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75–039 PDF 2001

S. HRG. 107–123

MEDICARE ENFORCEMENT ACTIONS: THE FEDERAL

GOVERNMENT’S ANTI-AGING EFFORTS

HEARING

BEFORE THE

SPECIAL COMMITTEE ON AGING

UNITED STATES SENATE

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

WASHINGTON, DC

JULY 26, 2001

Serial No. 107–11

Printed for the use of the Special Committee on Aging

(

SPECIAL COMMITTEE ON AGING

JOHN B. BREAUX, Louisiana, Chairman

HARRY REID, Nevada

HERB KOHL, Wisconsin

JAMES M. JEFFORDS, Vermont

RUSSELL D. FEINGOLD, Wisconsin

RON WYDEN, Oregon

BLANCHE L. LINCOLN, Arkansas

EVAN BAYH, Indiana

THOMAS R. CARPER, Delaware

DEBBIE STABENOW, Michigan

JEAN CARNAHAN, Missouri

LARRY CRAIG, Idaho, Ranking Member

CONRAD BURNS, Montana

RICHARD SHELBY, Alabama

RICK SANTORUM, Pennsylvania

SUSAN COLLINS, Maine

MIKE ENZI, Wyoming

TIM HUTCHINSON, Arkansas

PETER G. FITZGERALD, Illinois

JOHN ENSIGN, Nevada

CHUCK HAGEL, Nebraska

MICHELLE EASTON, Staff Director

LUPE WISSEL, Ranking Member Staff Director

(II)

C O N T E N T S

Page

Opening Statement of Senator John Breaux ......................................................... 1

Statement of Senator Larry E. Craig ..................................................................... 2

Statement of Senator Susan Collins ...................................................................... 4

PANEL I

Thomas Scully, Administrator, Centers for Medicare and Medicaid Services,

U.S. Department of Health and Human Services, Washington, DC ............... 6

PANEL II

Leslie G. Aronovitz, Director, Health Financing and Public Health, Health,

Education and Human Services Division, U.S. General Accounting Office,

Washington, DC ................................................................................................... 32

Stuart E. Schiffer, Acting Assistant Attorney General, Civil Division, U.S.

Department of Justice, Washington, DC ............................................................ 47

Lewis Morris, Assistant Inspector General for Legal Affairs, Office of Inspector General, U.S. Department of Health and Human Services, Washington,

DC .......................................................................................................................... 65

PANEL III

Robert P. Charrow, Crowell and Moring, Washington, DC ................................. 98

Joseph diGenova, Special Counsel, American Hospital Association, Washington, DC .................................................................................................................. 116

James W. Moorman, Executive Director, Taxpayers Against Fraud, Washington, DC .................................................................................................................. 128

APPENDIX

Responses to Questions from Senator Larry Craig from the Center for Medicare and Medicaid Services ................................................................................. 155

Response to a Question from Senator Susan Collions from the Center for

Medicare and Medicaid Services ......................................................................... 158

Response from Department of Health and Human Services ............................... 160

Statement from the Office of the Deputy Attorney General ................................ 169

Questions and Answers from Department of Justice ........................................... 176

Additional information from the American Hospital Association ........................ 204

(III)

(1)

MEDICARE ENFORCEMENT ACTIONS: THE

FEDERAL GOVERNMENT’S ANTI-FRAUD EFFORTS

THURSDAY, JULY 26, 2001

U.S. SENATE,

SPECIAL COMMITTEE ON AGING,

Washington, DC.

The committee met, pursuant to notice, at 10:03 a.m., in room

SD–124, Dirksen Senate Office Building, Hon. John B. Breaux

(chairman of the committee) presiding.

Present: Senators Breaux, Carper, Craig, Collins, and Ensign.

OPENING STATEMENT OF SENATOR JOHN B. BREAUX,

CHAIRMAN

The CHAIRMAN. The committee will please come to order.

Good morning, everyone, and thank you all for being with us.

I would like to begin the hearing by thanking Senator Larry

Craig for his initiative in this area, started before the changeover

in the Senate. We are still trying to work in a cooperative fashion

in order to complete some of the things that he took the lead on

when he was chairman of this committee, and we will, of course,

continue to try to make sure that these issues are addressed because they indeed are very important. I also want to thank the witnesses who will be with us this morning and look forward to hearing their testimony.

I think all of us in the Congress, and I know that I have spent

a great deal of time trying to do whatever is necessary to improve

the Medicare system. It is an incredibly important system that provides medical coverage to over 40 million Americans, and indeed in

the future, it is going to be increasingly important as the baby

boom generation becomes eligible for this very important program.

The challenges are great. I honestly think that we have to make

major changes in the system. One reason why we have problems

that we are addressing today is because of the fact that the Medicare program which was designed in 1965 micro-manages health

care in this country. That is completely and totally unacceptable in

the 21st century as far as I am concerned.

It is ludicrous for members of this committee and others to have

to sit on a regular basis and try to micro-manage how much we pay

for each product that each provider provides to the seniors who are

the beneficiaries. We cannot continue to do that.

2

When we talk about adding a prescription drug program to Medicare, it is truly inconceivable that somehow, Members of Congress

will sit and determine how much we are going to pay for each pill.

Obviously, spending $270 billion a year to medical providers to

serve the needs of the beneficiaries is very complicated. There are

bound to be mistakes. Any time you have that much money on the

table, there are also bound to be people who will try to scam the

system—and some have done it very successfully.

It is interesting that we have had people testify before this committee who have actually had to be let out of the penitentiary in

order to come and testify, because they have fraudulently misused

some of the programs that the Government and the taxpayers provide to serve the needs of people who have health concerns.

That is not to say that that is reflective on the providers at-large.

There are literally millions of providers who play by the rules,

abide by the rules, and provide top-quality medical services to the

people of this country. American hospitals, home health care providers, durable medical goods suppliers all, by and large, play by

the rules.

The question is how do we enforce the rules, and the subject of

the hearing today that Senator Craig has laid out addresses some

of these very important questions.

There have to be rules, and the rules have to be enforced, because if we do not do that, we will obviously have chaos. So the

question is how do we enforce the rules in a way that is fair to everyone and ultimately fair to the beneficiaries and to the taxpayers.

That is the challenge.

I would now like to recognize Senator Craig for any comments

that he might have.

STATEMENT OF SENATOR LARRY E. CRAIG

Senator CRAIG. Mr. Chairman, again let me thank you and your

staff for facilitating this hearing and working with myself and my

staff and the work that had been done prior to you becoming the

chairman and being willing to move forward on the issue of Medicare enforcement.

Let me make it clear this morning that we must continue to devote significant resources to combatting fraud in Medicare programs. Those who violate the public trust I think have to be punished to the fullest extent of the law.

Chairman Breaux has already outlined, I think, the complex

character of this issue and the fact that it is a substantially large

ticket item.

Having said that, however, I believe it is equally important that

we also take a step back and seriously evaluate the full effects,

both good and bad, of our Medicare enforcement efforts. I know of

no other person in the Senate who has devoted as much time to

making Medicare work as has John Breaux. Now I am committed,

as are many others, to working with him to have a positive, functioning program for those who are eligible and participants in it.

I began to listen to my seniors in Idaho as they expressed to me

their deep concern and the difficult time they were having finding

doctors who would accept new Medicare patients.

3

Physicians in turn generally identified three major reasons for

limiting Medicare participation—first, the complexity of Medicare

regulations; second, the alleged concerns about payment rates; and

third, the alleged unfairly aggressive enforcement activities of Federal agencies.

Providers tell me they are deeply fearful of exposing themselves

to zealous audits or dramatic penalties for innocent errors—errors

which frequently result, ironically enough, from the very complexity of the Medicare rules being enforced. We want them enforced,

but in the process, as Senator Breaux has said, we have made

them so complex in the business of micro-managing that they may

now be the problem.

Specifically, I have been hearing from physicians and other

health care providers in my State who are simply overwhelmed by

the documentation required for the Medicare program. Many are

also now so terrified—and that is the word they use—of being

caught up in an audit or enforcement action, that they are spending significant resources, both in terms of money and time, on compliance which has become a very major part of their time.

Compliance officers, consultants, attorneys, internal audits, endless documentation—these represent resources diverted from patient care. I think we need to fight genuine fraud—there is no

question about it, and the chairman and I have no disagreement

there—but we also need to care for the provider making the good

faith effort to comply with the law, and we should provide an environment where the provider does not have to live in fear or chooses

to not care for the patients that he or she might otherwise have

within their health care system.

Through these inquiries, I hope the committee can begin to assess whether fear of overzealous enforcement is justified. If it is,

we will correct the problem. If it turns out that the providers’ concerns are overblown, I want to hear that. I think all of us are here

this morning to listen to the witness panel that this committee has

assembled.

We need to take a hard look at the incentives that exist in the

system and ask whether they place too much emphasis on money

and collection and not enough on combatting true fraud.

We also need to look at overlaps of the authority exercised by

various Federal enforcement entities, principally, CMS, the HHS

Inspector General, and the Department of Justice. Where is this

overlap helpful, and where is it duplicative or even coercive? Where

does there need to be more coordination among the agencies?

I am very pleased that the GAO is among our witnesses here

today. They will discuss the work that they are doing currently.

Following this hearing, I hope to work closely with John and the

committee and to engage with GAO in expanding and deepening

the inquiries on these important issues.

Mr. Chairman, enough said. I am pleased that our colleague,

Susan Collins, has joined us this morning. This is an issue that is

critical. We now have a Secretary, Secretary Thompson, who announced last week that he is forming a group of experts to look into

ways in which we can reduce the burden on providers without increasing costs or undermining the quality of care. I am confident

that if we work together collectively as a team, this administration,

4

this committee and our staffs, and certainly CMS and others, can

solve this problem.

Thank you.

The CHAIRMAN. Thank you, Senator Craig.

Senator Collins, do you have any opening comments?

STATEMENT OF SENATOR SUSAN COLLINS

Senator COLLINS. Thank you very much, Mr. Chairman.

Senator Craig, first let me apologize for swiping the microphone

from you prematurely. I thought that was your last sentence.

[Laughter.]

Mr. Chairman, Senator Craig, let me start by applauding both of

your efforts to strengthen the Medicare program by ensuring that

the Medicare trust fund is protected from those who engage in

fraud and abuse.

Under my chairmanship, the Permanent Subcommittee on Investigations undertook an extensive investigation and held several

days of hearings over a 2-year period on the issue of Medicare

fraud. What we found was truly alarming. In one instance, we

found that career criminals posing as health care providers were

responsible for as many as 169 sham medical entities, billing for

services and equipment that were either never provided at all or

were not medically necessary.

We found cases of criminals who posed as health care providers,

stole beneficiaries’ numbers, and then billed Medicare for literally

hundreds of thousands of dollars.

What was most striking to me, however, in those hearings was

the testimony of one felon who said that he used to be a drug dealer, but he turned to Medicare fraud because it was much more lucrative, much easier, and much safer. That was really startling testimony.

According to the most recent report issued by the Office of Inspector General, in fiscal year 2000, waste, fraud, abuse, and other

improper payments drained almost $12 billion from the Medicare

trust fund in fiscal year 2000. I know we would love to have that

money as we are working on Medicare reform and prescription

drug coverage.

I want to indicate that that figure is certainly an improvement—

a few years ago, it was up to $23 billion in improper payments—

but it is still a staggering amount of money and far too high.

Those who commit Medicare fraud hurt legitimate health care

providers, cost taxpayers vast sums of money, weaken the Medicare

trust fund, deliver substandard services, and endanger our elderly

by not providing needed medical treatment.

However, I think it is very important to note—and Senator Craig

has made this point—that the vast majority of health care providers are dedicated, honest professionals whose top and indeed only

priority is the welfare and health of their patients. They too are

just as appalled as we are by outright criminals and unscrupulous

providers who steal millions and indeed billions of dollars from the

Medicare program.

Sometimes errors—outright errors, not fraud—do occur, and we

must not harm those health care providers who inadvertently comVerDate 11-MAY-2000 11:30 Nov 07, 2001 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 75039.TXT saging1 PsN: saging1
5

mit billing mistakes. This is a complaint that I hear from the physicians in my State regularly.

It is vital that those at the Centers for Medicare and Medicaid

Services be able to distinguish between honest and innocent billing

errors and outright fraud. It is also important that Government

agencies responsible for fighting Medicare fraud coordinate their efforts to avoid unnecessary duplication and that those providers who

have been accused of billing improprieties have an opportunity to

appeal those decisions in a timely manner.

Moreover, it is imperative that the Centers furnish health care

providers with the necessary tools to make certain the claims they

submit are correct. I hear numerous complaints about the complexity of regulations and guidelines, and physicians and other providers have told me that sometimes they simply cannot even get an

answer from the agency, no longer known as ‘‘HCFA’’—I understand you get fined in the Department if you call it by its previous

name. The point is that the Medicare program and its regulations

have become increasingly complex, and it is simply not fair to hold

a provider who is trying to comply with the law and the regulations

accountable if the agency has not properly disseminated the relevant information, and given the kind of guidance that providers

are seeking.

I am very pleased that the new administrator, Mr. Scully, who

is with us today, as well as Secretary Thompson, have expressed

their intent to improve efficiency and expand educational outreach

and work more closely with providers.

I also believe that we need some legislative reforms in this area,

and I am pleased to be a cosponsor of the Medicare Education and

Regulatory Fairness Act.

Protecting the Medicare trust fund from unscrupulous individuals is a serious responsibility. We must strike the right balance.

We must not be overzealous in our efforts and harm innocent providers in the process while ensuring that those who would rip off

the Medicare fund are dealt with severely.

Thank you, Mr. Chairman, Senator Craig, for holding these hearings, and I appreciate the opportunity to give this statement.

[The prepared statement of Senator Collins follows:]

PREPARED STATEMENT OF SENATOR SUSAN COLLINS

Mr. Chairman, I applaud your efforts to ensure that the Medicare trust fund is

protected from those that seek to unjustly enrich themselves by means of fraud and

abuse. Under my chairmanship, the Permanent Subcommittee on Investigations

conducted an extensive investigation into the abuses of Medicare. In one instance,

we found career criminals posing as health care providers that were responsible for

as many as 169 sham medical entities billing for services and equipment that were

either not provided or not medically necessary.

According to the most recent report issued by the Office of Inspector General for

the Department of Health and Human Services, in fiscal year 2000, waste, fraud,

abuse, and other improper payments drained almost $12 billion from the Medicare

trust fund in fiscal year 2000. While that figure is certainly an improvement from

the $23 billion in improper payments that the Inspector General reported a few

years ago, it is still a staggering amount of money, and far too high.

Those who commit Medicare fraud drive legitimate providers out of business, cost

taxpayers vast sums of money, deliver substandard services, and endanger our elderly by not providing needed treatment.

