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IMPROPER MEDICARE PAYMENTS: $48 BILLION

WASTE?

HEARING

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT ORGANIZATION,

EFFICIENCY AND FINANCIAL MANAGEMENT

OF THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

FIRST SESSION

JULY 28, 2011

Serial No. 112–79

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

(

Available via the World Wide Web: http://www.fdsys.gov

http://www.house.gov/reform

(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

DARRELL E. ISSA, California, Chairman

DAN BURTON, Indiana

JOHN L. MICA, Florida

TODD RUSSELL PLATTS, Pennsylvania

MICHAEL R. TURNER, Ohio

PATRICK T. MCHENRY, North Carolina

JIM JORDAN, Ohio

JASON CHAFFETZ, Utah

CONNIE MACK, Florida

TIM WALBERG, Michigan

JAMES LANKFORD, Oklahoma

JUSTIN AMASH, Michigan

ANN MARIE BUERKLE, New York

PAUL A. GOSAR, Arizona

RAU ́ L R. LABRADOR, Idaho

PATRICK MEEHAN, Pennsylvania

SCOTT DESJARLAIS, Tennessee

JOE WALSH, Illinois

TREY GOWDY, South Carolina

DENNIS A. ROSS, Florida

FRANK C. GUINTA, New Hampshire

BLAKE FARENTHOLD, Texas

MIKE KELLY, Pennsylvania

ELIJAH E. CUMMINGS, Maryland, Ranking

Minority Member

EDOLPHUS TOWNS, New York

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, District of

Columbia

DENNIS J. KUCINICH, Ohio

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

STEPHEN F. LYNCH, Massachusetts

JIM COOPER, Tennessee

GERALD E. CONNOLLY, Virginia

MIKE QUIGLEY, Illinois

DANNY K. DAVIS, Illinois

BRUCE L. BRALEY, Iowa

PETER WELCH, Vermont

JOHN A. YARMUTH, Kentucky

CHRISTOPHER S. MURPHY, Connecticut

JACKIE SPEIER, California

LAWRENCE J. BRADY, Staff Director

JOHN D. CUADERES, Deputy Staff Director

ROBERT BORDEN, General Counsel

LINDA A. GOOD, Chief Clerk

DAVID RAPALLO, Minority Staff Director

SUBCOMMITTEE ON GOVERNMENT ORGANIZATION, EFFICIENCY AND FINANCIAL

MANAGEMENT

TODD RUSSELL PLATTS, Pennsylvania, Chairman

CONNIE MACK, Florida, Vice Chairman

JAMES LANKFORD, Oklahoma

JUSTIN AMASH, Michigan

PAUL A. GOSAR, Arizona

FRANK C. GUINTA, New Hampshire

BLAKE FARENTHOLD, Texas

EDOLPHUS TOWNS, New York, Ranking

Minority Member

JIM COOPER, Tennessee

GERALD E. CONNOLLY, Virginia

ELEANOR HOLMES NORTON, District of

Columbia

(III)

C O N T E N T S

Page

Hearing held on July 28, 2011 ............................................................................... 1

Statement of:

Levinson, Daniel R., Inspector General, Office of the Inspector General,

Health & Human Services; Michelle Snyder, Deputy Chief Operating

Officer, Centers for Medicare & Medicaid Services; Kay Daly, Director

of Financial Management and Assurance; and Government Accountability Office, accompanied by Kathleen King, Director, Health Care,

Government Accountability Office ............................................................... 8

Daly, Kay ................................................................................................... 26

Levinson, Daniel R. ................................................................................... 8

Snyder, Michelle ........................................................................................ 15

Letters, statements, etc., submitted for the record by:

Connolly, Hon. Gerald E., a Representative in Congress from the State

of Virginia, prepared statement of .............................................................. 73

Daly, Kay, Director of Financial Management and Assurance, prepared

statement of ................................................................................................... 28

Levinson, Daniel R., Inspector General, Office of the Inspector General,

Health & Human Services, prepared statement of .................................... 11

Platts, Hon. Todd Russell, a Representative in Congress from the State

of Pennsylvania, prepared statement of ...................................................... 3

Snyder, Michelle, Deputy Chief Operating Officer, Centers for Medicare

& Medicaid Services, prepared statement of .............................................. 18

Towns, Hon. Edolphus, a Representative in Congress from the State

of New York, prepared statement of ........................................................... 5

(1)

IMPROPER MEDICARE PAYMENTS: $48

BILLION WASTE?

THURSDAY, JULY 28, 2011

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON GOVERNMENT ORGANIZATION, EFFICIENCY AND FINANCIAL MANAGEMENT, COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM, Washington, DC.

The subcommittee met, pursuant to notice, at 10 a.m. in room

2154, Rayburn House Office Building, Hon. Todd Russell Platts

(chairman of the subcommittee) presiding.

Present: Representatives Platts, Issa, Lankford, Towns, Norton,

Cooper and Connolly.

Staff present: Ali Ahmad, deputy press secretary; Adam Bordes,

senior policy analyst; Gwen D’Luzansky, assistant clerk; Mark D.

Marin, senior professional staff member; Tegan Millspaw, research

analyst; Sang H. Yi, professional staff member; Beverly Britton

Fraser, minority counsel; Mark Stephenson, minority senior policy

advisory/legislative director; and Cecelia Thomas, minority counsel/

deputy clerk.

Mr. PLATTS. This hearing of the Subcommittee on Government

Organization, Efficiency and Financial Management will come to

order.

First, I appreciate everyone’s patience and understanding with

both the change in time from 9:30 a.m. to 10 a.m. and also a slightly late start as we were wrapping up our conference meeting in the

Capitol.

The purpose of today’s hearing is to continue this committee’s examination of improper payments made by the Federal Government. In 2010, the government estimates there was $48 billion in improper payments within the Medicare Program. This figure represents approximately 38 percent of all identified improper payments made by the Federal Government in fiscal year 2010 and is

likely only a partial accounting of Medicare’s total amount of improper payments.

Medicare is considered a high risk program by the Government

Accountability Office. It is known to be susceptible to fraud, waste

and abuse. Last year, the Medicare Fee for Service Program reported more improper payments than any other Federal program.

Many of these improper payments are a direct result of insufficient

internal controls and financial management.

The Centers for Medicare & Medicare Services process almost 5

million claims every day, relying on automated systems to identify

improper claims. Most claims are paid without any individual reVerDate 17-JUN-2003 13:22 Jan 24, 2012 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\71988.TXT KATIE PsN: KATIE
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view of the claim or the medical records associated with it. This

leads to improper payments resulting from claims without sufficient documentation, insufficient or fraudulent documentation, incorrectly coded claims or services that are not reasonable or necessary.

CMS has been making efforts to better identify and decrease the

amount of improper payments within Medicare. In 2009, CMS followed the recommendations of the Office of the Inspector General

to implement stricter and more thorough methodologies to calculate

payment error rates.

Using this new methodology, CMS identified more improper payments in 2009 and 2010. CMS is also working to calculate improper payments made through Medicare Part D, the Prescription

Drug Program. CMS had not previously calculated the improper

payments for Part D and will do so for the first time for the current

fiscal year 2011.

CMS also plans to increase its oversight of Part D by performing

more audits including onsite audits and face to face evaluations.

CMS has also announced that it will evaluate the fraud and abuse

programs put in place by third party insurance companies administering Part D. CMS’s efforts to increase oversight are certainly

commendable, however, more must be done to strengthen the internal controls, especially in CMS’s contract management.

In 2006, CMS began using recovery audit contractors to identify

and recover improper payments. The recovery audit contractors

have identified numerous vulnerabilities in CMS’s programs. Unfortunately, CMS has only taken steps to address about 40 percent

of these significant vulnerabilities.

GAO has also found pervasive deficiencies in CMS’s contract

management internal controls. GAO issued nine recommendations

to improve internal controls in 2009 but a year later, found that

CMS had only taken steps to address two of the recommendations.

Improper payments cost the taxpayers billions of dollars each year.

This hearing is part of a continued effort by this committee to prevent improper payments and other instances of waste, fraud and

abuse in government.

I certainly welcome the opportunity to hear from our witnesses

today on CMS’s progress to identify and prevent improper payments in Medicare and would conclude with just the focus that

given the ongoing debate with deficit reduction, the ongoing debate

over the debt limit and the broad picture of spending here in Washington, how we need to do better with the American peoples’

money, when we are looking at debt reduction plans that talk

about reducing spending by $10 billion, $20 billion, $30 billion in

the coming years and then when we look and have, what we know

of, at least $125 billion each and every year improperly made by

the Federal Government, almost 40 percent of which is identified

within the Medicare Program, we have a lot of work to do.

We are grateful for the witnesses being here today who will help

us in this partnership approach to getting this work done and

going forward in a positive way.

[The prepared statement of Hon. Todd Russell Platts follows:]

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Mr. PLATTS. With that, I yield to the ranking member from New

York, the former chairman of the full committee, Mr. Towns.

