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56–890 PDF 2010

S. Hrg. 111–727 

OVERSIGHT CHALLENGES IN THE MEDICARE 

PRESCRIPTION DRUG PROGRAM 

HEARING 

BEFORE THE

FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT 

INFORMATION, FEDERAL SERVICES, AND 

INTERNATIONAL SECURITY SUBCOMMITTEE 

OF THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE 

OF THE

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

MARCH 3, 2010 

Available via http://www.gpoaccess.gov/congress/index.html 

Printed for the use of the 

Committee on Homeland Security and Governmental Affairs 

( 


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COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

JOSEPH I. LIEBERMAN, Connecticut, Chairman 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

MARK L. PRYOR, Arkansas 

MARY L. LANDRIEU, Louisiana 

CLAIRE MCCASKILL, Missouri 

JON TESTER, Montana 

ROLAND W. BURRIS, Illinois 

PAUL G. KIRK, JR., Massachusetts 

SUSAN M. COLLINS, Maine 

TOM COBURN, Oklahoma 

JOHN MCCAIN, Arizona 

GEORGE V. VOINOVICH, Ohio 

JOHN ENSIGN, Nevada 

LINDSEY GRAHAM, South Carolina 

ROBERT F. BENNETT, Utah 

MICHAEL L. ALEXANDER, Staff Director 

BRANDON L. MILHORN, Minority Staff Director and Chief Counsel 

TRINA DRIESSNACK TYRER, Chief Clerk 

SUBCOMMITTEE ON FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT 

INFORMATION, FEDERAL SERVICES, AND INTERNATIONAL SECURITY 

THOMAS R. CARPER, Delaware, Chairman 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

MARK L. PRYOR, Arkansas 

CLAIRE MCCASKILL, Missouri 

ROLAND W. BURRIS, Illinois 

JOHN MCCAIN, Arizona 

TOM COBURN, Oklahoma 

GEORGE V. VOINOVICH, Ohio 

JOHN ENSIGN, Nevada 

JOHN KILVINGTON, Staff Director 

PETER TYLER, Professional Staff Member 

BRYAN PARKER, Staff Director and General Counsel to the Minority 

DEIRDRE G. ARMSTRONG, Chief Clerk 


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C O N T E N T S 

Opening statements: Page 

Senator Carper ................................................................................................. 1 

Senator McCaskill ............................................................................................ 5 

Senator McCain ................................................................................................ 15 

Prepared statements: 

Senator Carper ................................................................................................. 39 

Senator McCain ................................................................................................ 42 

WITNESSES 

WEDNESDAY, MARCH 3, 2010 

Hon. Amy Klobuchar, a U.S. Senator from the State of Minnesota .................... 6 

Kathleen M. King, Director, Health Care, U.S. Government Accountability 

Office ..................................................................................................................... 7 

Robert Vito, Regional Inspector General for Evaluation and Inspections, Office of Inspector General, U.S. Department of Health and Human Services .. 8 

Jonathan Blum, Director, Center for Drug and Health Plan Choice, U.S. 

Department of Health and Human Services ...................................................... 11 

Howard B. Apple, President, SafeGuard Services, LLC, accompanied by Doug 

Quave, Program Director, Compliance and Enforcement MEDIC ................... 29 

Christian Jensen, M.D., MPH, dent and Chief Executive Officer, Quality 

Health Strategies, and Member, Board of Directors, Health Integrity, LLC . 31 

ALPHABETICAL LIST OF WITNESSES

Apple, Howard B.: 

Testimony .......................................................................................................... 29 

Prepared statement .......................................................................................... 77 

Blum, Jonathan: 

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

Prepared statement .......................................................................................... 63 

Jensen, Christian, M.D., MPH: 

Testimony .......................................................................................................... 31 

Prepared statement .......................................................................................... 82 

King, Kathleen M.: 

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

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

Klobuchar, Hon. Amy: 

Testimony .......................................................................................................... 6 

Vito, Robert: 

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

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

APPENDIX 

Chart on ‘‘Rates of Growth’’ submitted by Senator Carper .................................. 85 

Senior Citizens League, Shannon Benton, Executive Director, prepared statement ...................................................................................................................... 86 

National Association of Chain Drug Stores, prepared statement ........................ 92 

Questions and Responses for the Record: 

Ms. King ............................................................................................................ 95 

Mr. Vito ............................................................................................................. 102 

Mr. Blum ........................................................................................................... 116 

Mr. Apple .......................................................................................................... 129 

Dr. Jensen ......................................................................................................... 134 


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OVERSIGHT CHALLENGES IN THE MEDICARE 

PRESCRIPTION DRUG PROGRAM 

WEDNESDAY, MARCH 3, 2010 

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

OF THE COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS, Washington, DC. 

The Subcommittee met, pursuant to notice, at 2:34 p.m., in room 

SD–342, Dirksen Senate Office Building, Hon. Thomas R. Carper, 

Chairman of the Subcommittee, presiding. 

Present: Senators Carper, McCaskill, and McCain. 

Also Present: Senator Klobuchar. 

OPENING STATEMENT OF SENATOR CARPER 

Senator CARPER. Let me call this hearing to order, if I could. 

Welcome, one and all, especially to our witnesses who have joined 

us, those who went to high school in Delaware and those who did 

not. [Laughter.] 

To those whose last name rhymes with the word that legislators 

fear, that is, ‘‘veto,’’ whether in the Congress or State legislatures, 

and to those that are in our audience, welcome. We are glad that 

you are here. 

Today we are going to hear from several witnesses about the 

Medicare prescription drug program, something I actually voted to 

create, and we want to hear about not just the good that it is doing. 

I understand that it is a program that roughly 85 percent of the 

folks who use it think is a good program, and it is a program that 

is coming in at or under budget, I think, for the last 4 years. And 

that is all well and good. It is not a perfect program. It has a certain vulnerability to waste, fraud, and abuse, as do other programs 

of this nature. 

The witnesses today will tell an important story. I was surprised 

when I first heard about the Government Accountability Office 

(GAO) and Inspector General reports showing that the critical and 

basic anti-fraud safeguards for the Medicare prescription drug program were not in place, at least not yet, putting the program at 

a higher risk to waste and fraud. 

Let me just say one of the interesting things about being on this 

Committee, the Homeland Security and Governmental Affairs 

Committee, is the opportunity to delve into literally every corner 

of the Federal Government. We look at programs where we are 


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doing an especially good job for our taxpayers, the people who we 

work for, put a spotlight on those, and look for programs where we 

can do a better job, and sometimes look at programs we ought to 

end because they are not serving the purpose for which we are actually paying for them to serve. 

This is a program that we are going to talk about today, the 

Medicare prescription drug program, that actually helps keep a lot 

of people out of hospitals, saves lives, and it is a very good thing 

for our citizens. It is also a program that, as I said earlier, is susceptible to waste. And while we do not want to diminish the very 

positive aspects of the program, we want to focus on what we can 

do better. And as my staff here has heard me say time and again, 

everything I do I know I can do better. And one of my favorite 

sayings is if it is not perfect, make it better. And as good as this 

program is, it is not perfect, and we can make it better, and we 

want to do that. And it is especially important that we have that 

kind of focus in a day and age when as a Nation, just in the last 

8 years, we have basically doubled our Nation’s debt. Think about 

that. In 8 years, we have increased our debt by as much as we did 

in the first roughly 208 years of our Nation’s history. That is pretty 

amazing, isn’t it? And we are on track to do that again in less than 

8 years, so it is important for us to do a variety of things. The 

President has called for a freeze on discretionary spending starting 

this October 1. He has called for creating—he has already appointed folks to serve on a bipartisan, I will call it, blue-ribbon 

commission to focus on entitlement programs, entitlement spending, and revenues. And it is important that we look at other spending to see how we can provide benefits and do so maybe for not 

much more money, or maybe for even less money. 

The safeguards that we have in place are important. And the 

safeguards that we need to have in place are not only important 

to protect taxpayer money, but they are important for us to avoid 

diversion of prescription drugs for criminal activity and to support 

drug addiction. Medicare, as you know, is a critical component of 

the health care of our Nation. I am told that almost 45 million seniors participate in Medicare. Think about that, 45 million folks in 

this country participate in Medicare. 

The prescription drug program, which is known affectionately as 

Medicare Part D, began in January 2006. We are now into our fifth 

year. The overall reviews of the program have been positive. Again, 

roughly 85 percent of the people who are in the program like the 

program, about 27 million seniors participating, and the program 

has come in basically at or under budget for 4 years in a row. 

As I said before, no program is perfect. During its first few years, 

the prescription drug program went through some serious growing 

pains. There are still many seniors that experience problems. However, Medicare Part D is here to stay. Congress must ensure that 

the $49 billion, almost $50 billion a year that we are spending 

works effectively and cost-effectively. 

As we are all aware, Congress and the American people are in 

the midst of an important conversation about our Nation’s health 

care system. There has been some disagreement about exactly 

what needs to be done. Wasn’t that a nice way to understate it? 

There has been some disagreement about exactly what needs to be 


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done. But almost everyone agrees that the cost of our system must 

get under control. 

I met with a bunch of students, high school students from across 

the world. They were in Dover, Delaware, the other day, and I had 

a chance to spend some time with them. Several of them were from 

Japan. They were asking me questions, and one of the questions 

they asked is: How did your health care system get so screwed up? 

And by that, they meant: Why is it that you spend roughly twice 

as much as the rest of the world, get worse results, and have all 

these people that are not covered? I thought it was a pretty good 

question. That is really the case in Japan. They spend half of what 

we do for health care coverage, they get better results, I think, objectively measured, and they cover everybody, and we do not. I like 

to think they cannot be that smart and we cannot be that dumb. 

We have to figure out how to do this and how to compete better 

against them globally and in Europe and here at home. 

Well, there has been a lot of talk around here about trying to 

‘‘bend the cost curve’’ of health care. I have used that term once 

or twice myself. There are a number of reasons for the rise in 

health care costs over the past few decades, and it is clear that prescription drugs are one of the drivers of that increase. 

The benefits of modern pharmaceuticals are evident, but so are 

the costs. In 1985, I am told, the average American spent about 

$90 a year for prescription medicines. Today we spend over $700 

a year. That is an increase of about 740 percent. 

Having said that, there are a lot of medicines that we can take 

today that save lives, keep people out of hospitals, keep people 

from having to be in clinics on a regular basis. So for those who 

would say is the cost really worth it, well, I think we could arguably say it probably in many cases is. 

But, of course, eliminating fraud is an important and straightforward way of lowering costs for prescription drugs. Unfortunately, health care is too often the focus of criminals who wish to 

take advantage of our system. And whether the care is provided 

through government programs or through the private sector, attempts to defraud the system are, unfortunately, on the rise. 

U.S. Attorney General Eric Holder estimates that Medicare fraud 

totals around $60 billion a year, an estimate echoed by others in 

law enforcement. In Medicare, $60 billion a year. That is not all 

in the prescription drug program, but some of it is. 

A second estimate of waste and fraud in the Federal program is 

the level of improper payments. Each year, the Federal Government lists the estimates of overpayments, underpayments, undocumented expenditures, and other kinds of mistakes and fraud experienced by each agency. The total for the last fiscal year, fiscal year 

2009, was almost $100 billion in improper payments—$100 billion—and Medicare has the largest reported share of that total at 

about $36 billion. So roughly a third of the improper payments emanate from Medicare. 

Unfortunately, the Department of Health and Human Services 

(HHS) has not been able to determine the level for the prescription 

drug program, so the amount wasted in Part D is still largely unknown, and that is something we are anxious to get under control. 


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1The chart referred to by Senator Carper appears in the Appendix on page 85. 

Why the rise in Medicare fraud? Well, when Willie Sutton, an infamous 20th Century bank robber, was asked why he robbed 

banks, he always replied, ‘‘Well, because that is where the money 

is.’’ And there is a lot of money in Medicare, and that attracts, unfortunately, a fair amount of criminal activity. 

However, there is another reason, and it is the drugs themselves 

and the growing problem of addiction to over-the-counter medications. The problem of Medicare prescription drug fraud is more 

than just a loss of taxpayer money. It is also about harm to our 

citizens when fraud results in drugs diverted to illegal use. I think 

we have a chart here that demonstrates the impact.1

Senator McCaskill, welcome. It is good to see you. 

Senator MCCASKILL. Thank you. 

Senator CARPER. You are just in time to see this chart. Our first 

chart of the day. 

We are looking here at growth from 1994 to 2004, and the prescription drug abuse up by about 80 percent, and at a time when 

the use of drugs looks like it is up by about 68 percent. Our population is not growing by 80 percent or 68 percent. It is growing by 

about 12 percent. So that is a good picture for us to keep in mind. 

The only thing that has outpaced this figure is the rate of abuse 

among those drugs, and they have grown about 80 percent. 

In fact, more Americans abuse prescription drugs than the number who abuse cocaine, heroin, hallucinogens, Ecstasy, and 

inhalants combined. In fact, one out of five teenagers in America 

has abused or is abusing a prescription drug. 