However, as I have pointed out on numerous occasions, the vast majority of health

care providers are dedicated, honest professionals whose top priority is the welfare

6

of their patients. They, too, are surely appalled by the unscrupulous providers and

others who take advantage to steal millions of dollars from the Medicare program.

Sometimes errors do occur and we must not harm those who inadvertently commit billing mistakes. It is vital that those at the Centers for Medicare and Medicaid

Services (CMS) be able to distinguish between innocent billing errors and fraud. It

is also important that the government agencies responsible for fighting Medicare

fraud coordinate their efforts to avoid unnecessary duplication, and that those providers who have been accused of billing improprieties have an opportunity to appeal

those decisions in a timely manner.

Moreover, it is imperative that CMS furnish health care providers with the necessary tools to make certain that claims are submitted correctly. The regulations

and guidelines of the Medicare program have become increasingly complex, and it

is unfair to hold providers accountable if the agency has not properly disseminated

the relevant information. Thomas Scully, CMS Administrator, has expressed his intent to improve efficiency and expand educational outreach at the agency, and I look

forward to his testimony.

Protecting the Medicare trust fund from unscrupulous individuals is a serious responsibility but we must not be overzealous in our efforts and harm innoncent providers in the process.

Mr. Chairman, thank you for holding this morning’s hearing.

The CHAIRMAN. Thank you very much, Senator Collins, for your

involvement and participation and your observations.

We are pleased to welcome as our first witness the Administrator

of CMS, the Center for Medicare and Medicaid Services, Mr. Tom

Scully. We deal with Mr. Scully on a regular basis both in the Finance Committee and obviously on this committee as well.

Previous to his service as Administrator, Mr. Scully was head of

the Federation of American Hospital Associations, representing privately owned hospitals in the country. I think that that knowledge

and experience will be helpful in the position that he holds now.

We are delighted to have you appear and look forward to your

testimony, Mr. Scully.

STATEMENT OF THOMAS SCULLY, ADMINISTRATOR, CENTERS

FOR MEDICARE AND MEDICAID SERVICES, U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES, WASHINGTON, DC

Mr. SCULLY. Thank you, Mr. Chairman, and Senators Craig and

Collins, for having me here today.

I have worked with all of you for years, especially Senator

Breaux, I think, since I was in the first Bush Administration trying

to reform the health care system and make Medicare better. I am

glad that, after a long sabbatical, I have been able to come back

to the Government, and I look forward to working with you.

I have, in fact, become one of the bigger creditors in the Department, because I think I owe the Secretary a couple hundred dollars

for slipping back into ‘‘HCFA’’ myself. I have to pay him a buck

every time I refer to it as ‘‘HCFA’’—but I am getting better.

Anyway, one of the first steps we took—and I will return to the

fraud, and in my view, balance, as Senator Collins mentioned, is

the key on that issue—but I want to run through some of the

things that we have changed at CMS, the agency formerly known

as HCFA, and why we have made some of the changes and some

of the things that we are actually doing.

Secretary Thompson, as you all know, was probably one of the

great HCFA-haters of all time, because as Governor of Wisconsin,

he was pretty frustrated and had a very bad experience, he felt,

with HCFA on Medicaid issues primarily. But he is a very openminded and creative guy, as you know, and one of the best things

7

he did, before I was even confirmed, was to come up and spend a

week at the then HCFA, now CMS, with me in Baltimore. And he

found out what I already know, which was that the people up there

are actually very dedicated and very good. They really know the

programs, they work hard, and they really do try to do the right

thing. But after years and years of pounding, for a variety of reasons, some deserved and some undeserved, they became kind of insular, and they are not particularly good at explaining what they

are doing and what their policy rationales are.

We are going to push hard to change that, but one thing the Secretary felt strong about, from going up there the first week, was

that HCFA’s people are good, they do a good job, much better than

he had expected, but HCFA has a lot of baggage, and he felt, as

did I, that very few people outside the Beltway knew what HCFA

was. The States know Medicare; seniors love Medicare; nobody

liked HCFA. It is a small first step, but we felt that if you are trying to change the image of the agency, both internally in the way

people think about the agency, and externally in the way the country thinks about the agency, that changing the name was a good

idea.

We did seven focus groups around the country. We had an employee contest within the agency, and came up with ‘‘Centers for

Medicare and Medicaid Services,’’ because that is what we do—we

provide services in Medicare and Medicaid—and we think that that

is more representative than HCFA. But deserved or undeserved,

HCFA had a bad name, and we think ‘‘CMS’’—it may not help us

a lot, but at least it is a little breath of fresh air to get a clean start

and try to show that we are determined to change the agency.

It is a big agency. The budget of the agency, if you combine Medicare and Medicaid, is $470 billion this year, which is pretty

big. The Medicare program alone is $240 billion. So it is a big ship

to turn, it is not easy to do, it is a complex program, but we are

determined to do it.

I just want to run through a few things before we get into the

fraud issues that we are focused on doing. In addition to concerns

about overzealous fraud efforts, we found a lot of concern about the

perception that CMS is insensitive and the program is insensitive,

to the issues that your hospitals, your seniors, your doctors, and everybody around the country raise. We have tried to make big efforts to address that.

There are three efforts that the Secretary announced last week,

and the Ways and Means Chairman, which I have worked with

them on. The first is basically to improve outreach outside the Beltway, the second is to improve outreach inside the Beltway, and the

third is to stir up a little more creative thinking within CMS.

It started out with the Secretary going to do field hearings, and

it ended up with me going to do field hearings. We are going to

start later this month doing outreach field hearings around the

country—we have already scheduled three in late August in Montana, Arkansas, and Chicago—and we will continue to do that as

long as I can remain married and have a family. We want to spend

a fair amount of time out there, trying to talk to people outside the

Beltway, to tell them what we are trying to do at CMS, make a

much bigger effort to hear what their problems are and how they

8

want to fix the agency, and to talk to people who actually run facilities, and doctors who actually have to practice under these

guidelines, to figure out things that we can fix day-to-day.

The second, which we also announced last week, are seven what

we call our ‘‘open door policy groups.’’ There is one each for physicians, hospitals and rural health, long-term care, health plans,

nurse and allied health professionals, home health and hospice,

and ESRD and dialysis. In each of those groups—we had initial

meetings last week—we are going to try to meet with everybody involved. For instance, I picked the long-term group to chair myself—

I will be involved with all of them—but I met last week, in the first

meeting, with Ray Scheppach, who is executive director of the

NGA, who will co-chair that group with me; with Chip Groveman,

who runs the biggest nursing association; with the SEIU, which is

the biggest nursing home union; the AARP, whom I have a great

relationship with and work with every day.

That was the beginning of figuring out how we can broaden the

scope and get virtually everybody with a significant interest in

long-term care to sit in a room and talk about what we can work

out. As you all probably know, it is not often that the nursing

homes and their unions agree on things, so my expectation here is

not to fix long-term care reform—although I hope that will be an

issue and we will talk about it—but day-to-day, there are lots of

problems with nursing homes, hospitals, and dialysis clinics that

we can fix, and there are lots of burdens that we put up, as an

agency, that we can tear down and make better.

So my goal is to get everybody around the table with all the different groups in Washington, come up with issues that we can fix,

and methodically churn through them and fix them. If we can get

to bigger reform issues, terrific, but day-to-day managing the agency more efficiently, reducing the burdens, and finding the right balance on a regulatory basis, is clearly the goal here, and I think it

will work.

As a former Hospital Association CEO, I sat around with the

AHA and the Catholic Health Association, the public hospitals, and

all the other groups every week and talked about our issues, and

somebody would eventually wander over to CMS/HCFA and talk to

them about it. So my view was why not have HCFA and CMS in

the room with these groups to begin with to understand their problems up front and try to resolve them as they come up. I expect

that it will work—I do not see why it cannot—but it is going to be

an effort to engage every group from the providers, patients, seniors, across the board earlier in our decisionmaking process and

find out what we can fix for them.

Third, the Secretary announced that he wanted to put together

a group of internal folks in CMS to get the CMS staff to start coming up with new ideas to reduce regulatory burdens, or at least

make them better where they should be, and fewer where they

should be. I think some people perceive that as ‘‘We are from the

Government, and we are here to help you.’’ That is not going to

happen. We do have terrific staff, but to make sure that I drove

them to more creative ideas, I recruited a doctor who ran the Alexandria Hospital emergency room for years and now is an actual

practicing physician in Northern Virginia, running an emergency

9

room every day, to come and work with us 1 day a month, and he

is going to chair that group to try to push our employees. He has

to actually go back and explain to his doctors and nurses and hospital colleagues every day what he has come up with. His name is

Bill Rogers, and he is a long-time practicing physician in this area,

and he actually has to go back and run his emergency room every

day. So I hope that the combination of him coming in and meeting

with some of our more creative employees, and bringing back his

ideas every day, will get their juices going to come up with some

new ideas to reform the agency and make it work better.

We have also announced streamlining the regulatory process. In

another career, after I was thrown out of Government the last

time, I was a health care lawyer, and I know that I was paid rather outrageous sums to read The Federal Register every day to figure out what was going on. So one of my other ideas, which we

have also implemented, is that we are going to put out a compendium of all the HCFA regs once each quarter. So for instance, in

the fourth quarter this year, we are going to publish a list of everything that is going to come out in that quarter—if it is not on that

list, it will not come out—and then, one day a month, we will publish all of our rules in The Federal Register, so that if you are a

provider, or a physician, or a hospital, or a nursing home—anybody

who is interested in what CMS is doing across the board—one day

a month, you will have advance notice of what the regulatory agenda is, and you will only have to look in The Federal Register one

day a month to figure out what is coming. It is a small reform, but

I think the perception of the outside world, fairly or unfairly, is

that CMS/HCFA has had regulatory strafing runs, and you have to

hire a full-time law firm just to follow what we are doing. So the

effort here is to reduce that effort.

As far as responding to other needs, I think I have spoken to all

of you individually at various times. When I came into OMB, I was

the health care person at OMB in the White House in the last

Bush Administration for 4 years, and I remember when I got there

in 1989, I said ‘‘The Medicare contractor system is outrageous. We

have 72 contractors. How can anybody possibly manage this program? We are going to get it down to 10.’’ And I failed miserably

and came back 10 years later, and we have 51 contractors.

I think one of the fundamental problems with the Medicare program is that we have 51 contractors. It is a construct of 1965. It

is crazy. It is one of the things that drove Secretary Thompson

crazy. When he went up to CMS, then HCFA, and learned how it

worked, he could not believe the way we contracted to pay claims

in Medicare. CMS does not pay claims. It is generally the Blue

Cross plans, Mutual of Omaha, EDS that pay claims for us. It is

a construct of a very antiquated system, and we are determined,

hopefully with your help, to pass contractor reform this year, and

our goal is to work cooperatively with our existing contractors to

find the best ones, to get it down to 18 to 20 contractors nationally—they will probably be the Blue Cross plans—to work with

them on better systems, to work with them on better, more responsive rules for dealing with providers and patients, and to get to a

point where we have good, well-incentivized contractors.

10

Medicare contractors, for example, have cost-plus contracts; they

have no incentive—they do not make any money, theoretically—I

do not really believe that, and I do not think anybody else does,

either. It is like the old hospital-based cost system. Theoretically,

you do not have any profit incentive in there, but the reality is that

they shift costs around. But there is very little incentive for our

contractors to really do a good job for us in the long run. We would

like to change that and restructure the Medicare contracting system where we can come up with 18 to 20 good, well-motivated,

incentivized contractors that we like, that we work well with, and

give them the appropriate financial incentives to perform for us.

And I think that you will find that in the long run, that may have

as much to do with streamlining and improving the Medicare payment system as just about anything else.

There is a variety of other things that we are involved in. We

have an educational effort this fall that I will touch on which we

have already announced and the appropriators have supported. We

are taking $35 million from our budget for a Medicare education

campaign for seniors. When I came into the agency, our polling

showed that seniors fundamentally do not understand the Medicare

program. It is not just Medicare+Choice, which Senator Breaux and

I have spent a lot of time on over the years; it is also how to pick

a nursing home, and how to pick a dialysis clinic. All across the

board, the information that seniors have about what to get out of

the program is very limited. So from October 15 to December 15, we are going to have a $35

million advertising campaign to educate seniors about their choices

and get them to ask the right questions. The reason that number

was picked was because that is what a Presidential campaign

spends in 2 months, so the level of advertising effort that you are

going to see I think is going to be unprecedented, and that is the

goal.

Tied into that, you can imagine that if we tell seniors to ask

more questions, we need to be prepared to answer them, so our

1–800-MEDICARE number is going to be tripled in size. It is going

to go from being 8 hours a day, 5 days a week to 24 hours a day,

7 days a week; and it is going to go from having very basic information to having very localized information, so if you call from

Idaho Falls, or from New Orleans, you will reach someone who can

answer your specific questions about where to go to pick a health

plan, how to pick a nursing home, which dialysis center you should

go to, and a lot more consumer information. That is our goal, and

we certainly hope that seniors will be very receptive to finding a

lot more information and a lot more help about how to use their

Medicare program.

This is a program that spends $240 billion a year, as I said, and

we firmly believe that spending $35 million on an ad campaign,

which works out to 90 cents per senior—and I can tell you that,

for better or for ‘worse, that is well within what we are spending

on every senior per day it will be a big help in getting seniors more

engaged in the program.

Shifting to Medicare fraud issues—which I know is part of what

you wanted to talk about, and I will wrap up quickly—I was cochair with then Deputy Attorney General Bill Barr—and later, I

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guess he was Acting Attorney General—of the Fraud and Abuse

Tax Force in the first Bush Administration when I was at OMB.

And I would say that we were starting to ramp up on our fraud

and abuse efforts at that time and maybe, arguably, could have

done more, but I think some of the things that happened in the last

7 or 8 years were probably positive. When I left the Government

in 1993, Medicare inflation was running about 15 percent, and

Medicaid was running about 18 percent, and there was clearly a

lot of stuff going on in the program that should not have gone on.

On the other hand, I would argue, over the last 8 years, you

could argue that the pendulum may have swung a little too far,

and we need to get it back in balance, and I think this issue is really all about balance. I have very little desire to preside over doubledigit Medicare or Medicaid inflation again, but Medicare inflation

went from 15 percent in 1993 to negative 1 percent in 1999. There

were a lot of things involved in that, including the 1997 BBA, but

part of it was fraud enforcement, and there is no question that that

had a behavioral impact on everybody in the system. It has also

scared people to death. I personally believe that most providers are

very good people, but there are a lot of people out there who are

doing the wrong thing; and trying to find the balance is, I think,

the appropriate question here.

