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2011

ACCOUNTABILITY AND OVERSIGHT IN THE 

MEDICARE ADVANTAGE PROGRAM 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH, 

JOINT WITH SUBCOMMITTEE ON OVERSIGHT 

OF THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

FIRST SESSION 

OCTOBER 16, 2007 

Serial No. 110–62 

Printed for the use of the Committee on Ways and Means 

( 


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COMMITTEE ON WAYS AND MEANS 

CHARLES B. RANGEL, New York, Chairman 

FORTNEY PETE STARK, California 

SANDER M. LEVIN, Michigan 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

MICHAEL R. MCNULTY, New York 

JOHN S. TANNER, Tennessee 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

EARL POMEROY, North Dakota 

STEPHANIE TUBBS JONES, Ohio 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

RAHM EMANUEL, Illinois 

EARL BLUMENAUER, Oregon 

RON KIND, Wisconsin 

BILL PASCRELL, JR., New Jersey 

SHELLEY BERKLEY, Nevada 

Joseph Crowley, New York 

CHRIS VAN HOLLEN, Maryland 

KENDRICK MEEK, Florida 

ALLYSON Y. SCHWARTZ, Pennsylvania 

ARTUR DAVIS, Alabama 

DAVE CAMP, Michigan 

JIM RAMSTAD, Minnesota 

SAM JOHNSON, Texas 

PHIL ENGLISH, Pennsylvania 

JERRY WELLER, Illinois 

KENNY HULSHOF, Missouri 

RON LEWIS, Kentucky 

KEVIN BRADY, Texas 

THOMAS M. REYNOLDS, New York 

PAUL RYAN, Wisconsin 

ERIC CANTOR, Virginia 

JOHN LINDER, Georgia 

DEVIN NUNES, California 

PAT TIBERI, Ohio 

JON PORTER, Nevada 

Janice Mays, Chief Counsel and Staff Director 

Brett Loper, Minority Staff Director 

SUBCOMMITTEE ON HEALTH 

FORTNEY PETE STARK, California, Chairman 

LLOYD DOGGETT, Texas 

MIKE THOMPSON, California 

RAHM EMANUEL, Illinois 

XAVIER BECERRA, California 

EARL POMEROY, North Dakota 

STEPHANIE TUBBS JONES, Ohio 

RON KIND, Wisconsin 

DAVE CAMP, Michigan 

SAM JOHNSON, Texas 

JIM RAMSTAD, Minnesota 

PHIL ENGLISH, Pennsylvania 

KENNY HULSHOF, Missouri 

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records 

of the Committee on Ways and Means are also, published in electronic form. The printed 

hearing record remains the official version. Because electronic submissions are used to 

prepare both printed and electronic versions of the hearing record, the process of converting 

between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process 

is further refined. 


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C O N T E N T S 

Page 

Advisory of October 16, 2007, announcing the hearing ........................................ 2 

WITNESSES 

Jeffery Steinhoff, Managing Director, Financial Management and Assistance, 

U.S. Government Accountability Office .............................................................. 7 

James Cosgrove, Acting Director, Health Care, U.S. Government Accountability Office ......................................................................................................... 23 

Timothy B. Hill, Chief Financial Officer, Centers for Medicare and Medicaid 

Services ................................................................................................................. 36 

Paul Precht, Policy Coordinator, Medicare Rights Center ................................... 77 

Harry Hotchkiss, Senior Products Actuarial Director, Humana Inc, Louisville, 

Kentucky ............................................................................................................... 109 

Cindy Polich, Senior Vice President, Secure Horizons, UnitedHealth Group, 

Minneapolis, Minnesota ....................................................................................... 127 

Bart Asner, MD, Chief Executive Officer, Monarch Healthcare, Irvine, California ..................................................................................................................... 132

SUBMISSION FOR THE RECORD 

Questions for the Record ......................................................................................... 155 


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ACCOUNTABILITY AND OVERSIGHT IN THE 

MEDICARE ADVANTAGE PROGRAM 

TUESDAY, OCTOBER 16, 2007 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON WAYS AND MEANS, 

SUBCOMMITTEE ON HEALTH, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 10:07 p.m., in 

Room 1100, Longworth House Office Building, the Honorable 

Fortney Pete Stark (Chairman of the Subcommittee) presiding. 