Aside from our financial responsibility, though, we have a social 

responsibility to ensure that our public health care system is not 

used to further intensify and subsidize a public health crisis. 

In a previous report focused on a similar problem with Medicaid, 

the GAO reported to this Subcommittee some major sources of 

fraud and abuse involving controlled substances. I understand that 

some of these same fraud techniques are used with Medicare. 

The first fraud technique included beneficiaries engaged in a 

practice commonly known as ‘‘doctor shopping,’’ in which recipients 

go to six or more doctors for the same type of drug. In these cases, 

beneficiaries are either feeding their addiction or selling the extra 

pills on the street. Drug dealers make the profit while the Federal 

Government—unfortunately, the taxpayers, foot the bill. 

Fraud and abuse of prescription drugs also appears to be going 

on beyond the grave when prescriptions are ‘‘received’’ by dead 

beneficiaries or ‘‘written’’ by dead doctors. 

The Department of Health and Human Services—specifically, the 

Centers for Medicare & Medicaid Services (CMS)—has established 

a set of oversight schemes to protect the Medicare prescription 

drug program and its beneficiaries from fraud and abuse. Sometimes called program integrity, protecting the program from fraud 

is a team effort involving Federal workers in Medicare, involving 

law enforcement at both the State, the Federal, and local levels, 

Medicare prescription drug plans, pharmacies and doctors, and the 

beneficiaries themselves. 


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As a recovering governor, I understand the unique challenges 

that come along with running a major program like Medicare. But 

as many of us have heard, including in this room even today, if it 

is not perfect, let us make it better. We all share the responsibility 

to do just that with the Medicare prescription drug program. 

Our witnesses are going to report to us today not only on the current challenges of waste, fraud, and abuse in the Medicare prescription drug program, but are going to help us to identify some 

solutions. And before they do that, let me yield to Senator 

McCaskill for whatever she would like to say, and say thank you 

very much for your commitment to ferreting out waste, fraud, and 

abuse wherever it occurs, including in the Medicare prescription 

drug program. Thank you. 

OPENING STATEMENT OF SENATOR MCCASKILL 

Senator MCCASKILL. Well, thank you, Mr. Chairman, for holding 

this hearing. I was particularly interested in your comments about 

prescription drugs and the abuse of prescription drugs. It has become a common fact that in many communities in this country, 

heroin is now cheaper than Oxycontin on the streets, which gives 

you some idea of what is going on with Oxycontin. It is a serious 

and significant opiate that is highly addictive, that has been widely 

prescribed—in lay opinion, inappropriately prescribed. And right 

now for kids that are on heroin, it is cheaper for them to get the 

heroin than Oxycontin, which, by the way, Oxycontin feels very 

similar to heroin. 

So it is a serious issue, and the oversight of prescription drugs 

is incredibly important. I look forward to drilling down about our 

oversight of this program. Medicare Part D is a wildly expensive 

program for this country. By 2018, we are going to be spending 

$3,000 per recipient. Ninety percent of all the money that is spent 

on this program comes right out of the Federal Treasury. And, of 

course, there has never been an attempt to pay for that with any 

kind of offsets or pay-fors. It was all put on the credit card when 

it was passed, which I find highly ironic some of the righteous indignation from my friends on the other side of the aisle about ‘‘how 

dare the Federal Government enter into a new entitlement program run by the government without paying for it?’’ Or that it is 

expensive, when that is exactly what Medicare D was. 

So I think it is time we take a very hard look at this program 

as to whether or not the taxpayers are getting a bang for their 

buck, whether they are requiring the kind of competition that 

brings value to the taxpayers for this, and whether we are doing 

an aggressive enough job of finding the cheaters—because we all 

know they are out there—or are we investing enough to find the 

cheaters and the abusers that are taking advantage of this very 

generous government program. 

Thank you, Mr. Chairman. 

Senator CARPER. Thank you, Senator McCaskill. 

Senator Klobuchar, welcome. Thank you for joining us. A special 

guest appearance. 


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OPENING STATEMENT OF SENATOR KLOBUCHAR, A U.S. 

SENATOR FROM THE STATE OF MINNESOTA 

Senator KLOBUCHAR. Well, thank you, Mr. Chairman, and thank 

you for allowing me as a special guest to join this Subcommittee 

for one hour, like Cinderella, but I am very pleased to be here. I 

am actually a member of the Judiciary Committee and have taken 

a particular interest in Medicare and Medicaid fraud just because 

when dollars are so tight and people can hardly afford to pay their 

premiums, it is just outrageous that we are losing about $60 billion 

going out of the system to places that it should never go. 

Senator CARPER. Was this an issue that you had some interest 

in in your previous work back in Minnesota? 

Senator KLOBUCHAR. I did. As a prosecutor, we really beefed up 

our white-collar fraud area, and we did a lot in this kind of Medicaid/Medicare fraud, and it was always the most vulnerable people 

that were getting ripped off and the monies going to, storefronts 

with names that do not even provide any services. 

The other thing I learned since coming to the Senate and being 

on the Judiciary Committee is that a lot of this fraud sometimes 

takes place in certain hot spots, they call them in the Department 

of Justice, certain areas that have the least efficient health care 

systems where not only is the government not checking on them, 

but private companies do not work together well enough, and so 

there is just no check on this kind of fraud. They basically are robbing the American taxpayers of money. 

I have introduced a bill called the IMPROVE Act, which would 

deter fraud by requiring direct deposit of all payments made to providers under Medicare and Medicaid. Medicare regulations already 

require direct depositing or electronic fund transfer, but these regulations have not been uniformly enforced and lack verification and 

identification requirements that check-cashing stores make it easy 

for scammers to commit fraud and disappear without a trace. And 

so this bill would start it off with Medicaid and then codify the existing Medicare regulations. It has been endorsed by AARP, the 

National Association of District Attorneys, and the Credit Union 

National Association. 

To really make this health care system work, we are going to 

have to root out the fraud, to deter the fraud from happening in 

the first place. So thank you very much for holding this hearing 

and allowing me to sit in. 

Senator CARPER. We are delighted that you are here. Thanks for 

your previous work in these venues and for bringing that experience to bear here with us today. 

All right. I am going to briefly introduce our witnesses. We will 

be joined by some other Members of our Subcommittee. I am told 

we are going to have a series of votes that starts any minute now, 

and we will have two votes, and what we will do is probably go for 

about 10 minutes or so after the votes begin, and we will recess 

very briefly. We do two votes back to back and come right back. 

Our first witness today is Kathleen King, Director of the Health 

Care team at GAO, where she is responsible for leading various 

studies of the health care system, specializing in Medicare management and prescription drug coverage. Ms. King has over 25 years 

of experience in health policy and administration. We thank her for 


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1The prepared statement of Ms. King appears in the Appendix on page 44. 

being here today, and I learned just during our introductions earlier that she grew up in Wilmington, Delaware, and is a graduate 

of Ursuline Academy, one of the finest schools around. So we are 

glad that you are here. 

Our next witness is Robert Vito, Regional Inspector General for 

Evaluation and Inspections at the Department of Health and 

Human Services. Mr. Vito works in the Inspector General’s Philadelphia office which under his leadership has been credited with 

identifying billions in savings for the Medicare program. Thank you 

for that. 

Our final witness here on this panel is Jonathan Blum, Director 

of the Center for Medicare Management and the Acting Director of 

the Center for Drug and Health Plan Choice. These two centers 

have budgets in the hundreds of billions of dollars and are responsible for the regulation and payment of Medicare fee-for-service 

providers and the Medicare prescription drug program. We thank 

Mr. Blum for being with us today and look forward to his testimony. 

All right. Ms. King, why don’t you go right ahead? Try to stick 

to close to 5 minutes, if you will. If you go well beyond that, we 

may have to leave and vote. 

Ms. KING. I see the light. 

Senator CARPER. But we want to get to each of your testimony, 

and thanks. 

TESTIMONY OF KATHLEEN M. KING,1 DIRECTOR, HEALTH 

CARE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE 

Ms. KING. Mr. Chairman, Members of the Subcommittee, thank 

you so much for having me appear today to talk about GAO’s work 

on Medicare Part D, especially work on fraud, waste, and abuse in 

Medicare Part D. 

As you know, Medicare Part D is a voluntary outpatient prescription drug program that is administered by CMS with contracts to 

private health insurers and pharmacy benefit managers. In 2009, 

there were over 27 million enrollees and $51 billion in expenditures. GAO has considered Medicare to be high risk since 1990 due 

to its greater vulnerability to fraud and abuse. 

The Medicare Modernization Act (MMA), which created Part D, 

required all sponsors—those who provide Part D benefits—to have 

programs in place to safeguard Part D from fraud, waste, and 

abuse. And CMS issued regulations requiring sponsors to have 

compliance plans detailing their plans to prevent and detect fraud, 

waste, and abuse. Those plans have seven required elements that 

reflect industry best practices. I am not going to name all of those 

elements here today. They are in my written statement. But they 

include things like having written policies, effective lines of communication, and a compliance officer that reports to senior management. 

After the implementation of Medicare Part D, we were asked to 

look at the compliance plans offered by the sponsors and CMS’s 

oversight of those plans, and we issued a report in July 2008 that 


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1The prepared statement of Mr. Vito appears in the Appendix on page 52. 

is the basis for my statement today, although we did speak to CMS 

recently to update it. 

As part of our work, we looked at five sponsors that provided 

Part D benefits to more than one-third of beneficiaries, and our 

team went on site, spoke to individuals, reviewed documents, 

kicked the tires, if you will. And what we found in that study is 

that none of the five sponsors had implemented all of the seven elements of the required plans. Five sponsors had completely implemented three of the elements, and from there it varied downward. 

We also found at that time that CMS’s oversight of the process 

was limited. For example, in 2008, we found that oversight was 

limited to review of the initial plans that sponsors submitted as 

part of their application, and in 2006, CMS issued what is called 

Chapter 9, which is their guidance to plans on how to implement 

their compliance plans, and plans were not required to update their 

compliance plans after that date, nor were they required to update 

them for the 2007 and 2008 years. 

Turning to audits, we found that CMS did not do the audits that 

it specified in its 2005 oversight strategy. There were a number of 

audits supposed to be done, 10 by Medicare drug integrity contracts 

(MEDICs)—and I think you are going to hear from MEDICs later— 

in 2005 and 2006, and 35 in 2006 and 2007. At that point, in 2006, 

CMS said that resource constraints, due in part to an increase in 

the number of plans participating in Part D, did not enable them 

to do all the audits that they had planned and to switch some audits from on-site audits to desk audits, which involve reviewing 

documents and papers sent by the Part D plans. 

To update our report for this presentation today, we spoke to 

CMS again, and they told us that recently, between 2008 and 2009, 

the MEDICs had conducted 16 audits, desk audits, of the Part D 

compliance plans, and after that decided to change their audit 

strategy to on-site audits. And as part of that, they have conducted 

two on-site audits as part of a pilot program and they found some 

deficiencies. CMS plans to do more on-site audits. As of today, they 

have not decided exactly how many they should do. 

CMS also issued a proposed regulation in 2009 to update its instructions to plans on how to develop effective compliance plans because they found that not all the sponsors understood them, and 

they told us recently that they expect this regulation to be made 

final very shortly. 

That concludes my prepared statement. I am happy to answer 

any questions. 

Senator CARPER. Great. Thanks so much. Mr. Vito, please. And, 

again, all of your statements, full statements, will be made part of 

the record. Just feel free to summarize as you wish. Thank you. 

TESTIMONY OF ROBERT VITO,1 REGIONAL INSPECTOR GENERAL FOR EVALUATION AND INSPECTIONS, OFFICE OF INSPECTOR GENERAL, U.S. DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Mr. VITO. Good afternoon, Mr. Chairman and Members of the 

Subcommittee. I am Robert Vito, Regional Inspector General for 


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Evaluation and Inspections at the Department of Health and 

Human Services’ Office of Inspector General (OIG). I would like to 

thank you, Mr. Chairman, for holding this hearing on the important topic of Part D oversight. 

Fraud, waste, and abuse have long been recognized as significant 

problems in the Medicare program, resulting in perhaps billions of 

dollars in losses to taxpayers each year. Fraud, waste, and abuse 

also negatively impact Medicare beneficiaries by causing them to 

pay more for their health care through higher premiums and rising 

copayments. 

The complexity of the Part D program as well as its short implementation timeline makes it vulnerable to fraud, waste, and abuse. 

However, the creation of the Part D benefit also provides an opportunity to use the knowledge we gained in all the years of fighting 

fraud in the Medicare and Medicaid programs. To that end, we 

should use this opportunity to design a system that works to prevent fraud and improper payments before they occur rather than 

trying to recover the funds after the money has been spent. CMS 

plan sponsors and Medicare drug integrity contractors, known as 

MEDICs, all play key roles in this effort. 

