however. I
know, however, your Attorney General has the same background
that I did.

Mr. STERN. Yes, she does.

Mr. ScuirFr. In fact, we compared notes and found that we used
to tell the same jokes about U.S. attorney’s offices. But I suspect.
the Attorney General is not free to tell those jokes anymore.

Anyway, the point is still the same.

Mr. STERN. I think the issue is the same.

Mr. Scuirr. Let me acknowledge to you, I believe that that provi-
sion should be modified, if it’s included in any final bill, to say, “It’s
the sense of Congress that—” I agree with you that trying to le-
gally get in the middle of a plea negotiation is not an effective way
to write legislation.

But I do want to tell you why that provision is there. I have had
years to watch the drug models, and what I saw, especially where
funds could be used—and I know there’s a question about who


184

important to note, however, that AARP believes that the financial resources available
through the new control account should be in addition to current discretionary spending
appropriated specifically to fight fraud and abuse, and that this account should not be a

replacement for such funding

As you are aware, many of the cases of fraud and abuse are brought to the attention of
authorities by the direct involvement of consumers or employees of unscrupulous
providers, It is, therefore, important to encourage their involvement in rooting out fraud
and abuse. Requiring that an annual notice be sent to Medicare beneficiaries outlining
the need to prevent and report instances of fraud and abuse against the Medicare program
is a good start_ In addition, a carefully implemented rewards program for information
leading to the prosecution and conviction of fraudulent providers could act as an

incentive for citizens to get involved who otherwise might not.

One area about which we are very concerned is maintaining the confidentiality of
personally identifiable medical information, Medical records can contain very sensitive
personal information, We recognize that fraud investigations and prosecutions frequently
require reviewing medical records without the individual’s consent and in some cases,
‘making private medical information part of a public record. It is essential, therefore, that
there be a meaningful process for balancing public need for this information against
potential damage to an individual patient, and for imposing limits and safeguards when a

disclosure is found to be justified. Whether present federal criminal procedure is


Co YI DAH PR WN

fe
RPBBRBSCSWIABDETSATS

29

8

laws of the State or for referring the complaints

to other State or Federal agencies for action.

(4) The entity provides for the collection, or re-
ferral for collection to the appropriate agency, of
overpayments that—

(A) are made under any federally funded
or mandated health care program required by
this Act, and

(B) it discovers in carrying out its activi-
ties.

(5) The entity employs attorneys, auditors, in-
vestigators, and other necessary personnel, is orga-
nized in such a manner, and provides sufficient re-
sources, as is necessary to promote the effective and
efficient conduct of its activities.

(ce) SUBMISSION OF ANNUAL PLAN.—Each Health

Care Fraud and Abuse Control Unit may submit each year
to the Inspector General and the Attorney General a plan
for preventing, detecting, and controlling, consistent with
the program established under section 101(c¢)(1), health

care fraud and abuse in violation of any Federal law.

(d) APPROVAL OF ANNUAL PLAN.—The Inspector

General shall approve a plan submitted under subsection
(e) by the Health Care Fraud and Abuse Control Unit


166

Mr. Fox. That ieads up to my question, if I may.

Mr. Suays. OK.

Mr. Fox. Thank you. We had a little tandem here.

Having spoken to the staffer myself, it seems as though, and I
think that Larry well explained, it’s more user-friendly for provid-
ers to report abuse than it is for claimants or subscribers or sen-
iors. So I guess one of the things we might want to look into is
making it easier for seniors to be able to speak to a real, live per-
son at some point.

Dr. Smits. The Inspector General, as you gather just from the
nature of the menu, runs that number. Since they weren't here
today, it isn’t fair to answer for them. But I do think we need to
talk about whether it belongs collected with all these other things,
and particularly about the clear distinction between providers and
beneficiaries. But why don’t we leave the record open for them to
respond on that.

Mr. Suays. Yes. That’s fine.

Mr. Fox. May I just ask one follow-up question?

For my purposes, in Pennsylvania, is there a HCFA regional of-
fice they can write to, or do they write to Washington, DC?

Dr. Smits. They can write to the HCFA regional office. They can
write to their carriers or intermediaries.

(The address follows:]

Health Care Financing Administration
Philadelphia Regional Office
3535 Market Street

Room 3100
Philadelphia, PA 19104

Mr. Fox. Is the regional office in Philadelphia?

Dr. Smits. Yes.

Mr. Fox. Yes.

Dr. Smits. I can give you the address for the record.

Mr. Fox. Thank you very much.

Thank you, Mr. Chairman.

Mr. Suays. Mr. Martini.

Mr. Martini. Yes. Thank you, Mr. Chairman. My apologies, Mr.
Chairman, for not being here and having the benefit of listening to
the testimony on this important subject. I compliment you and the
members of this committee for holding this hearing.

T would just like to add to the comments that I will ask you for
unanimous consent to submit to the record, just very briefly, that
over the summer, having held many town hall meetings, many
with seniors, the one area that seemed to be almost unanimous
consent by the seniors was the need to have better mechanisms to
enforce weeding out some of the excesses that exist in our Govern-
ment medical providers’ systems.

So this is an important hearing, and this is very important legis-
lation. I have had the benefit of going through some of it, and we
have offered an amendment on part of that, which, I understand,
you are aware of. But I just want to compliment you again for hold-
ing this hearing and thank the witnesses for coming here today
and enlightening us on some of the areas that, hopefully, we can
remedy.

(The prepared statement of Hon. William J. Martini follows:]


186

specifically addresses health care fraud. Such a provision would greatly assist law

enforcement authorities in prosecuting unscrupulous providers.

AARP is deeply concerned that the Leadership’s proposal weakens the physician self-
referral laws. Doing so could increase unnecessary services and may cause physicians to
make decisions about the choice of provider that may not always reflect the patient's best
medical interest. Almost inevitably, health care costs will increase for both the

beneficiary and the Medicare system

Finally, as previously discussed with regard to H.R. 2326, we are concerned with the lack
of adequate privacy safeguards for individual medical records. In addition, AARP
believes that a carefully implemented rewards program could act as an incentive for those
10 get involved who otherwise might not. However, the Leadership's proposal should
clarify that rewards would be forthcoming for information leading to prosecution and

conviction of fraudulent activities.

Conclusion

Mr. Chairman, I appreciate the opportunity to appear before the Subcommittee today to
discuss the important issue of fraud and abuse in our health care system. It is important
to note, however, that fraud and abuse prevention and deterrence activities will most
likely generate only limited savings, and that improved enforcement will add up-front

costs. Left unaddressed, fraud and abuse within the health care system will have a


‘Statement of
June Gibbs Brown, Inspector General
Department of Health and Human Services

1 appreciate the opportunity to comment on H.R. 2326 and H.R. 1850. These bills enhance and
strengthen many of the enforcement tools in the Inspector General's arsenal for combatting fraud and
abuse-a problem which squanders our limited governmental resources and which can adversely
affect our program beneficiaries. At a time when various health care cost savings are being
considered by the Congress, efforts to control fraud and abuse are highly appropriate, helping our
federally funded health care programs to operate efficiently, economically and effectively.

Coordination and Resources

We strongly endorse the proposals in H.R. 2326 and 1850 to establish a new and comprehensive
fraud and abuse control program applicable to all payers. Such a program would strengthen the
current efforts of Federal and State governments, as well as private third party payers, to coordinate
their enforcement efforts. Ten years ago, the Office of Inspector General (OIG) helped establish the
National Health Care Anti-Fraud Association (representing both governmental and private third
party payers and law enforcement agencies) to coordinate governmental and private health care fraud
enforcement activities. Over the years, this govemmental/private partnership group has been
extremely successful in fostering collaboration.

Moreover, the OIG has recently established with the Department of Justice and other enforcement
agencies an Executive Level Working Group to focus on health care fraud, and we have started to
see positive results. However, better communication and coordination of law enforcement activities
are clearly needed in the fight against health care fraud and abuse, and your proposed all-payer fraud
and abuse control program would foster such activities,

The proposals in H.R. 2326 and H.R. 1850 to establish a Health Care Fraud and Abuse Control
Account would also improve our enforcement efforts significantly. We support a mechanism
whereby funding to combat fraud and abuse is increased without drawing down from the U.S.
Treasury, or burdening taxpayers further. Under the approach suggested in both of these bills,
financial recoveries derived from health care fraud cases such as criminal fines, civil penalties and
damages under the False Claims Act, and administrative penalties and assessments, would be
deposited into an account, to be made available for the future funding of fraud and abuse
enforcement activities. This plan makes the individuals who actually perpetrate fraud against, or
otherwise abuse our Federal programs, pay the costs of increased enforcement in those programs.
We would recommend that the legislation ensure full restitution to government health care programs
of monies lost due to fraud, as well as investigative costs incurred by the OIG, before any funds are
to be deposited into the account.

Legal Remedies

11.R. 2326 contains several proposals for expanding current criminal, civil and administrative
authorities of the O1G. We applaud these efforts to strengthen available legal remedies, which assist
us in targeting wrongdoers and provide increased deterrence as well. We are especially interested in

‘Subconiminee on Haman Resources and Inergoveramental Affairs, Sepiember 28, 1995--Page 1


140

The Medicare Preservation Act's Impact on Medicare Fraud and
Abuse

Successes of this sort will be much more difficult if the
Medicare Preservation Act of 1995 (H.R. 2425) is enacted. Under
current law disreputable providers are forbidden from and
penalized for engaging in fraudulent and abusive practices. H.R.
2425 seriously erodes some of the OIG and DoJ’s ability to pursue
and prosecute Medicare fraud and abuse, including most notably:
making the civil monetary penalty and anti-kickback laws and
physician self-referral provisions considerably more lenient.

