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27–753 PDF 2007

S. Hrg. 109–842

BOLSTERING THE SAFETY NET: ELIMINATING

MEDICAID FRAUD

HEARING

BEFORE THE

FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT 

INFORMATION, AND INTERNATIONAL 

SECURITY SUBCOMMITTEE

OF THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

MARCH 28, 2006

Printed for the use of the Committee on Homeland Security 

and Governmental Affairs

(

(II)

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

SUSAN M. COLLINS, Maine, Chairman 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

NORM COLEMAN, Minnesota 

TOM COBURN, Oklahoma 

LINCOLN D. CHAFEE, Rhode Island 

ROBERT F. BENNETT, Utah 

PETE V. DOMENICI, New Mexico 

JOHN W. WARNER, Virginia 

JOSEPH I. LIEBERMAN, Connecticut 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas

MICHAEL D. BOPP, Staff Director and Chief Counsel 

JOYCE A. RECHTSCHAFFEN, Minority Staff Director and Chief Counsel 

TRINA DRIESSNACK TYRER, Chief Clerk 

FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, AND 

INTERNATIONAL SECURITY SUBCOMMITTEE 

TOM COBURN, Oklahoma, Chairman 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

LINCOLN D. CHAFEE, Rhode Island 

ROBERT F. BENNETT, Utah 

PETE V. DOMENICI, New Mexico 

JOHN W. WARNER, Virginia 

THOMAS CARPER, Delaware 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas

KATY FRENCH, Staff Director 

SHEILA MURPHY, Minority Staff Director 

JOHN KILVINGTON, Minority Deputy Staff Director 

LIZ SCRANTON, Chief Clerk 

(III)

C O N T E N T S 

Opening statements: Page 

Senator Coburn ................................................................................................. 1

Senator Akaka .................................................................................................. 4

Senator Carper ................................................................................................. 8

WITNESSES 

TUESDAY, MARCH 28, 2006

Hon. Daniel Levinson, Inspector General, U.S. Department of Health and 

Human Services, accompanied by Michael Little, Deputy Inspector General 

for Investigations, U.S. Department of Health and Human Services .............. 8

Dennis Smith, Director, Center for Medicaid and State Operations ................... 11

Leslie Aronovitz, Health Care Director, Program Administration and Integrity 

Issues, Government Accountability Office ......................................................... 13

Brian Flood, Inspector General, Health and Human Services, State of Texas .. 25

ALPHABETICAL LIST OF WITNESSES

Aronovitz, Leslie: 

Testimony .......................................................................................................... 13

Prepared statement .......................................................................................... 53

Flood, Brian: 

Testimony .......................................................................................................... 25

Prepared statement .......................................................................................... 69

Levinson, Hon. Daniel: 

Testimony .......................................................................................................... 8

Prepared statement with an attachment ....................................................... 31

Smith, Dennis: 

Testimony .......................................................................................................... 11

Prepared statement .......................................................................................... 44

APPENDIX 

Kimberly A. O’Connor, Inspector General, New York State Medicaid, prepared 

statement .............................................................................................................. 78

Charts submitted by Senator Coburn .................................................................... 83

Questions and responses for the Record from: 

Mr. Levinson ..................................................................................................... 86

Mr. Smith .......................................................................................................... 93

(1)

BOLSTERING THE SAFETY NET: ELIMINATING 

MEDICAID FRAUD 

TUESDAY, MARCH 28, 2006

U.S. SENATE, SUBCOMMITTEE ON FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, AND INTERNATIONAL SECURITY

OF THE COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS, Washington, DC. 

The Subcommittee met, pursuant to notice, at 2:30 p.m., in room 

SD–342, Dirksen Senate Office Building, Hon. Tom Coburn, Chairman of the Subcommittee, presiding. 

Present: Senators Coburn, Carper, and Akaka. 

OPENING STATEMENT OF SENATOR COBURN 

Senator COBURN. The Subcommittee on Federal Financial Management of the Homeland Security and Governmental Affairs Committee will come to order. I want to welcome each of our witnesses 

today, and to discuss briefly some of the problems that we face. 

One in five Americans today is on Medicaid. That’s somewhere 

between 57 to 60 million Americans. The program costs taxpayers 

$330 billion this year, and that figure is growing at more than 

twice the rate of inflation. 

Between 2004 and 2005, the last years for which we have data, 

the program grew by 12 percent. Medicaid growth is outpacing 

even that of Medicare. What’s more, the Federal investment in 

Medicaid is only growing—by 2016, it is estimated that Medicare 

and Medicaid alone will make up half of the Federal budget for 

mandatory spending. 

That unchecked spending growth would be troublesome enough. 

However, that’s not the end of the story. Unfortunately, fraud and 

improper payments is a huge problem in this program. We don’t 

know how huge because nobody is measuring the problem in any 

sort of systematic way. As a result, the estimates of scope of Medicaid fraud are all over the map, but are likely to be no lower than 

10 percent and could be, in some States such as New York, during 

some years, as high as 30 to 40 percent. 

In just one year, New York was defrauded, some have estimated, 

by as much as $18 billion. If true, that would represent a fraud 

rate of about 42 percent for that year in New York alone. More 

than every third dollar that should help the poor was wasted to 

fraud and abuse. If we use CBO’s current baseline estimates for 

the Federal share alone of Medicaid by 2016, and we assume what 

is probably a low estimate in terms of the rate of payment for fraud 

2

or errors—10 percent—the total is $39 billion in taxpayers’ dollars 

that are diverted from care for those that need it. 

The reasons for the problem are mainly structural. We simply 

have not put into place the necessary systems to detect and control 

fraud and other improper payments. However, Congress did pass 

the Improper Payments Information Act of 2002, and to date, Medicaid is still out of compliance with that law, and CMS admits that 

the program will likely stay out of compliance until 2008 at the 

earliest. 

We’ve had three hearings already on improper payments in this 

Subcommittee, and we will continue to have improper payment 

hearings until every agency is not only in compliance with but reporting their payment errors, but has also reduced those errors to 

more reasonable levels. 

Apart from flagrant violations of the law, what we need to do is 

talk about some of the institutional reasons for the fraud problem. 

First, there’s a responsibility problem, and this Subcommittee 

works under the idea of accountability. The Federal Government 

has chosen to abdicate on fraud control at the level where most 

fraud happens—individuals, providers, and facilities. 

Instead, CMS focuses oversight efforts on how State governments 

behave, leaving the bulk of fraud control to States. However, this 

ceding of responsibility is not mandated by law and ignores the significant Federal interest in controlling fraud when 59 cents out of 

every dollar spent on Medicaid is Federal tax dollars. 

Second, CMS monitors States’ behavior primarily, but even this 

State monitoring by CMS is weak. Under the current CMS procedure, each State gets monitored for fraud control by CMS at best 

only once every 7 or 8 years. This means that at any given time, 

CMS has no accurate picture of fraud control efforts even in a majority of the States. 

Third, States, who have by default become the primary fraud 

overseers, have typically diluted their fraud control’s activities by 

housing them under the same roof as their program integrity operation. That is the unit responsible for ensuring that the State pays 

every claim and gets its full Federal match. The somewhat mutually exclusive missions between program integrity function and 

fraud control unit’s function leads to fraud control getting the short 

end of the stick. 

Fourth, our incentive structure is out of whack. States face the 

perverse incentive that for every additional dollar they spend on 

Medicaid, even if it’s fraudulently paid, they receive more than that 

dollar back from the Federal Government in the Federal Medicaid 

match. 

CMS is rightly tracking inappropriate and unlawful cost-shifting 

games that States play by artificially inflating their cost in order 

to maximize their Federal match, only to then place the surplus 

back into the supposed State contribution, which then pluses up 

their Federal match again. 

Another scam along similar lines is the provider tax, whereby 

States charge providers taxes, which is reimbursed through increased payments. That increased charge the State uses to get a 

bigger Federal match, and then it reimburses the providers for the 

3

tax and pockets the Federal cash. CMS has got to put an end to 

these schemes based on Medicaid’s perverse incentive structures. 

Finally, there is simply no strategic plan for getting the problem 

under control. There’s no data collection to even measure the problem or track its progress over time. 

With the Federal investment in Medicaid growing at exponential 

rates each year, CMS needs to take responsibility for fraud control 

by both increasing its efforts at the Federal level and providing 

some standardization, monitoring, and coordination at the State 

level. 

I believe an effective strategic plan would have the following elements:

• Clearly delineate roles and responsibilities for fraud control 

and standardize those roles across States. 

• Put CMS on record for measurable targets for fraud reduction and timelines for meeting those targets. 

• Apply consequences with real teeth for failing to meet those 

targets on time. 

• Provide support and assistance to States who create sound 

organizational structures for separating fraud control activities from programmatic financial management. Texas, who 

will be testifying today, is a model of how to provide both 

independence for its fraud control activities as well as integration of those activities with all the other players in government necessary to ensure that those activities are effective. For example, Texas’ Inspector General has subpoena 

power, whereas New York’s does not. 

• Measure the problem in a systematic and reliable way, 

standardized across States. CMS officials themselves have 

estimated that appropriate information-sharing and data collection would not be expensive to support, perhaps as low as 

$100,000 annually.

Finally, I want to thank our witnesses for being here today, and 

I want to emphasize that their efforts to control fraud are not going 

unnoticed. Many individuals at both the State and Federal levels 

are working hard to combat fraud, and I commend them for their 

work. Some States have implemented creative solutions to prevent 

and control fraud. Texas just undertook a massive reorganization 

of its health and finance infrastructure in order to prevent and control fraud, and provides a good model for other States to follow. 

I go home on weekends to Oklahoma and practice medicine. 

Many of my patients are Medicaid patients. Some of them actually 

are pregnant with the next generation of Americans. Every time I 

deliver a new baby into the world, I’m reminded why I spend the 

rest of my next week in Washington. I do not want us to become 

the first generation of Americans to leave our country in worse financial shape than we found it. I know each of you today share 

that goal, and I look forward to working with you. 

Our first panelist is Daniel Levinson, Inspector General of the 

U.S. Department of Health and Human Services. As Inspector General, he serves as the chief audit and law enforcement executive for 

the largest civil department on the Federal Government, with a 

budget that accounts for nearly one of every four Federal dollars. 