Since the inception of the Part D benefit, OIG has developed a 

body of work that assesses the program integrity and payment accuracies that each of these groups has in place. In short, we found 

that while some safeguards have been in place since the benefit’s 

inception, others have been employed in a limited capacity, and 

some remain unimplemented. 

To put it simply, there is more work to be done by CMS, the plan 

sponsors, and the MEDICs. As the administrator of the benefit, 

CMS plays a primary role in preventing and detecting fraud, 

waste, and abuse. Although CMS has developed a safeguard strategy, the strategy did not address the coordination that is needed 

between the different groups within CMS and lacks the details that 

would turn it from a broad strategic concept into a useful management tool. Furthermore, although CMS required Part D plan sponsors to have compliance plans and had provided guidance on their 

development, it has yet to finalize any audits to ensure the plans 

are comprehensive and effective—this despite the fact that OIG 

found that sponsors’ compliance plans did not fully address all the 

CMS requirements. 

Specifically, OIG found that compliance plans from certain sponsors contained only broad outlines of a fraud and abuse strategy or 

were missing one or more of CMS’s required elements, including 

the development of internal auditing and monitoring procedures. 

Further, although CMS required sponsors to initiate corrective 

action where evidence of fraud exists, we found that many plan 

sponsors that identified potential fraud did not do so. Even more 

disturbing is the fact that 28 percent of the sponsors did not identify a single incident of fraud or abuse. If there really was no fraud, 

that would be remarkable. But given our experience, it seems highly unlikely. 

In addition to relying on the plans to target fraud and inappropriate payments, CMS has publicly stated that by using state-ofthe-art systems and expertise, the agency and the MEDICs would 

prevent problems before they occur, which is the optimal goal. Yet 


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we found that rather than using the advanced data techniques, 

CMS and MEDICs relied largely on complaints. While complaints 

have their place in fraud detection efforts, they are, by their definition, reactive rather than proactive. Unfortunately, the MEDICs 

were unable to engage in more proactive measures in large part because they did not gain access to the Part D pharmacy data until 

the second year of the program and did not get the data on the 

physician services until the third year. 

Furthermore, when the MEDICs investigated potential fraud and 

abuse incidents, they did not have the authority to directly obtain 

information such as prescriptions and related medical information 

from pharmacies, pharmacy benefit managers, and prescribing physicians. Finally, while the MEDICs were prepared to audit sponsors 

in an effort to evaluate their compliance plans, the MEDICs were 

not given the approval to do so. 

Again, it is up to CMS to address the issues we found with the 

sponsors and the MEDICs. To accomplish this task, we recommend 

that CMS develop a comprehensive program integrity plan that includes specific action items, target dates, and staff assignments. 

CMS also needs to conduct audits of sponsors in a timely manner 

and establish mechanisms to hold sponsors accountable for problems identified. CMS should also address the issues that prevent 

the MEDICs from directly obtaining information they need from 

pharmacies, pharmacy benefit managers, and physicians. 

Finally, and perhaps most importantly, we recommend that all 

key players perform more innovative data analysis of claims and 

payment information and embrace proactive methods of fraud detection. 

In closing, I can assure you that the Part D issues will continue 

to be a major focus of the OIG work. We are currently performing 

additional reviews, some of which will likely identify improper Part 

D payments that might have been prevented if there were strong 

detection and prevention programs. Clearly, there is more to be 

done by CMS and its partners to ensure the integrity of the Part 

D program, and we stand ready to assist them in their efforts. 

I would be happy to answer any questions you may have. 

Senator CARPER. Well, you are going to have to wait just a few 

minutes because we are going to recess and come back in about 20 

minutes and ask Mr. Blum to make his statement, so you are on 

deck. And we thank you for your patience. We will be back in about 

20 minutes. Thank you. 

The Subcommittee stands in recess. 

[Recess.] 

Senator CARPER. All right. That is enough fun. [Laughter.] 

We have concluded at least these first two votes, and we may 

have some more later on. But, Mr. Blum, thanks for your patience. 

We welcome your testimony. Thanks for joining us today. You are 

recognized. 


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1The prepared statement of Mr. Blum appears in the Appendix on page 63. 

TESTIMONY OF JONATHAN BLUM,1 DIRECTOR, CENTER FOR 

DRUG AND HEALTH PLAN CHOICE, U.S. DEPARTMENT OF 

HEALTH AND HUMAN SERVICES 

Mr. BLUM. Great. Thank you very much, Chairman Carper, and 

thank you for the opportunity to come here today to talk about 

CMS’s efforts, CMS’s strategies to improve the performance, to improve the quality, to elevate the overall accountability of the Part 

D program. 

The administration, CMS, is very much committed to ensure that 

we have the best program possible, the strongest program possible. 

We understand that we have a tremendous responsibility and a 

tremendous obligation to ensure that we provide benefits consistent 

with the law, protect taxpayers’ dollars, and ensure beneficiaries 

have the high-quality program that they expect. 

I want to highlight just a few points from my testimony, but I 

would be happy to answer any questions that you may have. 

The first point that I want to highlight is that the Part D program is tremendously complex. We have 4,000 different contracts 

that provide Part D benefits. These are plans that are stand-alone 

drug plans, comprehensive HMOs, but the Part D benefit is delivered by 4,000 different private entities. That requires CMS to develop many different strategies, many different ways to oversee the 

program and to ensure that all 4,000 contracts have the same consistent values, the same consistent goals that CMS has. 

The second point that I want to emphasize is that CMS uses— 

in order to manage this very large program delivered by 4,000 different contracts, we use a range of different data to ensure that we 

are monitoring the program, we are understanding issues, we are 

acting on issues, we are being as proactive as possible. CMS collects quality metrics. CMS collects and analyzes prescription drug 

claims. We monitor beneficiary complaints, physician complaints, 

and CMS responds very quickly, very proactively, to any issues 

these different data sources tell us. 

CMS also has a very aggressive, a very robust audit strategy. In 

2009, CMS conducted 348 different targeted and routine audits. We 

ensure that bids submitted to CMS are accurate. We ensure that 

plans follow our rules. We ensure that plans understand our rules. 

We ensure that our payments are accurate. We ensure that beneficiaries receive the services they are entitled to. But, again, given 

the breadth, given the scope, given the complexity, CMS has to 

dedicate our resources as prudently as possible. We have to target 

our resources as prudently as possible. But we are committed to 

overseeing through audits, both desk audits and on-site audits, a 

strategy to make sure we have the best possible program. 

CMS has shifted to a more performance-based auditing system, 

meaning that we target our audit resources to those Part D plans 

that present the highest probability for vulnerability. We do not 

just do random audits, but we target those audits to those plans 

that present the biggest vulnerability to the program. 

CMS has undertaken several new initiatives to further strengthen our ability to oversee the program. As Ms. King mentioned, 

CMS in the fall proposed 70 new regulations to improve oversight 


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of the Part D program. We expect to finalize those regulations. Our 

goal is to make the Part D benefit simpler for beneficiaries to understand, to ensure that CMS has more tools, to hold plans more 

accountable to the Part D program, and also to make sure we have 

the strongest possible compliance strategies, both operated by our 

Part D contractors but also by CMS. Again, CMS intends to finalize 

these rules this month to be effective for the 2011 contract year. 

We have heard loud and clear the concerns regarding our contractors, the so-called MEDICs. CMS has changed the way that we 

contract with the MEDICs. We have a new strategy; we have a new 

focus. And I am confident that we will see even better results from 

these MEDIC contractors. 

Last, we are working very hard to complete a composite error 

rate for the Part D program. We understand this is a high priority 

for you, this is a high priority for the Congress. We understand this 

is a high priority for the President. We have completed three components to this five-part composite error rate, and we expect to 

produce all five components to produce a composite Part D error 

rate by the end of next year. 

Last, the President has made fraud and abuse program integrity 

one of his highest priorities for the Medicare program. He has proposed historic new resources to root out, to fight Medicare fraud 

and abuse for the traditional fee-for-service program, but also the 

Part C and Part D programs. It is true that in the past CMS 

lacked the resources to do sufficient oversight, to do sufficient auditing. But I am confident that with the resources we have that the 

Congress has given CMS, we have sufficient resources to address 

concerns of the past. 

CMS has more work to do. We have made tremendous progress, 

but we have more work to do. We have several concerns that we 

are working very hard to address. We have concerns about marketing practices by our Part D plans, and we are working very 

hard to ensure that when Part D plans market their plans to beneficiaries, those communications are accurate, are responsible, and 

are appropriate. 

We have concerns about plans providing appropriate clinical access to drugs. We also have concerns about plans that have very 

aggressive growth strategies. Those plans that grow the fastest 

seem to us to present the highest vulnerability to the Part D program, so CMS will be targeting more of its resources towards those 

plans that seem to be growing the fastest. 

With that, I will stop, and I would be happy to answer any questions you may have. 

Senator CARPER. All right. Thank you, Mr. Blum. 

Let me just, if I can, throw out a question to you, but I would 

invite our other witnesses to respond, too. When I was an undergrad and later as a graduate student, I studied some economics, 

and I have always been intrigued. My professors at Ohio State 

would say, ‘‘Well, he did not study enough.’’ I finally got the hang 

of it. But one thing that has always intrigued me is how do we harness market forces in order to help shape good public policy behavior. I will give you a couple of examples. 

We have a hard time with Federal agencies actually selling the 

surplus property that is within their purview. They just hold on to 


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it. We pay the utility bills. We pay security costs and so forth. And 

we find out that for the most part agencies, if they go to the trouble 

and expense of fixing up a property so they can sell the property, 

they do not get anything out of it. The money goes back to the 

Treasury. None of it stays within that agency. It cannot be used 

to help pay for the fix-up costs. Veterans Affairs is different. We 

let the VA keep maybe about 20 percent of the sale proceeds to use 

it for their program, to pay for the fix-up costs to sell that property. 

Another example where we actually try to harness market forces 

is the health care bill that has passed the Senate, that is pending 

action in the House right now, but trying to incentivize people, employees of companies too, if they are overweight, lose weight; if 

they smoke, stop smoking; if they have high blood pressure, high 

cholesterol, bringing it down and keeping it down. And how do we 

do that? One of the ideas is to allow the employees who stop smoking, lose weight, control their cholesterol, control their blood pressure to actually receive premium discounts for up to 30 percent if 

they do the right thing for themselves and for the group under 

which they are insured. 

Another example we have under Federal law—let us say you are 

a whistleblower. You work for Mr. Vito, and the work that Mr. 

Vito’s company does for the Federal Government, they are crooks. 

That is a big leap of faith, I know. But they improperly bill us. 

They take money that they do not deserve—and you are an employee. You know about it. You report it. You blow the whistle. And 

it used to be Mr. Vito would turn around and fire you. You are history, you are out of here. That was pretty much it. And then we 

got involved and said, no, if we want to incentivize people to be 

whistleblowers, why don’t we at least try to protect them so that 

they can get their job back and recover lost wages? So we did that. 

Then we decided to take it a step further and say if you are a 

whistleblower, not only will your job rights be protected, not only 

will you get your wages back, but if there is a recovery for the Federal Government, you can participate and receive anywhere from, 

I think, 15 to 30 percent of the recovery for the Federal Treasury. 

And I am told that the IRS may have a similar kind of arrangement where folks reporting tax fraud, tax evasion, if there is money 

recovered, some participation, some reward, if you will, can be provided to those who do the reporting. 

We can have all this stuff we are talking about here in terms of 

Federal agency oversight and so forth and trying to make sure people are doing their job and all. Part of me says one of the ways to 

make sure that is happening is to actually incentivize folks, if they 

are aware of fraud, to report it, and with the knowledge that if 

they do, not only will they feel good as citizens that they have done 

the right thing, but they will also actually improve and enhance 

their own financial or economic situation by participating in the recovery. 

Is this something that might work here? And if so, in fact, all of 

you, just be thinking how that kind of approach might be implemented with respect to identifying fraud in Medicare Part D and 

help reduce the huge deficits that we face; strengthen the Medicare 

trust fund; and try to do this in a way where we harness market 

forces in an effective way to do the policing for us. Go ahead, 


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please. Mr. Blum, you take the first shot at that, and then I will 

ask Mr. Vito and Ms. King. 

Mr. BLUM. Well, thank you for the question, Senator. 

Senator CARPER. It was a long question, wasn’t it? [Laughter.] 

But a good one. 

Mr. BLUM. Very good question. I think the greatest challenge 

that CMS has with the Part D benefit is to ensure that all the contractors that have contracts with the program share consistent 

goals and share consistent values with CMS, and those values are 

to ensure the beneficiaries receive the benefits in the best possible 

way, but that also taxpayer dollars are used as prudently as possible. 

CMS has more work to do. We have to create a stronger culture 

of accountability. We have to ensure that our Part D contractors 

understand that they should have the same responsibilities as 

CMS does. And we are open to every idea to promote that accountability with our Part D contracts. 