The bill would increase the payment safeguard funding levels
available to HCFA and hence enable us to pursue our roles of
prevention and detection

Agencies, including HCFA, OIG and DoJ, should have the proper
authority and adequate funding to follow up on indications of
wrong doing. Crooks will know that the worst that will happen is
that they might have to repay HCFA but will not be subject to
fines or criminal penalties. This bill reduces the deterrent
effects that the current authorities to criminally prosecute and
to levy civil monetary penalties have. This will make HCFA’s
prevention activities less effective

Taxpayers and Medicare and Medicaid beneficiaries deserve our
assurance that each benefit doliar is being spent for needed care
and services. Although the bill addresses funding issues for
HCFA, it undermines the authority of law enforcement agencies and
thus interfer: with our ability to combat fraud and abuse.



91

OPENING STATEMENT OF REP. CARDISS COLLINS
BEFORE THE GOVERNMENT REFORM AND OVERSIGHT
SUBCOMMITTEE ON
HUMAN RESOURCES AND INTERGOVERNMENTAL
RELATIONS

HR 1850 - the Health Care Fraud and Abuse Act of 1995
HR 2326 - the Health Care Fraud and Abuse Prevention Act of 1995

September 28, 1995

Mr. Chairman, I am pleased to join you at this legislative
hearing. Under consideration this morning are two bills that seek to
improve Federal enforcement of health care fraud and abuse
violations in the Medicare and Medicaid programs: H.R. 1850, the
"Health Care Fraud and Abuse Act of 1995" and H.R. 2326, the
“Health Care Fraud and Abuse Prevention Act of 1995". I endorse
the goals of these bills, and I appreciate the bipartisan spirit with

which these measures have been developed.


219

Payments to about 2,000 DME suppliers have been suspended by HCFA because of
suspicion of improper claims or billing fraud.*!

1 “A group of Florida DME companies supplied respiratory equipment to Medicare
beneficiaries without any prior physical examinations of the patients or authorization
for the equipment. After the companies delivered the equipment, they paid kickbacks
to physicians who agreed to write prescriptions for the equipment and medication,
without ever seeing the patients, The companies then used the prescriptions as
supporting documentation to obtain over $5.2 million in Medicare reimbursements.‘

“The owner of a DME company in New York was sentenced to five months in jail for
Medicare fraud and ordered to pay $100,000 in restitution for falsifying blood tests to
justify claims for oxygen equipment and inflating hours of oxygen use to obtain
higher reimbursements."*

X “In Florida, an investigation of physicians, middlemen and DME companies involved
in selling and buying Certificates of Medical Necessity led to indictments and
imprisonment, One physician was sentenced for selling the certificates for patients he
neither examined nor treated, knowing full well they would be used in filing Medicare
claims. Other individuals and companies are also under indictment as part of the
‘overall investigation."

‘ Body-jacket scams have been increasingly popular. “In Texas, the president of a
DME company, one of his partners, the former company manager and the owner of a
nursing home became the last of seven persons sentenced for Medicare fraud
involving false billings and kickbacks.... They had participated in a scheme in which
the company billed Medicare for body jackets when it really provided seat pads. The
seat pads were manufactured in Mexico for $50 each, but Medicare was billed $800.
Over a 2-year period, the company billed Medicare more than $1.6 million, which the
company officials were ordered by the court to repay."**

3 A Michigan husband and wife team allegedly stole more than $25 million from
Medicare in false claims for incontinence supplies for nursing home patients. In order
to escape detection, the team would incorporate a new company when they got close
to being caught. 46

ME Angora underwear, microwaves, and air conditioners were used as ploys to get
“Medicare beneficiaries to give their identification numbers to a Brooklyn, New York

AU “HCFA Suspends Payments to 2,000 DME Suppliers," Healthcare Financial Ventures Report, March

4S HHS, O1G, Semiannual Report, October 1, 1994~ March 31, 1995, p. 18.
‘4 Gaming he Health Cae Sen p18


193

The bottom line: To detect many fraud schemes earlier in their litespans, and

thus stem the flow of fraud losses earlier, it is essential that private payers’
investigative units be able to exchange information with the expectation of a
reasonable and uniform standard of legal protection for doing so without malice.
Furthermore, as federal authorities increasingly call on private payers to act more
aggressively by referring more actions for criminal prosecution, the situation
demands a reduction of the legal risk that companies often run in doing so.

Currently, the government enjoys—and has employed very successtully— the
legal strength of the federal civil False Claims Act in bringing health care fraud
actions. Private payers, however, lack a comparable civil legal tool at the federal
level.

In dealing with mutti-state or nationwide trauds, private payers can file (and have
filed) civil suit under the provisions of the Racketeer-Infiuenced Corrupt
Organization Act, or RICO. However, RICO actions are far more complex to
pursue than would be a simple private right of civil action at the federal level.
‘The establishment of such a right of action is an excellent example of enhancing
private payers’ ability to take effective action against frauds that might well also
be victimizing government programs.

3.

criminal prosecution, Al 100 of len, the matter of restitution to privaie pz payers is
‘ot given adequate consideration in the course of criminal cases involving those
payers. This issue takes on even more significance if one assumes (a) that those
payers will increasingly be called upon to reter more and more such cases to law
enforcement and (b) that law enforcement itself will face increasing demands to
“self-fund" its enforcement activities through some form of depository account for
fraud recoveries.

To that list of essential ingredients, we would also add:

+ the need to make illegal against private-sector health plans what is currently
illegal only against Medicare and Medicaid—i kbacks for patient
feferrals and the routine waiver of patient co-payments when used as a
marketing "hook" for fraudulent-billing schemes—after appropriate exceptions
are made for above-board financial arrangements that are inherent in various
types of managed-care systems; and

+ the practical need for newly coordinated federal and state law-enforcement
efforts to involve private payers.

With these principal points in mind, we offer the following comments on H.R.
2326 and H.R. 1850.


Ce IN DM BF WN

wenn Re ee se ewe we Be eH Se
BREBRBEREBSGCweIABAREERAS

u

7
(E) The entity employs attorneys, auditors,
investigators, and other necessary persomnel, is
organized in such a manner, and provides suffi-
cient resources, as is necessary to promote the
effective and efficient conduct of its activities.

(3) SUBMISSION OF ANNUAL PLAN.—Each
Health Care Fraud and Abuse Control Unit may
submit cach year to the Inspector General a plan for
preventing, detecting, and controlling, consistent
with the program established under subsection
(a)(3)(A), health care fraud and abuse in violation
of any Federal law.

(4) APPROVAL OF ANNUAL PLAN.—The Iuspee-
tor General shall approve a plan submitted under
paragraph (3) by the Health Care Fraud and Abuse
Control Unit of a State, unless the Inspector Gen-
eral establishes that the plan—

(A) is inconsistent with the program estab-
lished under subsection (a)(3)(A); or
(B) will not enable the agencies of the

State designated under paragraph (1)(A) to

prevent, detect, and control health care fraud

and abuse in violation of any Federal law.

(5) Reports.—Each Health Care Fraud and

Abuse Control Unit shall submit to the Inspector


Page 2 - The Honorable Christopher Shays

minority staffs to explore thoughtful and reasoned approaches to some very important
changes that are needed in the way we deal with fraud in Federal health care programs.

Sincerely yours,

Fe oka Arango
Michael F, Mangano
Principal Deputy Inspector General

enclosure

ce:
‘The Honorable Edolphus Towns, Ranking Minority Member
Subcommittee on Human Resources and Intergovernmental Affairs
‘Committee on Government Reform and Oversight

House of Representatives

Washington, D.C. 20515


187

Mr. Suays. Thank you. You are obviously a real pro.

Mr. Mahon. We welcome your testimony.

Mr. Manon. Thank you, Mr. Chairman. It’s nice to see you all
again this morning, and we appreciate your continued interest in
our comments on your legislative efforts.

NHCAA, as I mentioned in our June testimony, is a private-pub-
lic cooperative organization that combines the anti-fraud activities
of private payers with the activities of Federal and State law en-
forcement agencies who have jurisdiction over the problem. As
such, Mr. Chairman, our comments don’t represent the comments
of any one of those public agencies or of any one of our member
companies; rather, they are intended to be a general set of com-
ments on the legislative efforts to date.

I want to commend you and Mr. Schiff and Mr. Towns for two
principal things: one is taking the all-payer approach that you have
embraced in the course of analyzing the problem and deciding how
to address it. That is critical to an effective approach to health care
fraud, because, in fact, the majority of dollars spent in the United
States on health care are private-sector dollars.

To the extent that anti-fraud efforts limit themselves to Medi-
care, Medicaid, or Government-program fraud, the likely result will
be a fraud-shifting, similar to cost-shifting, in which the providers
realize that now it’s more dangerous to defraud Government pro-
grams, so they are not going to go out of the fraud business, they
are going to turn up the heat against private payers.

The second principal point that we are delighted to see you make
is to address fraud in a free-standing, bipartisan manner. I think
there is a real danger, with things moving so rapidly with respect
to Medicare and Medicaid, that something will, in fact, rush
through that falls far short of a well-rounded approach to health
care fraud.

We have always felt that this is an issue that lends itself to
strong action in and of itself and does not have to be tied to broad-
er and perhaps more controversial or divisive health care issues. So
I think you are very much on the right track in that respect.

Mr. Chairman, I will just briefly summarize some of the com-
ments we made specific to the legislation. I was asked to comment
both on H.R. 1850 and H.R. 2326. By its nature, H.R. 1850 is not
intended to be an all-payer approach, but it does have a couple of
key points that we think can be refined in H.R. 2326 as H.R. 1850
is incorporated therein.