4

He manages an independent and objective oversight unit of 1,500 

auditors, analysts, investigators, lawyers, and support staff dedicated to protecting the integrity of over 300 Department of Health 

and Human Services programs and the health and welfare program 

of beneficiaries. 

Next is Dennis Smith, Director of the Center for Medicaid and 

State Operations. Mr. Smith has been Director of the Center for 

Medicaid and State Operations since July 19, 2001. As director, he 

provides leadership in the development and implementation of national policies governing Medicaid, the State Children’s Health Insurance Program, survey and certification, and Clinical Laboratories Improvement Act, and he oversees CMS interactions with 

States and local governments. 

Next is Leslie Aronovitz, Director, Health Care, U.S. General Accountability Office’s health care team. She has held her position of 

Health Care Director at the GAO for most of the past 14 years. She 

is responsible for a variety of health care issues, including Medicare administration and management, the Centers for Medicare 

and Medicaid Services governance, Medicare and Medicaid program integrity, and health profession shortages. 

I want to welcome each of you. Your statements will be submitted to the record without objection. And if you would limit your 

testimony to 5 minutes, or somewhere around that, then we’ll get 

on to questions. 

I welcome Senator Akaka. Would you care to make an opening 

statement, Senator Akaka? 

Senator AKAKA. Yes, Mr. Chairman. 

OPENING STATEMENT OF SENATOR AKAKA 

Senator AKAKA. I thank you very much for having this hearing. 

Medicaid fraud needs to be examined so that we can see how we 

can improve the administration of this vital program. However, Mr. 

Chairman, we must ensure that individuals are not unfairly denied 

treatment in the name of a fraud crackdown, especially, since provider fraud is much more prevalent than beneficiary fraud. 

The Deficit Reduction Act contained a provision that will require 

individuals applying or reapplying for Medicaid to verify their citizenship through additional documentation requirements. The requirements will—what I’m coming down to is that we must repeal 

this provision before it goes into effect July 1, 2006 because it will 

create barriers to health care. It is unnecessary and there will be 

an administrative nightmare to implement. For most native-born 

citizens, these new requirements will most likely mean that they 

will have to show a U.S. passport or birth certificate. 

The Center on Budget and Policy Priorities estimates that more 

than 51 million individuals in this country will be burdened by 

having to produce additional documentation. In Hawaii, an estimated 200,000 people who are enrolled in Medicaid will be required 

to produce additional documentation. The estimate for Oklahoma is 

654,000 people. 

The requirements, as I said, will impact low-income, racial and 

ethnic minorities, indigenous people, and individuals born in rural 

areas within access to hospitals. One in 12 U.S. adults who earn 

5

incomes of less than $25,000 report they do not have a U.S. passport or birth certificate in their possession. 

An estimated 3.2 to 4.6 million U.S.-born citizens may have their 

Medicaid coverage threatened simply because they do not have a 

passport or birth certificate readily available. Many others will also 

have difficulty in securing these documents, such as Native Americans born in home settings, Hurricane Katrina survivors, and 

homeless individuals. 

Mr. Chairman, you do understand the difficulty in gaining access 

to health care. Having to acquire a birth certificate or a passport 

before seeking treatment will create an additional barrier for care. 

Some beneficiaries may not be able to afford the financial costs or 

time investment associated with obtaining a birth certificate or 

passport. Hawaii Department of Health charges $10 for duplicate 

birth certificates. The costs vary by State and can be as much as 

$23 to get a birth certificate, or $97 for a passport. 

Taking the time and obtaining the necessary transportation to 

acquire the birth certificate or passport, particularly in rural areas 

where public transportation may not exist, creates a hardship for 

Medicaid beneficiaries. Failure to produce the documents quickly 

may result in a loss of Medicaid eligibility. Further compounding 

the hardship is the failure to provide an exemption from the new 

requirements for individuals suffering from mental or physical disabilities. 

Those suffering from diseases such as Alzheimers may lose their 

Medicaid coverage because they may not have or be able to easily 

obtain a passport or birth certificate. It is likely these documentation requirements will prevent beneficiaries who are otherwise eligible for Medicaid to enroll in the program. This will result in more 

uninsured Americans and increase the burden on our health care 

providers and the delay of treatment for needed health care. 

Just last Friday, while visiting Kapiolani Medical Center for 

Women and Children in my home State of Hawaii, I met with a 

mother who said if it wasn’t for Medicaid benefits, her specialneeds child would not have the level of care he is getting now at 

Kapiolani. Parents who are dealing with hardships of having a sick 

child should not have to worry about their current Medicaid status 

due to these new requirements. 

Citizenship status checks will impose unnecessary challenges 

that are not needed due to current protections already in place. 

The Hawaii Primary Care Association estimates that administrative costs for our Department of Human Services will increase by 

$640,000 as a result of these new requirements. 

I know the authors of this provision in the House believe that illegal immigrants are costing their State significant amounts of 

money. They claim that more than $80 million of a State’s total 

$7.6 billion Medicaid budget has gone to illegal immigrants. Other 

sources find the amount may exceed $300 million. If Medicaid 

fraud in Georgia is so rampant, perhaps it would be more responsible to first investigate the problems experienced by Georgia’s 

Medicaid program. Mandating these requirements nationwide because of the difficulties confronting one State is a prescription for 

disaster. 

6

The proponents of this misguided policy believe that applicants 

will be able to just show a driver’s license or a State identification 

card under the REAL ID Act. However, it is not expected that the 

Department of Homeland Security will even issue regulations until 

this summer, and compliance is not expected until 2008. 

The real purpose of the additional documentation requirements 

is to reduce the number of people on Medicaid in a short-sighted 

attempt to save money. All we have done is to make it more difficult for citizens to get Medicaid rather than undocumented immigrants. Denying access to Medicaid unfairly will cost more money 

than it will save. 

Denying access to primary care will increase uncompensated care 

provided by our health care providers. Denying access to primary 

care will result in more pain and suffering of individuals. For example, people without Medicaid will have to seek treatment for 

renal failure instead of having access to the care needed to properly 

manage their diabetes. 

I thank all of our witnesses today for being here, and look forward to your testimony. And again, I want to thank Mr. Chairman 

for having this hearing. Thank you very much, Mr. Chairman. 

I would like to at this time ask unanimous consent that my full 

statement be included in the record. 

Senator COBURN. Without objection.

PREPARED STATEMENT OF SENATOR AKAKA 

Thank you Mr. Chairman. I appreciate your conducting this hearing today. Medicaid fraud needs to be examined so we can see how we can improve the administration of this vital program. 

However, Mr. Chairman, we must ensure that individuals are not unfairly denied 

treatment in the name of a fraud crackdown especially since provider fraud is much 

more prevalent than beneficiary fraud. The Deficit Reduction Act contained a provision which will require individuals applying or reapplying for Medicaid to verify 

their citizenship through additional documentation requirements. I have introduced 

legislation, S. 2305, to repeal these burdensome documentation requirements for individuals applying or reapplying for Medicaid to verify their citizenship. 

We must repeal this provision before it goes into effect July 1, 2006, because it 

will create barriers to health care, is unnecessary, and will be an administrative 

nightmare to implement. For most native-born citizens, these new requirements will 

most likely mean that they will have to show a U.S. passport or birth certificate. 

The Center on Budget and Policy Priorities estimates that more than 51 million 

individuals in this country will be burdened by having to produce additional documentation. In 16 States, Arizona, California, Florida, Georgia, Illinois, Louisiana, 

Massachusetts, Michigan, Missouri, New York, North Carolina, Ohio, Pennsylvania, 

Tennessee, Texas, and Washington, more than a million Medicaid beneficiaries will 

be required to submit the additional documents to receive or stay on Medicaid. In 

Hawaii, an estimated 200,000 people who are enrolled in Medicaid will be required 

to produce the additional documentation. The estimate for Oklahoma is 654,000 people. 

The requirements will disproportionately impact low-income, racial and ethnic minorities, indigenous people, and individuals born in rural areas without access to 

hospitals. Due to discriminatory hospital admission policies, a significant number of 

African-Americans were prevented from being born in hospitals. Data from a survey 

commissioned by the Center on Budget and Policy Priorities is helpful in trying to 

determine the impact of the legislation. One in 12 U.S. born adults, who earn incomes of less than $25,000, report they do not have a U.S. passport or birth certificate in their possession. Also, more than 10 percent of U.S.-born parents, with incomes below $25,000, do not have a birth certificate or passport for at least one of 

their children. An estimated 3.2 to 4.6 million U.S.-born citizens may have their 

Medicaid coverage threatened simply because they do not have a passport or birth 

certificate readily available. Many others will also have difficulty in securing these 

7

documents, such as Native Americans born in home settings, Hurricane Katrina 

survivors, and homeless individuals. 

Mr. Chairman, you understand the difficulty in gaining access to health care. 

Having to acquire a birth certificate or a passport before seeking treatment will create an additional barrier to care. Some beneficiaries may not be able to afford the 

financial cost or time investment associated with obtaining a birth certificate or 

passport. The Hawaii Department of Health charges $10 for duplicate birth certificates. The costs vary by state and can be as much as $23 to get a birth certificate 

or $97 for a passport. Taking the time and obtaining the necessary transportation 

to acquire the birth certificate or a passport, particularly in rural areas where public 

transportation may not exist, creates a hardship for Medicaid beneficiaries. Failure 

to produce the documents quickly may result in a loss of Medicaid eligibility. 

Further compounding the hardship is the failure to provide an exemption from 

the new requirements for individuals suffering from mental or physical disabilities. 

Those suffering from diseases such as Alzheimer’s may lose their Medicaid coverage 

because they may not have or be able to easily obtain a passport or birth certificate. 

It is likely these documentation requirements will prevent beneficiaries who are 

otherwise eligible for Medicaid to enroll in the program. This will result in more 

uninsured Americans, an increased burden on our healthcare providers, and the 

delay of treatment for needed health care. 

Just last Friday, while visiting Kapiolani Medical Center for Women and Children 

in my home state of Hawaii, I met with a mother who said if it wasn’t for Medicaid 

benefits, her special-needs child would not have the level of care he is getting now 

at Kapiolani. 

