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88–842 2016

KEEPING THE PROMISE: HOW BETTER MANAGING 

MEDICARE CAN PROTECT SENIORS’ BENEFITS 

AND SAVE THEM MONEY 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH 

OF THE

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

SECOND SESSION 

MARCH 4, 2014 

Serial No. 113–123 

( 

Printed for the use of the Committee on Energy and Commerce 

energycommerce.house.gov 

(II) 

COMMITTEE ON ENERGY AND COMMERCE 

FRED UPTON, Michigan 

Chairman 

RALPH M. HALL, Texas 

JOE BARTON, Texas 

Chairman Emeritus 

ED WHITFIELD, Kentucky 

JOHN SHIMKUS, Illinois 

JOSEPH R. PITTS, Pennsylvania 

GREG WALDEN, Oregon 

LEE TERRY, Nebraska 

MIKE ROGERS, Michigan 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

Vice Chairman 

PHIL GINGREY, Georgia 

STEVE SCALISE, Louisiana 

ROBERT E. LATTA, Ohio 

CATHY MCMORRIS RODGERS, Washington 

GREGG HARPER, Mississippi 

LEONARD LANCE, New Jersey 

BILL CASSIDY, Louisiana 

BRETT GUTHRIE, Kentucky 

PETE OLSON, Texas 

DAVID B. MCKINLEY, West Virginia 

CORY GARDNER, Colorado 

MIKE POMPEO, Kansas 

ADAM KINZINGER, Illinois 

H. MORGAN GRIFFITH, Virginia 

GUS M. BILIRAKIS, Florida 

BILL JOHNSON, Missouri 

BILLY LONG, Missouri 

RENEE L. ELLMERS, North Carolina 

HENRY A. WAXMAN, California 

Ranking Member 

JOHN D. DINGELL, Michigan 

Chairman Emeritus 

FRANK PALLONE, JR., New Jersey 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

ELIOT L. ENGEL, New York 

GENE GREEN, Texas 

DIANA DEGETTE, Colorado 

LOIS CAPPS, California 

MICHAEL F. DOYLE, Pennsylvania 

JANICE D. SCHAKOWSKY, Illinois 

JIM MATHESON, Utah 

G.K. BUTTERFIELD, North Carolina 

JOHN BARROW, Georgia 

DORIS O. MATSUI, California 

DONNA M. CHRISTENSEN, Virgin Islands 

KATHY CASTOR, Florida 

JOHN P. SARBANES, Maryland 

JERRY MCNERNEY, California 

BRUCE L. BRALEY, Iowa 

PETER WELCH, Vermont 

BEN RAY LUJAN, New Mexico 

PAUL TONKO, New York 

JOHN A. YARMUTH, Kentucky7 

SUBCOMMITTEE ON HEALTH

JOSEPH R. PITTS, Pennsylvania 

Chairman 

MICHAEL C. BURGESS, Texas 

Vice Chairman 

ED WHITFIELD, Kentucky 

JOHN SHIMKUS, Illinois 

MIKE ROGERS, Michigan 

TIM MURPHY, Pennsylvania 

MARSHA BLACKBURN, Tennessee 

PHIL GINGREY, Georgia 

CATHY MCMORRIS RODGERS, Washington 

LEONARD LANCE, New Jersey 

BILL CASSIDY, Louisiana 

BRETT GUTHRIE, Kentucky 

H. MORGAN GRIFFITH, Virginia 

GUS M. BILIRAKIS, Florida 

RENEE L. ELLMERS, North Carolina 

JOE BARTON, Texas 

FRED UPTON, Michigan (ex officio) 

FRANK PALLONE, JR., New Jersey 

Ranking Member 

JOHN D. DINGELL, Michigan 

ELIOT L. ENGEL, New York 

LOIS CAPPS, California 

JANICE D. SCHAKOWSKY, Illinois 

JIM MATHESON, Utah 

GENE GREEN, Texas 

G.K. BUTTERFIELD, North Carolina 

JOHN BARROW, Georgia 

DONNA M. CHRISTENSEN, Virgin Islands 

KATHY CASTOR, Florida 

JOHN P. SARBANES, Maryland 

HENRY A. WAXMAN, California (ex officio) 

(III) 

C O N T E N T S 

Page 

Hon. Joseph R. Pitts, a Representative in Congress from the Commonwealth 

of Pennsylvania, opening statement ................................................................... 1 

Prepared statement .......................................................................................... 3 

Hon. Henry A. Waxman, a Representative in Congress from the State of 

California, opening statement ............................................................................. 5 

Hon. Fred Upton, a Representative in Congress from the State of Michigan, 

prepared statement .............................................................................................. 49 

WITNESSES

Kathleen King, Director, Health Care U.S. Government Accountability Office . 7 

Prepared statement .......................................................................................... 9 

James Cosgrove, Director, Health Care U.S. Government Accountability Office ......................................................................................................................... 25 

Prepared statement .......................................................................................... 9 

Robert Vito, Regional Inspector General for Evaluation and Inspections, Office of Inspector General, U.S. Department of Health and Human Services .. 25 

Prepared statement .......................................................................................... 27 

(1) 

KEEPING THE PROMISE: HOW BETTER 

MANAGING MEDICARE CAN PROTECT 

SENIORS’ BENEFITS AND SAVE THEM 

MONEY? 

TUESDAY, MARCH 4, 2014 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON HEALTH, COMMITTEE ON ENERGY AND COMMERCE, Washington, DC. 

The subcommittee met, pursuant to call, at 10:00 a.m., in room 

2123, Rayburn House Office Building, Hon. Joseph R. Pitts (chairman of the subcommittee) presiding. 

Present: Representatives Pitts, Shimkus, Murphy, Gingrey, Bilirakis, Pallone, Barrow, Christensen, and Waxman (ex officio). 

Staff Present: Clay Alspach, Counsel, Health; Sean Bonyun, 

Communications Director; Noelle Clemente, Press Secretary; Sydne 

Harwick, Legislative Clerk; Sean Hayes, Counsel, O&I; Katie 

Novaria, Legislative Clerk; Christopher Pope, Fellow, Health; Chris 

Sarley, Policy Coordinator, Environment and Economy; Heidi Stirrup, Health Policy Coordinator; Josh Trent, Professional Staff 

Member, Health; Tom Wilbur, Digital Media Advisor; Ziky 

Abablya, Minority Staff Assistant; Kaycee Glavich, Minority GAO 

Detailee; Amy Hall, Minority Senior Professional Staff Member; 

Karen Lightfoot, Minority Communications Director and Senior 

Policy Advisor. 

OPENING STATEMENT OF HON. JOSEPH R. PITTS, A REPRESENTATIVE IN CONGRESS FROM THE COMMONWEALTH 

OF PENNSYLVANIA 

Mr. PITTS. The subcommittee will come to order. The chair will 

recognize himself for an opening statement. 

In fiscal year 2014, the Medicare program will cover nearly 54 

million Americans, and the Congressional Budget Office, CBO, estimates that total Medicare spending will be approximately $603 billion, $591 billion of which will be spent on benefits. According to 

the Department of Health and Human Services fiscal year 2013 

Agency Financial Report, the improper payment rate for Medicare 

fee-for-service, FFS, was 10.1 percent last year. 

Adding in the improper payments for Parts C and B with error 

rates of 11.4 percent and 3.1 percent respectively, improper payments totaled over $49.8 billion. Independent estimates of the real 

costs of waste, fraud and abuse in Medicare are much higher. 

2 

Why are these figures important? The Medicare Trust Fund is 

set to go bankrupt sometime in the next decade. Absent congressional action, the Congressional Research Service, CRS, has stated 

Part A benefits cannot be paid out while the trust fund is insolvent. That is simply unacceptable. We cannot afford a future where 

our seniors’ hospital bills go unpaid. Every taxpayer dollar must be 

protected. 

Some of my colleagues have suggested that merely eliminating 

the multibillion dollar losses due to inefficiency and fraud will 

alone fix the insolvency problem. That claim is, frankly, false. 

While reducing waste, fraud, and abuse, and managing the program more effectively, should be an administration priority, that 

alone is not enough to address Medicare’s spending problem. However, critics are correct that a congressional solution is needed. We 

must do everything in our power to safeguard the money in the 

trust fund until such time as Congress accepts its responsibility to 

make structural changes to save the program for the millions who 

depend on it. 

