U.S. GOVERNMENT PRINTING OFFICE

62–373 CC WASHINGTON : 2000

OVERSIGHT OF FINANCIAL MANAGEMENT PRACTICES AT THE HEALTH CARE FINANCING ADMINISTRATION

HEARING

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,

INFORMATION, AND TECHNOLOGY

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

FIRST SESSION

MARCH 26, 1999

Serial No. 106–78

Printed for the use of the Committee on Government Reform

(

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

(II)

COMMITTEE ON GOVERNMENT REFORM

DAN BURTON, Indiana, Chairman

BENJAMIN A. GILMAN, New York

CONSTANCE A. MORELLA, Maryland

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

STEPHEN HORN, California

JOHN L. MICA, Florida

THOMAS M. DAVIS, Virginia

DAVID M. MCINTOSH, Indiana

MARK E. SOUDER, Indiana

JOE SCARBOROUGH, Florida

STEVEN C. LATOURETTE, Ohio

MARSHALL ‘‘MARK’’ SANFORD, South

Carolina

BOB BARR, Georgia

DAN MILLER, Florida

ASA HUTCHINSON, Arkansas

LEE TERRY, Nebraska

JUDY BIGGERT, Illinois

GREG WALDEN, Oregon

DOUG OSE, California

PAUL RYAN, Wisconsin

JOHN T. DOOLITTLE, California

HELEN CHENOWETH, Idaho

HENRY A. WAXMAN, California

TOM LANTOS, California

ROBERT E. WISE, JR., West Virginia

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

PATSY T. MINK, Hawaii

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, Washington,

DC

CHAKA FATTAH, Pennsylvania

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

ROD R. BLAGOJEVICH, Illinois

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

JIM TURNER, Texas

THOMAS H. ALLEN, Maine

HAROLD E. FORD, JR., Tennessee

JANICE D. SCHAKOWSKY, Illinois

———

BERNARD SANDERS, Vermont

(Independent)

KEVIN BINGER, Staff Director

DANIEL R. MOLL, Deputy Staff Director

DAVID A. KASS, Deputy Counsel and Parliamentarian

CARLA J. MARTIN, Chief Clerk

PHIL SCHILIRO, Minority Staff Director

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, INFORMATION, AND TECHNOLOGY

STEPHEN HORN, California, Chairman

JUDY BIGGERT, Illinois

THOMAS M. DAVIS, Virginia

GREG WALDEN, Oregon

DOUG OSE, California

PAUL RYAN, Wisconsin

JIM TURNER, Texas

PAUL E. KANJORSKI, Pennsylvania

MAJOR R. OWENS, New York

PATSY T. MINK, Hawaii

CAROLYN B. MALONEY, New York

EX OFFICIO

DAN BURTON, Indiana HENRY A. WAXMAN, California

J. RUSSELL GEORGE, Staff Director and Chief Counsel

BONNIE HEALD, Director of Communications/Professional Staff Member

MASON ALINGER, Clerk

FAITH WEISS, Minority Counsel

(III)

C O N T E N T S

Page

Hearing held on March 26, 1999 ............................................................................ 1

Statement of:

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

Services, accompanied by Joseph E. Vengrin, Assistant Inspector General for Audit Operations and Financial Statement Activity .................... 9

Hash, Michael M., Deputy Administrator, Health Care Financing Administration, Department of Health and Human Services .............................. 26

Letters, statements, et cetera, submitted for the record by:

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

Services:

American Hospital Association Compliance Program Survey ............... 66

Information concerning Medicaid contracts ............................................ 54

Information concerning voluntary compliance program ........................ 77

Prepared statement of ............................................................................... 12

Hash, Michael M., Deputy Administrator, Health Care Financing Administration, Department of Health and Human Services:

Information concerning policy .................................................................. 82

Information concerning reconstructive surgery ...................................... 61

Information concerning reforms ............................................................... 91

Information concerning security of data systems ................................... 63

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

Horn, Hon. Stephen, a Representative in Congress from the State of

California, prepared statement of ................................................................ 3

Turner, Hon. Jim, a Representative in Congress from the State of Texas,

prepared statement of ................................................................................... 6

(1)

OVERSIGHT OF FINANCIAL MANAGEMENT

PRACTICES AT THE HEALTH CARE FINANCING ADMINISTRATION

FRIDAY, MARCH 26, 1999

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,

INFORMATION, AND TECHNOLOGY,

COMMITTEE ON GOVERNMENT REFORM,

Washington, DC.

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

2154, Rayburn House Office Building, Hon. Stephen Horn (chairman of the subcommittee) presiding.

Present: Representatives Horn, Biggert, Ose, and Turner.

Staff present: J. Russell George, staff director and chief counsel;

Bonnie Heald, director of communications; Mason Alinger, clerk;

Paul Wicker and Kacey Baker, interns; Faith Weiss, minority counsel; and Earley Green, minority staff assistant.

Mr. HORN. The quorum being present, the Subcommittee on Government Management, Information, and Technology will come to

order. Today’s hearing is the third in a series of hearings to examine the results of financial statement audits of selected Federal

agencies.

On March 1, we heard from the Internal Revenue Service. Unfortunately, that agency was unable to sustain the progress it had

made in 1998. Last Thursday, we discussed the serious problems

confronting the Department of Justice and the Federal Aviation

Administration. Today we’ll hear testimony focusing on the financial management practices of the Health Care Financing Administration [HCFA], part of the Department of Health and Human

Services.

The Health Care Financing Administration is responsible for

funding Medicare and Medicaid, the two most extremely important

Federal programs for millions of our citizens. In 1998 these programs provided over $290 billion worth in health care to our most

vulnerable citizens, the elderly and the poor. $298 billion represents nearly 18 percent of all Federal spending last year. It’s an

enormous cost and one that analysts predict will skyrocket during

the next decade. The Congressional Budget Office projects that by

the year 2009 the cost of these two entitlement programs will more

than double to a soaring and sobering $689 billion. We cannot

allow any portion of that money to be wasted.

Two previous financial audits of the Health Care Financing Administration identified serious problems at the agency, including

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an estimated $40 billion worth of improper payments in the Medicare program during 1996 and 1997. Problems were also found

with the Health Care Financing Administration’s ability to collect

money that is owed to the agency and with its inability to provide

adequate security for its computer systems.

Medicare is critical to the health and well-being of millions of elderly Americans. Likewise, Medicaid is the lifeline for America’s

low income and chronically ill. I understand that we will hear

today that the Health Care Financing Administration has made

some progress in improving its financial management. I sincerely

hope that is true because we need dramatic improvement in the

way these programs are managed.

[The prepared statement of Hon. Stephen Horn follows:]

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Mr. HORN. I welcome our witnesses today and look forward to

their testimony, but first I’d like to yield to my colleague, Mr.

Turner of Texas, who is the ranking member on this committee.

Mr. Turner.

Mr. TURNER. Thank you, Mr. Chairman. It’s a pleasure to participate in this ongoing series of oversight hearings on Federal financial management. I want to thank you, Mr. Chairman, for your

leadership in this area and for the bipartisan way in which you

proceed to examine the agencies of the Federal Government.

Congress recognized as early as 1990, with the passage of the

Chief Financial Officers Act, that the Federal Government should

maintain reliable financial information that could be audited. The

Chief Financial Officers Act directed 10 Federal agencies to conduct

independent financial audits, and in 1994 Congress expanded the

requirement to all 24 major Federal agencies. Today we are going

to have the opportunity to discuss some of the tangible results of

this process and the third consecutive audit of the Health Care Financing Administration’s financial statements.

I want to welcome the Inspector General of Health and Human

Services and the Deputy Administrator of HCFA, who are here to

discuss the results of the fiscal year 1998 audit.

In the first HCFA audit, fiscal year 1996, the Inspector found

that HCFA’s financial information was so unreliable that the Inspector General could not finish the audit nor draw any conclusions

about the agency’s financial statements. In the audit conducted last

year, HCFA received a qualified opinion which, as I understand,

means that while the financial statements were generally reliable,

inadequate documentation existed for certain amounts.

This year the audit again resulted in a qualified opinion. Although HCFA has made progress in resolving its financial management weaknesses, the Health and Human Services Inspector General raises serious concerns which we will hear about today.

As we all know, Medicare is a very important Federal program.

It provides health insurance for over 39 million elderly or disabled

citizens. Without Medicare, many of these Americans would be deprived of adequate medical care. Medicare provides Americans with

the security that, as they grow older and increasingly more vulnerable, they will have access to sound health care without bankrupting them or their families.

It is surprising to note that the Medicare program processed over

900 billion Medicare claims last year and paid out more than $210

billion in benefits. We can see Medicare’s importance. That’s why

we must ensure that it runs well.

Clearly the program is susceptible to fraud, abuse, and overpayments. Over this last year, however, HCFA demonstrated a significant reduction in the total amount of estimated Medicare overpayments. In fact, HCFA has reduced the error rate by 50 percent and

has been actively trying to reduce the amount of improper or inappropriate payments made by the Medicare program. The results of

these efforts are beginning to show, and HCFA must continue to

reduce these overpayments as aggressively as possible.

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In closing, I would like to commend the Health and Human Services Inspector General and HCFA’s leadership in working to combat fraud and abuse in the Medicare program, and I look forward

to the hearing and to hearing from each of our witnesses.

Thank you, Mr. Chairman.

[The prepared statement of Hon. Jim Turner follows:]

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Mr. HORN. Thank you very much for that thoughtful statement.

Let me note the procedures here for some who are not familiar

with it. Once we introduce the witnesses, your statement is fully

put in the record—by your leave or without objection, et cetera.

No. 2, this committee is part of the full Committee on Government Reform, and all of our witnesses are sworn in on the oath.

So, if the three witnesses this morning would stand and raise your

right hands, just affirm the testimony you’re about to give this subcommittee is the truth, the whole truth, and nothing but the truth.

[Witnesses sworn.]

Mr. HORN. We will note for the record that all three witnesses

have affirmed, and we will start with the Honorable June Gibbs

Brown, Inspector General of the Department of Health and Human

Services. She has a very rich background, as we all know, having

been Inspector General of the Department of Defense from 1987 to

1989, and she’s held numerous other positions. She’s won probably

every award that can be given to a career civil servant.

And it’s always good to see you. We know you run a tight shop.

I’ve never asked you, is Defense easier than HHS or is HHS easier

than Defense? You’re not about to tell, right? Remember, you’re

under oath.

Anyhow, go ahead. Obviously if you want to summarize, fine. If

you want to go into exhaustive detail, we’re all with you because

we’ve got the whole morning.

STATEMENT OF JUNE GIBBS BROWN, INSPECTOR GENERAL,

DEPARTMENT OF HEALTH AND HUMAN SERVICES, ACCOMPANIED BY JOSEPH E. VENGRIN, ASSISTANT INSPECTOR

GENERAL FOR AUDIT OPERATIONS AND FINANCIAL STATEMENT ACTIVITY

Ms. BROWN. Thank you, Mr. Chairman. I’ll summarize. I’m

pleased to report to you on our fiscal year 1998 audits of the Medicare fee-for-service payments and the Health Care Financing Administration’s [HCFA] financial statements.

With me today is Joseph E. Vengrin, Assistant Inspector General

for Audit Operations and Financial Statement Activities.

I’d like to begin by acknowledging the cooperation and support

we receive from the Department, from HCFA, and from the General Accounting Office. HCFA’s assistance in making available

medical review staff and the Medicare—at the Medicare contractors

and the peer review organizations was invaluable. We also work

closely with GAO, which is responsible for auditing the consolidated financial statements of the Federal Government.

My statement today will focus first on the notable reduction in

Medicare payment errors this year and then on HCFA’s financial

reporting. Our review included a statistical selection of 5,540 medical Medicare claims from a population of $176.1 billion in fiscal

year 1998 fee-for-service claims expenditures. Payments to providers for 915 of these claims did not comply with Medicare laws

and regulations.

By projecting these sample results, we estimated that fiscal year

1998 net improper payments totaled about $12.6 billion nationwide

or about 7.1 percent of the total Medicare fee-for-service benefit

payments. This is the midpoint at the 95 percent confidence level

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of the estimated range of $7.8 billion to $17.4 billion, or 4.4 to 9.9

percent.

As in the past years, the improper payments could range from

inadvertent mistakes to outright fraud and abuse. It should be

noted that medical personnel detected almost all of the improper

payments in our sample. When these claims had been submitted

for payment to Medicare contractors, they contained no visible errors.

We are very encouraged by the reduction in payment errors this

year. This year’s estimate is $7.7 billion less than last year’s estimate of $20.3 billion and $10.6 billion less than the previous year’s

estimate of $23.2 billion, a 45 percent drop. We attribute this improvement to several actions on the part of the administration, the

Congress, and the health care provider community.

To provide just two examples, the Medicare Integrity Program,

under HCFA’s direction, provides resources to expand contractor

safeguard activities, while the Health Insurance Portability and

Accountability Act has provided both HCFA and my office with a

stable funding source for Medicare payment safeguards and fraud

and abuse prevention activities for the next several years. That is

fraud and abuse prevention activities.

Chart one, which is to the side here and is also attached to my

written testimony, demonstrates the reduction in improper payments by the major type of errors found over the last 3 years. The

red error indicates documentation errors where we saw the most

dramatic reduction. The blue indicates errors due to a lack of medical necessity, a continuing problem. The yellow, incorrect coding,

which is also a concern. The green, errors due to noncovered services. And finally, the purple, which is all other types of errors. Documentation errors dropped from $10.8 billion in fiscal year 1996 to $2.1 billion this year. These errors had represented the

most pervasive problems in 1996 and 1997, even though Medicare

regulations specifically require providers to maintain sufficient documentation to justify diagnosis, admissions, and other services.