Parents who are dealing with the hardships of having a sick child should not have 

to worry about their current Medicaid status due to new requirements. Citizenship 

status checks will impose unnecessary challenges that are not needed due to current 

protections already in place. 

The Hawaii Primary Care Association estimates the administrative costs for our Department of Human Services will increase by $640,000 as a result of the new requirements. Mr. John McComas, the Chief Executive Officer, AlohaCare, stated, 

‘‘We anticipate that there will be significant administrative costs added to our already overburdened Medicaid programs. These provisions are absolutely unnecessary and place an undue burden on the Medicaid beneficiary, to our entire Medicaid 

program, and ultimately to our entire State.’’ 

I know that the authors of this provision in the House believe that illegal immigrants are costing their state significant amounts of money. They claim that ‘‘more 

than $88 million of the State’s total $7.6 billion Medicaid budget has gone to illegal 

immigrants. Other sources find the amount may exceed $300 million . . .’’ If Medicaid fraud in Georgia is so rampant, perhaps it would be more responsible to first 

investigate the problems experienced by Georgia’s Medicaid program. Mandating 

these requirements nationwide because of the difficulties confronting one state is a 

prescription for disaster. The proponents of this misguided policy believe that applicants will be able to just show a driver’s license or state identification card under 

the REAL ID Act. However, it is not expected that the Department of Homeland 

Security will even issue regulations until this summer and compliance is not expected until 2008. 

The real purpose of the additional documentation requirements is to reduce the 

number of people on Medicaid in a short-sighted attempt to save money. All we have 

done is make it more difficult for citizens to get Medicaid rather than undocumented 

immigrants. 

Denying access to Medicaid unfairly will cost more money than it will save. Denying access to primary care will increase uncompensated care provided by our health 

care providers. Denying access to primary care will result in more pain and suffering of individuals. For example, people without Medicaid will have to seek treatment for renal failure instead of having access to the care needed to properly manage their diabetes. 

I thank all of our witnesses today and look forward to their testimony. Thank you 

Mr. Chairman.

Senator COBURN. Well, Senator Akaka, let me first of all thank 

you. I know your heart and your compassion for people. This hearing really isn’t about that. It’s about fraud by providers and hospitals and services. And I do hope to have a hearing on that in the 

next 3 to 4 months, and look forward to you participating in that. 

The fact is that with the current estimated fraud rate, that 

means many people aren’t getting the care they should be getting 

8

1The prepared statement of Mr. Levinson with an attachment appears on page 31. 

today. And what we want to try to focus on today is how do we address the lack of oversight and the noncompliance with improper 

payments in terms of the Medicaid program today? 

So I know your heart and I know you care, and my hope is that 

we can solve that problem before July. 

Senator AKAKA. Thank you very much, Mr. Chairman. And 

again, I commend you for having this hearing. 

Senator COBURN. Thank you very much, Senator Carper, our 

Ranking Member. 

OPENING STATEMENT OF SENATOR CARPER 

Senator CARPER. Thank you, Mr. Chairman. To our witnesses, 

welcome. I look forward to your testimony today. 

Senator Coburn and I and our Subcommittee have been focused 

on trying to figure out how to reduce our budget deficit. We all 

know that it’s too large, and looking down the road it doesn’t get, 

frankly, much smaller when we use realistic assumptions. 

And just like I think all of us can do everything we do better, 

we can also find ways to bring down the deficit. And we have to 

look in every corner: On the revenue side, revenues that aren’t 

being collected; on the payment side, the payments that are being 

made in some cases improperly. 

This is an issue that’s of interest to me as a former governor because the States, as you know, fund a significant portion of these 

costs. And to the extent that we can find ways where we’re spending monies inappropriately at the Federal level, maybe we can help 

the States to save a few dollars, too. So whichever hat I wear, I’m 

interested in that, and I applaud what we’re doing. 

We have an opportunity that flows out of legislation adopted a 

year or so ago which attempts to provide an opportunity for CMS 

to set this up to the next level and to help us identify real savings. 

And I guess when you compare Medicare outlays to Medicaid, 

Medicare’s appears to be a great deal larger. 

But even so, the Federal portion of the Medicaid program is, in 

and of itself, larger than I think almost every Federal department 

except maybe the Department of Defense. And we know there’s 

some waste in each of our departments, and there’s clearly some 

here. And what we want to do is find it, and to the extent that we 

can eliminate it, good for us, good for the taxpayers, and, frankly, 

good for the States. 

So thank you very much for joining us. 

Senator COBURN. Inspector General Levinson. 

TESTIMONY OF THE HON. DANIEL LEVINSON,1 INSPECTOR 

GENERAL, U.S. DEPARTMENT OF HEALTH AND HUMAN 

SERVICES, ACCOMPANIED BY MICHAEL LITTLE, DEPUTY INSPECTOR GENERAL FOR INVESTIGATIONS, U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES 

Mr. LEVINSON. Thank you, Dr. Coburn and Senator Carper. Good 

afternoon. I am pleased to appear before you today on behalf of the 

Office of Inspector General at the U.S. Department of Health and 

Human Services. I would like to thank you for this opportunity to 

9

be a part of today’s hearing on reducing fraud, waste, and abuse 

in Medicaid. With me, on my right, is Michael Little, the Deputy 

Inspector General for Investigations. 

Protecting the integrity of HHS programs is at the core of our 

mission. While this charge extends to all of the Department’s 300 

programs, our office devotes most of its resources to Medicare and 

Medicaid. With the help of Federal prosecutors, the FBI, and State 

and local law enforcement agencies, our investigators focus chiefly 

on Medicare fraud. 

While all of our authorities in the Medicare arena apply equally 

to Medicaid, it is the States that focus on Medicaid fraud, chiefly 

through their Medicaid fraud control units. These units have the 

lead responsibility for investigating and prosecuting provider fraud 

and patient abuse and neglect. They rely on criminal investigators, 

attorneys, and auditors to carry out their mission. In fiscal year 2005, these units received $144 million under a 

Federal grant that is managed by our office. For the same fiscal 

year, these units recovered $710 million in receivables, and 

achieved over 1,100 convictions. 

In the course of OIG and Medicaid fraud control unit investigations, we find it is often the case that providers who are involved 

in illegal activities in one program may be committing fraud in the 

other program, making coordination and cooperation between Federal and State enforcement officials very important. 

In 2005, our office conducted joint investigations with the fraud 

control units on 331 criminal cases, 95 civil cases, achieving 54 convictions, and 28 settlements or judgments in civil cases. The increasing value of joint efforts, together with the growing exposure 

of Federal dollars to Medicaid fraud, has resulted in a need for our 

office to devote more resources to fighting health care fraud and 

abuse in Medicaid. 

Let me note at the outset some of our most important work in 

this area. With the assistance of Civil False Claims Act case filings, 

our office has focused its Medicaid investigations on three types of 

cases: Nursing home quality of care, pharmaceutical manufacturer 

fraud, and drug diversion. These areas continue to be investigative 

priorities for our office. 

OIG’s nursing home quality of care investigations focus on patient abuse, neglect, and deaths, particularly where a pattern of 

abuse is involved. And these cases have led to sanctions imposed 

on staff, as well as administrators. 

In our pharmaceutical manufacturer fraud investigations, one 

focus is on the price of the drugs as set and reported by the manufacturers. We have found that some companies report pricing data 

that result in inflated Medicaid payments, and that such reports 

also result in underpaying the Medicaid program for drug rebates. 

Some companies also engage in unlawful sales and marketing practices. In the past 2 years, these enforcement actions have been successful and have returned more than $523 million to the States. 

Our office conducts drug diversion investigations involving prescription pain medications such as OxyContin which may involve 

kickbacks, physicians who buy back and either self-medicate or sell 

the diverted drugs, and pharmacists who are in collusion with doctors or with the beneficiaries. These matters are worked jointly 

10

with the Drug Enforcement Administration, the fraud control units, 

local law enforcement, and the FBI, and are prosecuted at both the 

Federal and State levels. 

Our office views the recently enacted Deficit Reduction Act as enhancing our law enforcement reach and adding fresh Medicaid integrity initiatives for our partners: CMS, the Medicaid program 

manager, State agencies, and Medicaid fraud control units. A key 

feature of the DRA is the creation of a new Medicaid Integrity Program, which is modeled after the Medicare Integrity Program that 

was established 10 years ago. The new Medicaid Integrity Program 

also provides funding to expand the roles of Federal contractors to 

carry out Medicaid program integrity activities. 

Especially valuable for our crucial role in so many aspects of 

health care fraud prevention, detection, and investigation, the DRA 

includes an additional Medicaid-specific funding stream for our office. This will enhance our ability to identify vulnerabilities, question provider billings, and identify patterns of abuse and neglect 

which will then be formally investigated and prosecuted. 

This includes the Medicare and Medicaid Data Match Pilot Program, referred to as the Medi-Medi program, to help identify suspect billing patterns. With our help, the targeted resources to this 

program will increase the number and quality of cases that are referred to law enforcement. 

These new provisions will not only assist in tracking down financial crimes, but will also aid in the investigation of patient abuse 

and neglect in Medicaid-funded facilities and in boarding care facilities. In most instances, these cases do not generate monetary returns, but are critical to the provision of high quality and appropriate care, especially for our Nation’s frail elderly. By working 

with these agencies to identify questionable provider billings, we 

maximize the impact of the resources available and focus on the 

providers that are causing the most harm to the program and to 

its beneficiaries. 

Finally, the DRA also provides incentives for States to enact 

their own False Claims Acts, which are to include whistleblower 

provisions. 

In conclusion, thanks to the targeted funding provided by DRA, 

our office will continue to devote substantial resources to auditing, 

evaluating, investigating, and prosecuting abuses in the Medicaid 

program. 

I appreciate this opportunity to appear before the Subcommittee. 

Thank you. 

Senator COBURN. Thank you, Inspector General Levinson. 

Mr. Smith, thank you. And let me—since I’m pretty hard on witnesses not getting their paperwork in on time, I want to thank you. 

Your paperwork came in 5 days ahead of schedule. And I just think 

that you ought to be congratulated and rewarded for that, and I’ll 

buy you a Coca-Cola some time for that. 

11

1The prepared statement of Mr. Smith appears in the Appendix on page 44. 