I understand that you have legislation to require Part D plans 

to report fraud. That is a very interesting idea. To our minds, that 

requires Congress to give CMS that authority. But I think any tool 

that CMS can add through regulation or that Congress can provide 

to ensure that our contractors, who are the front lines for the Part 

D benefit, share the same values that you have and also share the 

same values that CMS has. 

Senator CARPER. OK. I am going to come back to you for a followup, but I want to hear a more specific response on the idea of sharing in the recovery. Just think about it. 

Go ahead. 

Mr. VITO. I believe that is happening in the Medicare program 

already, also in the Medicaid program. Some of our largest settlements have come from qui tams in which—— 

Senator CARPER. I am sorry. I do not like acronyms. What are 

qui tams? 

Mr. VITO. That is when a whistleblower, someone who works in 

a company, realizes that the company has done something wrong, 

and then they come and—either they come to the government or 

they submit it and say that there is a problem here, we would like 

you, the government, to be aware of it, and see if you would like 

to join with us in going after this case. And some of the largest settlements that we have ever achieved have come from those actions. 

So what you are suggesting is something that is working and can 

work very well. 

Senator CARPER. All right. Thank you. Ms. King. 

Ms. KING. Senator, I think one of the most effective strategies on 

fraud and abuse is to prevent it from occurring in the first place, 

and so I think that we would really encourage the front-end things, 

like having effective compliance plans in place and having CMS 

oversee them carefully as a sentinel effect, because it is much more 

effective to prevent fraud from occurring than paying and chasing. 

Senator CARPER. OK. Well, I would suggest maybe we need all 

the above. 

We have been joined by Senator McCain. What I am pursuing 

here, Senator McCain, is trying to figure out how do we incentivize 

folks to actually go out and help us identify the fraud that is occurVerDate Nov 24 2008 13:23 Dec 01, 2010 Jkt 056890 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 P:\DOCS\56890.TXT SAFFAIRS PsN: PAT

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1The prepared statement of Senator McCain appears in the Appendix on page 42. 

ring, and I pointed to what we do with whistleblowers when whistleblowers actually lead to a financial recovery for the government, 

they get to participate in the recovery anywhere from 15 to 30 percent. I think IRS has a similar kind of approach where we recover 

monies that have been, frankly, recovered because of tax evasion. 

And we have some other programs where we incentivize, I think, 

for the sale of government property, the VA actually gets to keep 

part of the proceeds of the abandoned properties or the excess properties that they do not need. Just looking for ways to use financial 

forces, economic forces to do a better job, and we are not doing a 

great job in this area, as you probably know. Let me yield to you. 

If you have a statement, go ahead. If you just want to jump into 

questions, feel free. 

OPENING STATEMENT OF SENATOR MCCAIN 

Senator MCCAIN. Thank you, Mr. Chairman. I apologize to the 

witnesses. As you know, we had a vote. We were interrupted by a 

vote, and I thank all of you for taking the time here and helping 

us with this very important issue. I would ask that my statement 

be made part of the record.1

Senator CARPER. Without objection. 

Senator MCCAIN. Mr. Blum, as I understand it, the Medicare 

Prescription Drug Improvement and Modernization Act requires 

that all Part D sponsors have a program to detect and prevent 

fraud, waste, and abuse. CMS regulations establish the requirements for comprehensive compliance plans for Part D plan sponsors. CMS contracted, as you know, with medical drug integrity 

contractors, from now on MEDICs, to audit the compliance grants. 

Sixteen desk review compliance plan audits were conducted in late 

2008 and 2009. CMS determined their value in monitoring and 

oversight efforts was limited. CMS is now engaging the MEDICs to 

conduct comprehensive on-site compliance plan audits and expects 

to have 20 or 30 of them completed this year. 

We are in agreement so far, Mr. Blum? 

Mr. BLUM. Yes, Senator. 

Senator MCCAIN. OK. According to the HHS Inspector General, 

however, although MEDICs were given task orders to conduct compliance plan audits, they were not given the authorization to proceed. Why weren’t they given the authorization? And does this 

mean that CMS paid for audits that were never done? 

Mr. BLUM. Thank you for the question, Senator. It is my understanding that in the past CMS, through its contractors, its MEDICs, undertook these audits through desk audits, meaning that the 

audits focused on reviewing plans, papers, documents, do they have 

compliance plans in place. 

CMS found those audits to have very limited value. To our 

minds, it is one thing to check documentation, but it is another 

thing to go on-site to a Part D plan to ensure they have the programs in place, they have the education processes in place. And so 

the agency completed 16 audits in the past, but decided not to 

issue final reports. 


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We have changed that process, and we have changed the process 

to be more on-site audits to ensure that our Part D contractors 

share the same values that CMS does. 

Senator MCCAIN. Now, when is this going to start? 

Mr. BLUM. The process has started. Now we are finalizing our 

plans going forward, and I expect us to fulfill our obligation and 

also to make sure that our contractors, the MEDICs, also share in 

that as well. 

Second, CMS is in the process of finalizing new regulations to 

give us more oversight on these compliance plans, to further define 

what plans have to follow, and part of our strategy, too, is to have 

a tighter regulatory process to have stronger processes in place. 

Senator MCCAIN. Part D is currently in its fifth year of operations. 

Mr. BLUM. Well, I cannot speak to the past, but I can speak to 

the present, and it is our—we are very much committed to fulfill 

the—— 

Senator MCCAIN. Who does speak for the past? If you do not, 

who does? 

Mr. BLUM. Well, again—— 

Senator MCCAIN. Your predecessor? Is that what you are saying? 

Mr. BLUM. Correct. 

Senator MCCAIN. Ms. King, do you have a comment on this? 

Ms. KING. Senator, I think that we recommended in 2008 that 

CMS conduct these audits, and they have started them, we believe 

that audits and on-site audits, as we conducted when we did our 

work, are really helpful and have a strong sentinel effect. 

Senator MCCAIN. Do you have confidence that now in the fifth 

year of operations we will get it right? 

Ms. KING. Well, Senator, we are an evidence-based operation. 

[Laughter.] 

We do not speculate about the future, but we do look at the evidence before us. 

Senator MCCAIN. And the evidence before you indicates? 

Ms. KING. We have spoken to CMS about their plans to do onsite audits, and they are in the process of making final a regulation 

that will clarify what constitutes an effective plan. So I have no 

reason to think that they are not going to do what they say they 

are going to do, but we cannot make a judgment about its completion or effectiveness until after it has happened. 

Senator MCCAIN. Well, could I suggest, Mr. Chairman, that 

maybe 6 months from now we could get a report from the Government Accountability Office. And maybe you can tell us what the 

evidence is then? 

Ms. KING. Yes, sir. 

Senator MCCAIN. Mr. Vito, do you have a comment on this? 

Mr. VITO. Yes, sir. I want to tell you that we have been doing 

this work. We believe that prevention is the best way to make the 

program run, so—— 

Senator MCCAIN. Prevention of what? 

Mr. VITO. Fraud, waste, and abuse. And the way you prevent it 

is you set up systems that prevent the payments that are problematic from going out before they occur. 


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Senator MCCAIN. OK. I say with great respect I understand that 

prevention is vital, but finding out whether the prevention has 

been carried out is—— 

Mr. VITO. Yes, we agree with you. We started doing the audits 

in 2006 to see if the compliance plans—if the plans had compliance 

plans. 

Senator MCCAIN. And what did you find out? 

Mr. VITO. We found that they had them, but they did not have 

all the elements, and we were not certain that they were there protecting the program. We recommended at that time that CMS do 

audits in 2006. We continued to follow up through 2009 to see if 

they have done that. 

Senator MCCAIN. What did you see? 

Mr. VITO. We saw that they had not been successful in meeting 

what we have asked them to do. That is why we continue to follow 

up to make sure that happens. We are interested, just like you. 

Senator MCCAIN. Mr. Chairman, the reason why I am focusing 

a lot of attention on this is because, as you know, at Blair House 

this issue was discussed and agreed upon by the President and all 

Members who were there. And I guess my only point is that in the 

fifth year of operation, I think we have the right to expect a little 

bit of something more than what we are finding out here today. 

And I am not, Mr. Blum, blaming you personally or anyone else, 

but it seems to me in the fifth year of operations, given the acceptance on all sides that there is significant fraud, abuse, and waste 

that can be eliminated, the President’s plan is talking about eliminating $500 billion in fraud, abuse, and waste, that I right now do 

not have a lot of confidence that we have the procedures in place 

to really significantly impact it. I hope that I am incorrect in that 

impression, at least up to date, but I am encouraged by the comments of the witnesses. 

There are a lot of other areas to discuss, but I see Senator 

McCaskill is here also, so I thank you for the time, and I thank 

the witnesses. 

Senator CARPER. I think your idea of asking GAO to come back 

to us in about 6 months is a good one. And I think the idea of us 

having a hearing, maybe with these same witnesses, maybe with 

others, to see what kind of progress is being made—because in the 

last 4 or 5 years, what we have made is not enough. And I think 

I hear our witnesses—what I try to focus on is how do we 

incentivize—when fraud has occurred, how do we incentivize folks 

financially to help identify that fraud, to report it, and make sure 

we recover money. 

What I think I hear our witnesses saying is that is maybe all 

well and good, but we also need to focus at the front end on the 

prevention side. So we start on the prevention, and you do the cost 

recovery at the end, but everything in between—and we need everything in between, given the amount of money that we are talking about. 

Senator McCaskill. 

Senator MCCASKILL. Thank you, Mr. Chairman. 

I was reading my materials for this hearing, and, I had one of 

those moments where I read a sentence, and I went, ‘‘Huh?’’ And 

then I read it again, and I went, ‘‘Huh? Are you kidding?’’ TwentyVerDate Nov 24 2008 13:23 Dec 01, 2010 Jkt 056890 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 P:\DOCS\56890.TXT SAFFAIRS PsN: PAT

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four of the 86 Medicare D sponsors, in 2008, did not report one incident of fraud. OK. And I believe in Santa Claus and the Tooth 

Fairy. If you have that many of these sponsors that are saying 

there are no incidents of fraud, then the auditor in me goes, ‘‘OK, 

there is high risk, we are on that.’’ And I know, Mr. Vito, that the 

IG’s report is what talked about this. And one of the things in the 

IG’s report that I noticed was that we do not even require them, 

we suggest that they report fraud. Are you kidding me? We are giving them 90 percent of the money for this program right out of the 

general Treasury, and we are not even requiring that these people 

report fraud? 

Mr. Blum, is that a regulation that has been proposed? Is there 

something we need to do to say that they are required to report 

every incident of fraud that they believe is occurring? 

Senator CARPER. Mr. Blum, before you respond, we have offered 

legislation. Our hope is it is going to be in the—if we end up taking 

a sidecar approach in terms of adding to the Senate-passed health 

care bill, one of the elements of that would be to require that the 

fraud be reported. I do not think we have the ability in that legislation to also provide the incentives, the kind of financial incentives 

we do for whistleblowers at the IRS. I am very much interested in 

doing that. I am sorry to interrupt. 

Senator MCCASKILL. Well, I am just curious if you have the ability to require people that we give that much Federal money to, to 

report fraud without a law. It seems to me that we ought to be able 

to do that by regulation without a law. If we cannot require them 

to report fraud, we might as well give them a gun and tell them 

to hold up the bank. 

Mr. BLUM. Senator, our current regulations have voluntary reporting requirements. But it seems to me very awkward to have 

something through regulation that is voluntary. To me, a regulation should be required. 

We have concluded, CMS has concluded that CMS could change 

its regulations to have mandatory reporting requirements, but 

CMS would not have the authority to enforce it. So to our conclusion, Congress would have to give us the authority to enforce that 

would make this change meaningful. CMS could change the regulation, but we could not enforce it, which says to us Congress would 

have to give us that authority. 

Senator MCCASKILL. That is depressing to me that we would 

have to—that is something that would take a law to require people 

that we are giving money to, to tell us if they think that there is 

fraud going on. I do not want to argue the point with you, but if 

we are going to try to get it fixed, that is terrific. 

We have talked a lot about fraud and abuse. I would like to for 

a minute get the reaction of GAO and the IG on the issue of waste. 

We have a mind-numbing number of choices out there for seniors, 

and if someone has to take Lipitor, maybe plan 42 is the best for 

them. If they have to take Aggrenox, maybe plan 21 is the best for 

them. And there can be a real difference in cost savings depending 

on which plan has negotiated the best price for which drug is covered in each of these mind-numbing number of choices. 


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Do we have any data systems in place—and if we do not, 

shouldn’t we—that track whether or not the seniors have made the 

best choice based on what their prescription needs are? 

Now, let me preface this question, and I will look forward to your 

answers. It is not that I am interested in what seniors are taking. 

But if they have not made the best choice, guess who is paying for 

it? We are paying for it. So if they are in completely the wrong plan 

and they could save 50 percent by switching a plan, up to 45 percent of that money they could save is coming directly out of the 

U.S. Treasury. So what attempts have there been made to identify 

by data points that kind of massive amount of waste that has to 

be in this system that is enriching the profits of these pharmaceutical companies? 