As shown in chart 2, the overall category of documentation includes two components this year: insufficient documentation for

medical experts to determine the patient’s overall condition, diagnosis, and extent of services performed; and no documentation to

support the services provided.

Last year we included an additional component to identify situations in which providers were under investigation and the OI could

not obtain medical records to support billed services.

This year, in contrast, we obtained all medical records on claims

under investigation. A lack of medical necessity was the highest

error category this year, and the second highest for both 1996 and

1997.

As noted in chart 3, these types of errors in inpatient prospective

payment system [PPS] hospital claims, shown in red, have been

consistently significant in all 3 years. Decisions on medical necessity were made by medical staff who followed their normal claim

review procedures to determine whether the medical records supported the claims.

Incorrect coding is the second highest error category this year, as

illustrated in chart 4. Physician and inpatient PPS claims acVerDate 11-MAY-2000 13:49 Mar 27, 2001 Jkt 066784 PO 00000 Frm 00014 Fmt 6633 Sfmt 6602 E:\HEARINGS\62373 pfrm04 PsN: 62373
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counted for over 80 percent of the coding errors in fiscal years

1996, 1997, and in 1998. For most of the coding errors, medical reviewers determined that the documentation submitted by providers

supported a lower reimbursement code.

Clearly, Mr. Chairman, progress has been made in reducing payment errors, and we are heartened that providers are doing a better job in documenting their services, but we caution that diligence

is needed to sustain the apparent downward trend. In short, our

audit results from the 3-year period demonstrate that the Medicare

program remains inherently vulnerable to improper and unnecessary benefit payments.

To ensure continued progress while keeping abreast of continuing

changes in the health care area and adequately safeguarding the

Medicare trust fund, we’ve made a number of recommendations to

HCFA.

Turning to our audit of the fiscal year 1998 financial statements,

we’re pleased to report that HCFA has continued to successfully resolve many previously identified financial accounting problems. For

example, substantial progress has been made in improving Medicare and Medicaid accounts payable estimates, as well as estimates

of improper payments included in cost reports of institutional providers.

However, our opinion on the 1998 financial statement, as mentioned by Mr. Turner, remains qualified because of continuing documentation problems. Most significantly, we could not determine if

the report of $3.3 billion Medicare accounts receivable balance, that

is, what Medicare providers owed to HCFA, was fairly presented

because contractors did not maintain sufficient documentation to

support the reported activity.

Our report also discusses our concern that contractors do not

have uniform accounting systems to record, classify, and summarize financial information, or adequate controls over the electronic

data processing environment.

To briefly summarize, I’m pleased that HCFA is progressively

pursuing a corrective action plan to address our concerns. As part

of that plan, we’re working closely with HCFA to establish an adequate internal control structure for Medicare accounts receivable.

I appreciate the opportunity to appear before you today and welcome your questions.

[The prepared statement of Ms. Brown follows:]

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Mr. HORN. Thank you very much for that very helpful statement.

Before we open to questions, we will call on the Deputy Administrator of HCFA, Mr. Michael Hash. He has a very rich experience

in health care problems, including several years on the House Committee on Commerce dealing with the health issues that come before the Congress. So, we look upon you as suitably initiated, having worked on the Hill, and we obviously wish you well. That’s one

of the toughest jobs in this city. So please proceed.

STATEMENT OF MICHAEL M. HASH, DEPUTY ADMINISTRATOR,

HEALTH CARE FINANCING ADMINISTRATION, DEPARTMENT

OF HEALTH AND HUMAN SERVICES

Mr. HASH. Thank you, Mr. Chairman.

Chairman Horn, Mr. Turner, Mrs. Biggert, we’re very pleased to

have this opportunity to discuss the fiscal year 1998 Chief Financial Officer’s audit of HCFA. As the Inspector General just mentioned, this is the third such comprehensive audit by her office. We

are grateful for the valuable insights which this audit process has

provided to us, and we believe that we are making substantial

progress and improvements because of them.

In just 2 years we have been able to cut the error rate in half,

from 14 percent to 7 percent. However, this year’s audit shows that

the Medicare payment error rate is still too high. We want to especially thank, for progress that we have made, physicians and other

providers, because they have made efforts by improving their

claims processing submissions and their documentation. They have

greatly helped in reducing the error rate, and we have new provider education initiatives under way to build on this success.

The 7 percent error rate represents about $12.6 billion in taxpayer funds, which we all agree is simply unacceptable. We must

be diligent in sustaining and increasing the improvements that

we’ve made. To do that we have a number of initiatives under way,

and we have developed a comprehensive program integrity plan to

make sure that in fact we pay right the first time.

Thanks to the work of this committee and the Congress, we now

have more tools to continue this improvement. The Health Insurance Portability and Accountability Act [HIPAAA], for the first

time created a stable source of funding for program integrity activities. In the current fiscal year we have about $560 million available

for our program integrity initiatives. And the Balanced Budget Act

helped close some important, significant loopholes, and tightened

controls on problem providers.

President Clinton’s fiscal year 2000 budget also includes several

new proposals to build on our success in fighting health care fraud,

waste and abuse. These measures would save an additional $2 billion in Medicare expenditures over the next 5 years and, we believe, help to extend the life of the Medicare trust funds. We look

forward to working with you to secure passage of these important

proposals.

Through additional tools that were provided by HIPAA and the

BBA, our comprehensive program integrity plan, plus the President’s new proposals and your continued support, I’m confident

that we will continue to reduce the payment error rate.

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We are also pleased that this year’s audit found that only one remaining area, contractor accounts receivable, prevents us from receiving an unqualified opinion, which is our goal. We are working

with the Inspector General to develop a short-term solution to the

accounts receivable documentation problem. However, a full remedy of this problem involves systems changes that must be delayed

until we have cleared the year 2000 computer challenge.

These audits provide a valuable road map directing us to areas

that need attention. The findings in previous audits helped us correct problems with our accounts payable, with our Social Security

Administration receivables, and other problems that the audits

have identified and the Inspector General referred to. They have

also helped us in our aggressive efforts to improve our computer

systems security. While we have a lot of work that needs to be

done to improve the results of the CFO audit, we are pleased with

the pace of our progress.

With your continuing help and support, we will continue to do

everything in our power to fight waste, fraud, and abuse, and to

ensure that the Medicare program pays it right. We will also continue to improve our financial reporting and management of the

Medicare trust funds.

I want to thank you again for holding this hearing today, and I’d

be happy also to respond to any questions that you or other members of the subcommittee may have. Thank you, Mr. Chairman.

[The prepared statement of Mr. Hash follows:]

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Mr. HORN. Well, we thank you, and enjoyed reading your statement. The way we’re going to operate on the Q and A is each of

us will rotate in 5 minutes. I’m going to ask Mrs. Biggert, the gentlewoman from Illinois, to take my first 5 minutes and question the

witnesses, and then it will be Mr. Turner, and then it will get to

me, and we’ll just go around until either we’re worn out or you’re

worn out, one or the other.

I yield my 5 minutes for the purpose of questioning to the gentlewoman from Illinois and vice chairman of this committee. And by

the way, if you had an opening statement, we’ll put that at the beginning, without objection.

Mrs. BIGGERT. Thank you, Mr. Chairman.

You have the work done in managed care or Medicaid. HCFA had total program expenses of $308 billion in 1998 and these expenses were broken down to Medicare fee-for-service payments

which was 57 percent, $177 billion; Medicare managed care payments, $33 billion, 11 percent; and Medicaid payments of $98 billion for 32 percent.

It’s my understanding that the testing is done to arrive at the estimate for improper payments of $12.6 billion solely on—is done

solely on the $177 billion Medicare fee-for-service payments. Is my

understanding correct? I’m sorry, I’m addressing this to the Honorable Ms. Brown.

Ms. BROWN. Yes, that’s true. This is the fee-for-service area

where we’re making this estimate.

Mrs. BIGGERT. Then what level of testing is done on the remain- ing $131 billion?

Mr. VENGRIN. We, in conjunction with the General Accounting

Office, in all three fiscal years have examined the managed care

area. We attempted to project it back but we have no material findings at this time to really report on the managed care. With respect

to the $90 billion or so for Medicaid, we are relying on the work

of the single audit. That is at the State level, and we certainly do

not want to duplicate that effort.

We are aggressively working with three or four States to develop

an error rate comparable to what we’re doing here in Medicare, but

because it’s not mandated, it’s a very difficult process. The States

complain that they do not have the money to do this, but we’re confident that an error rate does exist in Medicaid and we’re working

very diligently with them to develop that.

Mrs. BIGGERT. How many States? Is that all States?

Mr. VENGRIN. We’re working—again because it’s not a requirement either by Medicaid or the OMB through the compliance supplement on the single audit, it’s on a voluntary basis. Currently

we’re working through the national intergovernmental audit forum

with the State auditors to develop this.

Mrs. BIGGERT. And about how many States——

Mr. VENGRIN. We’re aggressively working in four States.

Mrs. BIGGERT. Four States?

Mr. VENGRIN. Yes, ma’am.

Mrs. BIGGERT. Is there any evidence of improper statements in

these areas?

Mr. VENGRIN. Yes, ma’am, there is. Again, we did meet with a

State auditor. They did make a first attempt at this process. We

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went out and visited those particular States and found some need

for improvement in the thoroughness of the medical review, plus

the statistical sampling had some concerns. We’re working again

with these States to develop a plan, a methodology, so it can be

replicated in other States.

Mrs. BIGGERT. Does this involve the Medicare Plus Choice issue

at all?

Mr. VENGRIN. No. Basically this again would involve the fee-forservice at the State level.

Mrs. BIGGERT. Thank you. Then to Mr. Hash, it sounds like

you’re having success in reducing the amount of improper payments, from the testimony, but that there still is a great deal of

work that remains. Can you explain a little bit more about the area

‘‘lack of medical necessity’’ in your chart?

Mr. HASH. Yes, I’d be glad to. Also perhaps my colleagues here

would want to elaborate too, who conducted the audit. This refers

to a determination of the appropriateness of a covered service for

a given individual with a given condition or diagnosis. What the

audit does is evaluate the documentation, generally in the form of

the medical record of the patient, to see that it appropriately supports the need, the appropriate need of the patient for the service

that’s being paid for. This is an area where we have been stepping

up our efforts very dramatically to improve and strengthen medical

review by our contractors.

Mrs. BIGGERT. It seems that the amount in the area has stayed

very constant. Is this an area where it’s harder to achieve

progress? If you look at the area of documentation error, it seems

like this is harder to achieve any change for the lack of medical necessity. Is there any reason for that, or what actions have been

taken in that area to try and change them?

Mr. HASH. Medical review is a difficult area but I’m happy to report that the audit does show, I believe, that we’ve actually reduced by 20 percent the amount of error since 1996 that’s attributable to medical necessity problems. So we are actually making

steady progress, I think, at reducing it, but it remains a significant

portion. In fact, about half of the errors are attributed to medical

necessity problems.

What we’ve done by way of strengthening medical review is that

we have hired an outside contractor that is actually working with

the carrier medical directors, the physicians, and their staff who

are charged with the responsibility of reviewing claims for medical

necessity, and we are giving them assistance in overseeing their

work much more closely. And second, we are working with the peer

review organizations [PRO], who are composed of locally based physicians, to assist also in the review of medical necessity activities.

And we have stepped up our prepayment review; that is, before we

actually pay, we’re doing medical necessity reviews of services in

a more intensified manner.

Mrs. BIGGERT. Thank you.

Mr. HORN. I thank the gentlewoman from Illinois.

I now yield to the ranking member, Mr. Turner of Texas, for the

purposes of questioning, 5 minutes.

Mr. TURNER. Thank you, Mr. Chairman.

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Let me make sure I understand. You have to bring me up to

speed here, but as I understand it, all of the Medicare payments

that we make are actually handled by private contractors; is that

correct?

Mr. HASH. Not quite, Mr. Turner. The fee-for-service payments

are made by contractors, 40 of them around the country, which are

private organizations. But the managed care payments, the

capitated payments that are made to managed care plans, are

made by the Health Care Financing Administration.

Mr. TURNER. What’s the trend in terms of the percentage of your

funds that are paid through managed care? I assume that has been

on the rise?

Mr. HASH. It’s rising. I think the Inspector General just indicated that about $210 billion of our total expenditures are related to feefor-service payments and an additional—I don’t have the figure in

front of me—about $33 billion for managed care payments, and

that number is rising.

Mr. TURNER. This audit seems to be, and the sampling—I’m glad

to see you sampling here, Mr. Chairman—sampling seems to—— Mr. HORN. Touche.

Mr. TURNER [continuing]. To be directed solely at the fee-forservice side. Doesn’t there need to be some kind of audit work done

on the managed care side, even though those payments obviously

are set and the managed care company has got to make do with

what they get, but isn’t there some necessity for looking at that

side as well?

Mr. VENGRIN. We are, Mr. Turner. As I mentioned, we did sample those and we did not come up with any deficiencies to project

back that would be material to the financial statements this year.

Mr. TURNER. When we’re talking about managed care, what are

we looking for? What’s your objective when you take a look at the

managed care side?

Mr. VENGRIN. Whether we have an eligible beneficiary, whether

we have a correct payment. There are localities that adjust the

payments. We want to make sure the beneficiary is in fact in that

particular area that is used to compute the rate. So we are looking

at all factors there for the computation of these payments.