TESTIMONY OF DENNIS SMITH,1 DIRECTOR, CENTER FOR 

MEDICAID AND STATE OPERATIONS 

Mr. SMITH. Thank you very much, Mr. Chairman and Senator 

Carper, for inviting me today. I appreciate the opportunity to appear before the Subcommittee to discuss the topic at hand because 

it is very timely with the passage of the Deficit Reduction Act. 

And there are a lot of exciting things in there. For the first time, 

as Inspector General Levinson described, we have a dedicated 

stream of funding for program integrity in the Medicaid program, 

and we believe that it’s very important. 

I think that part of the message that I want to carry today is 

that we are on the right path. We’re on the right road. In terms 

of combating fraud and abuse in the Medicaid program, more is 

better. And we are doing more reviews. The States are doing more 

reviews. And I’ll be happy to provide some of the progress to date. 

To be fully successful in the area of program integrity requires 

activities both on the front end and the back end, both in prepayment and post-payment. On the front end, our responsibilities, in 

terms of our guidance to the States: Reviews of State plan amendments; the investment—the substantial investment—that we’ve 

made in modernizing State computer systems, which we’re now 

spending about a billion and a half dollars on. Each of the State 

computer systems—what is called the SURS systems, the Surveillance Utilization Review System, have to meet a certification so 

that those capabilities are already there to begin with to review 

patterns of provider payments so States can pick up those patterns 

and then intervene. 

On the back end, there are revenue recoveries from overpayments to providers, and provider sanctions, which also include referrals to the Medicaid fraud control units that are supervised by 

the Inspector General. 

Some of the results that we have seen to date, and we are seeing 

progress and would like to report some of that to you: Including 

third party liabilities, in which Medicaid is supposed to be the 

payor of last resort, so when there’s another payor out there, to go 

and find that. In fiscal year 2002, the States reported third-party 

liability collections of $900 million; in 2005, up to $1.1 billion. 

In terms of cost avoidance, putting edits in your system so you’re 

not paying in the first place, so you’re not doing pay and chase. 

That is up substantially. Now over $33 billion are reported as cost 

avoidance. That is up about $5 billion just between 2002 and 2004. 

What we have been doing internally in the fiscal management reviews and our reviews teams, one of our initiatives 2 years ago, 

again one of those funding streams that is out there, is the socalled HCFAC money, the health care fraud money, that is shared 

between the Department of Justice, I believe OIG, and other parties as well. 

We have used that HCFAC money to hire 100 FTEs to do some 

of that front-end review of State plan amendments advising the 

States on policies. And we believe that we can document over $400 

million in savings to the Federal Government from that effort alone 

in linking up what we see at the Federal level in terms of State 

12

plan amendment reviews and to catch things like the provider 

taxes that the Chairman mentioned. So we believe we’ve already 

returned a substantial savings to that. 

Financial management reviews: We have conducted almost 300 

financial management reviews over the last 4 years that we have 

almost $4 billion in play at this time. Our partners at the OIG do 

audits for us, on our behalf. We asked them to do audits; right 

now, since between 2003 and 2006, I believe, over $400 million in 

audits that they have done. 

In terms of deferrals, when we find ourselves in dispute with the 

State where we believe that there are improper claims against the 

Federal Government, we defer the money in terms of the cycle of 

grant awards. In 1999, the deferrals were $240 million in that particular year. In 2005, we’ve done almost a billion dollars in deferrals. 

In disallowances, in most cases, when there’s a dispute between 

the State and us at the Federal level, when we find something that 

we believe is wrong, we try to work that out with the State. In 

most cases, the States voluntarily make an adjustment to the Federal grant awards. 

In some cases, they go to disallowances that then go to the departmental appeals board. In 2000, there were six disallowances 

against States. In 2004, there were 40 disallowances against the 

States. So because of all of this, I believe that we are being effective and aggressive on our end of managing the program. 

Our partners are the States, and States have adopted a number 

of tools. In New York, they have now adopted a forgery-proof prescription drug program. There are over 200 million prescriptions 

filled in New York alone every year. And they have adopted this 

new tool to prevent forgeries of prescription drugs. Florida has 

been much more aggressive in dealing with providers. They terminated 224 providers in the recent year, compared to just 28 in 2 

years previous to that. 

The Medi-Medi program that the Inspector General mentioned, 

we are very excited about. And again, this is cooperation between 

Medicare, Medicaid, and the States. And we believe that has great 

potential, to restore trust in the programs. This is a rather unique 

approach in that there’s really a steering committee that determines how to proceed once problems have been found. But it’s a cooperative situation between CMS, the OIG, the State MFCU units, 

U.S. Attorney’s office, the FBI, as well as the State Medicaid programs. 

There have been more than 300 investigations, and I believe 42 

referrals to law enforcement. We are about to expand that to 

States, nationally. I think we’re in about 12 States now in MediMedi, and the DRA provided us dedicated fundings to expand that 

further. 

The error rates, Mr. Chairman, you had mentioned. We are on 

the road. We have what is called the Payment Error Rate Measurement program (PERM), that started out as a pilot in nine States, 

and we are expanding that over time and working with the States 

to get that payment error rate calculation. 

Not an easy thing to do, as you can imagine, as States—I mean, 

your error rate can come from so many different sources. It can be 

13

1The prepared statement of Ms. Aronovitz appears in the Appendix on page 53. 

a provider issue. It can be an eligibility issue. It can come from a 

variety of different angles. And that will be a challenge, quite 

frankly, to work through all of those issues to get to a reliable and 

verifiable payment error rate. 

But as I said, we are very pleased with the dedicated funding 

that was provided in the DRA. We are already well into the planning stages for that internally, putting together hiring plans. That 

is an office that will have very high visibility in the organization, 

and we believe will make great returns on the investment that has 

been made into program integrity. 

Senator COBURN. Thank you. Ms. Aronovitz. 

TESTIMONY OF LESLIE ARONOVITZ,1 HEALTH CARE DIRECTOR, PROGRAM ADMINISTRATION AND INTEGRITY ISSUES, 

GOVERNMENT ACCOUNTABILITY OFFICE 

Ms. ARONOVITZ. Thank you, Dr. Coburn and Mr. Carper. I am 

pleased to be here today as you discuss control of fraud, waste, and 

abuse in the Medicaid program. We agree that the program, the 

size of Medicaid, and the importance of that program can ill afford 

to lose money through any means, so that Federal and State vigilance are critical. 

With fiscal year 2004 benefit payments of $287 billion, including 

a Federal share of $168 billion, as you mentioned, Medicaid does 

in fact represent a significant portion of State and Federal budgets. 

Last year we testified that while CMS had activities to help 

States combat fraud and abuse in their Medicaid programs, its 

oversight of States’ activities and its commitment of Federal dollars 

and staff resources were not commensurate with the risks inherent 

in the program. We also noted that CMS lacked plans to guide 

State agencies working to prevent and deter Medicaid fraud and 

abuse. 

However, the Deficit Reduction Act, enacted just last month, provided for the creation of the Medicaid Integrity Program, and included other provisions designed to increase CMS’s level of support 

to States’ activities to address fraud, waste, and abuse. 

I would like my comments to focus on two issues. The first is the 

provisions in the DRA that can help CMS expand its efforts to address Medicaid fraud, waste, and abuse, and also the challenges 

CMS faces as it implements new Medicaid Integrity Program efforts. 

The DRA’s provisions have added substantially to CMS’s authority, resources, and responsibilities. The law established the Medicaid Integrity Program and specified appropriations each year to 

conduct it, as you have heard. This gives CMS important flexibility 

in determining where the funds can most effectively be used in conducting its efforts. 

Further, the DRA requires CMS to increase by 100 its full-time 

employees, whose duties are solely to protect the integrity of the 

Medicaid program by supporting and assisting the States. And 

these are an additional 100 people in addition to the ones that Mr. 

Smith mentioned that he’s been very diligent about hiring to protect the financial integrity at the State and Federal interaction. 

14

1The charts referred to appear in the Appendix on page 83. 

In addition, the new law requires CMS to develop a comprehensive plan every 5 fiscal years in consultation with Federal and 

State stakeholders, which will encourage dialogue on the overall direction of Federal and State efforts. 

Finally, the DRA provides dedicated funding for continuing and 

expanding the Medi-Medi program, a fraud and abuse control activity that has shown promising results in many States. And we’ve 

talked about that just briefly already. 

CMS faces several immediate challenges in implementing the 

DRA provisions related to the Medicaid Integrity Program, especially with regard to developing a comprehensive plan that provides 

strategic direction for CMS, the States, and law enforcement partners. In developing its plan, CMS will need to focus on how it intends to allocate resources among activities to minimize program 

risk and most effectively deploy program integrity staff in the central and regional offices. 

CMS has experience in addressing fraud and abuse within the 

Medicare Integrity Program, which has historically been located 

within the Office of Financial Management (OFM). We believe that 

those responsible for establishing the Medicaid integrity program 

should leverage the expertise of OFM staff. Along these lines, we 

hope that Medicaid officials will partner with others across the 

agency and with the States to identify successful fraud, waste, and 

abuse control activities that could be replicated in the new Medicaid Integrity Program. 

Developing a comprehensive and strategic approach for combating fraud in the Medicaid program is new for CMS staff, and 

they are just getting started. As a result, we could not obtain sufficient information from CMS on how it intends to develop its plan, 

allocate its resources, or look across the agency for help from those 

with longstanding expertise. However, we hope that in the months 

ahead, we will learn much more about the agency’s plans and continue to have the opportunity to work on maximizing the effectiveness of its new resources. 

Mr. Chairman, this concludes my prepared remarks, and I will 

be happy to answer any questions that you or Senator Carper may 

have. 

Senator COBURN. Thank you all very much. As I raise questions, 

I want you to know that I don’t doubt your sincere desire to fix the 

problems in Medicaid. 

But if you look at the charts 1 and you look at CMS and you say, 

where is there transparency? Well, there’s not any plan right now 

so there isn’t any transparency because you don’t have the plan. 

It’s being developed? A comprehensive fraud and abuse plan is 

being developed per the Deficit Reduction Act? 

Mr. SMITH. You’re correct, Mr. Chairman, in that what is envisioned is a written document, shared with our partners and put in 

one comprehensive way. Organizationally, we have done a great 

deal, and to a large extent I think it’s going to be documenting 

what we have already done and what we put into place. 