Mr. TOWNS. Thank you very much to Chairman Issa, the chairman of the full committee, and to you, Chairman Platts, chairman

of the subcommittee.

We should be clear about one thing. Improper payments by Medicare or any other agency may be over payments or under payments. They may be fraudulent payments or valid payments lacking proper documentation. They could also be inadequate payments

for valid charges.

In today’s context of a looming breach of the Federal debt ceiling,

it might be tempting to view Medicare’s improper payments as an

easily identifiable budget savings but that is not the case. Solving

the problem of improper payments does not necessarily translate to

government savings or a lower Federal deficit. Still, eliminating

improper payments is the right thing to do and we should do it.

I think we can all agree on that.

I thank Chairman Platts for holding this hearing and I thank

our witnesses, Inspector General Levinson, Ms. Snyder, Ms. Daly

and Ms. King, for sharing their expertise with us today.

According to GAO, governmentwide improper payments totaled

approximately $125 billion in 2010. Medicare alone accounted for

nearly $48 billion of that as my colleague indicated. That is almost

40 percent of the improper payments in the entire government. I

find these figures deeply troubling and that is why we look forward

to hearing from our witnesses today.

President Obama has taken many positive steps toward reducing

improper payments since the beginning of this administration. In

2009, the President signed Executive Order 13520 which sought to

increase transparency in agencies’ accountability regarding improper payments. In 2010, the President also issued two memorandums that instructed OMB and agencies to make it a priority not

only to find improper payments, but to recapture the money that

was paid.

Additionally, the administration announced last year that the

Centers for Medicaid and Medicare Services would cut the fee for

service plan improper payment rate in half by 2012. I certainly

would like to hear more about CMS’s progress in this matter.

Mr. Levinson, of the Inspector General’s Office, is one of the

watchdog agencies that is responsible for identifying problems and

recommending solutions for improper payments in Medicare. GAO

is the other watchdog. Between these two and independent innovation by CMS, I am looking forward to hearing about how and when

we can eliminate improper payments.

I am encouraged by the progress the administration has made in

the last 2 years in reducing improper payments. Whatever it is

that this committee needs to do to assist in terms of the reduction,

I would let you know that we stand ready to do just that.

Thank you very much for being here and I look forward to your

testimony.

Thank you and I yield back.

[The prepared statement of Hon. Edolphus Towns follows:]

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Mr. PLATTS. I thank the gentleman.

Members will have 7 days to submit opening statements and extraneous materials for the record. Unless any other Member wanted to make a brief opening statement, we will move to our witnesses.

We are honored to have four distinguished public servants here

with us today. Daniel Levinson is the Inspector General of the U.S.

Department of Health and Human Services. He also serves on the

Executive Council of the Council of the Inspectors General on Integrity and Efficiency where he co-chairs the Committee on Inspection and Evaluation.

We are also delighted to have Michelle Snyder, Deputy Chief Operating Officer for the Centers for Medicare & Medicaid Services

where she is responsible for leading CMS’s improvement initiatives

for promoting excellence in operations.

From the Government Accountability Office, we have Kay Daly,

Director of Financial Management and Assurance for the Government Accountability Office where her responsibilities include financial management systems, improper payments, contracting cost

analysis and health care financial management issues.

Along with Ms. Daly, we have Kathleen King. Ms. King won’t be

making an opening statement but is available for questions as part

of today’s hearing. Ms. King is the Director of Health Care for the

Government Accountability Office and is responsible for leading

studies of the health care system and specializes in Medicare management and prescription drug coverage.

Pursuant to the rules of the committee, all witnesses are sworn

in before every hearing. So if I could ask each of our witnesses to

stand and raise your right hands.

[Witnesses sworn.]

Mr. PLATTS. Let the record reflect that the witnesses answered

in the affirmative.

We will set the clock for about 5 minutes. We do have your written testimony which will be made a part of the record. If you can,

stay close to the 5-minutes. If you need to go over a bit, that is fine.

We look forward to them getting into questions.

General Levinson, would you begin, please?

STATEMENTS OF DANIEL R. LEVINSON, INSPECTOR GENERAL,

OFFICE OF THE INSPECTOR GENERAL, HEALTH & HUMAN

SERVICES; MICHELLE SNYDER, DEPUTY CHIEF OPERATING

OFFICER, CENTERS FOR MEDICARE & MEDICAID SERVICES;

KAY DALY, DIRECTOR OF FINANCIAL MANAGEMENT AND ASSURANCE; AND GOVERNMENT ACCOUNTABILITY OFFICE,

ACCOMPANIED BY KATHLEEN KING, DIRECTOR, HEALTH

CARE, GOVERNMENT ACCOUNTABILITY OFFICE

STATEMENT OF DANIEL R. LEVINSON

Mr. LEVINSON. Good morning, Chairman Platts, Ranking Member Towns, Chairman Issa and other members of the subcommittee. Thank you for the opportunity to testify about OIG’s efforts to monitor and help to reduce Medicare improper payments. In 2010, CMS reported Medicare errors totaling nearly $48 billion. My written statement describes in more detail OIG’s work

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analyzing CMS’s error rate estimates and our targeted reviews of

Medicare improper payments. My testimony this morning summarizes OIG’s recommendations in this area.

Although our recommendations are tailored to specific

vulnerabilities, the actions we recommend to CMS fall into the following four categories: increased prepayment and post payment review of claims; strengthen program requirements to address

vulnerabilities; increase oversight and validation of supporting documentation and educate and issue more guidance to providers.

OIG has consistently recommended that CMS enhance both prepayment and post payment review of claims. For example, OIG’s

analysis of claims for diabetes testing supplies identified $209 million in improper payment. Prepayment edits can help reduce improper claims for these testing supplies.

In certain areas, CMS should strengthen program requirements

to address integrity vulnerabilities. For example, we have recommended that CMS establish a payment cap on chiropractic

claims to prevent improper payments for maintenance therapy.

We also have recommended increased review of supporting documentation to verify that requirements are being met. For example,

OIG found that Medicare spent $95 million on claims for power

wheelchairs that were either medically unnecessary or lacked sufficient documentation to determine medical necessity. One of our

recommendations is that CMS review records from sources in addition to the wheelchair suppliers such as the prescribing physician.

Provider education is also critical to ensuring compliance in protecting beneficiaries. We found that 82 percent of hospice claims for

beneficiaries and nursing facilities did not meet at least one Medicare coverage requirement, requirements that are in place to protect beneficiaries’ health and well being. Medicare paid about $1.8

billion for these claims.

We recommended that CMS provide hospices with guidance on

the rules for certifying terminal illness and a checklist of items

that must be included in the plans of care.

For our part in provider education, this year, OIG conducted free

training seminars in six cities to educate providers on fraud risks

and share compliance best practices. We also published a road map

for physicians to provide guidance on complying with fraud and

abuse laws. I have copies of this available this morning for each

and every Member.

Although not all improper payments are fraudulent, all payments resulting from fraud are improper and our efforts to combat

fraud are achieving historic results. OIG’s investigations resulted

in $3.8 billion in court-ordered fines, penalties, restitution and settlements in 2010. To prevent improper payments from compromising the Medicare Trust Fund, OIG refers credible evidence of

fraud to CMS to implement payment suspensions, helping to turn

off the spigot to prevent payment for fraudulent claims.

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Improper payments cost taxpayers billions of dollars each year.

The Executive order on reducing improper payments states that

the Federal Government must make every effort to confirm that

the right recipient receives the right payment for the right reason

at the right time. OIG is committed to this goal and thank you for

support of our mission.

I would be happy to answer your questions.

[The prepared statement of Mr. Levinson follows:]

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Mr. PLATTS. Thank you, General Levinson.

Ms. Snyder.

STATEMENT OF MICHELLE SNYDER

Ms. SNYDER. Good morning.

Thank you, Chairman Platts, Ranking Member Towns and

Chairman Issa, for being with us today and members of the subcommittee for this opportunity to discuss the Centers for Medicare

& Medicaid Services’ efforts to reduce improper payments to Medicare.

CMS is committed to reducing the amount of improper payments

and the rate and ensuring that our programs pay the right amount

for the right service to the right person in a timely manner. Like

other large and complex programs, Medicare is susceptible to improper payments. In accordance with the Improper Payments Information Act, CMS calculates an improper payment rate for the

Medicare Program annually. While these improper payments represent a fraction of total program spending, any level of improper

payment is unacceptable and CMS is aggressively working to reduce errors.

There is confusion about what improper payments are and what

they are not. Improper payments are errors that generally result

from one of the following situations: the provider fails to submit

any documentation or submits insufficient documentation to support the service paid; the provider incorrectly codes the service on

the claim or the documentation submitted by the provider shows

that the services provided were not reasonable or necessary.