Ms. BROWN. The incentives are much different in the managed

care area. So, separately from the financial statement audits, we’re

doing a lot of other work there to see whether or not services are

being identified; whether there’s some form of preselection, where

that’s possible because it is 100 percent managed care to get

healthier patients in; whether they’re driving out patients that

have chronic conditions that would make it difficult for them. We’re

looking at all those kinds of things. We can’t project an error rate

at this point, but we are looking at those situations and investigating where we have indicators that there is unfair influence there.

Mr. HASH. If I might add a footnote, Mr. Turner, we also have

concerns about integrity of our managed care contractors as well.

And as a part of our Medicare integrity program, we are going to

be contracting with, again, an outside contractor for the purpose of

reviewing the appropriateness of the submissions that the managed

care plans make to us that are used for purposes of determining

payments to them. So we think an oversight from an integrity

47

point of view is also an appropriate component of our overall comprehensive fraud and abuse plan.

Mr. TURNER. We have heard a lot recently about managed care

companies dropping their patients. What basically has been, from

your perspective, the cause of that disruption?

Mr. HASH. I think the answer to that is a complicated one. For

the most part I think managed care plans that withdrew from

Medicare did so because of business decisions that pertained to the

markets that they were in.

A closer look at what happened and in the withdrawals last fall

would suggest in some of the markets where plans left they had

very small penetration. They were otherwise very competitive marketplaces. Clearly some of the factors that influenced their withdrawal had to do with an expectation or projection of what the

Medicare payment rates would be in the future. But altogether, I

think the withdrawals had more to do with business and market

conditions than any single factor.

Mr. TURNER. Is there anything that we should be doing to try to

create more stability? I mean, I think most of us agree that managed care is here to stay and is probably here to stay in the Medicare field, but it doesn’t seem that we can endure the disruptions

that we’ve been seeing in the last several months.

Mr. HASH. I think there are some things that are under way

now, that we started, that will bring a greater stability to this marketplace. For one thing, the rates that are being forecast for next

year are going to be significantly raised from what they have been

in the past 2 years, so I think that will go a long way toward stabilizing the market for contracting by these plans.

I think also we’re trying to take account of suggestions and recommendations from the health plan community about ways that

we can streamline our program and make it less burdensome from

their point of view. So we are trying to work with the managed

care community to in fact stabilize participation in the Medicare

program.

Mr. TURNER. Are there audit tools available that can allow one

to verify that managed care is saving money over fee-for-service?

Mr. HASH. That’s a tough question, Mr. Turner. I think there is

some evidence—first of all, the Medicare payments themselves, as

you may know, are roughly based on the average cost for Medicare

beneficiaries in fee-for-service discounted by 5 percent. In other

words, we figure out what the average is and pay the plan roughly,

on average, 95 percent of the cost of fee-for-service. So there is an

expectation that there is saving right off the top from the payment

system.

On the other hand, as you look at the characteristics of individuals who have enrolled in managed care plans, there’s considerable

evidence that they have less than average health care costs. In

other words, while we pay on an average basis, their actual experience is that the enrollees tend to be healthier and younger and

therefore there is potential—not only a potential but I think substantial evidence that confirms—that we have overpaid managed

care plans.

The BBA and other steps we’ve taken I think are bringing payments more in line to the expected costs of the enrollees. A signifiVerDate 11-MAY-2000 13:49 Mar 27, 2001 Jkt 066784 PO 00000 Frm 00051 Fmt 6633 Sfmt 6602 E:\HEARINGS\62373 pfrm04 PsN: 62373
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cant part of that strategy is the implementation of a risk adjustment payment methodology which we announced just recently.

Mr. TURNER. Thank you.

Thank you, Mr. Chairman.

Mr. HORN. Thank you. I am going to use just a little bit of my

time and yield 5 minutes to Mr. Ose.

Let me just refer to your chart, Inspector General, documentation

by error, to category dollars in billions. Down there on the blue

schedule under fiscal year 1997, we’re talking about $3 billion, documents not provided due to investigations. What happened to those

investigations? How many did we win, in brief?

Mr. VENGRIN. There were roughly around 151 claims last year.

When we went back to pursue and obtain the medical reports, because there was an active investigation by the Department of Justice or Office of Investigations, we were precluded from obtaining

those medical records. We really did not go back and followup to

determine the disposition of the particular claim.

Mr. HORN. So, are we to say that $3 billion went down the drain?

Mr. VENGRIN. No, sir. Typically the investigation covered 2 or 3

past years ago. We were auditing 1997. We really can’t say that

those claims were improper, sir.

Mr. HORN. What’s the length in the statutes as to how long you

have to look at it, probably prosecute it? You’d have to turn it over

to Justice, or the U.S. Attorney in each area? How does this system

work in terms of any fraud and abuse you find?

Ms. BROWN. When there is fraud, there are different statutes depending upon the particular issue, and then there are some where

there are continuing issues like the RICO statutes. If it’s conspiracy or something of that nature, there is a continuing problem; so

you can go back much further. It varies in the individual cases, but

certainly all of these cases were followed up. And I don’t have the

resolution of them with me, but they’re either still in process or

they are on an individual basis making the appropriate collections.

That’s a separate thing from our analysis of what the error rate

is. Because the audit process of the error rates didn’t delve into it

further doesn’t mean those cases weren’t pursued. In fact those

were the ones where there was a concentrated effort to find out exactly what happened and recover any losses.

Mr. HORN. In whose jurisdiction are the documents? Are they

under Medicare right now? Are they over in Justice? Are they in

the Inspector General’s office? Where are the documents that are

reflected here under ‘‘documents not provided due to investigations,’’ $3 billion, fiscal year 1997?

Ms. BROWN. They were in more than one place. However, we

have worked out an arrangement so that we were able to get information this year on documents, even though investigations might

be in process, enough information anyway to consider in the error

rate. So that wasn’t a constraint, as it had been in the past, where

we just couldn’t work out the arrangement in time to do the audit.

Mr. HORN. Now, do you have lawyers on your own staff that can

take a look at these and say they conform to the law in terms of

time as well as substance?

Ms. BROWN. Yes. In the Office of Counsel to the Inspector General, there are about 60 attorneys and support staff. Of course we

49

work in prosecution closely with the Department of Justice. We

work closely with U.S. Attorneys as well as the AGs from the various States when that’s appropriate. So we work in combination

with others on almost all of our work before it’s concluded.

Mr. HORN. I know this is a tough question for you to answer, but

are there situations where the U.S. Attorney says, ‘‘Hey, this

doesn’t matter to me, isn’t significant enough either in dollars or

anything else. I haven’t got the time for it.’’ How much of that goes

on?

Ms. BROWN. I can’t give you a percentage. There certainly are

those situations. There are a few things we’ve done to resolve

them. We have an executive level fraud group including the Deputy

Attorney General and myself. We have someone from HCFA represented, someone from the FBI, someone who represents the U.S.

Attorneys, and we talk over these cases and look at national

projects. They can establish a national protocol so that there’s more

consistent enforcement throughout the United States on certain

types of cases. That’s helped a lot. They also can get in touch with

U.S. Attorneys if any single decision seems to go against what the

national prerogative might be.

I might mention, too, there’s a lot less turning down cases because there is additional money provided to the Department of Justice also out of the HIPAA legislation for enforcement efforts, and

they’ve been very aggressive and quite successful in this. We’ve

more than doubled our enforcement and our settlement activity.

But even saying that, when they decline a case, we have, you

might say, a third bite at the apple. Where criminal and then civil

declination has occurred, we have civil monetary penalty authority,

so we can still use that. Say something doesn’t meet the dollar criteria, which would be the most typical, we could take selection actions based on that CMP authority. So there is a variety of tools

available to us, where people aren’t just slipping through the

cracks once we have developed some material on them.

Mr. HORN. Well, I’m going to ask both the minority and majority

staff to look at this and ask some questions for the record, and

without objection, the answers will be put in at this point.

Ms. BROWN. Be glad to do that.

Mr. HORN. Mr. Ose, you have less than 10 seconds on my time,

but you have your own 5 minutes.

Mr. OSE. Thank you, Mr. Chairman.

Mr. HORN. Do you have an opening statement?

Mr. OSE. I do not have an opening statement. Just questions.

Mr. HORN. OK, good.

Mr. OSE. For the Inspector General, on page 8 of your submitted

comments, the bottom paragraph talks about ‘‘deficiencies in nearly

all facets . . . of the 12 contractors in our sample.’’ With great respect to my colleague, Mr. Turner, I don’t care to debate the sampling question today but if that is the case, if there are gaps in the

underlying data that the contractors are using to report to HCFA,

how is it that we have any reliability in the numbers in the first

place?

Ms. BROWN. On page—are you talking about the accounts receivable in particular?

Mr. OSE. Yes, Medicare accounts receivable.

50

Ms. BROWN. Let me let Mr. Vengrin, who actually conducted the

audit, go into a little more depth.

Mr. VENGRIN. We did find, sir, in all 3 years discrepancies in the

various reporting systems that the contractors used. Typically

there are multiple data bases tracking the same number. Since fiscal year 1996 we noted millions of dollars in discrepancies in these

various data bases. Last year HCFA, in trying to streamline this

process and get one set of records, issued instructions to their contractors to better maintain their receivable information and in one

set of books, but unfortunately this year we went out there on a

test basis and still found millions of dollars in discrepancies.

There’s a form called a 751 that tracks the accounts receivable.

When the contract auditor went back to try to find support for that,

on virtually every line from the beginning balance to the current

receivable activity to collections, we found in one case $144 million

was plugged to agree to the ending balance. Another one of the

lines on claims transferred was plugged so it would balance. Right

now the reported information is just unreliable.

Mr. OSE. This gets to my basic question, and that is that the contractors who are providing the service to HCFA and perhaps the

service providers themselves are unclear on the rules that govern

how to classify and assign different services. I’m curious whether

or not there is a clear understanding on behalf of the people actually doing the coding in the field, for instance, or the collections in

the field as to how to deal with these situations.

Mr. VENGRIN. Sir, this is one where I would certainly have to

side with Health Care Financing. Our office has participated in numerous training exercises with HCFA staff where they repeatedly

told the contractors how to record this information. But I must tell

you all, saying that information—as Mike Hash was saying, we

have a claims processing system out there. It was kind of an afterthought to have a financial component to that, so where the contractor pays claims in an expedited, expeditious manner, tracking

some of this accounting information is coming kind of late in the

game. They processed 860 million claims and millions of dollars of

offsets.

I don’t want to leave you with the impression that they’re losing

$20 billion on this receivable. There are billions of dollars, as for

example on the Part B side, if a doctor has been overpaid $100, the

next time that physician submits a claim, that $100 is offset and

grabbed so there’s no outstanding amount. So the problem still is

with the recordkeeping.

Mr. OSE. I would appreciate if I could submit this particular

question in writing and have some suggestions as to how we can

more closely correlate this information. I don’t know if it’s possible

but I also understand the closer we can correlate it time-wise, the

better off and more accurate our numbers are.

Mr. VENGRIN. I believe we can correlate it. We’re working with

HCFA this year to go back in 1998 and do a reconstruction on that

ending balance. The bulk of this overpayment is attributable to

particular transactions: One, cost report settlements, and second,

for periodic payment adjustments where HCFA has given a particular provider too much money in setting up accounts receivable.

51

Well, these particular categories lend themselves to tracking

even on a Lotus spreadsheet. I think we can track this, and I’m

convinced that we can go back out there and find supporting information. So part of this is going to be a reconstruction effort, and

explicitly telling the contractors yet again what type of information

they need to maintain.

Mr. OSE. I think the education process is probably going to have

to be constant, just because those of us on this side of the dias

probably issue too many rules and then we get regulations and

they change constantly. I encourage that almost on a constant

basis.

I have one other question, Mr. Chairman. The HCFA statement shows amounts due of about $7.5 billion, of which about $3.8 billon

is estimated to be uncollectible. For the moment ignoring the $3.8

billion deemed to be uncollectible, what’s the status of the other

$3.7 billion? If it’s not uncollectible, that means it is collectible.

What are we doing to collect it?

Mr. HASH. I believe this is in regard to the errors that have been

identified in the audit process. We’ve actually been making

progress in the collection of that. From the 1996 audit we’ve now

collected, we believe, 100 percent of the identified overpayments.

From the 1997 audit I’m told that we have collected about 53 percent of the identified overpayments. And obviously we just got the

1998 audit, and we’re beginning to institute collection efforts for

that money as well.

Mr. OSE. May I ask the chairman’s indulgence for one final question or observation?

Mr. HORN. Is this followup?

Mr. OSE. It is followup. The reason I ask that question is in my

district we have a system that identified, through its own compliance effort, an overcollection on their part. In other words, they

had been paid too much. They voluntarily reported it back to the

contractor and returned the money. They refused to take it. And

there have been subsequent legal inquiries as to the provider’s veracity.

This is a provider that has identified on its own that they have

collected too much, they have proffered it back. They have been

told no and then they have been in the initial steps of sanctions.

I’ve got to tell you, that’s why I ask these questions.

Mr. Chairman, thank you.

Mr. HORN. You also wanted, a portion of the previous question,

to have the data brought in. And without objection, that would be

put in where you raise the question, and I’d like to ask both the

Inspector General and the Health Care Financing Administration

to give the answers to the question. So if there’s a policy question

versus an audit question, we’d like to have it in the record.

Let me just on nobody’s time get on the record how the providers

are designated by HCFA. A lot of people don’t really know that.