Senator COBURN. I look at the unemployment insurance program 

through the Department of Labor, and they have eligibility screenVerDate 0ct 09 2002 08:12 Mar 29, 2007 Jkt 027753 PO 00000 Frm 00018 Fmt 6633 Sfmt 6601 C:\DOCS\27753.TXT SAFFAIRS PsN: PAT
15

ing and then they have payment screening. And yet they’ve been 

able to accomplish what you all hope to accomplish, and they’re reducing every year the amount of improper payments and the 

amount of improper overpayments and the amount of improper underpayments, most of the time overpayments. 

I wonder if there’s anything you all can learn from them on how 

they’ve taken a State-administered program with Federal dollars 

and have been able to reduce that to such an extent that they have. 

Is there something besides what CMS knows about Medicare? I’m 

not real excited about the Medicare fraud because I think there’s 

still way too much fraud, abuse, and waste in Medicare. And so 

when you all compare it to that, I think that’s a terribly low standard for where we want to be. 

So is there anything we can learn from the Department of Labor 

in how they have accomplished this continuing decline in improper 

rates, knowing that they have both the same eligibility and payment problem and they’re working through State agencies? 

Mr. SMITH. Mr. Chairman, I think as we look across this in 

terms of State-administered programs, it would be a valuable lesson to look at them in terms of—I think to some extent it’s slightly 

different in terms of eligibility rules for unemployment tending to 

be standard within the State, whereas in Medicaid literally you 

may have 50 different ways to determine eligibility. 

The idea that you are cutting a check in the correct amount for 

unemployment insurance versus paying a variety of providers completely different rates, perhaps we want to learn from everyone 

that has experience in this area. But I think that the—and what 

we are testing in terms of the pilot leading up to PERM, working 

with the States in trying to come up with the error rate for that 

State because to some extent they will be unique, especially at the 

beginning as you get standardized ways of measuring things in the 

same way and making sure everyone is measuring in the same 

way. 

But where you can pay just hospitals, for example, many different rates, you have your typical for-profit hospital that you are 

paying differently perhaps than your county hospital, that you’re 

paying differently from your children’s hospital, etc., on down the 

line. 

Senator COBURN. Which is the problem with the whole health 

care industry and how we’ve got it set up today, which complicates 

your life? 

Mr. SMITH. I think it is a big challenge out there, and it’s going 

to take our effort to work with people of different expertise. Again, 

part of what we want to do in attracting new talent to the agency 

for our program integrity unit is to get people from different backgrounds and different areas of expertise to bring that all together 

for us. 

Senator COBURN. Let me ask all three of you. Since we really 

don’t know what the fraud levels are, and we really don’t know 

what the inappropriateness of eligibility might be, what’s your 

guess? Isn’t most of it provider problems more than eligibility problems in terms of the dollars? Isn’t the vast majority of it going to 

be either provider inappropriate billing or fraud or something like 

16

that rather than people who are on the program who aren’t eligible 

in terms of looking at the total? What’s your thought about that? 

Mr. LEVINSON. Well, Dr. Coburn, on eligibility, there is an effort 

underway to look at that kind of question in several large States 

now. In California——

Senator COBURN. Well, I understand. I know that. What I want 

to know is what’s your thought now about what it is? 

Mr. LEVINSON. Well, those numbers may reveal some important 

facets of the underlying problem based on what those numbers actually uncover. Fraud is really a subset, if you will, of improper 

payment. 

Senator COBURN. Well, let me tie you down a little bit more. You 

read the article in the New York Times about the New York City 

Medicaid fraud. What percentage of that do you think was eligibility versus provider fraud? It was certainly more than 50 percent. 

There’s a greater proportion of provider fraud than there is eligibility fraud. Wouldn’t you agree with that, in terms of the dollar 

impact on inappropriate payments? You don’t believe that to be 

true? 

Mr. LEVINSON. Well, we certainly don’t make any assumption 

about the numbers driving where we might go. 

Senator COBURN. What about—well, we’ll find out from Texas 

when they testify because I think they’re going to—I think what 

they’ve done will pretty much show that’s more of the case than not 

the case. Mr. Smith or Ms. Aronovitz? 

Mr. SMITH. Mr. Chairman, I think in general you are looking at 

providers in terms of where the dollars are. But I don’t want to dismiss that eligibility should it be done correctly as well. 

Senator COBURN. Oh, I’m not. I’m just wondering, and I raise the 

question: Isn’t it amazing that we’ve got a $330 billion program 

and we don’t know? 

Mr. SMITH. I think that the estimates over the years were a 5 

to 8 percent error rate. I think this has been generally accepted in 

terms of what the number is. And clearly, I think that from our 

standpoint, the diffusion of responsibilities across the many different partners is both an advantage and a disadvantage to us. 

And as I said, one of the most important things from the DRA 

was a dedicated stream of funding solely and specifically for Medicaid. Relatively speaking, that is still a pretty small number, looking overall to the entire Medicaid program. 

We spend $16 billion just in administrative costs for the Medicaid program. That is everything from the salaries of eligibility 

workers to sophisticated computer systems. And I think that, as I 

said in my earlier remarks, part of it is we all need to do a better 

job documenting what we are doing. 

In terms of program integrity, I mean, personally it’s the job of 

all of us at CMS, whether at whatever level that we are doing, to 

ensure the public trust in the program. And I think we need to do 

a better job of explaining what we are doing, and to deliver on the 

results. 

Senator COBURN. Ms. Aronovitz. 

Ms. ARONOVITZ. Mr. Chairman, we actually don’t know the answer to your question. But I do think that when the gentleman 

17

from Texas does get to speak, he will be able to talk about his 

State. 

And I’d like to take the liberty of underscoring another point 

that’s related to your question that I think is critical for States and 

for CMS, and that is the idea that every State really needs to have 

the systems to identify where risk is in their program. 

And it’s possible that what is happening in Texas, in terms of 

their relationship between provider fraud and eligibility fraud, 

might not be the same as another State. Every State has to go 

through and figure out where its vulnerabilities are, and what best 

practices it can develop that could be replicated in other States. 

That requires data. It requires vigilance in having communication and understanding what other States have done to be successful. And it needs a facilitator, and that’s where CMS will now have 

the resources to be able to be a big player. 

Senator COBURN. Is there any requirement that CMS—of the 

States now to identify their vulnerabilities? Is there an actual requirement that CMS says to the State of Delaware, part of your responsibility under Medicaid and getting this money is you have to 

develop a plan to identify your vulnerabilities? 

Mr. SMITH. I don’t think I’ve thought about it in that way. There 

certainly are a number of requirements of what they are to be 

doing. Again, their payment systems, the Medicaid management information systems, all have to be certified that they are paying correctly, etc. There are Federal dollars that are tied to the development of the MMISs and the ongoing relationships with them. 

So to pay correctly, and that does—when States are changing 

their payment systems, for example, when I was in Virginia and 

we converted from a fee-for-service to a DRG payment system for 

hospitals, the regional office folks were there to back up to make 

certain they were being paid correctly. So again, I think that it’s 

there in pieces, and——

Senator COBURN. Yes. But you would agree that CMS requiring 

States to have a program to identify where they’re vulnerable 

should certainly be a part of any master plan that you develop. 

Mr. SMITH. I think it is consistent, but I think there’s also an underlying assumption that State dollars are at risk also. And so a 

State that is improperly paying is wasting their own State money. 

Also, there is a requirement in Medicaid as well, the Single State 

Auditor Act, again States not just in their Medicaid program but 

I believe every State has an independent State officer who is also 

responsible for doing an independent audit of the Medicaid program. 

So again, I think that the pieces are there, and perhaps we just 

haven’t described it correctly. 

Senator COBURN. So under the Deficit Reduction Act, really it’s 

going to require you and OIG to develop a comprehensive plan together. And you all are committed to doing that? 

Mr. SMITH. That’s correct, Mr. Chairman. That is one of the requirements, and we will be working with all of our partners in developing that. 

Ms. ARONOVITZ. Can I add one thing? One thing that CMS has 

been very successful in doing, although we would encourage it to 

do it more, is establishing a technical assistance group. And that 

18

is not a formal—I think Mr. Smith was talking about some of the 

structural requirements of States. 

But one of the informal ways that CMS has been able to facilitate States’ actions and really encourage them to do things has 

been with your TAG. And we think, with a little bit more funds devoted to letting States get together, talk about each others’ successes, and work together, I think that States would really appreciate having that kind of conversation. So that’s another area 

where that could be very successful. 

Senator COBURN. Senator Carper. 

Senator CARPER. Thank you. Just a couple of thoughts to go over 

some of the same terrain that our Chairman has gone over, just to 

follow up on what you were just saying, Ms. Aronovitz. 

There’s an association called the National Governors Association 

that’s an association of governors, there also is, I believe, an association comprised of people from the 50 States and maybe the territories that are Medicaid directors. And they get together once or 

twice, three times a year, probably have subcommittees and so 

forth. 

And among the things they’re interested in doing are: How do we 

provide a better service to folks that are Medicaid-eligible? They’re 

also interested in finding out how they’re wasting money in their 

respective States, and how they can reduce that. 

I don’t know if it would have a committee or subcommittee that 

actually focuses on the issue of waste, fraud, and abuse within 

Medicaid. They might. But they probably have a committee, standing committee, whose responsibilities include that. 

When I was active in the National Governors Association, we had 

or we established, largely through the encouragement of Governor 

Tommy Thompson, who thought that we should take National Governors Association Center for Best Practices, and really beef it up, 

and to find out what are the best models around the country, 

whether it’s raising student achievement, holding down health care 

costs, improving outcomes, reducing recidivism in prison, you name 

it. We looked for best practice in all kinds of ways. 

My guess is that within the Center for Best Practices, there’s a 

lot of ideas that pertain to health care, probably some that provide 

to Medicaid. Our friends from CMS, as you go forward here, may 

want to try to figure out how to implement the Deficit Reduction 

Act of—I guess it’s 2005, that we look there to some of the entities 

that already exist on the ground, the associations and relationships 

that exist on the ground that could be of some help. 

I think it’s sort of ironic to me that when you look at Medicaid, 

which is—no State gets less than 50 percent of the cost paid by the 

Federal Government. I think in some States—maybe it’s Mississippi, but in some States where I think the Federal Government 

kicks in as much as 80 percent. 

