U.S. GOVERNMENT PUBLISHING OFFICE

34–574 PDF WASHINGTON : 2019

S. Hrg. 115–585 

EXAMINING CMS’S EFFORTS TO FIGHT MEDICAID 

FRAUD AND OVERPAYMENTS 

HEARING 

BEFORE THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED FIFTEENTH CONGRESS 

SECOND SESSION 

AUGUST 21, 2018 

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

Printed for the use of the 

Committee on Homeland Security and Governmental Affairs 

( 
(II) 

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

RON JOHNSON, Wisconsin, Chairman 

JOHN MCCAIN, Arizona 

ROB PORTMAN, Ohio 

RAND PAUL, Kentucky 

JAMES LANKFORD, Oklahoma 

MICHAEL B. ENZI, Wyoming 

JOHN HOEVEN, North Dakota 

STEVE DAINES, Montana 

CLAIRE MCCASKILL, Missouri 

THOMAS R. CARPER, Delaware 

HEIDI HEITKAMP, North Dakota 

GARY C. PETERS, Michigan 

MAGGIE HASSAN, New Hampshire 

KAMALA D. HARRIS, California 

DOUG JONES, Alabama 

CHRISTOPHER R. HIXON, Staff Director 

GABRIELLE D’ADAMO SINGER, Chief Counsel 

DAVID N. BREWER, Chief Investigative Counsel 

JEROME F. MARKON, Senior Policy Advisor 

MARGARET E. DAUM, Minority Staff Director 

BRANDON E. REAVIS, Minority Counsel 

COURTNEY C. CARDIN, Minority Counsel 

LAURA W. KILBRIDE, Chief Clerk 

THOMAS J. SPINO, Hearing Clerk 
(III) 

C O N T E N T S 

Opening statements: Page 

Senator Johnson ............................................................................................... 1 

Senator McCaskill ............................................................................................ 2 

Senator Peters .................................................................................................. 14 

Senator Hassan ................................................................................................. 17 

Senator Carper ................................................................................................. 20 

Senator Heitkamp ............................................................................................ 23 

Senator Daines ................................................................................................. 25 

Senator Jones .................................................................................................... 28 

Senator Hoeven ................................................................................................. 31 

Prepared statements: 

Senator Johnson ............................................................................................... 47 

Senator McCaskill ............................................................................................ 48 

WITNESSES 

TUESDAY, AUGUST 21, 2018 

Hon. Seema Verma, Administrator, Centers for Medicare and Medicaid Services, U.S. Department of Health and Human Services ..................................... 7 

Hon. Eugene L. Dodaro, Comptroller General of the United States, U.S. 

Government Accountability Office ...................................................................... 9 

ALPHABETICAL LIST OF WITNESSES

Dodaro, Hon. Eugene L.: 

Testimony .......................................................................................................... 9 

Prepared statement .......................................................................................... 66 

Verma, Hon. Seema: 

Testimony .......................................................................................................... 7 

Prepared statement .......................................................................................... 52 

APPENDIX 

Health Care Spending Chart .................................................................................. 88 

Medicaid Spending Chart ........................................................................................ 89 

Improper Payments Chart ...................................................................................... 90 

Information submitted by Mr. Dodaro ................................................................... 92 

Responses to post-hearing questions for the Record: 

Ms. Verma ......................................................................................................... 93 

(1) 

1The prepared statement of Senator Johnson appears in the Appendix on page 47. 

2The chart referenced by Senator Johnson appears in the Appendix on page 88. 

EXAMINING CMS’S EFFORTS TO FIGHT 

MEDICAID FRAUD AND OVERPAYMENTS 

TUESDAY, AUGUST 21, 2018 

U.S. SENATE,

COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS, 

Washington, DC. 

The Committee met, pursuant to notice, at 10:02 a.m., in room 

SD–342, Dirksen Senate Office Building, Hon. Ron Johnson, Chairman of the Committee, presiding. 

Present: Senators Johnson, Hoeven, Daines, McCaskill, Carper, 

Heitkamp, Peters, Hassan, Harris, and Jones. 

OPENING STATEMENT OF CHAIRMAN JOHNSON 

Chairman JOHNSON. Good morning. This hearing will come to 

order. 

I want to thank Administrator Verma and General Dodaro. 

Well, we certainly appreciate you coming before us. This is a follow up hearing to our June 27th hearing, where we really explored 

the Government Accountability Office (GAO) report on overpayments, primarily Medicaid, $37 billion, and we have the Administrator here talking about some program initiatives she announced 

in June. So we will have you testify, and then we will have the 

General comment on how we can make these programs kind of 

long-lasting. 

I would ask consent that my written statement be entered in the 

record,1 and I have a couple of charts that is in front of everybody. 

Do the witnesses have the charts as well? It would be nice if they 

did. 

But just three charts kind of laying out the macro program in 

terms of health care spending,2 and this is a modification of a chart 

I have shown repeatedly that really lays out the—I know this is 

a little more complex chart than I normally like putting up, but it 

tells a pretty good story. 

The top line, the green line, is just an inversion of a chart that 

shows what percent of health care spending is paid directly by the 

patient. The fact that we have gone from about 21 percent in 1940 

to 89 percent paid by other people—in other words, less than 11 

percent now is paid directly by the patient. We have taken out the 

discipline of the free-market system, and I think that is one of the 

reasons you see the increase in health care cost. 
2 

1The prepared statement of Senator McCaskill appears in the Appendix on page 48. 

But there is a very interesting series of articles in the Wall 

Street Journal. They describe the American health care system in 

12 graphs. The most recent one was written by Joseph Walker, and 

his chart really starts in 1970, and he just shows the percent of 

total health care expenditures as a percent of gross domestic product (GDP). And when you put these things in similar scale, you see 

that they somewhat track. 

But he points out he does it in 12 different time increments, 

starting in 1970, shortly after the initiation of Medicare and Medicaid, where back then, total health care spending was around 5 

percent of GDP. So over the next couple of decades as Medicaid eligibility widened, you can just see the increased expenditures as a 

percent of GDP. 

Come around 1993, 1999 was the rise of health maintenance organizations (HMOs), and you can actually see the curve flatten out 

there for about 6 or 7 years. But then for whatever reason—I cannot explain it, and by the way, this is not the be-all-end-all in 

terms of what causes. Obviously, within medicine, we can do a 

whole lot more things that obviously increases expenditures as 

well, but again, this is just one take on it. 

You start seeing a rapid rise again right around the year 2000 

when HMOs were starting to be moved away from by providers. 

Hospitals began to merge. Again, the decline of HMOs—and we 

also, in 2006, had the Medicare drug benefit, which happens in 

that same timeframe, where you see a pretty stark increase from 

somewhere of 12 percent of GDP to close to 17 percent, and then 

the recession hit. People did not have enough money. Again, people 

do not have a lot of money, so spending kind of leveled out. And 

then right around the implementation of Obamacare, you see the 

curve start to increase again. 

But, again, I just thought that this was a pretty interesting 

graph. 

OPENING STATEMENT BY SENATOR MCCASKILL1

Senator MCCASKILL. Does the third-party payment include insurance companies? 

Chairman JOHNSON. Yes. This is insurance companies and government. 

Senator MCCASKILL. OK. 

Chairman JOHNSON. So, again, the point there is when consumers separate from the—— 

Senator MCCASKILL. So what you are saying is back when the 

people were paying directly and did not have insurance, they were 

paying 80 percent of the cost of their health care because they did 

not have insurance? 

Chairman JOHNSON. Right. 

Senator MCCASKILL. And that now, they are not—they buy insurance instead? 

Chairman JOHNSON. Again, what I am saying, direct payment for 

the product. 

Senator MCCASKILL. OK. 

Chairman JOHNSON. OK. 
3 

1The chart referenced by Senator Johnson appears in the Appendix on page 89. 

2The chart referenced by Senator Johnson appears in the Appendix on page 90. 

Senator MCCASKILL. But they are paying for insurance. 

Chairman JOHNSON. Oh, but we pay for all this—— 

Senator MCCASKILL. Yes. OK. 

Chairman JOHNSON [continuing]. Through taxes, through insurance. OK. But, again—— 

Senator MCCASKILL. It is getting a little confusing because thirdparty payment sounds like it is the government, and the vast—— 

Chairman JOHNSON. Right. 

Senator MCCASKILL. The majority of that is insurance companies, private insurance companies. 

Chairman JOHNSON. Right, which is why I am—— 

Senator MCCASKILL. Private free-market competitive insurance 

companies, correct? 

Chairman JOHNSON. Right, well, again, this is accommodation of 

government and—— 

Senator MCCASKILL. I just want to make sure we are being clear 

here that the third party is the ‘‘free market..’’ 

Chairman JOHNSON. Understand. That is why I am explaining. 

The point I am making is when you separate the consumer of the 

product from the direct payment of the product. 

We care deeply what our taxes are. We care deeply how much 

our insurance rates are, but when I go in to get a procedure, the 

provider does not even know what it costs. The accounting department does. The insurance guy knows. The Centers for Medicare 

and Medicaid Services (CMS) knows, but the rest of us are clueless. 

Senator MCCASKILL. Correct. 

Chairman JOHNSON. And, again, the results, we have gone from 

4 percent of GDP to about 17 or 18 percent, and it is just going 

to continue. 

So I generally make the point if we can reconnect the consumer 

of the product to the payment of the product, bring free-market disciplines back into health care as much as possible, I personally 

think that would make a restraint. 

Next chart.1 And this is just, again, the macro level. We have 

seen this in our last hearing, the growth in Medicaid spending. 

This chart shows in 2017, the Federal Government spent, according to the Congressional Budget Office (CBO), about $430 billion. 

Total spending in 2017 is about $600 billion. You project out another 10 years, CBO is estimating in 2027, the Federal Government will spend $723 billion on Medicaid. Total spending will be 

somewhere in the $1.1-$1.2 trillion. So, again, it just shows why we 

need to control the cost of Medicaid so that the people who really 

do need it, that the funds are available. 

And the final chart,2 then, is just the subject of this hearing, to 

kind of bring this plane in for landing, the improper payments. You 

can see were about $14.4 trillion before the implementation of 

Obamacare. Now it is $37 billion. In my own mind, I think the fact 

that States are being reimbursed 100 percent from Medicaid expansion is certainly one of the causes of that when you take a look at 

the amount of ineligible payments being made. One State in par-
4 

ticular, California, it just is screaming for greater controls, and 

that is really why we have the administrator here. 

And, again, let me emphasize I really do appreciate the initiatives that you have announced. We need a little more meat on the 

bones there in terms of we need more audits, 50 State audits, but 

in general, whatever these initiatives are, whatever controls you 

put in place, I am hoping remain in place. That this is not just a 

1 or 2-year program or a one-administration program. That we 

really do implement these things long term, provide the control, because we simply cannot afford to waste $37 billion out of this program. There are people in need that really rely on this. 

So, with that, I will turn it over to my Ranking Member, Senator 

McCaskill. 

Senator MCCASKILL. Thank you. Thank you, Mr. Chairman. 

Thank you, Administrator Verma and Mr. Dodaro. Gene, thank 

you always for being here and all the good work. I know you are 

going to introduce your State auditors. You have told me you had 

State auditors in the house. So I will let you introduce them, but 

I am sending love to the State auditors. See, they have important 

work they can be doing here, and I am glad that we are going to 

cover that topic today. I think they are underutilized as being our 

partners in accountability for the Medicaid program. 

Two months ago, we held a hearing to talk about the rate of improper payments in the Medicaid program. I have said it before, 

and I will say it again. This Committee has a responsibility to ensure that the Medicaid program, which provides vital health care 

to over 70 million Americans, regardless of preexisting conditions, 

spends taxpayer dollars appropriately and efficiently. This is true 

especially as managed care increasingly demands a greater proportion of Medicaid dollars. 

In fact, both GAO and the Department of Health and Human 

Services (HHS) Office of Inspector General (OIG) published reports 

on continued weaknesses and program integrity risks and Medicaid 

managed care. Clearly, there is a need for greater transparency on 

how managed care organizations spend Federal dollars and greater 

program integrity and oversight in Medicaid in general. 

Importantly, there is also a need to distinguish between improper payments and outright fraud. I think often, we are 

conflating those two terms, and when we throw out the figure $37 

billion and improper payments, I think the notion that is conjured 

up in most Americans’ minds is ‘‘Oh my gosh, there are $37 billion 

worth of frauds and cheats out there, and we are somehow giving 

them money.’’ 

That is not the case with improper payments. The reality is that 

fraud accounts for only a portion of the total improper payments, 

most of which result from provider screening and enrollment errors. 

Many times, the improper payments, once they are pointed out, 

become proper payments because the error was just in the enrolling of the recipient and information surrounding that, not on 

whether or not they are actually entitled to the health care benefits 

they are receiving. 

We have to address this problem and distinguish between beneficiary fraud and bureaucratic bungling. Those are two different 
5 

issues, and we should not use one to beat up the other because the 

recipients are not deserving of the title that somehow they are responsible for $37 billion in improper spending. 

Even as we discuss Federal efforts to prevent fraud in the Medicaid program, we have to talk about other factors that lead to negative health outcomes for Americans, particularly as we look at 

health care spending. There are so many other issues that are impacting the level of health care cost in this country besides the viability of the Medicaid program. The Medicaid program is not driving health care costs up. There are a number of different factors, 

including misplaced incentives and unbridled greed of the pharmaceutical industry. 

First, we can fight back against skyrocketing prescription drug 

prices. Earlier this year, I released a report—and I hope you have 

read it, Administrator—that shows the average price of the 20 

most popular brand-name Medicare Part D program drugs have 

risen 10 times the rate of inflation for 5 years running. 

And last month, I released a second report showing that if the 

Federal Government could negotiate directly on prices for these 

drugs, like they do in every other country, except the good old 

United States of America where the American people are being 

asked to provide all the profits to these companies, the taxpayers 

could save up to $2.8 billion a year. 

Second, we can stop the over-prescription of opioids. For too long, 

opioid manufacturers have used illegal marketing and sales techniques to expand their market share and increase dependency on 

powerful and awfully deadly painkillers. 