[The advisory announcing the hearing follows:] 


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ADVISORY 

FROM THE COMMITTEE ON WAYS AND MEANS 

SUBCOMMITTEE ON HEALTH 

FOR IMMEDIATE RELEASE Contact: (202) 225–3943 

October 04, 2007 

HL–17 

Stark and Lewis announced today that the Subcommittees will hold a 

joint hearing on statutorily required audits of Medicare Advantage plan 

bids, specifically focusing on the report by the Government Accountability 

Office entitled ‘‘Medicare Advantage: Required Audits of Limited Value’’ 

House Ways and Means Health Subcommittee Chairman Pete Stark (D–CA) and 

Oversight Subcommittee Chairman John Lewis (D–GA) announced today that the 

Subcommittees will hold a joint hearing on statutorily required audits of Medicare 

Advantage plan bids, specifically focusing on the report by the Government Accountability Office entitled ‘‘Medicare Advantage: Required Audits of Limited Value’’ 

(GAO–07–945). The hearing will take place at 10:00 a.m. on Thursday, October 11, 2007, in room 1100, Longworth House Office Building. 

In view of the limited time available to hear witnesses, oral testimony at this 

hearing will be from invited witnesses only. However, any individual or organization 

not scheduled for an oral appearance may submit a written statement for consideration by the Committee and for inclusion in the printed record of the hearing. 

BACKGROUND: 

In 2006, the Centers for Medicare and Medicaid Services (CMS) spent nearly $56 

billion on Medicare parts A and B benefits in the Medicare Advantage program, 

which covered approximately 6.7 million (nearly 16 percent) of the 43 million Medicare enrollees. 

Under the program, CMS approves private companies to offer health plan options 

to Medicare enrollees. These companies are required to submit yearly bids of the 

costs and benefits package of each Medicare Advantage plan they intend to offer. 

CMS compares these bids to geographic-specific benchmarks. If higher, a plan must 

require enrollees to pay the difference as a premium. If lower, 75% of the difference 

must be provided to enrollees as additional services or cost savings, while 25% is 

retained by the Treasury. CMS pays plans based on this formula, per enrollee, on 

a monthly basis, before services are rendered. 

The 1997 Balanced Budget Act (BBA) (P.L. 105–33) requires CMS to annually 

audit the supporting financial records of at least one-third of participating organizations. The BBA also requires the Government Accountability Office (GAO) to monitor this audit activity. 

In July 2007, GAO released a report on audits of the Medicare Advantage program and found that CMS did not meet the statutory audit requirement for the 

years 2001–2006. CMS selects organizations to meet the statutory audit requirement based on the number of organizations and not the total number of plans. GAO 

reported that, in 2006, CMS audited only 13.9 percent of the participating organizations (down from a high of 22.3 percent in 2003). GAO also found that, in 2006, only 

159 (or 3.2 percent) of the total 4,920 Medicare Advantage plans were examined. 

Some audits revealed errors in the bids. CMS does not sanction or seek to recover 

funds from providers that audits reveal are in violation of the bid requirements. A 

CMS contractor estimated that, for 2003, bid errors cost beneficiaries a net loss of 

$59 million in additional benefits, lower co-payments, or lower premiums. 


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‘‘The GAO report raises serious questions about the management and 

oversight of the Medicare Advantage program. Mandated audits are not 

performed, and those that are performed are not used to make needed 

changes, costing beneficiaries and taxpayers millions in overpayments and 

lost benefits,’’ said Health Subcommittee Chairman Stark. ‘‘The report again 

shows that Medicare Advantage does not live up to the service and cost 

savings promises that were made at its inception. Lack of oversight makes 

this bad idea even worse.’’ 

‘‘The integrity of the Medicare Advantage program is important to everyone,’’ said Oversight Subcommittee Chairman, John Lewis. ‘‘GAO reported that, 

based on 2003 audits, beneficiaries could have received at least $34 million 

and possibly up to $59 million in additional benefits, lower co-payments, 

and lower premiums. Enrollees place their trust in their Medicare Advantage plans and I am committed to ensuring that the Medicare Advantage 

program gives enrollees what they deserve.’’ 