Improper payments do not always represent an unnecessary loss

of Medicare funds, rather they are an indication of errors made by

either the provider in filing a claim or inappropriately billing for

that service. Improper payments are usually not fraudulent. CMS

is committed to reducing improper payments in our programs and

we have developed many corrective actions to resolve and eliminate

these improper payments in the future.

The traditional Medicare Fee for Service Program represents the

majority of Medicare spending. This program is administered by

CMS through contracts with private companies that process close

to 5 million claims each day or approximately 1.2 billion claims in

a fiscal year. CMS uses the comprehensive error rate testing process to estimate an improper payment rate for the Medicare Fee for

Service programs.

Between fiscal years 2009 and 2010, CMS was able to reduce the

improper payment rate by 1.9 percent from 12.4 percent in 2009 to

10.5 percent in 2010. The CERT Program provides valuable information to assist in the development of corrective action to reduce

improper payments in the future. We believe the best way to address these documentation problems is through robust provider

education and outreach efforts, performing more review of provider

medical records to ensure services billed meet Medicare policies

and payment rules and enhanced systems edits and automated

analytic tools.

Some of our recent provider education efforts include the development of comparative billing reports, issuance of quarterly compliance reports and conducting routine forums to discuss Medicare

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policies and documentation requirements. We also recently implemented nationally the National Recovery Audit Program. This program allows recovery auditors on a contingency fee basis to identify

overpayments and under payments in a previously submitted and

paid claim.

The Permanent Medicare Fee for Service Recovery Audit Program has corrected a total of $685 million in improper payments

in a 12 month period. The program also provides valuable information about areas where increased education and outreach is needed

and where prepayment medical review is most productive. These

tools also assist in the development of automated edits to detect

and reject claims where medical services are physically impossible

and medically unlikely.

In Medicare Parts C and D they differ significantly from the

Medicare Fee for Service Program and require different approaches

to measure and address improper payments. CMS prospectively

pays Medicare Parts C and D plans a monthly capitated payment

for each enrolled beneficiary. These per person capitated payments

are risk adjusted on a beneficiary’s health status.

The Part C improper payment rate in fiscal 2010 was 14.1 percent, a reduction of 1.3 percent from the fiscal year 2009 rate of

15.4. Most of the Part C improper payments are the results of errors related to the fact that the supporting medical records submitted do not include the necessary diagnosis data to support the

CMS risk adjusted payment.

Again, we are working very closely to implement a number of

audit strategies in the Medicare Parts C and D programs. This

year, we are happy to report that in November of this year, we will

be reporting a composite Part D rate which will be the first time

that we have reported the rate. We believe the information, as we

have gone through establishment of that error, will help us to start

to push that error down because of what we have learned through

that measurement process.

We have a number of strategies in place I would be happy to talk

about as we proceed through the hearing this morning. I would

also like to assure you that we are examining techniques used by

the private sector, by insurance companies and others to better inform our efforts to combat improper payments.

We are eager to learn from successful private sector efforts to reduce errors and improper payments, and have indeed begun to

form partnerships across the health care sector to ensure that we

have the best information we can to make a difference in the Medicare Program and to help them also learn from our experiences in

what is a very large payment program.

While CMS has made significant progress in reducing waste and

errors in our programs, we understand more work remains. I am

confident that the systems controls and ongoing corrective actions

that CMS is undertaking, plus the help of our partners and the Office of the Inspector General, and other parts of the Department,

will help us in continuing this undertaking that will result in continued reduction in improper payments.

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I look forward to working with the subcommittee to ensure that

CMS carries out this important work and to answer an questions

you may have.

Thank you.

[The prepared statement of Ms. Snyder follows:]

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Mr. PLATTS. Thank you, Ms. Snyder.

Ms. Daly.

STATEMENT OF KAY DALY

Ms. DALY. Chairman Platts, Ranking Member Towns and other

members of the subcommittee, I want to thank you for the opportunity to be here today to discuss improper payments in the Medicare Program, as well as CMS’s efforts to remediate them.

In 2010, Medicare covered about 47 million elderly and disabled

beneficiaries and had estimated outlays of about $516 billion. It

makes it one of the largest Federal programs. Medicare consists, as

you know, of four parts: Medicare Parts A and B, commonly known

as fee for service; Part C is the Medicare Advantage Program; and

Part D is the Medicare Outpatient Prescription Drug Program.

An improper payment is defined as any payment that should not

have been made or that was made in an incorrect amount and includes both overpayments and under payments. For fiscal year

2010, HHS reported an estimate of almost $48 billion in improper

payments in Medicare. The $48 billion in estimated improper payments was attributable just to Medicare Fee for Service and Medicare Advantage.

From a governmentwide perspective, the Medicare Program does

represent about 38 percent of the $125 billion in estimated improper payments that had been reported by the 20 Federal agencies that covered 70 programs. HHS’s estimated amount of improper payments for Medicare is incomplete because it has yet to

report a comprehensive improper payment estimate for the Medicare prescription drug benefits. That program had reported outlays

of about $59 billion in fiscal year 2010. As Ms. Snyder just indicated, HHS expects to report a comprehensive estimate for the prescription drug benefit in fiscal year 2011.

It is important to recognize that the $48 billion in improper payments reported by HHS in fiscal year 2010 is not an estimate of

fraud in Medicare. Reported improper payment estimates includes

many types of over payments, under payments and payments that

were not adequately documented.

In addition, because the improper payment estimation process is

not designed to detect or measure the amount of fraud in Medicare,

there may be fraud that exists in the program that is not encompassed in the reported improper payment estimates.

In 2010, CMS created the Center for Program Integrity to serve

as a focal point for all national Medicare program integrity issues.

The CPI as it is known is responsible for addressing program integrity issues and vulnerabilities that lead to improper payments.

They collaborate with other CMS components to develop and implement a comprehensive, strategic plan, objectives and measures to

carry out the program integrity mission and goals.

CMS has also begun a number of initiatives related to five strategies that have been identified in our previous reporting. These

strategies are key to reducing Medicare improper payments. However, CMS still faces significant challenges in designing and implementing internal controls to effectively prevent or detect and recoup improper payments.

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Effective implementation of prior recommendations we made

from provisions in recently enacted laws and recent guidance related to these five fee strategies could help remediate fraud, waste,

abuse and improper payments in the Medicare programs. The five

key strategies are strengthening provider enrollment standards

and procedures; improving prepayment review of claims; focusing

post payment claims review on the most vulnerable areas; improving oversight of contractors; and developing a robust process for addressing identified vulnerabilities.

For example, having mechanisms in place to resolve

vulnerabilities that lead to improper payments is key to effective

program management, but our work has shown that CMS has not

yet established an adequate process during its recovery audit demonstration project or in planning for the subsequent recovery audit

of national programs to ensure that the vulnerabilities that had

been identified were promptly resolved.

In conclusion, with the amount of estimated improper payments

and the unknown amount of potential fraud, waste and abuse in

the Medicare program, it is critical for CMS to act quickly and decisively to reduce them. As it implements recently enacted laws and

other issues for Medicare, CMS has an opportunity to use new tools

to help further address fraud, waste, abuse and improper payments

in this program.

Chairman Platts, Ranking Member Towns and the other members of the committee, this completes my prepared statement and

I would be glad to answer any questions you might have.

[The prepared statement of Ms. Daly follows:]

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Mr. PLATTS. Thank you, Ms. Daly and thanks to all our witnesses for your testimony.

We will now move into questions and I will yield myself 5 minutes for that purpose.

I want to first acknowledge the effort, Ms. Snyder, of CMS and

we appreciate that you and your colleagues are dutiful in trying to

identify and prevent improper payments and be good stewards of

the American taxpayers’ money.

In your written testimony, your statement is, ‘‘While improper

payments represent a fraction of total program spending, any

amount of improper payment is unacceptable and CMS is aggressively working to reduce these errors.’’ I read that to say it is only

a fraction and any amount, as if this is a small amount. Well, 48

billion is, you are right, about 10 percent or so of total CMS expenditures, but that is a huge amount of money, not just any

amount, it is a huge amount.

I don’t want to minimize the efforts to prevent it but when I

share back home that the total number for the whole government

that we know of is estimated at $125 billion every year, my constituents think I misspoke. When we talk about the individual program, Medicare that is about 38 percent of that, it is staggering.

One of the issues in your testimony, and each of you referenced

it here today or in your written testimony, was that when we hear

improper payments, we think fraud, the worst, and we do appreciate that is not the case. A lot of this is just insufficient documentation or the wrong documentation. Is there an estimate of the

$48 billion that is fraud related either in overbilling, duplicate billing or fraudulent billing? Is there an estimate of that percentage?

Ms. SNYDER. Before I answer that, my mother is a Medicare beneficiary and trust me, I hear exactly what you just said when I go

home. It is a big number.

Mr. PLATTS. As is my mom and she asks me lots of questions

when she gets her statement, what is all this?

Ms. SNYDER. Exactly. Sometimes it makes you not want to go

home for Thanksgiving.