Ms. KING. Senator, if I may, and I can give you a long answer 

that I hope answers your question, but I am not aware of any data 

systems that actually capture whether seniors are making the best 

choices. CMS does have something called a Plan Finder which enables people to go on a website and figure out which drug plan best 

meet their needs. And we do not know how many do that. But 

there is also a provision in law that has to do with people who are 

dually eligible for Medicare and Medicaid. And in some cases—and 

they are in subsidized plans, so they are not paying a premium. 

Year to year, a number of those people—— 

Senator MCCASKILL. So we are paying 100 percent of those costs. 

Ms. KING. We are. Basically, yes. Year to year, if those plans go 

above the average, then the people in those plans are randomly assigned to other plans. And there is something—it is called intelligent assignment—where you can figure out what would be the 

best plan for them, but the law actually requires random assignment. 

Senator MCCASKILL. So the law is saying it is OK if we placed 

Mrs. Jones in the plan that is going to make her plan twice as expensive because you are required to do it randomly? 

Ms. KING. The plan is not twice as expensive, because they are 

reassigned to plans that are all below a certain level. But that person might be reassigned to a plan that does not best meet their 

drug needs. 

Senator MCCASKILL. Well, what I am saying is that they could 

be reassigned to a plan that is going to cost the U.S. Government 

more than it should because that particular plan has not negotiated a good deal with a given drug company that particular recipient might need more of. 

Ms. KING. Yes. And I think there are provisions in some of the 

health reform bills that would address this issue. 

Senator MCCASKILL. Thank you, Mr. Chairman. 

Senator CARPER. You bet. Thank you so much. 

Senator Klobuchar, again, we are delighted you are here. Welcome. 

Senator KLOBUCHAR. Well, thank you very much. Thank you for 

allowing me to be here, and as I mentioned, I have focused on this 

issue a lot on the Judiciary Committee, and I just continue to be 

astounded that we lose so much money when budgets are tight and 

people can hardly afford their premiums and we are losing $60 billion every year on Medicare or Medicaid fraud. 


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And I was thinking, as Senator McCaskill was talking about 

someone robbing a bank with a gun, one of my favorite bank stories out of Minnesota was when a guy did come in and rob a bank 

with a gun, and then he passed the note to the teller, and the note 

he wrote on, on the back was his own check with his address and 

name on it. And that is what I was thinking is basically happening 

here. A lot of these people, when you look at the 90 percent of 

fraud cases that Senator McCaskill was referring to, Mr. Vito, in 

your agency’s October 2008 report, they are associated with just 

seven companies. I mean, some of this is like not just low-hanging 

fruit; it is falling and rolling around on the ground. 

So based on these findings, it would appear that the resources 

at CMS might be best utilized by focusing on, to use the fruit analogy, a few bad apples. So does CMS have the ability to focus its 

fraud prevention efforts on companies who appear to have an increased incidence of fraud? 

Mr. VITO. Well, thank you for the question. I believe a lot of 

things play into this question. First of all, CMS does not get those 

statistics so they would never know. We got them because we 

wanted to find out. 

What we were trying to learn about, we knew that the compliance plans, nobody was doing the reviews of those, so that we knew 

that CMS had no idea how effective compliance plans they were in 

detecting fraud, waste, and abuse. And we tried to get that to be 

done, but that was not done. So another way of us attacking it was 

to go and get the information from the plan sponsors to find out 

how much they have detected. 

There are a lot of things that go into that, but when you look and 

then you do not know how well the plan’s compliance plans are 

working and then you see those statistics, then it makes you really 

wonder what needs to be done here and how—do you focus on the 

ones that are reporting the large numbers, or do you focus on the 

ones that are not reporting any numbers? 

But you see what I am trying to say? When you get both of those 

pieces together, then you are able to target exactly what you are 

saying, because when you see a compliance plan that is not identifying fraud, waste, and abuse, that does not have internal monitoring, and then you see the plan has no reported incidents or investigations, then you know that is a place to look. 

Senator KLOBUCHAR. And are we targeting them now? Because, 

I mean, I know we are trying with this health care bill to put a 

bunch of tools in place, and we want to get it electronically. But 

what are we doing right now? Because I guess, Ms. King, are you 

aware of any enforcement action being taken against these sponsors that are found to not be compliant? Is that going on right now? 

Ms. KING. That was not in the scope of our work, and I cannot 

answer that directly. Mr. Blum may be able to answer that. 

Mr. BLUM. CMS has a range of tools that it uses to enforce our 

requirements. We have corrective action plans. We have enrollment 

suspensions. We have termination, kind of worst-case scenario. I 

am not personally satisfied with the information that was reported. 

CMS needs to do better. We need to identify plans that present the 

highest risk to the program. We are targeting our audit resources 

towards those plans that have the highest risk, and I think one facVerDate Nov 24 2008 13:23 Dec 01, 2010 Jkt 056890 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 P:\DOCS\56890.TXT SAFFAIRS PsN: PAT

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tor that CMS should consider is plans not reporting fraud may give 

us an indication as to that is where audit resources need to be applied. 

We are moving to a strategy to apply resources, to apply audit 

resources towards those plans that present the greatest vulnerability. We collect a range of different data to help us identify those 

vulnerabilities. But I think this is an area CMS should explore to 

do more with. 

Senator KLOBUCHAR. Well, I would hope so when we are talking 

about so much money. I think people would be outraged. When Bill 

Corr at your agency came and testified in front of the Judiciarym 

Committee, he described hot spots for fraud, specifically focusing 

on the durable medical equipment program. Have you looked at 

that for what these hot spots are for certain types, not just plans 

but types of provision of services? 

Mr. BLUM. CMS agreed that we have geographic areas of the 

country that seems to be higher-fraud areas. We have certain services that tend to be higher-fraud services. We are dedicating more 

of our resources towards those hot spots. Deputy Secretary Corr 

talked about Operation HEAT, a whole new partnership, how we 

are working with the IG’s office, with the Department of Justice, 

to target those parts of the country that present the greatest vulnerability to the Medicare program, writ large. 

Senator KLOBUCHAR. Because it does seem to me, if you could get 

some wins and get some major people prosecuted and get some 

major money in, it sends a message to the whole system. And right 

now we do not have that. People just think they can rip people off. 

And we need those kinds of wins, and we need those kinds of examples. And I know people are—it feels like people are just trying 

to diagnose the symptoms and not treating them yet. 

Mr. BLUM. We agree. The Administration, I believe, has taken 

unprecedented action in the past year to dedicate more resources, 

to require more resources from the Congress, and to take a historic 

new investment in Operation HEAT. It has proven successful. We 

have more convictions. CMS, I think, in the past did not share information with law enforcement partners. We have broken down 

those communication barriers, and the Secretary and the Deputy 

Secretary have been very clear that CMS needs to work in partnership with the IG’s office, with the Department of Justice, to address the concerns that you are raising. 

Senator KLOBUCHAR. Last year, an investigation found that 

Medicare claims contained the identification numbers of an estimated 16,500 to 18,200 deceased physicians involving approximately 385,000 to 572,000 claims for medical equipment. In every 

case study cited, these deceased physicians were obviously unwitting instruments, since they were not alive, in transactions that 

meant easy money for unscrupulous crooks. 

What are you doing to combat criminals using the identity of deceased providers? Have you seen this type of fraud with Medicare 

Part D? 

Mr. BLUM. I am not aware of this kind of fraud with deceased 

providers in Part D. But we do acknowledge that it is an issue for 

our traditional fee-for-service program. 


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Again, I think part of our strategy is to use data and to use data 

analysis in much different ways, not focusing on the back end but 

focusing on the front end. CMS needs to do more with pre-payment 

review, with claims processing, data sharing. 

Senator KLOBUCHAR. And making sure that everything is electronically deposited and that it is going to the right place? 

Mr. BLUM. Absolutely. And CMS in the past has had various barriers to data sharing, data analysis. We are working as hard as we 

can to break those down and to be as transparent as we can with 

our data resources. 

Senator KLOBUCHAR. Thank you. 

Senator CARPER. Again, thanks for joining us and for your questions. 

I want to stick to this issue or return to the notion again that 

if we want to recover these monies, in some cases prevent the fraud 

from occurring but recover monies that have been defrauded or 

taken from the Medicare trust fund or monies really from the taxpayers’ pockets, we need to incentivize somebody to help recover 

the money. 

One of the things we do in the Medicare program, in maybe the 

last 3 years or so, I think we have been using recovery audit contractors. We have deputized them and put them to work initially 

in three States—I think California, New York, and Florida—to go 

out and try to track down fraud and recover money where we can. 

I am told the first year that we did that, we recovered almost 

nothing. The second year they recovered a little bit. Last year they 

recovered about, I think, a total of almost $700 million for the 

three years. And I believe the idea is to extent that to all 50 States, 

and, Mr. Blum, can you tell us what kind of timetable we are looking at for the extension of that kind of effort in all 50 States? 

I would also add that I think the recovery audit contractors get 

to keep anywhere from around 10 percent of the monies that they 

recover, anywhere from 9 to 12.5 percent. Can you confirm that for 

us? 

Mr. BLUM. We agree that the RAC program has been very successful—— 

Senator CARPER. And the RAC program refers to? 

Mr. BLUM. Recovery audit contractors. 

Senator CARPER. Thank you. 

Mr. BLUM. They are contractors; they are allowed to keep a share 

of recoveries. They are right now primarily focused on fee-for-service claims, Part A and Part B claims, in the traditional fee-for-service program. It is my understanding that we are implementing this 

program on a nationwide basis. CMS agrees that the 3-year pilot 

has been successful, and that it is appropriate to bring the program 

nationwide. 

To date, we have not applied the RAC contractors to the Part D 

program. I think that is a very interesting idea and something that 

Congress should consider, CMS should consider. But to date, the 

RAC contractors have been focused on the traditional fee-for-service program. 

Senator CARPER. Do you need congressional authorization, do you 

need legislation to allow the recovery audit contractors to work in 

the Medicare Part D vineyards? 


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Mr. BLUM. I believe we need authorization to extend the RAC 

program to the Part D—— 

Senator CARPER. Can you just come back to us on the record on 

that, please, if you would? 

Mr. BLUM. Yes. 

[The information for the record submitted by Mr. Blum follows:] 

INFORMATION FOR THE RECORD 

When the Recovery Audit Contractor (RAC) program was first created, it focused 

on FFS Medicare claims. With the enactment of the Patient Protection and Affordable Care Act of 2010, CMS now has the statutory authority to expand the RAC 

program to Medicare Parts C and D. 

Senator CARPER. Let me come back to, I think, Ms. King and also 

Mr. Blum on the next question. Your testimony described, I think, 

that only 16 audits had been performed, I think during the last 2 

years, out of, I understand—is it 86 sponsors? Are we talking about 

audits of sponsors? Is that it? I think you also referred to about 

4,000 plans. What I would like to understand is the 16 audits involving 86 sponsors, so if we had audited everybody, there would 

be 85 audits. Just help me explain that. 

Ms. KING. I think I might be able to help bring—I am going to 

give you some numbers that I think are right, but I can confirm 

them for the record. 

Senator CARPER. If it is like 16 out of 4,000, that is not so good. 

If it is 16 out of 86, that is better. If there are 16 audits that are 

not worth the paper they are written on, that is not so good either. 

So I am trying to get to the bottom of this. 

Ms. KING. The sponsors are at the corporate level, so the sponsors have contracts, and then they have plans. So there are a relatively small number of sponsors, and I think the 86 is about that 

number. 

Senator CARPER. Does that sound right, Mr. Blum? 

Mr. BLUM. That sounds correct. 

Senator CARPER. OK. Thanks. 

Ms. KING. But when you get down to Mr. Blum, it is like there 

are sponsors and then there are contracts, and contracts can have 

multiple plans. And then, that is how you get down to 4,000. 

But most of the compliance programs I believe are at the corporate level, so they would be at the sponsor level. So the right 

comparison I believe would be to the 86. 

Senator CARPER. All right. So 16 out of 86, and I think this was 

after at least one false start when the original plan to start out I 

guess just never happened. Now we are hearing that CMS will redo 

the first 16 audits. I think that is what we have heard here today, 

and it looks to me that the new administration is making a stronger, a more serious effort to audit these anti-fraud compliance plans. 

But I think we are really still at the starting gate. It really sounds 

to me like we are back at the starting gate. Is that a correct characterization? 

Mr. BLUM. I think it is fair to characterize it that we are creating 

and implementing a new strategy for our audits of these compliance plans. I think it is fair to say that in the past CMS dedicated 

limited resources towards these audits. We have changed that. 

Thanks to the Congress, we have new resources for Part C, Part 


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D oversight, and we have dedicated adequate resources for these 

compliance audits. 

It is also true that in the past CMS conducted these audits 

through desk reviews, and—— 

Senator CARPER. You say through desk reviews? 