FOCUS OF THE HEARING: 

The hearing will examine the value and accuracy of payments to Medicare Advantage plans, specifically focusing on the report by the Government Accountability Office entitled ‘‘Medicare Advantage: Required Audits of Limited Value’’ (GAO–07– 

945). 

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

Please Note: Any person(s) and/or organization(s) wishing to submit for the hearing record must follow the appropriate link on the hearing page of the Committee 

website and complete the informational forms. From the Committee homepage, 

http://waysandmeans.house.gov, select ‘‘110th Congress’’ from the menu entitled, 

‘‘Committee Hearings’’ (http://waysandmeans.house.gov/Hearings.asp?congress=18). 

Select the hearing for which you would like to submit, and click on the link entitled, 

‘‘Click here to provide a submission for the record.’’ Once you have followed the online instructions, completing all informational forms and clicking ‘‘submit’’ on the 

final page, an email will be sent to the address which you supply confirming your 

interest in providing a submission for the record. You MUST REPLY to the email 

and ATTACH your submission as a Word or WordPerfect document, in compliance 

with the formatting requirements listed below, by close of business THURSDAY, 

OCTOBER 25, 2007. Finally, please note that due to the change in House mail policy, the U.S. Capitol Police will refuse sealed-package deliveries to all House Office 

Buildings. For questions, or if you encounter technical problems, please call (202) 

225–1721. 

FORMATTING REQUIREMENTS: 

The Committee relies on electronic submissions for printing the official hearing record. As always, submissions will be included in the record according to the discretion of the Committee. 

The Committee will not alter the content of your submission, but we reserve the right to format 

it according to our guidelines. Any submission provided to the Committee by a witness, any supplementary materials submitted for the printed record, and any written comments in response 

to a request for written comments must conform to the guidelines listed below. Any submission 

or supplementary item not in compliance with these guidelines will not be printed, but will be 

maintained in the Committee files for review and use by the Committee. 

1. All submissions and supplementary materials must be provided in Word or WordPerfect 

format and MUST NOT exceed a total of 10 pages, including attachments. Witnesses and submitters are advised that the Committee relies on electronic submissions for printing the official 

hearing record. 

2. Copies of whole documents submitted as exhibit material will not be accepted for printing. 

Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material 

not meeting these specifications will be maintained in the Committee files for review and use 

by the Committee. 

3. All submissions must include a list of all clients, persons, and/or organizations on whose 

behalf the witness appears. A supplemental sheet must accompany each submission listing the 

name, company, address, telephone and fax numbers of each witness. 


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Note: All Committee advisories and news releases are available on the World 

Wide Web at http://waysandmeans.house.gov. 

The Committee seeks to make its facilities accessible to persons with disabilities. 

If you are in need of special accommodations, please call 202–225–1721 or 202–226– 

3411 TTD/TTY in advance of the event (four business days notice is requested). 

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above. 

f 

Chairman STARK. I want to thank Chairman Lewis and Mr. 

Camp for joining us to discuss the lack of oversight on Medicare 

Advantage plans. It is the third Ways and Means hearing this year 

to discuss the Medicare Advantage industry. 

The focus of our hearing is the issue of private government contractors receiving billions of dollars to administer a government 

program with no oversight or control by the administration. 

The Government Accountability Office will review for us their 

first oversight in six years on private Medicare plans, whether they 

have been known as: Medicare Part C; Medicare Plus Choice; Medicare Advantage. During that time, the administration has never— 

or we, Congress, have never asked the administration to report or 

review these programs. We spent $56 billion on these plans in 

2006, and we will spend north of $75 billion this year. We have got 

8 million beneficiaries enrolled. And yet, for 6 years, nobody has 

thought that the plans require any oversight. 

When the plans formally asked to join Medicare in 1982, we 

heard the tired refrain that private industry does everything better 

and cheaper than government. So the payment was set at 95 percent of fee for service. Then, the plans came back a few years later, 

and said they could do it better, but only if they got paid as much 

as Medicare. Then, in 2003, they said, well, they could provide 

choice, or an advantage, but only if they got paid more than Medicare. 