They think you’re one vast bureaucracy and everything is operated

out of Washington and all that. But when the law was written,

there was an aim to not have that and so providers were chosen

to sort of decentralize operations around America, and I know it

poses some problems and the Administrator and I have chatted

about those.

52

So maybe just for the record, since you’re Deputy Administrator,

how do they get picked? What are the concerns that HCFA, Health

Care Financing Administration, has here in Washington, if any,

with regard to providers? I got into it because of the year 2000

problem. So why don’t you just lay it out for the record?

Mr. HASH. I would be happy to, Mr. Chairman. As you know, we

have for the last, I think, 5 or 6 years submitted legislation to the

Congress to consider reforming the methods that we use for contracting with private organizations to process claims and pay bills.

The current arrangements for the contracting with private entities

are to some degree different between whether we’re talking about

the fiscal intermediaries who are responsible for paying claims that

are covered under Medicare and what we call the carriers—— Mr. HORN. Just for the record, put ‘‘Part A’’ in. A lot of people

don’t know it unless they’re aficionados of this.

Mr. HASH. Part A refers to that part of the Medicare program

that covers inpatient hospital services, the services of skilled nursing facilities and home health agencies, for the most part.

Mr. HORN. Which was in the original law.

Mr. HASH. That is correct, from 1965. And those contractors that

we call fiscal intermediaries or FIs, their selection is actually governed by very specific statutory provisions that include the right of

providers within the geographical area that may be served to nominate the actual entities with whom we can then contract. So there

is, how shall I say, not a lot of discretion on the part of the program or the Health Care Financing Administration to actually engage in any sort of competitive competition for fiscal intermediaries

because of the nomination process that is written into the statute.

On the carrier side, which is the organizations that process

claims for services covered under Part B of Medicare, which includes primarily physician services and other outpatient services

covered under the program, we do contract. But there again, we are

restricted by the statute to contracting with organizations that

meet certain criteria, including being in the business of insurance,

demonstrating that kind of experience, and we think there are a

broader array of organizations out there who would be capable of

and interested in contracting with us to process claims and to administer the Medicare program, and we would like to have greater

flexibility and discretion in that area.

Mr. HORN. That is very helpful. Do you want to add anything,

Ms. Brown?

Ms. BROWN. Only that I heartily endorse HCFA’s initiative in

this area. Among those who we have had huge settlements with

are many of the contractors, where they have misused their authorities and overcharged in some way or defrauded in some cases.

Mr. HORN. On that point, when that happens, can you decertify

them?

Ms. BROWN. Yes. They can be excluded, or HCFA can take an

initiative and not contract with them any longer. However, there

is such a limited number of people they can contract with, it puts

HCFA in the dilemma of making sure that the services are still

performed.

So even when it might be appropriate to withdraw, there is a

great dilemma as to how to get the job done. So, contractors who

53

might not otherwise be chosen are still allowed to persist in the

business or get back into the business or assume business in another area, because we just don’t have others who are eligible to

perform that service.

Mr. HORN. Let’s just put in the record for the last 2 years how

many contractor providers have been decertified.

[The information referred to follows:]

54

55

Mr. HASH. I will be happy to do that.

The Inspector General is correct. We are faced often with a very

challenging set of circumstances about transitioning work to another contractor, which can in the best of circumstances still be disruptive from the point of view of both the beneficiaries and the providers who are affected by those transitions. On the other hand,

with help from our law enforcement colleagues in the Federal Government, we have made important strides on cracking down on behavior that is criminal and unacceptable and we have excluded

those contractors.

Mr. HORN. We are now going to start the next round again with

Mr. Turner.

Mr. TURNER. Just to followup, are the States under the same restrictions that HCFA is under with regard to the selection of their

contractors for the Medicaid program?

Mr. HASH. Mr. Turner, I am not familiar with their contracting

laws under the Medicaid program, but I would assume that they

have more flexibility than we do. But my presumption is that each

and every State has contracting laws that are comparable to what

we have in the Federal Government, the so-called FAR regulations

for contracting, and I think States have comparable laws. But I am

not aware that they have in their State statutes very narrow prescriptive language about the selection of contractors to administer

the Medicaid program, and some States administer their Medicaid

programs directly, with State employees.

Mr. TURNER. What was the political motivation for the restrictions that you have been discussing when they were put into the

law initially?

Mr. HASH. I confess that I was not around in 1965, but from

reading about the debates that took place at that time, the philosophy was, as Medicare was being launched, to select a process that

would not create a Federal, as you will, bureaucracy for the purpose of processing claims; but rather to use the claims processing

expertise in the private sector. There was experience in the insurance world of processing claims and paying bills.

In the early years of the program the majority of the contractors

were Blue Cross and Blue Shield plans around the country, and

many continue to serve the program to this day. But essentially the

philosophy at that time, in order to launch the program quickly,

was to use the expertise on this area that existed in the private

insurance company world.

Mr. TURNER. And so the decision, in part, on selection of contractors is left in the hands of the providers because they have the option?

Mr. HASH. In part. On the Part A side, correct.

Mr. TURNER. One of the recommendations in the President’s

budget for fiscal year 2000 is a request for new authority to enhance contractor performance. What is encompassed in that recommendation, and are those the matters that you’ve been discussing?

Mr. HASH. It does refer to the increased flexibility in terms of

contracting with private organizations, enlarging the pool of potential contractors to include organizations that have the capability,

56

the resources, the electronic data processing capabilities to actually

take on these responsibilities.

Mr. TURNER. So the problem that you were discussing, at least

there would be more flexibility if the President’s recommendations

were adopted?

Mr. HASH. That is correct, Mr. Turner.

Mr. TURNER. A moment ago we were talking about the accounts

receivable. Are we approaching a situation with home health care

agencies, many of which are going out of business, where we are

going to have a large number of accounts receivables that are uncollected from home health agencies that have failed?

Mr. HASH. That is a factor in what the audit shows, an increase

in the cumulative net amount of receivables. I think the figure is

now $3.6 billion, rising from last year I think $2.6 billion. And a

good part of that increase in receivables we think is attributable

to an increased auditing function that is associated with launching

the new payment systems for home health agencies, so we had to

establish a base year and more thoroughly audit the cost reports

for agencies of that year.

Second, in that process, now that we have new limits in the

home health payment system, we have identified a number of overpayments. Those add to the accounts receivable.

And then last I would say, in terms of the accounts receivable

number, we are experiencing an increase in the number of bankruptcies in providers in general, and that also contributes to the accounts receivable number.

Mr. TURNER. Many of our home health agencies experienced a

great deal of financial difficulty adjusting to some of the recent

changes in their reimbursement rates. I somehow wonder, and I

don’t know if you would comment or have an opinion on it, but I

wonder if we have not made adjustments so rapidly and harshly for

the home health agencies, our home health agencies, that many of

them are going to be forced to go out of business, which is going

to result in a lot of uncollectible accounts receivable from those

agencies. Have we been too harsh?

Mr. HASH. We have been very concerned about what is happening with the home health agencies in light of the changes in the

payment system that were put into motion by the Balanced Budget

Act. I think it is fair to say that at this point we are still trying

to analyze the data and get better information about the financial

status of organizations. We are trying to determine whether or not

there is developing any sort of access problem. That is to say, are

Medicare beneficiaries having difficulty being referred appropriately to a qualified home health agency?

As of now we don’t have any evidence that is a systematic problem, but there is no question that there are many home health

agencies who have demonstrated that financially they are having

a very difficult time. I think that has to do with the fact that the

new limits in effect require home health agencies to manage their

delivery of services in a more efficient manner, and that is a transition that is difficult to make.

I think many of them are making it. I have seen some reports

that some of the chain organizations in home health have actually

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gling with it. We need to carefully monitor the impact of these payment changes, because in the end we are responsible for assuring

that our beneficiaries do have access to appropriate home care providers, and it is something that we are monitoring very closely.

Mr. TURNER. Thank you.

Thank you, Mr. Chairman.

Mr. HORN. Let me just pursue the home health care bit for a

minute. In 1965, when this was all being patched together, I happened to be a big advocate at the staff level for my mentor on home

health care, and we only knew of Detroit at that time as having

a very good operation.

One thing that has intrigued me in the last few years, is that

home health care providers come to the houses, make a phone call

when they arrive or when they leave so that the record would show

that they made that visit of 1 hour’s length. I gather that is where

some of the abuse was, in terms of what are they putting in for

hours when they might have just given the person 5 minutes or

something.

So, could you explain a little bit how you are working on that,

because as I look on the ‘‘Errors Due to Lack of Medical Necessity

by Provider Types,’’ dollars in billions, we can see that the outpatient situation has really been much greater in terms of the $7

billion there, versus the very small amount under $7.5 billion the

preceding fiscal year, and the fairly small amount of the outpatient

area at the $8.5 billion. So, it would look like, just looking at that

chart, that the home health care agencies have been squeezed a little in terms of the medical necessity, and the outpatient area

seems to be maybe a similar problem to what home health care

was at one time. Is that just chance in the money trail here, or

what is your feeling on that?

Mr. HASH. Well, I think that—I am not certain that the sample

for the audit, although I would defer to my colleagues here, is looking at an individual provider category that we have necessarily a

representative sample, at least on an individual provider basis. But

I think it is fair to say that we have been taking a much more close

look at the compliance of home health agencies with our coverage

requirements.

As you know, Mr. Chairman, home health under Medicare is only

covered if a patient meets all of three conditions. They must be

home-bound, they must require a skilled level of service, and they

must be referred to home health by a physician.

In terms of the actual visit by a skilled professional or by a home

health aide, which is actually the largest number of visits, they are

made by home health aides as opposed to registered nurses, physical or occupational therapists or the skilled health care professionals. In the case of visits, we pay now on the basis of a visit.

And of course the issue for us is if the visit is very long, then in

fact the cost of the visit can rise very dramatically as opposed to

a briefer visit. So since the duration of the visit is largely determined by the health care professional, we are trying to track more

closely the timeframes associated with visits to make sure that the

costs for that period of time are reasonable.

Mr. HORN. Does the Inspector General want to add something to

that?

58

Ms. BROWN. Yes. This particular benefit grew astronomically and

far faster than any projections in a very short period of time. We

found it was one of the most abused areas in health care provisions. I literally can show you pictures of rooms as large as this full

of boxes of documentation that was created in a very specific manner, with people being paid so much a page of documentation, created for patients who were never seen by anybody and yet they

were being charged for regular home health visits, with literally

millions of dollars going out.

There are others where tens of millions of dollars were paid

monthly by HCFA, where the companies went bankrupt immediately and never paid the money back because they were protected

under bankruptcy laws. They were being paid for home health visits, most all of which, virtually all of them, were never even performed. So, along with wanting to provide this service, we must

recognize that this was an extremely vulnerable area.

Mr. HORN. I agree with you completely on that, even though it

should be a worthwhile service.

In the room full of documentation that you are referring to, does

this mean that the—I’m trying to get at the documentation there.

Does this really mean that when these persons that ran that particular home care firm, when they were caught, for want of a better

word, and then took bankruptcy, have we followed them to see if

they have reopened this kind of an operation somewhere else? And

do you really have to accept them if they have taken bankruptcy,

or are we stuck there?

Ms. BROWN. We have a number of convictions that have already

taken place and a number of indictments. There are more pending.

We are going after both the individuals and the organizations. If

there is a conviction, there is a mandatory exclusion where they

cannot come back into the business.

There are some refinements we are concerned about, like whether they have relatives that they put in as a front and so on. We

are trying to propose some things to HCFA, and they have done a

great deal, particularly in excluding some of these people who have

not really got any qualifications for getting into the business in the

first place.

Mr. HORN. Can you exclude them forever?

Mr. HASH. If I may, Mr. Chairman, I want to make two points

about this.

One is, with regard to the enrolling of new providers into the

Medicare program, including home health agencies, we now have

in place a series of requirements that must be satisfied that are

considerably more rigorous than they were in the past.

For example, a home health agency now who wants to come into

the Medicare program must demonstrate a certain minimal level of

capitalization. They must demonstrate a certain patient load indicating, before they start serving our patients, they have actually

demonstrated the capability of providing home health services. And

so we have really been tightening up on the process for getting into

the Medicare program as a home health agency and being able to

bill.

The other point I should have made about the visit issue which

I think is important, when the Congress designed the new payment

59

system, the interim payment system under the Balanced Budget

Act, they inserted into that payment system a new payment limit

that is an aggregate limit for each individual who has served—it

is actually an average limit for the patient served. And what that

means is that now under that limit agencies have an incentive to

be very economical and proficient in the provision of visits, because

otherwise they will run afoul of this per-beneficiary limit that is

imposed by the BBA. So we now have a kind of payment system

that creates incentives to reduce inappropriate visits or visit

lengths.

Mr. HORN. As I look at this chart, ‘‘Errors Due to the Lack of

Medical Necessity,’’ the big money still out there is the ‘‘other’’ category. As we look at that ‘‘other’’ category, are there any particular

types of real abuse within that that maybe ought to be put into another category? Mr. Vengrin, do you have any thoughts on that?

Mr. VENGRIN. Mr. Chairman, it goes to all of the other types of

providers, and we really don’t have statistical information that we

can say one is more aberrant than the other. Right now it is still

the big provider groups, the inpatient services, and I think home

health agencies have in fact made tremendous progress in billing

more correctly. I believe statistically there is about $2 billion less

in expenditures this year. So I think there has been improvement

there, but the biggest story is the inpatient side.

Mr. HORN. It is clear on your chart that the home health agency

category seems to be really dwindling compared to the other 2 fiscal years. What is getting out of control is the outpatient as well

as the inpatient, and that is where it looks like the big billions are

to collect in some way.