Medicare uses a variety of contractors to assist in paying provider claims, delivering benefits and carrying program integrity 

and oversight functions. Many of these contractors have valuable 

experience fighting fraud efficiently managing health insurance 

programs. Yet sometimes Federal law or administrative barriers 

prevent us from using their expertise to prevent waste, fraud, and 

mismanagement in the Medicare program. Other times, all that is 

missing is a dose of common sense and leadership. 

This committee has, for years, studied the problem and reviewed 

potential new programs to help CMS fight waste, fraud, and abuse. 

This is not one of these hearings. Today’s hearing is an opportunity 

to hear from experts about the challenges CMS faces in administering the program. In fact, today’s hearing is a first step toward 

a broader long-term effort to build consensus about the best ways 

to modernize the Medicare program in its management, operations, 

and accountability. And the best way to strengthen Medicare is to 

help improve and modernize the business model of the agency that 

oversees the Medicare program, CMS. 

The purpose of today’s hearing is to examine how CMS currently 

uses and oversees these contractors to lessen program 

vulnerabilities and protect seniors’ benefits by increasing accountability and cost-effectiveness. Long term, I hope to work with my 

colleagues to identify barriers in Federal law and within CMS itself 

that prevent contractors from fighting waste, inefficiency, fraud, 

and abuse, and I hope we will address them. 

I am pleased to have witnesses from both GAO and the HHS 

OIG with us today to discuss the types and functions of Medicare 

contractors and how the program can better manage them to meet 

its goals. I would note that the HHS OIG is releasing two new reports today on these topics, and I look forward to the testimony of 

all of our witnesses. 

With that, I will yield back and recognize the ranking member 

of the subcommittee, Mr. Pallone, for 5 minutes for an opening 

statement. 

[The prepared statement of Mr. Pitts follows:] 

3 

PREPARED STATEMENT OF HON. JOSEPH R. PITTS

The subcommittee will come to order. 

The chair will recognize himself for an opening statement. 

In Fiscal Year 2014, the Medicare program will cover nearly 54 million Americans, and the Congressional Budget Office (CBO) estimates that total Medicare 

spending will be approximately $603 billion; $591 billion of which will be spent on 

benefits. 

According to the Department of Health and Human Service’s (HHS) FY2013 

Agency Financial Report, the improper payment rate for Medicare fee-for-service 

(FFS) was 10.1% last year. Adding in the improper payments for Parts C and D, 

with error rates of 11.4% and 3.1%, respectively, improper payments totaled over 

$49.8 billion. 

Independent estimates of the real cost of waste, fraud, and abuse in Medicare are 

much higher. 

Why are these figures important? 

The Medicare Trust Fund is set to go bankrupt sometime in the next decade. Absent Congressional action, the Congressional Research Service (CRS) has stated 

Part A benefits cannot be paid out while the Trust Fund is insolvent. 

That is simply unacceptable. We cannot afford a future where our seniors’ hospital bills go unpaid. Every taxpayer dollar must be protected. 

Some of my colleagues have suggested that merely eliminating the multi-billion 

dollar losses due to inefficiency and fraud will alone fix the insolvency problem. 

That claim is, frankly, false. 

While reducing waste, fraud, and abuse-and managing the program more effectively-should be an Administration priority, that alone is not enough to address 

Medicare’s spending problem. 

However, critics are correct that a Congressional solution is needed. 

We must do everything in our power to safeguard the money in the Trust Fund, 

until such time as Congress accepts its responsibility to make structural changes 

to save the program for the millions who depend on it. 

Medicare uses a variety of contractors to assist in paying provider claims, delivering benefits, and carrying out program integrity and oversight functions. 

Many of these contractors have valuable experience fighting fraud and efficiently 

managing health insurance programs. Yet sometimes federal law or administrative 

barriers prevent us from using their expertise to prevent waste, fraud, and mismanagement in the Medicare program. 

Other times, all that is missing is a dose of common sense and leadership. 

This Committee has for years studied the problem and reviewed potential new 

programs to help CMS fight waste, fraud, and abuse. 

This is not one of these hearings. 

Today’s hearing is an opportunity to hear from experts about the challenges CMS 

faces in administering the program. 

In fact, today’s hearing is a first step toward a broader long-term effort to build 

consensus about the best ways to modernize the Medicare program—in its management, operations, and accountability. 

And the best way to strengthen Medicare is to help improve and modernize the 

business model of the agency that oversees the Medicare program: CMS. 

The purpose of today’s hearing is to examine how CMS currently uses and oversees these contractors to lessen program vulnerabilities and protect seniors’ benefits 

by increasing accountability and cost-effectiveness. 

Long term, I hope to work with my colleagues to identify barriers in federal law 

and within CMS itself that prevent contractors from fighting waste, inefficiency, 

fraud, and abuse-and I hope we will address them. 

I am pleased to have witnesses from both GAO and the HHS OIG with us today 

to discuss the types and functions of Medicare contractors and how the program can 

better manage them to meet its goals. 

I would note that the HHS OIG is releasing two new reports today on these topics, and I look forward to the testimony of all of our witnesses. 

Thank you. 

4 

OPENING STATEMENT OF HON. FRANK PALLONE, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW JERSEY 

Mr. PALLONE. Thank you, Mr. Chairman, for holding today’s 

hearing on the management of Medicare. 

For nearly 50 years, Medicare has served as the bedrock program 

for our Nation’s seniors and disabled. What started as a basic benefit covering hospital stays and doctors’ visits has continuously 

evolved and now encompasses comprehensive health care coverage 

that millions rely on. But in order to build upon the promise of the 

program, Congress and the Administration must continue to find 

ways to strengthen the program so it works better for beneficiaries 

and taxpayers alike. 

The Centers For Medicare and Medicaid Services, known as 

CMS, is tasked with the critical role of administering the program 

to 50 million beneficiaries. Since Medicare’s inception, CMS has enlisted a number of different contractors in different ways throughout the program to help assist in that responsibility. In Parts A 

and B, they use contractors to help pay the millions of claims from 

providers as well as enroll providers. In Medicare Advantage, or 

MA, and the Part D benefit, CMS utilizes the private sector, specifically private insurers, to administer the benefits directly to 

beneficiaries. In addition, CMS enlists benefit integrity contractors 

to help further root out waste, fraud, and abuse. 

In all these instances, however, CMS is responsible for overseeing all of the contractors’ performance and ensuring they bring 

value and quality to the program. It is also CMS role to conduct 

regular oversight of plans to ensure that the payments are legitimate and appropriate while simultaneously serving beneficiaries as 

well. 

That is why last summer I introduced the Part D Prescription 

Drug Integrity Act of 2013, which I believe can help CMS address 

potential factors contributing to prescription drug abuse. I wrote 

the bill on the heels of a report by HHS Office of Inspector General, 

the OIG, which found that Medicare is paying for prescription 

drugs prescribed by unauthorized individuals. 

Given that tens of thousands of these drugs are controlled substances, the study’s findings raise questions about patients’ safety 

because of the high potential for abuse and diversion. My bill 

would require plan sponsors to verify that a prescription for a drug 

on the controlled substances list was made by an authorized physician before paying for the drug. Under the current law, such a requirement does not exist. 

It would also require plan sponsors to have drug utilization programs in place that would restrict access if there was credible evidence of beneficiaries abusing or diverting drugs. In addition, the 

bill will provide CMS new tools to prevent the payment of claims 

by fraudulent prescribers or pharmacies. 

Now, I think we can all agree that this necessitates constant 

work. My bill is just one of many ideas to improve Medicare moving forward. The Affordable Care Act made great strides. It expanded benefits to seniors, brought payments to MA closer to traditional Medicare, and rewards plans for quality. It also gave CMS, 

the OIG and DOJ increased authorities to address fraud, and since 

5 

its passage the administration has recovered nearly $20 billion to 

taxpayers, a record $4.2 billion in 2013 alone. 

Of course, just this last week this committee heard directly from 

CMS about the ways in which they hope to continue to strengthen 

Part D through a number of different policies, so I applaud the Administration for the work they have done to date, and I commend 

their strong commitment to fighting fraud, waste and abuse in the 

Medicare program. 