Mr. BLUM. Through desk reviews, and we found those desk reviews to be of very limited value. And through our work with the 

MEDICs and through criticism and very good suggestions by the 

GAO and the IG, CMS believes these audits should be conducted 

on site. We need to make sure that plans just do not have the documentation in place but that they have the processes, they have the 

systems, they have the education programs, their executives understand these rules. And to our minds, we have to do these on site. 

We have put in place processes and plans to do on-site audits, and 

that is our current strategy for these compliance plans. 

Senator CARPER. One last question, and I will yield to Senator 

McCain. I understand that Health and Human Services reported 

about $36 billion in improper payments for 2009. I think we had 

almost $100 billion in improper payments reported—the good news 

is we are thinking about improper payments; agencies are starting 

to identify it, report it. The next step is to go out and recover the 

money that has been improperly paid if there is a recovery to be 

had. 

But that $36 billion figure of improper payments for Medicare in 

2009 did not include improper payments for the prescription drug 

program of Medicare. When will the Centers for Medicare & Medicaid Services have improper payments for Medicare Part D? And 

what I have heard before anecdotally is 2012, you are always saying 2012, and that just seems a long way in the future. And I 

would just say if that is indeed what you are going to tell us, I 

hope you can work with our Subcommittee, work with the Congress, and others to find a way to speed up that process. But is 

2012 what you are looking at? 

Mr. BLUM. We are on track to complete the five-part composite 

error rate for the Part D program by the end of next year, so before 

2012, by the end of 2011. We are placing a very high priority on 

completing the Part D error work. We understand that the Congress and the Administration, in order to correct issues, need to 

understand what the issues are. We have completed three of the 

components, and we are working very hard to finish the last two 

components to have a five-part composite error rate reported by the 

end of next year. 

Senator CARPER. All right. So that means by the end of next calendar year? 

Mr. BLUM. Correct. 

Senator CARPER. And just tell us in very simple terms, when you 

complete the five components, what will that actually mean? They 

are actually reporting systemwide for Medicare Part D all the improper payments? It does not mean that we are going out and getting the money, but it means at least what, it is being all reported? 

Mr. BLUM. Well, the way that CMS currently is proceeding is a 

five-part error rate. The first part that has been completed is an 

error rate regarding how well CMS’s systems pay the claims. We 

have a very low error rate for that, less than 1 percent. 


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The second component is to measure how accurately CMS pays 

low-income subsidies. Again, that error rate is less than 1 percent—0.25 percent. 

The third component is to measure how accurately CMS makes 

payments for dual-eligible beneficiaries, those that qualify for Medicaid status. That error rate currently hovers about 1 percent. 

Relative to fee-for-service error rates, those three components 

have very low error rates. But that is not the full picture. The full 

picture also has to be how accurately do Part D plans pay claims 

and how accurately do Part D plans report rebates they collect 

from pharmaceutical manufacturers. That is a much more data-intensive process, and to be frank, again, CMS did not dedicate the 

resources in the past to complete those two components timely. We 

have dedicated those errors. They are a priority—— 

Senator CARPER. Dedicated those errors or dedicated the resources? You said ‘‘dedicated those errors,’’ but you mean dedicated 

resources. 

Mr. BLUM. Yes, thank you, Senator. We have dedicated those resources to completing those last two components. I do not have an 

estimate—I cannot tell you what range they will be in. But we are 

very much committed to providing the Congress that five-part composite error rate. 

Senator CARPER. Good. Thanks very much. Senator McCain. 

Senator MCCAIN. Well, very briefly, if I could try to put this in 

perspective, Mr. Blum, my information is that in 2009 CMS estimated $24.1 billion in improper payments for Medicare fee-for-service and $12 billion for Medicare Advantage. That is a little over $36 

billion. And what is the total payments that were made in Medicare fee-for-service and Medicare Advantage? 

In other words, what I am trying to get, what is the percentage 

here of improper payments? 

Mr. BLUM. I will get you accurate figures for the record. 

[The information for the record submitted by Mr. Blum follows:] 

INFORMATION FOR THE RECORD 

Here are the accurate figures for the record. For 2009, CMS improved how it reviews Medicare claims for inpatient hospital services and eliminated the use of past 

billing records as part of a complex medical review. As a result of this heightened 

scrutiny, increased oversight, and more complete accounting of Medicare FFS 

claims, CMS is reporting a 2009 FFS error rate of 7.8 percent, or $24.1 billion of 

$308.4 billion total dollars paid, compared to 3.6 percent in 2008. 

Meanwhile, the baseline composite Medicare Advantage, or Part C, error rate, 

based on payment year 2007, is 15.4 percent, or $12.0 billion of $77.8 billion total 

dollars paid. The Medicare Part D composite error rate is under development with 

three components being reported this year: A payment system error of 0.59 percent, 

the low-income subsidy payment error of 0.25 percent, and payment error related 

to Medicaid status for dual eligible Part D enrollees of 1.06 percent. Part D spent 

a total of approximately $49.5 billion in FY 2007. 

Mr. BLUM. Currently I believe Medicare spends about $450 billion on the traditional fee-for-service program, the Part A and the 

Part B program. Medicare Advantage, CMS pays about $130 billion 

to private Part C plans. And on the Part D side, we spend about 

$50 billion for Part D contractors. 

The fee-for-service error rate that was reported this past fall was 

7.8 percent. The Part C error rate is higher, 15.6 percent. 


ph44585 on D330-44585-7600 with DISTILLER
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Senator MCCAIN. Why would there be that disparity between 7.8 

and 15.6 percent? 

Mr. BLUM. We used different measures because the fee-for-service program and the Part C program are so different: For fee-forservice we pay on a claims basis, per claim basis. For Part C plans, 

we pay on a capitated basis. So we use different processes, different 

measures to calculate the error rate. 

For the fee-for-service program, in essence, contractors audit the 

claims to make sure there is documentation to support those 

claims. The error rate is not a fraud rate, but it is a rate of how 

accurately, according to CMS’s fee-for-service rules, the claims were 

paid. 

On the Part C side, that is a capitated payment per member per 

month, but Part C plans report health status data to CMS because 

their payments vary by the health status of their enrollees. And 

what CMS has found is that the health status reported by plans 

does not match the documentation they provide to support those 

health status claims. 

Senator MCCAIN. And my understanding is that 87 percent of potential fraud and abuse were identified through external sources. 

Is that a little disturbing, that 87 percent should be identified by 

people who were doing their duty? 

Mr. BLUM. CMS has used contractors in the past for the majority 

of the reviews, sort of the back-end reviews, to measure and to 

identify fraud. We, as an agency, believe that our role is to prevent 

fraud before it happens. We have dedicated—— 

Senator MCCAIN. I want to emphasize again, Mr. Blum, there is 

no one who would disagree with trying to eliminate fraud before it 

happens. But it is obviously happening, and it is obviously not 

being detected when only 13 percent of the detections are done by 

the agency itself and 87 percent are done by other citizens. Mr. 

Blum, there is no one that disagrees that we should try to prevent 

it, but we know it occurs. So don’t you think you should be focusing 

more attention on that side of the equation rather than relying on 

patriotic citizens to identify this fraud and abuse? 

Mr. BLUM. I agree with you, Senator, that the agency has a responsibility and a role to make sure that every claim, to the extent 

possible, is paid accurately. Congress has given CMS new resources. The President has requested new resources, and we have 

changed the way that CMS interacts with law enforcement agencies to ensure that they also have access to the same information 

we have. And I agree with you, the agency can do more, has done 

more, and will continue to do more. 

Senator MCCAIN. Well, just finally, Ms. King, are you satisfied 

that we are taking the necessary steps to at least address this 

problem seriously? 

Ms. KING. We will be interested to see with respect to Part D 

what CMS’s revised audit strategy looks like, because they are still 

revising it. We believe a strong and effective audit strategy is essential. So we are in the trust but verify position. 

Senator MCCAIN. Thank you very much. 

Thank you, Mr. Chairman. I thank the witnesses, and I know 

that this is very difficult when we are talking about these sums of 


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money there. But because we are talking about these sums of 

money there is a reason for us to continue to pursue this effort. 

Thank you, Mr. Chairman. 

Senator CARPER. You bet. 

We know we have these huge budget deficits. We know the Medicare trust fund is running out of money, and we are trying to pass 

legislation that would sort of extend the life of the Medicare trust 

fund from maybe 7 or 8 years to at least double that. Hopefully, 

we will be able to get that done this year. 

All that notwithstanding, there is work to be done on the prevention side. That is clear. We have an obligation to help you, provide 

and make sure you have the resources and also the encouragement 

to do the good work that is needed there. 

There is, I think, good work that can be done by the recovery 

audit contractors, just like they are working in other parts of Medicare. I think those resources can be brought to bear here, and it 

is almost an incentive system. They get 9 to 12 percent of the monies they recover. That is a pretty good incentive. And I want us to 

look long and hard at what we are doing with whistleblowers to 

compensate them for blowing whistles and being willing to take a 

risk to make sure we cannot—hopefully, we are going to pass legislation this year, maybe even this month, that says rather than we 

encourage folks to report fraud in the case of Medicare Part D or 

Medicare, we are going to require them to, and then come back 

later on this year with some way to incentivize them to do that, 

not just because it is something they ought to do. 

One last question I have for Mr. Vito. Your testimony described 

the importance of proactive data analysis, what some call data 

mining, and Medicare drug integrity contractors are tasked with 

proactively analyzing the purchases, cost, and distribution of medications to root out waste, fraud, and abuse. MEDICs did very little, 

I am told, according to your audits and testimony. Could you comment more on the situation and why this work is critical? And I 

think we are going to soon hear from the MEDICs, and they are 

going to testify that they have increased their proactive data analysis. Does this indicate an improvement? Should more be accomplished? Can more be accomplished? Thank you. 

Mr. VITO. Well, largely their efforts of identifying fraud were 

based on the complaints, which, in fact, is something that happened already. Their strategy at CMS and the MEDICs was to use 

proactive data analysis to identify the problems and prevent them 

before they occurred. That largely did not happen because the 

MEDICs who were tasked to do that did not have the data to do 

that analysis. 

Senator CARPER. And can you tell us why they did not have the 

data? 

Mr. VITO. I cannot tell you specifically why they did not. That 

would be a question for CMS. But when we went to them and 

asked them to tell us what you are—— 

Senator CARPER. When you say ‘‘them,’’ them being CMS or the 

MEDICs? 

Mr. VITO. I am sorry. When we went to the MEDICs as part of 

our MEDIC review, we said, let us see the proactive data analysis, 

let us see what you are doing to prevent and detect fraud, waste, 


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and abuse, because, for example, you put up information today 

about people who are abusing drugs. If you had proactive data 

analysis, you might be able to find that. You might be able to see 

that happening. And when you see that happening, then you could 

prevent it at that time rather than waiting until after the fact 

when something bad might happen besides just paying the money. 

So there are significant benefits. 

CMS recognized how important it is to do that proactive data 

analysis, and they wanted to get it done, but they just had problems implementing it and making it happen. Now we are told that 

the MEDICs have the data, and they are actually utilizing that 

data to do proactive data analysis. 

We are also in the trust but verification work as well, so our goal 

will always be to find out if exactly that is happening. What you 

need now is you have the data; now they have to start utilizing the 

data to the best way that they would be able to get the best benefit 

out of it. And CMS has to be monitoring them to make sure and 

helping them to make sure that they are able to get that done. And 

we will as well. 

Senator CARPER. This is the last question before we excuse this 

panel. Every now and then I ask witnesses—as we try to drill down 

and find out where we can save some money, I ask the witnesses 

to just say what can the Legislative Branch of our government be 

doing better. I talked about the agencies. Everything we do we can 

do better. I know that is true for me, and I suspect it is for all of 

us. What more, or what less, should the Legislative Branch be 

doing here, this Subcommittee in particular, to make sure that, 

one, we are preventing fraud from occurring, and in the second 

place, to the extent that it is occurring, that we identify it; three, 

make sure that we stop it; and, four, that we go out there and recover as much of this money as we can for the trust funds and for 

the taxpayers? What more should we be doing, Ms. King? 

Ms. KING. Senator, I think oversight hearings such as this draw 

attention to these issues and point out where improvements can be 

made. We are always available to do further investigation into 

issues like this, so we would be happy to assist you in that. 

Senator CARPER. Good. Thanks. Senator McCain alluded to that, 

and we would like to follow that up with you. Mr. Vito. 

Mr. VITO. As it relates specifically to this hearing and this work, 

one of the areas that we saw is that the MEDICs did not have the 

opportunity to directly go to the pharmacies, the plan benefit managers (PBMs), and did not have the opportunity to go to the physicians directly. If you would provide some legislation in that area, 

that would help them accomplish that and help them. 

Senator CARPER. All right. Thanks. Thanks for that. 

Mr. Blum, would you comment on the point that Mr. Vito just 

made and then add to that whatever you would like? 

Mr. BLUM. I agree that Congress can help CMS share information, give access to information, both with CMS staff and also with 

the various partners that we use to help us oversee the program. 