One is the provision for data-sharing, not only among Federal
law enforcement agencies, but among private insurers. I think the
bill also says health care providers and health care insurers, but
at least insurers are critical to involve in any data-sharing loop.

Both H.R. 1850 and its incorporation in H.R. 2326 also make
clear that civil penalties and damages to be deposited in the trust
fund are to be funds other than restitution. t is a key point
from the private payers’ perspective, in that restitution is an issue
that you often don’t find on the radar screen in the course of crimi-
nal cases that private payers have referred to law enforcement. The

rivate payers, obviously have a very real and compelling interest
in some reasonable assurance of recovering the funds that they lose
to some of these ongoing frauds.


102

Honorable Christopher Shays
‘October 5, 1995
Page 2

Although we believe the legislation moves in the right direction, we have several
technical questions about the bills as drafted. First, we believe that the mission statement of the
State Health Care Fraud and Abuse Control Units should be clarified. Section 102 of H.R. 2326
(section 2(b) of H.R. 1850) provides that the governor may establish a State agency to act as a
Health Care Fraud and Abuse Control Unit. ‘The mission statement for this unit is similar in
many ways to that of the existing MFCUs, but the jurisdiction of the Units is broadened to
include investigation and prosecution of health care fraud outside the Medicaid program.
Because of their structure, mission, and expertise, the Medicaid Fraud Control Units are clearly
the most appropriate agencies to undertake these new bilities. However, the statute does
not specifically redesignate the MFCUs as SHCFACUs, and in fact could be read to create a
system with SHCFACUs and MFCUs operating side-by-side. We suggest that this potential
confusion be eliminated by simply amending 42 U.S.C. §1396b(q) to redesignate the MECUs
as SHCFACUs and to permit the redesignated Units to undertake the broader anti-fraud
responsibilities described in both bills.”

‘The funding of the SHCFACUs should also be clarified. Section 103 of H.R. 2326
(section 2(c) of H.R. 1850) provides that agencies designated by the Governor will receive a
payment equal to 75 percent of the sums expended in preventing, detecting and controlling health
care fraud, provided that the state has a State Health Care Fraud and Abuse Control Unit
(SHCFACU) that has submitted an annual plan to the Inspector General of the Department of
Health and Human Services. However, section 103 does not appear to include the expenses of
the SHCFACU itself in the expenses that will be eligible for reimbursement. In light of the
SHCFACUs' new responsibilities for investigating and prosecuting every type of health care
fraud, we believe that the Units should be reimbursed to at least the same extent as the other
state agencies, and in fact, we suggest a reimbursement formula of 90 percent for the first three
‘years for the operations of the SHCFACUs. This type of start-up funding provides an additional
incentive for states to undertake the important new functions described in the bills.

‘We strongly support the creation of a Health Care Fraud and Abuse Control Account
which will be available to assist both Federal and state anti-fraud efforts. We believe that the

“Section 102 provides that the Governor may designate agencies “which conduct, supervise
and coordinate audits, civi! and criminal investigations, inspections and evaluations relating to
prevention, detection and control of health care fraud and abuse in violation of Federal law in
‘the state." (emphasis added) We believe that this provision should be modified to read “state
and Federal" law. In most instances, state Attomey General offices use state law to secure
convictions of fraudulent providers, "State prosecutors may be cross-designated as federal
prosecutors for specific cases, but much of the work against fraud is done under state law. The
same comment applies to the use of the term "Federal law" in sections 101(c)(1), 101(4),
102()(1)(B), 102(6)(1)(C), 102(b)(2), and 102(c).


223

15.

pharmacist's report that a particular physician was prescribing large amounts of
controlled substances, it was found that the physician had died in 1986. An attorney
‘who had been a friend of the physician had intercepted a letter from Florida, acted as
medical director of a clini, then opened his own clinic with his wife as office
‘manager. He was ordered to pay more than $113,800 in restitution, $45,800 of it to
Medicare."65

X{ “A New York man and his wife were sentenced for conspiracy to defraud Medicare,
workers’ compensation, and numerous private insurance companies of more than $1
million, The man, a registered physical therapist, was sentenced to 27 months
incarceration and 3 years probations, and ordered to make restitutions of $125,000
and to pay a $50 fine, His wife was sentenced to 2 years probation and a $50 fine.
The couple submitted bills for no-show appointments, canceled appointments and
services not rendered."6

“In Connecticut, the husband and wife owners of an acupuncture center, the center
itself and three physician employees were sentenced for filing false Medicare claims
and evading taxes. The owners performed acupuncture treatments but billed them as
physical therapy performed by the doctors."6”

1A Pennsylvania osteopath, who had earlier been excluded from participating in
Medicare and state programs for possession of cocaine, was sentenced to 15 months
in prison for defrauding Medicare and Blue Shield of close to $90,000 over a four-
year period. He was ordered to pay full restitution and a $400 special assessment,
‘The claims were for removing foreign bodies from patients’ ears when he actually
performed ear irrigations and upgraded procedural codes to reflect costly hepatitis
panels. He then submitted altered patient medical records to cover up the false
claims.

at _“A Utah physician and clinic owner was convicted on 32 federal counts of mail fraud,
submitting false claims, and siding and abetting. Although he was excluded from
participating in Medicare and state health care programs in 1987 for similar crimes,
he continued to submit claims under the numes and provider numbers of physicians
‘who performed services at his clinic. He also upcoded claims and billed for services
not rendered. He was sentenced to 56 months in prison and 3 years probation upon
release, fined $50,000, and assessed a special victim's assessment fee of $1,600.
Restitution will be decided by the probation office."

“A Virginia psychiatrist was order to pay $48,000 in fines and restitution for illegally
billing seven insurance programs, including Medicare, Medicaid and the Civilian

© id,p.19.

6 HHS, O1G, Semiannual Report, October 1, 1993 - March 31, 1994, pp. 7-8

© HHS, O1G, Semiannual Report, April 1, 193 - September 30, 1993, p. 18.

HHS, O16, Semianmal Report, October 1, 1993 - March 31, 194, pp. 89.
Ibid, p.9.


201

Testimony of
Thomas A. Schatz,
President of Citizens Against Government Waste
before the
House Government Reform and Oversight Human Resources Subcommittee
September 28, 1995

Good morning, Mr. Chairman, Thank you for the opportunity to testify today
before the Government Reform and Oversight Human Resources Subcommittee. My
name is Tom Schatz and I represent the 600,000 members of Citizens Against
Government Waste (CAGW). I am honored to be asked to testify on the crucial issue of
health care fraud and abuse.

‘CAGW recently published a report titled, Medicare Fraud: Tales from the
Gypped. This report chronicles 89 examples of Medicare waste, fraud, and abuse, I
would like to submit the report for the record. The information uncovered by the report
and our research shows that the problems in Medicare are indicative of the problems in
health care in general.

Medicare tuned 30 years of age on July 30 of this year. Instead of enjoying the
prime of its life like many 30-year olds, Medicare is in critical condition. This “illness” is
life-threatening to the program which brings essential health care to our parents and
grandparents. That is not only our judgment, but the judgment of the bipartisan trustees
including the Secretaries of Treasury, HHS, Labor and the Committee on Social Security.

Preserving, protecting, and strengthening Medicare must be the number one
priority for Congress. Medicare's Trustees have concluded that at its current rate of
growth the Medicare trust fund will be bankrupt by the year 2002. They've told us that if
‘we don't act today, never mind the long-range effect on baby boomers and their children;
our parents and grandparents, who currently receive benefits, will be cut off in just seven
years.

Medicare and its impending bankruptcy are too important to ignore the
consequences of failing to act. Yet those who are fighting any reform claim that each
dollar spent in the program produces a dollar in benefits for America's seniors...no waste,
no fraud, no abuse. Nothing could be further from the truth. June Gibbs Brown,
inspector general (IG) of the Department of Health and Human Services (HHS) has said
that fraud and abuse permeate all aspects of Medicare. She has said that up to $17
billion, $46 million per day, or 10 percent of Medicare's budget, will be wasted because
of fraud. Because of its size, diabolical complexity, and lax management practices, this
$177 billion leviathan has become the equivalent of a Gucci-clad matron sauntering down
the street sporting a flashing neon sign that says, "Please rob me!"


192

In that context, we noted, any legislative eftort that focuses solely on increasing
enforcement activities and the legal penalties related to fraud against government
health insurance programs—without addressing the private-sector side of the
fraud equation—is likely to result in a “fraud-shifting” analogous to the familiar
cost-shifting phenomenon. That is, rather than risk even more severe penalties
by defrauding the government, dishonest providers will follow the safer path of
intensifying their fraudulent-billing activity against private payers.

With that in mind, Mr. Chairman, it is very gratifying to see elements of that all-
Payer approach reflected in both H.R. 2326 and H.R. 1850, and we commend
you, Mr. Schiff and Mr. Towns for having taken the initiative to address health
care fraud in a well-rounded, and thus more effective, way.

We must emphasize here that advocacy of an all-payer approach does not
suggest that government must also assume all responsibility for investigating and
prosecuting fraud against private health insurers. That would be unrealistic and
impractical. On the contrary, one principal purpose of an all-payer approach is to
better equip private payers to pursue their own anti-fraud efforts more
ettectively—with a resulting reciprocal benefit to the government's enforcement
efforts.