In relation to your question about a fraud rate, one of the toughest problems we have had at CMS is to find the methodology that

actually allows us in a scientific way and in a replicable way to estimate what amount of the improper payments are really fraud. It

is something we have struggled with. We have gone to the private

sector, we have talked to them and said, how do you estimate

fraud? We have looked at literature when people make comments

that a certain amount is fraud, we have looked behind it to say

how did you measure it because we want to do that.

What we found is there isn’t a methodology. Our Center for Program Integrity started a new program and just awarded a contract

and we are going to try to estimate levels of fraud. We will start

with two areas that we believe are fraud prone. We know they are

fraud prone because of the work that has often been done in terms

of investigations by the Office of Inspector General and reports

from the Government Accountability Office. That is durable medical equipment areas and home health. Just because of the work

over the years, we know there are huge issues there.

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We are hoping we will be able to actually say here is a methodology that will work that you can apply to different kinds of service

categories and estimate an actual fraud rate. We hope to have that

work done over the next 6 to 8 months. We have invited the private

sector to be part of the board that helps develop this methodology

and hope we will be successful because we think this is something

that will not only work for CMS, but will work for the private sector as well. If we develop something that works, we will share it.

Mr. PLATTS. I appreciate the challenge of having that methodology to estimate. Do you have what your actual fraud numbers

were for 2010 that you found were fraudulent, 2010 or 2009?

Ms. SNYDER. I can submit to the record a number of collections,

we have cases that went to the Department of Justice, we have investigations through the OIG where we have actually collected dollars back. It amounts to many hundreds of millions of dollars that

come from those particular cases and they are estimated, but that

is a specific case number.

Mr. PLATTS. Rather than trying to estimate going forward, what

is the track record that you know is fraudulent in the last 3 years,

2008, 2009, 2010? How much do we know is fraudulent because we

caught the perpetrators of the fraud?

Ms. SNYDER. If you would let me submit that number for the

record? It is in the hundreds of millions of dollars.

Mr. PLATTS. Per year?

Ms. SNYDER. Probably over the 3-year period. Particularly, we

have shown recoveries from the task forces in which we have been

involved with the Office of the Inspector General, with the Department of Justice. There are particular dollars that have come back

to us from those stings and those activities. It is several million

dollars over that 3 year period. I don’t want to give you a wrong

number but it is significant.

Mr. PLATTS. Whatever the number is, if it is hundreds of millions, we know that is a portion of what the actual fraud is. That

is what we have caught and been able to identify. Again, we are

talking real money here that we need to go after in addition to

what I will call the administrative problems, the documentation,

other types of improper payments.

I would yield to the gentleman from New York, the ranking

member, for 5 minutes.

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

Let me ask, the background check, if we strengthen that, would

that cut down on the amount of waste, fraud and abuse, if we

strengthen the background check initially?

Ms. SNYDER. I assume you are talking about providers who participate in the Medicare program?

Mr. TOWNS. Yes, the providers.

Ms. SNYDER. That is a suggestion that has come to us. Again,

usually the Government Accountability Office has certainly cited

that as a possibility, as has the Office of the Inspector General.

What we have found one of the best ways to prevent fraud, waste

and abuse is to keep bad actors out of the program from the very

beginning.

Part of keeping bad actors out of the program from the very beginning is making sure we do appropriate provider certification and

56

screening. Part of that is taking a look at an application and looking to make sure you have a license, have you been debarred somewhere else, have you lost your license somewhere else, are you indeed a real operation, do you have a real building, so going through

a number of screening criteria and doing it upfront and never giving the person a Medicare provider number is one of the best ways

to proceed, absolutely.

We are in the process right now of where we are going to recertify the 1.4 million providers that participate in the Medicare Program. We hope to have that mostly done or a large part underway

by 2013. There are certain kinds of providers where we have recently said in regulation that we do want to have the opportunity

to do background checks, fingerprinting, to take a look at them

through that scope.

In fact, recently we just hired a contractor who will start to take

information about providers particularly in areas we know we have

had problems and start to look at all the kinds of public information we have to bring it together to look at and say, is this somebody Medicare should be doing business with. It is an excellent

technique and we are employing it.

Ms. KING. If I might add, we agree that keeping the bad actors

out is one of the most effective ways to prevent fraud and also improper payments in the program and there are provisions in the Affordable Care Act that give CMS considerable authority to

strengthen the enrollment process.

They have infact separated providers into different categories of

risk with home health and durable medical equipment being in the

highest category. They have strengthened the ability to look at providers getting into the program. That is work that we have ongoing

to look at what is going on there.

Mr. TOWNS. Let me ask in the context we are talking about this

morning, correction, what does it really mean when you talk about

making a correction? Just go right down the line, what does it

mean to you?

Mr. LEVINSON. Mr. Towns, I think the Executive order states exactly what the goal is for every dollar expended and that is to get

it right. If there is missing information, if the record is not complete, there is simply no assurance that the dollars spent are appropriately spent. In that sense, it is an error.

Is it necessarily fraud? No. Those are two very different concepts.

I would underscore that some of the most successful, sophisticated

frauds reveal no improper payment at all because the paper record

is so well done. While the improper payment amount is likely to

include cases of fraud, it would be counterintuitive to think that

they don’t, it doesn’t really capture a fraud figure.

Mr. TOWNS. Ms. Snyder.

Ms. SNYDER. Correction I think, to us, is very similar to what

Mr. Levinson is saying but it really means when you look at the

claim that is filed, remember we got several million of them going

through the system a day, when you look behind the face of that

record, what you will find is a justification for the expenditure and

that you give folks every opportunity to make sure that record is

correct before you declare it to be an improper payment.

57

To us, it means the service occurred, it was an appropriate service, it occurred in the right setting and that we paid you the right

amount for it. If that is not the case, then it is an improper payment and needs to be corrected. You need to bill me correctly, you

need to make sure you are providing the service in the right place.

You, the provider, need to do the right thing. You are a partner

with the Medicare program.

Mr. TOWNS. Ms. Daly.

Ms. DALY. I would have to echo some of the sentiments that Mr.

Levinson and Ms. Snyder have just spoken. I think having the

right documentation to pay the bill, making sure the patient is due

for the services and so forth are all very important. All of that

needs to be done correctly in each step of the process.

Making it all done right the first time saves a lot of time and

effort and avoids what is commonly referred to the pay and chase

mode where if it is not done correctly the first time, it is considered

to be payable and we have to spend a lot of time and effort to make

corrections.

Ms. KING. To add to that, when we talk about a corrective action,

we are thinking about is when a vulnerability has been identified,

you know people are doing things they shouldn’t, you put a process

in place to try to prevent that in the future either by strengthening

your enrollment standards, strengthening your prepay audits or

doing it on post pay.

Mr. TOWNS. Mr. Chairman, my time has expired but let me ask

just one question. If you have a situation where a group comes to

you and says, this is a problem, can you make that adjustment?

For instance, I was looking at the power wheelchairs. I know there

have been issues that have been raised over and over again which

to me seems to be a legitimate kind of concern, but nobody is responding to it. Do you respond when a group comes and says this

is a problem, you look at it and see it is a legitimate problem, can

you then make an adjustment?

Ms. DALY. Let me take a stab at that because that is a particularly interesting one to me, the power wheelchairs.

The first place that we go is to look at what is the statutory requirement of that benefit category, how has it been defined. For

power wheelchairs are part of what is called a homebound benefit

which was established in the statutes which basically say you have

to be able to use that power wheelchair inside your home. You have

to be unable to walk more than three to four steps inside the confines of your apartment, your house, whatever it may be.

When you take a look at that and folks come to you and say this

power wheelchair enhances the quality of my life because it lets me

go to the mall, to church on Sunday, however it might allow you

to get outside the walls of your apartment, that certainly is a valuable thing to the quality of that individual’s life.

However, if you look at the statute behind it and the legal requirements, by definition, you don’t meet the requirement of the

law in order for that power wheelchair to be provided to you. That

is a particularly tough one because, yes, if you are a doctor on one

hand if you are somebody’s daughter and you go in to a doctor and

say, my mama could really use this, as a doctor you want to proVerDate 17-JUN-2003 13:22 Jan 24, 2012 Jkt 000000 PO 00000 Frm 00061 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\71988.TXT KATIE PsN: KATIE
58

vide that. However, the ability to do something about that is limited by what is in statute in that particular example.

The second place you look is to see is there regulatory policy

around this. Is there a regulatory policy or any ability if it makes

sense to make some change and then take a third look at it to say,

is it a matter of policy that we have interpreted, that we have put

something in place, so how much room do you have to work with

that particular group of providers or that particular service to

change it.

It is a pretty rigorous process. We do listen to folks. They come

in, talk to us and we look to see what makes the best sense for the

beneficiary, but what makes the best sense to the beneficiary in

terms of the laws and regulations that are in place that bound that

particular benefit category.