While I was out of the Government, I was chairman of the compliance committees of two large corporations, and I can tell you

that in one, we spent $25 million putting together a compliance

plan, and in the other one, $30 million. I had a good reaction with

the Federal Government from that. I came in and met with Mac

Thornton and other people in the IG’s office, and they gave us a

lot of guidance about how to put together compliance plans, and I

think it was helpful. But the fact is that if you are a good provider,

you do not get a lot of feedback about what you are doing, so the

people who are doing the right thing, following the right incentives,

and doing the appropriate behaviors, really do not get much for it

from the Federal Government, and my own personal view is that

one of my goals while I am here is to find a way to incentivize good

people who are doing the right thing to continue to do it, and to

get appropriate reaction from the Federal Government, and to

focus our resources even more on the many people who are still not

behaving appropriately and are still gaming the Medicare program.

So I think the issue here, as Senator Collins said, is balance; it

is finding a way to keep incentivizing CMS, the Inspector General,

and Justice to go after people who are abusing the program—and

there are clearly quite a few of them—but also to make sure that

people who are trying to do the right thing and are spending a significant amount of resources doing that get fair guidance from the

Federal Government and are treated fairly. And that is a tough

balance to come up with.

Mr. Chairman, thank you for having me.

[The prepared statement of Mr. Scully follows:]

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The CHAIRMAN. Thank you very much, Mr. Scully, for your presentation and for recognizing the challenge that you have in running an agency as large and as complicated as the CMS system is

and the Medicare program in general.

Hopefully, maybe this year, Congress can actually modernize the

program and bring it into the 21st century and eliminate many of

the problems we have in the program that are statutorily created

by Congress. Five years ago, GAO said we had about $23 billion in improper payments. I think the current figure that we use is about $11.9 billion in improper payments. That is still a huge amount. We in the

Congress are constantly faced with presentations by concerned citizens who have legitimate feelings and will tell us that there is too

much fraud in the program. Others will come in who are providers

and tell us there is too much enforcement. That is the conflict.

The question is how do we eliminate improper payments and at

the same time do it in a proper manner. That is really what we

are trying to do.

My question to start with is do you feel and does the administration feel that the tools that are currently in place are sufficient to

get the job done. I mean, $11.9 billion is far too much, but it is a

lot less than it used to be, so there are some signs of improvement.

Do you need more tools, do you need different tools, or is what we

have in place now sufficient—and if you could comment on whether

what we have in place now needs to be modified.

Mr. SCULLY. Well, Chairman Breaux, one thing I know from

spending 4 years at OMB is that I do not want to get shot for making administration policy. My own opinion is—Janet Rehnquist is

the new IG nominee, hopefully to be soon confirmed; she is someone I have known since college, and I look forward to working with

her. I have worked with a lot of the Justice Department folks, including Senator Ashcroft back when he was Governor Ashcroft in

Missouri. I think really, the issue about how you appropriately enforce the fraud laws is a three-legged stool between CMS, and

HHS; Inspector General, and Justice. So I think I would like to sit

down with the three of us and figure out the appropriate strategy.

My personal opinion on this is that I think we have the tools to

do it. I think there has been a tendency—there is no question that

a lot of the fraud and abuse in the program has been cleaned up

in the last few years. I think you can debate about whether $22

billion or $11 billion is legitimate, and what comprises that number, but there is no question there have been great gains made in

the program.

I would also say, however, that I think the focus in our fraud efforts has generally been on high-profile big systems, and some of

the real problems tend to be getting down to the nitty-gritty of

smaller providers. It is the nature of enforcement efforts to go after

the University of Pennsylvania or to go after a big provider.

In my opinion, a lot of the behavior of the big providers has been

changed for the better. As I said, I was chairman of the Oxford

Health Plan Compliance Committee for the last 6 years—it did not

exist when I came on the board 8 years ago—and I was recruited

to be the chairman of the compliance committee for DaVita Health

Care about a year ago, which did not have one before that. In both

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cases, I spent a lot of money and recruited a lot of people, to put

together very comprehensive compliance plans.

The good news from the last 8 to 10 years is that these companies did not have compliance plans before. Now they have compliance plans, and they are scared to death, for better or for worse,

of the Government, but they are doing the right thing, and that is

good, and I think that that needs to be incentivized, and we need

to keep doing that.

I personally think that we need to come up with some structure

in the Government, rather than just keeping people scared. The reality is that we have relatively modest enforcement tools. We only

look at a small percentage of the bills coming through the Medicare

program. The number of people we actually go after in the Government—if you look at physicians, for instance, I think there were 25

physicians last year who actually had significant action taken

against them. But the perception is that we are scaring people to

death and that we are not giving them guidance. To me, the goal

is to find the people who are doing the right thing, especially some

of these large hospital systems, physician practices, and health

care systems, who are trying to do the right thing, and setting up

significant compliance programs, find a way to give them guidance,

incentivize them to continue to do the right thing and move on to

the next tier of providers who, in my experience, are the ones who

probably have not gotten to the more compliant stage yet. So I

think we are doing a lot.

The CHAIRMAN. There are different approaches depending on the

cause of the improper payments. Some will argue that the bulk of

the improper payments is the result of mistakes that are honest

mistakes by providers. Others will say that it’s fraud—they are trying to scam the Government and to cheat the Government, and

they are keeping two sets of books or whatever. Is there any way

to quantify, of the almost $12 billion of improper payments, what

percentage is the result of fraudulent activities on behalf of providers versus what may be labeled as mistake, confusion, inability to

understand the rules and regulations?

Mr. SCULLY. I do not think I could pick a number out of that.

I would say that the $12 billion—and this is my opinion, and I will

probably have a fun discussion with the IG later—I have always

thought that those numbers were not all that solid, and that is

from my long experience in health care. I think it would be difficult

to show that.

There is clearly a lot of fraud going on in the system, but out of

$240 billion, there’s $11 or $12 billion—I would say that probably

a third of that is fraud, and the rest is probably billing mistakes.

And Senator, as you know, if you go back and look at the mid-nineties, some of it was fraud that was incentivized by really bad policy. If you look at home health, when I left the Government in

1992, home health payments were $3 billion a year; I think they

went up to $18 billion a year by 1997 and then back down to $9

billion. That probably was not rational policy, and we incentivized

a lot of people who probably should never have been in the home

health business to get into the home health business. And if you

look at a lot of the volume of fraud over the years, a lot of those

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people were in home health. Some of that was incentivized by bad

Federal policy.

There is certainly a lot of fraud there, but I believe that some

of the best policies to prevent fraud are capitating programs, going

to things like prospective payment for skilled nursing facilities,

going to prospective payment for rehabilitation hospitals. We went

to prospective payment for outpatient last year. Setting up rules

that are more rational and incentivizing people to have more rational payment policies has probably the biggest impact, and I personally think that equally as important as aggressive fraud enforcement is to have the Government set up rational payment rules

that make it easier to incentivize people to do the right thing. I

think that methodically, we are going through and doing that and

capitating these programs.

The CHAIRMAN. We went through this on the Finance Committee

in an effort to reform the Internal Revenue Service and how it

interacts with taxpayers in this country and have tried to create

a whole new relationship between the Internal Revenue Service

and the taxpayers so that American citizens are not fearful and

frightened and scared to death of their own Government when it

comes to dealing with it on matters of financial concern.

I daresay we are probably going to hear from some providers that

that is the same kind of fear they have of the Medicare program,

that they live under the constant threat that they are going to be

prosecuted for honest mistakes.

Can you spell out how this administration and the Medicare program—what kind of relationship do you think is appropriate with

the providers?

Mr. SCULLY. Well, as you know, Senator, I lived in the provider

world for the last 8 years, both as a lawyer and running a hospital

association. I think the key things with providers—98 percent of

them are trying to do the right thing, and the key thing is to set

rules that are understandable and clear. If you look in the midnineties, you can determine what was fraud and what was not

fraud, but there are a lot of things—I will give two examples.

One is you created DRGs in 1983, and then, people have other

facilities on a cost basis like nursing homes and affiliated home

health agencies. You can incentivize people, but unless you make

the rules extremely clear, they will push the edge of the envelope,

which a lot of people did, trying to shift their costs to their home

health agencies and nursing homes. A lot of the cases of abuse in

the program in the early nineties came from that. I think we solved

a lot of that with new payment policies.

We have a big problem right now which the Justice Department

and the IG are very focused on, and I am very focused on, which

is that we pay—Congress has debated this for years—we clearly on

the outpatient side, pay acquisition costs for devices and average

wholesale prices for drugs that are absurdly high. There is a great

debate on whether that is a kickback by definition or not. That is

a policy issue. Congress has looked at it for years and has not done

anything about it. On the merits, I think there is absolutely no

question that we are overpaying in those areas. Is that a question

of cheating the program? Arguably, it is. Is it a question of bad polVerDate 11-MAY-2000 11:30 Nov 07, 2001 Jkt 000000 PO 00000 Frm 00032 Fmt 6633 Sfmt 6633 75039.TXT saging1 PsN: saging1
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icy that probably should be fixed by Congress? Arguably, I think

it is.

So I guess my No. 1 view is that most providers are trying to do

the right thing. Some of them are going to push the edge of the envelope thinking they are doing the right thing, and some are going

to flat out be cheating the program. We need to focus on making

clear rules for people so they know exactly what they are getting,

and I think that is the key with providers; and then, focus on enforcement efforts on the small minority of people who are really illegitimate and trying to cheat the program.

The CHAIRMAN. Thank you.

GAO will testify later that although CMS has taken positive

steps to move in the right direction with regard to restricting and

ultimately eliminating improper payments, weaknesses in your

communications with providers and your oversight of contractors

still exist. Can you comment on both of those areas?

Mr. SCULLY. Yes. It is a complicated program, and I do not want

to criticize the previous administration. As you know, the previous

administrator is a good personal friend of mine. I think there is an

awful lot of stuff going on with the different budget bills in the last

3 or 4 years. I think there was an awful lot of restructuring that

went on in HCFA that made their lives more complicated. There

were a lot of challenges 2 or 3 years ago, and to be honest, coming

in, my challenges, administrative, with reacting to Y2K, reacting to

the BBRA, may be a little less than they were 2 or 3 years ago.

For whatever reason, I think the perception was that the communication with providers was not that good. Clearly, that is one of

my No. 1 goals, communication with seniors and providers to tell

people what we are doing.

The CHAIRMAN. I take it the bulk of the communication with providers is not through CMS and the providers but through your

third-party payers?

Mr. SCULLY. I would say the bulk of it is through third-party

payers, and I think we are making a big effort to improve that

through the FIs and the carriers as well. The bulk of the enforcement is also done with them. The average person in Louisiana who

is running a home health agency is not going to hear from me; they

are going to hear from their local carrier, local FI.

The CHAIRMAN. Can you do that without complicating the system

further? Are local providers going to have to deal with CMS on

these disputes as well as with their third-party providers, or can

you consolidate it in a manner that the providers deal with one

contact point on disputes and questions about what are proper payments? If they are going to have to deal with CMS and with their

third-party provider, is that not more work if that is in fact what

happens?

Mr. SCULLY. Well, I think we have to be clear about what is

going to be paid for and what our rules are; that is the first step.

But if you want to have a frightening experience, you should look

at the appeals process for either seniors or providers from CMS up

to HHS. It is incredibly complicated. Arguably, it was made more

complicated last year by the BIPA changes, and we would like to

work with you to streamline it.

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The CHAIRMAN. OK. If I am a hospital in Louisiana, and I have

questions about whether something is reimbursable and at what

rate it is reimbursable, in the future, is the best way for that problem to be resolved by having that local hospital deal directly with

CMS, or deal directly with the third-party provider?

Mr. SCULLY. They clearly get information from us about national

program policies, and hopefully, our regional offices talk to them.

But generally, I think every major hospital usually has a very direct relationship with their fiscal intermediary. So almost any hospital in Louisiana probably has a day-to-day relationship with the

fiscal intermediary, which is their contractor, and they probably get

a lot of information from them.

I think the trouble comes, in a lot of cases, when they appeal

cases—whether you are a senior, whether you are a doctor, or

whether you are the hospital, when you appeal, the process is long,

and gruesome, and tortuous, and I think that is where a lot of the

unhappiness in providers comes from.

The CHAIRMAN. On the appeals process, as to what is covered or

not?

Mr. SCULLY. Yes, I think that is probably right in most cases.

The CHAIRMAN. Are you planning to change that in any way, and

if so, how?

Mr. SCULLY. I would love to change that with your help this year,

as would the Secretary. We have some proposals that we are talking to people on the Hill about in regard to streamlining the process. Most of our appeals eventually come up through ALJs, beneficiary appeals, that actually work for the Social Security Administration, and the Inspector General—who I hope will bring it up

today—has been supportive of us saying that we should phaseout

those ALJs—probably 10 to 15 percent of the Social Security ALJs

is Medicare claims. It is not their primary focus. There is an enormous backlog. People are very frustrated by it. I would like to find

a happy way with the Social Security Administration to phase our

ALJs out of Social Security and put them in Medicare, with people

who actually focus on Medicare appeals on a daily basis. That is

more on the beneficiary side.

When you come up as a provider, depending on—there are a

number of ways that you can come up through the system as a provider. If it is an individual claim, you come up through the carriers,

through an appeals process that is very complicated. If it is on your

cost report, there is a totally separate appeals process that comes

up through something called the PRB, provider reimbursement

board. But it would be a frightening organizational chart if I were

to show it to you.

The CHAIRMAN. There are some efforts in Congress to deal with

this. Are you in a position to comment on the Medicare Regulatory

Education Fairness Act that Senators Murkowski and Kerry have

introduced?

Mr. SCULLY. Yes. I think it is a legitimate effort to make some

changes. I would say that we think a fairly significant portion of

that bill includes reasonable changes that we can make, and a lot

of them we are making. We have talked to both the Finance Committee and the Ways and Means Committee about it, because they

have parallel efforts, to take some of those ideas and fold them and

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be more responsive to providers and physicians in our constituencies.

There is also a number of things in the bill—I will not go

through them one-by-one—that would significantly weaken our enforcement efforts that I think would be a big mistake and that we

will not support.

The CHAIRMAN. And what would those be?

Mr. SCULLY. Well, I have a long list of them, but just to give you

one example, there is a provision in the MERFA bill that I think

is vague, that says essentially that if you turn in a claim, let us

say an pneumonia claim, and you are a hospital, and you send the

pneumonia claim and ask is this claim OK, in theory, the rest of

your pneumonia claims for the rest of the year are unreviewable,

which is clearly not a good idea. If you send in one pneumonia

claim and ask is this the way we should bill, OK, fine, and then

you basically have an affirmative defense to say that nobody can

look at those claims for the rest of the year, that is not a rational

policy approach. I do not think it was intended to be that way. But

there are a number of things in the bill that would significantly

water down our enforcement capabilities.