But I think there are some very important provisions pending 

now in health reform that will give CMS more tools to oversee and 

to strengthen the Part D program. One provision that is pending 

both in the Senate-passed and the House-passed bills would give 


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1The prepared statement of Mr. Apple appears in the Appendix on page 77. 

CMS more authority to reject plan bids. Today we have very limited authority. Plans have to meet certain screens, have to meet 

certain checks. But at the end of the day, CMS has few opportunities to reject Part D plan bids altogether. Having that tool will give 

CMS more ability to promote the best possible Part D contractors. 

I think that is one area that Congress can help CMS. 

Senator CARPER. Good. All right. We appreciate your being here. 

We appreciate your preparation for the testimony, and we realize 

we are making some progress. But we are not making enough, as 

you know, and I feel and I think my colleagues feel there is a certain passion to want to step this up, take this up to the next level, 

from our end and from your end as well. And this is one that we 

are going to continue to follow up on, see how we are doing, and 

to see if we are making progress, and to find out what more you 

all need to be doing, and particularly CMS, to find out what we 

need to be doing, too, to support those efforts and encourage those 

efforts. 

Thank you very much for joining us today. 

Ms. KING. Thank you. 

Senator CARPER. With that, we will invite our second panel to 

the table. Thank you. 

[Pause.] 

Senator CARPER. All right. I will ask the Subcommittee to come 

back to order, and the audience. Welcome to our second panel, Mr. 

Apple and Dr. Jensen. 

Our first witness is Howard Apple, President of SafeGuard Services. SafeGuard Services, I am told, is one of the contractors who 

provide compliance fraud, waste, and abuse services for the Center 

for Medicare & Medicaid Services. 

Our second witness today is Dr. Christian Jensen, who is the 

chief executive officer of Quality Health Strategies. And Quality 

Health Strategies, I understand, is another of our contractors that 

provide fraud analysis and oversight for the Medicare Part D program. 

Welcome. You are both recognized, and I would ask you to try 

to give us your statement in about 5 minutes apiece, roughly. If 

you go a few minutes over that, that will be fine. But if you go 

much over that, I will have to rein you in. I have a meeting at 

about 5 o’clock that starts with the Finance Committee, so we will 

get right into it. But let us have your testimony, and then we will 

ask some questions. Thanks so much for joining us. Mr. Apple, you 

are recognized. 

TESTIMONY OF HOWARD B. APPLE,1 PRESIDENT, SAFEGUARD 

SERVICES, LLC, ACCOMPANIED BY DOUG QUAVE, PROGRAM 

DIRECTOR, COMPLIANCE AND ENFORCEMENT MEDIC 

Mr. APPLE. Thank you, Senator, and I will have a written statement for the record. This will be an abbreviated statement. 

Senator CARPER. That would be great. Thanks. 

Mr. APPLE. Mr. Chairman and distinguished Members of the 

Subcommittee, thank you for the opportunity to discuss SafeGuard 

Services’ role in helping CMS combat fraud and abuse in the MediVerDate Nov 24 2008 13:23 Dec 01, 2010 Jkt 056890 PO 00000 Frm 00033 Fmt 6633 Sfmt 6601 P:\DOCS\56890.TXT SAFFAIRS PsN: PAT

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care prescription program. My name is Howard Apple, and I am 

the President of SafeGuard Services. 

For background, the enactment of the Medicare Modernization 

Act of December 8, 2003, represented the largest change to Medicare since its inception by creating a new prescription drug benefit 

for Medicare beneficiaries, which is Part D. Beginning in September 2006, CMS geographically divided the United States and 

awarded contracts to three Medicare Part D integrity contractors, 

the MEDICs. They were MEDIC North, South, and West. Each 

MEDIC was responsible for performing program safeguard functions to detect, deter, and prevent fraud, waste, and abuse and to 

mitigate vulnerabilities associated with the Part D benefit services 

provided within their geographic jurisdiction. SGS was awarded 

the contract for MEDIC North, which consisted of 24 of the States 

in the Northern United States, the District of Columbia, and the 

U.S. Virgin Islands. 

In September 2008, CMS reduced the number of MEDIC contractors to two organizations, resulting in the reassignment of MEDIC 

West States to the MEDIC North and South. MEDIC North’s jurisdiction expanded to include 35 States, four U.S. Territories, and 

the District of Columbia. Additionally, the MEDICs were tasked 

with supporting the Center for Drug and Health Plan Choice’s Efforts to address new or emergent areas of compliance and enforcement related to Medicare Advantage, Part C, Part D, and the program of all-inclusive care for the elderly for these States and Territories. 

Under the MEDIC North contract with CMS, SGS’s responsibilities included the investigation of allegations or suspicions of fraud, 

waste, and abuse in the Part D program within our jurisdiction. 

Complaints were received from a variety of sources. The majority 

of complaints were received via the CMS’s toll-free Part D hotline 

and through CMS’s Complaint Tracking Module. Typically, complaints involved telemarketing scams, inappropriate enrollment or 

disenrollment within a plan, Explanation of Benefits errors, improper marketing practices, and drug diversion. Additional responsibilities included using innovative data analysis techniques to 

identify potential fraud, waste, and abuse, fulfilling requests for information from law enforcement agencies, and conducting compliance plan audits of Part D sponsors. 

In October 2009, SGS’s contract again was modified when CMS 

decided to realign the responsibilities of the MEDICs functionally 

rather than geographically. MEDIC North became the compliance 

and enforcement MEDIC with the mission of providing nationwide 

support of CPC’s compliance and enforcement strategy and to 

bridge the gap between compliance and enforcement activities managed by the Program Compliance & Oversight Group in CPC, and 

the nationwide fraud, waste, and abuse activities tasked to Health 

Integrity and managed by the Program Integrity Group. Our responsibilities now include providing audit technical assistance; conducting plan sponsor readiness and ongoing compliance assessment; investigating complaints against agents and brokers involving violations of the Medicare regulations; and monitoring and 

evaluating sponsors’ compliance plans and the effectiveness of 

those plans. 


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1The prepared statement of Dr. Jensen appears in the Appendix on page 82. 

I just want to read a few accomplishments that we have had to 

date. 

From December 2006 through November 14, 2009, we received 

over 10,000 calls via the toll-free hotline. We handled over 3,200 

complaints from beneficiaries. We initiated over 1,100 investigations. We referred over 120 instances of fraud and abuse to the 

OIG and other law enforcement agencies. We also fulfilled 300 requests for information, such as Part D data, from law enforcement 

agencies and referred over 170 agent or broker misconduct cases to 

State insurance commissions. 

These accomplishments resulted from developing a collaborative 

and constructive relationship with CMS at all organizational levels 

which we continue to foster through weekly meetings, ad hoc meetings, and conference calls. 

Thank you, Mr. Chairman, for the honor of speaking with you 

today, and I would be happy to answer any questions that you or 

Members of the Subcommittee may have. 

Senator CARPER. Thanks for your testimony. 

Dr. Jensen, I am going to ask you to hold up for just one moment. I am getting a phone call that I need to take. We will recess 

for 2 minutes, and I will be right back. Do not go away. 

[Recess.] 

Senator CARPER. All right. Dr. Jensen, please proceed. Thank 

you. 

TESTIMONY OF CHRISTIAN JENSEN, M.D., MPH,1 PRESIDENT 

AND CHIEF EXECUTIVE OFFICER, QUALITY HEALTH STRATEGIES, AND MEMBER, BOARD OF DIRECTORS, HEALTH INTEGRITY, LLC 

Dr. JENSEN. Thank you very much, Senator Carper. I am Dr. 

Christian Jensen, and I am the CEO of Quality Health Strategies 

(QHS), which is a nonprofit corporation. Health Integrity is one of 

QHS’s subsidiaries and has a Medicare drug integrity contract. Our 

written testimony that we have submitted contains many more details on our experience with Medicare program integrity contracts, 

but I wanted to note that we are also the holder of the Zone Program Integrity Contract for Region 4, which includes the Southwest, and for Task Orders 1 and 5 of the Audit Medicaid Integrity 

Contract. 

The history of these contracts has been well covered by Mr. 

Apple, and as the program has evolved, CMS has taken some important steps to try to improve the integrity of Medicare and Medicaid. 

There are some unique differences between Medicare fee-for-service and Medicare managed care programs and Medicare Part D, 

and the complexity of Medicare Part D was alluded to by Mr. 

Blum. The data systems and the data itself are much less mature 

with Medicare Part D, and the risk model is much more complex. 

It includes cost sharing, risk sharing, and coverage gaps and so 

forth. And there has been, as has already been alluded to, a lack 

of direct access of the MEDICs to downstream providers. For examVerDate Nov 24 2008 13:23 Dec 01, 2010 Jkt 056890 PO 00000 Frm 00035 Fmt 6633 Sfmt 6601 P:\DOCS\56890.TXT SAFFAIRS PsN: PAT

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ple, we were not able to get physician and pharmacy records for 

most of the time of our existence. 

I would like to share with you that the OIG report represented 

a picture of the MEDICs as of the end of calendar year 2008. However, during 2009, many of the challenges and the difficulties that 

we had encountered in bringing this program to successful maturation were overcome. I cite a few. 

Medicare Part B data access was obtained in late 2008. During 

2009, and that is what the following numbers allude to—about 

2,500 call center complaints were received and processed: 138 requests were processed for law enforcement; 121 fraud referrals 

were made to law enforcement; 157 referrals were made to State 

insurance commissioners; 47 proactive analyses were completed; 

662 investigations from all sources are now open, and 267 investigations resulted from proactive analyses, with 28 percent of all 

our investigations during 2009 resulting from proactive analyses. 

Twelve referrals have resulted from our proactive analyses, and we 

have 203 investigations from proactive analysis which are still underway. 

Also during 2009, Health Integrity focused great efforts on trying 

to ensure that the law enforcement community and the plans were 

fully educated concerning the differences and the subtleties and the 

financial impact of Part D fraud. And as a result, we have seen 

three Part D indictments in 2009 and 2010. 

We have had a great deal of success in collaborating with plan 

sponsors. We have established Part C and Part D plan working 

groups. They meet quarterly and include law enforcement, the 

ZPICs, and the plan sponsors. And, as a result, the referrals that 

we receive from plan sponsors went up from 90 in 2007 to 396 in 

2009, and we have already had 244 in the first 2 months of 2010. 

Health Integrity has only been the national benefit integrity 

MEDIC since October 2009, 5 months, but already this national experience has strengthened our ability to identify new and emerging 

regional fraud schemes, to identify existing national scope issues, 

and to focus on fraud and its prevention through vulnerability reporting, fraud alerts, and other measures. And I would like to 

thank Senator Carper and the Subcommittee for this opportunity 

to offer my comments, and I am pleased to answer any questions. 

Senator CARPER. Thanks, Dr. Jensen. 

In your statement you mentioned—I will paraphrase, but I think 

you said we have had a great deal of success in—I think ‘‘coordinating’’ was the word that you used—in coordinating with plan 

sponsors. How do you measure success in the work that you do? In 

your statement, you talked about referrals and investigations 

begun. 

Sometimes in our schools we measure success not by whether the 

kids make progress, academic progress from the beginning of the 

school year to the end of the school year. We judge success on 

whether they show up or whether there is lack of disciplinary problems. But how do you measure success? 

Dr. JENSEN. Well, one measure of success, although it is perhaps 

a progress or a process measure rather than an outcome measure— 

because we are not at the outcome stage yet with many of these 

investigations—is by the number of referrals and their dramatic inVerDate Nov 24 2008 13:23 Dec 01, 2010 Jkt 056890 PO 00000 Frm 00036 Fmt 6633 Sfmt 6601 P:\DOCS\56890.TXT SAFFAIRS PsN: PAT

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crease from the plans. Somebody is getting the message there at 

the plans that the MEDICs are here and that they can handle 

these complaints or referrals that they receive about fraud, and 

that there is a responsibility on the part of the plans to make those 

referrals. 

Senator CARPER. Thank you. 

Mr. Apple, how do you measure success? 

Mr. APPLE. Well, there are two ways of measuring success. You 

could look at quantity and say we referred this many cases to law 

enforcement. But what I look at more and what my team looks at 

more for metrics is the quality of our work. 

So, for example, if in 1 year we referred 10 cases to law enforcement and five of them ended up not being accepted because they 

did not believe the quality of the work was that good, there is a 

benchmark. If the next year we find 100 percent of our cases were 

accepted because of quality, that is one benchmark, to me, of success. And at SGS, we truly—the mantra is not quantity. You want, 

of course, quantity. But the mantra really is quality of work. When 

we refer cases to law enforcement, when we do responses to law enforcement for requests for information, if we get a letter back from 

law enforcement saying that was very helpful, that saved us tons 

of hours of work to get this case through, that to me is a measure 

of success. 

Senator CARPER. Is there some way that we are measuring success in the work that you all do, we actually quantify dollars that 

we have prevented from being defrauded from the program or dollars that we have recovered that were fraudulently diverted? Is 

that part of the measurement of success? 