One of the things we found with wheelchairs, when we have

looked back at them we have a really high error rate. It is pretty

much for the reason I described. It does not satisfy the definition

of the benefit. We are looking at ways we can put some controls

in place on the front end of it so that we are not paying and chasing for power wheelchairs or power mobility devices that don’t meet

the requirements of the benefit.

Mr. TOWNS. Thank you, Mr. Chairman, for your generosity.

Mr. PLATTS. The gentleman from Oklahoma, Mr. Lankford, for 5

minutes.

Mr. LANKFORD. Thank you, all of you, for what you do. My mom

is also one of those Medicare recipients. She will never have the

opportunity to meet people like you serving behind the scenes and

say thank you, so I would pass that on from her and millions of

other seniors. What you do is a great service to a lot of people, so

we appreciate that and the dedication you put into it.

The fraud, like you I go home on Thanksgiving and that is what

we are going to talk about, Medicare fraud, friends she has bumped

into and things she perceives to be fraud and all those things. Let

me flip to the other side of it.

I also hear from doctors and hospitals who are very frustrated

with recovery audit contractors. There is a perception in their

minds that they walk through the door and they are guilty and

they are going to stay there until they prove they are guilty, no

matter how long it takes.

They understand they are paid by the paperwork, so they are

going to stay, dig through and find some nurse who was in a hurry

who did not put the date on the form and they are going to get

fined for it. They fight and fight and fight, sometimes for years

through the process; this code was active and now suddenly, it is

not and they are getting hammered sometimes thousand and millions of dollars in fines when they are the good providers. I am

talking good hospitals.

How do we fix this? Because they hate the Federal Government

because those recovery audit contractors are their enemies and

they are going to stay until they make money off them. They are

not there for their benefit. They are there for our benefit as far as

recovering things, but that hospital says, I am the good guy, how

come I am getting hammered? How do we fix that?

59

Ms. KING. We did an evaluation of the demonstration of the Recovery Audit Program and I think we did identify some missteps

in terms of some of the initial actions that were taken by the

RACs. It is our understanding that CMS has instituted a process,

a committee inside CMS that has to prove the issues that the

RACs are going to undertake.

Mr. LANKFORD. That has not trickled down actually yet, because

I can tell you as recently as of the last couple weeks, I have been

in communication with yet another hospital in my district that is

fighting the same thing. It is a bounty hunter coming through their

doors and they are determined to find something wrong, and they

will. They are not happy at all because they are adding additional

staff in compliance areas for things that are not fraud.

My understanding is these contactors are paid even if later they

determine that it wasn’t true, it really was correct. Is that correct?

Ms. KING. Actually, that was the case in the demonstration but

it is not the case in the national program. If something is overturned on appeal, then the RAC does not get paid.

Mr. LANKFORD. That is a good fix for a start on that, but how

do we develop this relationship because they are no longer our

friends, we are setting out as an enemy to them.

Ms. SNYDER. We have heard that, so the good news is that is not

new news to us but it is a continuing concern.

In the demonstration which went on for 3 years, we did learn a

lot of things and we learned a lot better about how to manage the

contractors. Some of the things Ms. King referenced like having a

committee that says, is this legitimate, before you go after somebody, making it clear to the RAC contractors if this is overturned

on appeal, you are going to pay back the money and the provider

gets back the money.

We actually recently hired two of what I call someone to watch

the RAC, a validation contractor if you will. They do spot checks

of the RAC’s work, the particular contractor’s work to say, were

you inappropriately aggressive, were you looking at the wrong

things, did you really use standard accounting practices.

I think it, again, is a continuing education, an outreach. We have

regular standing forums with our provider community, one of the

topics that’s always on those calls, and we get hundreds of providers who call into those forums. We talk about the issues with

the RAC program and have said to folks, if you think your area

RAC is being overly aggressive, if you have continuing problems

with them, let us know and we will look into it.

In reference to the particular hospital that you just mentioned,

if you would give me the name of the hospital, we will reach out

to them and look to see if it is a matter of what I will call hard

feelings because they don’t like the program, whether or not those

corrective actions have reached out in that particular setting, and

redouble our efforts to make sure folks understand the intention is

not gotcha. The intention of this really is making sure we are paying appropriately. I would be very happy to reach out to that community.

Mr. LANKFORD. I would completely agree it is a good thing for

us to be aggressive in this process but they perceive it very much

as gotcha and the smallest minutiae that is going with it. I have

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had several hospitals I have talked to about it. The one I most recently talked to didn’t want me to bring up their name on it because they feel there will be punitive action against them even

harder next time. They are very careful to say, we are cautious on

how we move on that because they have so much power on us now,

our functioning and operation. This is not one of your large major

hospitals, but it is a good charitable hospital.

That is no way to live and operate, so I want you to stay aggressive on it. This system is not working for them at all.

Mr. LEVINSON. If I can add a couple of things, we actually will

be looking at the RAC process in our office later this year in the

sense of looking at CMS’s oversight of the RACs. I wouldn’t want

my comments to be part of some effort to say RACs are necessarily

a bad idea.

As our work starts in this area, there are a couple of observations worth putting into the mix as we try to understand the pros

and cons of RACs. One issue is that the RAC process is really a

variation on the model of pay and chase because the money has already gone out the door. RACs are trying to recover money and

that, in a sense, certainly is good, but it is a continuation of a

model that the government is trying to get away from. We are trying to catch the problems before they leave.

The other is in the brief work we have been able to do in the first

few years with the RAC process, RACs referred only two case of potential fraud to CMS in the 3-years of the demonstration between

2005 and 2008, even though they found a billion dollars in improper payments.

It is important to understand that the incentives need to be

aligned in a way so that while improper payments are identified,

in as least intrusive and most productive way, that it also is a process that should reveal where fraud occurs and because the RACs

don’t see any money coming from identifying fraud, those cases

wind up being referred for investigation.

Mr. LANKFORD. We are catching paperwork mistakes and not

fraud.

Mr. LEVINSON. There is actually disincentive in a sense potentially to refer cases of fraud because then they are taken out of the

universe of improper payments. I think these are the kinds of very

important issues that need to be teased out as we look at the RAC

program.

Mr. LANKFORD. Thank you.

Mr. Chairman, thank you for allowing a couple extra moments.

I yield back.

Mr. PLATTS. I thank the gentleman and I would associate myself

with the gentleman’s comments because your term of bounty

hunter is also what I hear whether it be from an institution or individual providers where they feel they are not innocent until proven guilty, that they are guilty of wrongdoing and in essence, they

are trying to prove 6 months ago when they treated a patient, they

did it by the book, did provide the service they were paid for, yet

are put in the position of having to prove their innocence as opposed to assuming their innocence.

I yield to the gentleman from Tennessee, Mr. Cooper.

Mr. COOPER. Thank you, Mr. Chairman.

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The headline of this hearing is the $48 billion in improper payments, but already we have parsed that and have a better understanding because apparently a relatively small percentage of that

is fraudulent but it is also possible to have fraudulent payments

that are not covered by the $48 billion.

I would like to ask what percentage of the $48 billion are overpayments as opposed to under payments or mispayments? Essentially what we are doing when we put out a figure like $48 billion,

we are talking about the quality of the red tape. Good quality of

the red tape doesn’t show up in that $48 billion number. If there

is a flaw in the red tape, then wham, it is in the $48 billion. I am

guessing, and perhaps I am wrong, that most of the $48 billion is

still overpayments.

Ms. KING. The vast majority.

Mr. COOPER. That is still a real concern to taxpayers. It is interesting that in your data, when you are comparing fee for service

problems with managed care problems, actually managed care

problems are slightly higher at this point. You think with managed

care, you get more management and better quality red tape but apparently that is not true. It will be fascinating to see what the

Medicare Part D numbers are now that you are finally able to

evaluate that.

To put this in context, people also need to know that fee for service problems usually indicate overpayments and over utilization of

services where sometimes managed care problems indicate under

utilization of services, denial of care. It is a completely different

human result. One injures the taxpayer, the other injures the patient.

Again, to put it in context, we had a hearing this morning regarding the Pentagon. I think the Pentagon is still number one on

the GAO’s list of high risk government agencies because they have

never been auditable. After decades of trying, they are still not

even close to being able to be auditable. When the Simpson Commission asked how many contractors the Pentagon had, the official

response was somewhere between 1 million and 10 million.

I am in no way justifying Medicare problems but that is astonishing incompetence when you can’t tell within an order of magnitude who your payees are because somebody has to write the contractor a check. They don’t do this work for free.

Another area of serious concern is Medicaid. It is just not nearly

as centralized as Medicare because that is farmed out to the

States. That gives you at least 50 different opportunities to have

confusion, mismanagement and lack of accountability, fraud and

improper payments.

One of the fundamental issues that has barely been touched in

this hearing is the Federal Government has actually paid people

very promptly under the Federal Prompt Pay Act. That is what creates this situation of pay and chase. At least in the health care

area, you have some of the slowest payers on the planet.