The CHAIRMAN. Can you comment on the viability of the use of

the False Claims Act versus the appeals process with regard to

going after improper payments, and which is the proper procedure

and which is the best procedure?

Mr. SCULLY. That is a very complicated issue, and I will give you

my own opinion from being on the outside. As you know, Senator

Grassley feels very strongly about the False Claims Act. I think it

was originally created to deal more with defense issues. I spent a

lot of time in various roles talking with Senator Grassley over the

last couple of years, and I do not think the False Claims Act should

necessarily be changed or watered down. In my opinion, the way

it is utilized by the Government, both inside and outside the Government, has frequently not been appropriate. So to some degree,

I think it is a matter of giving more rational guidance to folks

around the country, not in my agency, about how to utilize the

False Claims Act.

The CHAIRMAN. All right. We may have some additional questions, Mr. Scully, but we appreciate very much your being with us

today and will let you get back to CMS.

Mr. SCULLY. Mr. Chairman, I always enjoy working with you,

and I hope we can get a reform bill with a prescription drug benefit

done by the end of the year and fix CMS at the same time.

The CHAIRMAN. We are working on it. Thank you very much.

Mr. SCULLY. Thanks.

The CHAIRMAN. I would like to welcome our next panel, which

will consist of Mr. Stuart Schiffer, Acting Assistant Attorney General at the Department of Justice; Mr. Lewis Morris, Assistant Inspector General for Legal Affairs at Department of Health and

Human Services, Office of Inspector General; and Ms. Leslie

Aronovitz, Director of Health Financing and Public Health at GAO.

Folks, we welcome you and will be pleased to receive your testimony.

Ms. Aronovitz, please proceed.

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STATEMENT OF LESLIE G. ARONOVITZ, DIRECTOR, HEALTH

FINANCING AND PUBLIC HEALTH, HEALTH, EDUCATION,

AND HUMAN SERVICES DIVISION, U.S. GENERAL ACCOUNTING OFFICE, WASHINGTON, DC

Ms. ARONOVITZ. Mr. Chairman, I am pleased to be here today as

you discuss the administration of the Medicare program and activities undertaken to safeguard the Medicare trust fund.

At the heart of effectively administering Medicare is CMS’ responsibility to protect the integrity of the program while at the

same time, ensure that providers, beneficiaries, and other stakeholders are well-informed and treated fairly.

Last month’s renaming of the Health Care Financing Administration is indicative of the heightened attention being placed on the

agency that runs Medicare, and for good reason. Medicare will always pose enormous management challenges, primarily because of

its size and extremely complex mission—that of assuring access to

and paying for needed medical services for approximately 40 million beneficiaries, delivered by almost one million providers.

In attempting to fulfill this mission responsibly, agency actions

may inevitably make it a target of parties who feel disadvantaged

or harmed by some of its decisions.

Since 1996, the HHS OIG has repeatedly estimated that Medicare contractors inappropriately paid claims worth billions of dollars annually. The depletion of Medicare’s Hospital Trust Fund and

the projected growth in Medicare’s share of the Federal budget

have focused attention on program safeguards to prevent and detect health care fraud and abuse. It has also reinforced the importance of having CMS and its contractors develop and implement effective strategies to prevent and detect improper payments.

As safeguard and enforcement actions have increased, so have

provider concerns about their interaction with CMS’ carriers and

fiscal intermediaries. While most would agree that these activities

are part of CMS’ fundamental stewardship mission, individual physicians and representatives of medical associations have made a

number of serious charges—for instance, that the information that

they receive from CMS and its contractors is poorly organized, difficult to understand, often inaccurate and not always communicated promptly; that contractors have inappropriately targeted

them for claims review and that they have been subject to excessive paperwork demands of the medical review process; that contractors use unfair methods to calculate Medicare overpayments;

and that the process to appeal denied claims is lengthy, and on

successful appeals, does not provide for interest for the period during which the administrative appeal was pending.

We do not have any answers yet, but we are conducting several

studies which are underway to examine the regulatory environment in which Medicare providers operate. Specifically at the request of the House Committee on the Budget and the Ways and

Means Subcommittee on Health, we are reviewing the adequacy of

CMS’ communications with providers. We are also in the preliminary stages of a second study that examines how claims are reviewed and how overpayments are detected to assess the actions of

contractors as they perform their program safeguard activities.

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CMS is faced with the challenge of protecting program dollars

while interacting with all program participants including providers

in a transparent and timely manner. Because the Medicare claims

administration contractors conduct the day-to-day operations of the

fee-for-service program and are the primary face to providers, CMS’

oversight of its contractors is essential to assuring that Medicare

is administered efficiently and effectively.

Historically, the agency’s oversight of its contractors has been

weak, and although it has made substantial improvements in the

past 2 years, our ongoing work suggests that there is quite a lot

of room for improvement in the area of provider relations. You

mentioned some of them; I would like to elaborate a bit.

In our contractor communication study, our review of several information sources such as bulletins, telephone call centers, and

internet sites found a disappointing performance record. In regard

to contractor bulletins, we found that many of them contained

lengthy discussions with overly technical and legalistic language

that providers may find difficult to understand. These bulletins

also omitted some important information about mandatory billing

procedures.

Similarly, we found that the calls we placed to telephone call

centers this spring were rarely answered appropriately. For example, call center representatives provided an incomplete or inaccurate answer 85 percent of the time. And it was not a statistically

valid sample, but it did involve 60 phone calls to five call centers

over a period of about 6 weeks.

We were also very clear to tell the call representatives that we

were from the General Accounting Office and that we were interested in them answering the question as though we were a provider.

Finally, in reviewing the websites of 10 carriers, we found that

they rarely met all of CMS’ requirements, and they often lacked

user-friendly features such as site maps and search functions.

We just heard from Mr. Scully about CMS’ ambitious agenda to

develop a more transparent, responsive, and consistent approach to

interacting with its provider community. Some of the activities included in this plan are underway or have been ongoing for quite

some time, but most of CMS’ plans are just being announced, and

the details are yet to be revealed.

We are anxious to hear more about these efforts as we formulate

our recommendations for how CMS can do better as it performs important activities to protect the integrity of Medicare while striking

a balance of simplicity and responsiveness to the providers and others who participate in the program.

That concludes my short statement. I would be more than glad

to answer any questions you have.

The CHAIRMAN. Thank you, Ms. Aronovitz. We will get to questions in a moment.

[The prepared statement of Ms. Aronovitz follows:]

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The CHAIRMAN. Mr. Schiffer.

STATEMENT OF STUART E. SCHIFFER, ACTING ASSISTANT

ATTORNEY GENERAL, CIVIL DIVISION, U.S. DEPARTMENT OF

JUSTICE, WASHINGTON, DC

Mr. SCHIFFER. Thank you, Mr. Chairman, and good morning.

I appreciate the opportunity to appear again before this committee to discuss the Justice Department’s efforts to combat health

care fraud.

I will state at the outset that although our testimony was not

prepared at all in collaboration with each other, I did not find it

surprising that there is substantial overlap between the testimony

of my colleague in the Inspector General’s Office and our own testimony, since we work in very close partnership in investigating and

prosecuting health care fraud cases. Of course, for that reason, I

will also feel free to refer any difficult questions to Mr. Morris, on

my left.

Health care fraud quite obviously directly affects the Nation’s

most frail and elderly citizens, and of course, nowhere is this more

true than with respect to Medicare fraud, which strips the trust

fund of dollars intended for the care of beneficiaries.

In a very real and direct sense—and Senator Collins alluded to

this—we think it is clear that such fraud is also an offense against

the vast majority of honest and dedicated providers, as it decreases

the pool of funds available to pay for the good and proper services

rendered by these providers.

My prepared statement discusses our use of the False Claims

Act, which is the principal tool we use certainly on the civil side

to recover funds defrauded from Government health care programs.

We firmly believe that our enforcement efforts are carried out in

a fair and evenhanded manner.

Three or 4 years ago, the hospital industry brought to our attention concerns with a limited number of cases where certain U.S.

Attorneys’ offices had not followed the procedures we consider sufficient to lay a predicate for making allegation of violations of the

False Claims Act.

In response to those concerns, which were brought to our attention and to Members of Congress, the Deputy Attorney General

issued guidelines that memorialize what we consider to be our

longstanding enforcement policies. We also formed working groups

with experienced Assistant U.S. Attorneys and Department attorneys to coordinate and oversee these projects.

The General Accounting Office has monitored our compliance

with these guidelines and has reported that the guidelines are

being followed in a consistent manner at our U.S. Attorneys’ offices.

The False Claims Act is a relatively straightforward statute. It

applies to the knowing submission of false claims. It does not and

is not intended to punish innocent mistakes; it is in no sense a trap

for the unwary. Since its amendment 15 years ago, the Act has

been used to recover literally billions of dollars that have been defrauded from Government programs, and we believe that the deterrent effect of our efforts has safeguarded many more billions.

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At my last appearance, I described many of the collaborative efforts we have undertaken with other Federal, State, and local

agencies and with many dedicated private sector groups which provide valuable service in combatting fraud. I will not dwell on these

today. Suffice it to say the 1996 Health Insurance Portability and

Accountability Act provided needed funding and encouragement for

these collaborative efforts to go forward and improve.

The Act itself provides a public sector/private citizen partnership

in giving monetary incentives and other safeguards for private

whistleblowers to file suits on behalf of the United States. I think

one of your later witnesses will speak more extensively to the whistleblower provisions. I want to assure the committee that our efforts to combat health care fraud and to safeguard the rights of our

elderly citizens and of honest care providers will continue to be a

high priority of this administration.

I too look forward to taking your questions.

The CHAIRMAN. Thank you, Mr. Schiffer.

[The prepared statement of Mr. Schiffer follows:]

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The CHAIRMAN. Mr. Morris.

STATEMENT OF LEWIS MORRIS, ASSISTANT INSPECTOR

GENERAL FOR LEGAL AFFAIRS, OFFICE OF INSPECTOR GENERAL, U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES, WASHINGTON, DC

Mr. MORRIS. Good morning, Mr. Chairman.

Health care providers can reasonably expect the Federal Government to provide clear and consistent guidance when administering

the Medicare program. At the same time, health care providers reasonably must ensure that the care they provide to Medicare beneficiaries and the claims they submit conform to program requirements.

The Office of Inspector General is committed to continuing its

work with providers and the Centers for Medicare and Medicaid

Services to advance these mutual goals. The OIG’s mission to prevent and detect fraud, waste, and mismanagement is carried out

through a nationwide program of audits, inspections, and investigations. With the increased resources provided by the Congress in

1996, we and the Department of Justice have sought to protect the

integrity of the Medicare trust fund by diligently pursuing health

care fraud.

Our enforcement actions are taken against those who knowingly

submit false claims or otherwise intentionally engage in misconduct. It is important to note that under the laws that we help

enforce, providers are not subject to nor do we pursue civil or criminal penalties for innocent errors or negligence.

The Government’s primary civil enforcement tools—the civil

False Claims Act and the civil monetary penalty laws—cover only

offenses that are committed with actual knowledge of the falsity of

the claim or reckless disregard or deliberate ignorance of the falsity

of the claim.

For criminal penalties, the standard is even higher—criminal intent to defraud must be proven beyond a reasonable doubt.

Thus our enforcement actions focus on those companies and individuals who have clearly violated the law. Fortunately, the great

majority of providers want to bill the program correctly. These providers are our allies in the fight against health care fraud and

abuse, and accordingly, we devote significant efforts to educating

providers about their compliance obligations.

As my written testimony describes in detail, the OIG issues legally binding opinions regarding the lawfulness of specific business

arrangements, promulgates regulations that protect certain business practices from being prosecuted under the anti-kickback statute, publishes bulletins identifying conduct the Inspector General

considers suspect, and issues guidance to implement voluntary

compliance programs.

The American Hospital Association was instrumental in the design of the Compliance Guide for Hospitals, and we are very appreciative for its support.

Regrettably, despite these efforts, some providers continue to

knowingly abuse and defraud the Federal health care programs.

When individuals or entities are found to have engaged in fraud,

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the OIG is responsible for determining whether to exclude them

from future participation in the Federal health care programs.

This typically arises in connection with the settlement of allegations of fraud between the provider and the Department of Justice.

In the appropriate circumstances, the OIG may offer to waive its

exclusion remedy in exchange for the provider entering into a Corporate Integrity Agreement, or CIA.

The OIG has never required a CIA without evidence that the

provider has engaged in fraudulent conduct. Each CIA addresses

the specific facts of the particular case and is tailored to the existing capabilities and structure of the health care provider. It also

considers any pre-existing voluntary compliance measures of the

provider. It allows that provider to implement a CIA consistent

with cost-effective auditing, training, and reporting requirements.

In response to feedback from the health care industry, we continually evaluate each element of the CIA, make modifications as appropriate, to decrease the cost and burden of operating under these

agreements.

Additionally, we are seeking guidance from the provider community by holding another of our series of roundtable discussions with

the health care industry. Specifically, on July 30, representatives

of health care providers that are currently operating under CIAs

will meet with the OIG in Washington to discuss issues surrounding the implementation and maintenance of compliance programs

and CIAs.

Mr. Chairman, the OIG is committed to protecting the integrity

of the Federal health care programs and will continue to work with

health care providers to achieve this mission. Our enforcement efforts will continue to focus on those providers who have engaged

in fraudulent conduct. We will also continue to collaborate with

providers to assist in their efforts to comply with program requirements.

We appreciate the strong support we have received from the Congress and your continued interest in this critically important subject.

Thank you for the opportunity to testify. I would be pleased to

answer any questions.

[The prepared statement of Mr. Morris follows:]

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The CHAIRMAN. Thank you all very much for your testimony and

your presentations.

Do you all have a memorandum of understanding between Justice and OIG as far as how you operate, where you overlap, and

how you work together? Is there some kind of policy that you have,

or is everybody on their own?

Mr. MORRIS. In one particular area, there is actually a statutory

insurance that we do not overlap. When we bring civil monetary

penalty actions, which are administrative actions, to pursue false

or fraudulent conduct, we need to get the approval of the Department of Justice before we can go forward with that action. That ensures that we do not have overlapping enforcement efforts.

In addition to that, we have a series of work groups, both an executive level work group as well as individual working groups focusing on particular national initiatives, where we discuss both the

underlying rules and regulations that we are looking into and also

ensure that there will be a consistent application of our enforcement efforts across the country.

The CHAIRMAN. I would imagine that hospitals and providers will

probably say that they do not know who they have to deal with—

on the one hand, they are worried about Justice, and on the other

hand, they are worried about OIG. What can we tell them to alleviate that concern? It seems like in some areas, the OIG is involved

in enforcement or investigation, and in other areas, Justice is pursuing a criminal prosecution.

Is there anything we can say to providers to give them some confidence that there is no overlap in these areas?