Itisin that context that we respect and appreciate the legislative efforts you have
made thus far and that we will comment on how those efforts might be refined so
as to be optimally effective. We certainly hope that you will receive these
‘comments in the spirit in which we offer tham—i.e., as constructive suggestions
for the Subcommittee's consideration

ESSENTIAL INGREDIENTS OF AN EFFECTIVE
ALL-PAYER APPROACH

NHCAA has long cited several elements that it considers central to improving
private payers’ effectiveness in fighting fraud, namely:

Given the nature of most false-billing frauds, the practical need for good-faith
insurer-to-insurer exchange of investigative information on suspected fraud is
wall recognized in many state laws, the more recent of which are explicit in their
protection of such information-sharing activity. However, state laws vary widely,
and in the face of today's multi-state or nationwide fraud schemes, the value of
any one state law is at best limited.


uw w

oO wm YA

10
ul
12
13
14

118

63
more unrelated adults who reside in such facility.
and for whom one or both of the following is pro-
vided:
“(i) Nursing care services provided by. or

tered nurse, li-

under the supervision of, a re:

censed practical nurse. or licensed -nursing as-
sistant.

“(ii) Personal care services that assist resi-
dents with the activities of daily living, includ-
ing personal hygiene, dressing, bathing, eating.
toileting,

S

ambulation, transfer, positioning, self-
medication, body care, travel to medical serv-
ices, essential shopping. meal preparation, laun-

dry, and housework.”

TITLE VII—MEDICARE BILLING
ABUSE PREVENTION
SEC. 701. IMPLEMENTATION OF GENERAL ACCOUNTING OF-
FICE RECOMMENDATIONS REGARDING MEDI-
CARE CLAIMS PROCESSING.

(a) IN GENERAL.—Not later than 90 days after the
date of the enactment of this Act, the Secretary shall, by
regulation, contract, change order, or otherwise, require
medicare carriers to acquire commercial automatic data
processing equipment (in this title referred to as

“ADPE”) meeting the requirements of section 702 to

+S 1088 IS


65

44

1 that—” and inserting “or in the case of a Federal health

2 care offense as that term is defined in section 24 of this
3 title, that—”.

4

(c) AUTHORIZATION FOR INTERCEPTION OF WIRE,

5 ORAL, OR ELECTRONIC COMMUNICATIONS.—Section
6 2516(1)(e) of title 18, United States Code, is amended—

7
8
9

10

1

12

13

14

15

16

7

18

19

20

21

22

23

(1) by inserting “section 226 (bribery and graft
in connection with health care), section 227 (illegal
remunerations)” after “section 224 (bribery in
sporting contests),”; and

(2) by inserting “section 1347 (health care
fraud)” after “section 1344 (relating to bank
fraud),” .

(d) DEFINITIONS.—Section 1961(1) of title 18, Unit-

ed States Code, is amended—

(1) by inserting “sections 226 and 227 (relating
to bribery and graft, and illegal remuneration in
connection with health care)” after “section 224 (re-
lating to sports bribery),”;

(2) by inserting ‘“‘section 669 (relating to theft
or embezzlement in connection with health care)”
after “section 664 (relating to embezzlement from

pension and welfare funds),”; and


242

testimony. I obviously feel that the direction of this legislation is
certainly in the right direction, the intent of it is.

All too often, trom my experience in my prior life as a lawyer and
as a former prosecutor, one of the difficulties in this area was im-
pressing upon the various prosecutors’ offices the importance of
getting involved in this area. So I think this legislation will accom-
plish at least that. It will now, at least for a while, make them
aware that this is an area of concern for the American people.

Also, I think one of the real practical problems often was, from
their perspective, having to fit a certain pattern of facts into a par-
ticular anti-fraud statute, and most generally it would be the wire
fraud or the mail fraud statutes. Sometimes that was difficult to
do. So, to the extent this legislation codifies that we’re serious in
terms of feathering out fraud in the health care area, I think it,
one, will certainly do that.

Also, to the extent that this and other legislation defines accu-
rately what is and is not permissible, which is, I think, another fac-
tor that has to be taken into account, defining what conduct is per-
missible and what conduct is not permissible, what conduct is
criminal and what conduct is not; in this area, I think that may
be the more difficult problem.

What I heard often, in the town hall meetings I had, was conduct
which may or may not be criminal, per se. In fact, under the cur-
rent Medicare system, as I began to view it, we have a system that
really does not encourage any of the people involved in the system
to save funds cr to be efficient in how they use the system. In fact,
it almost welcomes and, in fact, encourages the opposite.

It encourages providers, in many instances, to overtreat, over-
medicate, or whatever. It encourages beneficiaries, in many in-
stances, to go more often to the doctor than they really have a need
to. How we feather that out of this system is really, I think, gettin,
to the heart of it. I think that’s more dealt with with the overal
Medicare plan, which is introducing the private sector into the
plan, which therefore will introduce some incentives to try to keep
costs in line.

But, again, let me just close by saying, I think certainly this leg-
islation is meritorious. It’s long overdue. As a new Member here,
I often would cail this a no-brainer. Not to slight anyone, but I’m
sitting here wondering why this hasn’t been done. I mean, as a
layperson out there, for years, we’ve heard of all the abuses in
Medicare and Medicaid, and yet I’m sitting here saying, this is
something that should have been done a long time ago.

But I[ think that’s why this committee and the leadership here
deserves a lot of compliments for getting this out. I’m certainly
hopeful this will be part of the final package and be over with al-
ready.

Thank you.

Mr. SHays. I thank the gentleman. As it relates to being a no-
brainer, this is my one concern.

Mr. MarTINI. No slight, Mr. Chairman.

Mr. SHays. No, no, no, no.

Mr. MartTINI. That was a compliment.

Mr. Suays. I use that phrase all the time. My concern is that I
think some in our own conference think that doctors aren’t crooks


oC me NAH PF WN

RPRBBEPESSCetTARAREBERAS

vay

50

reasons for the rejection of the proposals that were

not included.

(b) CRITERIA FOR MODIFYING AND ESTABLISHING
Sare Harpors.—In modifying and establishing safe har-
bors under subsection (a)(2), the Seeretary may consider
the extent to which providing a safe harbor for the speci-
fied payment practice may result in any of the following:

(1) An increase or decrease in access to health
care services.

(2) An inerease or decrease in the quality of
health care services.

(3) An increase or decrease in patient freedom
of choice among health care providers.

(4) An inerease or decrease in competition
among health care providers.

(5) An inerease or decrease in the ability of
health care facilities to provide services in medically
underserved areas or to medically underserved popu-
lations.

(6) An increase or decrease in the cost to health
care programs operated or financed by the Federal,
State, or local governments.

(7) An increase or decrease in the potential

overutilization of health care services.


200

One quick comment, Mr. Chairman, is that you’re requiring au-
dits and reports to Congress by a number of agencies; we expect
that those will be paid attention to. I know, under your leadership,
they will. But we are concerned that you will have people sitti
together, conferring about what to do, as opposed to going out an
doing it. I hope that, as the oversight committee, you do make sure
that | action is taken and that the proper resources are being pro-
vit \.

Mr. Chairman, I am sure you are aware of the red book from the
Office of Inspector General. There’s about $14 billion in here in
savings that could be implemented. Many of them deal with the
area of health care fraud and waste. We encourage you, if you have
not already done so, to look at this. I know you have your bill mov-
ing forward, but to examine the recommendations that are already
out there. Many of these date back to 1991, 1990, many in 1993,
1994, but they deserve great scrutiny by your subcommittee as you
move this forward.

Again, Mr. Chairman, thank you. I will be happy to answer any
questions.

{The prepared statement of Mr. Schatz follows:]


Com IN DAH PB WH =

RNR NR NY ND |] ee ee ee ee
we oN HF SOM AKI AA RHONH ES

16

12
deposited in the Expenses Subaccount in
the preceding fiscal year.
(B) TRANSFERS TO EXPENSES SUB-

ACCOUNT.—

(i) ESTIMATION OF SHORTFALL.—Not
later than the first day of the last quarter
of each fiscal year, the Inspector General
shall estimate whether sufficient amounts
will be available during such quarter in the
Expenses Subaccount for the uses de-
scribed in paragraph (2)(C).

(ii) TRANSFER TO COVER SHORT-
FALL.—If the Inspector General estimates
under clause (i) that there will not be
available sufficient amounts in the Ex-
penses Subaccount during the last quarter
of a fiscal year, there shall be transferred
from the Reserve Subaecount and depos-
ited in the Expenses Subaccount such
amount as the Inspector General estimates
is required to ensure that sufficient
amounts are available in the Expenses
Subaccount during such quarter.

(C) LiwiratvioN. ON AMOUNT CARRIED

OVER TO SUCCEEDING FISCAL YEAR.—There


160

gestion for legislation that would improve how you could function,
think I can speak for the Chair and the other Members, draft
something for us and let us have it.

Dr. Smits. We're delighted to. And we really do appreciate the
way we've been able to work with you on this.

‘he information referred to follows:]

Section 3 (a) of Mr. Harkin’s bill, S. 1193, would give Medicare the authority to
use competitive bidding as a means of pricing for durable medical equipment and
other items. It would be most expeditious if Subcommittee would refer to this
bill as a source of statutory language that would give Medicare authority to use
competitive bidding.

Mr. SHays. Let me just say that we need it tomorrow. I mean,
T'm being a little facetious.

Mr. SCHIFF. Oh, by the way—yes. Well, if you want to get on the
express train.

Mr. Suays. If you want to Bet on the train.

Mr. ScuirF. That’s right. They're going to rush through this sta-
tion real fast here.

Dr. SITS. We've seen the express train before. We'll try and get
it.

Mr. SHays. Let me just say, the Medicare bill, in deference to
criticisms by Republicans, and particularly Democrats, that this is
too much of an express train, we had a meeting yesterday with our
leadership, and this bill is not coming out of the Ways and Means
Committee this week or next week. It will be available to the pub-
lic and to my colleagues for over a week. So we need to take a
quick look at that bill.