Mr. VENGRIN. One of the biggest factors in the outpatient area

was partial hospitalization. There were substantial dollars questioned because of the improper nature of those particular claims.

Mr. HORN. On that, let me bring up what was quite a hullabaloo

around here 2 years ago. Under the Medicare law, one goes into

the hospital and is in a ward and says, ‘‘Wait a minute, I have

some money in my banking account which I have been saving for

my health, I would like to move to a single room.’’ As we all know,

apparently some language was put in at the end of the session. A

lot of that end-of-the-session language does lead to trouble, and

presumably it was going to be repealed and I don’t think it was

ever repealed. What is the philosophy of Medicare on the patient

upgrading their place in the hospital? I think it was in the original

act, wasn’t it?

Mr. HASH. Yes, sir. I am not completely familiar with this, I confess, and I would be happy to supply for the record——

Mr. HORN. Let me give you another example. Let us say a dermatologist is allowed certain reimbursement under Medicare for

certain types of surgery and the patient says, ‘‘Wait a minute, I

have this other thing that is bothering me.’’

And the doctor says, ‘‘I’m sorry, Medicare doesn’t cover that.’’ ‘‘That’s OK, I am willing to pay you.’’ Apparently that is a violation of Medicare regulations?

Mr. HASH. I do know what you are referring to now, Mr. Chairman, and the matter is as follows, as I understand it: If a Medicare

patient, a beneficiary, is asking for a service that is a noncovered

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service under Medicare, that is excluded, an annual physical or

plastic surgery or a hearing aid or eyeglasses or any number of

items that are not covered under Medicare, there is no limitation

on that beneficiary’s ability to purchase that service or those items

with their own funds at whatever cost the transaction results in.

So there is no imposition of a Medicare requirement in that circumstance.

The issue that you are referring to is a service which is an otherwise covered service, but for the case of the individual who is seeking it there is a question about whether it is medically appropriate

or medically necessary for that individual, that in fact in those circumstances Medicare provides special rules which require that a

claim be submitted to make a determination about the medical necessity; and that if in fact a claim is denied because it is not medically necessary, then it becomes a noncovered service and the individual may purchase that service out of their own funds if they so

desire.

Mr. HORN. There is no inhibition against that. Well, let us take

some of the plastic surgery. Obviously there is a national epidemic

on breast cancer and there are also those people marred in the face

and whatnot, and I would think part of the healing there psychologically for that person would be to have plastic surgery. What are

the ground rules on that?

Mr. HASH. There is a new provision in law that deals with the

Health Insurance Portability and Accountability Act [HIPAA],

which I believe requires coverage for reconstructive surgery following a mastectomy. So I believe that now is a covered service.

Mr. HORN. So that is no longer a problem?

Mr. HASH. I want to qualify it only because I would like to check

to make sure that I am absolutely correct.

Mr. HORN. Fine.

Mr. HASH. But I believe it is.

Mr. HORN. Without objection, we will have the answer from the

Health Care Financing Administration.

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Mr. HORN. Mrs. Biggert.

Mrs. BIGGERT. Thank you. Within the audit report there have

been disclosures across all aspects of computer security, and one

particular section of the report is very alarming to me. The report

reads that ‘‘We were able to penetrate the security and obtain access to sensitive Medicare data at 5 out of a sample of 12 contractor locations.’’ Simply stated, auditors acting as computer hackers were able to easily access confidential medical data.

My question to you, Mr. Hash, is why can’t HCFA guarantee the

confidentiality of this medical data, and what steps are being taken

to secure these systems?

Mr. HASH. You are absolutely correct that the protection of this

information is critical, and it is our responsibility because the privacy of the American public is certainly the highest priority, and

we take our responsibilities very seriously in this regard. In addition to what is in the Inspector General’s audit report, our own

Chief Information Officer has been conducting similar tests of vulnerability of contractor data systems, and we as a result of that

have also identified vulnerabilities.

We have taken a series of steps that involve new technology that

is now in place with our contractors, training of contractor personnel and our own personnel as well, to ensure that we have in

place enhanced procedures, passwords, validation systems, and

transmission security through the lines that we lease to transmit

electronic data.

So you are correct, we must be vigilant about this. Our intention

is to continue working in this area of system security, particularly

once we are past the Y2K window of the remaining part of this

year, because we definitely feel like security must be at the highest, and our intention is to work with the IG as well as our own

staff to make sure that any vulnerabilities are corrected.

Mrs. BIGGERT. But it sounds like you are saying once we have

finished with the Y2K dilemma—— Mr. HASH. No, I think we have taken a series of specific steps

in terms of new technology, training programs that we have undertaken that have greatly strengthened the security of our data systems, but we need to do more. We are on hold in terms of doing

more until we pass the Y2K window.

Mrs. BIGGERT. Can you be a little more specific what these steps

are?

Mr. HASH. I would be happy to supply for the record, if that is

an acceptable statement, all of the steps that we are taking.

[The information referred to follows:]

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Mrs. BIGGERT. We appreciate that.

What other risks do the identified computer security weaknesses

present?

Mr. VENGRIN. We also found problems with the shared system

where they were able to maintain and have full access to the code.

In many cases we found that they had the opportunity to shut off

edits such as a duplicate payment. During one of the conference

calls that I personally participated in, the person in the computer

environment said yes, they had full capabilities to turn those edits

off. So we advised Health Care Financing Administration that type

of control should not be at the contractor level, and I believe they

are in the process of trying to get that back.

Mrs. BIGGERT. So a contractor really could just change the

amount?

Mr. VENGRIN. They could do that anyhow, but they should not

be able to change mandated edits that the Health Care Financing

Administration imposes on them. Right now they can.

Mrs. BIGGERT. What would those be?

Mr. VENGRIN. Duplicate payments. There is no reason that they

should have the capability of turning that edit off.

Mrs. BIGGERT. Any other risks?

Mr. VENGRIN. We found a vulnerability, if a provider submitted

a duplicate payment on the same day, they did not update their

history file to capture that. Hence, we found a couple of duplicate

payments that did occur on the same day, and I believe they moved

aggressively to fix that particular vulnerability.

Mrs. BIGGERT. Why wouldn’t the computer be able to catch that?

Mr. VENGRIN. Because it didn’t update the history file for the activity of that particular day. It was a vulnerability in the process.

Mrs. BIGGERT. Is that an environment where an individual so inclined could make improper payments and cause unlimited damage

if they have access?

Mr. VENGRIN. Yes, ma’am.

Mrs. BIGGERT. Do you have any suggestions or have you given

suggestions to HCFA on how to correct this?

Mr. VENGRIN. We did. One of the recommendations that we made

is that the contractor should not have total access to the code. They

are agreeing in part with that, but again it has Y2K implications.

As they do code renovations, they tell us if they don’t have access

to the code and there are problems in the renovations, they couldn’t

fix the claims processing and process claims. They are fixing

things, but there are still problems is what they are saying.

Mrs. BIGGERT. It seems like this is such an issue, and I think

probably on all of the committees that I serve on in this House that

privacy and confidentiality is such an issue, and particularly even

in subcommittees that I wouldn’t expect, the medical records confidentiality comes up, in the Banking Committee and everything.

It is such an issue and it is so important and it is something that

has to be guaranteed to everybody. I hope that you will find a solution quickly.

Thank you, Mr. Chairman.

Mr. HORN. The gentleman from California, Mr. Ose.

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Mr. OSE. Thank you, Mr. Chairman. I am aware that the gentlewoman from Illinois has additional questions, and while I have

some, I would be willing to yield my time if she wishes to use it.

Mr. HORN. Do you want to finish up on a round of questions?

Mr. OSE. We are going to have another round, Mr. Chairman.

Mr. HORN. Go ahead.

Mr. OSE. When we do these audits, the providers have in some

cases compliance systems and in some cases not. How many or how

often did you find that the providers had compliance systems voluntarily imposed on their HCFA relationships?

Ms. BROWN. I don’t have a percentage of the providers who have

compliance systems. We have developed voluntary generic compliance plans for certain segments of the industry and we are doing

others. For instance, we have done laboratories, we have done hospitals and so on. These are very comprehensive internal control

plans, you might say.

The reason that we are making them voluntary is they have to

accommodate the smallest institution and the largest. What I say

in many speeches around the country is that we want them to have

the flexibility to look at these internal controls that we suggest and

pick and choose those that would apply to their institution. The

carrot that we give them for putting in compliance plans is saying

that should there be a problem in their organization, that both the

Justice Department and my office make determinations on whether

or not they should be allowed to continue in business because we

have exclusion authority. The Department of Justice also has the

decision whether or not to go forward with a criminal or a civil

charge against them. In looking at the overall intent, their efforts

to have compliance with the laws and regulations would be very influential in that. So, it could serve them well to have these compliance plans. We know that they are adopting them.

Mr. OSE. Have you found a correlation between the existence of

a voluntary compliance plan and the accuracy on our audits?

Ms. BROWN. We don’t actually audit the provider themselves, in

other words, at least not in the financial system audit. We do other

audits based on evidence of wrongdoing or high error rates or

something like that.

Mr. OSE. When you do those audits, are they likely to have a

compliance system or unlikely to have a compliance system?

Ms. BROWN. It is a growing thing. There were not many compliance systems 3 years ago or 6 years ago when I came to this job.

But now a high percentage of them are, and I think the American

Hospital Association just did a study that showed a very high percentage of hospitals either had them or planned to have them in

the next year, and I will get you the percentage.

Mr. OSE. Do you have a copy of that study?

Ms. BROWN. Yes.

Mr. OSE. Mr. Chairman, I would be interested in reviewing that,

and if we can add that to the record, I would appreciate that.

Mr. HORN. Without objection, it will be inserted into the record

at this point.

[The information referred to follows:]

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Mr. OSE. The other question is with respect to the compliance

systems that are in existence right now, how do they break out in

terms of frequency of implementation relative to private, public,

nonprofit, for-profit, nongovernmental, and governmental? It would

seem to me very important, because if you find private providers

without compliance systems with a high degree of errors, that is an

‘‘Over here, look here,’’ kind of thing. So I want to make sure that

we are ultimately using our resources in this manner effectively,

rather than focusing them on areas where we already have a high

degree of compliance and a relatively low level of errors.

Ms. BROWN. I would like to make a couple of points about them

that I think you would find interesting. First of all, we started to

develop these plans because there were many consultants in the

business who were charging over $100,000 to help an institution

put in a compliance plan, and it wasn’t an effective one or one that

we felt would do them any good or that we would consider as a

good preventive measure. So we started to develop this as part of

our prevention efforts, and the industry has adopted these. We are

not far along enough that I can give you percentages of all of the

nonprofit/profit and so on organizations who have adopted them,

but there is a great deal of interest.

The other point that I want to make is when we have convicted

somebody or an institution, we impose a nonvoluntary integrity

plan. We have, as part of the settlement of that case, an integrity

plan that is imposed on them and it is usually 5 years. They have

to report back to us on the status of their business, the results of— how many complaints they have received, what they have done

about them, and a variety of other things, and we monitor those

plans. We are monitoring several hundred of them right now. We

will continue to impose those integrity plans where we have found

significant errors to have taken place.

Mr. OSE. My time has expired, Mr. Chairman.

Mr. HORN. Do you want to pursue that?

Mr. OSE. For the record, I will submit this in writing. How do

you determine whether a voluntary compliance plan is satisfactory?

You can respond subsequently.

Mr. HORN. Without objection, there will be space left here for

your response and the Health Care Financing Administration’s response.

[The information referred to follows:]

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Mr. HORN. I now yield 6 minutes to Mr. Turner of Texas.

Mr. TURNER. Mr. Hash, several months ago the President directed that all managed care providers under Medicare subscribe

to certain patient protections. As you know, we are debating in the

Congress patient protection legislation that would affect the private

sector managed care companies. Has the President’s order been implemented successfully by HCFA?

Mr. HASH. Yes, it has, Mr. Turner. We have put into place what

we think are the toughest beneficiary or patient protection requirements in our standards for managed care plans of any managed

care plan around the country. So the President issued an Executive

order requiring that health care providers who do business with

Federal programs, including our program, meet these patients’ bill

of rights protections as set forth from the President’s commission

on quality and patient protections.

Mr. TURNER. How long have those protections been in place?

Mr. HASH. We published a regulation in June of last year which

implemented Medicare patient protections as a part of implementing something called the Medicare Plus Choice program,

which is the Balanced Budget Act part dealing with managed care

improvements, and the Medicaid improvements to patient protections are a part of a rule that we now have under consideration for

Medicaid managed care. The proposed rule was issued at the end

of September, and we expect later this spring to be publishing a

final rule for the Medicaid managed care programs.

Mr. TURNER. So Medicare patient protections have been in effect

since last June?

Mr. HASH. Yes, that is correct, Mr. Turner.

Mr. TURNER. One of the issues that comes up in patient protections is whether or not they are going to result in additional costs

for health care. In the instance of patient protections in the area

of Medicare, I think it would be interesting if you could comment

on whether or not there has been a cost impact on the Federal Government as a result of implementation of the patient protections for

Medicare?

Mr. HASH. We don’t think so, Mr. Turner. Our experience and

also in working with the associations which represent managed

care plans, that many of them—many of the best plans—already

had these protections in place for the most part. We believe that

they have been endorsed by the associations representing managed

care plans. So we think that there is a great deal of agreement on

these protections that are now in place for Medicare Plus Choice.

Mr. TURNER. How are you able to determine whether or not a

managed care company is making a reasonable profit with regard

to the reimbursement rates that you provide?