But yet historically, the effort to root out waste, fraud, and abuse 

has come not from the folks who have the largest dog in this fight, 

the most dollars at stake, but actually from the States, who have 

the smaller amount of money in place. 

I think the Chairman said, in his statement earlier, he quantified the amount of money that might be improperly spent. I think 

19

he put it maybe at $40 billion. I don’t know if I heard him right 

or not. 

Let me just ask Ms. Aronovitz: Do you have any idea what 

amount of money? I think we’re looking at a program where we’re 

spending—I want to say about $250, $260, or $270 billion in total? 

Ms. ARONOVITZ. Right. 

Senator CARPER. About $300 billion this year. 

Ms. ARONOVITZ. About $300 billion. 

Senator CARPER. And roughly two-thirds of that, almost twothirds of that, is from the Federal Government, the rest from the 

States. 

What do you think is being improperly spent out of that? Do you 

have a clue? 

Ms. ARONOVITZ. I don’t have a clue. And actually, Mr. Smith did 

bring up a number, which I’m surprised. I think that’s great because——

Senator CARPER. What did he say? 

Mr. SMITH. I think 5 to 8 percent is generally what we talk about 

in the Medicaid world. 

Senator CARPER. Around $15 to $25 billion, somewhere in that 

range? Real money. 

Mr. SMITH. Yes. 

Senator CARPER. That’s including roughly at two-thirds Federal, 

a third State? Is that the money that you’re talking about? 

Mr. SMITH. It would be 5 to 8 percent of total, State and Federal 

combined. 

Senator CARPER. All right. Talk to us for a moment, if you will, 

and I don’t care who responds to this question. But when you look 

at the waste and the abuse that exist, some of it comes from providers behaving fraudulently. Some of it comes from folks that are 

applying for the benefits that maybe are not eligible, and they’re 

misrepresenting themselves. 

Just talk about the different categories of waste, fraud, or abuse that may make up that $15 to $25 or $40 billion, what are they? 

And just give us some relative idea of where—which is the greatest 

and which is the least, if you can sort of arrange them for us in 

some sense of order. What’s the worst part of the problem? 

Mr. SMITH. Again, I think it’s a combination of different things. 

I think providers who have an incentive to over-bill the program. 

Again, you see in these areas that providers have the incentive to 

provide you as many units of service as possible. 

In some respects the over-utilization of the program is part of it, 

often encouraged by providers themselves. Certainly you see examples in the prescription drug program in particular to where that 

Medicaid card is money on the street in terms of being able to illegally obtain prescription drugs that are then put on the market. 

In terms of eligibility, you can’t—it’s less fraud and it is more of 

a situation where many States have moved away—and it’s been a 

good thing because you’ve expanded the number of people actually 

enrolled in the program. 

So States have dropped asset tests. They have gone to relying 

more on self-attestation. When you do that, there is a certain 

amount of fraud in that. We saw that, unfortunately, in part of our 

September 11 waiver to New York, to where at the very end, that 

20

we saw a great deal of utilization of services that weren’t really related to the disaster at the time. And New York has just recently 

done a report on that—on the disaster relief waiver. Again, it did 

a great deal of good, but you also had that element of where people 

took advantage of the system. 

So the extent to which you have a provider or an individual who 

is willing to take advantage of the good that everybody else is trying to do. It exists. You mentioned working with the Medicaid directors. We do that. We actually fund them getting together and 

helping us and talking with them. I believe we have 12 different 

technical assistance groups to help us in fraud and abuse. We’ve 

been reaching out to them in particular at this time to help us to 

implement the DRA provisions. 

So it’s a combination of many different things. Transportation 

has been an issue that, again, it’s been an area of fraud to where 

you have a particular provider, one State kicked them out, and so 

they migrated somewhere else. They had a background that perhaps a State didn’t check their prior experiences in another State. 

You have areas again of where—providers who are willing to 

push the envelope, and that is again what the SURS systems is 

supposed to help us find in being able to find those patterns of doctors who are ordering more tests than other doctors who are providing 26 hours’ worth of services in a single day, that sort of 

thing. 

So we have sophisticated tools, lots of States who have updated 

their systems, but even more so, in being able to take advantage 

of those tools that are out there. So it comes in a variety of shapes, 

sizes, and that makes up that 5 to 8 percent. You have to look at 

it from a variety of different ways. 

Senator CARPER. Mr. Levinson. 

Mr. LEVINSON. I think we can provide perhaps some order to 

that, and I’m going to ask Mr. Little to do that. 

Senator CARPER. Would you, please? And I’m going to ask you to 

do it quickly, and then I have one more thing I’ve got to say, and 

then I’m going to relinquish the microphone. 

Mr. LITTLE. OK. Good afternoon. 

Senator CARPER. Welcome. 

Mr. LITTLE. Dr. Coburn and Senator Carper. Based on our experience of many years’ investigations in both the Medicare and the 

Medicaid program, we have had a lot of impact and many investigations on the pharmaceutical industry with respect to the marketing of pharmaceuticals to both the Medicare and Medicaid program. 

As a matter of fact, since January 1, 2001 to the present time, 

in the Medicare and Medicaid program just in pharmaceuticals, we 

have returned over $3.3 billion to the U.S. Government and to the 

States based on our investigations, civil settlements and criminal 

convictions. 

We believe the durable medical equipment industry is also a vulnerable area for the Medicaid program based on our experience in 

the Medicare program. And clinical laboratories, we have had much 

success in investigating clinical laboratories as it relates to 

unbundling of services as well as provision of services not ordered 

by a physician or not rendered at all. 

21

Senator CARPER. OK. Just one last thought, Mr. Chairman, and 

to our witnesses today. I mentioned the National Governors Association has a Center for Best Practices. Interestingly enough, two 

of the people who I think chaired the Center for Best Practices—

in the NGA, you’re vice chairman of the NGA, you’re chairman of 

the NGA, and then I think you’re chairman of the Center for Best 

Practices; it’s sort of like going through three chairs. At least that’s 

the way it used to be; maybe it still is. 

But among the people who have been I think chairs of Center for 

Best Practices, in addition to being chair for the National Governors Association, were two fellows who ended up being Secretary 

of Health and Human Services, Secretary Thompson and Secretary 

Mike Leavitt today. 

Whenever the NGA comes here to Washington every February, 

they usually ask somebody from the Senate and a couple people 

from the Administration to come and talk to them. And the governors also meet in the summer in different States. They all get together. 

There’s just a great opportunity for an old governor, whether it’s 

Mr. Thompson or Mr. Leavitt or maybe somebody sitting up here, 

to go out, and when the governors are gathered, to talk to them 

about how we can help them save money, help reinforce what 

they’re trying to do through their Center for Best Practices of sharing best ideas, best practices, in a way that helps them and that 

also helps the Federal taxpayers as well. There’s a great opportunity here. And I just hope that they will take full advantage of 

that. Thank you. 

Senator COBURN. I just have a couple more follow-up questions. 

I want to get a little bit specific about this plan. What are going 

to be the road marks? What’s the timeline? Who’s going to be in 

charge of it? When are we going to see something? Who’s the point 

man on it? When are we going to hear back on something being 

developed? When do you hope to accomplish it, and when do you 

hope to implement it? 

Mr. SMITH. Mr. Chairman, what we have been doing to date, and 

we brought in one of our senior people who had been in the regional office, and she has been on her SES development detail. 

Great background and experience in this area. So we have a combination of folks internally we’ve brought together to start drafting 

our plan to get our organizational plan in place, etc. 

So what we have done to date is, taking it sort of sequentially, 

getting things in place at this—at one thing to do or another. 

Senator COBURN. I want to know what time it is, not how you’re 

building that watch. When are we going to see a plan? What are 

the markers for that plan? 

Mr. SMITH. I think you’ll see a plan within 6 weeks. 

Senator COBURN. That’s great news. 

Inspector General Levinson, how often are program integrity reviews conducted on State audit initiatives? 

Mr. LEVINSON. I think that’s on an ongoing process. You want to 

know the actual number of——

Senator COBURN. Well, I know the number. The testimony gives 

us the number. When are we going to see it on a comprehensive 

and regular basis? That’s really my question. 

22

If you’re sitting in Oklahoma, and you get reviewed once every 

7 years, and you know you got reviewed and the probability is it’s 

going to be another 61⁄2 years till you look at them, there’s no accountability. There’s no transparency. There’s not a demand for priority, and there’s certainly not responsiveness. What is the plan, 

your component of this overall plan, for audits? 

Mr. LEVINSON. Well, one of the very valuable aspects of the new 

funding stream, as a result of DRA, is that it in effect restores our 

ability to now increase our focus on Medicaid fraud, waste, and 

abuse, whereas for the last several years, because of a ceiling on 

the health care fraud control account, our resources were actually 

shrinking. 

So whereas historically the office was only able to devote somewhere between a fifth and a quarter, probably, of its resources to 

Medicaid, we now anticipate that before the year is out, we’ll be 

heading towards more like 29 or 30 percent of our office resources. 

That’s going to significantly enhance, both from an audit as well 

as from an investigative standpoint, our ability to be a more active 

player at the Federal level. 

Senator COBURN. Can you help me a little bit? What does ‘‘significantly enhance’’ mean in terms of number and frequency of audits and comprehensiveness of those audits? 

Mr. LEVINSON. Well, with the $25 million, and the expectation 

that we’ll be able to increase, perhaps by as many as 100 FTEs, 

and the need then to distribute those FTEs in accordance with the 

investigative and the audit responsibilities, at this point it would 

be difficult to give you a specific figure. But I certainly welcome the 

opportunity to keep you apprised of how those resources are devoted. 

Mr. SMITH. Mr. Chairman, if I may, this might be helpful. Every 

State’s Medicaid program is audited every year by the State itself. 

Senator COBURN. Yes. I’m talking Federal audit. 

Mr. SMITH. We do financial management reviews based on risk. 

We ask the IG to do some of that for us, and now, because we have 

more capabilities ourselves, we’re doing more of them ourselves. So 

every year, we go through every State by 15 different types of risk 

areas and make a selection for what we want to audit this State 

on in this type of provider area and conduct that audit. 