The Medicare Payment Advisory Commission, CMS’s own actuary, and the Congressional Budget Office, each estimate that Medicare Advantage plans are overpaid. MedPAC estimates that the average overpayment is 112 percent of Medicare’s cost, with plans in 

some areas exceeding 150 percent of Medicare’s rates. 

It is no secret that many of us find this wrong, as do many of 

America’s taxpayers. These overpayments increase premiums for 

all Medicare beneficiaries. And the so-called additional benefits to 

Medicare enrollees are elusive, often designed to weed out the less 

healthy, more expensive beneficiaries. 

CMS’s actuary estimates that the overpayments to Medicare Advantage reduce the viability of the Medicare trust fund by 3 years. 

Those who wish to see Medicare Advantage continue must accept 

that we demand transparency. We will hear claims today that 

Medicare Advantage provides increases in benefits to enrollees. 

And, at a 12 to 20 percent premium over traditional Medicare, they 

ought to. But even these claims aren’t substantiated by any factual 

reporting or detail. Those who sing the praises of Medicare Advantage must accept responsible oversight. 


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If you think this program is helping beneficiaries and the integrity of the Medicare system, you should be able to provide detailed 

accounting of what is promised and delivered, and explain how 

much is paid for these services. GAO reports that CMS audits only 

a small percentage of the bids that plans submit, even though the 

law requires them to audit one-third of the plans. 

What is even more disturbing is that, while they have failed to 

meet the terms of the law, even the small percentage reveals large 

discrepancies with millions of dollars in lost benefits and incorrect 

accounting. The few audits that are actually performed only show 

us what plans offer, not the benefits that they actually deliver. In 

a $73 billion program, we have no idea what benefits are being delivered. That’s not good government; it is dereliction of duty. 

I hope today we can dispense with the sales pitches, and get 

some facts and figures that will help us determine the value of 

Medicare Advantage to anyone other than the stockholders and the 

providers. 

Mr. Camp could go next, then Mr. Lewis. Is that all right? 

Mr. LEWIS. Yes, that is fine. 

Mr. CAMP. Well, thank you, Mr. Chairman. I don’t think anyone 

sitting up here will argue that the Medicare program is perfect. For 

example, we have learned that some Medicare Advantage plans 

have engaged in misleading marketing practices, overly aggressive 

sales tactics, and questionable denials. But then I have seen that 

in more than a few campaigns, as well. 

But, however, this is a serious issue, and we simply cannot turn 

a blind eye to it. And I commend the chairman for using our oversight authority to improve this program. 

I am concerned that the GAO found that CMS is not auditing 

Medicare Advantage plans, consistent with the law. Congress enacted the audit requirements because we recognized how important 

it is to review and verify the data that these plans submit. CMS’s 

failure to meet this requirement is unacceptable, and I expect to 

hear what steps they are going to take to address this problem. 

It is also unacceptable that some plans are being paid, and not 

providing the benefits they promised to Medicare beneficiaries. I 

look forward to learning what CMS is doing to ensure that Medicare Advantage plans are providing these benefits, and whether 

they need any additional authority to recoup these inappropriate 

payments to Medicare Advantage plans. I am sure this congress 

will be more than happy to grant them such authority, if it is needed. 

However, this is far from the only area we need to be pursuing. 

We are seemingly focused on the Medicare Advantage program, 

which deserves our scrutiny. But it is clear that there are bad apples sprinkled throughout Medicare. Recent press reports have detailed shocking examples of fraud within the fee-for-service Medicare program that have cost the Medicare program and its beneficiaries billions of dollars. 

Just one recent case involving durable medical equipment providers in south Florida saw the Medicare fee-for-service program 

bilked out of hundreds of millions of dollars for services and equipment that were never provided. Similarly, the GAO reported that 


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thousands of physicians who received federal Medicare payments 

failed to pay their federal taxes. 

Despite the committee’s clear jurisdiction in this area, we have 

yet to explore ways to ensure that these abuses do not continue, 

and I hope we do so. I say this to provide suggestions for future 

hearings, as well as to put the issues surrounding Medicare Advantage into perspective. 

While we have heard witnesses question the Medicare Advantage 

program, one such witness also agreed that the problems he found 

within the Medicare Advantage program affected only .3 percent of 

the Medicare Advantage enrollees in his state. Again, putting these 

issues in context is important. 