The data clearly shows that we are moving in the right direction, 

but as we will hear today, more can always be done. In fact, the 

OIG will issue two reports identifying a number of flaws and oversight of MA and Part D plans and the benefits they provide specifically regarding data collection. I look forward to hearing more 

about these recommendations. In fact, Mr. Waxman and I intend 

to encourage CMS to quickly adopt these improvements. 

So let me thank our witnesses for their participation and work 

on this topic. The GAO and OIG offer critical insights that informs 

both CMS and the Congress what will continue to need improvement. Together we must all commit to improving the quality and 

efficiency of Medicare and be responsible stewards of taxpayer dollars. Robust and aggressive oversight of contractors is critical to 

this mission. 

Thank you, Mr. Chairman. I yield back the remainder of my 

time. 

Mr. PITTS. The chair thanks the gentleman and now recognizes 

the ranking member of the full committee, Mr. Waxman, for 5 minutes for an opening statement. 

OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA 

Mr. WAXMAN. Thank you, Mr. Chairman. 

For more than four decades, Medicare has been a critical program for ensuring the health and also the financial well-being of 

seniors and people with disabilities. The program has evolved significantly over that time, adding benefits, adding coverage options 

and becoming a major force in the U.S. health care market. As the 

program has grown and changed, so too has the oversight role of 

the Centers For Medicare and Medicaid Services, or what we call 

CMS. 

CMS works with private contractors, especially in the original 

Medicare, the fee-for-service program, to perform the day-to-day 

program operations such as paying claims, enrolling providers and 

conducting first level appeals. In Parts C and D of Medicare, CMS 

contracts with private insurance companies to deliver Medicare’s 

benefits. In either case, CMS is ultimately responsible for making 

sure that the Medicare Trust Fund dollars paid to these contractors 

are used appropriately and soundly. 

We know from past experience that without strong oversight 

from CMS, contractors have not always performed adequately and 

have the potential to abuse the public trust. I am glad we will be 

hearing from both the Office of Inspector General, OIG, and the 

Government Accountability Office, GAO today. These two organizations have been critical watchdogs for the Medicare program, alertVerDate Nov 24 2008 11:01 Feb 26, 2016 Jkt 037690 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 F:\MY DOCS\HEARINGS 113\113-123 CHRIS
6 

ing us to instances where Medicare’s oversight should be strengthened and also areas where Federal intervention is necessary to ensure that taxpayers’ dollars are being used appropriately. 

A lot has been achieved since passage of the Affordable Care Act 

to strengthen Medicare. Medicare growth rates have been at an alltime low. This success in reducing the rate of spending growth has 

been achieved at the same time that benefits have been increased 

and out-of-pocket costs have been reduced for beneficiaries. And 

fraud fighting activities have been more successful than ever. Just 

last week, HHS announced that the HEAT strike forces successfully recovered $4.3 billion in taxpayer funds, the highest annual 

amount recovered to date, for a total of $19.2 billion in recoveries 

over the last 5 years. 

The Administration continues to work to improve the program. 

The Administration’s proposed Part D regulation would make a 

number of changes to the program to strengthen program management and integrity. Some want to rescind this regulation, but if we 

are truly serious about program integrity, those proposed program 

integrity provisions are just the direction CMS should be taking. 

Two OIG reports that were released today note significant concern with the reporting of fraud and abuse incidents in the Medicare Advantage and Part D programs. There is wide variability in 

reporting and many have failed to report any potential fraud and 

abuse incidents at all. CMS needs to do a better job managing the 

private insurance companies that participate in Medicare. 

But Congress needs to do its part by giving CMS the funds to 

do its work. We all know that CMS’ budget has been inadequate 

in recent years. For example, while CMS has added nearly 3 million beneficiaries to the Medicare program over the last 2 years, 

the funding provided by Congress to administer the Medicare program and fight fraud, waste, and abuse has remained essentially 

flat. Whether we are talking about appropriate funding for nursing 

home survey and certification, funding for claims, processing and 

provider education, or funding for implementation of the Affordable 

CARE Act we should not let our austerity get in the way of proper 

program management. But I am concerned that is just what is happening. Starving the agency is no more justified than voting to kill 

Medicare outright by enacting Chairman Ryan’s voucher plan. 

All things considered, this Administration has done a remarkable 

job of improving program oversight and management, but we do 

have more work to do. So I am pleased that we will be hearing 

about those areas for improvement today. 

In closing, I would like to make sure that my message is clear. 

Is the Medicare program an effective program? Yes. Are there opportunities to improve Medicare management, oversight and overall performance? Of course. And we can do that without harming 

beneficiaries. 

Thank you, Mr. Chairman. 

Mr. PITTS. The chair thanks the gentleman. All members’ written 

statements, opening statements will be made part of the record. 

We have one panel before us today. Ms. Kathleen King, Director, 

Health Care, U.S. Government Accountability Office, is our first 

witness; Dr. James Cosgrove, Director, Health Care, U.S. Government Accountability Office, is our second witness; and Mr. Robert 

7 

Vito, Regional Inspector General for Evaluation and Inspections, 

Office of Inspector General, U.S. Department of Health and Human 

Services, is our third witness. 

Thank you very much for coming today. Your written testimony 

will be made part of the record. You will have 5 minutes to summarize your testimony. 

At this point the chair recognizes Ms. King for 5 minutes for her 

opening statement. 

STATEMENTS OF KATHLEEN KING, DIRECTOR, HEALTH CARE 

U.S. GOVERNMENT ACCOUNTABILITY OFFICE; JAMES COSGROVE, DIRECTOR, HEALTH CARE U.S. GOVERNMENT ACCOUNTABILITY OFFICE; AND ROBERT VITO, REGIONAL INSPECTOR GENERAL FOR EVALUATION AND INSPECTIONS, 

OFFICE OF INSPECTOR GENERAL, U.S. DEPARTMENT OF 

HEALTH AND HUMAN SERVICES 

STATEMENT OF KATHLEEN KING 

Ms. KING. Chairman Pitts, Ranking Member Pallone, and members of the subcommittee, my colleague, James Cosgrove and I, are 

pleased to be here today to discuss the role that contractors and 

private plans have in the Medicare program. 

CMS relies extensively on contractors to assist it in carrying out 

its responsibilities including program administration, management, 

oversight and benefit delivery. Contractors have played a vital role 

in the administration of the program since its enactment in 1965. 

In fact, Congress designed the original Medicare program so that 

it would be administered by health insurers or similar organizations experienced in handling hospital and physician claims. Congress also stipulated the process for selecting contractors which differed from the way that most other Federal contractors were 

awarded in that Medicare contracts were not awarded by a competitive process. 

Beginning in the 1980s, the Department of Health and Human 

Services asked Congress to amend its authority regarding the selection of contractors. It wanted to open the process to a broader 

set of contractors and increase its ability to reward contractors that 

were performing well. 

In the Medicare Modernization Act of 2003, Congress repealed 

the statutory limitations on the types of contractors that CMS 

could use and required compliance with the Federal Acquisition 

Regulations and competitive procedures to select new contractors. 

Congress also required CMS to develop performance standards for 

the new contractors called MACs, or Medicare Administrative Contractors, and gave CMS the authority to provide incentives to the 

contractors for good performance. 

The MACs are responsible for a wide variety of claims administration functions, including processing and paying claims, handling 

the first level of appeals and conducting medical review of claims. 

CMS is responsible for overseeing the MACs. Over time, Congress 

has also authorized the use of other types of contractors in Medicare for program integrity purposes, including investigating potential fraud and recovering overpayments. 

8 

Unlike Medicare fee-for-service in which contractors process and 

pay claims, in Medicare Part C, known as Medicare Advantage, 

CMS contracts with private organizations to offer health plans that 

provide all Medicare-covered services except hospice care and may 

provide other services not available under fee-for-service. 

CMS first began contracting with private plans to provide care 

to enrolled beneficiaries in 1973. Over time, Congress has made 

various changes in the program, most notably paying plans on a 

risk basis. As of February 2014, nearly 30 percent of Medicare 

beneficiaries are enrolled in Medicare Advantage, which is an alltime high. While Medicare contract requirements and program parameters are largely derived from statute, CMS has responsibility 

to implement the program and ensure compliance with requirements. 