Mr. HASH. Each year for a managed care company that wishes

to contract with Medicare, we require them to file with us a statement in which they detail some of their financial information, including an estimate on their part of what it costs them to provide

the Medicare benefit package to their Medicare enrollees. And that

calculation is important because we compare what it costs them to

what we pay them, and in those cases where their costs are lower

than the Medicare payment rate, we require them to make up that

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difference through either reducing cost-sharing for their enrollees

or by increasing benefits.

So we actually have some window at least on the portion of their

business that relates to the Medicare program. Overall, of course,

almost all managed care plans have other lines of business besides

Medicare, and we do not have access to their financial information

across the board.

Mr. TURNER. Would it be important or appropriate that you have

access to that information? Is there some overlap between their

other activities that would be important to know about in assessing

whether or not the Federal Government and the taxpayers are getting a fair deal from the managed care companies?

Mr. HASH. I think what we have concentrated on is this filing of

their estimate of their costs to provide the benefits that are required under Medicare, that is the critical piece to ensure that

what we pay is in relation to what their costs are, and if they are

not, that the beneficiaries get the benefit of the difference between

their costs and what we pay. We have recently completely revamped the system, the reporting system for those estimates from

plans, and we think now it is a much stronger and more representative set of data about the costs of health plans to provide the

Medicare benefit package.

Mr. TURNER. But what you base this on is the managed care

companies’ estimate of their costs?

Mr. HASH. That is true, but through our reporting system we are

able to audit that more carefully because we have put into place

more systematic requirements about how they go about doing that

estimation. It is subject to requirements and standards that we put

forth in a protocol that they must use to report to us their costs.

Mr. TURNER. Ms. Brown, do you have authority to audit the activities of these managed care companies?

Ms. BROWN. We can. We don’t as a rule go into the private aspects of their business. However, there may be some occasions

where we would be looking at the cost distribution, for instance, of

their overhead, because they may be shifting costs so that it appears that it is all Medicare costs. Sometimes they are actually taking some of their private costs and putting it on the Medicare side.

Mr. HASH. Mr. Turner, in fact the General Accounting Office released a study within the last couple of years indicating that in

their reporting to us of their costs, that there were some inappropriate allocations, particularly in the area of administrative overhead, where in fact the costs of the plans’s overhead was being inappropriately allocated to the Medicare side, therefore affecting—

raising inappropriately their costs.

And so this new reporting protocol that I referred to no longer

allows plans to allocate their overhead in the same manner that

some of them were doing in the past, and we believe now we have

a much tighter system with respect to what it is they are reporting

to us and whether or not it represents a fair allocation to the Medicare side from the business they are otherwise doing.

Mr. TURNER. How often are the rates readjusted for the managed

care companies?

Mr. HASH. Once a year.

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Mr. TURNER. Once a year, and does it occur at the same time for

all of the companies?

Mr. HASH. January 1, the calendar year.

Mr. TURNER. Thank you, Mr. Chairman.

Mr. HORN. Let me pursue a couple of inserts that relate to policy

matters, and we would appreciate the aspects of the Inspector General also on this.

I sent a letter to the Administrator with reference to a series of

administrative law decisions on behalf of a particular surgeon that

has had a brilliant record, and some of his things go against the

pattern of other surgeons. The letter from the Administrator is

dated February 8, 1999.

Thank you for your letter on behalf of your constituent, Robert A. Nagourney,

M.D., regarding the distinction between the types of clinical resistance and sensitivity assay tests to determine the effective treatments for cancer patients. I regret

the delay in response.

In the absence of a national coverage determination, coverage and reimbursement

of all assay tests are left to the discretion of the local Medicare carriers. Dr.

Nagourney is correct. The two recent cases by administrative law judges did permit

the coverage of two cancer tests, extreme drug resistance assays and cell culture

drug resistance assays, for individual patients. However, at this time the decisions

of the administrative law judges are limited only to those individual cases and does

not establish precedential coverage policy for the Health Care Financing Administration or our Medicare carriers.

I guess I would ask the question, if an administrative law judge

rules a certain way and you have another case that rules another

way, what does it take to get a policy changed?

Mr. HASH. Mr. Chairman, I think that is a very important set

of questions because, as you may know, we were in the process of

completely redesigning our coverage process at the national level.

And what that means is we are putting into place a process that

is much more open and transparent, that involves a federally qualified advisory committee to assist in making decisions about advancements in medical care that ought to be covered under the program.

You are correct in saying that when information—or at least I

think you are implying, and I think it is a correct inference—that

if we get information about a new test or a new procedure that

holds some promise, and then we see that there are conflicts in the

handling of that at the local contractor level, that it does behoove

us to put that up into our system of review to first bring some consistency where we can to these kinds of issues.

I will say to you that one of the reasons that local medical review

policies are in place is that over the years we have found that an

effective way of dealing with new technology, because we need to

have information about what kinds of patients benefit from a particular new procedure or new service, we need to know something

about the costs in different settings, all of this information is initially gathered through local medical review policies which then

feed into a decisionmaking policy for national coverage. But without that sort of opportunity to get experience with advancements

in health care, it would be difficult to make appropriate national

decisions.

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But in this particular case, where there has been conflict, it

should be something that we are reviewing through our coverage

process, and I would be happy to get back to you with what might

be the status of our look at that question.

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Mr. HORN. I would appreciate that. The Administrator goes on

to say,

We agree with Dr. Nagourney, there is a distinction between the types of in vitro

chemosensitivity technologies. As Dr. Nagourney’s letter indicates, these technologies are new, and despite the recent rulings by the administrative law judges,

Medicare still considers these tests as investigative. I believe the type of research

being performed by Dr. Nagourney is very important. Please be assured that when

Dr. Nagourney’s work reaches a stage where a national and/or local coverage decision is considered, we will carefully examine the scientific and methodological differences in the application of these cancer tests in the consideration of coverage and

reimbursement policies, including the development of CPT codes.

Do you want to translate CPT codes for me?

Mr. HASH. Current procedural terminology. It is actually a manual of about 7,000 codes that describe various services and visits

that physicians and others provide. It is compiled on an annual

basis by the American Medical Association, and the Medicare program actually uses that coding system in its claims processing in

order to communicate the type of services that have been provided.

What that letter actually did, as you read on, Mr. Chairman, is

answer the status of this question in a way that I think—I would

be getting back to you on. What happens here is we go through an

evidence-based analysis of these kinds of new things. And when we

cover something, it needs to have moved from the investigational

phase to a point at which, in refereed journals and among practitioners of whom we consult, that it has been vetted and subjected

to full scientific validation before we want to make a national coverage decision.

But I think what often is the difficulty here is the speed, or in

some cases the lack that may surround new developments, and

people who think that they have an advancement that is benefiting

people are understandably interested in making sure that all people who suffer from a condition that could be helped by it will be

able to access this new advancement. And that is why we are committed to a much more time-sensitive, transparent, and evidencebased coverage process.

Mr. HORN. Well, let me finish with the last few words of the Administrator: ‘‘In that regard, our coverage and analysis group in

the Health Care Financing Administration’s Office of Clinical

Standards and Quality would be most interested in Dr.

Nagourney’s research. Dr. Nagourney can send his materials directly to the attention of Dr. Grant Bagley,’’ and the address, Baltimore, MD.

The reason that I am so wound up on this is I have known so

many lives that he has saved. Chemotherapy often is just the

wrong thing, and he has been able to match what actual therapy

is needed in relation to that particular cancer. You see that proof

and they are walking today, when others were dying, I want a little

progress being made here. So that would help.

In another letter that I sent to the Administrator on September

25, 1998, I said: ‘‘This letter is in reference to the Health Care Financing Administration’s policies on outpatient psychiatric services. Specifically, we are concerned with the lack of a national medical review policy for outpatient psychiatric services.’’

I noted that I am interested in reviewing Medicare’s current national medical review policy for all medical treatments. I am also

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interested in the number of claims which are processed by each

carrier and with contracts with the Health Care Financing Administration. I would like to know the number of these claims that are

accepted, the number rejected for each type of medical procedure.

I would also like to know at what level in the process, initial review, hearing, an administrative law judge hearing, each type of

treatment that was accepted for payment. Further, I am interested

in knowing which carriers are using the national model policy developed by the career medical directors for outpatient psychiatric

services and which are not.

In the reply of the Administrator on February 26, 1999, this was

turned over to Dr. Robert A. Berenson, director of health plans and

providers, and the usual answer here: ‘‘The Administrator asked

me to thank you for the Medicare policy for outpatient psychiatric

services. I regret the delay’’ and so forth. ‘‘Staff members in our regional offices are often in the best position to be of assistance to

the people in their area.’’

Well, we have written now with detailed requests for information

to your San Francisco office, Health Care Financing Administration, Health Plans and Providers Branch, and I would like at this

point in the record, without objection, to lay the correspondence

down plus some of the future answers so we can get this one restored.

Just on the general point of Medicare policy for outpatient psychiatric services, what can you tell me, Mr. Hash, in relation to

that, where are we?

Mr. HASH. The area that we have been concentrating on, and it

actually came up in the audits by the Inspector General. It has to

do with the coverage of the partial hospitalization benefit under

Medicare which, as you may know, is being provided both by hospital outpatient mental health clinics as well as freestanding community mental health centers. The IG identified, as well as our

own regional office staff, a significant number of providers who

were enrolled as qualified to provide the partial hospitalization

benefit, who upon site visit and further inspection did not meet our

requirements, and furthermore that the kinds of claims they were

submitting were not being properly documented and they were

being submitted for services that were not covered, and so forth. In

fact there is quite an extensive report about this.

What we have been doing is to first visit a large—not all, but a

very large number of the outpatient mental health centers to ascertain whether or not they are in compliance. For those that are not

in compliance, we have sent letters indicating they need to supply

us additional information about that. With respect to medical review, we have enhanced the medical review of claims that are coming into our contractors for partial hospitalization programs.

Last, we have recommended to the Congress in the President’s

legislation for the year 2000 that there be a change in the law that

makes it clear that partial hospitalization services cannot be provided in a patient’s home or in a place that is not an appropriate

clinical setting for such services, because we have found widespread abuse in this area, and that is where we have been concentrating our efforts on outpatient psychiatric services.

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Mr. HORN. Is there a limit to the number of sessions that they

can have with outpatient services?

Mr. HASH. There isn’t.

Ms. BROWN. No, sir, but the requirement is that these services

are something provided to somebody who would otherwise have to

be a full-time patient in a psychiatric hospital.

I am sorry to say that this was the most appalling abuse area

that I have seen in the 20 years that I have been serving as Inspector General in various agencies. Over 90 percent of the payments

should not have been made that were being made in this program.

Fortunately, it wasn’t that large a program.

HCFA has taken aggressive action to make sure that the places

providing the service are qualified and that the people are qualified

and that there is something other than just baby-sitting type services that are being provided. Many of them were providing just

simple crafts and things like that rather than true psychiatric services. This was one of those things caught at an early stage, and I

think corrective actions are being taken.

Mr. HORN. Was there an actual certified psychiatrist behind this,

and they simply were training people to do a few things that we

would call what graduate students do when they try to help people?

Ms. BROWN. It was a range of services. Some of the services

might have been helpful but they didn’t qualify for this particular

benefit. There may be other types of things that would cover services in the line of giving people care, but—— Mr. HORN. You gave me one example of somebody going astray.

Can you give me a few more for the record on the outpatient psychiatric situation? What is another typical thing that happened

that you had to do something about?

Ms. BROWN. The people may not have been qualified to receive

the benefit. They may not have had a condition where they otherwise would have had to be an inpatient. They might have had some

need for psychiatric sessions of some kind, but they would have to

be covered under some different benefit, not the partial hospitalization. And of course there were many places who really weren’t

qualified to provide the service under the provisions of the legislation.

Some of them voluntarily withdrew, once challenged as to whether or not they met the qualifications. So it was one of those things

where payments started to be made immediately, and people were

sort of jumping in to collect without a careful screening of both the

beneficiary’s eligibility and the provider of services’ eligibility.

Mr. VENGRIN. Some of the patients had no history of psychiatric

illness whatsoever, and these services were of a recreational nature—dancing, social events, arts and crafts, as the Inspector General mentioned.

Mr. HASH. And in fact from a coverage point of view, Medicare

does not cover adult day care. What some of these providers were

running were adult day care centers.

Mr. HORN. Interesting. I yield to the gentlewoman from Illinois,

Vice Chairman Biggert.

Mrs. BIGGERT. Thank you. In regards to Mr. Turner’s comments,

I think it is important to note that in counties surrounding my disVerDate 11-MAY-2000 13:49 Mar 27, 2001 Jkt 066784 PO 00000 Frm 00089 Fmt 6633 Sfmt 6602 E:\HEARINGS\62373 pfrm04 PsN: 62373
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trict many managed care plans have elected not to participate in

the Medicare Plus Choice program because their costs are not covered. I met with one recently who stated that although they are

willing to break even under Medicare, they simply will not go into

the red for Medicare. So as I think we discussed the relationship

of managed care to Medicare, it is important to note that many

Medicare beneficiaries are counting on HCFA and Congress to ensure that Medicare Plus Choice remains a beneficiary choice.

Second, as far as home health care, in one of my former lives I

was on the board of directors of a home health care agency and I

served as chairman of that group celebrating its 100 year anniversary, and so this was in existence long before all of us were here.

And we went out of business because although we had a huge endowment, we were serving preservice, those patients who had no

access to Medicaid, no access to Medicare, and also those that were

the Medicare/Medicaid patients. We ended up subsidizing Medicare

and Medicaid to the tune of $2 million a year, and we could have

continued this for a number of years and then that huge endowment would have been gone.