We need to do more to ensure the perpetrators of the opioid addiction crisis are held accountable. I would like us to revisit the 

Drug Enforcement Administration (DEAs) ability to hold the distributors accountable and stop the shipments that are outside the 

bounds of reasonable before they occur, so we are not sending thousands and thousands of pills to a community that is very small. 

Finally, we need to keep the consumer protections built into the 

Affordable Care Act (ACA). In the latest attempt to strip millions 

of Americans of their health insurance, Republican Attorneys General (AG), including the Attorney General of my State, have gone 

to court to take away every single consumer protection in the law 

and the additional payments that seniors get on prescription drugs 

to fill the, ‘‘donut hole.’’ 

This is decidedly not what the American people want. In fact, as 

of 2016, an estimated 27 percent of adults under the age of 65, 52 

million Americans, had preexisting conditions that would make it 

difficult, if not impossible, to obtain affordable health care coverage 

if they did not have health insurance at work. 

I can tell you that when I talk about this issue in the town halls 

of my State, even the reddest parts of my State where I am not 

very popular, every head nods. The notion that we are going to 

take away these consumer protections with nothing in place to secure protections is outrageous. 

You and I agree, Mr. Chairman, on the need to lower costs in 

Federal health care programs, and you and I agree on transparency 

in pricing. 
6 

I have told the story in this hearing many times. I am a U.S. 

Senator. I had my knee replaced. Nobody could tell me what it cost. 

I did this myself personally calling my doctor, the hospital, the insurance company. I kept insisting on a number. 

I finally got numbers from all three of them. Guess what? None 

of them agreed on what it cost. I can go within a quarter mile of 

my home in St. Louis and find the best cheeseburger, know how 

much it costs, know how big it is, see pictures of it, know how clean 

their bathrooms are, how good their service is, but I cannot go online and find out what is comparable apples-to-apples prices for a 

knee replacement and what the reviews are of each facility and 

each doctor and how much I am going to have to pay out of pocket. 

Why is that so hard? Why can we not bring pricing—the American 

people are really good shoppers. We cannot expect them to bring 

down the price of health care if they have no idea what that price 

is. 

The silos of profit are working overtime in this building to keep 

us from busting these silos and letting the American people decide 

whether or not they are getting a good deal on their health care. 

I think that is some place that the Chairman and I have 100 percent agreement, and I would love to work on a bipartisan basis to 

see if we cannot bring transparency to pricing within our health 

care system. 

Thank you, Mr. Chairman. 

Chairman JOHNSON. So let me give a quick answer to your question. You asked why do we not know that? Because we are not paying for it. The consumers are not paying for it directly. 

Where they are in the private sector, for example, Walmart, the 

State can look at, for example, a shoulder replacement. 

Senator MCCASKILL. Well, I disagree with you. 

Chairman JOHNSON. They are contracting with a particular provider, and they know exactly what that cost—and that is the private sector. But, again, they are the ones paying for it, and so they 

actually know. 

Senator MCCASKILL. No, we are paying for it with higher insurance premiums. 

Chairman JOHNSON. I know, but we are doing—when I say pay 

directly for it. 

Senator MCCASKILL. Yes. 

Chairman JOHNSON. We are paying indirectly through taxes and 

through insurance payments. Again, you do not have the price 

transparency forced on them by the marketplace. 

Postscript to my thing. I meant to mention this. Medicaid—oh, 

by the way, the improper payments of Medicaid are a little bit different than other improper payments in other agencies because 

they are 99 percent-plus as all overpayment. They represent 26 

percent of all government improper payments, even though Medicaid is about 9.6 percent of total Federal spending. 

So, again, one of the reasons we are focusing on Medicaid is it 

is just so out of whack in terms of its representation. 

And oh, by the way, Medicare Part D providers do negotiate with 

drug companies. So there is certainly drug—— 

Senator MCCASKILL. Not with the government. 
7 

1The prepared statement of Ms. Verma appears in the Appendix on page 52. 

Chairman JOHNSON. Yes. I mean, the providers do. The ones that 

you actually contract to buy your drugs from, they do negotiate 

prices. That is sometimes left out of the equation. 

With all that being said, it is the tradition of this Committee to 

swear in witnesses. So if you will both stand— 

Senator MCCASKILL. We will quit debating and swear in the witnesses. 

Chairman JOHNSON. That is kind of fun, isn’t it? 

Do you swear the testimony you will give before this Committee 

will be the truth, the whole truth, and nothing but the truth, so 

help you, God? 

Mr. DODARO. I do. 

Ms. VERMA. I do. 

Chairman JOHNSON. Please be seated. 

Now I got to find my script. Do we have introductions? 

[No response.] 

OK. We did not have real big introductions. So our first witness 

will be the Administrator of CMS, Seema Verma. 

TESTIMONY OF HONORABLE SEEMA VERMA,1 ADMINISTRATOR, CENTERS FOR MEDICARE AND MEDICAID SERVICES 

Ms. VERMA. Chairman Johnson, Ranking Member McCaskill, and 

Members of the Committee, thank you for the invitation to discuss 

CMS’s efforts to increase accountability in the Medicaid program. 

I appreciate this Committee’s recent work on this issue and share 

your commitment to improving program integrity in the Medicaid 

program. 

Before coming to CMS, I spent most of my career working alongside States to help them reform and strengthen their Medicaid programs, whether it be seniors living in the community through the 

support of personal care services or the respite care that allows a 

parent to keep their child with a disability living at home. I have 

seen firsthand the difference that the Medicaid program makes in 

people’s lives. 

I believe that Medicaid is more than a safety net. It is the lifeline, one that needs to be preserved and protected for those who 

truly need and qualify for it. For all of Medicaid’s recipients, we 

work to provide for the best quality of life, quality of care, and access to care so that they may live healthier, more fulfilling, and 

more independent lives. 

However, I believe that Medicaid should be stronger to ensure 

that no deserving Americans fall through the cracks. We must and 

we can serve them better. The status quo is not acceptable. 

When the Federal Government established the Medicaid program, it was intended to be a partnership between the Federal and 

State governments to care for society’s most vulnerable citizens, 

with both jointly contributing toward the cost. However, that relationship has changed over the years. 

With Medicaid being an open-ended entitlement, the program 

has grown and grown, and States have spent more and more. In 

1985, Medicaid spending consumed less than 10 percent of State 
8 

budgets and totaled just over $33 billion. In 2016, that number had 

grown to consume 29 percent of total State spending at a total cost 

of $558 billion. 

However, despite our growth in spending, more than one-third of 

doctors will not even see a Medicaid patient, and as the program 

has greatly expanded, it has led to longer waits for care and increased program integrity risks. 

Our vision for Medicaid is to reset and restore the balance to the 

Federal-State relationship, while at the same time modernizing the 

program to deliver better outcomes for the people we serve. This 

vision for transforming the Medicaid program is centered on three 

principles: greater flexibility, stronger accountability, and enhanced 

program integrity. 

So let us start with flexibility. Every State has different needs 

and challenges, and that is why Washington should not design a 

cookie-cutter Medicaid program. Instead, CMS has offered States 

unprecedented flexibility to design health programs that meet the 

needs of their residents. CMS has significantly reduced the time 

States have had to wait for approval of their State plan amendments and waivers, and at the request of many States, we have released new guidance on how to incentivize community engagement 

in order to improve health outcomes. 

We are also equally committed to our second pillar, strengthening accountability. That is why this year, CMS released our first 

ever Medicaid Scorecard, which compiles health outcome metrics. 

This is the first effort to publicly report on States and Federal administrative performance. It is time to be transparent about what 

our investment in Medicaid is buying. 

And that brings us to our third pillar, enhancing program integrity, the topic of today’s hearing. In June, we announced a new 

Medicaid program integrity strategy that will bring CMS into a 

new era of enhancing the accountability of how we manage Federal 

taxpayer dollars in partnership with States. 

First, CMS has launched new eligibility audits. The expansion of 

Medicaid under the Affordable Care Act provided an unprecedented 

level of financial support for newly eligible, able-bodied adults. This 

created an opportunity for States to shift cost to the Federal Government and requires us to ensure States are accurately determining eligibility. These new audits will include assessing the effects of Medicaid expansion and its enhanced Federal match rate 

on State eligibility policy. 

Second, we are taking steps to strengthen our oversight of State 

financial claiming and managed care rate-setting. Through our 

strengthened oversight, CMS has already recovered billions from 

one managed care State. CMS will also audit States contracting 

with managed care organizations, and we will be closely reviewing 

financial reporting to ensure that rates are appropriate and that 

costs are not inappropriately shifted to taxpayers. 

Third, we are working to optimize how we use State-provided 

claims and provider data in our program integrity efforts. For the 

first time, as of last month, every State, DC., and Puerto Rico are 

now submitting data on their programs to the transformed Medicaid Statistical Information System (T–MSIS). We are now shifting 

from simply collecting the data to using advanced analytics and 
9 

1The prepared statement of Mr. Dodaro appears in the Appendix on page 66. 

other innovative solutions to improve data and maximize the potential for program accountability and integrity purposes. 

Moving forward, we must continue to bolster our existing efforts 

and optimize the use of data to drive better health outcomes and 

improve program integrity efforts. Medicaid is too vital a program 

to let fraud and inappropriate spending threaten its sustainability, 

but as long as the program remains an open-ended entitlement and 

there is a 90 percent match rate for the expansion population, 

States have an incentive to find new ways to draw down Federal 

dollars. CMS will need to continually adapt and adjust our oversight policies. 

Ultimately, we need to work together to consider structural 

changes to the Medicaid program that would control spending and 

incentivize fiscal responsibility while maintaining high-quality 

care. 

Thank you for the opportunity to testify before your Committee, 

and I look forward to answering your questions. 

Thank you. 

Chairman JOHNSON. Thank you, Administrator Verma. 

Our next witness really does not need an introduction, the Comptroller General of the United States, the head of the Government 

Accountability Office, Mr. Gene Dodaro. 

TESTIMONY OF HONORABLE EUGENE L. DODARO,1 COMPTROLLER GENERAL OF THE UNITED STATES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE 

Mr. DODARO. Thank you very much, Mr. Chairman, Ranking 

Member Senator McCaskill, and Members of the Committee. I am 

very pleased to be here today to talk about the Medicaid program, 

the risks that we have identified, the steps CMS is taking to address those risks, and additional actions we believe are necessary 

in order to ensure the integrity of the Medicaid program going forward. 

There are three areas that I want to cover briefly in my opening 

remarks. First, are the demonstrations. Demonstrations allow CMS 

to give States flexibility to spend money that normally would not 

be covered under the Federal matching requirements. One-third of 

total Medicaid spending now is under demonstration projects, 

which have been approved in three-quarters of the States. 

Our concern is that many of these demonstration projects were 

formed on questionable practices and are leading to more spending 

on Medicaid than would be normal under the original program constraints. Also, the evaluations are done as to whether or not the 

demonstrations are proving to lead to effective policy operations in 

the future have limitations. 

CMS has taken some action in this area. I am very pleased that 

they are now limiting the amount of spending that could be accrued under these demonstrations and carried over to the next 

year. That one change alone has saved $100 billion in Federal and 

State Medicaid money from 2016 to 2018, according to CMS’s estimates. 
10 

We think additional steps that CMS is planning to take will better ensure the budget neutrality of these demonstrations and we 

also believe that there needs to be more efforts made to make sure 

the evaluations are reasonable, timely, and lead to information that 

can help inform policy decisionmaking going forward. So I am 

pleased they are taking action, but more action is needed in this 

area. 

Second, are supplemental payments. These are payments that 

are made over and above reimbursement of claims for Medicaid or 

encounters under the managed care portion. In fiscal year (FY) 16 

these payments totaled $48 billion. We have raised concerns in the 

past about the need for more accurate and complete reporting on 

States’ funds used to meet their own match, and without this information, there is the possibility that the States could be shifting 

cost to the Federal Government without even CMS knowing about 

it. 

In addition, these payments, particularly the non-disproportionate health care payments, are supposed to be made to ensure 

that they are economical and efficient, and we believe there needs 

to be better criteria for that and it needs to be well articulated 

going forward. And there also needs to be the proper focus and attention on supplemental payments. 

I know CMS is coming up with guidance or planning some policy 

guidance to be issued next year, and we are hoping that this policy 

guidance will address the recommendations that we have made in 

these areas. 

And the last area concerning supplemental payments that needs 

to be addressed is to make sure that the payments are clearly tied 

to Medicare spending as opposed to local sources of funding in 

these areas. What we have found in the past is that in some cases, 

the supplemental payments were given to local providers who provided a large share to help the State meet their match and not necessarily because they had the highest level of uncompensated care 

for Medicaid recipients. So this is important to clarify and ensure 

payment integrity. 

The last area is the audits that need to be done. Ms. Verma mentioned audits they are planning to put in place. These are very important. I am glad they are resuming after a 4-year hiatus—the 

beneficiary eligibility determinations. The managed care is my big 

concern. Of the $36 or $37 billion in improper payments, most of 

that is in the fee-for-service (FFS) and beneficiary eligibility determination. Only $500 million of that is in managed care. Managed 

care has grown over the years without a lot of good payment integrity and oversight processes in place. CMS is planning to start 

that, but I think State auditors are a tremendous, untapped resource. 

Two State auditors with us today have volunteered on their own 

to come to this hearing. Beth Wood, the State Auditor of North 

Carolina is on my left; she is also the president of the State Auditors Association. Daryl Purpera, the State auditor from Louisiana 

is with her. He will be the next president taking over that association for State auditors. 

But with Medicaid expenses expected to continue to rise rather 

dramatically—it is one of the fastest-growing programs in the Fed-
11 

1The portion of Mr. Dodaro’s testimony referenced appears on page 84. 

eral Government—we cannot afford to have the State auditors on 

the sidelines here. They need to get in the game. They need to have 

a substantive and ongoing role, and I think it will pay huge dividends. 

Administrator Verma and our team have had conversations on 

this, and all our recommendations, I am pleased we are having a 

very constructive dialogue on these issues. 