While Medicare Part C provides beneficiaries an alternative to 

obtaining their Medicare benefits through fee-for-service, Congress 

structured the Medicare Part D program to provide benefits only 

through private organizations under contract to Medicare. Prescription drug benefits are provided either through Medicare Advantage 

plans or stand alone private plans. Medicare pay sponsors a monthly amount per capita independent of each beneficiary’s drug use. 

The Part D program relies on plan sponsors to generate prescription drug savings through negotiating price concessions with entities such as drug manufacturers, pharmacy benefit managers and 

pharmacies, and managing beneficiary use of drugs. As with Medicare Advantage, while CMS contracts with plan sponsors to provide 

the Part D benefit, it is responsible for administration of the program, including ensuring that payments made to plans are accurate and that the data plan sponsors submit on price concessions 

are accurate. 

Mr. Chairman, this concludes our prepared remarks. We would 

be happy to answer questions. 

[The prepared statement of Ms. King and James Cosgrove follows:] 

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Mr. PITTS. The chair thanks the gentlelady and now recognizes 

Dr. Cosgrove for 5 minutes for an opening statement. 

STATEMENT OF JAMES COSGROVE 

Dr. COSGROVE. Chairman Pitts, thank you very much. Ms. King 

has submitted a joint statement for both of us covering GAO and 

as such I don’t have a separate oral statement. 

Mr. PITTS. The chair thanks the gentleman and now recognizes 

Mr. Vito for 5 minutes for his opening statement. 

STATEMENT OF ROBERT VITO 

Mr. VITO. Good morning, Mr. Chairman and members of the subcommittee. I am Robert Vito, Regional Inspector General for the 

Office of Evaluation and Inspections at the U.S. Department of 

Health and Human Services Office of Inspector General. Thank you 

for the opportunity to testify about CMS oversight of Medicare contractors. 

Two years ago, I testified before you about reoccurring problems 

that we had identified with CMS oversight of benefit integrity contractors. CMS relies on contractors to administer half a trillion dollars in Medicare spending every year. OIG understands that effective oversight of Medicare contractors is a continuous, demanding 

and often resource-intensive process for CMS. Unfortunately, some 

of the same problems we identified in the past with CMS’s oversight of benefit integrity contractors also extends to other CMS contractors. 

Today the OIG is releasing two reports that highlight similar 

oversight problems with Medicare Advantage and Part D contractors. The OIG has found that CMS does not leverage data to improve oversight, does not investigate variation in data across contractors, does not address underperforming contractors timely and 

require corrective action plans, and does not share information 

with beneficiaries and other stakeholders that could assist antifraud efforts. 

Since 2008, we have repeatedly recommended that CMS require 

Part D plans to report fraud and abuse data. Rather, CMS merely 

encourages Part D plans to voluntarily report these data. Under 

this voluntary reporting system, less than half of the Part D plans 

have reported data and the reported data have varied significantly 

across plans. 

Due to CMS failure to investigate variation among Part D plans, 

we do not know if the plans are reporting incorrect data, have ineffective programs to detect fraud and abuse, or lack a common understanding of what constitutes a potential fraud and abuse incident. Further, without detailed information on fraud and abuse incidents, CMS is missing the opportunity to discover and alert plans 

and law enforcement to emerging fraud and abuse schemes. 

CMS has also made limited use of Part C data to oversee Medicare Advantage plans despite investments in contractors’ review of 

the data. The Part C reporting requirement data are a significant 

resource for oversight and improvement of the Medicare Advantage 

Program. 

26 

CMS has implemented regular and intensive reviews of the Part 

C data through its contractor, but conducted minimal follow-up on 

the data issues that it identified. For example, CMS has not determined whether outlier data reflected inaccurate reporting or atypical plan performance. CMS also has not used its contractor data reports and analysis to inform the selection of MA plans for audits 

or to issue compliance notices for performance concerns. This would 

be like taking your car to a mechanic, having them run diagnostic 

tests, and then not using the tests to determine if your car is running well and safe to drive. 

Our review of the Medicare administrative contractors found that 

CMS performance reviews of MACs were extensive but were not always timely, and even when CMS identified quality assurance 

standards that were not met, CMS did not always resolve the problem. There were two MACs that consistently underperformed, but 

these MACs had their contract option years renewed. 

Lastly, CMS is missing a critical opportunity to enlist millions of 

Medicare beneficiaries in the fight against fraud. MACs mail Medicare summary notices, or MSNs, to beneficiaries to show them 

what Medicare claims have been paid on their behalf. These notices 

can serve as a key fraud and detection tool when beneficiaries identify and report suspicious information contained on their MSNs. 

However, the OIG found that over 4 million notices were not delivered to the beneficiary. 

Further, CMS has not instructed MACs on whether or how to 

track or follow up on undelivered MSNs. It is critical that MSNs 

be timely and appropriately delivered to beneficiaries. If just one 

beneficiary sees something suspicious on their notice and reports it 

to Medicare, it may lead to a fraud case that saves millions of dollars. 

In conclusion, the OIG recognizes the challenging job CMS faces 

in the oversight of its contractors. OIG has recommended actions 

that CMS can undertake, and now CMS is considering some of 

these recommendations. 

Thank you again for your interest in this important area and for 

the opportunity to testify before this subcommittee today. 

Mr. PITTS. The chair thanks the gentleman. 

[The prepared statement of Mr. Vito follows:] 

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Mr. PITTS. We will now begin questioning. I will begin the questioning and recognize myself for 5 minutes for that purpose. 

Mr. Vito, CMS likes to tout that it has moved away from the pay 

and chase system. One of the programs they have pushed to support this claim is the fraud prevention system which Congress 

mandated in the Small Business Jobs Act of 2010. The system is 

supposed to scan claims on a prepay basis and proactively flag 

problematic claims for review. The last report found that the Inspector General’s team could not validate most of the resulted savings from the program. 

Do you expect that to change this year? 

Mr. VITO. I don’t know the answer, but I can tell you that we 

will be having a report and that report will do the same things that 

the last year’s report did and that report, I believe, will be coming 

out probably in the next 3 to 4 months and you should have that 

in front of you and you will be able to see the results of our work. 

Mr. PITTS. Do you know how many claims, if any, CMS actually 

stopped before they were paid as a result of this system? 

Mr. VITO. I do not know that answer. I am not familiar with that 

review. But I know that that review is ongoing and that we will 

have results for you. 

Mr. PITTS. And do you have any ideas on how to make the system stronger? 

Mr. VITO. Well, we certainly have some ideas on how to make the 

system stronger. One of the ways is to require Part D plans to 

mandatorily report this information on fraud, waste and abuse. I 

think once they do that, then CMS will have data that will indicate 

the types of fraud incidents that are occurring. It will also tell you 

the amount of incidents. Once you have data, then you can analyze 

that data and use that data in conjunction with other data to find 

out more information that you never had. 

Mr. PITTS. Ms. King, CMS is developing a new integrity contractor called a United Program Integrity Contractor, UPIC. These 

contractors will focus on both Medicare and Medicaid integrity 

issues. And the Zone Program Integrity Contractors, ZPICs, and 

the Medicare Administrative Contractors, the MACs, will be folded 

into the UPICs. Is this an important change or are we just rearranging the deck chairs? Related, has your office seen better results from the ZPICs since they were developed out of the program 

safeguard contractors? 

Ms. KING. Mr. Chairman, we did a review that was released last 

fall about the ZPICs and we found that they did have a positive 

return on investment. They spent a little over $100 million and 

they returned or they saved about $250 million during that time. 

We did make some suggestions for improvement, but we did see a 

positive rate of return from them. 

And I think in terms of the consolidation of the program integrity contractors, the Medicare and Medicaid integrity contractors 

are going to be combined into one. We haven’t evaluated that, but 

we did find fault with some of the Medicaid program integrity 

work. But I believe that the MACs are going to remain as they are 

and not be folded into that, because—while they do have some program integrity functions, one of their primary purposes is processing and paying claims, and that will remain. 

38 

Mr. PITTS. Dr. Cosgrove, do you have anything to add? 

Dr. COSGROVE. No, I don’t. Thank you. 

Mr. PITTS. Continuing with the GAO, to help manage the program, CMS often uses cost-plus contracts. But if the contracting 

team at CMS writes a contract that measures the wrong things, 

like outputs instead of outcomes, then CMS has committed to 

spend millions of dollars perhaps on the wrong thing. How can this 

be prevented? Ms. King? 