Mr. SCHIFFER. Most of our cases, Mr. Chairman, are resolved on

three fronts—any criminal investigation that has taken place; consideration of civil remedies; and the administrative sanctions or

remedies that Mr. Morris testified about.

I do not think there is a consistent problem. To some extent, we

have to have separation between the criminal and civil sides just

to provide compliance with the ethical rules and matters such as

limits on the extent to which grand jury information can be shared.

But I do not think there are recurrent situations where a provider

does not know whether to talk to the IG or the Justice Department,

since in a typical case, we are working together, and the provider

can frankly deal with either side of the house.

The CHAIRMAN. Thank you.

The American Hospital Association in their testimony coming up,

I think, will basically recommend that Congress give hospitals a

specific opportunity to challenge decisions made by HHS and the

Medicare program that they feel would be legally questionable. Can

you comment on that? I take it they would like to have an opportunity to go to court and try to challenge some of these policy decisions rather than go through some kind of administrative process

to appeal these decisions. Would that have any effect on enforcement from your standpoint?

Mr. SCHIFFER. I think it could. I am reluctant to speak at length

about proposals that we have not seen specifically. I think two

things are separate. On one hand, I think providers need to be able

to obtain clear guidance and to make sure they are not trapped by

complex procedures. On the other hand, unlike some of my colVerDate 11-MAY-2000 11:30 Nov 07, 2001 Jkt 000000 PO 00000 Frm 00083 Fmt 6633 Sfmt 6633 75039.TXT saging1 PsN: saging1
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leagues in private practice who will be testifying for the hospital

associations, we have more business than we need, and the Federal

courts certainly have more business than they need, and I think

there is always a risk in bringing premature challenges when you

are not operating with specific fact patterns where there really is

a need for Federal courts to address these issues.

So I would far prefer to see things simplified on the administrative side so that such guidance can be obtained, as opposed to encouraging yet more litigation in the Federal courts.

The CHAIRMAN. Can anybody give me some kind of idea of how

much of the improper payments are pursued under the False

Claims Act versus other means of pursuing these improper payments? Is the bulk of it under False Claims Act, or is the bulk of

it through internal OIG efforts? How do we do it? When we have

problems with improper payments, how do we pursue them most

of the time? Is there some kind of balance here?

Mr. SCHIFFER. Of course, the False Claims Act is only directed

at payments that are fraudulent in nature—payments that constitute knowing presentation of false claims—and I am not sure

that I——

The CHAIRMAN. In other words, to pursue an action under the

False Claims Act, you have to show intent to defraud as opposed

to just a mistake?

Mr. SCHIFFER. Not so much as a criminal intent, but at least a

knowledgeable submission of a false claim. I am not sure that I can

do any better than Mr. Scully did in estimating what percentage

of improper claims are fraudulent as opposed to——

The CHAIRMAN. Is there ever a case where an intent to submit

a false claim would not be criminal?

Mr. SCHIFFER. I am sorry?

The CHAIRMAN. Is there ever a case where an intent to submit

a false claim would not be criminal?

Mr. SCHIFFER. No—typically, those would be criminal cases.

What I am saying is that I am not sure I can give you an exact

dichotomy in terms of estimating percentage of claims that are simply the result of erroneous submissions and those that are fraudulent. I am not sure if Mr. Morris can do any better—but we do not

bring under the False Claims Act cases where we have reason to

believe these are negligent mistakes or simple overpayments.

The CHAIRMAN. If you do proceed in that fashion and you find

out that this was not an intent to defraud but sloppy bookkeeping

or an honest mistake, do you kick it over to somewhere else for collection?

Mr. SCHIFFER. We would do that, or we would attempt, in conjunction with the agency, to collect the amount of the overpayment—certainly not to collect penalties or multiple damages.

The CHAIRMAN. Mr. Morris.

Mr. MORRIS. That is exactly right, and if I could just elaborate

that I think the vast majority of billing errors are dealt with at the

contractor level, and whether it is a hospital or a physician, there

is a frequent exchange of information back and forth to reconcile

the books. I think Mr. Scully referenced the great familiarity that

hospitals will have with their contractors because of that.

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As Mr. Schiffer said, the only types of cases that either OIG or

the Department of Justice get involved in is where there is evidence of fraud; and if, during the investigation of that allegation,

it appears that there was not a knowing submission of false claims,

but in fact there were simply billing errors, perhaps as a result of

miscommunication of information by the contractor, that ends the

case from a fraud standpoint. Now, the program is still owed

money. If there had been overpayments due to billing for unnecessary services or otherwise taking money that the provider is not

entitled to, it is important that the trust fund get that money back,

but that is not the job of law enforcement, that is the job of the

program.

The CHAIRMAN. Thank you.

I have other questions, but I want to recognize Senator Ensign.

Just one comment, Ms. Aronovitz. You talked about the GAO doing

spot-checks with telephone calls to the various centers and that you

got only an 85 percent satisfactory response from those calls to the

centers. I am surprised you got that high a percentage when you

identified yourself as being from the Federal Government—‘‘I am

from the GAO, and I would like to ask you a few questions.’’ I am

sure the poor person on the other end probably went crazy trying

to figure out how to answer the question. It is like ‘‘I am from the

IRS and I would like to ask you a few questions.’’ I am not sure

I could answer the questions straight, without being scared to

death. [Laughter.]

Ms. ARONOVITZ. Well, maybe they were scared to death, or

maybe they were paralyzed, because in fact our results were that

only 15 percent of the time did they answer accurately and completely.

The CHAIRMAN. Oh, it is 15 percent—85 percent incorrect.

Ms. ARONOVITZ. That is correct.

The CHAIRMAN. I would bet that if you had not told them where

you were from, you would have gotten a higher rate of compliance.

Senator Ensign.

Senator ENSIGN. Thank you, Mr. Chairman.

I do not know how well you are going to be able to answer these

questions, but I am just tossing it out from an enforcement standpoint. I spent 4 years in the House of Representatives and was on

the Health Subcommittee of Ways and Means, so I was very involved in a lot of these issues involving Medicare. When I would

have town hall meetings with our seniors—and I know that every

Senator or Member of Congress who has ever had a town hall

meeting would agree—it seems like every time you have seniors

who stand up and talk about how Medicare is being ripped off and

so on. My question is asked in light of trying to get feedback from

you to help us improve the regulations that we have put into place.

In doing my research, most of the cases that the seniors think are

fraud and abuse are just confusing regulation, because the State

may require something different than the Federal Government that

is different from what private insurance requires. And because of

the DRGs and various other things, it actually has nothing to do

with what is provided, yet the hospitals have to list out what was

provided.

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In your investigations or requests for investigations, do you know

what percentage of investigations are due to cases like that? In

other words, they are not really cases of fraud and abuse that you

are able to dismiss. Do you keep track of those kinds of things?

Mr. MORRIS. Perhaps I can answer it this way. The Office of Inspector General runs a hotline which receives hundreds of thousands of calls from senior citizens and their families, because we

encourage seniors to take a look at their bills; we urge them to

think of it like a VISA bill—if there is a charge on there that you

do not understand, ask someone. We, with the AARP and others,

have urged that it be a three-step process. If you do not understand

the bill, first ask the doctor, because it may well be that you do

not recognize the name of the radiologist, but you got the x-ray. If

you are not satisfied with that explanation, talk to the Government

contractor, the carrier, who may explain, as you just elaborated

that, ‘‘Well, it is a DRG bill, and that is the way it works.’’

If you are still not satisfied after having asked those questions,

call our hotline. Of the folks who call our hotline, a significant proportion of them—I daresay a majority—are along the lines that you

are raising. They are not fraud issues. They are either misunderstandings of the rules; it is a duplicate claim, but there is a reason

for it, and it was caught and not paid, and so on. Those matters

are referred to the contractors for clarification. They are not fraud.

But there are allegations that come through our hotline as well

as through qui tam relaters and other sources which represent genuine intent to defraud our program.

Senator ENSIGN. Yes, and I have no doubt that any business, I

do not care what it is, whether it is a retail business, whether it

is the gaming business—most of the time when you catch people

stealing or ripping off, it is because the public gives you the input.

All the security measures in the world that you have are not nearly

as effective as if you have just honest, ordinary citizens saying,

‘‘Hey, I think there is something wrong here.’’ I think it is great

that we continue that. But my question to you—because I think it

is critical, because you are on the front lines seeing why the confusion is happening—is it just something that Tom Scully has to

write new regulations, or whether we need to pass laws to try to

clear up some of that confusion. If you are having the same things

leading to the confusion every time perhaps your front line workers

are saying, ‘‘The reason why this keeps happening is because these

regulations are stupid; they do not keep less fraud from happening,

but they lead to so much confusion among seniors that we get a

lot of these phone calls—’’ which take up resources on your hotline

and various other things then we need to do something. I guess

that is the purpose for my questions.

Ms. ARONOVITZ. I would just throw in that I am not sure how

much is attributed to this, but I think part of the confusion on the

part of seniors is a result of the complex nature of health care

today. I know that when my mother would come to me with her

explanation of Medicare benefits, she would get confused because

she would have lab tests that would have a different organization

name—it would be the laboratory—that she had never heard of; or

she would go to a provider whose billing office was in a different

location, and she would insist that she did not go to a provider at

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that location. There are many entities that are organized in a manner that results in bills from different locations, and the time periods are sometimes very confusing.

Also, sometimes she would literally just forget that she had gone

to two appointments in the same day for two unrelated matters.

I think those are some of the typical things that do get very confusing in just trying to use the health care system. Despite this,

I know that the Office of Inspector General occasionally gets some

pretty good leads, from alert seniors who are perfectly correct.

Senator ENSIGN. And once again, we want to continue that. We

held a lot of hearings, and I remember the numbers back in 1977,

I think, about the $23 billion in fraud and abuse, and 90 percent

of it turned out to be clerical errors—not even that the services had

not been provided; it was just that the form might not have been

filled out, or maybe a signature, or whatever.

The bottom line, I guess, when we are having to look at these

things is that we need feedback from you to help streamline some

of this stuff so the confusion is out of it. However, we have also got

to look at cost-benefit analysis of what we are saving. We always

hear these numbers, that every dollar in investigation saves Medicare three dollars, or whatever the numbers are. Most of the time,

however, those dollar estimates do not take into account the huge

regulatory burden that is put on all the providers and the extra

people that they have to hire. That is only the cost to the Government; that is not necessarily the cost to the entire health care system. We spend way too much money in our health care system on

administrative costs at all levels—private sector, public sector,

every level—and that money does not get to proper health care,

and that is I think what we should all be about.

Mr. MORRIS. Perhaps I can try to answer this question, and it

is an excellent question. It is a source of a lot of concern for us in

the OIG as we work to put together compliance measures to make

sure that they are cost effective and that we are not shifting money

to paperwork and not being able to provide better care.

It has been our experience—and this is now being borne out by

empirical studies, and the GAO also did some work in this area—

that providers that implement an effective compliance program,

train their people on proper coding, do internal audits to make sure

that the claims going out are correct, make available vehicles so

that if people have concerns, they can bring them to the attention

of management—all the aspects of what we say represent an effective compliance program—are not only doing the right thing by the

program, which is important, but they are also finding that it is reducing the number of billing errors, it is reducing the number of

undercodings—claims which should actually be billed at a higher

level, legitimately, but because the billing folks did not understand

the rules, they inappropriately undercoded it. When the GAO went

out and talked to hospitals that were implementing compliance

programs, they asked them whether they thought this effort was

cost-effective, and if I could, I would like to read from a report that

the GAO issued back in 1999—and we would be pleased to put it

in the record.

‘‘Almost all the hospitals in our study believed that their liability

under the fraud and abuse statute would be reduced as a result of

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their compliance programs. For most of them, the reduction in improper payments and they attendant liability is a benefit that exceeds the cost of their compliance programs.’’ And it goes on to talk

about the other benefits.

I also mention that there was other empirical work being done.

A recent study published in one of the journals reports on work

done at St. Louis University Hospital, where clinicians studied the

rates of billing errors, underutilized codes, and the like before and

after a compliance program was put into particular departments.

They found that there was a reduction in the number of billing errors, a reduction in the undercoding, and an actual increase in revenues to the hospital as a result of implementing the compliance

program.

One reason why we worked so hard with the industry to build

these voluntary compliance programs is because we think they not

only protect the integrity of the trust fund, but they are also good

business.

Ms. ARONOVITZ. Since Mr. Morris did refer to our report, I would

like to add this. He is completely correct—I think the hospitals that

we went to were convinced that having a compliance program for

them was the right thing to do for a lot of reasons.

However, while we tried to do a cost-benefit analysis to see the

cost of implementing all of the different elements in their plans

versus the benefit to those institutions. It was impossible to get the

costs associated with implementing a lot of compliance plans for

many reasons.

The costs associated with Corporate Integrity Agreements are

sunk costs; they are ones that are typically not revenue-producing.

They are things like having better training, having a corporate

compliance officer who is responsible for overseeing the program,

having a hotline, conducting different activities to assure that employees inside the organization could report any instances of questionable behavior. Those are activities that the organization would

not typically want the board of directors to know they are spending

relatively large amounts of money on.

So, it was difficult, and I think it should be stated that although

hospitals were convinced that the money they invested in compliance programs was definitely worthwhile, we could not also say

that it was cost-beneficial to do this.

Senator ENSIGN. Thank you.

The CHAIRMAN. Thank you, Senator Ensign.

Senator Craig.

Senator CRAIG. Mr. Chairman, thank you very much, and let me

apologize to the witnesses for having to step out. The good news

is that one of my staff people is going to be serving in the administration, and I wanted to be there to introduce him before the committee that is hearing him. The bad news is that it took me away

from this hearing which, as I mentioned in my opening comments,

I am very interested in.

Mr. Chairman, I know that you are going to hold the record

open, and I will refrain from asking Mr. Scully any questions and

will submit questions to him in writing that we can build the committee record on.

The CHAIRMAN. Yes, without objection.

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Senator CRAIG. I thank you for that.

Let me turn to you first if I may, Leslie. I am interested in the

report that your office issued on DOJ compliance with guidelines

related, of course, to the national civil enforcement initiatives.

What prompted Congress to ask the GAO to review DOJ’s effectiveness in implementing its own civil guidelines? What was the essence of that.

Ms. ARONOVITZ. Several years ago, the Department of Justice

and the Office of Inspector General received money through the

Medicare Integrity Program and through HIPAA to properly fund

and more aggressively pursue health care fraud control activities.

I think the provider community became much more aware and concerned about some of these activities.

There was a lot of discussion at that time, and there was a decision made by the Department of Justice that it should elaborate on

its own guidelines for performing investigations for health care

matters under the False Claims Act. My understanding is that this

Deputy Attorney General guidance was in effect all the time, and

it was something that had always supposedly been followed, but it

was a restatement of what the policies were.