This afternoon, our team will has arranged a meeting between 

the State auditors and CMS to hopefully start a dialogue that will 

lead to a very good role for them. 

So I am very pleased to be here today. To us, this is a very important program for the American people, and we need to do everything we can to ensure the integrity of it and its survival in the 

future. 

Thank you very much, Mr. Chairman. 

Chairman JOHNSON. Thank you, General Dodaro. 

One thing I failed to mention, but I have another sheet here, the 

dais, and this is right out of the GAO testimony.1 You were talking 

about State auditors. In neither one of your testimonies, you really 

talked about some of the State gimmicks. This is one, and this is 

pretty darn abusive. I am not naming the State here, but this is 

where the Federal Government has paid $155 million to the pot, 

the State put $122 million, for a total of $277 million that was paid 

to a county health facility. The county health facility takes $6 million and then paid back $271 million back to the State. 

Obviously, on paper, it looks like the State Government is actually providing a match, but in reality, the Federal Government is 

paying the $155 million. 

And there are other gimmicks, whether it is sales tax, whether 

it is loans to cities, that type of thing. I think that is probably a 

hearing in and of itself, but hopefully, maybe during questions and 

answers, somebody might raise this. If not, I will at kind of the tail 

end. 

But with that, I appreciate the attempts of our Members, and out 

of respect for their time, I will defer my questioning, starting with 

Senator McCaskill. 

Senator MCCASKILL. Thank you, Mr. Chairman. 

Let me start with a little bit on preexisting conditions. 

Ms. Verma, you have worked with insurers in the health care industry for years. Does it surprise you that GAO’s review of the 

data from insurers show that the aggregate application denial rate 

for the first quarter of 2010 was 19 percent; that is, 19 percent of 

the people who tried to get health insurance on the private market 

were denied because of preexisting conditions? Does that figure 

surprise you? 

Ms. VERMA. I am aware of that data, yes. 

Senator MCCASKILL. OK. 

I am assuming that there is nothing inherently in place if the 

lawsuit that the Administration is supporting and that my State 

Attorney General is supporting is successful, there is absolutely 

nothing that can be done that would change the market reverting 

to that, correct, unless the Congress took action? 
12 

Ms. VERMA. So I cannot speak to a pending lawsuit, but what I 

will say is that I am deeply concerned about individuals with preexisting conditions, and I think that we need to have protections 

in place for those individuals. And so as the Administrator of CMS, 

my job is to implement the law, and if the law changes in some 

way, I would work with Congress to make sure that we had protections in place for people with preexisting conditions. 

Senator MCCASKILL. Well, there is no reason a lawsuit could not 

have exempted preexisting conditions. Did you weigh in with the 

Department of Justice (DOJ) and ask them to in their filings specifically say that they wanted severability so that preexisting condition protection would remain? 

Ms. VERMA. I cannot speak to a pending lawsuit. 

Senator MCCASKILL. If people cannot get affordable coverage due 

to denials because they—or rescissions—because they forgot to put 

‘‘acne’’ on their application or some other clerical error, which was 

certainly the case pre-ACA, is there any system in place for a place 

those people can go and get insurance? 

Ms. VERMA. I strongly support individuals that have preexisting 

conditions. 

Senator MCCASKILL. I just want you to walk us down what happens if the Administration is successful in their lawsuit and if this 

Congress—and we cannot even get the Majority Leader to have a 

vote on bipartisan legislation that would strengthen the exchanges 

that we have a lot of Republicans supporting. 

In fact, I think that one of the leadership in the Republican 

Party actually said in the press last week, ‘‘I do not know what we 

would do if the lawsuit was successful. We have no plan in place, 

legislatively, to pick up this problem.’’ 

So what I am trying to get at here, if people do not have any 

place they can go and get insurance, what happens to their health 

care? 

Ms. VERMA. I think it is very important that people that have 

preexisting conditions have the appropriate protections in place so 

that they can access the coverage that they need. 

Senator MCCASKILL. But the point I am trying to make is they 

will not have prevention. They will not have maintenance. They 

will only have really emergency care. So, in other words, diseases 

progress to the point that hospitalization is necessary, and then, of 

course, we all pay, right? 

Ms. VERMA. I agree with you that those individuals should have 

the appropriate protections in place, and if the law changes in any 

way, shape, or form around that, we would work with Congress to 

address that issue to make sure that they had the appropriate protections in place. 

Senator MCCASKILL. Well, it would be great if we could do that 

here this month. It would be great if the Majority would allow us 

to vote on a provision that would make sure those protections were 

in place if the lawsuit was successful. 

I certainly am willing to stay here weekends, 24/7, to make sure 

those protections stay in place. There does not seem to be any 

sense of urgency about the fact that this lawsuit is moving its way 

through the courts and could blow up, I mean, all of the rural protections, women paying more than men. 
13 

I love it when men say, ‘‘Well, I should not have to cover the cost 

of women having babies,’’ and I always like to point out, ‘‘You have 

something to do with it.’’ It is not fair that women should have to 

pay more because they are the ones bearing children. 

The four largest insurance companies denied health insurance to 

more than a half a million people based solely on preexisting conditions based on information that was brought out in 2010, and that 

is one in seven applicants that were denied. 

Let me get to improper payments and State auditors in the time 

I have left. 

Mr. Dodaro, you talked about this in your opening statement. We 

talked about CMS’s auditing plan. In response to the Chairman’s 

suggestion to you of private auditors, you suggested that CMS 

should engage State auditors for these efforts instead. Would you 

make sure that we have on the record for the Committee and make 

sure that—and I am sure that Administrator Verma is aware of 

this—that State auditors are already required to do the single 

audit every year? State auditors are already accustomed to looking 

at Federal programs and the integrity of those Federal programs 

in their State. Could you explain why this would be a seamless 

transition to add to the single audit responsibilities—taking a look 

at managed care and Medicaid particularly? 

Mr. DODARO. Yes. The State auditors can have very deep and 

longstanding knowledge of the State Medicaid programs. In most 

States—and Administrator Verma mentions this in her statement—if not the number one budget item in the State, it is number 

two, and in some States, it is almost 30 percent of the entire budget of the State. So it is a very important responsibility. 

Under Federal law, the Single Audit Act, as you mentioned, and 

OMB circulars, the States are required to perform an audit every 

year of the Medicaid program along with other State programs—— 

Senator MCCASKILL. Child support. 

Mr. DODARO [continuing]. That receive Federal money. Yes. 

Senator MCCASKILL. There are all kinds of programs. 

Mr. DODARO. The Temporary Assistance for Needy Families 

(TANF) program, for example. 

Senator MCCASKILL. I mean, frankly, our State’s budget—and 

most States’ budgets—is dominated by passthrough money from 

the Federal Government. 

Mr. DODARO. Yes. 

And in the OMB guidance on this, there is a circular that specifies what compliance issues need to be checked by the State auditors who are doing those audits. 

Some of the States contract out those audits. Some do them 

themselves. So the OMB compliance supplement is one vehicle that 

CMS could use. 

Also, the single audits are always intended to be the base. That 

is, you start there, and then you can add other audits that focus 

and do more in-depth work, which is what I think could be done 

in a managed care arena. 

In this area, CMS is starting to do audits on some of their programs, but they are on a 3-year cycle where they are covering one 

third of the States each year. So they will not be finished with 

their cycle until 2020 or 2021, and if they use the State auditors, 
14 

they would have knowledgeable people to start with. They could 

cover all the States every year if they really wanted to. 

I am not saying that there should not be a role for contract auditors too, but to me, the State auditors are an unused resource that 

could be very helpful. 

Senator MCCASKILL. And by the way, they have a bigger megaphone in each of their States. Their results and findings are 

telegraphed in a very bold way to the policymakers in those States. 

So, as you are working with the States to encourage flexibility and 

waivers to allow them all to make their own decisions, this is such 

a sensible partnership. It makes so much sense, and it will save 

us a lot of money because I guarantee you, State auditors, having 

some experience contracting audits and some experience using 

auditors on my staff, I will tell you, you will save a boatload of 

money if you go through the State auditors as opposed to hiring 

private contractual independent auditors. 

Thank you, Mr. Chairman. 

Chairman JOHNSON. I do want to quickly point out the limitation 

of State auditors, though. They are probably not going to be where 

you have a State really trying to expand eligibility to get the 90 

percent match on Medicaid expansion or in the case of these gimmicks. I do not think you are going to have State auditors blowing 

the whistle. You would need Federal oversight. 

Senator MCCASKILL. That is just not true. State auditors blow 

the whistle on gimmicks that involve Federal spending on a daily 

basis. 

I will show you. In fact, I would ask the leadership of the State 

auditors organization, why do not you give us examples across the 

country so we can get some sampling of the kind of audits that are 

done to shake up State policymakers about the way Federal dollars 

are being spent. 

Chairman JOHNSON. Again, I am not saying they will not blow 

the whistle on some, but you certainly need a Federal oversight 

role here. That is the point I am making. 

Second, you started out your questioning really about Obamacare 

and guaranteed issue. We do have plans. There is a plan right now. 

I would love to vote on it, Graham-Cassidy-Heller-Johnson, which 

would more equitably distribute the Medicaid expansion and the 

advanced premium tax credit to the States. It is pretty much ready 

to go. It definitely preserves guaranteed issue. 

By the way, I argued strenuously but unsuccessfully during the 

debate as well to have things like invisible high-risk pools in Maine 

that literally cut the costs for young people, their premiums, to a 

third of the current level and half for elderly individuals, while not 

doing away with guaranteed issue. 

There are ways of doing this, and I am happy to have the debate. 

And I would love to take a vote on it as well. 

That being said, our next questioner is Senator Peters. 

OPENING STATEMENT OF SENATOR PETERS 

Senator PETERS. Thank you, Mr. Chairman, and both of our witnesses, thank you again for being here today. 

Administrator Verma, I was pleased in your opening comments 

when you talked about how Medicaid is absolutely essential to pro-
15 

viding health care to folks in this country, and I hope that you are 

focused on the goal, which I hope all of us have, is that no matter 

who you are, no matter where you live, you should have access to 

quality affordable health care in this country. That should be our 

focus. 

And as we are looking to make Medicaid more efficient, which we 

should, we have to make sure taxpayer dollars are being used the 

best way that they can. We look at that in the spirit of strengthening the program and the ability to make sure that those folks 

continue to get that care. 

And when I raise that, I mean in particular to an epidemic that 

I am very concerned about, which is the opioid epidemic, which 

without question is a public health crisis in this country that we 

have to deal with, and Medicaid is front and center in dealing with 

it. In fact, most folks rely on Medicaid for substance abuse counseling. So, in that spirit, I have a few questions for you, and we 

all know that there is no silver bullet when it comes to addressing 

this crisis. 

But many health experts are looking at medication-assisted 

treatment (MAT), as kind of the gold standard for treating folks 

who are suffering from this addiction. We have seen this approach 

be used successfully in other countries over the years; in fact, in 

France in the 1990s which had a very serious heroin epidemic, 

used this treatment to dramatically reduce—in fact, by over 80 percent—the amount of deaths associated with overdose. 

So my first question is to you, What steps are you taking at CMS 

to expand access to medication-assisted treatments? 

Ms. VERMA. Well, thank you for your question. I appreciate it. 

On a couple of issues in terms of dealing with the devastating 

effects of the epidemic and substance use disorder at large, as we 

look at this issue, one of the major steps that we have taken is to 

make sure that individuals on the Medicaid program have access 

to treatment, and we know that there has been some barriers to 

obtaining care with some of the existing Medicaid policy around institutions for mental disease (IMDs). Those institutions were not 

available to individuals on the Medicaid program. 

And so one of the things that we have done is to put out guidance to States in particular around waivers so that they could have 

a waiver of this law and to allow Medicaid recipients to obtain care 

at the IMDs. We think this has been an important step in terms 

of improving access to care. 

The previous Administration had taken action on this but had 

put in place a lot of up-front barriers requiring States to put a lot 

of different things in place before they could even start accessing 

the treatment. So we have changed this around, allowing individuals to have that immediate access to care while asking States to 

put together a comprehensive plan that would include addressing 

medication-assisted therapy. 

By doing that already, we have approved 11 waivers today. We 

have nine that are continuing to pend that we will be hopefully addressing very soon. 

In terms of your question on Medicaid-assisted therapy, I think 

that is an important issue, and I would like somebody from my 
16 

staff to follow up with you as soon as possible on some of our efforts on that, so thank you for the question. 

Senator PETERS. Well, I appreciate that. We will follow up, and 

you actually answered my second about the guidance to the States, 

so I appreciate that. We have to keep pushing that out to make 

sure that the States are responding appropriately and have proper 

guidance from CMS. 

The second question relates to community health centers who 

have been adapting their services, as you know, to respond to the 

opioid crisis, particularly the extent to which they offer Medicaidassisted treatments. 

Health centers disproportionately serve populations on Medicaid 

or without any insurance whatsoever, which together account for 

nearly half of non-elderly adults with opioid addiction. They are 

also located in medically underserved rural and urban areas, which 

are typically, as you well know, the hardest hit by the crisis. 

The survey found that health centers in Medicaid expansion 

States are more likely to provide Medicaid-assisted treatment than 

those in non-expansion States, and they are more likely to increase 

the number of providers who can prescribe these medications and 

are much less likely to rely on Federal grants for the training. 

In addition, they distribute the Naloxone, the life-saving drug for 

reversing the effects, at almost twice the rate as in non-expansion 

States, and this tells us that when more folks affected by the opportunity crisis can pay for their services through Medicaid versus 

no insurance, health centers can provide more and better treatment to other folks as well. 

So my question is, How would you describe the role of Medicaid 

in treating individuals that suffer from opioid addiction, and what 

can we do to make that even stronger? 

Ms. VERMA. So, generally, I would say that across the board, 

with all of CMS’s programs, whether it is Medicare, Medicaid, or 

exchange programs, having access to coverage increases an individual’s ability to access treatment, and we certainly acknowledge the 

important role that community health centers play in serving our 

safety net populations. And we appreciate their efforts. 

Senator PETERS. So you see Medicaid as a positive resource for 

individuals who are suffering from opioid addiction? 