Ms. KING. You are right that they do often use cost-plus contractors under the FAR, under the Federal Acquisition Regulation, and 

that is one of the things that Congress authorized them to do during contractor reform. We are now looking at some of the incentives 

that are provided to the MACs under their contracts to see if perhaps there could be better incentives put in the contract. 

We evaluated recently the HCFAC program which is the fraud 

and abuse control program, and it is hard to measure outcomes 

there because we don’t know what the baseline is. We don’t know 

what the baseline is for fraud. So that is an inherent challenge. 

Mr. PITTS. My time has expired. The chair recognizes the ranking member, Mr. Pallone, for 5 minutes for questions. 

Mr. PALLONE. Thank you, Mr. Chairman. I wanted to ask Mr. 

Vito a question. 

Today the OIG released the report on some of the shortcomings 

of the oversight of Part C, or Medicare Advantage, and it sounds 

to me like Medicare Advantage plans have a lot of work to do in 

order to improve their fight against fraud and abuse. First, can you 

tell me do we know how much fraud and abuse is happening in 

Medicare Advantage? And second, what kind of data is CMS collecting and what additional data does OIG believe should be collected? 

Mr. VITO. OK. In the Part D area, CMS has not voluntarily— 

they have only voluntarily collected the information that we have 

requested. We have asked that they mandatorily report that information. That information would allow them to determine the number of fraud incidents that occurred. It would also let them know 

if the Part D plans had addressed those fraud incidents. By getting 

that information, it will provide information among all the different 

plans and then the plans can—then CMS can analyze that to find 

out which plans have higher numbers or lower numbers and they 

can look into the variation to see what might be going on there. 

Mr. PALLONE. Well, I note from your report that while CMS did 

conduct some reviews on data reported under Part C, and now I 

am asking about Part C, the agency did not conduct follow-up with 

the data or look at outliers, and I think we all agree that it is not 

enough to simply collect the data, the agency must act on it. 

So what does the OIG recommend CMS do, and how should CMS 

best be following up on this outlier data? And now I am asking 

about Part C specifically. 

Mr. VITO. Well, CMS has collected, they had a contractor that 

identified outliers, identified inconsistency in the data, yet once 

they identified that, the contractor only shared that information 

with the plan and CMS, and CMS did not do anything with that 

data. They did not investigate that data. They did not review what 

39 

the reason was behind that data. Was the plan reporting information that was incorrect, or were they atypical outliers? 

CMS can utilize the resources it has to do that extra step. For 

example, we saw some plans that had the same problem multiple 

years. Depending on the resources that CMS has, they can target 

the areas that are the most problematic, like the ones that had 

multiple years or the one that had three or four elements that 

needed to be looked at. 

So it is clear to us. We gave the example, it is like taking your 

car in and having all the diagnostic tests run on the car, and then 

not using the results of that to fix the car and make sure it is safe. 

Basically CMS has the information, and they are not using the information to get to the best answers. 

Mr. PALLONE. All right. I can ask this of any of you. CMS has 

a duty to continue to improve the Medicare program while keeping 

costs down and fostering competition. It is also critical that they 

take every action within their authority to alleviate fraud, waste, 

and abuse. 

In its proposed rule issued in January, CMS proposed several 

provisions aimed at improving program management and integrity 

in the MA and Part D program, including requiring prescribers of 

Part D drugs to be enrolled in Medicare, providing CMS the authority to revoke an abusive prescriber’s Medicare enrollment, and 

allowing CMS and its anti-fraud contractors to obtain information 

directly from pharmacies and pharmacy benefit managers that contract or subcontract with Part D sponsors. 

These provisions seemed like common sense to me. But could any 

of you talk about the problem that Medicare faces with respect to 

abusive prescribing practices? How serious a problem is it, what do 

we know about how well Part D plans are doing dealing with improper prescribing. Any of you could answer this. I will hear from 

you. 

Ms. KING. I don’t know the answer to the question specifically, 

but we do have some work looking at Medicare Part D program integrity contractors at this point and seeing how their practices 

measure up with best practices in the private sector. So that is a 

question that we should be able to shed some light on. But I don’t 

have the answer today. 

Mr. PALLONE. Mr. Vito, did you want to say anything about that? 

Mr. VITO. Yes. The Office of Inspector General has been looking 

at the Part D program for a long time. We have initially started 

to look at the controls that were existing in the program. We found 

that CMS had some controls, but they were limited and they needed to do more. We have pointed that out to them. We have a body 

of work that continues to show that they need to do more. 

The items that you referenced, many of them are direct results 

of work that the OIG has identified and pointed out. We have 

looked at the plans and found that some of them have not reported 

any information, and when they have reported, it varies significantly. They are the first line. 

We also then looked at the MEDICs. We found that the MEDICs 

could do more, that they weren’t proactively analyzing data. They 

weren’t doing a lot of the things that you asked about, such as the 

prescriber IDs. We found that CMS was paying claims that did not 

40 

have a valid ID, a prescriber ID. And you also referenced reports 

where people were writing prescriptions and they didn’t have the 

actual responsibilities to do that. 

So all these things that you mentioned here are things that the 

OIG has pointed out and think need to be improved and have made 

a lot of recommendations to have them done. 

Mr. PALLONE. Thank you. 

Mr. PITTS. The chair thanks the gentleman and now recognizes 

the gentleman from Georgia, Dr. Gingrey, for five minutes for questions. 

Mr. GINGREY. Mr. Chairman, thank you very much. I would like 

to thank, of course, all of the witnesses for coming to allow the 

committee to better understand how Medicare is protecting seniors’ 

benefits and how we can continue to reform the program to save 

the taxpayers money, while at the same time not overly burdening 

the providers. I am going to go to you, Mr. Vito, first. This is a 

hugely important issue that I am sure all members are hearing 

from their constituents, their physician provider constituents. 

ICD–9, those codes are set to be replaced by ICD, International 

Classification of Diseases, 10 codes this October. These new codes, 

as you know, include thousands of new diagnosis codes, adding, of 

course, new burdens for providers as they attempt to abide by the 

law. Many providers worry that the new complexity could be a target-rich environment for auditors who might confuse an error with 

malintent. 

I would like for you to comment on how your office thinks about 

this particular issue, this conversion in October. And I think that 

final rule has been issued to go to the ICD–10 code. The providers, 

the doctors, the people that I speak to in the 11th District of Georgia, northwest Georgia, would beg CMS to delay this conversion 

from ICD–9 to ICD–10. 

Mr. VITO. Well, I would like to say that I believe that we have 

some planned work in that area. I cannot address your specific 

questions now because we need to do work to make the determination of what the issues are. But I do believe that we have work that 

is planned and it is in our work plan. And if you would like we 

could take that question back or I could have people come up and 

brief you from our office who are more familiar with that work. 

Mr. GINGREY. Well, if you can elaborate a little bit more, Ms. 

King or Dr. Cosgrove, because the providers even say that even the 

meaningful users of electronic medical records, it was my thought 

that, well, that would kind of solve the problem. It would just be 

automatic. And they say no, no, that is not going to help at all. Do 

any of you have any thoughts about that? 

Ms. KING. It is not an issue that we have looked at yet. All of 

our work really is evidence-based. And while we agree that documentation errors are a big part of what contributes to improper 

payments, I think we would have to look at the implementation 

and then assess its effects before we could comment on that. 

Mr. GINGREY. Just for those that are here that may not be as up 

on this issue as you are, and hopefully as I am, but I mean, it is 

like a physician, if there is a code for a dog bite, now there would 

have to be a code—that code would have to be well, what was the 

breed of dog, and on and on and on. You get the idea. It gets a litVerDate Nov 24 2008 11:01 Feb 26, 2016 Jkt 037690 PO 00000 Frm 00044 Fmt 6633 Sfmt 6633 F:\MY DOCS\HEARINGS 113\113-123 CHRIS
41 

tle ridiculous. That is where you have thousands of additional 

codes that they have to worry about. 

I have heard from my colleagues on the other side of the aisle 

that if we could only fix waste, fraud, and abuse, then the Medicare 

program would be there, it would be solvent for my children, my 

four adult children, and my 13 grandchildren, and we wouldn’t 

have to do anything else. Chairman Ryan of the Budget Committee 

has been criticized many times for trying to come up with innovative solutions to deal with the, what, $75 trillion worth of unfunded 

liability in Social Security and Medicare as we go out into the future 50 years from now. But those are obligations. They are they 

are on the books. 