We chose to become a foundation, to be able to help in the health

care field rather than to continue that, because our nurses would

not work when they were seeing acute care patients who were

exiting the hospital earlier and earlier, and they were only able to

provide that skilled nursing care for a very short period of time

within the scope of the rules and regulations, and so it did end up

as a subsidy.

And I just want to note that for the record that there are a lot

of agencies that really are very committed, not-for-profit agencies

and those for-profit which are very committed to providing that

health care. I know that we are addressing the fraud and abuse

today, but I think it is important to note that there are agencies

that work very hard for us and are great providers.

Ms. BROWN. If I could just mention that one of the things that

got us involved in this were complaints from long-term organizations who had been providing true health care services that were

needed in the home, and they were saying they couldn’t compete

with these others who were providing cleaning services and other

things to patients, who in many cases weren’t qualified and were

collecting the funding that was available. And those who were truly

trying to provide services to patients were driven out of the business by the constraints necessitated by these other illegitimate

services.

Mrs. BIGGERT. I have one other question. Ms. Brown, you stated

in your testimony that the substantial year 2000 initiatives could

negatively affect future error rates, and if the collection and processing of the electronic data poses challenges and risks, particularly in the year 2000, how does HCFA propose to collect the volumes of data that will be required in order to implement the risk

adjuster it proposes? I guess that would be to Mr. Hash.

Mr. HASH. I think that is to me. We actually began collecting the

data on hospital admissions with respect to managed care enrollees. It began on January 1, 1998. We have something in the neighborhood, I believe, of about a million discharges that have been reported to our data system. That formed the basis of the proposed

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risk adjustment which we released at the beginning of March to

the health plans who were contracting with us. We are in the process of putting together a plan to begin collecting outpatient data,

physician services, and clinical encounter data to support a more

comprehensive risk adjuster which is scheduled to come on-line in

the year 2004.

Mrs. BIGGERT. I’ve heard that the systems have had difficulty

processing the data where beneficiaries move from one county to

another or one plan to another. How are you going to verify the accuracy?

Mr. HASH. We have been working with individual plans. We have

about 300 health plans that contract with Medicare currently, and

since we began collecting the data, we have been trying to work

through any issues or questions about the validity or representativeness of the data, having the data coming from our contractors

compared to what the health plans believe they sent in, and either

finding where the discrepancies are, if there were, and correcting

them and getting to a point where both us and the health plan are

satisfied that the hospital admission data that they have submitted

to us is in fact accurate, because we don’t want to proceed on the

basis of a risk adjustment that’s based on faulty data.

Mrs. BIGGERT. And then you’ll have a means to verify? What

would be your accuracy level, do you think?

Mr. HASH. We’ve presented to each plan the information on the

admissions that we have that have been reported to us, for them

to in turn verify with their own internal records just to make sure

that the data we have is consistent with what they think their

records reflect in terms of hospital activity for their enrollees.

Mrs. BIGGERT. I’ve seen no detailed accounting of how money

was spent, quite a good number of dollars to the beneficiary education program, and how effective your efforts have been in providing Medicare beneficiaries with the information they need to

make the right decision for plans.

Mr. HASH. We have a full accounting which we’d be happy to

share with you. We are very proud of the efforts we have undertaken. As Secretary Shalala is fond of saying, the Medicare education program is the largest peacetime program ever undertaken

in this country.

We have set up a multifaceted approach which involves the submission of a handbook to each beneficiary, the creation of a 1–800

toll-free number, 1–800–Medicare, that actually connects individual

beneficiaries with customer service representatives who are trained

to answer commonly asked questions.

We also have an Internet site, Medicare.gov, which provides comparative information about the health plans in their areas as well

as information about health plan performance, so-called HEDIS

data, which is health employment survey data about the performance of plans and satisfaction data about the enrollees. All of this

is being made available to beneficiaries.

And last, we’ve been working with a partnership group of private

organizations who interface with our beneficiaries, such as State

health insurance counselors and other organizations, unions, employers, to make sure that they can also provide counseling and

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prehensive undertaking. It is, as you alluded to, financed by an assessment that is made on the plans that participate in the Medicare program, which was how the Balanced Budget Act established

the funding mechanism for these efforts.

Mrs. BIGGERT. I would appreciate the accounting.

Mr. HASH. I would be happy to supply that.

Mrs. BIGGERT. You have done an internal audit of that program?

Mr. HASH. We have. In fact, last year—you may have read about

this—we decided not to provide the full array of our information

services nationwide but to target five States. We did target five

States, and in that process we went in advance of our efforts and

did a baseline assessment of information needs, and then since the

fall campaigns of November we have gone back and collected, after

the fact, information so we could evaluate whether the materials

were useful to people, whether they actually were intelligible to

them, whether the toll-free number worked, and what sort of suggestions and recommendations that people had to strengthen the

information program.

Mrs. BIGGERT. Did you share the results of that audit?

Mr. HASH. We’re not completely through with the evaluation but

as soon as we have it done, we would be happy to share it with

you.

Mrs. BIGGERT. Thank you very much.

Thank you, Mr. Chairman.

Mr. HORN. Thank you.

The gentleman from California, Mr. Ose.

Mr. OSE. Thank you, Mr. Chairman.

Following up on the gentlelady’s question, the five States that

were targeted, Mr. Hash, which were they?

Mr. HASH. Which were they? They were Washington, Oregon,

Florida, Ohio, and Arizona.

Mr. OSE. Let me jump ship for a little bit, back to my question

on compliance itself. Asking a large multifacility system to engage

in a compliance system is far different from asking a single facility

rural clinic to engage in a compliance program. I’m curious if you

have, on either side, any information about the impact on those two

relative classes.

My district is largely rural, and we have a significant declination

in the availability of Medicare in the rural areas, and I’m trying

to figure out what it is that is causing that. Is it the reimbursement rates? Is it the cost of compliance? What is it? I’m wondering

if you have any information about that, as to the impact of the

compliance issue on a relative scale between large multifacility systems in urban areas and single site facilities in rural areas?

Ms. BROWN. I can tell you that we have a concern about this and,

as I mentioned, we started putting out these generic compliance

plans because we found that contractors were charging a huge

amount of money and in some cases not adapting compliance plans

to the needs of the organization. We have encouraged every organization to look at these generic compliance plans and look at everything, including is it cost-effective to implement a certain suggestion since it’s made for the entire range of that type of provider.

I always told them that they should then document why they made

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their choices, including whether or not something would be cost-effective within the size organization we’re talking about.

So, to have a tracking system of some kind, you know, a compliance manual might be much more effective for a small organization

than a large one having a compliance officer; whether that individual is full-time or part-time; whether there’s a whole team of

people; or whether to have a hotline for reporting misdeeds should

they occur. You know how elaborate that system would be. We

have tried to consider the fact that there are a great many small

providers where an elaborate system would be impractical and financially burdensome. They could adapt these compliance plans, a

system of internal controls and procedures for making sure that top

management gets the information and is aware of what’s happening in their organization, that there’s a reporting flow of information and so on, and that through plan ignorance they were not

denied information about misdeeds that are going on within the entity itself. So, we have tried to consider that. I don’t have statistics

as to what the cost is per organization or anything like that.

Mr. OSE. Does HCFA have any information as to the declination

and available care in rural areas as a result of the cost of compliance?

Mr. HASH. I don’t have any information to quantify that, but

what I would say is what we’ve been trying to do is invest in provider education initiatives, because we recognize that we have a responsibility to make sure that our rules and regulations are fully

understood, that people have an opportunity to get clear answers

to their questions. We have been working with educational programs through our contractors to in fact install around the country

an effort to educate billing clerks of hospitals or of small physician

practices so that they can get assistance in understanding how to

complete an appropriate claim for the Medicare program.

We have targeted an educational effort at the beginning of physician’s careers, that is to say, with over 6,000 residents who have

participated in a training module for how to appropriately comply

with and bill the Medicare program. And we have supported another Internet learning site that a very large number of physicians

can sign onto, go through a training course, and not only physicians but their billing and business managers and other folk, in

order to keep up with the changes in requirements and so forth,

because again we recognize that we have an enormous responsibility to make sure people understand what our expectations are and

what our requirements are.

Mr. OSE. I appreciate what you’re telling me. The issue that

comes up is, if there is no doctor there, it doesn’t matter what the

compliance requirement is. That just creates enormous problems in

my district, because doctors are naturally aggregating or congregating in the urban areas and it’s an enormous problem in my district.

Mr. HASH. One thing that has happened, I think, and it was a

result again of the BBA, was the Medicare care program has been

able to expand the types of practitioners who are eligible to actually participate and take care of patients and bill the program,

most notably, advanced practice nurses, nurse practitioners, certified nurse anesthetists. These practitioners are not necessarily a

substitute certainly for someone who needs a physician service, but

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there is a great deal of work I think that can be done in reaching

people who need primary care services through advanced prepared

health professionals.

Mr. OSE. We have some facilities like that and I appreciate that

flexibility. I do want to ask something, and I would appreciate visiting with you privately about, that is the definition of fair or adequate reimbursement for services within the system.

Again, going back to my district, if there’s no medical service

available, what is a fair reimbursement level? There’s no doctor

there. What’s a fair reimbursement level? I don’t know how to reconcile that. Rather than spending the time of the committee on

that in discussion, I would rather visit with you privately, but it’s

an enormous problem. It doesn’t matter what the reimbursement

is if there’s no doctor there.

Mr. HASH. I’d be happy to do that. There are some strategies

that some communities have tried to put into place that would attract appropriate cadres of health professionals, but we should talk

about this, because access for our beneficiaries who live not only

in your district but in other medically underserved areas is something that we should be trying various strategies to get health care

professionals an appropriate incentive to serve those individuals.

Mr. OSE. I saw nothing in the material. Maybe I missed it about

initiatives addressing that particular issue, whether they’re on an

audit trail or audit basis for analysis purposes or initiatives that

would follow on.

Thank you, Mr. Chairman.

Mr. HORN. Well, I thank you. You’ve raised a significant issue.

Mr. Turner and I have talked about it in his area and now you’ve

mentioned it in your area, so I think what we’ll do is hold a hearing in both districts. I know we’re going to hold one in Sacramento

on the Y2K bit, otherwise known as the year 2000 computer glitch,

and we might well work in this if you’d like to do that.

Mr. OSE. Is this a double play?

Mr. HORN. This is a double play, yes. This gets the staff in one

place at one time and we can do two or three things. So we welcome your thoughts on it.

Let me just ask a few closing questions, unless the gentlewoman

from Illinois has some.

Mrs. BIGGERT. No.

Mr. HORN. Just for the record, we’ve talked about various reforms that the Health Care Financing Administration would like to

have. Are those before the Committee on Ways and Means in the

case of Medicare and before the Committee on Commerce in the

case of Medicaid? Is that where they are?

Mr. HASH. You’re referring to the contracting flexibility?

Mr. HORN. Yes, and different things which you’ve mentioned as

reforms that you’d like to have.

Mr. HASH. Right. They would—the President’s recommendations

for the year 2000 legislation, I’m not sure whether the actual legislation has been transmitted to the Congress. It certainly is included in the budget in descriptive terms, but I’d be happy to let

you know exactly whether it has been transmitted formally to the

Congress.

[The information referred to follows:]

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The statutory language for this year’s fraud and abuse proposals has not yet been

submitted to Congress. The Administration’s contracting reform proposal will be

submitted to Congress this year.

Mr. HORN. We did get into reorganization, but basically those are

the authorizing committees.

Mr. HASH. That is correct.

Mr. HORN. They need to concur with the policy.

Mr. HASH. That’s my understanding.

Mr. HORN. OK. I guess I would ask this question of the Inspector

General, and it’s probably outside of your jurisdiction, but do you

ever have a chance to look at the revenue that flows into Medicare

based on the withholding tax? Have we ever looked at how that’s

handled by the Internal Revenue Service?

Ms. BROWN. That was one of the areas, because we didn’t have

the jurisdiction to look at Social Security, we could not audit that

as part of our financial statement review, and this year we have

worked out arrangements.

Joe, did you want to go into that?

Mr. VENGRIN. Yes. Mr. Chairman, we are contracting on a task

with the General Accounting Office, which contracts for the Social

Security audit, to get that coverage, but that’s on the Part B premium side. We could not go over to Treasury to audit the trust

fund accounting, so in effect we are precluded from auditing that,

Treasury as well as Social Security. I’d love to. My plate is kind

of full, though, with Medicare.

Mr. HORN. Let me find out what’s precluding you. Is it a law

that’s precluding you?

Mr. VENGRIN. We really could not go into another Federal agency.

Mr. HORN. Even though your revenue is based on how it’s handled by that agency?

Ms. BROWN. That’s true.

Mr. HORN. Well, we’ll get at it some way. I have a memo I’m

going to insert in the record, without objection, on how that revenue comes in for 14, 15 trust funds that are involved, one of which

is related to Medicare, the area of which is related to Social Security, but there’s a lot of others, the Aviation Trust Fund, the Interstate Highway, so forth.

And it’s my understanding, having reviewed the financial status

statement of the Internal Revenue Service, what you have here is

an Office of Estimates that sort of estimates what the revenue is.

I don’t understand why we can’t just, when the check is made out

by the employer, employee—and Social Security, Medicare, where

Medicare was modeled on Social Security, it works generally the

same way—and I just can’t understand why if the check is made

out for that match in the fund of employee and employer, I can’t

understand why that isn’t immediately segregated into that trust

fund.