T can say, I have been in more than a number of meetings with
the Speaker, and he said, “Listen, any suggestions to improve this
bill, we should jump at the opportunity.” Tm grateful that my
colleagues made enough noise and enough of us on our side have
responded to it so it will be, in fact, available for over a week be-
fore it goes out of committee. And then it goes to the full House,
and we have time, and then there’s conference, and so on. The
sooner the better you can get it to us.

Given that I’ve gone on here, Mr. Towns, I’m going to give you
some time to follow up with some questions.

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

Mr. Stern, as you noted, Section 202 of H.R. 2326 may be inter-
preted or read to include the Department of Labor’s Employee Re-
tirement Income Security Act, ERISA, plans in its definition of a
health care benefit program. You suggest that the bill should in-
clude the Secretary of Labor in its health care enforcement provi-
sion, given the bill’s coverage of ERISA plans.

Would it be simpler to exempt the ERISA plan from coverage?
In the event that monetary penalties are imposed, should ERISA
plan assets be deposited into the health care fraud and abuse con-
trol account?

Mr. STERN. My problem, Mr. Towns, is that this is the Secretary
of Labor’s area, ERISA, and I talked with them yesterday about
this, trying to understand their concern, which is why we have that
provision in my prepared testimony. I don’t know that it would be
simpler to exempt ERISA if every other health care plan is going
to be involved in this overall health care fraud and abuse program.


232

24.

ML Over 16 months, on behalf of one beneficiary, a wheelchair van service billed
Medicare for $62,000 or approximately one trip every two days at an average of $260
per trip."

A now-defunct San Jose ambulance company, Medicar, routinely billed Medicare for
transportation charges from $250 to $450. In one instance, a patient was taken by
ambulance from a convalescent hospital to a hospital directly across the street. In
some cases, "Medicare provided service equivalent to a taxicab ride.""!?

X “The owner of an Indiana ambulance company was sentenced to 41 months in prison
and 3 years probation for defrauding Medicare, Medicaid and Social Security
programs as well as private insurers. He filed claims amounting to more than
$200,000 for transporting stretcher cases, when most of the patients his company
transported were ambulatory or in wheel chairs. Many of his company's records,
obtained by search warrant, contained ‘Post-It’ notes from him to a clerk to ‘bill this to
Medicare because I need the money.’ Also discovered during the investigation was
the fact that he had been fraudulently rece 1@ Social Security disability benefits for
10 years while employed and operating a business."""?

“An ambulance company signed a civil settlement with the United States and the state
of Minnesota agreeing to pay $3 million for filing false Medicare and Medicaid
claims. The company also agreed to provide $97,542 in free ambulance services to
financially eligible consumers in Minnesota. The company was overpaid more than
$1.17 million by Medicare and Medicaid as a result of false billings."

XC "The former owner of an Oklahoma ambulance company was sentenced to a year and
1 day in federal prison and 2 years supervised probation for Medicare and Medicaid
fraud. Over a two-year period, the woman and her husband defrauded the programs
‘of $370,000 in false billings. They submitted bills for ambulance trips for dialysis.
patients that they claimed were not ambulatory, but surveillance cameras caught
several of the patients walking to and from the ambulances with litle or no
assistance.... The ambulance company has gone out of business.”!!3

SELLING TAINTED MEDICAL SUPPLIES: THE FOX IN THE HEN HOUSE

Xf An Indiana man was sentenced to six years in prison for mail fraud, illegal possession
of a document-making implement and tampering with heart pacemakers he sold to
hospitals. "The man sold DME in at least nine states under 34 aliases and 11 different

S11 GAO, Medicare, Modern Management Strategies, p. 6

22 Williams, Isabel, “Defunct San lose Firm Accused of Fraud in Ambulance Scheme/$1.7 million of
unnecessary services." The San Francisco Chronicle. November 12, 1994, p.A6.

313° HHS, O1G, Semiannual Report, October 1, 1993 = March 31, 1994, p. 8

114 HHS, O1G, Semiannual Report, April |, 1993 = September 30, 1993. p. 22.

MS HHS, O1G, Semiannual Report, October 1, 1994 - March 31, 1995, p. 9.


99

your proposals for enhancing the remedies available to the OIG under the Civil Monetary Penalties
Law (CMPL) and the permissive exclusion provisions of the Social Security Act, The CMPL,
section 1128A of the Social Security Act, was enacted in 1981 as an alternative administrative
remedy to civil prosecution under the False Claims Act. It provides a means to administratively
impose civil monetary penalties and assessments, and exclusions from program participation, on
individuals and entities who submit false or improper claims for payment to Medicare, Medicaid and
the other State health care programs. The permissive exclusion authorities for sanctioning aberrant
health care providers, set forth at section 1128(b) of the Social Security Act, allow for the exclusion
of individuals or entities from program participation if, under certain criteria, the OIG determines an
exclusion to be warranted. Permissive exclusions may be taken based on convictions for non-
‘Medicare/Medicaid health care fraud, State licensing suspensions and revocations, or controlled
substance violations.

Amendments to the OIG's CMPL Authorities

We strongly support your proposal to expand the OIG's Civil Monetary Penalty authority to impose
strict liability upon employers who hire and bill for the services of individuals who have been
excluded from participation in government health care programs. Currently, the CMPL holds an
excluded provider strictly liable (i.e., liable without proof of knowledge or intent) for claims
submitted, or caused to be submitted, for services that he or she renders while excluded. However,
some excluded individuals have continued to treat program beneficiaries, and have improperly
caused the Medicare and Medicaid programs to pay for their services, by seeking employment with
participating providers who agree to bill for their services. Expanding application of the strict
liability standard to the employers of excluded providers will enhance our ability to protect program
beneficiaries, while protecting the financial integrity of the programs themselves. Such a provision
also encourages health care employers to ascertain the program participation status of employees
prior to submitting claims for payment for services rendered, ordered, or directed by such
individuals.

An additional amendment to the CMPL that would significantly enhance our enforcement authority
would be to expand the reach of the CMPL to include all Federal health care programs. Currently,
the CMPL only reaches those who submit or cause the submission of claims to one of four Federal
programs: Medicare Medicaid, the Maternal and Child Services Block Grant program, and the
Social Services Block Grant program. Thus, under current law, the OIG cannot impose civil
monetary penalties and assessments against, for example, someone who submits false claims to the
CHAMPUS program or the Federal Employees Health Benefits Program. Modifying the CMPL to
apply to health care providers who defraud other Federal health care programs would enable the
Government to protect additional beneficiaries from harm, and additional Federal programs from
financial loss.

Another modification to the CMPL that would greatly aid our enforcement efforts is extension of the
CMPL's strict liability standard to excluded providers who order or prescribe items or services for
program beneficiaries, even if they directly furnish no services to beneficiaries. Currently, excluded
providers who submit or cause the submission of claims for services furnished during their exclusion
periods are strictly liable for those claims. However, we have seen egregious cases of excluded
individuals who continue to profit from the Medicare and Medicaid programs by ordering or
prescribing items or services from others, such as lab work or pharmaceuticals. Expanding the

3

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21

7
Control Unit” means such a unit established by a
State in accordance with subsection (b)(2).

(4) INSPECTOR GENERAL.—Except as otherwise
provided, the term “Inspector General’’ means the
Inspector General of the Department of Health and
Human Services.

(5) RESERVE SUBACCOUNT.—The term “Re-
serve Subaccount” means the Health Care Fraud
and Abuse Reserve Subaccount of the Account.

(j) EFFECTIVE DATE.—

(1) IN GENERAL.—Except as provided in para-
graph (2), this section shall take effect on January
1, 1997.

(2) DEVELOPMENT AND PUBLICATION OF DE-
SCRIPTION OF PROGRAM.—Subsection (a)(3)(A)
shall take effect on the date of the enactment of this

Act.

HR 1850 TH


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v= woe WAAR BH HK S

50

29
SEC. 204. FALSE STATEMENTS.

(a) IX GENERAL.—Chapter 47 of title 18, United
States Code, is amended by adding at the end the follow-
ing:

“§ 1035. False statements relating to health care mat-
ters

“(a) Whoever, in any matter involving a health care
benefit program, knowingly and willfully falsifies, conceals,
or covers up by any trick, scheme, or device a material
fact, or makes any false, fictitious, or fraudulent state-
ments or representations, or makes or uses any false writ-
ing or document knowing the same to contain any false,
fictitious, or fraudulent statement or entry, shall be fined
under this title or imprisoned not more than 5 years, or
both.

““{b) As used in this section, the term ‘health care
benefit program’ has the meaning given such term in sec-
tion 1347(b) of this title.”.

(b) CLERICAL AMENDMENT.—The table of sections
at the beginning of chapter 47 of title 18, United States
Code, is amended by adding at the end the following new
item:

“1035, False statements relating to health care matters.”.

HR 2326 I


95

Mr. Suays. I just would say, before calling on our witnesses, that
this truly is a team effort. We have had both administrations in
control of HHS, so we’re not throwing stones at this administra-
tion. There are things that could have happened in the last admin-
istration. We are just going to all try to start from this point on
and see what we can accomplish.

So, at this time, I invite Dr. Helen Smits. If you would remain
standing, I will be swearing you in. I believe you are accompanied
by Bill Gould. Dr. Smits is the deputy administrator, Health Care

‘inancing Administration, and a Connecticut resident, which gives
her a special advantage.

Are you accompanied by anyone, or are you on your own?

Dr. Sits. Mr. Gould is here.

Mr. SHays. Why don’t you have him come up. This way, if we
could, Mr. Gould, if you want to respond directly to a question that,
Dr. Smits, you would like to give him, then he is sworn in.

As is our custom, we swear in everyone. Would you raise your
right hands.

'itnesses sworn.]

Mr. SHays. For the record, both witnesses have responded in the
affirmative.

I would like to just get a little housekeeping out of the way. I
would ask unanimous consent that the hearing record remain open
for 7 days.