Tell me, and we can start, Ms. King, with you and work down, 

what are your thoughts in regard to if we could eliminate every 

dime of waste, fraud, and abuse, I know we can’t, but if we could, 

do you think that that would save Medicare for the future generations? 

Ms. KING. No. 

Mr. GINGREY. That is fine. As Mr. Dingell would say if he were 

here this morning, that is fine. Dr. Cosgrove? 

Dr. COSGROVE. I am going to echo the no. It is going to be a perpetual challenge to try to address waste, fraud, and abuse in the 

program. It is a large program and weeding it out is going to be 

a constant challenge. But given the demographics and the increase 

in technology—— 

Mr. GINGREY. I am going to stop you right there. I want to make 

one closing comment. Mr. Vito, I apologize for that, but I did start 

with you. 

Mr. Chairman, the Administration’s attempt to constrain fraud 

and abuse need to meet the program integrity recommendations 

provided by GAO. We must make sure that these attempts are not 

overly burdensome to providers. They do not overly penalize them 

for honest mistakes. It is clear, however, in my opinion, that program integrity provisions alone will not provide a sustainable 

Medicare program for the future. It is my hope that my colleagues 

take a more serious look at structural reforms for Medicare that 

will create a sustainable program that continues to provide health 

care services and peace of mind to our precious seniors. 

Thank you, Mr. Chairman, and I yield back. 

Mr. PITTS. The chair thanks the gentleman and now recognizes 

the gentlelady from the Virgin Islands, Dr. Christensen, for 5 minutes for questions. 

Mrs. CHRISTENSEN. Thank you, Mr. Chairman, and thank you for 

this hearing. 

I want to associate myself with part of my colleague from Georgia’s remarks about concerns about not placing undue burdens on 

our providers or mistakenly charging them with fraud and abuse. 

But thank you for this hearing. 

I have had the experience on the MD side, but I will say that 

working the operations of our Part B contractors have greatly improved in the Virgin Islands and Puerto Rico, but I still do get 

some complaints, and I hope that ours is not one, Mr. Vito, that 

is underperforming and still having their contract renewed. But deVerDate Nov 24 2008 11:01 Feb 26, 2016 Jkt 037690 PO 00000 Frm 00045 Fmt 6633 Sfmt 6633 F:\MY DOCS\HEARINGS 113\113-123 CHRIS
42 

spite the improvement, there seems to be a lot of, based on your 

testimony, Mr. Vito, a lot of room for improvement still. 

I have a couple of questions, the first one relating to the Affordable Care Act which strengthened the Medicare program in many 

aspects, not only enhancing program benefits but also bolstering 

antifraud and abuse programs. For example, the ACA provided new 

provider enrollment and screening authorities to help CMS weed 

out bad providers and gave CMS new authority to place a moratorium on provider enrollments in areas with high fraud concerns. 

So, Mr. Vito and Ms. King, can you tell us more about CMS 

using the new program integrity tools that were enacted in the 

ACA? Has the Medicare program improved as a result of these provisions in the Affordable Care Act? 

Ms. KING. We looked at the provisions of the law and the new 

enrollment processes shortly after they were enacted and when 

CMS was in the process of implementing then. Since then, we have 

not gone back and taken another look. But I do know that CMS 

has used its authority to impose moratoriums on durable medical 

equipment and home health providers since then. 

Mr. VITO. Well, the Office of Inspector General is doing the exact 

job that you asked about. We currently are looking at the Medicare 

enrollment process, the enhanced provisions that came from the 

ACA, and we will have a report for you hopefully by the end of this 

year that will give you the details on how well they are doing and 

if there are any areas that need to be improved. 

Mrs. CHRISTENSEN. OK. So that will give us areas where CMS 

should continue to focus. 

Mr. VITO. Yes, we will be able to tell you about how they are 

using their extra authorities and what results they are achieving. 

Mrs. CHRISTENSEN. Are there legislative actions that any one of 

you would recommend Congress take in order to build upon the 

ACA and continue to strengthen the anti-fraud and abuse efforts 

in the Medicare program at this time? 

Ms. KING. No, I don’t think we have matters pending before Congress that we have asked you to act on in that arena. 

Mr. VITO. Well, we have a couple ideas for you. We have been 

recommending now that CMS implement a mandatory reporting requirement for Part D, and they have not done it. They don’t need 

to have legislation to do it, but it might be that you can help them 

achieve that through legislation. 

In addition to that, we also think that there might be some flexibility that you want to give CMS when they award contracts. This 

will allow them to not be in a perpetual contracting recompete 

mode and focus on the people that are underperforming and allow 

the people that are doing a good job to remain in the program. 

This comes back to your question about the MACs. If the MACs 

aren’t doing a good job, we want them to make sure that CMS 

takes action and to replace those. And CMS has done a fairly extensive job reviewing the MACs. They can do better in trying to address MACs that have underperformed though. 

Mrs. CHRISTENSEN. Thank you. Ms. King, or Mr. Cosgrove, we 

know that Medicare Administrative Contractors or MACs have set 

up claims processing systems in such a way that they are able to 

compare claims data to Medicare requirements in order to improve 

43 

or deny claims or flag them for further review. A 2010 GAO report 

found that these prepayments edits saved Medicare at least $1.76 

billion in fiscal year 2010, but that savings could have been greater 

had prepayment edits been more widely used and better disseminated across the MACs. This seems like common sense, especially 

given that these prepayment edits can minimize improper payments being made in the first place. 

Can you give us an estimate of how much greater savings could 

be if prepayment edits were more widely used and can you tell us 

more about your recommendations and whether CMS has implemented them? 

Ms. KING. Thank you for that question. Use of prepayment edits 

are critically important to preventing improper payments because 

they do all kind of things. They screen to see if the provider is eligible to participate, if the beneficiary is eligible, and they also look 

at whether the service is covered by Medicare, and in some cases, 

they make decisions about whether the service is necessary in that 

situation. 

I don’t think we have an estimate of how much more could be 

saved if there were greater implementation of prepayment edits, 

but we did make a number of recommendations to refine the process and make it clearer. 

Mr. VITO. I would like to say I would be remiss if I didn’t say 

this. I think if Congress can consider funding the OIG fully, I think 

it would benefit the program. We have an eight-to-one return, so 

you give us $1, we get $8 back. We have been in a hiring freeze. 

We have had budget crises. We are not able to do the work that 

we would like to do. And if you were able to fund us, we could 

achieve these results. So that is one thing that I didn’t bring to 

your attention, but I would like to. Thank you for considering it. 

Mr. PITTS. The chair thanks the gentlelady, and now recognizes 

the gentleman from Illinois, Mr. Shimkus, for 5 minutes for questions. 

Mr. SHIMKUS. Thank you, Mr. Chairman. It gives me a chance 

to promote one of my colleagues from Illinois, Mr. Roskam’s bill, 

the PRIME Act, which addressing the pay and chase issue which 

was kind of mentioned in some of the opening statements. I want 

to make sure I put that on the record. 

Mr. Vito, using your car analogy, if one is a Cadillac where someone has payments of $3,000 a year, one is a Buick where that payment is $1,000 a year, and the Chevy, their payment per month is 

$350 a year, and you propose cost savings of $250 per month to all 

of these payments and the individual can’t afford any of those cars, 

does that save them from losing their vehicles? 

Mr. VITO. I think in the analogy that you gave it doesn’t. But 

that was not—— 

Mr. SHIMKUS. No, I am just starting. I am just warming up here. 

So Sydne, if you would put the chart on here, so that is what Dr. 

Gingrey was talking about too. Ms. King and Dr. Cosgrove, and I 

think Mr. Vito, that is where we are at today. The red is the mandatory spending. The blue is the discretionary budget. When we 

have our budgetary fights and shutting down the government, it is 

only that blue section that we are fighting on. This is the whole 

debate. 

44 

And Ms. King and Dr. Cosgrove, you answered correctly, we can 

save a couple billion dollars here and there, but that fundamentally 

does not affect the solvency of our mandatory programs. 