I think Congress was very concerned and very interested in

whether these two organizations might be too aggressive in pursuing health care fraud activities, and we were asked to assure that

the Department of Justice was following its own guidance—in other

words, assuring the fairness of the Department of Justice’s interactions with providers in pursuing the False Claims Act in regard

to health care matters.

In fact, in our first year of overseeing the Department of Justice,

we found that there was somewhat of a variation in the extent to

which U.S. Attorneys’ offices were following the guidance, but in

subsequent years, we have been able to give the Department of

Justice a clean bill of health.

Senator CRAIG. In what areas would you suggest there are still

improvements to be made?

Ms. ARONOVITZ. Do you mean with CMS’ enforcement activities?

Senator CRAIG. Yes.

Ms. ARONOVITZ. We have been very involved in looking at the

way that CMS and its contractors are overseeing safeguard activities. There is more money devoted to assuring the integrity of the

trust fund. And I think there has been in recent years, especially

recently, a very strong emphasis on beneficiary education. I think

the group that has really suffered has been in provider relations.

When you talk about the discretionary budget of CMS and how

limited CMS officials are in their ability to perform the many tasks

they have to do, I think that provider relations has clearly lost out.

This is an area that needs new focus, and I think this will happen,

based on some of the comments that the administrator made this

morning.

Senator CRAIG. In determining the intent in health fraud cases,

it seems that it would be important for investigators to know what

guidance the health care provider received from CMS and its contractors. Has your office taken a look at the level of coordination

that occurs between CMS, OIG, and DOJ in conducting health

fraud investigations?

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Ms. ARONOVITZ. We have not looked at that specifically and in

specific cases, but we are aware that the Department of Justice

and OIG are very careful in terms of looking at the evidence before

they pursue these cases.

We have not actually assessed the accuracy or the actual evidence that they have used in recent years on individual cases, so

it might be that Mr. Morris or Mr. Schiffer could answer that better.

Senator CRAIG. Gentlemen?

Mr. SCHIFFER. Senator, I think some evidence of the care we take

stems from whistleblower cases, so-called qui tam cases, under the

False Claims Act, where we are under a statutory obligation to do

at least some investigation of every one of those cases that is instituted in the first instance by a private party. And again, working

in collaboration with the Inspector General’s Office, we actually intervene in somewhere around one-fifth of those cases only—not always because there was absolutely no evidence of fraud, for example, but where we simply do not think evidence is sufficient for us

to pursue cases.

So, as I said earlier, we do not need the business; we attempt to

work collaboratively to make sure we are pursuing cases where actual fraud is present.

Mr. MORRIS. If I could elaborate, the OIG, of course, is the investigative arm in this process, and one of the standard steps that an

investigator takes when building a case is to determine what is the

requirement, and does the provider or the target of the investigation know what that rules is, because just from a practical standpoint as well as an equitable one, if we cannot show that there is

a standard to be held to and the provider understood what the

standard was, it is difficult to show that they knowingly chose to

violate it. And regrettably, we have had cases where we thought we

had a strong fraud case, and as the case developed, as we pulled

data, as we interviewed witnesses, it became apparent that while

what we were seeing was perhaps outrageous—the trust fund was

losing great deals of money—we could not show that the provider

had been told what the standard was, and we could not show that

the provider then knowingly violated that standard. So that regrettably, in cases like that, we just have to walk away, and we do.

Senator CRAIG. And from your perspective, that was a result of

failing to educate, failing to provide the necessary information to

understand the effectiveness of that reg or the implementation of

that reg?

Mr. MORRIS. That is right. We can only pursue fraud cases—and

again, we have to stress that these are cases where the target

knows that it is committing fraud or is recklessly indifferent to the

truth of its dealings with us—if there is a standard that we can

show that they are aware of. As I said, we have unfortunately had

cases where the information provided by the contractor is sometimes inconsistent, or other information that comes to the provider

leaves open the question of whether they really clearly understood

the rules.

Senator CRAIG. I see my time is up. I have some more questions,

but I will come back.

The CHAIRMAN. We will come back for another round.

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Mr. Morris, the Hospital Association will argue that these Corporate Integrity Agreements should be used only in cases of fraud

versus mistakes that are not intentional. What is your position?

Mr. MORRIS. I absolutely agree. The Corporate Integrity Agreement is implemented in cases where we in the Department of Justice are resolving false claims. The Congress has given to the Secretary, and the Secretary has delegated to us, responsibility for deciding whether to exclude providers that we have determined are

untrustworthy, such as those submitting fraudulent claims.

In those cases where we have some discretion, where we are not

mandated to exclude, we have to ask ourselves whether there are

ways to ensure that that provider’s fraudulent behavior will not

recur and thus cause the trust funds to lose even more money.

So the cases in which we sit down with a provider to talk about

implementing a Corporate Integrity Agreement are cases where

they are facing potential exposure to exclusion for their fraudulent

conduct, and they are also cases where the Department of Justice

or U.S. Attorneys’ offices are going to be settling a False Claims

Act liability.

We do not pursue Corporate Integrity Agreement cases with providers who just make innocent billing errors. We have plenty of

work without those.

Mr. SCHIFFER. I would only add, Mr. Chairman, that there is a

distinction between cases where HHS or Government agencies have

a right to insist on such agreements as a result of fraudulent activities, and in many instances, where providers on their own adopt

compliance plans to ensure that their business is being operated in

a proper manner. Obviously, the Government would never discourage such steps.

The CHAIRMAN. What would a Corporate Integrity Agreement

consist of in addition to the way a well-run hospital would ordinarily conduct its business anyway?

Mr. MORRIS. There are only two elements that a Corporate Integrity Agreement requires that an effective compliance program

would not have in place already. Those are, first, an annual report

to the OIG which reports on all the activities that have been engaged in during the last year. It is really quite comparable to what

you would expect a compliance department to report to the board

of directors—here is the trending that we have done, here are the

errors we found and what we have done about them, and so on.

The CHAIRMAN. But this report, instead of going to the board,

goes to HHS or——

Mr. MORRIS. Yes, to my office, the Office of Inspector General.

And we have a staff of attorneys and program analysts who review

each one of those annual reports, and if they see questions or concerns, get back to the provider. We have a very active dialog with

each provider under a CIA so that if we see issues or concerns developing, we can talk to them about them early.

The other aspect of the CIA that you would not find in a voluntary compliance program is our requirement that in some instances, the provider hire an independent review organization, or

what we call an IRO, to conduct principally two functions. One is

in the first year of the compliance agreement to assure us that all

the elements that were set out in the contract have been met—do

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they have a compliance officer, do they have a hotline—it is basically a checklist.

The CHAIRMAN. How many hospitals in the country are currently

under CIA agreements?

Mr. MORRIS. The total number of CIAs that we have executed is

about 700. There are about 400 CIAs in place right now, and I

would say that the majority of those are with hospitals. That is

largely because due to a number of national project initiatives we

have done with the Department of Justice looking at the improper

billing of outpatient lab services and so on, a large number of hospitals settled their False Claims Act liability and as a condition of

that, we required them to put in certain compliance measures.

The CHAIRMAN. How long do they normally last?

Mr. MORRIS. The length of a CIA depends a little bit on the facts

of the case. On average, I would say 5 years. For many of the cases

where we have identified a more discrete problem, it would be 3

years. For cases where we are dealing with a provider that has settled fraud allegations in the hundreds of thousands, if not millions

of dollars, and we are concerned that the integrity of the provider

is so questionable, the CIA could last as long as 8 years. But on

average, I would say 5 years, and a significant number of them, 3

years.

I should also mention that one of the things that we were very

gratified by as we continued to work with the industry to promote

voluntary compliance is that in the more recent years, providers

with whom we negotiate CIAs have many of the compliance measures we want in place already, and we give them credit for that.

We do not think it is wise to strip out what they already have in

place and working and put something else in.

So we believe the CIAs are becoming less costly, less burdensome, and in many cases, we are able to eliminate perhaps the

most costly aspect—the IRO—because the provider is able to demonstrate that it has an effective internal audit system.

The CHAIRMAN. Senator Ensign, do you have any follow-up?

Senator ENSIGN. Thank you, Mr. Chairman.

Just following up on my previous line of questioning, going more

to the smaller providers, physicians’ offices, and so on, what percentage of your claims are for the smaller providers?

Mr. MORRIS. In terms of dollars or volume?

Senator ENSIGN. Either one, or both.

Mr. MORRIS. I would first have to acknowledge that since the

OIG does not run the program, the question is probably best put

to Mr. Scully.

I would say—and we would be glad to get back to you with the

hard numbers—that the dollar volume is, of course, highest with

hospitals. I would suspect that physicians, because they do lots and

lots of small dollar item services, may have the largest volume of

claims.

Senator ENSIGN. Do you have any feedback—or maybe the GAO

does—in your investigations, for the small provider, obviously, you

do not have as many people that you can put on for administration,

you do not have the kind of expertise that maybe a hospital would

have—what kind of feedback do you get from the providers on

being able to comply with some of these things?

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In other words, if you had a Corporate Integrity Agreement with

a small provider, what kinds of financial difficulties do they have?

Can they hire the lawyers to deal with you all? What kind of hardship, even if they just get investigated, especially when we were

talking earlier that some of these are false investigations—if they

get investigated for a false investigation, what kind of cost does

that bring to them?

Ms. ARONOVITZ. I think Mr. Morris can address the issue of the

False Claims Act allegation, but just in the manner of submitting

claims and trying to obtain reimbursement on a daily basis—I am

talking now more just about participating in the program generally—we have anecdotal information. We do not have a sense for

sure about small providers versus large ones. But the small providers we do talk to seem to be very concerned about the fact that

they do not have the funds in their office to hire the clerks and the

in-house counsel and other entities that can give them advice and

assistance in terms of billing rules.

In our work, we found that one of the major ways that a small

practice was learning about the rules was through hard copy but

also through using a website; and during our study, the practice

lost its internet provider in this rural community, felt that it was

at a disadvantage because they could not get on the website and

get questions answered that way.

What we find to some extent is that in the larger practices, some

of the regulatory burden is self-induced—in-house counsel—and it

might be because they are very concerned about the rules, and they

want to make sure they follow the rules—sometimes some of the

burden is a result of in-house counsel requiring the providers to do

certain things. It might not even be the statute, or CMS, or OIG,

or anyone else, but maybe just common practice in an entity. In a

very small practice, it gets more difficult to be able to incur those

costs.

Mr. MORRIS. I think I can answer in three ways. As to physicians, we recognize that they have limited resources and huge demands on their time for patient care. We have done a number of

things in the IG to try to address those concerns.

First, we put out a compliance guidance, a voluntary guidance,

for physicians and small group practices that lays out the various

steps that they should implement, but we stress that they need to

take into account the resources—that this is not do it all at once,

or do not do it at all—that they should integrate these efforts into

their program.

The most important component of that compliance is training—

having your billing people understand what the rules are—and the

contractors provide much of this training for free. There are also

consultants out there that will charge quite a great deal of money,

and we have concerns about that.

In addition, we thought we should talk to physicians directly. It

is one thing to post a guidance and another to actually hear what

people are saying. To that end, my staff and other parts of the OIG

go out and speak frequently to medical societies, to trade groups,

and explain what our vision of integrity is, and we get a great deal

of feedback. The speech may be 45 minutes, but the follow-up is another 2 hours.

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We also held a roundtable last summer here in Washington and

invited physicians from around the country—rural practitioners,

practitioners in big institutions—to come in and basically give us

a piece of their mind, and they spent a full day doing that. They

had lots of great suggestions on how we could make our ideas, our

compliance efforts, more accessible and more usable. We actually

wrote up a white paper on their suggestions and put it on our

website to encourage physicians to give us even more ideas.

And finally to your question about Corporate Integrity Agreements—and we do have Integrity Agreements with practitioners,

with physicians—recognizing that they cannot afford compliance officers and all the elaborate bells and whistles that perhaps a Columbia HCA can afford, we really focus on training. The most important thing we want them to do is get their billing people and

those responsible for the business end of dealing with us to understand the rules.

So we are very mindful of the cost, and we have worked very

hard to tailor the compliance obligations to the reality that patients

should come first.

Senator ENSIGN. And I realize that all of you are basically on the

enforcement end, but we as policymakers really have to take a

hard look at what we have to those—it is one thing to do them at

the hospitals where, with some of our regulations, we are running

up costs that should not necessarily be there; but for these small

practitioners, when people are telling me that in small practices,

they are hiring two and three people just to help them comply with

these new regulations. A couple physician friends of mine are no

longer taking Medicare patients just because of the compliance aspects of it.

So we have got to be very careful, in the name of going after

fraud and abuse, that we do not end up really hurting the system

in the long run and having people not getting the medical care that

they need.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you, Senator Ensign.

Without objection, I will put in the record a letter from Ms. Janet

Rehnquist, who is the nominee for Inspector General at HHS, responding to a question from Senator Chuck Grassley on the False

Claims Act at her confirmation hearing. I think it would be helpful

to have that as part of our record, in which she speaks to the importance of the False Claims Act.

We will also include a statement from Senator Grassley, who is

on this committee, as part of the record.

[Statement of Senator Grassley and Letter from Ms. Rehnquist

follows:]

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The CHAIRMAN. I recognize Senator Craig for any questions.

Senator CRAIG. Mr. Chairman, thank you.

I have a couple more questions that I think need to be asked, because what Senator Ensign has just said is of course of great concern as we balance this effort so that we do not run the provider

away from the very people that they want to provide health care

for.

Let me, Stuart, speak to you for a moment if I could.

Mr. SCHIFFER. I have been enjoying the dialog on both sides of

me, Senator, but I would be glad to.

Senator CRAIG. GAO says that you are doing a better job of implementing guidelines on the conduct of civil health fraud investigations. Does DOJ have similar guidelines in regard to how they

conduct criminal investigations involving alleged fraud?

Mr. SCHIFFER. The Department has long had in place broad sets

of prosecutorial guidelines. I am not personally familiar, I must

confess, with whether there were specific guidelines directed to

health care——

Senator CRAIG. I am specifically concerned about the search and

seizure side of this as it relates to guidelines, involving doctors’ offices and hospitals where patients might be receiving care at the

time.

Mr. SCHIFFER. Again, I do not know specifically if we have search

and seizure guidelines in the health care fraud area. There are certainly guidelines applicable to search and seizure.

The guidelines about which the General Accounting Office has

testified were adopted largely in response to some specific instances

that had been brought to the Department’s attention by both industry and by Members of Congress where predicate procedures had

not properly been followed in certain so-called national projects. We

did not think we were breaking new ground with those guidelines,

but we did believe and we were told that it was important to put

in writing procedures which have long existed and to form working

groups to oversee these guidelines.