There is no question that Medicare Advantage payment rates 

should be re-examined. The challenge is finding the balance between trimming the fat and cutting the bone. We don’t want seniors in rural areas to lose their health coverage, nor do we want 

benefits slashed. 

Also, we don’t want plans to reap such excessive profits that they 

are unable to invest in and add supporting a massive expansion of 

government-run health care—they are able to invest and supporting a massive expansion of government-run health care. 

I look forward to working with the chairman, and I hope he will 

take me up on my offer and engage in a constructive debate to craft 

a reasonable Medicare package that could be signed into law. And 

with that, I yield back the balance of my time. 

Chairman STARK. The co-chairman. 

Mr. LEWIS. Thank you, Mr. Chairman. This morning, the oversight and health subcommittees will hold a joint hearing to review 

the Medicare Advantage program. It is a pleasure to co-chair this 

hearing with my good friend from California, Chairman Stark. 

Over eight million Americans rely on Medicare Advantage. They 

enroll in this program because they believed that the premiums 

they were paying would be fair for the benefits they receive. But 

this is not always the case. Private insurance companies make 

huge profits by offering these plans. The Federal Government pays, 

on average, 12 to 19 percent more for each senior in a Medicare 

Advantage plan than for a senior in traditional Medicare. 

This overpayment does not buy any additional benefits, or reduce 

copayments. It is going directly into the pockets of the insurance 

companies. The waste in the Medicare Advantage program is 

shameful. The lack of CMS oversight is a disgrace. And the treatment of beneficiaries is just unacceptable. 

Current law requires CMS to audit at least one-third of the organization participating in Medicare Advantage each year. The GAO 

found that CMS has not met this goal. The audits that were performed reveal large overpayments to Medicare Advantage plans. 

For 2003, the audits showed overpayments of up to $96 million— 

$96 million. That is unbelievable. 

What is more amazing is that CMS did nothing, absolutely nothing, to get this money back, or to sanction these private plans. 

Large overpayments, huge profits and commissions have led to 

scandals in MA plans. Eleven states have reported seniors, who 

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rolled in an MA plan. Fifteen states reported mass enrollment at 

senior centers, nursing homes, and senior housing. 

In Georgia, insurance agents asked to visit patients alone in 

their rooms, and not in the common areas. One agent switched a 

mentally disabled patient to an MA plan without anyone’s knowledge. 

We must protect the beneficiaries. Senior must have a voice. If 

CMS will not properly oversee this program, and provide seniors 

with a voice, then the Congress will. Mr. Chairman, I yield back. 

Chairman STARK. Thank you. And I think the staff is going to 

pass out—unless your eyes are a lot better than mine, the chart 

that we are looking at over there, the blue chart, we are going to 

hand out a reprint of it, if it will help those of us who are sightchallenged. 

This morning our first panel consists of: Mr. Jeff Steinhoff, who 

is the managing director of Financial Management and Assistance 

at the U.S. Government Accountability Office—GAO, as I like to 

call it; Mr. James Cosgrove, who is the acting director of health 

care at the GAO; and Mr. Timothy B. Hill, the chief financial officer for the Centers for Medicare and Medicaid Services—once 

HCFA and now CMS. 

I would like to welcome all of you here. We sort of run a clock, 

but if you really get us fascinated, we may let you scoot over a few 

minutes. We have your prepared testimony. Without objection, all 

of it will appear in the record in its entirety. And I would welcome 

you to enlighten the committee in any manner you choose. 

Mr. Steinhoff, would you like to lead off? 

Mr. STEINHOFF. By all means. 

STATEMENT OF JEFFERY STEINHOFF, MANAGING DIRECTOR, 

FINANCIAL MANAGEMENT AND ASSURANCE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE 

Mr. STEINHOFF. Mr. Chairman, Members of the Subcommittees, we are pleased to be here today to discuss our July 2007 report on Medicare Advantage audits. Our work covered audits for 

2001 to 2006. For 2001 to 2005, the audits covered the adjusted 

community rate submissions. And beginning in 2006, shifted to bid 

submissions under MMA. 