That is done between the regional office and central office, and 

I personally go through that. Katrina waivers, for example, we 

want to make sure all of those dollars are audited in particular. 

School-based waivers have been a particular area in some States 

that we believe need greater attention. 

So the selection of those individual areas is something that we 

go through at the regional and central office, making those decisions about then. Do we ask the IG to do it for us, or do we put 

a team together to conduct the audit? 

Senator COBURN. OK. When you have this comprehensive plan 

developed, who’s going to be responsible for it? 

Mr. SMITH. That would be me, Mr. Chairman. 

Senator COBURN. OK. So that responsibility is going to rest on 

you, and the implementation of that plan is going to rest on your 

shoulders. Is that correct? 

Mr. SMITH. That is correct. 

23

Senator COBURN. OK. The Medi-Medi plan right now, where 

you’re comparing Medicaid and Medicare numbers, practice patterns, payments, and everything else, that’s in 12 States now. Is 

there a plan to get it to 50 States? 

Mr. SMITH. Yes, Mr. Chairman. And again, that’s what the DRA 

funding will help us get. 

Senator COBURN. When are we going to see that in 50 States? 

Mr. SMITH. My off-the-cuff guess is we’ll get to all 50 probably 

within 2 years. 

Senator COBURN. OK. I’m not going to hold you to that because 

it’s off the cuff. I understand. But when your plan comes out, it will 

have that in it. Is that true? 

Mr. SMITH. Yes. Most definitely. 

Senator COBURN. But your plans are for that? 

Mr. SMITH. Medi-Medi is a central focus of our activities. 

Senator COBURN. And the SURS program really just tracks patterns of provided data? It doesn’t compare Medicare and Medicaid; 

it looks for patterns? 

Mr. SMITH. Correct. Those are—those would be Medicaid claims 

only. 

Senator COBURN. Right. Well, I want to tell you, half of everything I ever billed as a doctor went to Medicaid. And I want to tell 

you there’s at least 10 percent fraud in Medicaid. At least 10 percent over billings. At least 10 percent deception. And the reason it’s 

happening is because nobody knows—most people think they’re not 

going to get caught. And so therefore it’s easy dollars, and some of 

the systems that have been designed to correct it have actually enhanced making it worse. And so my hope is if you take the 5 percent on the $300 billion 

we’re going to spend this year, and take your bottom end of your 

number, that’s $15 billion. That’s enough to run all of CMS. And 

if 59 percent of that is Federal match, that’s $9 billion. That makes 

a big difference in care to the people in this country who might not 

otherwise have care. 

So the reason I’m hot after this is, that fraud is where the money 

is. The money is in the fraud. And it’s not just Medicare and Medicaid and it’s in the Defense Department. We know it. I’m not just 

picking on health care. I’m going after every bit of it. We’ve got to 

get better. And you all have to continue to help us get better. 

My last comment is that I believe more physicians and providers 

need to go to jail. They are stealing from people who otherwise 

don’t get care because they’ve taken money. And I would like to see 

the aggressive nature in terms of these prosecutions, get much 

heavier handed, not just banishment from the program but hard 

time in prison, so that they are made examples of so other people 

won’t think so lightly about possibly cheating somebody out of their 

health care. 

And when I read the articles in the New York Times, I was astounded that a dentist can do 500 procedures a day, and it took 

that long to catch him—500 procedures a day, that would be like 

me billing for 300 deliveries in a day. And the fact that can happen 

and it took us a while to catch it means what you’re planning, the 

system’s planning, the overall plan, but also the heavy hand of the 

law and justice being applied so that they’re made an example of. 

24

1The prepared statement of Ms. O’Connor appears in the Appendix on page 78. 

And I hope that is an aggressive party. I know you all don’t get 

to prosecute these cases. But you can certainly make it difficult on 

those that do if they don’t prosecute them aggressively. And my 

hope is that you send the message that when somebody is cheating 

the next two generations out of health care, that they’re going to 

pay a big price for it. 

And that’s my profession as well as the rest of the providers. And 

if that happens, it’s not going to take a whole lot of them where 

all of a sudden the benefits of maybe gaming Medicaid aren’t seen 

as quite as valuable as they are today. 

I want to thank each of you for the work that you do, your service to our country. It’s hard, what you’re doing. I know that. The 

system is hard. It’s hard because health care is so messed up. But 

you’re making a difference. Please don’t quit. Please, exert an everincreasing level of vigilance at what you’re doing. Because it’s $9 

billion we don’t have. Right now we don’t have it. 

And the last of my little exhortation is the real budget deficit last year was $620 billion. That’s a real off budget. That’s what we borrowed from our kids last year. And that is $9 billion that we could 

reduce. And so your work and your talent is appreciated. Just keep 

going after it. We’re going to keep coming after you to see that you 

are. Thank you so much for your testimony. 

I also would request if you have any staff here to hear the next 

testimony, it’s very important that you hear this. You may already 

know what Texas is doing, but it’s important that you hear their 

experience because I think it will be very helpful. 

We had originally scheduled Kim O’Connor, Medicaid Inspector 

General for the State of New York. Because they’re in the midst 

of their plan, she could not testify. I’m asking unanimous consent 

that her testimony be made a part of the record.1

And I want to submit my summary to the record of what her 

statement was. And I’m just going to spend a few minutes outlining that because I think it’s very important. They learned a lot 

from you. And they are copying a lot of what you’ve done, and it’s 

a great compliment. 

The problems that New York identified were the following: The 

system had insufficient focus on specific auditing and fraud prevention goals, needed greater coordination and communication among 

State agencies engaging in fraud, waste, and control activities. 

Their solution: The central component of New York’s plan is the 

creation of the office of Medicaid inspector as the single State agency for the administration of Medicaid program in New York State 

with respect to prevention and detection of fraud, waste, and 

abuse. They are developing an independent fraud-fighting entity to 

prevent this waste, fraud, and abuse by prioritizing and focusing 

on fraud, waste, and abuse control activities. 

The plan will be developed by creating a single point of leadership and of responsibility—both leadership and responsibility; 

that’s called accountability—for those activities. By building an integrated system of communication among all involved agencies 

with fraud, waste, and abuse control responsibility. By maximizing 

the use of all available State resources for such activities. 

25

1The prepared statement of Mr. Flood appears in the Appendix on page 69. 

Their anti-fraud programs were concentrated primarily in the 

Department of Health, which also oversaw the Medicaid program. 

That created an obvious and inevitable conflict as the pressure to 

pay providers wars with efforts to ensure that monies are not 

misspent. 

New York hopes that communication between agencies will guarantee that the mission of the Office of Medicaid Inspector General 

is free from conflict, and that its energies and resources will not 

get diverted. 

Other projects: New York is focusing better on data mining, 

(shared data between systems and agencies); better utilization of 

existing technology; and efforts are underway for a peer review program with New York’s extensive State university system. CMS has 

reported to me that New York has asked to be the next Medi-Medi 

State, which tells us about the value of that program. 

Mr. Flood, I want to welcome you. In 2003, Texas Governor Rick 

Perry appointed Brian Flood as the Inspector General for the 

Health and Human Services Commission. Under Mr. Flood’s leadership, 563 professional staff members work to control waste, 

fraud, and abuse in the State’s health and human services program. 

Mr. Flood, you are recognized. Thank you so much for coming 

and testifying for us. You are setting a great example, and we look 

forward to hearing your words. 

TESTIMONY OF BRIAN FLOOD,1 INSPECTOR GENERAL, 

HEALTH AND HUMAN SERVICES, STATE OF TEXAS 

Mr. FLOOD. Thank you, sir, for the invitation. I’d like to submit 

the summary of my comments into the record because I’m known 

to deviate from them often. 

Senator COBURN. Without objection, so ordered. 

Mr. FLOOD. Thank you, sir. I do appreciate the invitation, and 

on behalf of my incredible staff, I thank you for the opportunity to 

come and talk to you today about the activities of the Inspector 

General within the State of Texas. 

As you may know, I was asked to within 5 minutes succinctly explain what we did in 21⁄2 years, which was: Why is an independent 

inspector general important with the waste, fraud, and abuse issue, 

why Texas created an inspector general, what it takes to do that, 

measuring the results of what that actually produces, and then the 

necessity of the continued activities of an inspector general or another accountability type of oversight function. 

In this State of Texas, the reason that an independent inspector 

general was chosen was that you needed to eliminate conflicts of 

interest of philosophy within the various agencies. For example, 

the predominant focus of a State agency is the payment of claims 

and the inclusion of providers and the ongoing control of the system to efficiently deliver services. 

It is not its natural focus to look for waste, fraud, and abuse 

caused by itself or the people that it brings into the system, whether they are a recipient or a contractor. And so the creation of an 

26

IG hopefully creates a function that’s free from the influences of 

that system and able to properly account for its activities. 

We do strive to minimize what waste, abuse, and fraud we can 

find. We incorporate more than simply fraud; we go into Federal 

definitions of 422.3 and 422.5 for abuse and fraud. And then we 

look for wasteful activities within the State system that simply 

waste State funds inappropriately. 

Why did Texas create an inspector general? We created an inspector general because of the fiscal crisis 2 bienniums ago, or 4 

years ago, where the State was facing a $10 billion deficit and had 

to come up with the funding streams necessary to operate. 

It was felt that the embedded accountability of an Inspector General’s office would make sure that funds that were appropriated by 

State or Federal law were actually received by the proper vendor, 

contractor, or beneficiary, and would make sure that the funds that 

were given to the program were not wasted, and therefore reduce 

the State’s overall costs. 

I would like to deviate for a moment. You did ask for what were 

the numbers. We have provided to the Chairman and the Subcommittee, if you are tired and need bedtime reading, volumes of 

information going back to 1999 of all of the functions within the 

State having anything to do with Medicaid, including recipient 

fraud. And the answer to your question is: Over 3,000 cases were 

created for providers, and 856 cases were prosecuted for Medicaid 

recipients, if that gives you a number to work with. 

All the States are feeling the pinch from the increased budget 

loads and the increased financial pressures in today’s budget environment. And so Texas looked to see what opportunities it could do 

to increase its resources. We are on the high end, according to the 

GAO, for performance, technology, and innovations in controlling 

spending and ensuring proper payments are made to beneficiaries 

and recipients. 