Ms. VERMA. It can be. 

Senator PETERS. It can be? How can it be—why would it be a 

negative? 

Ms. VERMA. I think there has been some concerns that have been 

raised in terms of having providers in the program that may not 

have been screened appropriately that were providing medications 

inappropriately, and that is not necessarily an issue that is just a 

Medicaid issue. It is also across all potential insurers as well. 

Senator PETERS. So, no question, there are problems with efficiencies and whether or not there is fraud, whether or not there is 

inappropriate prescribing, but on balance, these are programs that 

are absolutely essential for us to deal with this crisis. Would you 

agree? 

Ms. VERMA. I think it is important for people to have access to 

treatment. 

Senator PETERS. OK. Thank you. 
17 

Chairman JOHNSON. Senator Hassan. 

OPENING STATEMENT OF SENATOR HASSAN 

Senator HASSAN. Thank you, Mr. Chair and Ranking Member 

McCaskill, and thank you to both of our witnesses for being here 

today. 

And I just want to know, Administrator Verma, I appreciated 

very much your comments about the importance of protections for 

people with preexisting conditions. One of the things a number of 

us are eager to hear in the upcoming hearings on the Supreme 

Court nomination of Judge Kavanaugh is for him to clarify his position because he has written some remarks that indicate that he 

perhaps does not believe that it is constitutional to require coverage of those with preexisting conditions. So it is one of the things 

I am waiting to hear through the hearing process and the confirmation process. 

But I wanted to turn to an issue that I think many Americans 

are concerned about, Administrator. At the beginning of the month, 

the Administration finalized a rule to allow insurers to sell shortterm junk health insurance plans to cover people for up to a year. 

These are skimpy plans, and some would hardly even describe 

them as health insurance at all. They would expose consumers to 

a tremendous risk and come without many of the most important 

protections established by the Affordable Care Act. 

These junk plans can deny coverage, exclude benefits, or charge 

higher rates to people with preexisting conditions, and they do not 

even have to cover all of the essential health benefits like maternity care or prescription drugs. 

This junk insurance rule is just one of a litany of actions that 

the Trump administration has taken to sabotage the Affordable 

Care Act. I really think putting politics over patients. 

I cannot understand why the Administration would finalize a 

rule like this, given how much the American people have made it 

clear that they value comprehensive coverage and protections for 

preexisting conditions. 

Administrator Verma, the Administration has said this junk insurance rule will provide people with more options, but if a person 

with heart disease is denied coverage by a short-term plan, how is 

this an option for them? If someone with asthma tries to buy a 

short-term plan and is told it will cover everything except their 

asthma medication, how is this an option for them? 

If a woman or an older adult tries to buy a short-term plan and 

they are quoted a price they cannot afford because of their age or 

gender, how is that an option for them? 

Ms. VERMA. Thank you for your question. 

Short-term limited duration plans are about giving choices to 

Americans. Today, there are over 28 million Americans that are 

uninsured. They cannot afford Obamacare’s high rates. 

Senator HASSAN. Certainly, more people are insured today because of Obamacare than before Obamacare, correct? 

Ms. VERMA. And rates have gone up over 100 percent. In your 

State alone, in New Hampshire, since 2014, rates have gone up 64 

percent. 
18 

Senator HASSAN. You know how much they went up between 

2002 and 2003, if I have my years right? It was, for some people, 

about 200 to 300 percent. So the rise in insurance premiums has 

not been a product of the Affordable Care Act alone. 

I have a son today who is alive because of the research and development (R&D) in the medical field that allows him to have a 

baclofen pump, somewhere between 10 and 15 different high-cost 

medications, a feeding tube, and a bunch of other things—and 

home nursing, right? He would not have been alive a generation or 

two ago. 

So let us just talk about these short-term plans, OK? Because the 

concern here is that we are saying to people, ‘‘Hey, you can spend 

less money on a short-term plan,’’ and then when they actually 

need coverage, they find out that the money they spent does not 

cover it. So how is that better for them? 

Ms. VERMA. So there are individuals today that cannot afford 

anything because of the high rates. This is intended to give them 

a choice, an alternative. 

Now, I am not saying that this is for everybody, and what we 

have done is to strengthen the consumer protections. We make 

sure that individuals are aware of what they are buying and what 

the limitations are, but the reality is there are so many individuals 

in our country, 28 million people, and the rates have gone up over 

100 percent. There is limited choice. There is limited networks. 

Many of the plans that are being offered have high deductibles 

that people cannot afford, and these—— 

Senator HASSAN. Which was also true before the Affordable Care 

Act. 

Ms. VERMA. The short-term limited duration plans were available 

before Obamacare and at the beginning of Obamacare. 

Senator HASSAN. They were available for much shorter times. 

They were intended as a stop-gap between jobs. They were not intended as something to mislead consumers about the coverage they 

would get, and there are other methods we could take, some of 

which you heard from the Ranking Member, that could help us reduce health care costs overall. 

So let me turn to some of the other ways where we could really 

be getting at health care costs. As drug prices continue to skyrocket, one particular area I continue to focus on is how we can 

stop big pharmaceutical companies from taking advantage of patients and our health care system. Big pharma is endlessly creative 

when it comes to ways to game the system and pad its pockets. 

So let us take the Medicaid rebate program. Drug manufacturers 

have to provide rebates or discounts to States as a condition of having their drugs covered by Medicaid. States then share that discount with the Federal Government. 

Manufacturers are supposed to give larger discounts for brand 

drugs, which are typically more expensive than generic ones. 

But true to form, some drug makers may have misclassified their 

drugs in order to shirk their obligation to provide that larger discount, leading to more than $1.3 billion in lost discounts from drug 

manufacturers from 2012 to 2016. 

People might remember this issue from when Mylan, the maker 

of EpiPen, misclassified the EpiPen as a generic drug. 
19 

So, Administrator Verma, how is CMS tracking the classification 

of drugs in the Medicaid rebate program to see if there are any 

misclassifications? 

Ms. VERMA. So, first of all, in terms of the classifications, I will 

add in terms of the Medicaid rebates that the Affordable Care Act 

actually capped the amount of rebates that manufacturers had to 

give. So, even as they have increased their prices, the Affordable 

Care Act actually capped the amount of rebates. 

But in terms of the misclassifications, I agree with you this has 

been a significant issue. 

Senator HASSAN. Yes. 

Ms. VERMA. We know in the case of Mylan that there was definitely an issue there. We worked around a settlement of that, that 

came to about $465 million that came back to taxpayers. 

What CMS has done is put out guidance to manufacturers to 

make it very clear to them what the requirements are regarding 

the classification. 

The problem that we have, however, is that we do not have any 

enforcement authority. So we can put out guidance, but if they are 

not—— 

Senator HASSAN. Right. 

Ms. VERMA [continuing]. Classifying appropriately, then we are 

limited in the amount of action we can take. 

Senator HASSAN. So that was going to be—and I realize I am 

running out of time, but my last piece of this question, I was just 

going to ask you, Would you support additional authority from Congress so that CMS can impose civil monetary penalties on drug 

makers who knowingly misclassify their drugs in the Medicaid rebate program? 

Ms. VERMA. Yes, we would, and I think that our efforts around 

the Mylan settlement—— 

Senator HASSAN. Right. 

Ms. VERMA [continuing]. Shows the amount of dollars that taxpayers are losing, and so we would be very supportive of that. 

Senator HASSAN. Thank you very much. 

And thank you, Mr. Chair. 

Chairman JOHNSON. Senator Hassan, I do want to point out, 

short-term limited duration plans are a part of Obamacare. 

Up until just leaving office, those things were for a term of 364 

days. On the way out the door, President Obama restricted those 

to 90 days. So individuals that have been seeing their premiums 

double, triple, quadruple, simply could not afford it, and they were 

being forced to buy these limited plans 90 days at a crack—so now 

what the Administration does is made those—return them to where 

they were, 364 days, and allowed renewability for up to 3 years. 

If people end up with a preexisting condition cannot renew them, 

you have the Obamacare exchanges. 

So, again, this is just giving an option. It is going to dramatically 

lower premiums for people that have been priced out of Obamacare 

markets. It is called freedom. 

Senator HASSAN. Mr. Chair, if I may? 

Chairman JOHNSON. Sure. 
20 

Senator HASSAN. If they have an event that—with a preexisting 

condition during the time that they are covered by that short-term 

plan and it is not open enrollment on the exchange, they are stuck. 

And, second, what we also know is that by extending what— 

these short-term plans were supposed to be here between jobs. It 

is minimal coverage while you move to your next long-term plan. 

What we know is it is going to drive the costs up for everybody 

else. That is what we have good data about. 

So I am happy to have this debate, but the reason they are limited in duration is because you have people spending hard-earned 

money on junk insurance that does not cover lifetime illnesses and 

events. 

Chairman JOHNSON. And the reason they are needed is because—— 

Senator HASSAN. And then the rest of us will pay for it. 

Chairman JOHNSON. And the reason they are needed is because 

Obamacare for individuals have been priced out of the market, double, triple, quadruple the premiums. That is why. So we are trying 

to give some option to those people that have been—the forgotten 

men and women of Obamacare. 

With that, Senator Carper. 

OPENING STATEMENT OF SENATOR CARPER 

Senator CARPER. I am going to say something I had not planned 

to say. One of the things we, every now and then around here, actually work together, and to the best people we have Lamar Alexander and Patty Murray. And some of us were invited to participate less than a year ago in a series of hearings and a series of 

offsite coffees that preceded those hearings to try to figure out 

what are some things we can agree on to bring down the cost of 

coverage in the exchanges. 

And the witnesses included Governors. They included State insurance commissioners, folks from health insurance companies, 

providers, you name it, and they basically agreed on three things. 

It was kind of amazing. First, they said at the end of the day, what 

we need is to adopt an approach on reinsurance, maybe sort of like 

what we have in Medicare Part D, but that would be a good step. 

Second, they said that cost sharing reduction (CSR), we need to 

make sure the cost-sharing arrangement, so that they do not go 

away, that they are going to be around, the insurance companies 

can count on those. They have some certainty. 

The third thing—the witnesses agreed one after the other was 

that if we are going to get rid of the individual mandate, we have 

to come up with some combination of alternatives, which in their 

aggregate mimic the effect of the individual mandate. 

We have some witnesses who said the reduction in premiums in 

the exchanges could be 25, 30, or 35 percent if we would do those 

three things, and regrettably, we have never voted on that package, 

which is just beyond me. 

One of my best friends, this guy named Kasich from Ohio, we 

were freshman Congressmen together 400 years ago, and he was 

asked why he decided to extend Medicaid in the State of Ohio a 

few years ago, Medicaid expansion up to 135 percent. And he said, 

‘‘When I stand at the pearly gates someday in the future and I am 
21 

trying to get into heaven and they ask me what did you do to deserve getting in’’—and I am paraphrasing him, but he said, ‘‘I just 

want to be able to say that when people needed health care, I 

helped them get it.’’ 

And when you read Matthew 25—my colleagues hear me quote 

Matthew 25 from time to time—it says, ‘‘When I was hungry, did 

you feed me? When I was naked, did you clothe me? When I was 

sick and in prison, when I was thirsty, did you give me to drink 

when I was a stranger in your land?’’ It does not say anything 

about health care. It does not say a word about when I did not 

have any access to health care, did you do anything about it. 

And Kasich says, ‘‘Well, I want to be able to say we did something about it.’’ 

I think we have a moral imperative to the least of these in our 

society, and as we are talking about here today, we have a fiscal 

imperative because States face big fiscal challenges. We do in other 

States too, and frankly, we in the Federal Government face big fiscal challenges. 

And so the timing of this hearing is ideal and it is important. I 

have focused for years on improper payments. A bunch of my colleagues have worked in those fields with me, and so has Gene 

Dodaro and our friends at GAO. 

I have a question on program integrity, and I want to ask Mr. 

Dodaro. 

Ms. Verma, I always note Gene Dodaro—if you will notice, not 

a word on a piece of paper. He just sits there and gives a statement, and then he answers questions. For the first few times that 

he did it, first couple of years, I was like really amazed, and then 

I noticed this lady who has like a white coat, right behind him over 

his left shoulder. When he speaks, I see her lips move. [Laughter.] 

She is always there. So we welcome you both. 

A question for Gene. Earlier this year, as you may know, Senator 

McCaskill, Senator Johnson, and I introduced yet again more improper payments legislation, and it was called the Payment Integrity Information Act. And the bill takes a series of steps or at least 

attempts to take a series of steps to address the problems of improper payments across our government, including the formation of 

a working group that will enable Federal agencies to collaborate 

with each other and with non-Federal partners, such as State governments, to develop strategies for addressing key drivers of improper payments. 

And I would just ask, Mr. Dodaro, should this bill become law— 

and it just might—what would you advise this working group to 

focus on in order to combat improper payments in the Medicaid 

program? What advice would you have? 

Mr. DODARO. First, I am very supportive of the legislation. I hope 

that it becomes law. 

Senator CARPER. Would you like to be added as a cosponsor? 

Mr. DODARO. Well, Senator, I do not think the rules will allow 

that. 

Senator CARPER. All right. 

Mr. DODARO. But from my vantage point, I think it is a good 

piece of legislation. I think it would advance the focus on improper 

payments. The advice I would give to the working group would be 
22 

to focus on the managed care portion of the Medicaid program. 

That area has received very little attention over the years. CMS is 

beginning to take action on that area, and I am very pleased with 

what they are planning to do. But I think more needs to be done 

in that area. 

I would also encourage them to have some State auditors on 

their working group to work together with them as they develop 

their strategies. As the legislation is currently configured, most of 

the people on the working group appropriately are Federal officials, 

but I think they ought to bring in some State and local auditors 

as well. 

This was done on the Recovery Act, and I think to great success 

in helping to eliminate, minimize fraud, waste, and abuse, and I 

think it could be done here as well. 

So we have a lot of other more technical recommendations we 

can give the working group, but those would be my main points. 

Senator CARPER. Good. Thanks. 