Does the gentleman have a question?

Mr. Towns. I don’t have a question, Mr. Chairman. Gerald Stern
is here.

Mr. SuHays. Oh, I’m sorry. I wish I had been told that before.

Mr. Stern, you are going to be sworn in as an individual, so if
you would come up, too.

I just moved so quickly my staff couldn’t pull me down. For fu-
ture reference, you just say, “Hey, idiot, you’ve got another person.”
[Laughter.]

You can include that in the record.

[Witness sworn.]

Mr. Suays. Thank you, Mr. Stern.

Mr. Towns. Before we get started, Mr. Gould, are you from
Brooklyn?

Mr. GOULD. No, I’m not.

Mr. Towns. I’m just trying to balance this thing here. [Laugh-
ter.

Mr. SHAYS. We are going to ask unanimous consent that the
hearing record remain open for 7 days to permit the inclusion of
the statements from the HHS IG, the National Association of At-
torneys General, and the National Association of Medicaid Fraud
Control Units. These statements will be distributed to all members.

Without objection, so ordered.

[The information referred to follows:]


238

CMPL's strict liability standard to excluded providers who do not personally render or direct the
provision of health care to program beneficiaries, but who order or prescribe items or services on
their behalf, would help the OIG curtail the continuous fraud committed by certain providers. In
addition, such a provision will encourage ancillary care providers and suppliers (such as laboratories,
and pharmacies) to check out providers who refer business to them and to refuse to deal with those
who have been excluded from the health care programs.

Amendments to the OJG's Permissive Exclusion Authorities.

The OIG's exclusion authorities are an important enforcement remedy. We have made great strides,
not only in excluding sberrant providers from our programs, but also in ensuring that they don't
continue to abuse our health care financing systems and our beneficiaries. However, there are stiil
some loopholes that allow fraud and abuse to thrive at the expense of the programs, the taxpayers,
and program beneficiaries.

The proposal in H.R. 2326 to impose a new permissive exclusion authority against individuals who
‘own or control sanctioned entities closes one such loophole. This new authority would enable the
OIG to exclude individuals who own or control entities that have been convicted of program-related
crimes, entities against which penalties have been imposed under the CMPL, and entities that have
been excluded from Medicare and State health care programs. We have found that unscrupulous
health care company owners simply change corporate structures or move from one business to
another if the first has been convicted or excluded. As our authority now stands, if an owner is,
convicted and excluded, thon we can exclude any company associated with that individual.
However, if a company is excluded, we currently have no authority under which we can take action
against the owner of the company. ‘That individual is free to reincorporate or start another business
with no fear of exclusion, Your proposal permits the OIG to exclude cutpable individuals who move
from company to company, shutting the door on these "mobile" business owners.

‘We applaud the propose! in H.R. 2326 to require carriers and fiscal intermediaries to reimburse the
Medicare Trust Funds for any health care program funds paid to excluded providers once the carrier
or intermediary has been notified of the exclusion. If these contractors fail to take the administrative
steps necessary to implement and enforce the OIG's exclusions, they should remain liable for any
claims wrongfully paid to on excluded party. By preventing improper disbursements of program
funds to individuals and entities not entitled to teceive them, this provision should result in
substantial savings to the Federal health care programs. However, we recommend that this provision
be expanded to impose the same liability upon States that fail to implement the OIG's exclusions.
We have had experiences with State Medicaid agencies which have neglected to enforce O1G
exclusions in a timely and proper manner. The lesson of these experiences is that a mnechanism is
needed to ensure that the States respond to the O1G's exclusion notices. Expansion of your
legislative proposal affecting carriers and fiscal intermediaries to State Agencies that fail 10
implement OIG exclusions would provide such a mechanism.

Again, we appreciate having an opportunity to comment on this legislation and will be happy to
continue working with your staff on these important issues.



33

12
conditions as the Inspector General and the Attor-
ney General jointly determine to be appropriate,
for—

(A) paying expenses incurred by their re-
spective agencies in carrying out activities
under section 101; and

(B) making reimbursements to other In-
spectors General and Federal, State, and local
agencies in accordance with section 106.

(c) RESERVE SUBACCOUNT.—

(1) Deposits.—An amount otherwise required
under subsection (b)(1) to be deposited in the Ex-
penses Subaccount in a fiscal year shall be deposited
in the Reserve Subaccount, if—

(A) the amount in the Expenses Sub-
account is greater than $500,000,000; and

(B) the deposit of that amount in the Ex-
penses Subaccount would result in the amount
in the Expenses Subaccount exceeding 110 per-
cent of the total amount deposited in the Ex-
penses Subaccount in the preceding fiscal year.
(2) TRANSFERS TO EXPENSES SUBACCOUNT.—

(A) ESTIMATION OF SHORTFALL.—Not
later than the first day of the last quarter of

each fiscal year, the Inspector General (in con-


168

TO REFRESH YOUR MEMORY, THIS PROGRAM
PROVIDES TAXPAYER FUNDED TAX! SERVICE TO
MEDICAID RECIPIENTS.

SOME UNSCRUPULOUS INDIVIDUALS ARE TAKING
ADVANTAGE OF THE PROGRAM BY RECIEVING FREE
TRANSPORTATION TO SUCH PLACES AS THE MALL
OR ANYWHERE ELSE THEY CHOOSE BECAUSE OF
THE LACK OF ACCOUNTABILITY IN THE SYSTEM.

TAXICAB COMPANIES IN FLORIDA AND OTHER
STATES HAVE BEEN GETTING RICH OFF THIS
FEDERAL PROGRAM.

ONE COMPANY IN PALM BEACH COUNTY, FLORIDA
BILLED THE GOVERNMENT FOR OVER $4 MILLION
LAST YEAR ALONE.

IN RESPONSE TO THIS SITUATION CONGRESSMAN
RICHARD BAKER, CONGRESSWOMAN TILLIE FOWLER
AND | HAVE WORKED WITH THE NON-EMERGENCY
MEDICAL TRANSPORTATION PROVIDERS ON A
COMPROMISE AMENDMENT THAT WILL CLEAN-UP
THIS PROGRAM.

INITIALLY, MY COLLEAGUE FROM LOUISIANA
INTRODUCED LEGISLATION IN THE LAST CONGRESS
THAT WOULD HAVE ABOLISHED THE NEMT
PROGRAM ALTOGETHER.


133

102 cases and from 96 defendants convicted to 140. Civil
judgments and settlements increased from 46 te 60; and the FBI
reported that monetary recoveries, including restitution, fines
and civil settlements in health care traud cases increased from
$140 million in fiscal year 1993 to in excess of $780 million in
fiscal year 1994.

Unfortunately, those who prey on the health care system will
continue to do so, in spite of our efforts. The Department of
Justice is, however, committed to meeting the challenge of health
care fraud with vigorous enforcement. We welcome this
Subcommittee's efforte to assist us. H.R. 2326 contains many new
statutory “tools" that would greatly assist the investigators and
prosecutors in their health care enforcement efforts. The result
will be increased savings to the health care industry and
substantial savings to consumers, as well. These tocis would
also help us to operate more efficiently, and, therefore, would
save precious law enforcement resources.

Although there are existing federal statutory authorities
under which we are able to investigate and prosecute health care
fraud, the enactment of a specific federal health care fraud
offense, as proposed in section 202 of H.R. 2326, will provide a
straightforward vehicle under which to bring such cases. This
new statute should eliminate some issues in litigation and,
therefore, should result in savings of investigative and

prosecutive resources.


17

13

shall be transferred to the general fund of the
Treasury any amount remaining in the Reserve
Subaccount at the end of a fiscal year (after
any transfer made under subparagraph (B)) in
excess of 10 percent of the total amount au-
thorized to be deposited in the Expenses Sub-
account (consistent with subparagraph (A))
during the fiseal year.

(f) ACCEPTANCE OF GIFTS, BEQUESTS, AND DE-
VISES.—Any Inspector General referred to in subsection
(a)(1) may accept, use, and dispose of gifts, bequests, or
devises of services or property (real or personal), for the
purpose of aiding or facilitating activities under this sec-
tion regarding health care fraud and abuse. Gifts, be-
quests, or devises of money and proceeds from sales of
other property received as gifts, bequests, or devises shall
be deposited in the Account and shall be available for use
in aecordance with subsection (e)(2)(C).

(g) REIMBURSEMENTS OF EXPENSES AND OTHER
PAYMENTS TO PARTICIPATING AGENCIES.—

(1) REIMBURSEMENT OF EXPENSES OF FED-

ERAL AGENCIES.—The Inspector General, subject to

the availability of amounts in the Account, shall

promptly reimburse Federal agencies for expenses

incurred in carrying out subsection (a).

HR 1850 IH


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BRPEBBEPBSEeWDARBREBERES

61

40

may be relevant to an authorized law enforcement inquiry,
that a person or legal entity may possess or have care,
custody, or control. The attendance of witnesses and the
production of records may be required from any place in
any State or in any territory or other place subject to the
jurisdiction of the United States at any designated place
of hearing; except that a witness shall not be required to
appear at any hearing more than 500 miles distant from
the place where he was served with a subpoena. Witnesses
summoned under this section shall be paid the same fees
and mileage that are paid witnesses in the courts of the
United States. A summons requiring the production of
records shall describe the objects required to be produced
and prescribe a return date within a reasonable period of
time within which the objects can be assembled and made
available.

“(2) Investigative demands utilizing an administra-
tive summons are authorized for:

“(A) Any investigation with respect to any act
or activity constituting an offense involving a Fed-
eral health care offense as that term is defined in
section 24 of title 18, United States Code.