In the private sector, private insurance companies will stretch

out accounts receivable for 180 days or longer. Meanwhile, the good

old Federal Government steps up and pays you in 30 days. That

makes the process of pre-certification so tough. No one has ever

62

written us a thank you note saying thank you for paying us in 30

days. They take that for granted.

Meanwhile, even the GAO set up two fake DME companies and

was able to scam the system. A lot of folks in the small business

and provider communities do not want to say thank you for coming

through with payment within 30 days. That creates the situation

where we have to chase the improper payment.

I am in no way defending the bounty hunters or the RACs but

sometimes the Federal Government is an easy touch too. That balance has to be struck in a proper way. I am glad you are improving

your system so you are able to get a better handle on that.

I see that my time is about to expire, Mr. Chairman. Maybe I

should just stop there. Thank you.

Mr. PLATTS. I thank the gentleman, the first of us four to actually be dutiful with the time and it is appreciated.

I would comment with the gentleman with the issue with fraud

is we don’t really know what percentage, we don’t know that it is

a small percentage. We don’t really know because it is not geared

to signal out fraud. I don’t know we can say it is a small percentage of the improper payment number. Even if it is just 10 percent,

that is still close to $5 billion but we don’t really know what the

percentage is. That is why I asked what has been identified as we

know for certain was fraud in the past 3 years, to start to look at

that issue, how to better identify it.

Also, your point about the Department of Defense is well made

and we are looking at a hearing in the fall on DOD and the issue

you touched on. GAO has well recognized the challenges at that department.

With that, I yield to the gentleman from Virginia, Mr. Connolly.

Mr. CONNOLLY. Thank you, Mr. Chairman.

I want to thank everyone for being here. I want to add to the testimony. My parents have been major consumers, unfortunately, of

Medicare for about 25 years. When we were voting on health care

reform last year, my dad said to me, you need to know that in

those 25 years, I am talking major, major stuff, never once has

there been an error, never once have they had to be reminded to

meet an obligation, never once have they arbitrarily denied something that was important to us in sharp contrast to the private insurance system.

He said, at least speaking for us, we are very satisfied customers

and by the way, it has allowed them, in their eighties now, to live

autonomous, productive lives, managing their health care frankly

because of Medicare. Let us remember that as a context as we now

look at a feature of Medicare that is not so good.

I think we have to begin with accepting the fact that $48 billion

is a staggering sum of money. It is unacceptable for two reasons.

We owe it to the taxpayers to do something about it. It is their

money. Second, frankly, it feeds into the narrative which I reject

that we cannot afford Medicare.

What do you mean we can’t afford it? If we can get $48 billion

to zero times 10, you have a huge significant chunk of savings in

the program that doesn’t touch benefits. It is critical that we get

our arms around this.

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Nothing happens without being measured. Ms. Snyder, have we

in fact set an ambitious goal knowing we will never get to zero but

to get to zero? Is the goal to get to zero and are there milestones

and metrics that allow us to do that?

Ms. SNYDER. Yes, sir. The administration has set what I think

is an incredibly aggressive goal, to cut the error rate in half by

2012, so we would be right around 6 percent. Again, I think most

folks will argue when you get to 6 percent, then it is going to be

cut it in half again to 3 percent.

I think one of the difficulties in driving down the error rate is

that you put interventions in place against a sample that was

drawn and evaluated, and then within 3 months of that being in

place, you start drawing a sample again of claims. It is the ability

for interventions to actually take effect that is one of the greatest

challenges in terms of driving down the rate. That is going to make

it tough but we know we are on the hook to do it and we are going

to do our best to get there.

Mr. CONNOLLY. I would simply say nothing happens without

stretch goals in government. I ran a very large government across

the river. I really would like to see you come back with very ambitious stretch goals, understanding that getting to zero is a noble

goal, never attainable, but if you press the system to get to that

goal, we will have far more dramatic and positive results.

Ms. SNYDER. In response to what you are saying, it is very important to know that probably 10 million of the claims inside the

billion claims are the ones that are the biggest dollar ones. They

are the hospital inpatients, so focusing there, we hear you.

Mr. CONNOLLY. I want to sneak in two more questions. One is

in looking at the data, Medicare Advantage compared to Fee for

Service surprisingly is 35 percent higher in improper payments.

Why is that?

Ms. SNYDER. Medicare Advantage, when we looked behind the

numbers on that, we found is when we pay a capitated rate, that

capitated rate is based on a risk score. In other words, inside your

files, if you have Medicare Advantage plan, you have to be able to

have medical justification or documentation that says you are a

really sick guy and I need to pay you more for it.

When we started looking behind the patient panels, we found

there wasn’t documentation necessarily that said you are a really

sick guy, so when I figure out your capitated payment, it should

be a higher rate. When we look at that, some of it was missing documentation similar to fee for service, but part of it is trying to determine what the sickness score, if you will, of a particular plan

and what the rate adjustment should be against the fact that the

patient panel may not be as sick as reported.

Mr. CONNOLLY. Do some of the measures we took in health care

reform help you in that regard with respect to Medicare Advantage?

Ms. SNYDER. I think the risk adjustment pieces of it and knowing

how to look inside of that, and those metrics coming out of the Affordable Care Act will be very useful to us. Through a series of audits, we are trying to take the measurement, go back against the

audit and figure out what the reduction and capitation really

should be so it is a real dollar financial number.

64

Mr. CONNOLLY. Mr. Chairman, given your incredible generosity,

would you allow me one more question and I don’t think it is a long

one.

It is my impression in talking with the U.S. Attorneys Offices

that Medicare fraud has increasingly moved up as a priority for

them and consumes a lot of their time in terms of bringing charges

against organized fraudulent activity on Medicare. Mr. Levinson,

Ms. Snyder and Ms. Daly, is my anecdotal impression confirmed by

data and what is your interaction with the U.S. Attorneys Office

to ensure that while we don’t want to be bounty hunters, on the

other hand, people who are deliberately organizing and orchestrating fraud against the U.S. Government and taxpayers need to

be brought to justice. What is the interaction and what is the data?

Mr. LEVINSON. Mr. Connolly, the interaction is robust, especially

over the last several years as these anti-fraud strike forces have

taken hold in cities around the United States. There has been a

very ambitious effort to root out systemic health care fraud especially in places where it exists like south Florida, Los Angeles,

parts of the Gulf States, New York and Detroit.

That is in large part why you are hearing more about it, more

resources are being expended. It does require careful coordination

between the Justice Department, the prosecutors, and OIG as the

investigators. Let me put in a plug that this is funded on our part

by the Health Care Antifraud Account that was established in

HIPPA and has grown. It certainly has helped us to recover more

than $6 for every dollar put into the fund back to the trust fund

and the Treasury.

It has been very successful thus far and we are continuing to

build on that. A very critical part of the fraud piece in health care

fraud does have to do with enrollment, making it too easy for folks

masquerading as health care providers to get into the program, to

get a provider number. Title VI of the Affordable Care Act does

strengthen that whole enrollment process so if we can get that initial piece, if we can keep the wrong people out of the program in

the first instance, that makes a huge impact on the fraud problem.

Mr. CONNOLLY. Thank you very much. Thank you, Mr. Chairman, for your indulgence.

Mr. PLATTS. You are welcome.

The gentlelady from the District of Columbia, Ms. Holmes Norton.

Ms. NORTON. Thank you very much.

This hearing has been very informative and educational, particularly when you get into what is actual fraud. I would like to break

down what overpayments really mean. Do they mean cheating? Do

they mean miscalculating? Do they mean paperwork? When I hear

overpayments, that would seem to say somebody is putting in for

too much money relative to the service provided. What is your view

of that, any of you?

Ms. DALY. Congresswoman Norton, I would like to clarify that

overpayments can mean all of the things you mentioned. It can be

for the wrong amount, it could be a duplicate payment, it could be

a payment that was made to someone who was ineligible to receive

it, it could be someone eligible to receive it, or they received the

wrong amount. It could be any number of things under contractual,

65

statutory or regulatory restrictions for that payment. There is a

broad swath there it can cover.

Ms. NORTON. I understand the limitations of statistics, but I

must say the reporting of these numbers in this way does add to

what I think Mr. Connolly was referring to. When people hear a

word like overpayment, they are used to that meaning. They don’t

even think in terms of their own overpayment of their credit card

bill. They think the government is overpaying people who should

not be paid.

I would urge you to find a category, I recognize we have to break

down these categories, but find a category that would make the

public understand how much of this overpayment comes from malfeasance. I think that would turn the public off more than anything

else.

Yes, we want the rest of it to be reported, but it does a disservice

to the most popular and perhaps most important Federal program,

especially since not everyone seems to be for that program, at least

not here in Congress, when words like that are used. I recognize

this may put an additional burden on you, but I do think it is a

burden worth taking on. I would ask you to look at that. Ms. King?