Another one for you, Gene, but Congress has mandated that 

States submit Medicaid data to CMS to create, I think, a national 

database of Medicaid data. It has an acronym, as you might imagine, T–MSIS. 

GAO has also found that States are delaying in providing Medicaid data to CMS, both for expenditures and for utilization of 

health care services. 

And I would just ask, what should Congress do to help States report data to this entity, T–MSIS? What should they do to help 

States reporting in a more timely, efficient, and accurate manner, 

and what resources do CMS and the States need to adequately report data to CMS? 

Mr. DODARO. The States are beginning to report the data now, 

but I think our concern is that the data be accurate and complete. 

I know CMS is beginning to follow up on this. I think that it would 

be appropriate to ask CMS to regularly report to the Congress on 

the quality of the data and ask GAO to evaluate that as well. This 

would also allow States to do comparability assessments to compare their Medicaid program to other Medicaid programs to learn 

good lessons. 

The data are starting to come in now. This is a very important 

issue because in the past, the data was 2 and 3 years old. This requires monthly reporting, but the reporting data is only one step. 

The data have to be good. It has to be complete and accurate, and 

I think that is the next challenge here for CMS and the States. 

But Congress can help by regularly monitoring what is going on 

in this area and encouraging greater actions by the States as well 

as by CMS. 

Senator CARPER. Good. 

Mr. DODARO. And GAO will be happy to help. We will be watching this. 

Senator CARPER. Good. Thanks. Thanks so much. 

Ms. Verma, if we have a second round, I will be pleased to ask 

some questions and direct them to you. 

Ms. VERMA. thank you. 

Chairman JOHNSON. Senator Heitkamp. 
23 

OPENING STATEMENT OF SENATOR HEITKAMP 

Senator HEITKAMP. This should concern everyone. There is no 

doubt about it. The question is can we afford it, and if we cannot, 

how do we solve this problem? So no one here should pretend that 

we do not have a problem. 

But one thing that gets absolutely lost in the back-and-forth on 

Obamacare is we should be talking about health care. We should 

be talking about the increased cost of health care, and so if we 

could all just turn away from our politics for a minute and go directly to solving the problem, we would go a lot further. 

So there are three ways we can solve this problem. We can address waste, fraud, and abuse. We can improve efficiency in delivery, and we can reduce the amount of health care that is being 

accessed. All of those things would go a long way. 

The RAND Corporation did a study, and the study said 12 percent of all the people in this country who have four or more chronic 

conditions cost the system 40 percent. What are we doing to address that? 

Seema, when you look at this, have you seen it increase? North 

Dakota is a 50 percent State. We were as high as 80 at one point 

before the Bakken boom. So are you seeing an increase in the 

amount of Federal share overall in traditional Medicaid? 

Ms. VERMA. Yes. I mean, I think that is the concern that we 

have, and Senator Johnson brought this up in terms of where we 

are with the GDP. 

Our actuary projects that by 2026, we are going to be spending 

one in every five dollars on health care, so we are deeply concerned. 

Senator HEITKAMP. Right, but that is not what I am asking. 

The State and Federal Government share the cost of the Medicaid program. So what percentage today overall, nationwide, of the 

Medicaid program does the Federal Government spend? 

Ms. VERMA. Well, there are different matching rates, depending 

on the population that we are serving, right? So if we look at where 

we are over the next 10 years, our actuaries project that we are 

going to be spending about $998 billion—— 

Senator HEITKAMP. But what percentage of overall Medicaid 

spending is that? 

Ms. VERMA. It depends on which program. 

Senator HEITKAMP. Yes, but—— 

Ms. VERMA. For able-bodied adults, we are paying—the Federal 

Government is paying 90 percent, and it depends on the match 

rate. 

Senator HEITKAMP. Yes. No, I mean, this is an important question because as we look at the economic challenges, State by State, 

some States are wealthier than other States. If you have a large 

State, that is not as wealthy. 

Maybe you can answer this: What is the current Federal Medical 

Assistance Percentages (FMAP) on average in Texas? 

Ms. VERMA. I think the FMAP in Texas is probably a little bit— 

60s? About 65 percent. 

Senator HEITKAMP. Yes. And if that goes up to 70, you are going 

to have increased cost. 
24 

So this does not help me much because I do not know what is 

driving this other than utilization. 

And so this is supposed to be a hearing about waste, fraud, and 

abuse, and I think that I share Senator McCaskill’s point of view 

about the need to work with State auditors. They have real skin 

in this game. 

I had my director of the Department of Human Services tell me 

that 28 percent of his budget went to pay for less than 3,000 people 

in nursing homes. Now, that is something we need to talk about, 

and so instead of talking about all the things that we get bogged 

down into, let us talk about health care. 

So when you look at waste, fraud, and abuse, and you look at the 

programs, are you committed over at CMS, Ms. Seema, to responding and to having ongoing and consistent reports back to this group 

about the Medicaid program? 

Ms. VERMA. Absolutely. And I think that this year since I have 

come to CMS, we have taken a lot of different actions. 

One of the things when I came to CMS, we inherited a backlog 

of—— 

Senator HEITKAMP. Yes, I know. 

Ms. VERMA [continuing]. GAO and OIG recommendations. 

Senator HEITKAMP. I do not think anyone should put any blame. 

We had 13 years of inattention, but we have an opportunity today 

to take that first step toward solving this problem. And I want to 

make sure that you are working with GAO to respond. 

There is a number of GAO requests, but this is a very high priority for our oversight. 

Ms. VERMA. I completely agree. We have made this a priority in 

the organization. We meet with the GAO and OIG regularly. We 

have taken action. We have taken action on the backlog of disallowances. We have addressed some of the improper payments 

that were going on with the Medicaid program in California, for example, where we recovered by the end of this year, $9.5 billion. 

We have also closed some of the loopholes in the designated 

State health programs up to the tune of $25 billion. 

The disallowances, that was $590 million that we went back and 

addressed. 

We are also doing some of our own audits around beneficiary eligibility as well as managed care audits. We are restoring the payment error rate measurement (PERM), the PERM audits as well. 

We started doing those. 

So we have taken a lot of actions, and I agree that we need to 

do more. 

Senator HEITKAMP. Mr. Dodaro, let us assume that we run a perfect system and there is no waste, fraud, or abuse. How much do 

we reduce this number? 

Mr. DODARO. Probably marginally. 

Senator HEITKAMP. Yes. And that is the point, is that we need 

to spend every dollar critically, but at the end of the day, that is 

not going to solve our problem with this explosion of Medicaid 

costs. 

This is a product of aging, aging into the system. It is a product 

of increased percentage of older, oldest who have depleted their resources, where we need to take a look at investments and research 
25 

that is going to help people live in their homes longer and not access these programs. 

We have real work to do here, and it frustrates me to no end that 

we do not begin to address the things that can, in fact, make a difference long term. 

And so I think that one of the next steps is how do you deliver 

health care in States like mine, and I want to publicly thank Ms. 

Verma for working with my office and working with me to talk 

about rural health care delivery. 

I know the article that was in the New York Times that relay 

the situation in Claire’s home State was absolutely eye-opening, 

and it tells us we need to do better, especially for those seniors who 

rely on this program. 

But we have to start identifying those things where we can actually save money and save money long term without curtailing people’s access to care. 

And I want to just say one thing. It is disingenuous—and I am 

not talking about you because you did not make this decision, but 

it is disingenuous of this Administration to say they believe in preexisting conditions, protections in Federal law for preexisting conditions, when they are currently in court arguing that they are unconstitutional. There is nothing consistent about that position. 

Now, I understand the complications with preexisting conditions 

and the complications with eliminating the individual mandate and 

preexisting conditions, but let us not pretend that there is any commitment here from the Department of Justice to preserve preexisting conditions as a protection for the American public because 

you do not go to court and argue that it is unconstitutional if you 

intend to preserve that protection. 

So it is not your decision, but I want that on the record. 

Chairman JOHNSON. Senator Heitkamp, thank you. 

A quick answer to your question, off of this chart, according to CBO, it is about 72 percent, the $430 billion, 72 percent of the $600 

billion total spend, when you combine the two types of Medicaid expansion and core Medicaid. 

And then there are multiple causes in terms of why health care 

spending is a growing—take a look at this first sheet. This is kind 

of an interesting one. 

Senator HEITKAMP. I saw it. 

Chairman JOHNSON. I appreciate that. Senator Daines. 

OPENING STATEMENT OF SENATOR DAINES 

Senator DAINES. Chairman Johnson, I want to thank you for 

your continued attention to this important issue. I do hope the 

Democrats and Republicans can make some breakthroughs here. 

This is a chance for bipartisan ship. 

I respect Senator Heitkamp’s comments. There are multiple factors driving up this spending, but the scope of this hearing is to 

take a look at Medicaid fraud, Medicaid overpayments, and that is, 

I think, an important place to start, where I think there is probably some of the lowest-handing fruit for us, perhaps in this area, 

that I hope we can agree on because if we fail to do this—these are 

important safety nets that we have in not only Medicaid, but I 

would argue Medicare. 
26 

If Medicaid spins out of control in terms of spending, it puts all 

of these important safety nets at risk, and we need to insure we 

safeguard these important safety nets for those who truly need it. 

These improper payments in Medicaid, these exponential growth 

rates have been problems for years. I am struck by the fact that 

by—I think it is about 2022, Mr. Chairman, where Medicaid spending all in the Federal component, the FMAP, plus the State component exceeds Medicare spending—and about 2022 is when those 

numbers cross is my understanding, some, what, $835 billion, all 

in number in Medicaid compared to $828 billion in Medicare. And 

I do not think that is being talked about enough right now. 

We talk a lot about the challenges of ensuring we keep Medicare 

protected long term, but Medicaid spending will exceed Medicare 

spending all in. 

And the numbers, Administrator Verma, that you shared about California alone, that $9.5 billion, that is real money. I think about 

how hard we fight on Capitol Hill, like on the Land, Water, and 

Conservation Fund (LWCF), for example, to try to get that fully 

funded. We could take 5 percent of the California savings and fully 

fund LWCF. 

I think about the backlog in our National Parks. I chair the Na- tional Parks Subcommittee. We have about a $12 billion maintenance backlog, of deferred maintenance. That is debt in our National Parks. The California $9.5 billion recovery that you all have 

made just about takes care of our National Park deferred maintenance for the entire country. so these are important discussions. 

Administrator Verma, I applaud your efforts to improve the program’s integrity. The waste, the fraud, the abuse in Medicaid is appalling, and now we have millions of healthier working-age individuals who are being added to this program. 

Enrollment in my home State of Montana has exploded and far 

exceeds the initial actuarial projections. 

My question is, Are you concerned that providing care to the expansion population could bring about even more misuse of taxpayer 

dollars? 

Ms. VERMA. So if we look at Medicaid expenditures for adults, newly eligible adults, these are projected to amount to $806 billion 

over the period of 2016 through 2025, so it is an extraordinary 

amount of dollars. 

Senator DAINES. On the expansion. 

Ms. VERMA. On the expansion population alone. 

Senator DAINES. Right. 

Ms. VERMA. And if you look at the structure of that, it is 90 percent eventually that the Federal Government will pay for this, and 

so I think that that diverts the focus from the rest of the Medicaid 

program, the most vulnerable populations. 

In terms of program integrity, this is why we are deeply concerned about this. We have always had program integrity efforts 

within the Medicaid program, but given now the change with the 

match rate—and it is not only 90 percent, but it is a completely 

open-ended entitlement—— 

Senator DAINES. Right. 

Ms. VERMA [continuing]. The incentives are not in place necessarily for the State to focus on program integrity because as they 
27 

are recovering dollars—for example, if they have budget cuts or if 

they are focusing on program integrity for the expansion population, they are only going to recover, only up to 10 percent. So that 

is why I think it is incumbent on the Federal Government to have 

a renewed and more focused attention on this. 

Senator DAINES. Administrator Verma, you have worked both the 

State side as well as the Federal side. You have worked with Vice 

President Pence when he was Governor. 

So if you put your hat on, if you were a Governor, and you had 

basically an FMAP of 90 percent to 94 percent with the expansion 

population and you have, in Montana’s case, about a 65 to 66 percent FMAP with traditional Medicaid—you talked about the incentives of integrity—arguably, would not there be an incentive perhaps for the States? As much as I strongly believe in the principle 

of federalism and empowering the States, but with an open-ended 

entitlement on the expansion, do you think there perhaps is an incentive for States to move traditional Medicaid enrollees and move 

them on the expansion FMAP? Because the algebra is pretty simple. 

Ms. VERMA. Yes, absolutely. And I think that is why we are focused on doing more audits around eligibility because we know 

that there have been problems with this. 

Some of the audits have shown—that the GAO have done, that 

we know that there has been system errors, whether some of these 

are worker errors, but you are right. At the end of the day, with 

that 90 percent match rate, States have a strong incentive to draw 

down more Federal dollars. 

I think also, in terms of their support of the program, that those 

are dollars that they are putting toward able-bodied adults that 

they are not putting toward vulnerable populations. 

We know that access to care in Medicaid has been an issue in 

terms of provider reimbursement. So those are dollars that they 

are not putting toward vulnerable populations, increasing rates to 

providers, and that they are putting for able-bodied—— 

Senator DAINES. Arguably, we are subsidizing at a higher rate 

able-bodied individuals at the expense of what Medicaid is originally intended to protect, which are those who are truly the most 

vulnerable in our society that do not have any other options. It is 

just a concern. 

Ms. VERMA. I think it is a concern. 

I think also the structure of how we have set this up, with a 90 

percent match and an open-ended entitlement, it really does create 

an incentive for the States to spend more and more. 

So as we are looking at program integrity at large and we think 

about all of the efforts that we are taking and we appreciate the 

support of the GAO, the State auditors, but at the end of the day, 

we are constantly going to be—if we come up, we audit. We find 

problems; we correct them. States are going to figure out new 

ways, and until we change the dynamic and the structure of the 

Medicaid program from being an open-ended entitlement to one 

where States are responsible for a fixed amount of dollars, we are 

always going to have these issues around program integrity. 

Senator DAINES. You mentioned GAO. Last question over to the 

General. 
28 

General Dodaro, to follow up on our conversation about 2 months 

ago, is GAO analyzing improper payments data pertaining to the 

expansion population? 