Senator CRAIG. That is civil; right?

Mr. SCHIFFER. Yes, sir.

Senator CRAIG. But not criminal.

Mr. SCHIFFER. Not criminal.

Senator CRAIG. You cannot answer that.

Mr. SCHIFFER. I would be glad to get you a response in writing,

Senator.

Senator CRAIG. Would you do that, please?

Mr. SCHIFFER. Surely.

Senator CRAIG. And I would like to know if you have those kinds

of guidelines. That is an important part of all of this, ultimately,

where you are involved in the criminal investigation as it relates

to how those are conducted in those situations.

I think that would be tremendously important.

I see that in your testimony, you mentioned the future use of advanced technologies so that no provider is prosecuted or penalized

for simply unintentional billing errors or mistakes lacking any evidence of intent to defraud.

You also announced that CMS and DOJ are launching new interagency efforts to enhance the use of technology and high-tech tools.

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I like the idea of making these determinations of intent as accurate

as possible—obviously, we all do. Could you tell us more about

these efforts and your timetable for implementing the new technologies?

Mr. SCHIFFER. I am somewhat concerned, Senator, and worried

about laughter that may come from the back of the room from my

colleagues who are here, since I am one of the few remaining computer-illiterates in the Department of Justice.

Mr. Morris is certainly here to answer questions on

technology——

Senator CRAIG. Stuart, I talk a good line, too, about computers,

but I lack knowledge.

Mr. SCHIFFER. I could only fit a computer or a television set into

my office, and I opted for the latter so I could use C-SPAN and

many of these hearings.

We talk about occurrences in the past, for example, where people

would look at a single spreadsheet and see billing for a particular

code of pneumonia, let us say, and would leap from that to a conclusion that there must be fraud. We are now looking for matches,

we are looking for many more complicated systems that will give

us true indicia of fraud as opposed to simply pursuing honest mistakes.

But my computer friend over here is about to answer the question.

Mr. MORRIS. Thanks.

One of the reasons I went to law school was so I would not have

to understand this stuff—but perhaps I can give you an example

of how ‘‘data-mining’’ as it is often called, taking the huge amount

of information that comes through the Medicare program and using

technology, can help us.

Mr. Schiffer just referenced pneumonia. One of the national

projects that we have under way is looking at hospitals that bill

for a higher-coded level of pneumonia treatment than we believe

was appropriate. One reason why this was brought to our attention

was that by doing this data-mining, we came to see that there were

some hospitals for whom the use of this particular pneumonia code

was so disproportionate to demand we do something more. In fact,

in one case, a hospital in Tennessee was using this higher-reimbursed code 93 percent of the time, when the Centers for Disease

Control would tell us that we should see incidence of that type of

pneumonia about 2.4 percent of the time.

What I want to stress here is that technology identifies a potential problem. What we need to do then and what we did do in all

of these cases was to go onsite and pull medical records to see if

there was some other explanation—was there an epidemic of pneumonia in that part of Tennessee, for example.

As it turned out in that case, medical experts looked at the

charts and found no documentation or justification for the billing—

and what is more, we discovered that consultants had been out,

marketing these billing maximization schemes and that what was

really going on here was not an epidemic of illness but an epidemic

of fraud.

So we use technology to identify potential problems, but a lot of

what we do requires shoe leather.

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Senator CRAIG. In that instance of billing, I am assuming there

was a variety of categories——

Mr. MORRIS. Yes, sir.

Senator CRAIG [continuing.] Or levels of severity, or whatever

that would ultimately measure. So it was your determination that

this was an intent to defraud?

Mr. MORRIS. Well, we relied on medical experts to look at the

physician and the nurses’ documentation in the charts, and we

start with the premise that the doctor knows what he or she is ordering and accurately reflects that in the charts. When we go to

chart after chart, and we find no tests to confirm the diagnosis as

billed, when we actually find contraindicated information that

there was a less serious pneumonia, and when we see this not

once, not twice, but 93 percent of the time, and when we add to

that the presence of consultants or others who have seen comparable schemes take place in other hospitals—when you link all

that together, as well as interviews with people at the hospital, all

of that put together gives us evidence that they knowingly engaged

in fraud.

Senator CRAIG. Well, there are a good many more questions that

we would like to ask, and we are going to hold the record open, so

you may receive some in writing.

We thank this panel very much for your presence today.

Senator Craig [presiding.] Let us turn to our third and last

panel. Senator Breaux has had to step away for a few moments,

but I think he plans to return.

On the final panel, we have Robert Charrow, with Crowell and

Moring, a law firm here in Washington; Joseph diGenova, special

counsel to the American Hospital Association; and Jim Moorman,

representing Taxpayers Against Fraud.

Robert, we will start with you.

STATEMENT OF ROBERT P. CHARROW, CROWELL AND

MORING, WASHINGTON, DC

Mr. CHARROW. Thank you very much, Senator Craig, for giving

me this opportunity to appear here.

For the record, although I am a partner at Crowell and Moring,

I am not appearing on behalf of any client. I was asked by the committee to share some of my perceptions as someone who, as a prior

political appointee, is partially responsible and shares some of the

blame for the mess that we are dealing with today.

Medicare is perhaps the single most complex Federal program

and it affects more Americans than any other program. I brought

with me a copy of the Social Security Act, which is the organic legislation that has given rise to 1,300 pages of regulations in The

Code of Federal Regulations, and over 100,000 pages of issuances,

notices, and other documents published by CMS and its carriers

and intermediaries.

I would like to follow up on a theme raised by, Senator Craig and

his colleagues as well by Mr. Scully namely we are all attempting

to strike the proper balance between, on the one hand, enforcement, and on the other hand, fairness.

One of the concerns that I have with the current system is that

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erly. For example, when a physician calls me because he or she has

just received a letter or a visit from the government, I ask ‘‘Who

paid you the visit?’’ or ‘‘Whom did the letter come from?’’ and they

invariably say, ‘‘Inspector General.’’

And I said, ‘‘Really? The Inspector General of HHS?’’

And they say, ‘‘Well, no, but it was somebody.’’

And when you stop and talk to them and look at the materials,

if they were smart enough to have gotten the card, it turns out it

is someone from the carrier or intermediary as the case may be,

depending on whether it is a hospital or a physician. And frequently, there is no distinction drawn, especially by small providers, between the carrier and fiscal intermediary on the one hand,

the regional office of the Health Care Financing Administration—

or, the CMS now—the central office, the IG, or the FBI. They are

all viewed as ‘‘them’’—and then there is ‘‘us’’—and that is

unhealthy.

The second point is that part of the reason why we see this fear

in the community—and there is really fear in the community—of

enforcement is not only because of the complexity and, at times, erratic enforcement posture of the various Federal agencies, but also

the total lack of accountability. Medicare is the only significant program lacking in effective judicial review. There is no way for a provider to get into court effectively.

The DRG system is not subject to judicial review. RBRVS system, which is the fee schedule system, is not subject to judicial review. The system by which wage index rates are set for hospitals

also is not subject to judicial review. And the most astonishing

thing is that as a result of a recent Supreme Court decision, regulations issued by the Department of Health and Human Services

that govern CMS are no longer subject to meaningful judicial review. That means that if you believe the agency issued a rule in

contravention of the Administrative Procedure Act, it failed to solicit comments when it should have, the basic tenets of the APA

have been violated—you cannot get into court, effectively. You have

to go through a labyrinth-like appeals process that could take anywhere from 2 to 10 years before you are eligible to see the inside

of a Federal district court. Most providers simply do not have the

wherewithal to undertake such a litigation.

If you are a regulator, it is much easier to issue rules if there

is no judicial review. If Congress makes one change, it should be

to uncouple the judicial review procedures that govern HHS and

CMS from the Social Security Act, Section 205(h). That uncoupling

would go a long way toward creating accountability and easing the

fear at relatively modest cost to the Government.

Thank you very much.

Senator CRAIG. Thank you very much for that testimony.

[The prepared statement of Mr. Charrow follows:]

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Senator CRAIG. Now we turn to Joseph diGenova, special counsel

to the American Hospital Association.

Joe, welcome before the committee.

STATEMENT OF JOSEPH DIGENOVA, SPECIAL COUNSEL,

AMERICAN HOSPITAL ASSOCIATION, WASHINGTON, DC

Mr. DIGENOVA. Thank you, Mr. Chairman. I am delighted to be

here.

I am Joseph diGenova, special counsel to the American Hospital

Association. The AHA represents nearly 5,000 hospitals, health

systems, networks, and other providers of care.

We absolutely, Mr. Chairman, appreciate the opportunity to testify on enforcement activities related to the Medicare program. It

is a vital issue to providers in this country today and one that we

are deeply grateful that the committee is addressing.

America’s hospitals are committed to preventing, uncovering, and

eliminating health care fraud and abuse. That is why hospitals

across the Nation have voluntarily established programs to ensure

compliance with Medicare’s complex and confusing requirements—

those two descriptions of it were attested to by almost all the witnesses here today.

Our experience reinforces the view that billing issues are usually

billing mistakes. Fraud is the exception, and that too was testified

to here by Government representatives today.

That is why we continue to urge that the starting point for any

questions about a claim submitted by a hospital should be the administrative process. If and only if there is sufficient—and I underscore sufficient—indication of potential fraud should a referral be

made to law enforcement authorities.

Our comments today will focus on the enforcement activities of

the OIG and the need to provide hospitals with direct access to

courts—a matter about which Mr. Charrow spoke at the end.

Hospitals are concerned with the way the OIG is exercising its

enforcement authority with regard to Corporate Integrity Agreements as a condition of resolving billing issues and with regard to

its investigation of matters previously investigated by the Department of Justice.

Our testimony today is in no way a challenge to the integrity or

the honesty of anyone at the Office of Inspector General. We are

talking about the open issues of how hospitals have to work in a

complex and confusing network of billing, the most complex billing

system in the world.

A Corporate Integrity Agreement, or a CIA as it is called, is used

in settling investigations by the OIG, and in return for the OIG’s

agreement not to exclude someone as a provider for the Medicare

program—the most draconian penalty that can befall any provider.

It is viewed as a corrective action, and its imposition is viewed as

a penalty.

The AHA’s members repeatedly tell us that the OIG’s insistence

on a CIA impedes voluntary disclosures and the resolution of billing disputes. A CIA should only be used in the case of fraud, and

indeed, Mr. Morris from the OIG’s office has said that that is their

standard.

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We actually have a different view of how that standard is being

applied, and it really becomes a question of how you define fraud,

apparently, because we believe—and certainly the anecdotal evidence that we have seen leads us to believe—that these CIAs are

being required where there was no fraud but rather billing mistakes.

If a hospital’s own compliance program is insufficient to prevent

future billing irregularities, it should be improved and requirements targeted to those specific areas—in other words, a targeted

CIA, not one that covers a whole hospital where there are no problems in those other areas.

The imposition of a CIA imposes significant burdens and costs on

hospitals. The biggest cost factor is the requirement that a hospital

contract with an independent review organization to perform reviews of the hospital’s billings and implementation of the CIA.

In addition to the compliance program issues, there are legal

issues related to the heightened reporting accountability. For a provider, for example, who has not violated the law itself and committed fraud, if you sign a Corporate Integrity Agreement, there is a

provision in there that says that if you violate the Corporate Integrity Agreement, you can be excluded from the Medicare program—

a provision which the law does not require, but nonetheless it is

in there, and of course, it is a burdensome threat that lives with

the life of the CIA, which are generally 5-year agreements, which

cost a lot of money to any organization, no matter how big.

The DOJ and the OIG have concurrent jurisdiction over fraudulent claims, which should provide flexibility to the agencies for allocating resources in an investigation. Instead, according to the evidence that we are gathering, it has permitted the Office of Inspector General to second-guess decisions of the Department of Justice.

We are aware, for example, of a situation in which the OIG is pursuing a hospital and demanding hundreds of thousands of dollars

in a hospital-wide Corporate Integrity Agreement under its authority to impose civil and monetary penalties.

The OIG is doing this despite an extensive and thorough investigation by DOJ of the very same issues, DOJ’s dismissal of the

case without taking any action whatsoever, and in spite of the

OIG’s active participation in the OIG investigation.

Direct access to court is essential to provide fundamental fairness for hospitals participating in the Medicare program. In

Shalala versus Illinois Council, the Supreme Court held that

claims related to the Medicare statute must go through an administrative process before being brought to court. Unfortunately for

hospitals, that interpretation insulates HHS from legal accountability, as Mr. Charrow indicated earlier, for many of its actions and

places hospitals in the position of having to violate a regulation in

order to challenge the legality of HHS’ decisions and policies. That

means that the price of admission to the court for hospitals is termination from the Medicare program—or the risk of it—a price

that no hospital or community can risk.

The Medicare statute needs to be clarified so that when a dispute

challenges the legality of HHS’ actions—not a specific payment or

claim for reimbursement, but rather, the policy or a rule which has

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pute be brought to court for resolution—again, not the resolution

of a specific payment claim, but the policy around that payment

claim which determines whether or not it is a proper payment.

Hospitals also need access—just to review—when there is no

process for resolving a dispute. The laboratory billing investigation

is a very good example of that. Hospitals across the country were

receiving demand letters from U.S. Attorneys effectively accusing

them of fraud and threatening law enforcement proceedings.

As a special report commissioned by the AHA demonstrated, the

foundation for the investigation was legally flawed. And indeed, as

Mr. Schiffer testified to earlier, the Department specifically issued

guidelines for this whole area, because it was concerned that the

guidelines that it said had been verbal or known among professionals were not being followed by Assistant U.S. Attorneys all over

the country. We have a report on that which I will submit for the

record; I think it would be very helpful to the committee. And I

want to give special credit to former Deputy Attorney General Eric

Holder, who listened to the hospitals on this question, understood

that there were major problems out in the field, which is not uncommon in these health care cases where regional offices and U.S.

Attorneys offices know what is going on but decide they are going

to do something differently from what is testified to here in Congress or what is directed to by an administrative agency.

When hospitals sought the court’s protection in those particular

cases, the Government attempted to dismiss them out of court, arguing that the hospitals had failed to go through an administrative

process. The 6th Circuit Court of Appeals sided with the hospitals

and held that the administrative process——

Senator CRAIG. Are you moving toward wrap-up, Mr. diGenova?

Mr. DIGENOVA. I am coming right to the end, Mr. Chairman.

Providers should be treated fairly, equitably, and in a civil manner and granted appropriate due process rights. To help hospitals

achieve these rights we recommend the following, Mr. Chairman.

First, Congress should limit the OIG’s use of CIAs to instances

of intentional fraud. If a hospital’s compliance program has deficiencies, they should be remedied, but the OIG should not be allowed to impose an overly burdensome and costly CIA.