Ms. KING. If I might, it is a difficult thing to do because if you

are talking about malfeasance or fraud, that has a legal definition

and involves a deliberate attempt at wrongdoing.

Ms. NORTON. You are doing pretty well. I saw your statistics on

referral of cases to the U.S. Attorney. The public is interested in

wrongdoing, Ms. King.

Ms. KING. I understand.

Ms. NORTON. Yes, they are interested in mistakes, too, because

they hold the government accountable for being efficient, but the

first thing of interest is somebody cheating us with this program

that is so important to us. I understand how impossible it is to get

a definition that meets with a statistically valid notion. That is

why I only asked you to look at it.

I was just perplexed about Medicaid Part D, that only in January

was the government beginning, this is the first of the really large

programs, to look at overpayments for Part D, the drug program.

What have we been doing with that program?

Ms. KING. It began in 2006.

Ms. NORTON. Yes. We have not been doing the same kind work

on overpayments, under payments, etc. for Part D that we have

been doing for the rest of Medicare?

Ms. SNYDER. Why don’t I try to answer that? I am sure my colleagues from GAO can help me out on this one.

I don’t think we would say we haven’t looked at error inside the

program. We essentially have spent the last 31⁄2 to 4 years figuring

out what you should report and how to separate the particular

components of the measurement. In fact, we have looked at four

different aspects of the Part D program and found error in all four

of those aspects. Three of them, low income subsidy payments, actual computations within the system that pays the drug benefit

itself, was well under 1.5 to 2 percent.

The area that seems to be driving inside the Part D drug benefit

comes back to if you go to the point of service, where the beneficiary goes in to get their prescription filled, what is not there at

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the pharmacy is supporting documentation for that order to be

filled. We found in terms of the prescription drug events, that was

the biggest issue, documentation at the point of service. I think

that number, I hope I have this right, was around 13 percent. That

was the biggest number in Part D.

Ms. NORTON. That is the same issue, often documentation, with

the rest of Medicare. In January 2011, CMS awarded a contract to

identify incorrect payments and recoup payments in Medicare Part

D. That program wasn’t paid for, unlike the health care laws which

we just passed. That means the taxpayers have been really paying

through the you know what for this one for errors.

Is your testimony that it has taken that long to develop a system

for doing the very same thing you were doing with rest of Medicare?

Ms. SNYDER. I think my testimony on that is like any error rate

program, you want to make sure you are getting it right because

it is a partnership with the provider.

Ms. NORTON. You just began in January. I commend you. This

is an administration that has been here for a couple of years. I am

not sure if in prior hearings there were reports on progress to

measure Medicare Part D in the same way that we measure other

parts of Medicare. Have there been? Has the Congress been kept

informed or did this just pop up, this is something we ought to look

at because we have been working on it and maybe we ought to report it to the Congress?

Ms. SNYDER. I think we, as part of the Improper Payment Act,

are required to report on all of our programs. Certainly in terms

of being a high risk agency because of the Medicare Program generally, any major new program that comes to CMS, we would look

at it and be required to report an error rate on it. It has taken us

a little while to get there.

I think the good news is that will be a composite error rate reported this November with our audited financial statement.

Ms. NORTON. Can I ask one more question? Will you be able to

go back or will this reporting begin as of 2011 or 2010? How far

back will you be able to go on error rates?

Ms. KING. Just forward in Part D.

Ms. NORTON. That means in 5 or 6 years, people got off scot-free.

I understand startup so I am not blaming you. But my goodness,

you can imagine and perhaps some of that information, some of

that experience will help us to develop going forward how to better

track that data.

Thank you very much. We will never get back that money.

Mr. PLATTS. I thank the gentlelady.

One bright note I would highlight on Part D is when it was

passed, the estimates of its cost had been about 40 percent lower

than what was initially anticipated, so there is a positive message

out there about how that program is being operated.

I yield myself 5 minutes for questions. I have a couple follow-ups

to my colleagues.

Mr. Lankford talked about the recovery audit contractors and

Ms. King, you referenced it is a contingency fee approach but if

what they find is overturned on appeal, then the RACs are not allowed to keep that. That assumes there is an appeal made. I guess

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my question is, how easy is an appeal done, what is the cost of

doing it?

I am wondering if someone is found to have made improper payments, are they going to just give up the money, don’t bother doing

an appeal so the RAC still gets paid even though it may not have

been a legitimate improper payment?

Ms. KING. That is sort of a tough question to answer. I think the

RACs initially, and I presume so in the national program, are sort

of going after big ticket items. If you are a provider and an inpatient hospital service, there is a lot of money on the line, I would

think you would be more likely to appeal than not.

Mr. PLATTS. Ms. Snyder, do you have anything to add to that?

Ms. SNYDER. I would say there has been a robust appeals process. The provider community hasn’t been shy about pushing back.

When they have pushed back, we have looked at it and it has resulted in certain changes, certain edits in our system, to help folks

bill right on the front end. The ultimate with this would be if we

are doing it right moving from a pay and chase environment to pay

it right to begin with, ultimately RAC contractors would be much

more limited in our set of interventions on improper payment because we would be paying it right to begin with.

Mr. PLATTS. One of those aspects of paying right up front is the

certification of the providers, that they are legitimate medical providers. The ranking member talked about that as well.

You mentioned that you are recertifying all providers? Can you

expand on what that involves and how quick a process is it to recertify all providers?

Ms. SNYDER. We are going to do it in stages. If you are a new

provider coming into Medicare, then there are more stringent requirements on the very front end. We divided it up into different

groups, new folks coming in, people who are already Medicare providers, about 1.4 million providers.

We have hired a contractor to help us with that. We automated

applications so people can come back and give us their updated information like billing places, actual physical locations, all the

things that help us determine whether or not you are a legitimate

provider. We have already started the recertification and we plan

to have 100 percent of the community either completed in terms of

recertified or significantly underway by January 2013. There are

very specific project plans in-house in our Center for Program Integrity that is responsible for that activity.

I think we have done something like 25 newsletters and articles

to the provider community. We have been doing open forums with

them to say this is coming, this is what we need you to do to work

with them.

Mr. PLATTS. In going through this process of recertification or

just in general, if you find a provider who is not legitimate, can you

expand on how you pursue them or how you work with the Department of Justice if they have been fraudulent and what type of penalties usually would be pursued?

Ms. SNYDER. If it is a new guy, we don’t give him a billing number or we give him a temporary billing number which means that

within 3 months, we have to make sure they are indeed a good guy.

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That is like a stop loss policy. That is one of the new policies in

place.

The other is as we go through looking at recertification, we are

also sending out people to do face to face visits with folks, particularly in areas where we know there have been a problem. We always go back to the durable medical equipment suppliers. We not

only do a face to face visit with you, and we are going to show up

randomly over a period of time to make sure you are indeed a legitimate provider.

We have a new tool that we are more than willing to use, suspension of payment if need be which is different from the philosophy in the past. The philosophy for Medicare all along was we

take any willing provider. That philosophy now has changed because as you stated, $38 billion is a big number.

We refer people immediately. We referred something like 40 providers in the last quarter to the Office of the Inspector General to

say take a look at this. We may sometimes continue payments because law enforcement wants to build a case. There are a number

of ways we are stopping payment to begin with or at least limiting

the damage.

Mr. PLATTS. You mentioned face to face which I think is important and recognize that within your own entity, the ability to go

out and have a face to face with the 1.4 million providers. I don’t

know if it has ever been looked at but perhaps it sounds like about

a 2-year process to go through recertification, once every 10 years

we have an entire fleet of individuals out on the street doing census where they literally are walking the neighborhoods in every

town, every city, every community in this country. It is a pretty

simple approach that when they are in the neighborhood, Medicare

partners with the Census Bureau to say, we have these 10 providers that say they are located in this neighborhood. As you go

through that neighborhood, make a visit to confirm there is an entity there operating. It uses a resource already walking that street.

We are 9 years away from the next census but at least once

every 10 years there is someone showing up at a provider’s location

to say yes, there is a doctor’s office here operating, another way we

are trying to weed out the bad guys.

A lot of outreach has been talked about with providers. When my

mom has services provided, she gets a statement of services. She

is extremely grateful for the services provided and the payment of

those services. She looks down that list and she looks at the cost

and is overwhelmed by how much the service was in total cost.

Is there an effort in those statements that clearly says if something is not right on here, that there is an easily identified 800

number? Is that part of every statement?

Ms. SNYDER. Yes, sir. We have statements that run all the time

on those notices of beneficiary payment that say if you have a question, call 1–800. Our Center for Program Integrity has just started,

and it has gotten a lot of interest on the part of the beneficiary

community, if you have a question and think there is something

wrong with your bill, you think there is something funny going on,

please call 1–800. We set up a component within the 1–800 number

to receive those calls.

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We then run them against the other kinds of data analysis and

modeling we do to see is there something going on here. We have

received a number of those complaints. We are logging them in. I

shouldn’t call them complaints but questions. We log them in so we

can get back to the beneficiary to close it out or get back and say

we really can’t answer this now because we have to take more of

a look.