When we did the consolidation, we included all of the functions. 

And by that definition, I mean all of recipient fraud is now within 

the Office of Inspector General, and all provider fraud is now in the 

same office. So you can easily see where all the trends are and how 

they criss-cross each other. 

What did it take to get it done? First, people, very dedicated people, who worked thousands of hours of overtime while doing their 

regular job. When the legislature enacted S. 2292, it required that 

we increase reserves and returns at the same time that we did the 

reorganization. I have laid out in page 2 of my testimony all of the 

things we actually did for that function, and I will not read it to 

you. 

But what we did is, in a nutshell, we went to the staff, the people who actually do the work, to find out where all the problems 

were in the system, and they told us. And what that gave us was, 

on page 3 of the testimony, a $100 million cash return in 1 year. 

That is, we increased cash recoveries to the State by almost $100 

million by listening to the staff. 

And in State fiscal year 2004, we returned $349 million in cash. 

We don’t book payment plans, to any number that you see in our 

report is what we recovered and banked. And then in the next 

27

year, we put $441 million in the bank. We increased referrals by 

105 percent for providers. 

And then, in closing, because I’m being rushed by this little 

timer——

Senator COBURN. Go ahead. Take your time. 

Mr. FLOOD. OK. Five minutes for 2 years. Your preference, sir. 

What we found is that listening to the staff and taking into consideration the thousands of myriad little changes that they would 

make to the system, we had over the biennium a 30 percent increase in returns using the exact same amount of appropriations 

that we had in 2003. So therefore, in 2006, we had a 30 percent 

increase. The first year was 23 percent. The second year was 26 

percent. I expect that number to begin leveling off as you optimize 

the system and there’s no more money to be found. But again, in our State, that equates to $132 million new dollars 

were developed through the program, which equated to 133,000 

new Medicaid beneficiaries being given benefits for a year with no 

new expenditures upon the State. And so the governor considered 

that was a pretty fair return. 

We do operate at a 10 to 1 cash ratio. That is, for every dollar I get, the legislature gets $10 back, and an overall ratio of 23 to 

1. We have decreased all of our accounting methodologies for cost 

avoidance because it is, in my opinion, a fuzzy number. So we use 

the lowest denominator possible to measure cost avoidance and still 

book it as a value for the State because we believed that when the 

legislature was trying to allocate its resources in the next biennium, it would want the most accurate data possible to make decisions with. 

On the final page, what do we do exactly now? I’ve listed the programs that we do. If it has anything to do with a social benefit, 

I do it. That’s the easiest way to explain it. We incorporated every 

possible program—TANF, WIC, food stamps, financial aid assistance, grants, contracts—any appropriated dollar for social services 

comes through our program, which is $16.9 billion, which you 

placed up there. 

We have partnered with the University of Texas of Dallas to 

learn new data mining methodologies. We believe that partnering 

with the premier academic institutions was a better way to solve 

the State’s problem, using a State entity, the State colleges, for the 

State’s computer systems versus trying to contract that out. And 

that’s been pretty beneficial so far. 

To give you an example, we took the Diabetes Council for Texas, 

their 2010 strategic plan and what they hope to accomplish 

through grants, studies, and research. We answered eight of their 

ten questions once we turned the system on. And that was within 

1 year. So we considered that was a pretty good return. 

We have tried everything we can pull out of the hat to make, as 

a partnership with any other agency, entity, nonprofit that we can 

find that would reap a benefit, whether it be training, technology, 

people, resources, or whatever we could do. 

I will state for the record—because someone may tell you—I did 

file a letter to the Federal Register regarding the PERM project, 

and I hope to discuss with the agencies the implementation of 

PERM in the future to address our concerns with its implementaVerDate 0ct 09 2002 08:12 Mar 29, 2007 Jkt 027753 PO 00000 Frm 00031 Fmt 6633 Sfmt 6601 C:\DOCS\27753.TXT SAFFAIRS PsN: PAT
28

tion, to make sure it produces the most for the Federal Government that it possibly could. And that letter is in the Federal Register for your review. 

Sir, this is all I’ve been doing for 21⁄2 years, and I can speak 

much longer than you wish to listen. We have filed these. These 

are audited numbers. I’m audited by everyone. If you wish to study 

Medicaid, all the numbers for the State of Texas are available to 

you, and we’ll supply you with whatever you need. 

Senator COBURN. I have a couple of questions. Did anybody from 

CMS or OIG come talk to you about what you’ve accomplished in 

Texas? 

Mr. FLOOD. No, sir. 

Senator COBURN. So the implementation is they’re developing a 

plan, and the most successful plan in terms of trimming waste, 

fraud, and abuse, which seems to be Texas, they haven’t asked you 

for information about or sought your advice? 

Mr. FLOOD. No, sir. But I don’t think anybody knew we existed 

till recently. 

Senator COBURN. OK. Well, I’m not sure I know how to answer 

that. 

What have you seen from the aggressive stance you’ve taken in 

terms of trying to be out there—what have you seen in terms of 

behavior patterns now that the providers in Texas know you’re 

there? What are you seeing? 

Mr. FLOOD. We’re seeing—at first there was the belief that the 

draconian implementation of this law would wipe out the medical 

industry as we know it. That was their initial reaction. After having a lot of meetings with the providers, convincing them that we 

were not out to shut down the industries, we’ve actually begun to 

partner with them as much as humanly possible. And we may not 

agree on the issue, but we’ll at least discuss it. 

We are seeing that they are beginning to focus on the Medicaid 

programs more than they have in the past. The focus up until this 

point has been on Medicare because of the obvious resources that 

were put into that. They responded to those resources. 

The Medicaid programs, however, did not have those oversight 

resources, so the providers didn’t provide resources to control their 

expenditures like they would for Medicare. And what we’re seeing 

is that they are now turning their attention to Medicaid because 

we’ve made it abundantly clear to them that we will be coming. 

They’ve looked at our numbers and realized we have been coming 

to their neighbors, and therefore it’s not long till I come to them. 

And it’s better to have your house in order than to not. 

Senator COBURN. So you’ve created the proper expectation for 

compliance? 

Mr. FLOOD. I’m known to be very blunt and candid with the audience. 

Senator COBURN. I kind of like that for some reason. I don’t 

know why. 

When you look at the numbers for Texas when you first started, 

what is your estimate of the waste, fraud, abuse, and including eligibility abuse, as a percentage of Texas’s Medicaid program? 

Mr. FLOOD. I would actually agree with Director Smith that 8 

percent is actually what I would consider prosecutable abuse the 

29

fraud. The PAM and PERM studies I personally participated in for 

the last 3 years and reviewed all of the results. They have averaged 13.7 percent over the 3-year period. Approximately 4 or 5 percent of that is simply documentation error, which we would not categorize as an abuse. 

Senator COBURN. It’s not intentional abuse? 

Mr. FLOOD. It is not intentional and shouldn’t be included. 

Senator COBURN. So 8 to 9 percent is probably a good number? 

Mr. FLOOD. Yes, sir. That is a solid number. 

Senator COBURN. And you’ve seen that 3 years in a row? 

Mr. FLOOD. Yes, sir. 

Senator COBURN. OK. Do you still have 8 percent out there or 

is it getting down to 6 percent, 5 percent, 4 percent? What are the 

results? 

Mr. FLOOD. We haven’t seen what I would call deterrent effect 

yet. We are still in the process of picking up rocks to see what’s 

underneath it because so many of them were not examined over 

time. I would not expect to see a deterrent effect for another couple 

of years because it takes—well, first——

Senator COBURN. Getting around the neighborhood? 

Mr. FLOOD. Yes, sir. Well, first was just building the office, which 

was a feat in and of itself. Now a tour of the neighborhood is our 

next plan. 

Senator COBURN. OK. If you were to give CMS and the OIG advice on their plan and how to work with States and how to implement to get to lessen this 8 percent number, what would you tell 

them? You can be blunt. It’s just going to be on the record if you’re 

blunt. 

Mr. FLOOD. It’s just on the record, and make sure my boss will 

sign my check this month. 

Senator COBURN. Well, say it tactfully. 

Mr. FLOOD. Having come to this industry, what I’ve noticed is 

that the industry is built around the payment system and the State 

agency system. In my personal opinion, the CMS agency is the Federal equivalent of the State’s State agency. And to have them 

measuring themselves creates the same problem that we had in 

our own State, that we measured ourselves, which is how I came 

into existence. 

So my concern is what filter is placed upon the PERM project. 

Is it more filtered to provider implementation and the delivery of 

services, and that is our primary focus, with the other being secondary? Or is it more Inspector General Levinson’s focus of this is 

fraud and this is abuse and I see the red flags. I’ll make sure that 

there’s care, but I see the red flags. 

Each one has their different focus, and that’s my concern, is 

which direction you want to go. Because invariably, the agencies 

will set that tenor, in my personal opinion, not that of the Office 

of the Governor. 

Senator COBURN. And this is opinion as well. Are you hopeful to 

see the kind of changes at CMS and OIG that will make it easier 

for us to eliminate fraud, waste, and abuse in Medicaid? 

Mr. FLOOD. Oh, absolutely. I think the Budget Reduction Act 

gives sufficient resources to make a very robust system if it’s knitted together well. 

30

Senator COBURN. And so the question and the caveat is: How is 

it going to be knitted? 

Mr. FLOOD. Yes, sir. 

Senator COBURN. Well, we’re going to find out in 6 weeks, according to the testimony we’ve had. 

Mr. FLOOD. Yes, sir. 

Senator COBURN. Well, I want to thank you for your testimony. 

I think this is a model that can happen in a lot of other States if 

they’ll learn from you. My hope is that we start seeing deterrent 

effect because after 3 years we’re still seeing 8 percent. That’s an 

ever-enlarging number as we’re growing at 10 to 12 percent per 

year. And that’s care that can’t be provided to somebody that needs 

it, or it’s money that doesn’t have to be spent, that can be spent 

somewhere else if we’re taking care of everybody. 

So thank you for the job that you’ve done for the State of Texas, 

and I appreciate you coming before our hearing. 

Mr. FLOOD. Thank you. 

Senator COBURN. Thank you so much. The hearing is adjourned. 

[Whereupon, at 4:10 p.m., the Subcommittee was adjourned.] 

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