“(B) Any investigation, with respect to viola-
tions of sections 1073 and 1074 of title 18, United
States Code, or in which an individual has been law-


217

-9-

families regardless of whether they were treated. In one instance, bills were
‘submitted for 169 persons supposedly treated in one day."3!

Xf “In Florids, five persons were sentenced as the result of a continuing investigation
into a conspiracy in which Medicare was fraudulently billed about $5.2 million for
oxygen concentrators, nebulizers, medications and tests. Three men were ordered to
pay $23 million in restitution, and were sentenced to 41, 46, and $1 months in jail,
for paying physicians for prescriptions which they sold to two medical supply
‘companies and a laboratory to use in billing Medicare."»?

XL "A second Florida investigation involving kickbacks to physicians for prescriptions
for unnecessary medical supplies also resulted in five sentencings during this period.
‘More than a dozen companies, set up supposedly to supply Medicare patients with
liquid nutritional supplements and feeding kits, defrauded Medicare of an estimated
$20 million. A man and woman who operated some of the companies paid recruiters
to sign up senior citizens for 'free milk’ (for which they billed Medicare) and were
sentenced to 51 and 24 months in prison respectively. They are to make restitution of
‘more than $4.6 million. Another woman who did the billing for several of the
‘companies was sentenced to 5 months in prison and ordered to pay restitution and
fines over $251,000. Two physicians who were paid for signing blank certifications
for patients, regardless of the medical necessity or their eligibility, were sentenced to
30 and 12 months in prison and ordered to pay a total of almost $865,000. Others
await sentencing. The ‘kingpin’ of the scheme fled the country but was found in
Venezuela and extradited."33

"A cardiologist has been charged with receiving $125,000 in kickbacks from a
Durable Medical Equipment (DME) commany that enables the company, which
supplied oxygen and respiratory aids, to bill government programs for hundreds of
thousands of dollars. The indictment claims the doctor received kickbacks in the
form of cash payments, jewelry, and other gifts in exchange for referrals."

Xf A Florida clinic owner and operator was sentenced to a year and a half in prison for
paying illegal kickbacks for patient referrals and filing false Medicare and Medicaid
claims. "Recruiters" were frequently paid $5 to $10 for each eligible Medicare/
Medicaid beneficiary that they brought into the clinic by the owner. Patients were
also paid for directly coming in and bringing their children into the clinic. The clinic
‘owner was ordered to make restitution of $129,000 he received by submitting false
claims for these individuals.*$

31 HHS, OIG, Semiannual Report, October 1, 1993 - March 31, 1994, p. 17.
32 dem.

3 dem.
Gaming the Health Care System. pp. 14-15.
35 HHS, O1G, Semiannual Report, April 1, 1993 - September 30, 1993, p. 25.


130

I think, Mr. Schiff, you might recall from being a U.S. attorney,
the desire to at least have some control over a subpoena that some-
body in Pies district would be issuing. The way we would prefer
this is, the FBI would talk with the U.S. attorney about the sub-
poena before it would be issued, because, in many cases, the U.S.
attorney will be defending that subpoena when somebody objects to
it

Mr. SHAyYs. What section was that? I’m sorry.

Mr. STERN. That is Section 210. The way it now is written, it
provides that the Attorney General or the FBI, and we would =
fer that it would be just the Attorney General. Also, we would like
it to be limited to health care fraud, since that is the purview of
the bill itself, and to limit it to the requirement that the person
give testimony with respect to the records themselves and not just
a more broad-ranging ability to subpoena somebody to give testi-
mony outside of just the records.

Those are the only specific major issues that I would raise with
you today. I have discussed a number of more minor and technical
issues with your staff. I would be pleased to continue to carry on
those discussions with them, if you would like. And I look forward
to any questions you might have of us.

ain, thank you very much for having this hearing.
{The prepared statement of Mr. Stern follows:]


114

The proposals expanding the Inspector General’s civil monetary penalty authority and
new permissive exclusion authority will also assist law enforcement. ‘The requirement in section
305 for providers to use a single provider number is excellent and long overdue.

‘Again, we appreciate the opportunity to comment on this legislation and look forward to

working with your staff on these" issues.

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116

61

“(f) HEALTH PLAN.—As used in this section the
term ‘health plan’ has the same meaning given such term
in section 101{c) of the Health Care Fraud and Abuse
Prevention Act of 1995.”

(b) CLERICAL AMENDMENT.—The table of sections
for chapter 223 of title 1S, United States Code, is amend-
ed by inserting after the item relating to section 3405 the
following new item:

“$3486. Authorized investigative demand proce-
dures”.

(ec) CONFORMING AMENDMENT.—Section
1510(b)(3)(B) of title 18, United States Code, is amended
by inserting “or a Department of Justice subpoena (issued

under section 3456),” after “‘subpoena’’.

TITLE VI—STATE HEALTH CARE
FRAUD CONTROL UNITS
SEC. 601. STATE HEALTH CARE FRAUD CONTROL UNITS.

(a) EXTENSION OF CONCURRENT AUTHORITY TO IN-
VESTIGATE AND PROSECUTE FRAUD IN OTHER FEDERAL
PROGRAMS.—Paragraph (3) of section 1903(q) of the So-
cial Security Act (42 U.S.C. 1396b(q)) is amended—

(1) by inserting “(A)” after “in connection
with”; and
(2) by striking “title.” and inserting “title; and

(B) upon the approval of the relevant Federal agen-

+S 1088 IS


248

health fraud enforcement.) For the same reasons, we also suggest
that the Secretary be included in section 101(a), which relates
to the investigation of health care fraud violations of federal
law.

‘the Department's primary focus with respect to ERISA-covered
health plans is to protect the benefits of participants and
beneficiaries. In cases where private health plans participants
and beneficiaries are the victims of fraud and abuse, criminal
forfeitures and civil recoveries should be used to make
participants and beneficiaries whole for losses before funds are
paid into the Anti-Fraud Account,

Finally, we believe the provisions of H.R. 2326 amending the
criminal law concerning health care fraud represent positive
steps toward eliminating abusive practices that drive up the cost
of health care. Under ERISA, the Secretary of Labor has
responsibility for enforcing the provisions of Title I of ERISA
and conducting investigations of civil and criminal violations
relating to Title I and “other related violations of Title 18 of
the United States Code" which include health care fraud.
Therefore, we suggest adding language to clarify that the
Secretary of Labor will have the authority to investigate the new
Title 1@ crimes as they apply to ERISA welfare benefit plans.

The Department would be pleased tc work with your staff to
develop language that would protect plan enrollees who are the
victims of health care fraud. As the agency responsible for
regulating employment-based health plans, we will continue to
review H.R. 2326 for other issues affecting Department programs
We look forward to providing further input on this bill and to
working with you on these issues

2 The Oepartment has civil and criminal oversight
responsibility for all private sector employee health benefit
plans under ERISA. The Pension and Welfare Benefits
Administration (PHBA) conducts civil and criminal investigations
of persons and entities that exercise discretion over ERISA plans
and pian assets, such as multiple employer welfare arrangements
(MEWAS). As you are aware, the Department administers and
oversees many other worker-related health care programs
including the administration of the Federal Employees
Compensation Act (FECA) program (medical benefits and disability
compensation to injured Federal employees); the Black Lung
Benefits program (medical benefits and disability compensation to
former coal miners disabled from pneumoconiosis or "black lung");
and the Longshore and Harbor Workers Compensation Act program
(benefits to certain injured and disabled maritime employees).
The Inspector General investigates allegations of fraud in these
programs and conducts certain criminal investigations of MEWAS
and employee benefit plans as well.

2


Page Two/Shays Hearing Statement on H.R. 2326/September 28, 1995

Individuals and organizations defrauding or abusing the systems continue to operate. The
lures are great. Few are caught. Penalties are mild. Justice is slow. Prevention and enforcement
resources are inadequate. Communication among those authorities who deter and detect those
disobeying the rules is limited at best.

The legislation to be discussed today addresses these problems, This legislation

* requires federal enforcement av‘incsities to coordinate their efforts more effectively;
* establishes a separate account to pay for enforcement, funded by fines and penalties,

* makes public and private health care fraud a federal crime;

* imposes substantial fines and prison sentences for health care fraud;

* establishes a reward program for information leading to the conviction of health care cheats,
* limits health care providers to one universal billing number,

* expands the authority to exclude abusive providers, and,

* requires HHS to adopt market sensitive, prompt pricing of equipment and services.

H.R. 2326 is an “all payer” anti-fraud and abuse bill, whether the violations are against
Medicare and Medicaid programs or against private payers. This legislation is perhaps one of the
‘most far-reaching anti-fraud and abuse health care bills ever introduced, offering both public and
private payers major new prevention and deterrence tools The Congressional Budget Office
estimates that aggressive anti-fraud provisions such as these could save up to $4.1 billion over
seven years.

In this Congress, we are committed to preserving Medicare and Medicaid through reforms
that assure sustainable growth of those programs. The growth of health care fraud is not
sustainable. The reforms in this legislation will ensure that as federal health care spending grows,
fraud and abuse will not grow with it

In coming weeks, this subcommittee and other House and Senate committees will finalize
legislation to strengthen protections against health care fraud. We look forward to working with
Mr. Schiff who sits on the Judiciary Committee, and our colleagues on the Commerce and Ways
and Means committees, to enact the toughest anti-fraud law ever.

‘We welcome our witnesses, We look forward to the comments and suggestions of
Lovola Burgess, past president of AARP, William Mahon of the National Health Care Anti-Fraud
Association, Thomas Schatz of Citizens Against Government Waste, Gerald Stem of the Justice
Department, and Dr. Helen Smits of the Health Care Finance Administration.