Mr. PLATTS. You have tens of millions of partners out there who

can help you on the front lines in identifying something that is

fraudulent and bring it to your attention.

A final question before I yield to the ranking member if he has

other questions or comments, the issue of medically unnecessary

services. General Levinson, you talk about this in your testimony

and payment for services deemed not medically necessary, so the

taxpayers are paying, the Medicare beneficiary is paying 20 percent on average for that, something they don’t need, and perhaps

it is even unsafe because they went through a procedure they

didn’t need and were put at risk in getting that service.

You referenced the 6-month period and the tens of millions of

dollars of improper payments related to being medically unnecessary. Can you expand on what your recommendations were to try

to try to address that aspect of improper payments and where you

see CMS is in responding to your recommendations?

Mr. LEVINSON. It is crucial that there be the documentation in

order to demonstrate that indeed this was exactly the kind of service or product actually needed by the patient, by the beneficiary.

As you point out, this is a burden that is placed on both the taxpayers and beneficiaries when you don’t have that medical necessity determination.

I think the power wheelchair example is a pretty good one because there are different types of power wheelchairs. Obviously the

more sophisticated are going to be more expensive. If the paperwork doesn’t demonstrate and you look at the actual beneficiary,

there is no reason to provide a premium kind of power wheelchair

that has features that really aren’t necessary, that is a cost to the

government, to the beneficiary and it raises questions about gaming the entire system. That is just an example and this does constitute a significant portion of the improper payments.

Mr. PLATTS. Ms. Snyder, your perspective on that aspect of improper payments and how you are trying to prevent it up front

rather than chasing after the fact?

Ms. SNYDER. I think for us one of the best ways to prevent it is

if we find there was over utilization of services or unnecessary

services, we translate that into an edit that goes into the front part

of our payment system. We literally have over a thousand edits in

the claims payment system. Part of those are to push out a claim

if it appears, based on a diagnosis code and the service being requested, if it doesn’t match, it kicks it out, so you don’t pay it.

The wheelchairs are a good example, but I think another really

good example is people with ulcers, bed sores. There is a special

mattress surface and we often find it is appropriate for a certain

kind of mattress to be prescribed but they go to what I will call

the deluxe mattress, the person with really significant sores and

who needs that kind of surface to be well rather than going to a

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different kind of surface that may be appropriate to the medical

condition of that person.

It is not reasonable and necessary. There is a service that is necessary but what actually gets prescribed for the person is not reasonable and necessary. If we start to see kick-ups in payment, and

this is part of the front end of our data analysis, you see a kickup in a particular benefit category, then you start to look behind

that and say what is really going on here. There should be a service of some sort but is the intensity of the service actually one that

should occur. If we can track that and do it from all kinds of leaks

from all kinds of folks, we then put that edit in the front of the

system to shut it down.

Mr. PLATTS. Thank you.

Mr. Towns, any other questions? I yield to the gentleman from

New York.

Mr. TOWNS. Thank you very much.

GAO made nine recommendations. You have actually implemented two. Is there any reason why you have not implemented

the other seven? Have you responded to them in some way?

Ms. SNYDER. We are actually setting up a meeting with our GAO

colleagues next week because we thought we had closed seven of

the nine. I think partly what has happened is we have done some

internal kinds of things in terms of policy statements, some training and development that quite frankly we have not shared with

the GAO.

We think we are a lot closer to having the bulk of those recommendations closed. As I said, I think next week we are sitting

down with them to give them some documentation we have done.

We have totally rewritten a training manual. Part of this is about

contractor closeout and how one audits overhead rates, how one

tracks cost allocation systems and a bunch of very technical contracting kind of work.

I think the one open recommendation we are totally in agree- ment about is out of about $4 billion worth of contracting activity

we do, there was a question of about $88 million of incurred costs.

When we went through those incurred cost contracts, we believe we

are at a point where probably $86 million of that is actually allowable. We think there is about $2 million that is not. We put some

of those in what we call an interim audit file where we want to do

more intense looking.

We really do owe GAO an answer on that. We have given them

different numbers at different times as we worked through that

audit process, but I really think we are a lot closer to having the

bulk of those closed. I really look forward to sitting down with GAO

next week and going through that.

There is an internal policy document that we did not share with

them that we should that is sitting with our Office of General

Counsel and the Office of Financial Management which addresses

a number of the weaknesses. My guess is it will get us most of the

way there. I think there will be areas where CMS will be taking

the position that we believe we are willing to incur the business

risk on this rather than putting in a set of resources. GAO may or

may not agree with that but we certainly need to sit down together

and work through that. I think we are closer to closed than not.

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Mr. TOWNS. GAO?

Ms. DALY. Congressman Towns, I appreciate the opportunity to

discuss this and I agree with what Ms. Snyder said. We have not

received documentation to confirm whether or not CMS had indeed

taken the actions we had recommended related to the contract

weaknesses we identified. We are very encouraged to be having

meetings with them to review what steps have they taken to address issues such as having appropriate contract closeouts, improving their invoice review procedures, all of these things that are critical to protecting and making sure those contract actions are legitimate.

Ms. SNYDER. We really appreciated the recommendations we got

from GAO. We think we can strengthen our internal controls by

acting on them and are happy and glad to do that. We are glad to

have the benefit of that review.

Mr. TOWNS. In talking to administrators in the health care field,

they are saying that electronic records might solve a lot of the

problems or would it further complicate the problem? What will it

do with the problem? Do you feel that is the case?

Ms. KING. I don’t think we know for sure yet. I think it is too

soon to tell. Certainly they are going to provide better documentation. There should be better documentation on file, so that would

be a positive step but I think before there is further implementation and we have an opportunity to look at it, I don’t think we can

say it would solve the problem for sure.

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

I yield back.

Mr. PLATTS. I thank the gentleman.

Before we wrap up, just a couple of other quick things. One, to

follow up on Mr. Towns’ focus on the internal controls and contract

management aspects, I am glad to hear we are further along than

maybe we thought in that area and just in the testimony today

where we have recovery audit contractors, we have validation contractors to cover the recovery audit contractors and even when improper payments are identified by the recovery audit contractors,

they don’t collect, and I forget the term for the contractors that actually do the collection. We have a lot of contractors. Managing

those contractors is key if we are going to get a true handle on improper payments. That partnership between CMS, GAO and the

IG’s Office is critical.

Just to refocus on Ms. Norton’s issue of Part D, I appreciate this

is an ongoing effort, that we are now in the first year where we

will have a good assessment of Part D improper payments and if

we apply a rough average of the fee for service, Part C, 10 percent,

12 percent, 14 percent, somewhere in there, we are still talking

about $5–$6 billion perhaps of improper payments in Part D on top

of what has already been identified.

It is all the more important that effort move forward as it is and

we are dutiful in how to address those.

In closing, I guess I would emphasize what I think just about all

of us have hopefully conveyed, the importance of what you do and

the gratitude of our constituents for Medicare ensuring that our

seniors are getting the medical care they need and that we do right

by them. We certainly want to recognize CMS’s efforts in ensuring

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that is the case and also the partnership between all three entities

represented here, CMS, the IG Office within the Department and

GAO. I hope that the three of you and your entities will see this

committee in a very positive partnership manner because that is

really the intent of this hearing.

I think, Ms. Snyder, you referenced not playing gotcha. I sometimes forget the references because I have been chairman with him

as my ranking member on two occasions and he has been chairman

with me as his ranking member and the bottom line is we have a

shared focus which is just to have good government and to partner

with all of our colleagues in government to achieve that. I hope

that comes through as our intent with this hearing and going forward to continue to partner and how we can further partner in the

months and years to come, especially if there are legislative issues.

One that was mentioned concerned statutory language with the

power wheelchairs and how you have to start there. If there are

issues you identify at CMS that perhaps the intent of Congress is

not fulfilled accurately or appropriately in the way the statute was

written versus what you think we were trying to do, you probably

will learn that before us because of implementing the statute, we

hope you will come back to our committee or Ways and Means and

Energy and Commerce with Medicare and Medicaid and partner

with Congress.

That is what we are hoping to do in every aspect and at the end

of the day, as far as this subcommittee’s focus, we hope to do our

best to ensure that every dollar of the American people’s hard

earned funds sent to Washington are handled and used in a responsible, accountable fashion.

I know that is what the four of you as public servants are after

and are appreciative of your efforts. We look forward to going forward in a positive way with you.

We will keep open the record for 7 days for any additional information, specifically those numbers on actual fraud dollars identified in the past 3 years. That would be great. We look forward to

continuing at the committee level with Members as well as their

staffs in how we can work with you.

With that, this hearing stands adjourned.

[Whereupon, at 11:48 a.m., the subcommittee was adjourned.]

[The prepared statement of Hon. Gerald E. Connolly and additional information submitted for the hearing record follow:]

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