But what happens? It goes to one of the many banks that the

Treasury anoints and that becomes the general revenue. So everybody is sort of a little murky about well, gee, did we lose 10 million? Did we lose $100 million in terms of the estimates? And we

don’t really have a good fix on that. Maybe the General Accounting

Office does.

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We’ll be pursuing that with them, but it’s something that does

interest me and it interests—I turned a copy of the memo in to

Chairman Archer last night, and he’s going to take a look at it and

see what happens also. But I am sort of amazed that we can’t connect the revenue bit with the expenditure bit, and that the Inspectors General are precluded from maybe working as a team. And

wherever those trust funds are involved, either GAO ought to do

it as part of it or Treasury ought to do it as part of it, as to just

are we accurate in terms of our revenue.

Ms. BROWN. I would appreciate that, sir.

Mr. HORN. OK. Let me close with a few detailed questions here

that haven’t been asked, to my knowledge.

Medicare contractors, as we saw, collected over $7.5 billion in

1998, and your report points out significant weaknesses in the area

which we’ve been exploring. You reported that contractors do not

maintain records to support cash collections. In addition, you reported that at some locations the same person that receives checks

endorses the checks, prepares the deposit to the bank, performs the

bank reconciliations. This situation puts this money at tremendous

risk of being stolen.

You’re absolutely right. The first thing you learn to do in any organization is ‘‘Look, we can’t just let one person do it from end to

end,’’ as wonderful as Aunt Minnie might be, and you learned long

ago when Aunt Minnie says, ‘‘Oh, I’ve got a lot of work to do, I

don’t want to take a vacation this summer,’’ and Uncle Louie does

the same thing in the next organization, you’ve got a real problem.

I’m a great believer in moving people around, making sure they

take their vacations, especially when they’re handling money, and

let’s see who sits at that desk and what they’re going to do. And

there have been great exposes, at least in the State of California

we’ve had them, where somebody just took over for the summer,

said, ‘‘Gee, I wonder where this,’’ in this case 800 bales of hay went

to the ranch of a vice chancellor of one of the systems in California

and not to the ranch that was being run to educate students.

So I’m just curious what your recommendations are on that and

if they’re being followed, and can they be or is there some block to

it with Medicare contractors, or can you just plain old mandate it?

Mr. VENGRIN. Again, Mr. Chairman, the Medicare contractors

historically have done a great job on processing claims in an expeditious manner, but the financial controls are gradually catching on

as a result of the CFO act. Believe it or not, in many cases they

just didn’t do bank reconciliations. We’ve made these recommendations and we have to see if they’re following them. They’re just not

doing them currently.

Mr. HORN. I think we would all agree when you combine a poor

recordkeeping of accounts receivable, the weaknesses in collecting

cash, the computer security problem which you mentioned, that

you end up with absolutely no control over the money. So you’re

saying how can we solve that one in the next audit.

Ms. BROWN. Well, I think as Mr. Hash mentioned, having a

wider selection base for getting contractors so that there is a great

deal of incentive for them to live up to the expectation of reasonable control systems would be very helpful.

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Mr. HASH. If I might add a footnote, Mr. Chairman, we have incorporated into our system of evaluating contractors requirements

with regard to financial reporting and documentation. And obviously now the job is, as the Inspector General has alluded to, that

we are providing—that we need to make sure we’re providing—sufficient oversight and evaluation of our contractors to make sure

they’re in compliance, because I think we have the standards now

in place, the requirements for documentation and for financial reporting, and we are doing training sessions; in fact, this spring a

whole series of training sessions on financial documentation and

requirements. And as a result, we think we are beefing up through

our regional offices the actual oversight of compliance with these

requirements by our contractors, and that’s certainly a responsibility that we have.

Mr. HORN. Inspector General, on page 9 of your statement before

us, point 2, you note financial reporting remains a material weakness because Medicare contractors have not adequately reconciled

expenditures reported to the Health Care Financing Administration. Also, the process for preparing financial statements is manually intensive. Now, what can we do on that? There must be computer programs here, and what do we mean here by ‘‘manually intensive?’’ Mr. VENGRIN. Mr. Chairman, as a result of the preparation of the

financial statements, they have to make hundreds of adjusting entries to ultimately produce the final statements. We’ve made recommendations that they pursue a software package to do this more

expeditiously. They are exploring that. That way we can get the adjusting entries as part of this process.

Mr. HORN. Now, this is the contractors that are exploring it?

Mr. VENGRIN. No, this is HCFA central office.

Mr. HORN. Can they mandate that then along the line, whoever

is inputting?

Mr. VENGRIN. Yes, they can do this work in central office. We’re

not talking about the contractors.

Mr. HORN. Is that going to be done, Mr. Hash?

Mr. HASH. I need to—I’m being instructed at the moment here.

I think what we have done, as I’m told, is that we have hired

a contractor, an outside contractor to help us install those kinds of

protections and procedures within our own activities, and it’s a

part of our overall effort to make sure that our own systems are

adequately maintained and documented. We are acting on the Inspector General’s recommendation.

Mr. HORN. So the contractor will relate to the contractors?

Mr. HASH. Our outside contractor will relate to us as well as to

the contractors.

Mr. HORN. All along the line on the accounting side, then, we’re

going to use software and not have to worry about manually intensive things being done?

Mr. HASH. I would say, as you can tell—what I’d like to say is

that Mr. Vengrin is correct when you think about the history of

what these contractors have been doing. This is not an excuse, but

it’s true that most of the emphasis has been on refining their

claims processing systems and their audits and so forth as opposed

to the area of financial documentation and reporting. And this is

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an area in recent years that we’ve been paying increased attention

to, and we should, and we expect that’s going to show dividends in

the next audit because we are committed to removing the qualification to our accounts receivable documentation for the next audit.

Mr. HORN. One last question relates to the year 2000 situation

and are you using your need to get into conformity for that to solve

some of your other problems within the agency, either in terms of

new computers, new software, off-the-shelf, whatever?

Mr. HASH. One of the bright lights of the Y2K problem has been

the opportunity that we’ve had to actually review something like

50 million lines of code in our claims processing systems and in

other information systems that we maintain that are mission critical for the agency. And the result of that, I think, is at the end

of the day we will not only have a Y2K compliant information system but we will have made improvements in that system that

would otherwise probably have taken a longer time to get to. So I

think one of the benefits of the intense scrutiny that has surrounded our efforts to become millennium compliant has been a

very thorough renovation and testing of our information infrastructure and I think that will pay us and the taxpayers enormous dividends in the years ahead.

Mr. HORN. When did Medicare start in on the year 2000 conformity bit?

Mr. HASH. Well, I believe—I don’t have a specific date but intensively over the last 18 months—and we obviously, as you are quite

familiar with, set a goal for ourselves of December 31, 1998 to

make sure that our internal mission-critical systems were renovated and certified. We made that deadline. We also set a similar

deadline for our contractors. We did not fully make that deadline,

as you know. We had 54 contractors who self-certified at the end

of December of last year.

The governmentwide deadline is next week for compliance and

self-certification. We are cautiously optimistic that we’re going to

be there with the contractor community. There are—there is one

standard system which has gotten a late start in the testing phase,

and for the seven contractors who depend on that standard system,

they may be a little late in the final self-certification process, but

otherwise we believe we’re going to cross the finish line together

with our 40 contractors and 78 mission-critical systems.

Mr. HORN. In 1989 both Medicare, Health Care Financing Administration and Social Security were in the same agency, namely

Health and Human Services. Now, in 1989 the Social Security Administration realized they had to start moving on this, and the result is they’ve been given an A through our reporting process ever

since, and they are the first agency to have year 2000 conformity

and compliance.

Why didn’t Medicare—and I know you just came in the last year.

We’re not going to pillory you, but perhaps the Inspector General

has a long institutional memory. Why didn’t Medicare do what Social Security was doing? Where was the Secretary? Asleep in 1989

or what?

Ms. BROWN. I came a little later than that as well, in 1993, but

I think there’s been several things. For one, in Medicare, worrying

about all the contractors, there wasn’t the funding to contract with

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them to do some of this work. That was one of the problems. And

having worked in both Social Security and on the rest of HHS, I

had the privilege of signing the first clean financial statement for

Social Security. We had done their financial statement audits for

several years.

Although they’re huge and it is a well-run agency, they don’t

have the number of systems, the number of different systems that

we have in something like HCFA. So although the volume is tremendous and it’s as large an organization as far as money being

spent, it’s a much less difficult one to both audit and to make

changes in because they do have the uniform systems throughout

the country. I think that’s something that HCFA is striving for,

and, in the future, will have.

Mr. HASH. I would just say, Mr. Chairman, I think the honest

answer is we got a late start. There’s no question about that. We

did in fact consider making some transitions into a single operating

system which failed to be realized. I think that was part of the reason why we got a late start, but I think we have really redoubled

our efforts.

I think dealing with independent contractors has been a real

challenge for us, but for the most part I think we would give them

great credit for having cooperated with us, and the Congress great

credit for having provided us significant additional resources with

which to undertake the renovations and testing that are required

to make sure we’ll be in business on January 1, 2000. But it has

been obviously a Herculean task, and a lot of credit is due not only

to the work that HCFA has done but certainly the contractors

themselves.

And as you know, we’re now concentrating our attention on making sure the provider community is in fact taking the proper steps

and devoting an adequate amount of resources to make sure that

they’re ready for the year 2000, because if we’re ready and they

can’t submit to us a claim for services that’s Y2K compliant, it will

be very difficult to make sure that they get that claim processed.

So we are now spending a lot of effort on outreach to the provider

community to make sure that they have the assistance and the

tools and the information to take the steps that are necessary to

review all of their mission-critical systems, not only their information and billing systems but, as you know, their clinical systems

that may have year or date problem sensitive issues, because the

health care quality of the country is at stake if providers are not

clear that their equipment has been properly reviewed and corrected and tested.

So I think there’s lots of reasons for where we are, but we’re

quite proud of the accomplishments that we’ve made to date, and

we think we’re going to be ready at the end of the year.

Mr. HORN. The President has set a mark as March 31. Will

Medicare make that?

Mr. HASH. As I said——

Mr. HORN. The Health Care Financing Administration, will you

as an organization make that?

Mr. HASH. Yes, sir. We have actually at the end of December for

our own internal mission-critical systems. They were renovated and

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certified as of December 31. So we believe our own internal systems are ready and millennium compliant.

Mr. HORN. Unfortunately for you, they don’t use the major

groups within, they use the Cabinet department, so then you’re in

compliance but maybe a lot of parts of HHS are not compliant. And

I guess I would ask the question, Congress removed Social Security

from Health and Human Services; should we remove Medicare,

Medicaid from Health and Human Services?

Mr. HASH. I’d like to—— Mr. HORN. Make you independent offices? Everybody would get

a pay raise.

Mr. HASH. I would like to defer an answer on that to Secretary

Shalala. Speaking on our behalf, I think we have benefited greatly

by the efforts of the Department of Health and Human Services to

support our efforts on Y2K, and that’s no small part of the credit

for the progress that we’ve made as well.

Mr. HORN. How about it, Inspector General? Looking at it from

an independent view, would they be better off to be an independent

agency?

Ms. BROWN. I do not believe so. I think the department adds a

great deal of stability and assistance, and there’s a great deal of

overlap in the interests of the programs within the department,

and that would only add another dimension of confusion.

Mr. HORN. You mean the confusion dimensions that are already

there?

Ms. BROWN. That’s true, sir.

Mr. HORN. OK. We’ll let it go at that. Let me just mention in

some closing remarks here, one, I thank all three of you for testifying. You’re all very distinguished public servants.

Obviously progress has been made in reducing the amount of improper payments in Medicare. However, we’ve got some serious

problems, as you all admit. The Health Care Financing Administration is responsible for managing two of the most important programs in the Federal Government, Medicare and Medicaid. There’s

no room, obviously—and we all agree on both sides of the table,

both sides of the aisle—there’s no room for waste, fraud, inefficiency in these programs which by 2009 will provide nearly $700

billion in health care for our Nation’s elderly and poor.

Next Wednesday the consolidated financial report on the Federal

Government as a whole will be issued. We will hold a hearing at

10 a.m., in this room to hear testimony from representatives of the

Office of Management and Budget, the Department of the Treasury, and the General Accounting Office. These witnesses will speak

to the many different financial problems found throughout the Federal executive branch. At the same time, we will issue our second

report card grading the 24 largest Federal agencies on how they

are handling more than $1 trillion a year in taxpayer money.

So my thanks are to you again. Sorry to prolong it so long. And

let me now thank the staff who spent a lot of time putting this particular hearing together. J. Russell George is the staff director—

and he’s off working—as chief counsel for the Subcommittee on

Government Management, Information, and Technology. Bonnie

Heald is the director of communications, professional staff member.

And to my left and your right is Larry Malenich, the General AcVerDate 11-MAY-2000 13:49 Mar 27, 2001 Jkt 066784 PO 00000 Frm 00100 Fmt 6633 Sfmt 6602 E:\HEARINGS\62373 pfrm04 PsN: 62373
97

counting Office detailee to this subcommittee, and his help is invaluable. Mason Alinger is the clerk for the subcommittee. Our

able interns are Paul Wicker and Casey Baker, and I don’t know

if any of them are here. Faith Weiss is counsel for the minority,

and we thank you. And Earley Green, staff assistant for the minority, and our two court reporters are Laurie Harris and Doreen

Dotzler.

And with that, ladies and gentlemen, we thank you all for coming.

[Whereupon, at 12:35 p.m., the subcommittee was adjourned.]

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