Dr. JENSEN. There is, of course, the return on investment measure: Comparing what CMS puts into funding its contractors, to 

what are they getting back and what the taxpayers are getting 

back. And that is a difficult thing to measure sometimes when you 

have a lot of variables. 

Senator CARPER. Let me just interrupt you if I can. I mentioned 

earlier the program that we are running, initially in three States, 

with the recovery audit contractors where we recovered through 

last year about $700 million. That is pretty easy to say this program is working. They get 9 to 12 percent as a percentage to compensate them for their efforts. But, we could say, well, we are getting $600 million, $700 million, that is a pretty good way to measure success. 

But what I am looking for is a way to quantify your efforts and 

the efforts that you have described here in ways that are relevant 

to us as the $600 million or $700 million figure is relevant. I am 

sorry. Go ahead. 

Mr. APPLE. Well, I was going to say SGS does more than just the 

MEDIC work. We are also a ZPIC. We also are a program safeguard contractor in several States. And let me just digress a little 

bit from the MEDIC, if I may. 

In the other programs, as a ZPIC and a program safeguard contractor, we really are prohibited by CMS from measuring success 

by return on investments, and the reason being is we do not want 

to be perceived as bounty hunters. So, in other words, you do not 


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want to just say we referred 50 cases to law enforcement and not 

really look at the quality of our work. 

But in the ZPICs and in the program safeguard contract, we 

know how much we recover. There is a mechanism for us to know 

how much was recovered, and that is one way of knowing that the 

return is far greater than the expense of running our programs. 

I have behind me Doug Quave, who is my program director, and, 

he has told me we have no way of really getting the records to 

know how much was recovered on the MEDIC Part D. 

Senator CARPER. Feel free to come to the table and identify yourself for the record, please. 

Mr. QUAVE. Thank you. For the record, my name is Doug Quave. 

I am the program director for what is now the Compliance and Enforcement MEDIC. We used to be MEDIC North, as Mr. Apple referred to. 

The problem is because of the intricacies in the ways that the 

Part D and Part C programs are paid in a capitated rate, it is difficult to quantify the loss to the government. It is not like Parts 

A and B, where somebody submits a claim and gets paid so much 

for a claim. Instead, they get paid a monthly rate per member to 

administer the plan. And then they bid, the sponsors bid a certain 

amount and say this is how much we think we can quantify—we 

can provide this plan for the beneficiaries. 

So it is very difficult to quantify the loss. That is why it is difficult for us to turn around and show the return on investment by 

a referral. At this point, we have been referring law enforcement 

to CMS for assistance in trying to quantify that amount on our referrals. 

Mr. APPLE. And let me just add on to that what I was saying is 

under the Part A and Part B program, there are different mechanisms to see the metrics. Number one, you could stop payments 

from going out the door. You could put pre-payment edits in. You 

could make recovery of overpayments. So that is a more definitive 

way of knowing what was recovered and what your return was. 

You do not have that in the MEDIC program. 

Senator CARPER. All right. Somebody else? Dr. Jensen. 

Dr. JENSEN. There are anecdotal or isolated reports so, for example, we conducted an investigation into allegations about a pharmacist in a Southern State who was submitting high-volume—false 

claims for high-cost HIV and anti-psychotic drugs to eight Part D 

plan sponsors. The investigations revealed that particular pharmacist had submitted $200,000 worth of prescriptions to Medicare 

Part D which were never provided to the beneficiaries or prescribed 

by the physicians. That pharmacist was taken out of practice. That 

perhaps is one example of a saving. 

Another also took place in a prominent Southern State where a 

pharmacy billed Medicare’s Part D for medications that were never 

rendered to beneficiaries nor prescribed by physicians which totaled over $1 million between February 4, 2008, and June 26, 2009. 

The owner of the pharmacy was indicted in the Southern District 

of that State on charges that he owns two pharmacies which billed 

Medicare for approximately $20 million and received $6 million in 

payments. He was sentenced to 112 months’ incarceration. 


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But, Senator, there are other values to this program which cannot be measured in dollars. I point out also an investigation of a 

physician and a nurse practitioner who were overprescribing controlled-substance narcotic analgesic drugs. Known drug traffickers 

were seen going into the office, and as a result of his prescribing, 

10 patients died of overdoses of prescription drugs. That doctor was 

indicted in October 2008 on 14 counts that alleged her actions led 

to the death of three patients in 2006. Her trial is set for next 

month. 

And the director of an assisted living facility who stole controlled-substance medications from chronically ill patients for her 

own personal use was indicted on 11 counts of false statements relating to a health care matter. 

Those things are important perhaps, but it is difficult to measure 

them in money. 

Senator CARPER. OK. Thank you. 

A question really for both Dr. Jensen and Mr. Apple—maybe a 

couple of questions. Your comments and your testimony have suggested some improvements on several fronts identified by the GAO 

and by the Inspector General. MEDICs, I believe, were supposed to 

ensure that the sponsors’ anti-fraud compliance plans were in order 

and being implemented correctly. Yet the Center for Medicare & 

Medicaid Services prevented you from actually starting the audits. 

At least that is what I am told. 

Would you say that the progress on auditing the compliance 

plans started once you were given the authority to audit the antifraud plans of the sponsors? 

Second, why were you not given the authority before 2008? 

And, finally, are there current tasks or auditing that you are 

awaiting permission to begin? 

Mr. APPLE. Well, I could start with that. Quite frankly, we do not 

know why we were not given the authority. We were just told we 

were not able to conduct audits until—I believe it was October 1, 

2008, and, again, this is the customer telling us this, and we follow 

what the task order required of us. 

We believe that as we do more audits and as we—— 

Senator CARPER. Let me just interrupt you. Are there current 

tasks or audits that you are awaiting permission to begin, either 

of you? 

Mr. APPLE. As I speak here today, we are conducting an on-site 

audit, under the new program an expanded audit, and we are told 

that many more are being planned. 

Senator CARPER. OK. Are there audits that you are awaiting permission to begin? 

Mr. APPLE. No, because we do not request permission from CMS. 

They tell us which audits they want conducted. This is directed by 

CMS. 

Senator CARPER. Dr. Jensen. 

Dr. JENSEN. We did, while we had the authority to do it, 10 audits, which were desk audits, and I will say that we, too, were prepared to do many more audits. The MEDICs were ready to carry 

out that responsibility, but the orders did not come. 


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Of the 10 desk audits we did, we did find some areas of weakness, but the desk audits are subject to the criticisms that have 

been made already here this afternoon. 

Senator CARPER. Let me just interrupt you again, if I may. Describe for us in terms that everybody could understand what a desk 

audit is. Describe for us in terms that everybody can understand 

the kind of audits that you ought to be conducting, if allowed. 

Mr. APPLE. Well, the desk audit itself was essentially you asked 

for information from the sponsor for—— 

Senator CARPER. ‘‘You’’ being? 

Mr. APPLE. SGS would ask—— 

Senator CARPER. SGS stands for? 

Mr. APPLE. SafeGuard Services. That is my company, SafeGuard 

Services. And a request would be made of the sponsors, the plans, 

to provide us the data to prove that they were meeting the seven 

elements required to be a sponsor. 

The difference between that and what SGS is doing now is now 

we are going on site and we are looking at the effectiveness of their 

programs, of their compliance programs. And this would be the 

best example, Senator. On a desktop audit, SGS might receive information that had proof that training sessions were provided on 

the following dates, A, B, C, D, E. When you go on site, you could 

get extra records like attendance records. How many people actually attended? Let me see the curriculum that you provided the 

attendees to make sure it is relevant to the work you are doing. 

So you really can delve into the effectiveness, not just the fact that 

they checked the box and had compliance. 

Senator CARPER. Dr. Jensen, same question. Just compare for us 

a desk audit to the kind of audit that you think you ought to be 

doing. 

Dr. JENSEN. In my view, an on-site audit has many advantages 

over the desk audit, the opportunity to verify on site directly and 

experientially what has been stated in a document. 

Senator CARPER. OK. And do you feel like you now have the ability to go on site and conduct the kind of on-site audit that is more 

appropriate? 

Mr. APPLE. Mr. Chairman, the audits we are doing now are much 

more effective, and my team believes that these audits will be very 

effective. 

Senator CARPER. Dr. Jensen. 

Dr. JENSEN. The division of labor between the two MEDICs 

leaves that responsibility now with Mr. Apple’s organization. 

Senator CARPER. OK. Now, one of the questions I asked at the 

end of the first panel, I asked them to tell us what we needed to 

be doing in terms of legislation that would enable them to do a better job, especially CMS, and they gave us a couple of ideas, and we 

explored some other ideas during the course of their testimony. But 

in terms of what you need to have in order to be able to be unleashed to be fully effective, what do you need in terms of change 

in attitude, change in direction, change in regulation, change in 

legislation? What do you need to unleash a tsunami-like effect in 

assaulting fraud that has occurred in this program? 

Mr. APPLE. Well, Mr. Chairman, I come from a background of 

law enforcement. I have a long history of law enforcement. And you 


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made a reference to Willie Sutton robbing a bank because that is 

where the money is. 

Medicare fraud is a little bit different, and that fraud many 

times is paper driven. And I will tell you that anytime you have 

Medicare fraud, if you have sufficient data, you will find that fraud 

proactively or reactively. And with that as a basis, my comments 

would be the more data that can be available to the MEDICs, the 

better off the MEDICs will be. 

Additionally, if the MEDICs were allowed to obtain medical 

records directly rather than going through the sponsors, I believe 

that would be beneficial. 

And, third, something that was not addressed is while the MEDICs are able to look at the A and B data, the fact is that the PSEs 

and ZPICs that do the A and B are not allowed to look at the D 

data. And I believe the more people, the more investigators that 

can wrap their hands around data and crime problems, you will get 

a better picture and more productive results. 

Senator CARPER. Good. We are going to write you and ask you 

to reiterate that and maybe amplify on the points you just made 

in writing, if you would. 

Mr. APPLE. Mr. Chairman, I would be delighted. 

Senator CARPER. Dr. Jensen, would you react to what—— 

Dr. JENSEN. I echo what Mr. Apple said, particularly with respect to data. One of the reasons we are here and some of the criticisms which have been made of the program are because of the 

lack of data in a timely way. The larger the database, the greater 

the potential for identifying fraud, and that is what I am enthusiastic about. Anything that the Legislative Branch can do to facilitate that would be greatly appreciated. 

Senator CARPER. OK. Is there anything that either of you want 

to add or take away from what has been said? Also, not just for 

this conversation we have had with you on this panel, but looking 

back to our conversation with our first three guests, just reflect on 

that. Anything that you would like to underline, underscore, bring 

to our attention as especially noteworthy? 

Mr. APPLE. I think hearings like this are so essential. It makes 

us all better, and I appreciate the ability to be able to participate 

in this hearing. Thank you, Mr. Chairman. 

Senator CARPER. Sure. Any points? 

Mr. APPLE. No. I think every one of their points were on line. I 

do not think I could add to anything that they said already without 

just being redundant. 

Senator CARPER. That is all right. In a setting like this, redundancy is actually good. [Laughter.] 

Mr. APPLE. OK. 

Senator CARPER. We are talking about billions of dollars we are 

trying to capture. 

Mr. APPLE. One thing that Mr. Vito mentioned—again, what I 

said—is to give more data to the plans and also to require the 

sponsors to report fraud, waste, and abuse and not make it voluntary. 

Senator CARPER. OK. 

Dr. JENSEN. And in retrospect, considering the testimony from 

the previous panel, it is important to remember that was a snapVerDate Nov 24 2008 13:23 Dec 01, 2010 Jkt 056890 PO 00000 Frm 00041 Fmt 6633 Sfmt 6601 P:\DOCS\56890.TXT SAFFAIRS PsN: PAT

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shot in time. That was at the end of 2008. And here we are a good 

year past that, and, Senator Carper, there has been a lot of 

progress and a lot of upward movement and a lot of successes since 

then. 

Senator CARPER. Would you say we still have some distance to 

go? 

Dr. JENSEN. Absolutely. In your own words, anything can be improved on. 

Mr. APPLE. I agree. It is not enough to be good. You have to be 

great and continue to get better. 

Senator CARPER. OK. All right. Well, we appreciate your being 

here today. Thanks for your preparation and thanks for your responses to our questions. 

Thank you for coming out of the audience to pinch hit here at 

the witness table, Mr. Quave. 

Mr. QUAVE. Thank you, Mr. Chairman. 

Senator CARPER. Some of our colleagues who were unable to join 

us today will be submitting questions in writing. I will probably be 

submitting a couple questions in writing as well. Members have 2 

weeks to submit their questions following the conclusion of today’s 

hearing. I would ask when you receive those questions, if you 

would respond to us promptly. 

Again, thank you and we look forward to improve further on the 

work that is being done. Thanks very much. 

With that, this hearing is adjourned. 

[Whereupon, at 5:09 p.m., the Subcommittee was adjourned.] 


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