It is almost like pocket lint. Now, it is good to get that lint out 

of your pocket, but it doesn’t fundamentally affect the solvency 

issue. In fact, my friend who just followed talked about Obamacare 

or the ACA. It took $716 billion out of Medicare. And we had a 

hearing last week on Medicare D and Medicare D is changing to 

pay for this expansion. 

So, I want to ask this question to Mr. Vito. I want to follow up. So in 2012, HHS is said to recoup $4 billion from a program integrity effort, but roughly half—OK, $4 billion and Medicare is $466 

billion. This is 2012 numbers. But roughly half of that was due to 

settlements with pharmaceutical companies. And the agency spent 

about $1 billion in total costs. So that leaves about $1 billion in actual recouped money for a year. 

Can you give me a sense of what that amount is in the scope of 

the overall Medicare spending? If we are just using 2012, if we 

have $1 billion in savings, we have $466 billion in overall costs. It 

is good for a resume, but it is not really good for solving the problems of Medicare, wouldn’t you agree? 

Mr. VITO. Well, we are responsible for doing our work, and our 

work is to identify fraud, waste, and abuse, as well as to make sure 

the programs are running as efficiently as possible. We are doing 

that. And you are right, that $1 billion—when you look at our results, we have good results and we are doing very hard work. I 

think, though, the point that you are trying to make is that it is 

a very challenging program and there is a lot of money at stake. 

Mr. SHIMKUS. Well, it is challenging because it is going broke 

and my colleagues on the other side will not accept that premise. 

They just will not accept the premise that we have to actuarially 

make some changes. 

Let me go to a specific part of the report. As part of its efforts 

to reduce Medicare fraud and abuse CMS relies on beneficiaries to 

report suspicious activity identified on their Medicare summary notices. Medicare summary notices are paper forms that summarize 

processed claims. Your office found that over 4 million Medicare 

summary notices mailed to beneficiaries were not delivered in 

2012. 

In the time remaining and whatever else the chairman allows us, 

can you talk through that issue and that problem? 

Mr. VITO. Yes. An MSN is basically telling you what services 

that Medicare has paid for, and CMS says that it is the best defense against fraud that a beneficiary can do, is to look at their 

MSN. And when they look at their MSN, if they see services that 

they did not receive, then they can report it. 

In New York last year there was a case where a beneficiary 

looked at the MSN, or its family, noted that the services that were 

being billed to them, they did not receive them, and then they 

started the case. The case was a $10 million case. So when you look 

at MSNs, they are very critical pieces of information. 

I personally got an MSN not from Medicare, thank God I am not 

that old, but I did note that there was some indication that I was 

having a procedure that is only provided to women. But I looked 

45 

at that and then I was able to call that in and then they resolved 

that. 

So that is one of the best tools. And if just one beneficiary looks 

at that and it results in $10 million, that is a great savings. 

Mr. SHIMKUS. Can you speak to the 4 million in the report? 

Mr. VITO. Yes, 4 million is a small number compared to the total. 

Mr. SHIMKUS. No, about them not being mailed out. 

Mr. VITO. Yes, I can. When we started this review, CMS had no 

idea on the number of MSNs that were not being delivered. They 

had no total. We actually went to each MAC and asked each MAC 

to tell us how many MSNs they had that weren’t getting to where 

they needed to be. This is important because without knowing that, 

you don’t know what the extent of the problem is. That is why we 

went out and did this. 

This had already been pointed out to CMS two times previously 

in annual reports, and CMS, they thought about doing it, but they 

found out that it costs money to have some people at the MAC 

doing this, so they made a decision not to do that. 

Mr. PITTS. The chair thanks the gentleman and now recognizes 

the gentleman from Florida, Mr. Bilirakis, for 5 minutes for question. 

Mr. BILIRAKIS. Thank, you, Mr. Chairman. I appreciate it. 

The first question is for the panel. The IRS does an estimate of 

how much money they should be collecting and compares that to 

how much money they actually collect. This gives them a sense of 

how many people are not complying with the Tax Code, or are tax 

evaders. We report on how much money is recovered from fraud arrests, but without any measurement of the fraud problem, it is 

hard to know how much of a difference we are making. 

Have you ever done an official estimate of fraud in the Medicare 

program and has CMS ever done an official estimate, for the panel? 

We will start with Ms. King. 

Ms. KING. We have not. Part of the difficulty is it is hard to 

measure what you don’t know about. If, for example, I submit a 

claim for a service that was never provided and that claim looks 

totally legitimate, it is going to be paid. But that is, in fact, a 

fraudulent claim. So there are things like that that happen that 

are not captured. 

We have noted the lack of a reliable estimate of fraud in Medicare, and urged CMS to work on it, and I believe that they are 

starting on a pilot to measure the extent of fraud in home health. 

It is a difficult undertaking, but they are working on it. 

Mr. BILIRAKIS. So when do you expect the pilot to be rolled out? 

Ms. KING. They talked about it in their most recent report that 

was released within the past few weeks, the health care fraud and 

abuse control annual report. I can’t speak for them because I don’t 

know their exact plans, but I would imagine it would take some 

time. 

Mr. BILIRAKIS. Dr. Cosgrove. I am sorry. Do you want to finish, 

ma’am? OK. Dr. Cosgrove. 

Dr. COSGROVE. Thank you. I don’t have anything to add to Ms. 

King’s statement. 

Mr. BILIRAKIS. OK. How about Mr. Vito? 

46 

Mr. VITO. I think fraud is only when it is determined by a court 

of law. That is when fraud occurs. You could have indications of 

fraud, but it is only when it is finalized and the case has been adjudicated. I think that what we are trying to say is that CMS 

needs—they have data, and they need more data; and when they 

have that data, they need to analyze that data; and that would 

help them identify what is going on in their programs. 

For example, in the Part D area, if they got information on what 

the plans are reporting as incidents of potential fraud, then they 

can look behind that. They can use that data to compare it to fraud 

areas to see if the Part D program is actually doing a good job in 

detecting and preventing fraud, waste, and abuse. They can compare it to others. 

So for me, I think you are asking about data and the use of data 

to make informed decisions and to target your work; and that is 

what we are advocating with CMS, that they use the data they 

have and maybe enhance some more data so that they would be 

able to target their resources in the best manner. 

Mr. BILIRAKIS. Thank you. Next question. Many of the monetary 

criminal and civil penalties for fraud were established in the 1980s 

and 1990s. Do you think these monetary penalty amounts should 

be updated, Ms. King? 

Ms. KING. I don’t have any expertise to comment on that, sir. 

Mr. BILIRAKIS. OK. Dr. Cosgrove? 

Dr. COSGROVE. We have not done any work in that area. 

Mr. VITO. I am not a lawyer or a prosecutor. I can tell you, 

though, we have those people and we would be certainly willing to 

answer your question or meet with you to talk about your question. 

Mr. BILIRAKIS. Well, that is fine, but if the penalties were established in the 1980s and 1990s, that was a heck of a long time ago; 

so I would think it would need updating. But, yes, I would like to 

get with you, Mr. Vito, on that. 

Mr. VITO. I think we could certainly meet with you. 

Mr. BILIRAKIS. OK. Next question. GAO has Medicare listed on 

their high-risk programs. Medicare has probably been on the highrisk list longer than some of my staffers have been alive. Has CMS 

done anything recently or in the foreseeable future that would 

move Medicare off the high-risk program list? Who would like to 

respond first? 

Ms. KING. I will, sir. We are in the process of updating our highrisk report for the next issuance. Medicare is inherently complex, 

it is an expensive program. It is, as noted, taking up a larger share 

of the Federal budget and of national spending each year; so it is 

an intrinsically complex program, but we are in the process of evaluating whether it should continue to be on the high risk list. It 

has, however, been there since 1990, since the very beginning of 

our high-risk list. 

Mr. BILIRAKIS. Thank you. Thank you. Dr. Cosgrove. 

Dr. COSGROVE. I just want to comment on one of the efforts that 

CMS has underway regarding Medicare Advantage, the part C program. It is in the process of collecting encounter data from plans 

so that we better understand the services that they are providing 

to beneficiaries. I think their immediate plans are eventually to use 

this to improve the risk adjustments, the adjusting payments for 

47 

health status. But the data has opportunities to go well beyond 

that and allow CMS to do a better job of oversight, and we currently have work on CMS’s plans and efforts right now that we 

hope to be able to report later on in this spring. 