Second, the OIG should be prohibited from second-guessing decisions made by DOJ and conducting duplicative investigations. This

need not preclude, obviously, the payment of any overdue amounts.

That can be handled through an administrative process.

Third, Congress should enact legislation to give hospitals and

their providers a specific opportunity to challenge Medicare policy

decisions made by HHS that are legally questionable.

Thank you.

Senator CRAIG. Thank you very much for that testimony.

[The prepared statement of Mr. diGenova follows:]

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Senator CRAIG. Now let us turn to James Moorman, Executive

Director of Taxpayers Against Fraud.

Jim.

STATEMENT OF JAMES W. MOORMAN, EXECUTIVE DIRECTOR,

TAXPAYERS AGAINST FRAUD, WASHINGTON, DC

Mr. MOORMAN. Thank you, Senator.

We very much appreciate being given this opportunity to testify.

Taxpayers Against Fraud is a nonprofit public interest organization

dedicated to combatting fraud against the Federal Government

through the promotion of the False Claims Act and its qui tam provisions. Unlike the other organizations which have testified here

today, we are a tiny organization and not so well-known.

The qui tam provisions of the False Claims Act are those provisions which allow whistleblowers with evidence of fraud involving

the Federal Government to bring suits on behalf of the Government.

The False Claims Act is the primary tool of the Federal Government for fighting health care fraud. The Civil Division and the U.S.

Attorneys Offices of the Department of Justice, working with the

Inspector General’s Office of HHS, have recovered billions of dollars in False Claims Act health care fraud cases. Most of these

cases were initiated originally by whistleblowers as False Claims

Act qui tam cases. When a whistleblower reveals a fraudulent

scheme to the Government through a False Claims Act complaint,

this permits the United States to then undertake an investigation,

win back the money stolen, plus penalties, and deploy several other

tools that enhance the effectiveness of the anti-fraud effort.

As I said, many of the Government’s most fruitful False Claims

Act investigations are based on information received from the whistleblowers. Overall False Claims Act actions since the Act was

amended in 1986 have returned over $6 billion to the Federal Government, and a substantial amount of that has been in the health

care fraud area.

Since September 30, 1986, the Government had recovered $2.83

billion from defendants in health care False Claims Act cases. This

figure does not include the $745 million settlement with Columbia

HCA in December of 2000 and other recent health-related settlements which pushed the healthcare recoveries well past $3.5 billion. In 2000, 80 percent of the Government’s civil fraud recoveries

were from qui tam cases.

There is evidence that the deterrent effect of the False Claims

Act is one of the significant causes in the noticeable tapering off

of the rise in Medicare costs in recent years. False Claims Act actions undoubtedly play a very large role in deterring fraud and saving the taxpayers money.

False Claims Act judgments have changed the attitude and actions of providers and encouraged Government efforts to correct

systemic problems in the system and thus created additional cost

savings. The indirect savings of deterrence and Government corrective activities are probably several times the amount actually recovered directly from case judgments and settlements. So, if you

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utable to False Claims Act deterrence, the taxpayers are receiving

a very large benefit indeed.

In conclusion, the False Claims Act and its qui tam provisions

are a vital component in any meaningful effort to curtail and deter

fraudulent overbilling to Medicare and Medicaid. The fraudulent

schemes uncovered by whistleblowers have saved the Government

billions of dollars.

The majority of honest health care providers have nothing to fear

from the False Claims Act, however, because the Act does not punish mere mistakes. But there is an important minority of bad actors in the health care industry who must be deterred by vigorous

enforcement of the False Claims Act. It is our position that the

Justice Department and OIG should do more and not less to be responsive to whistleblowers. The Department should join more qui

tam cases and make a stronger effort to work closely and cooperatively with the whistleblowers, the people who bring them the bulk

of their important health care fraud cases.

In summary, I urge the committee to continue the tradition established by Senator Grassley to encourage the Government to

work with whistleblowers to uncover fraud and protect the public

fisc.

Thank you, Senator.

[The prepared statement of Mr. Moorman follows:]

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Senator CRAIG. Jim, thank you very much.

Gentlemen, let me thank you all for your testimony. I do have

several questions that I would like to ask of you.

Mr. Charrow, in your opinion, is there merit to the assertion that

health care providers are paying substantial monetary penalties for

innocent mistakes?

Mr. CHARROW. In the form of settlements, yes. Most health care

providers who are subject to prosecution civilly under either the

False Claims Act or its administrative counterpart at HHS cannot

afford in many cases to go through the litigation process, either because of the risks or the costs of the litigation are too great they

settle, even though many of them believe, and their attorneys believe, that they did nothing other than make an honest error.

Bear in mind that at the administrative level as opposed to in

court which is under the False Claims Act, the standard of proof

is much closer to actual negligence than it is under the False

Claims Act. So the OIG can make out a case administratively

where the OIG might not have been able to make out that case in

court under the False Claims Act.

So, yes, in answer to your question.

Senator CRAIG. From your experience working inside HHS and in

private practice—and maybe you have just given me the answer,

but let me finish asking the question—why do you think the OIG

is pursuing cases that DOJ is walking away from?

Mr. CHARROW. Different standards.

Senator CRAIG. Different standards.

Mr. CHARROW. Different standards—an easier standard administratively. It does not have a jury to deal with, it does not have a

Federal judge to deal with. The calculus is very different.

Senator CRAIG. What do you think of the proposed compliance

education efforts for providers described by Administrator Scully?

Mr. CHARROW. When I was a law professor, I had difficulty

teaching law studies to comprehend what was in a couple of hundred pages. I do not know how Mr. Scully is going to teach providers what is in 100,000 pages—especially when much of what is in

there is not written in a language that has been discernible by any

known linguist and frequently is at-odds with some other materials

in the same compendium.

Senator CRAIG. Well, I guess you have answered the balance of

the follow-up questions as it relates to efforts to deal with the serious problem. That is one of the things that I most often hear from

providers is a clear attempt to understand what is meant. And one

of the great difficulties inside this beltway is the bureaucratic ease

that ultimately makes it to the regulation that really is not very

applicable or does not make a lot of sense on the ground, and you

literally have to go through an educational process to comprehend—and now with the volume that we have.

Senator CRAIG. What do you think it costs on average in a typical

case in terms of attorneys’ fees to defend against allegations that

a provider has engaged in fraudulent billing practices? Do you have

any indication of that?

Mr. CHARROW. If the provider is lucky, in the low six figures. If

we are talking about a small provider and a small case, in the low

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six figures. If it is a large provider, a hospital, it could be in the

millions.

Senator CRAIG. Mr. diGenova, in the rare instance where criminal enforcement actions occur involving providers, what do you

think needs to be in DOJ’s guidelines related to the issuance of

search warrants involving hospitals that is not there already?

Mr. DIGENOVA. Mr. Chairman, thank you for the opportunity to

answer that question. First of all, our opposition to certain enforcement actions by OIG and even by DOJ under the False Claims Act

several years ago was related to civil cases.

With regard to criminal cases, obviously, there is a higher standard of evidence that is necessary, and probable cause for a search

warrant means that there is some evidence of fraud, and therefore

the warrant has to be issued by a judge.

What we would like to see and I think is absolutely necessary

particularly in light of HIPAA, which has underscored the absolute

importance of the privacy of medical records of all types, is that the

Justice Department have some form of written guidelines for

searches of health care facilities so that they do not interfere with

patient treatment during the execution of the warrant, and second,

that they do not unnecessarily compromise confidential patient information in medical records.

As you know, the Justice Department has guidelines for the

issuance of search warrants for lawyers’ offices. That is because of

the nature of the attorney-client relationship and the 6th Amendment right to counsel.

We think it would probably be a very good idea for the Department to study and hopefully issue guidelines for the issuance of

search warrants and their execution at health care facilities to protect privacy rights under HIPAA, to protect generic privacy rights

under the Constitution, and certainly to protect confidential information relative to the doctor-patient privilege.

Senator CRAIG. You have expressed reservations in the past

about arming inspector generals. Is there any instance where you

think it would be justifiable to arm investigators in a health care

matter?

Mr. DIGENOVA. Mr. Chairman, I do not. I have been a critic for

some time of the basic issue of having OIGs throughout the Government, not just in HHS, being permitted to carry weapons. As

you know, this practice was permitted a number of years ago,

sometime within the last 8 years, when the Deputy Attorney General issued a memorandum essentially deputizing inspector generals as deputy U.S. Marshals, thus giving them the right to carry

a weapon.

In matters involving fraud investigation, if it is a criminal case,

the FBI should be there anyway, and they have guns, they are

trained, they know how to use them; and I think the fewer law enforcement people who have guns, especially those who are not regularly using them and trained to, the better off we all are.

I would like to see that memorandum from the Deputy Attorney

General rescinded, a study of the policy of arming OIGs throughout

the Government conducted, and a determination made by Congress

as to whether or not such a policy of arming OIGs is a good idea

for policy reasons, because as you know, Senator, the wearing of a

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weapon in certain circumstances has a coercive impact. If it is done

during an audit having nothing to do with a criminal case or anything else, it is not exactly the best way I think to establish relationships between individuals trying to engage in a partnership to

clean up any problems in the health care billing system.

Senator CRAIG. Maybe a question of both you and Mr. Charrow.

Mr. Morris of OIG asserted that OIG’s efforts only concerned true

fraud and not matters involving innocence or negligent error. In

your experience, is this an actual description of how the system actually works?

Mr. CHARROW. All you have to do is read a semiannual report.

The Office of Inspector General is charged with examining much

more than merely fraud. It is charged with examining fraud, waste,

and mismanagement—the generic term is ‘‘fraud, waste, and

abuse.’’

Waste and abuse is not a legal concept. It is in the eye of the

beholder. One person’s waste and abuse is another person’s medical

necessity.

Fraud, on the other hand, is a discrete legal concept, but there,

too, reasonable minds can differ, and I have seen cases where the

IG has thought this is a case of fraud, and I have concluded, no,

this is not a case of fraud.

So there are disagreements. It is not as clear-cut or as black-andwhite as Lew would lead you to believe.

Senator CRAIG. Mr. Moorman, I have heard it mentioned that

unless the Government joins in qui tam lawsuits, a majority of

them fail. Is this a true assertion, and if so, why is this the case?

I would ask that of you or anyone else on the panel who might like

to elaborate.

Mr. MOORMAN. That is basically correct, Senator. When the Government joins the case, the case is successful most of the time.

When the Government does not join the case, it is an uphill battle

for the whistleblower.

The Justice Department obviously has an ability to put a lot of

resources and energy and the prestige of the Government into a

case that an individual whistleblower and his lawyer could equal.

Because the Justice Department has not joined a case does not

mean it is not a good case, but let us face it, some whistleblower

cases are not good cases. So those cases tend to fall by the wayside.

But there is a definite advantage—a huge advantage—for a whistleblower to have the Justice Department on its side. In fact, most

whistleblowers’ lawyers will tell you that the single most important

thing that happens in their False Claims Act case is the decision

of the Justice Department to join or not join the case.

Senator CRAIG. Yes?

Mr. DIGENOVA. Senator, the reason for that, of course, is if someone files a private lawsuit under qui tam as a relater, they want

the Government to take over the case, because the Government

will pay for the case. Once the Government decides not to take the

case, a private relater is not going to fund the litigation, except in

the rarest of instances, because the discovery that would be involved would be exceptionally costly. As Mr. Charrow has testified

to, these cases can cost millions of dollars, and only the Government really has those resources.

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But I want to commend the Government for refusing to intercede

in qui tam cases where they are not warranted. I think the Government should be very careful about whether or not it chooses to put

its name behind the allegations of a private citizen where the incentive for the private citizen is 30 percent of the recovery against

somebody—not that that is bad per se, but certainly the Government ought to be very careful—and I think they are, and the Department is to be commended—before it takes over one of these

cases, because we also know that many of these allegations are totally unfounded, and that some people are trying to extort settlements from hospitals and other health care providers. And the Department of Justice has been very good at figuring out which ones

those are. I think their 5 percent intervention number looks pretty

good to me, and I think it shows professionalism on the part of the

Department.

Mr. MOORMAN. May I correct something? The intervention rate

is about 20 or 21 percent and——

Mr. DIGENOVA. I was quoting Mr. Schiffer’s number.

Mr. MOORMAN. That was his number.

Mr. DIGENOVA. I thought he said 5 percent. I apologize if it is 20

percent.

Mr. MOORMAN. And the average whistleblower award in qui tam

cases is 16 percent, Senator.

Senator CRAIG. Does that include attorneys’ fees—total award?

Mr. MOORMAN. No. That is the whistleblower’s average share of

the judgement. Also, some attorneys’ fees are awarded in addition

to the relater’s share, but that is usually a much smaller number

than what the relaters get.

Senator CRAIG. Mr. Charrow, do you wish to comment?

Mr. CHARROW. I think the name of the game for the relator is

getting the Department of Justice to intervene. The unfortunate aspect of the process is that frequently, it drags on in some cases for

up to 2 or 3 years. There are qui tam cases still under seal where

no decision has been made by the Department of Justice, and those

cases have been going on for 2 or 3 years in the health care area.

Mr. MOORMAN. I agree with Mr. Charrow that sometimes the investigations take far too long.

I would say with regard to the resources that whistleblowers put

into these cases, it is a very inconsistent thing. Sometimes the Justice Department encourages the whistleblowers to participate very

actively in the case, and they put a lot of work into it. Sometimes

the Justice Department does not want the whistleblower’s attorney

to put much effort into it, and they do not put much into it. But

many whistleblowers and their attorneys spend a huge amount of

money to pursue these cases. So it is not at all a question of just

turning the cases over to the Government, sir.

Senator CRAIG. Well, gentlemen, we thank you very much for

your time here today and your testimony.

The chairman intends to leave the record open for 2 weeks for

additional information and for questions that we may wish to submit to you for additional comment.

Your testimony has been extremely valuable today as we sort

through all of this. I think that clearly, the intent of Congress and

our Government is to provide a health care system that functions

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and functions well, certainly for the recipient of it but also for

those who are the providers of it.

I have been on both sides of this for a good many years in the

sense that I once tried to read Government regulations, and I oftentimes found out that they were very difficult to read, and now,

in this area, I understand, of course, that they are phenomenally

complicated. So there does have to be a balance here, and we have

to try to strike that in doing so. At the same time, shame on us

if we provide a system that allows an effort to defraud to do just

that and to take valuable tax dollars away from the citizens who

might otherwise be delivered health care because of it.

That is clearly the intent of this committee and our efforts as we

review these, as we know that we are moving toward a time when

there could well be a comprehensive overview of Medicare and

working with the new administration as they try to reshape the

new HCFA and the new CMS.

Thank you all very much for being with us today.

The committee will stand adjourned.

[Whereupon, at 12:27 p.m., the committee was adjourned.]

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