93,

1 am also concerned that the Medicaid plan may create
incentives for more fraud. Under the plan, States would receive a
lump sum Federal payment with maximum flexibility to decide how
the Federal dollars are spent, and minimum Federal restrictions.
This new "MediGrant" plan could result in less Federal oversight of
State-run health benefits programs and more fraud and abuse
violations at the State level. Second, Federal spending cuts of $180
billion in Medicaid over seven years will increase costs to States and
may result in reduced State spending on health care fraud and abuse

control efforts.


38

7
an initial term of 2 years, as specified by the Inspector
General at the time of appointment.

(d) VACANCIES.—A vacancy on the Board shall be
filled in the same manner in which the original appoint-
ment was made, except that an individual appointed to
fill a vaeaney occurring before the expiration of the term
for which the individual is appointed shall be appointed
only for the remainder of that term.

(e) CHAIRPERSON AND BYLAWS.—The Board shall
elect one of its members as chairperson and shall adopt
bylaws.

(f) COMPENSATION AND EXPENSES.—Members of
the Board shall serve without compensation, except that
the Inspector General may pay the expenses reasonably
incurred by the Board in carrying out its functions under
this section.

(g) No TERMINATION.—Seetion 14(a)(2) of the Fed-
eral Advisory Committee Act (5 U.S.C. App.) does not
apply to the Board.

SEC. 108. ESTABLISHMENT OF HEALTH CARE FRAUD AND
ABUSE DATA BASE.

(a) IN GENERAL.—The Secretary of Health and
Human Services, in consultation with the Attorney Gen-
eral, shall establish a data base for the reporting of final

adverse actions taken by a Government agency against


158

Mr. STERN. With the statute, I would have to prove that, and
with the additional comments I made about expanding the
antikickback statute so that it goes beyond just Medicare and Med-
icaid but goes to all Federal plans, the Blue Cross plan for Federal
employees here in Washington would now be covered directly, and
some of our biggest cases have been the kickback cases. So these
are additional weapons.

Mr Suays. Mr. Gould, did you want to respond to that question
at all?

Mr. GOULD. It’s more on their side.

Mr. Suays. OK. Thank you.

Let me ask you, Dr. Smits, in the House bill, on Medicare, it does
not really require or encourage HHS to provide expedited readjust-
ment to payment levels, and so on. You basically can take action
now, without any legislation that we have.

Dr. Smits. But it’s cumbersome.

Mr. Suays. So we need to change the legislation, the point is.

Dr. Smits. Particularly with certain of our pricing arrangements.

Mr. Says. So it would strike me that that, Mr. Schiff, is some-
thing else that we need to weigh in, because that is not included
in the legislation.

Mr. ScuirF. What issue is that?

Mr. Suays. This is the whole issue of pricing. HCFA does not
have the ability to adjust what it reimburses, so sometimes it is
paying well above the market price.

Dr. Smits. This relates particularly to durable medical equip-
ment.

Mr. SHays. When prices go down.

Dr. Smits. We have book prices, and our authority to reduce
those when the market changes or the product changes is very lim-
ited.

Mr. ScuiFF. Would the Chair yield for a minute?

I’m familiar with the issue, of course. We’ve all heard about and
we've seen TV programs of “HCFA paid this amount and here’s
what it sells for.” But I wonder if that’s a fraud issue versus is that
a——are you restricted in purchasing?

Mr. Suays. I’m not suggesting that it’s a fraud issue. I’m off the
criminal issue and I’m on to another provision of our bill, which
just is, in the Section 3 area, encouraging HCFA to move forward
more quickly. And the question I’m having is, you do need legisla-
tion from us?

Dr. Smits. Yes, in that area. It’s an invitation for fraudulent sup-
pliers to come in when they can sell it to us for four or five times
what they can sell it to anyone else.

Mr. Scuirr. If the Chair would yield again, I'm not entirely fol-
lowing why, legislatively, you need changes in order to adjust your
purchasing.

Dr. Smits. Because the mechanism for downward adjustment of
the price book on durable medical equipment is extremely cum-
bersome and regulatory. We need to be allowed to move fast. We
need to behave more like private purchasers and take bids.

Mr. ScuiFr. And how you downsize, that book, that’s controlled
legislatively?


Tactics include HCFA and IG financial audits; stepping up
criminal investigations, civil and adminis

recovery actions; and increasing surveys
term care faciliti

order to inform benefic:
Inspector General will issue special fraud alerts to notify the
public and the health care community about schemes in the
provision of home health services, nursing care and medical
equipment and supplies. Additionally, a fraud and waste report
hotline -~ 1-800-HHS-TIPS -- ig available for public use.

Operation Restore Trust emphasizes improved communication between
Federal and State agencies. In addition,

we are demonstrating the use of State quality surveyors to
scrutinize possible fraud and abuse by ‘targeted providers. If
our experience in South Florida is any indication, this joint
effort should yield a substantial savings to the Government.

Under Operation Restore Trust, HCFA has recently opened a
satellite office to specifically combat Medicare and Medicaid
fraud ai se. The Miami office will provide assistance to
Federal, State and local law enforcement authorities in Medicare
and Medicaid investigations. I would like to take this
opportunity to share with you some of the results of our Miami
office to date.

© A Miami area businessman has been charged with stealing $120
million by submitting fraudulent Medicare claims. His
Retvork of bogus companies extended from Miami through Fort
Lauderdale. For three and a half years, physicians and
beneficiaries vere paid to assist in filing false clains.
The businessman has agrasd to plead guilty and faces up to
15 years in prison for 2 counts of mail fraud and a
probation violation.

© 18 defendants nave been charged with more than $20 million
in fraudulent Medicare claims. This scam involved 5
different providers submitting clains for medical equipment
and medications. Providers paid managers of retirement
Communities for Lists of beneficiaries and alse bribed
physicians to sign prescriptions. The defendants each face
up to a 5 year prison term and a fine up to $250,000 and
restitution.

The Miami office has also provided assistance to HCFA’s Medicare
claims processing contractors and the Medicaid state Agency to
improve and increase the productivity of their program integrity
projects.

© We investigated 200 beneficiaries whose account numbers were
used to bill thousands of services in dozens of scams under
investigation by HCFA and law enforcement. Beneficiari«



100

CMPL's strict liability standard to excluded providers who do not personally render or direct the
provision of health care to program beneficiaries, but who order or prescribe items or services on
their behalf, would help the OIG curtail the continuous fraud committed by certain providers. In
addition, such a provision will encourage ancillary care providers and suppliers (such as laboratories
and pharmacies) to check out providers who refer business to them and to refuse to deal with those
who have been excluded from the health care programs.

Amendments to the OIG's Permissive Exclusion Authorities

The OIG's exclusion authorities are an important enforcement remedy. We have made great strides,
not only in excluding aberrant providers from our programs, but also in ensuring that they don't
continue to abuse our health care financing systems and our beneficiaries. However, there are still
some loopholes that allow fraud and abuse to thrive at the expense of the programs, the taxpayers,
and program beneficiaries.

‘The proposal in H.R. 2326 to impose a new permissive exclusion authority against individuals who
‘own or control sanctioned entities closes one such loophole. ‘This new authority would enable the
OIG to exclude individuals who own or control entities that have been convicted of program-related
crimes, entities against which penalties have been imposed under the CMPL, and entities that have
been excluded from Medicare and State health care programs. We have found that unscrupulous
health care company owners simply change corporate structures or move from one business to
another if the first has been convicted or excluded. As our authority now stands, if an owner is
convicted and excluded, then we can exclude any company associated with that individual.
However, if a company is excluded, we currently have no authority under which we can take action
against the owner of the company. That individual is free to reincorporate or start another business
with no fear of exclusion. Your proposal permits the OIG to exclude culpable individuals who move
from company to company, shutting the door on these "mobile" business owners.

Additional Anti-Fraud Initiatives

We applaud the proposal in H.R. 2326 to require carriers and fiscal intermediaries to reimburse the
Medicare Trust Funds for any health care program funds paid to excluded providers once the carrier
or intermediary has been notified of the exclusion. If these contractors fail to take the administrative
steps necessary to implement and enforce the OIG's exclusions, they should remain liable for any
claims wrongfully paid to an excluded party. By preventing improper disbursements of program
funds to individuals and entities not entitled to receive them, this provision should result in
substantial savings to the Federal health care programs. However, we recommend that this provision
be expanded to impose the same liability upon States that fail to implement the OIG's exclusions.
‘We have had experiences with State Medicaid agencies which have neglected to enforce O1G
exclusions in a timely and proper manner. The lesson of these experiences is that a mechanism is
needed to ensure that the States respond to the OIG’s exclusion notices. Expansion of your
legislative proposal affecting carriers and fiscal intermediaries to State Agencies that fait to
implement OIG exclusions would provide such a mechanism.

Again, we appreciate having an opportunity to comment on this legislation and will be happy to
continue working with your staff on these important issues.



CeO YN DH UW PR WH

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established under this section pertains, may review
that information and obtain the correction of errors
pertaining to that person.

(2) OTHER CORRECTIONS.—Each Government.
agency shall report corrections of information al-
ready reported about any final adverse action taken
against a health care provider, supplier, or practi-
tioner, or a health care benefit program, in such
form and manner as required by the Secretary.

(d) ACCESS TO REPORTED INFORMATION.—

(1) AvarLaBILiITy.—The information in this
data base shall be available to the public, Federal
and State law enforcement agencies, Federal and
State government agencies, and health care benefit
programs pursuant to procedures established by the
Secretary and Attorney General.

(2) Fees.—The Secretary may establish rea-
sonable fees for the disclosure of information in this
data base.

(e) PROTECTION FROM LIABILITY FOR REPORT-

ING.—No person may be held liable in any civil action with
respect to reporting information required to be reported
under this section, unless the information reported was
false and the person had knowledge of the falsity of the

information.