Mr. BILIRAKIS. Thank you. Mr. Vito, would you like to comment? 

Mr. VITO. I think that the Medicare program is certainly a complex program, and a large amount of resources at the OIG are focused on looking at that program. We have results that continue 

to point out that there are things that can be done. We have shown 

where better use of legislation and policy rules have resulted in 

savings that have been achieved of $19 billion of the recommendations that the OIG has made. So we think that it is a very challenging program. We think we need to devote a lot of resources on 

that program in every way, whether it is evaluation, auditing or investigating, and we could certainly use more funds to do that, but 

we definitely believe it is a challenging program; and we are going 

to do our best to keep our eye on it. 

Mr. BILIRAKIS. Mr. Chairman, I know my time is expired, so I 

will yield back. 

Mr. PITTS. The chair thanks the gentleman. That concludes the 

first round. We will go to one follow-up per side, I will recognize 

myself 5 minutes for that purpose. 

Private insurers and HM0s face many of the same challenges 

that Medicare does in managing its providers. In August of 2012, 

CMS announced a public private partnership. Many in Congress 

applauded this overdue collaboration, but now about a year and a 

half later, private plans in Medicare have shared only the most 

basic information. 

How can CMS contractors be allowed to better cooperate and 

benefit from their knowledge of suspect and untrustworthy providers, for both Ms. King and Mr. Vito? 

Mr. VITO. OK. Well, in our Part D report, we recommended that 

CMS share the information on the possible fraud issues with plans 

as well as law enforcement. So we think there is benefit to continued sharing. You have to be careful what information you share, 

but I think there is a way to do this; and our office has that partnership; and we are working through that, and we would be able 

to, again, take any question that you have. I am not the expert on 

that, but we do have people in our office that would be willing to 

come and meet with you or handle any question you might have 

on that. 

Mr. PITTS. Any other comments? Dr. Cosgrove. 

Dr. COSGROVE. Yes, I guess I would just like to mention the 

Medicare Advantage encounter data that CMS is currently being 

collected because I think that will give CMS a broader view of what 

is going on and what is becoming a very significant part of the 

Medicare program, a much broader view than even one plan has. 

And those data, I think, hold a great deal of promise if CMS follows through and analyzes and uses those data. 

Mr. PITTS. How many contracting officers are there at CMS, and 

are they required to be subject matter experts in their areas of contracts? And what type of training do they receive? And how are 

they held accountable? How is their performance assessed? Ms. 

King? 

48 

Ms. KING. That is not an issue that we have looked at, and I 

don’t know how many contracting officials there are there. 

Mr. PITTS. Mr. Vito, do you know? 

Mr. VITO. Well, we are in the process now of looking at CMS’s 

contracting, and we are trying to provide you with a landscape look 

at how many dollars they have, the type of contracts and who is 

administering the contracts. In addition to that, we are also going 

to be looking at how the contracts have been closed or not closed; 

so we hope within the next, by the at the end of this year, that we 

will have a report that will provide some detailed information on 

just the general information about CMS and its contracting. 

Mr. PITTS. CMS has a range of contracting vehicles at its disposal. Some are very incentive-driven. Some are very flexible. Some 

are just cost-plus contracts. Can you talk a little bit about what 

parts of the contracting process could be streamlined and modernized in order to hold contractors more accountable and achieve better return on investment for taxpayers? 

Mr. VITO. Well, I will not be able to answer that right now. We 

have current work underway that also looks at contracting and 

how the contracting was handled in the ACA area. We hope that 

when we get that information, it will provide some of the answers 

to some of the questions that you have; and that is ongoing as well. 

Ms. KING. The biggest contractors at CMS now are the MACs, 

the Medicare administrative contractors, and we did an evaluation 

of the implementation of contractor reform a few years ago; and 

there is a rigorous process set up to evaluate the contracts, and the 

IG has done more recent work on that and recommended some improvements; but they do have, under the FAR, under the Federal 

Acquisition Regulation, an intensive process for awarding the contracts and also for measuring the contracts and awarding fees 

under it. 

We are also looking, though, at whether they could be using 

some additional or different incentives in the program to drive better performance, and we should have a report on that later this 

year. 

Mr. PITTS. All right. The chair thanks the panel, and now I recognize the ranking member 5 minutes for follow-up questions. 

Mr. PALLONE. Mr. Vito, I wanted to go back to my questions 

about Part D, specifically the CMS proposed rule to strengthen 

Part D with regard to fraud; and I have heard some concern that 

requiring physicians who wish to prescribe drugs to Medicare beneficiaries actually be enrolled in the program is too much bureaucracy and interference for physicians, and I just wanted to get your 

assessment of that. 

Do you believe that it is overly burdensome to require a physician writing prescriptions for which Medicare will pay be subject 

to some basic enrollment standards? What is your opinion on that? 

Mr. VITO. I think that we had previously made that recommendation; and if we did, that means that we think it is appropriate to do. I think it is always a challenge to find the right balance, and that is what we seek to do here to make sure that the 

program is properly safeguarded and that there is not too much 

burden. So those are the things that we consider when we make 

a recommendation. 

49 

Mr. PALLONE. All right. I appreciate your insight. As I mentioned 

in my opening statement, this is an important topic, and that is 

why I introduced the Part D Prescription Drug Integrity Act, and 

I think we can and have to do more in the Part D program to help 

address the prescription drug abuse epidemic. 

I have no further questions, Mr. Chairman. Thank you. 

Mr. PITTS. Chair thanks the gentleman. Members do have other 

questions. We will submit them to you in writing. We ask that you 

promptly respond to those questions in writing. And I remind members that they have 10 business days to submit their questions for 

the record. Members should submit their questions by the close of 

business on Tuesday, March 18. 

You have been addressing a very important issue. We thank you 

very much for your work and look forward to continue to work with 

you. 

Without objection. The subcommittee is now adjourned. 

[Whereupon, at 11:10 a.m., the subcommittee was adjourned.] 

[Material submitted for inclusion in the record follows:] 

PREPARED STATEMENT OF HON. FRED UPTON

Today we examine the operating structure of Medicare—the relationships between 

the Medicare program and its contractors that are essential to ensure that the benefits and care our seniors depend on are delivered as intended. 

As we have warned many times, the financial sustainability of Medicare is under 

serious threat, putting the access to and quality of care for current and future seniors in jeopardy. The Medicare Part A trust fund is expected to run out as soon as 

2017, while the cost of the entire Medicare program is projected to reach a trillion 

dollars each year by the end of the decade. 

This is a problem that requires more than better program management or combating waste, fraud, and abuse, but that does not mean that the important work 

of improving program effectiveness should be neglected. We must safeguard every 

Medicare dollar to keep the promise of quality health care to our nation’s seniors 

and future generations. 

The Government Accountability Office repeatedly has warned that the Medicare 

and Medicaid programs face a particularly high vulnerability to fraud, due to their 

‘‘size, scope, and complexity.’’ The Medicare program receives 4.5 million claims per 

day from 1 million providers, who supply an extraordinarily wide range of services 

that must by law be reimbursed within 30 days. The program therefore faces a substantial challenge to ensure that its funds are used appropriately. 

Medicare is implemented and audited by a patchwork of different contractors, established by succeeding waves of legislation over the past halfcentury. Its approach 

is loosely known as ‘‘pay-and-chase’’: one set of contractors fulfills claims, while others are then charged with following up to retrospectively investigate and identify 

payments that have been inappropriately made. 

In processing millions of claims, a tremendous amount of data gets collected, but 

information regarding payments is often fragmentary and scattered amongst separate organizations. As a result, oversight is poorly coordinated. The effectiveness of 

CMS contractors could be greatly enhanced by cooperation, but this is seriously impeded by federal law—sometimes with good reason, but in too many instances this 

is not the case. 

The purpose of this hearing is to reexamine existing arrangements and to further 

the discussion regarding what can be done to enhance contractor performance, accountability and efficiency. While most of this effort requires leadership and commitment from CMS, I hope that our witnesses today will take the lead in this discussion and that outside partners and friends of the Medicare program will subsequently feel encouraged to contribute their own recommendations and suggestions. 

This is just one small, but important step in securing the future of the Medicare 

program and ensuring that every taxpayer dollar spent through this program is 

used most effectively. Let’s work together to keep the promise to our seniors. 

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