Mr. DODARO. Yes. We have looked at that issue, raised a number 

of recommendations to CMS to address. For example, in some 

States, they have asked CMS to do the eligibility determination for 

them, but they need to check to make sure they have good quality 

controls in place. So that is a good step forward. They are putting 

that in place. We are checking it, and that should be OK. 

The other thing is that they need to make sure they are checking 

because some people can move between Medicare—or the Medicaid 

program itself and the exchanges, and they can go back and forth, 

depending on their income, their employment status as well, and 

that needs to be measured because there are different payments 

that accrue to them because of this. 

And then there are also inconsistencies in eligibility determination, both for financial and nonfinancial data, that need to be resolved. 

So we have looked at this. We have made recommendations. 

CMS is taking action. In most of them, we have closed it. In some 

areas, we are waiting for additional documentation. 

Senator DAINES. Thank you. 

Mr. Chairman, I think there will be a spin in others who would 

seek to try to perhaps challenge the motives of what this Committee is trying to do, but I think—let us be clear. We want to 

make sure we protect and that we save Medicaid and Medicare, 

and by doing so, by eliminating the waste, fraud, and abuse or 

minimizing it, that is the best way to ensure those who need it the 

most will continue to see those benefits. 

Thank you. 

Chairman JOHNSON. Thank you, Senator Daines. 

Now, my staff tells me that Senator Jones is next. Is that true? 

OPENING STATEMENT OF SENATOR JONES 

Senator JONES. All right. Thank you, Mr. Chairman, and thank 

you for the witnesses for being here. 

Let me first—I just want to echo something that Senator 

Heitkamp said, and I know, again, it is not there. But I want to 

also talk about this preexisting condition issue because I have just 

spent the last couple of weeks in a couple of roundtables with listening to people affected, 900,000 people in Alabama affected by 

preexisting conditions. And that is just the people affected, not just 

their families. 

I agree with Senator Heitkamp that I am just stunned at the 

way that the Administration is saying they want to protect that, 

but at the same time taking actions that are scaring my citizens 

to death that they are not going to be able to have insurance. 

I just came from a Banking hearing involving sanctions, and the 

mantra of the Administration is watch what we are doing on sanctions, not what we are saying. 

Here, it seems to be just the opposite, that watch what we are 

saying and not what we are doing. So to the extent that either of 

you can have any influence, please try to alter the course of the Administration with regard to preexisting conditions. Thank you. 
29 

Ms. Verma, let me ask you real quickly. The Medicare wage 

index is a real problem, and I know you have seen letters from 

members of my delegation. Alabama is at the lowest level on that, 

and we were hoping there might be a little relief in the most recent 

inpatient perspective payment system rule that came out in August, but we did not get that. 

How can we best work together to find a solution to that for my 

State? I mean, we are having rural hospitals closing left and right, 

and it is everywhere I go. The first thing they say is it is because 

we are just not getting the same amount of reimbursement. 

What can we do together to try to get that changed, short of a 

full-blown legislative fix that may or may not ever happen? 

Ms. VERMA. Well, thank you. 

I appreciate the issue that is going on in Alabama with the hospitals, and I had an opportunity to meet with some of the hospitals 

and the hospital association—— 

Senator JONES. Right. 

Ms. VERMA [continuing]. And appreciated their input. And I am 

deeply sympathetic to the issue that they are facing in Alabama. 

I think the wage index is something that we are concerned about, 

and so what we did in our rule was to put out a request for information (RFI). That gives us an opportunity to hear what the impact has been on the wage index, and that is something that once 

we have that input, that gives us a basis of looking at the methodology. 

I am concerned when there are these types of disparities, and 

whether you are a hospital in a rural area, you are still paying the 

same amount for equipment. 

Senator JONES. Right. 

Ms. VERMA. And so we do need to address that issue. 

I am concerned about the closing of hospitals, and I want to 

make sure that all Americans have access to care, whether they 

are in a rural community or whether they are in an urban community, so this is something that is important, which is why we started out with putting an RFI. And this is something that we are 

going to be looking at next year, so I appreciate it. 

Senator JONES. Great. 

Well, I am assuming from your answer that I can get your commitment to continue to work with our office and the other members 

of the delegation to try to address that. 

Ms. VERMA. Absolutely. I look forward to working with you on 

this. 

Senator JONES. Wonderful. 

The other thing I want to ask, Ms. Verma, is about the Medicaid 

exemption that Alabama has just recently requested and I think 

has been sent back now. 

Alabama is trying to impose some very strict work requirements 

for Medicaid recipients I think in trying to oppose like 35 hours of 

work. Alabama has incredibly strict guidelines to begin with. It is 

very low, and the way I see our failure to expand Medicaid has essentially turned this work requirement into a work penalty. 

And I know that has been sent back, but I would like to have 

a little bit of information from you because I am strongly opposed 

to what the State is trying to do because it is a Catch-22 when peo-
30 

ple that are barely making above the poverty level are either going 

to have to work or have insurance. That is just it. So it is a real 

Catch-22. 

So how are you going to be looking at that? Are you going to be 

looking at factors about how it is going to impact the children, how 

it is going to impact families that need child care options? Are you 

looking at Head Start and those things? What is going to go into 

effect? How are you going to look in evaluating whether or not Alabama gets this exemption for what I think is an ill-conceived requirement? 

Ms. VERMA. So let me speak generally to the issue of community 

engagement. Our guidance came from requests from States, many 

States trying to address generational poverty, trying to do something with the Medicaid program to address that issue to help people find a pathway out of poverty, independence, finding a pathway 

to have the dignity of work. 

It is also about improving health outcomes, and so that is really 

where this was borne out of, were these particular requests. 

We know that the old way has not worked when people have 

been living in poverty for so many years, and I think this is about 

trying something different, trying to improve the lives of Americans. 

When we put together the community engagement guidance to 

States, one of the things that we ask for is that they consider special populations so that there are some populations. 

This does not impact children. It does not impact people living 

with disabilities. It does not impact pregnant women. It does not 

impact individuals that are medically frail or individuals that are 

addressing substance use disorder. 

So when States are putting together their community engagement proposals, we have asked them to address these issues, address exemptions. There might be parts of the States that may not 

be appropriate or may not have jobs available, but I think at the 

end of the day, the work participation rates in the United States 

have gone down. They are some of the lowest that we have seen 

in many years, and we know that there is a lot of jobs that are 

available. So this is the idea of helping people to obtain independence and obtain the skills that they need. 

They can also participate—it is not only about work. It could 

be—community engagement means volunteer work. It could be job 

training. It could be participating in school. So there is a variety 

of different ways that individuals could potentially meet these requirements. 

In the case of Alabama, we have also asked what is the transition. We want to make sure that there is a pathway. So we have 

asked them to look at their proposal. We do not want to make sure 

there is some type of a subsidy cliff. We want to make sure that 

that is smoothed out, and so we have asked them to provide us 

some more information on that, and that is something that we will 

be looking at as we consider their proposal. 

Senator JONES. Well, I would urge you to take that laundry list 

of folks of impacted citizens that you looked at and look very carefully at Alabama because my belief, based on what I know, is that 

every one of those groups are going to be impacted significantly, 
31 

particularly children of single parent, single moms who are going 

to have to go back to work and will either not get their health insurance. So I would just urge you to take a close look. 

I know that in the community surveys, there was some—I think 

roughly 800 comments, and 759 of those from hospitals and doctors 

and stakeholders were absolutely opposed to this because they did 

believe that it would significantly decrease and hurt health outcomes in the State of Alabama. So thank you for that in your consideration. 

So thank you. 

Thank you, Mr. Chairman. 

Chairman JOHNSON. Senator Hoeven. 

OPENING STATEMENT OF SENATOR HOEVEN 

Senator HOEVEN. I would like to thank both of you for being here 

today. 

Administrator Verma, I want to bring up first something you and 

I have talked about previously, and that is Veterans Affairs (VA) 

reimbursement for long-term care for our veterans. 

In the VA MISSION Act, we included language that expressly allows nursing homes to take VA reimbursement for veterans that 

come into a nursing home or a long-term care facility, as well as 

for in-home care products and services and the continuum of care, 

to take VA reimbursement on the same basis as they take Medicare or Medicaid reimbursement. 

The reason that is important is because right now, only about 20 

percent of the providers in North Dakota take VA reimbursement 

because if they take it, they are subject to small business contracting rules, which create a whole second set of inspections and 

regulatory red tape and bureaucracy that they have to comply 

with, which is difficult and costly. 

So, as a result, our veterans have limited choices, both in longterm care facilities, but also in their home-based or community 

care-type products and services in the long-term care world. 

And then they have to expend their own funds and dissipate 

their own savings until they are gone and then they qualify for 

Medicaid, and can get the long-term care services they need. 

So this is a very important issue for our veterans, and that is 

why we changed it in the VA MISSION Act. The key now is that 

VA is putting the regulations in place. And it is very important 

that we do not create new regulatory barriers in place of the old 

regulatory barriers there by not accomplishing what we are trying 

to do. 

So I am asking for your help and your support, and I have already approached the Department of Labor (DOL). The Secretary 

of Labor is on board with this. The Secretary of the VA is on board 

with this, and I want to make sure that you are on board. As these 

regulations are written, we want it to end up with one set of regulations and inspections and so forth, whether that be long-term 

care facilities, home based or institutional care, whether they are 

getting Medicaid, Medicare, or VA reimbursement. 

Ms. VERMA. Yes. I think it is very important that our veterans 

have access to the care that they need and different choices about 

the care that they receive. 
32 

As you know, President Trump started something called Cut the 

Red Tape, and as part of that CMS has initiated our effort, which 

we call Patients Over Paperwork. And as we are talking about the 

high cost of health care, one of the things that we know drives 

health care cost is all the increase burden of administrative costs. 

So we are very concerned about anything that provides—or increases burdens to the extent that it does not improve patient quality and safety. 

Medicare already has extensive regulations and guidelines for 

nursing facilities. So I think that as we are looking at this, it would 

be helpful for providers not to have to have two sets of regulations. 

We also have a system of evaluating these facilities to make sure 

that they are in compliance with our regulations. So that is already 

in place, and we would look forward to working with you on this 

to make sure that health care facilities do not have to comply with 

two sets of regulations. We understand that that is a significant 

burden for them. 

And to the extent that it decreases access to care for our veterans is something that we are very concerned about, and we 

would be happy to work with you on this. 

Senator HOEVEN. Right. 

Thanks for your help and support on this on behalf of our veterans. 

As the Administrator for CMS, you are the person that is overseeing all the requirements for this reimbursement and certainly, 

if we trust you to do it for Medicare and Medicaid, that should 

work for VA reimbursement as well. So thank you for your help 

and support on this. 

In regard to the Medicaid program integrity strategy, I would 

ask both of you, What are the very critical pieces that you feel have 

to be implemented that have the most impact or the greatest benefit? And what has to happen with the States in terms of their cooperation to really make it happen? 

Administrator, you can start—— 

Ms. VERMA. Sure. 

Senator HOEVEN [continuing]. And then if you could follow up as 

well, Gene. 

Ms. VERMA. Well, there are many initiatives, and I can go 

through all of them. I think we provided that to you in our written 

testimony, and we agree with many of the GAO recommendations 

and are working to implement those. 

But I would say that we are always going to be working on program integrity. Our work is never going to be done. We need to 

make sure that every dollar goes to the right place. As costs are 

increasing, we cannot afford to not make sure that patients have 

access to the care that they need. 

That being said, I think the problems that we have are related 

to the structure of the Medicaid program because it is an openended entitlement, because there is so much Federal dollars that 

are involved here with the match rates, that we are always going 

to be chasing this until we go back and try to address the fundamental structure of the Medicaid program, to put it on a more sustainable path, to make sure that States have the appropriate incentives in place to address program integrity. 
33 

Senator HOEVEN. Now, when you say that, do you mean both 

FMAP as well as expansion, traditional FMAP as well as expansion? 

Ms. VERMA. I think it is both. I think that the risk has increased 

now that we have a higher FMAP rate or that the Federal Government is paying 90 percent for the cost of able-bodied individuals. 

But even in the base Medicaid program, the structure of the program, because it is an open-ended entitlement, it incentivizes 

States to spend more and more, and now with the 90 percent 

match rate, now there is more of an increased risk. 

I think that going forward, we have worked extensively with the 

States on program integrity issues and will continue to do that 

working with the State auditors, but because this program for the 

able-bodied adults is funded 90 percent by the Federal Government, I think the onus is going to be on us. 

A case in mind was California. We had an issue there with some 

of their payments to managed care organizations, and we found 

that they owed the Federal Government $9.5 billion. So, I mean, 

we are always going to have to be looking at this issue, but I think 

the problem is the structure of the Medicaid program. It is an 

open-ended entitlement. 

Senator HOEVEN. On traditional FMAP, we are a 50–50 State. So 

on traditional FMAP, is that a problem, too, even at the 50–50 

structurally or not? 

Ms. VERMA. I think so, but it is more of a problem for the ablebodied adult. So I would support structural changes to the Medicaid program to address the open-ended entitlement issue, more of 

an issue, though—— 

Senator HOEVEN. So it is the open-ended aspect—— 

Ms. VERMA. The open-ended—— 

Senator HOEVEN [continuing]. That you think drives the challenge with cost savings. 

Ms. VERMA. Correct. 

Senator HOEVEN. Mr. Dodaro, your thoughts? Again, where do 

you really see that area where 10 percent of the effort gets you the 

90 percent result kind of thing versus the reverse. 

Mr. DODARO. There are two main things that I think are really 

important and potentially game changers here. Number one is I 

think we need to bring the State auditors into the picture because 

they have the ability to monitor this on an ongoing basis at the 

State level on the ground and can provide a great degree of accountability and transparency, no matter how the program is structured. 

The CMS actuary estimates that by 2025—about 7 years from now—total spending, Federal and State, will be $958 billion. So we 

are knocking on the door of a trillion dollars a year for Medicaid 

spending. 

Your main accountability people at the State level are there on 

a regular basis. This is a third of most States’ budgets, so there are 

always incentives, no matter what the match is. The Federal Government and the State governments are all on a unsustainable 

long-term fiscal path. So there is going to be fiscal pressures and 

pulling and tugging, but you need that at the State level, number 

one. 
34 

Senator HOEVEN. Are they not there now? 

Mr. DODARO. No. 

Senator HOEVEN. They are not involved in that process? 

Mr. DODARO. Not in any substantive way looking at improper 

payments on auditing managed care. Nobody is auditing managed 

care right now including the managed care providers, and this is 

about almost half of the Medicaid spending is managed care. How 

the providers are making the payments there, that has not been 

audited. 

CMS, now has there is a rule. They are trying to change this. We 

have been calling for this for years. They are going to start doing 

some audits, but they have limited resources, and they are only 

covering the audits on a 3-year cycle with the States. So it will 

take 3 or 4 years to get through all the States. 

The State auditors are there. They are doing financial auditing, 

but they are not doing performance auditing to focus on this area. 

It could be a game changer if we get them involved in a substantive and ongoing way. 

At the Federal level, Ms. Verma is right. We need Federal protection as well, and our recommendations have been to ask CMS to 

be more specific and stringent on approving State demonstrations, 

to get more information on the sources and uses of the money 

States are using to fund their share of the program, that they are 

not shifting cost. So the Federal Government needs to be vigilant. 

And while it is very appropriate—and I agree that States need 

flexibility—it has to also protect the Federal interest. And in the 

past, there have been approvals given to the States that have not 

protected the Federal Government’s interest, and that is what is 

driving the cost. 

The Administrator and I have had conversations about this, and 

she agrees. And, hopefully, they are going to move in that direction. 

So you can give flexibility and accountability, but you also need 

to protect the Federal Government’s interest. 

Senator HOEVEN. Thank you. 

Chairman JOHNSON. Thank you, Senator Hoeven. 

Just during this hearing right here, I have already got about 

three, four, or five other ideas for more hearings. To start drilling 

down managed care would be one of these things. 

I have a lot of questions. Let us first start talking a little bit 

about what you were talking about with Senator Hoeven and Senator Jones about, and I would call it the unintended consequences 

of Medicaid expansion. 

Administrator Verma, you talked about the reduction in work 

participate rates. I read a really interesting article written by Nicholas Eberstadt addressing that 20 percent of working-age adult 

males are permanently out of the workforce. More than half are on 

some kind of pain medication, oftentimes using Medicaid. 

We issued a report based on that where we just in 3 days, when 

I asked my staff to take a look at the diversion, the use of the Medicaid card, get opioids and then divert that into the illegal drug 

market, more than 260 individuals or people being charged with 

exactly doing that. We found when we issued the report we got 

over 1,000. So that is an unintended consequence. 
35 

But another unintended consequence is if you have health care, 

it is a huge incentive to work, quite honestly, if you do not have 

it. So now all of a sudden the Federal Government is providing 

that to a working-age childless—some say able-bodied adult and 

you give them the Medicaid card where they can get a little extra 

income by diverting drugs, you have created a lifestyle. 

So that also from my standpoint, when we talk about the 90 percent match, is a huge incentive for States to draw down those Federal funds, right? They only have to hit 10 percent, and if you 

throw the gimmicks, which we will talk about later, on top of that, 

you can pretty well get 100 percent, OK? 

So talk to me about, both of you, what have we found in terms 

of the ineligible. What is the cause of that? California is a big problem there. I would think there is a huge incentive for States to 

transfer truly Medicaid-eligible individuals into Medicaid expansion if they can get away with it because they get a much larger 

match. Is that part of it? What else are you finding in terms of people that are ineligible that are part of that $37 billion improper 

payment? 

I guess I will start with whoever wants to take it first. 

Ms. VERMA. Sure. 

So if we look at the issue of eligibility and making sure that the 

people that are in the program belong in the program, when we 

looked at some of the GAO reports, some of those are system problems. 

I am very concerned about system problems when we have invested at the Federal level millions, billions of dollars into these 

eligibility systems, and I think that we need to make sure that 

they are working appropriately. We certify these systems, and if we 

certify these systems and they are making mistakes, then I think 

that is a problem that we should hold individuals accountable for 

that. So there is that area of system issues. 

There is always going to be worker errors that may be inadvertent that may be part of it, and then there is also beneficiary 

fraud. So there are sort of two or three areas with that. 

What I am concerned about and one of the things that we are 

going to be looking at in terms of these eligibility reviews is looking 

at States where we have seen very high levels of enrollment that 

were beyond what was predicted. I think that is an issue. 

You brought up the issue of are they putting populations that 

really should belong in a different category of Medicaid with a 

lower match rate, are they doing that. I think there has been some 

instances where that has been found. For example, a pregnant 

woman, they should be in the other program. So those are things 

that when we do our audits that we are going to be looking for. 

In terms of individuals that are disabled, if an individual is receiving SSA or Supplemental Security Income (SSI), we should be 

able to have those types of feeds so that they are not being in the 

newly eligible category. So we need to make sure that the State 

systems are not doing that. 

There are some States that do not use the Federal disability determination when they are making determinations around disability. So I think in those States, that is something that we need 

to review as well because we are not able to look at whether they 
36 

have already been classified under the Federal definition. So those 

are some of the things that we are going to be looking at. 

The other thing that I would add is that when the GAO reports 

were done, they were done early on when States had just implemented the new eligibility system, the modified adjusted gross income. So it is possible that over time, States have improved their 

eligibility processing. 

But something that we are concerned about, we have restored 

the payment error rate measurement audits. As GAO noted, those 

do happen every 3 years, but what we are doing is we are requiring 

States to do their own eligibility audits in the years in between. So 

those are some of the ways that we are going to address that, and 

I think our own audits will also address that issue. 

Chairman JOHNSON. General Dodaro. 

Mr. DODARO. Yes. I think Administrator Verma has given a very 

good overview of the issues. 

I would just underscore the system problems. I think that is the 

only way, given the volume of what is going on over there, that you 

are really going to try to prevent these things up front. So there 

is an appropriate focus on this. There is appropriate matching, particularly for the income eligibility. There is good data that is available to cross-check against the self-reported data that people are 

providing. 

I am very pleased that after a 4-year hiatus, they are back doing 

the beneficiary eligibility audits before. I really did not agree with 

the postponement of that. It happened in the prior Administration, 

and I am glad to see this Administration has plans to start these 

audits. 

But when you make changes like we made in the Affordable Care 

Act, you should increase your internal control audits at the beginning, not step away and allow people to have extra time. So I think 

we have lost a lot of time over the last 4 years. 

We are also starting more work in this area now. The time has 

passed, and we will be reporting to this Committee what we find 

in the future. 

Chairman JOHNSON. OK. We will have a second round because 

I have more questions. 

So with my limited time, let me go right to the audits. I think 

we should use every resource we have: State auditors; auditors 

within CMS, Federal Government; and then independent auditors. 

If we do that, particularly with independent auditors—this is for 

you, Administrator Verma—why not do all 50 States this year? 

Why not do it? 

Ms. VERMA. So if we did every State every year, that would triple 

our cost. So I think that is always the issue that we are going to 

have with all of this which is—— 

Chairman JOHNSON. So what do you think your cost is right now 

in terms of auditing? 

Ms. VERMA. In terms of auditing on the PERM, it is about $34 

million a year, so that would triple our expenditures. 

Chairman JOHNSON. OK. When we are spending $430 billion, $30 million, I am happy to spend $90 million on doing it right off 

the bat. I am dead serious about that. I think you really ought to 

aggressively go after this. 
37 

You are not going to have the audits honed the first year, but 

you have done it, and then we take a look at the results of that. 

I would highly recommend, let us get in all 50 States, and let us 

do the audits. 

Again, you have independent auditors out there. I guess it is 

back down to the Big Four. When I was going to college, it was the 

Big Eight. But I would highly recommend that. Let us get in there 

and get them done. 

And with that, I will turn to Senator McCaskill. 

Senator MCCASKILL. I will defer to Senator Carper. 

Senator CARPER. Thank you. 

If I could just have 30 seconds. Thank you so much. 

This has been a really good conversation, and it is one, frankly, 

I would like to see continue. 

Gene Dodaro is really good about coming to Capitol Hill and 

meeting with us from time to time and going through his high-risk 

list that GAO produces every 2 years and see how we are doing in 

terms of making progress on that. 

I do not know if it might be possible for you. I do not know if 

you come to Capitol Hill very much, but if you do, you might be 

willing to meet with some of us and our staff, both of you, maybe 

together, and to pursue some of these. I would appreciate it. 

I would be remiss if I did not say one of the things I most like 

about the Affordable Care Act were the provisions that were originally sort of introduced by Senator John Chafee from Rhode Island 

back in 1993. He had this great idea for these exchanges and scale 

tax credits, individual mandate, all this and was introduced as legislation. It ended up as Romneycare and then ultimately ended up 

in the Affordable Care Act, and we call them the exchanges. Some 

people call it Obamacare. Actually, they are pretty good ideas. 

And one of the things that frustrates the heck out of me is how 

this Administration continues to try to undermine what was originally a Republican idea, but actually has promise to provide better 

health care and not just lay it all on the Federal Government. 

There are a couple of things that I would welcome the chance to 

discuss with you, and I suspect some of my colleagues would as 

well. And I would just lay that out there and hope that you will 

find time in your schedules to do that this year. 

Ms. VERMA. I would be happy to visit with you anytime. 

Senator CARPER. Good. Thanks so much. 

Chairman JOHNSON. Thank you, Senator Carper. 

Let me quickly step through my remaining questions, then, unless you want to go now. 

Senator MCCASKILL. Well, no, I can go after you. It does not matter to me. 

Chairman JOHNSON. Oh, no. Go right ahead. 

Senator MCCASKILL. Oh, OK. I was just trying to be sure. 

Naloxone prices. I asked the Assistant Secretary for Health at 

HHS in the Finance Committee in April to seek an explanation for 

the Naloxone delivery device price increases. 

According to you, CMS, Medicare Part D spending per dosage 

unit on Evzio increased over 500 percent between 2015 and 2016. 

This is Kaleo Pharma. 
38 

With total spending in 2016 of over $40 million, that could pay 

for a lot of those audits. 

I asked them to formally seek an explanation for these price increases. Are you aware if there has been any outreach to Kaleo 

since April regarding the price increase for Naloxone? 

Ms. VERMA. I cannot speak specifically, not necessarily from my 

department, but one of the things we are concerned about is making sure that we have transparency around all of these increases. 

It is one of the things that we took action on earlier this year, is 

to put out our Drug Dashboard, which provides transparency to the 

American public about the year-over-year increases in drug pricing. 

We think that is important that people have that information. 

Senator MCCASKILL. Do you agree that Secretary Alex Azar 

would have the ability to negotiate directly with Kaleo to reduce 

Part D spending if he chose to do so? 

Ms. VERMA. Generally, what we want to do in our strategy 

around drug prices, something that we are very concerned about— 

there is a lot of effort going on—one of the things that we want to 

do is strengthen competition and negotiation. We think negotiation 

is important. That is why we have our Part D plans essentially in 

that role negotiating on our behalf, and what we want to do is 

strengthen their negotiating position. 

One of the things that we recently took action on was for Medicare Advantage plans, to give them more authority around negotiating with manufacturers for lower prices by giving them the ability to do step therapy for Part B drugs. So we think that is really 

important that we do everything that we can to increase the negotiating power of our Part D plans as well as Medicare Advantage 

plans. 

Senator MCCASKILL. So they have the ability in the Part D plans 

to negotiate now, but the Department of Veterans Affairs gets a 

much better price on this drug than any of the Part D plans. What 

do you attribute that to? Why is the VA able to get such a better 

deal than all of these private plans? 

Ms. VERMA. They have a limited formulary. They have one formulary, and I think our concern with Medicare directly negotiating 

is that that would result in a single formulary. That would decrease—— 

Senator MCCASKILL. Well, but maybe for opioid overdoses, I 

mean, we are not talking about the difference between a variety of 

different drugs we are talking about saving someone’s life from an 

opioid overdose. It seems very weird to me that the VA can have 

this drug at a significantly lower price than Medicare Part D. 

I guarantee you if I put a jury of 12 in the box and tried that 

case, they would say, ‘‘What is going on? Why cannot we do a single formulary price for a drug that reduces the impact of an overdose and saves lives?’’ 

Ms. VERMA. So we want to make sure that all Americans, especially those on our Medicare program, have access to the most affordable drugs. 

The issue, though, with extending what is going on in the VA to 

the Medicare program is that that would limit choices for seniors. 

Senator MCCASKILL. Well, if you are dying of an opioid overdose, 

I do not think you care what brand it is. With all due respect, we 
39 

are not talking about a drug where you are deciding how you are 

going to treat your allergies or how you are going to treat your 

high blood pressure or how you are going to treat your cholesterol. 

We are talking about a drug that reverses a death from overdose 

and the notion that that has gone up, and the reason it has gone 

up in price is very simple. It is because there is an increased demand, and so they can raise the price. And that is what they are 

doing. 

So I do not think the rationale for giving seniors choices frankly 

carries much water when we are talking about a drug like 

Naloxone. 

Ms. VERMA. We want to make sure that our Part D plans, our 

Medicare Advantage plans have every negotiating tool at their disposal to make sure that seniors are getting the lowest price possible. So I agree with you on that point, but I—— 

Senator MCCASKILL. Well, they are not. 

Ms. VERMA. I also want to make sure that seniors have access 

to a variety of medications and that they can choose the plan that 

works best for them. I think that is important that all Americans 

have choice about their health care. 

Senator MCCASKILL. Sometimes an exception to the rule makes 

the rule frankly a better rule, and I would think Naloxone, with 

what is going on in this country right now, how many people are 

dying—I do not know how many families you have talked to, but 

in my job, it has been heartbreaking to talk to these families. And 

the notion that someone cannot get Naloxone because we are worried about choices for seniors and the Part D program and all the 

private companies, whereas we know we could drive a lower price 

because the VA has, that is what is really frustrating. 

Ms. VERMA. Well, I agree with you, and the opioid epidemic has 

been devastating. I know I have attended a funeral for a young 

man, so I have been personally impacted by this. And I certainly 

understand the anguish that many American families are going 

through. 

I will note that in the Medicare program, these drugs are available, and we agree with you. And that is why we are working toward strengthening the negotiating position to make sure that 

Americans, especially our seniors, have access to these drugs at an 

affordable price and that they have choices about the types of plans 

that they pick, that it is going to work well for them and their families. 

Senator MCCASKILL. Well, I just know what I would do if I was 

Secretary Azar and if I were you. I would say, ‘‘There is a lot of 

reasons for us to leave negotiating to these private plans that you 

can justify. I just do not know how you guys justify day in and day 

out the kind of price increase for this particular drug, particularly 

compared to another government entity that has done much better.’’ 

Mandatory reporting of fraud, waste, and abuse. In November 

2017, GAO issued a report that said CMS may have an incomplete 

view of the opioid-related risk in Medicare Part D because it does 

not require the plan sponsors to report over-prescription, waste, 

fraud, or abuse in this area. 
40 

1The testimony referenced by Senator Johnson appears in the Appendix on page 63. 

As a result, CMS, quote, ‘‘is unable to determine whether its related oversight efforts are effective or should be adjusted.’’ 

Senator Rob Portman and I reached the same conclusion in a report we released in 2016, which found that mandatory reporting of 

waste, fraud, and abuse could in fact help CMS monitor plan sponsors. 

I asked Kim Brandt also in April of this year at the Finance 

Committee about the lack of reporting. She stated CMS, quote, 

‘‘was exploring making that mandatory.’’ I pressed her to issue a 

rule requiring the reporting of fraud and abuse as soon as possible 

because this is much bigger than taxpayer dollars. This is about 

saving lives. 

We had 644 people in my State die just in 2016, and I personally 

watched my mother get addicted to opioids in the end of her life 

through the Medicare Part D program. I had to inject myself into 

her myriad of doctors to make sure everyone understood that much 

of the pain she was complaining about was the pain of withdrawal. 

What progress has CMS made about this reporting issue so that 

you have a better handle on the over-prescribing of opioids among 

the senior population? 

Ms. VERMA. I think we have concurred with this recommendation, and this is something that we are looking at across the board. 

This will require rulemaking, and so as we go through rulemaking, 

we are exploring all the different options around this. But this is 

something that the agency is looking at, and as I said, we have 

concurred with the GAO recommendation around this. 

Senator MCCASKILL. Well, I asked in April. It is now August. I 

would like some kind of report from you other than ‘‘We are looking 

at it’’ because that is what I was told in April, and people are dying 

every day. And a lot of those opioids are making their way into 

hands of others. Seniors may get them, but then others get hold of 

them, and the addiction starts and has a very deadly ending. 

So I would like you to follow up and give me some kind of 

timeline as to looking at that issue. 

Ms. VERMA. Sure. We will have my staff follow up with you and 

make sure you have updates on our progress. 

Senator MCCASKILL. Thank you. 

Chairman JOHNSON. Thank you, Senator McCaskill. 

Administrator Verma, in your testimony on page 11,1 you talked 

about intergovernmental transfers, which is why I had my staff try 

and find this, because you can describe these things in words, but 

I said I need some example where I see the dollars coming together. 

This is just one of many gimmicks. Can you talk about the other 

gimmicks and also talk about do we have any sense of how much 

that is really costing the Federal Government, kind of replenishing, 

and if we do not have that cost, who is going to calculate it for us? 

Because I think it is extremely important. 

I will start with Administrator Verma. 

Ms. VERMA. So I agree with you. I think there are a lot of issues 

with intergovernmental transfers. One of the things that we are 

going to look at that we have put on our regulatory agenda is look-
41 

ing at supplemental payments, and that is where we are going to 

take action to address some of the GAO recommendations. 

But I think at large, when we are dealing with States, we need 

to understand where the matching dollars come from. We need to 

understand all of the back-end deals, how the match is being provided, and then what money goes back to the State and what 

money goes back to providers. I think we need to understand that, 

and we need to have transparency around that to make sure that 

those are appropriate. 

Chairman JOHNSON. This will be its own separate hearing, but 

again, I have heard of the sales tax, which is a good little gimmick. 

Everybody knows about it. Again, these things are all perfectly 

legal, but it is a way for States to get more. So they just charge 

the providers a sales tax, which they basically get back, but that 

is a cost to Medicaid then. And it gets reimbursed from the Federal 

Government or gets matched by the Federal Government. 

Another one is sort of the loans made to a city. So you make a 

million-dollar loan. They spend that on Medicaid, and then they 

pay that loan back when they get the match. 

But this one was shocking to me. I was thinking like a million- dollar loan, $2 million. I mean, this is literally $122 million that 

the State put into it. The Federal Government puts in $155 million. 

This is a State that gets more than a 50 percent match. The State 

gets $271 million back out of that thing. So this is massive. 

General Dodaro, do you have any idea? Do you have any idea 

what the volume of these gimmicks are? 

Mr. DODARO. The potential for this range of gimmicks, as you are 

calling them, is almost limitless. I mean, the States have been very 

creative over the years, and as we were talking earlier about 

whether they are going to try to put people in the 90 percent match 

or the other area for individual people. That is peanuts compared 

to this type of cost shifting that is going on. 

No one knows, and one of the recommendations we have—— 

Chairman JOHNSON. Has anybody ever really tried to figure it 

out, though? 

Mr. DODARO. We have on an ad hoc basis over time, but you have 

to have the data. There is not accurate and complete reporting. 

This is one of the recommendations that we are hoping that CMS 

will implement—to get that information. 

There is also no reason in the world why there could not be a 

requirement that the State auditors audit the sources and uses of 

the money used to support the State match for the Medicaid program, so you have an independent reporting. In my opinion, that 

will completely stop the gimmicks. 

Chairman JOHNSON. Well, again, the gimmicks are known, and 

they are legal. 

In this case, is not this where the State auditors—they just have 

a conflict of interest. I mean, they work for the State. 

Mr. DODARO. Well, they are independent. 

Chairman JOHNSON. Actually, you have a State Governor 

that—— 

Mr. DODARO. Yes. Well—— 

Chairman JOHNSON. I understand. People will shake their hand, 

but tell them—— 
42 

Mr. DODARO. I work for the Federal Government. I am independent, and thereby, the standards that we issue the GAO, generally accepted auditing standards, they are independent. They will 

call it the way they see it, and we just have to give them the resources and the support, and they will do the professional and 

independent—— 

Chairman JOHNSON. OK. So you can expect a letter, and hopefully, Senator McCaskill will join this. 

Mr. DODARO. All right. 

Chairman JOHNSON. You are going to get a letter from me asking 

GAO to study this and set up the auditing guidelines to really 

delve into this. 

Mr. DODARO. OK. 

Chairman JOHNSON. With all the different types of gimmicks 

that we know about and how can we ferret that out and how can 

we get the data and how can we get the information on it. 

Did you want to chime in? 

Senator MCCASKILL. Well, I just think it is really important to 

understand that the role of State auditors is identical to the role 

of GAO. They are not there to take the side of—first of all, many 

of them are elected independently, and some of them are not. There 

is a few that are appointed, but most of them are elected independently. And the minute they start carrying water for their party or 

for defending things in their State that are a waste of taxpayer dollars, that is the end of their career. I mean, they are done. 

So to look at the State auditors in the context of State spending 

any differently than we look at GAO in the context of Federal 

spending is not fair to State auditors. 

Chairman JOHNSON. I am not trying to be unfair, and I am not 

questioning State auditors’ integrity. I am just saying there is a 

conflict of interest there, and when all these things are legal, there 

is really nothing to report. That is my point, and I think we need 

to take a look at this and go, ‘‘OK. I know it is legal. We are not 

calling it fraud, but it is like the next best thing.’’ 

Mr. DODARO. Yes. But there are certain things that would be beyond the guidelines. 

For example, the local government portion of this is only to be 

60—it cannot be more than 60 percent of the State match. So there 

are some guidelines that will be exceeded if they are shifting the 

cost to the local government’s back in a shell game that comes back 

to them, and then the Federal Government has to match. 

Chairman JOHNSON. OK. 

Mr. DODARO. CMS also has other authorities that they could impose and other requirements if they know what is going on. 

In some of the cases that we found about this when we went out 

and audited at the State and local level, CMS was unaware of this. 

So you cannot take action unless you are aware of it. So step 

number one is awareness with good auditing information. 

Chairman JOHNSON. So we are aware, and I am going to make 

sure that we are even more aware. 

Mr. DODARO. Right. 

Chairman JOHNSON. Administrator Verma, this all gets back to 

data—— 

Ms. VERMA. Yes. 
43 

1The information submitted by Mr. Dodaro appears in the Appendix on page 92. 

Chairman JOHNSON [continuing]. And the GAO recommendations 

on data. Is that something that you are also in complete agreement 

with and completely dedicated, and can we get your commitment 

to do everything we can to get the data? 

Ms. VERMA. We have, and we are. On the T–MSIS system which 

is where—for the first time, we actually have all 50 States reporting, Puerto Rico, and DC. I can tell you that when I am looking 

at waivers, for example, one of the questions that I always ask my 

staff is, Where are they on T–MSIS? Were they, A, reporting? 

Now that we have all the States reporting, my question is, What 

about the quality of their data? Because we think that that should 

be an important requirement when States are making that request. 

Going back, though, to the issue about these types of arrangements and where States are getting matches from, I think that this 

goes to my original point. It is the structure of the program. As 

long as you have an open-ended entitlement, States are creating all 

of these types of programs to try to draw down Federal dollars, 

which is why we took action around the designated State health 

programs (DSHP). This is an example where States were saying, 

‘‘We are spending money on this health care program. It is all 

funded by State dollars,’’ and CMS had allowed those States to 

count those dollars as matching funds. So we cut that off. We 

closed that loophole. That was worth about $25 billion since 2005. 

And I think, as you said, some of these things are legal, and with 

the State auditors, with all due respect to them, it is not clear 

where the incentive is. In the case of California, where CMS identified $9.6 billion of dollars that were owed to the Federal Government, that did come from CMS. 

Chairman JOHNSON. And let us face it. There are plenty of people in this town that are just happy to spend the money and send 

it to States too and look the other way. So we need to start with 

the data. 

It drives me nuts. Even the spending off of that chart right there, 

the CBO has $430 billion. I think your numbers are like $395. I 

am an accountant. That kind of stuff drives me nuts. So we need 

to get the data. We need to understand the exact incentives, where 

the abuse is occurring. We need to report on it. 

So this will be another hearing in and of itself, but a letter to 

you. 

I think my final question really goes back to—General Dodaro, 

you were talking about the demonstration projects being budgetneutral. Again, the whole point of that is, hey, we got a better idea. 

This will be more efficient spending. So give us this waiver, and 

at worst, we will spend the same amount of money. At best, what 

we really ought to do is spend less. How far off of budget-neutral 

are we, or are we right back there going, ‘‘We do not know’’? 

Mr. DODARO. No, in some of the cases, we have quantified the 

amount of money, and I will provide that for the record.1

Chairman JOHNSON. I mean, can you give me some general sense 

right now? Tens of billions? 

Mr. DODARO. Well, it is billions. It is billions, yes. 
44 

Chairman JOHNSON. Again, none of this is in the $37 billion improper payment. 

Mr. DODARO. No. It is not in the improper payment estimate. 

Chairman JOHNSON. Again, all of these things we are talking 

about, this is in core Medicaid right now and just people really taking advantage of the system. 

Mr. DODARO. Yes, it was. For example, I just was handed a note from the team. We found almost $1 billion in excess in Arkansas, 

in one State alone. 

Chairman JOHNSON. Is that in 1 year or over 10? 

Ms. VERMA. That was during the demonstration. 

Mr. DODARO. That was during the demonstration period, so I am 

not sure. 

Ms. VERMA. It was 5 years. 

Mr. DODARO. Three-year—— 

Chairman JOHNSON. Five years? 

Mr. DODARO. Three-year demonstration period. This is a significant amount of money. That is why we have one of the—— 

Chairman JOHNSON. There was a Dirksen study, a billion here, 

a billion there, you are talking about real bucks. 

Mr. DODARO. Yes. This is significant, and I know CMS is looking 

at this. They are going to propose they need clarity about this. 

It was the longstanding policy, but it was not being implemented 

and enforced. And even when there were some exceptions for some 

hypothetical cost situations, there was not adequate documentation 

as to supporting even the hypothetical cost area. 

So this is an area that needs to be worked on, and I am hoping 

that CMS will continue to focus on this. 

Ms. VERMA. And on the issue of budget neutrality, we will be 

taking action on that this week. So you will see those recommendations implemented. 

Chairman JOHNSON. OK. Well, those are the questions I have. 

Senator McCaskill, do you have any more? 

Senator MCCASKILL. No. 

Chairman JOHNSON. First, again, I want to thank you both. I 

think from my standpoint, this was just a great hearing. We had 

great questions from my colleagues here. 

This really is just the start. 

So, General Dodaro, we appreciate all the work you have already 

done. We will be asking you to do more. 

Administrator Verma, thank you for paying attention to this 

stuff, and we are going to want to put more meat on the bones in 

terms of this program integrity, what actual actions. If we need to 

codify some of these things, I think we probably should, and we 

will have to go to other committees to do so. But the goal here is 

to get the data, have an ongoing production of that same data, so 

this does not slip back in the cracks again, and then put in place 

the controls that are going to survive well beyond your tenure, well 

beyond this Administration. We are spending way too many dollars. People need these dollars, and we cannot afford literally to 

waste a dollar of it. 

So, again, I really do appreciate your testimony, you taking the 

time here. I look forward to your future involvement in our oversight work here. 
45 

And with that, the hearing record will remain open for 15 days 

until September 5 at 5 p.m. for the submission of statements and 

questions for the record. 

This hearing is adjourned. 

[Whereupon, at 12:12 p.m., the Committee was adjourned.] 

(47) 

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