The Balanced Budget Act of 1997 requires that CMS annually 

audit the financial records supporting the submissions of at least 

one-third of the Medicare Advantage organizations. The law requires that GAO monitor these audits. 

Now, what did we find when we most recently reviewed CMS’s 

audit process? The bottom line: the audit process was of limited 

value. We identified three fundamental problems. 

First, as shown on page four of my statement today, as well as 

the sheets that were just passed out to you all, and on the blue 

chart over here on the side, CMS did not come close to meeting the 

one-third requirement in any of the 5 years of the ACR audits. The 

highest rate was 23.6 percent for 2001. 

For the 2006 bid audits, the audit rate dropped to 13.9 percent. 

CMS told us that it plans to perform additional procedures for 

2006. The nature of this work had not been finalized at the time 


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of our review. But the stated time frame for completion was 3 

years, which will limit the use of any results. 

Second, the audits were not designed to provide information on 

the impact of audit findings on beneficiaries. The ACR auditors reported findings ranging from the lack of supporting documentation 

to overstating and understating certain costs, but were not required by CMS to determine the impact on benefits, copayments, 

or premiums. So you knew something was wrong, but you didn’t 

know really what it meant in dollar terms, or in benefits delivered. 

CMS subsequently hired a contractor to do so for the 2003 ACR 

audits, and ultimately, quantified the impact as $35 million. Chairman Lewis mentioned an earlier figure. the contractor found that 

there were overstatements of $96 million, as Chairman Lewis said, 

and understatements in other areas. And then, CMS reviewed this, 

and reduced the total to a net $35 million. 

Reviews of the impact of errors identified by the 2004 and 2005 

audits were not completed when we finished our review. And the 

work for 2005 was somewhat suspended because of the bid audits 

for 2006. Similarly, the bid audits did not require a determination 

of the impact of findings on beneficiaries. The type of finding was 

laid out. The fact it would be material in some way was stated. But 

the dollar effects were not quantified. 

Third, although information on the impact on beneficiaries eventually became available for 2003, you had the $59 million and the 

$35 million net numbers, CMS plans to close out the 2003 audits 

without pursuing financial recoveries, or taking other remedial actions, and does not plan to take actions for the other years. 

CMS’s position is that it has neither the legal authority nor the 

contractual right to pursue recoveries based on audit results. We 

view this problem as being self-imposed. Our reading of the law is 

that CMS has the authority to amend its regulations to provide 

that all Medicare Advantage contracts give CMS the ability to address audit findings, including pursuing financial recoveries and 

other remedial actions. 

We agree that CMS’s regulations and contracts did not include 

such provisions for 2001 to 2006, which is why we recommended 

CMS remedy the situation going forward, either administratively, 

by changing its regulations—which we believe it has the authority 

to do—or by seeking legislation. 

In closing, when CMS falls short in meeting the statutory audit 

requirement, opportunities to determine if participant organizations have reasonably estimated the cost to provide benefits to 

Medicare Advantage enrollees are lost. Inaction or untimely audit 

resolution undermines the presumed effective audit efforts. 

Finally, the oversight that Congress called for when it mandated 

the audit requirement 10 years ago is not being achieved. Today’s 

hearing provides a good starting point for re-evaluating what the 

congress expects out of the audit process, and determining how audits can be turned into a tool that provide value and accountability—trust, but verify through the audit process—for a program 

that is $60 billion today and growing rapidly, and touches the lives 

of millions of Americans each and every day. 


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Mr. Chairman, this completes my summary remarks. We would 

be pleased to respond to any questions that you or Members of the 

Subcommittees may have at this time. 

[The prepared statement of Mr. Steinhoff follows:] 


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f 

Chairman STARK. Thank you. Mr. Cosgrove. 

Mr. COSGROVE. Mr. Chairman, I don’t have any prepared remarks. I am available to answer any questions that you may have. 

Chairman STARK. Okay. Mr. Hill. 

[The prepared statement of Mr. Cosgrove follows:] 


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Prepared Statement of James Cosgrove, Acting Director, 

Health Care, U.S. Government Accountability Office 


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STATEMENT OF TIMOTHY B. HILL, CHIEF FINANCIAL 

OFFICER, CENTERS FOR MEDICARE AND MEDICAID SERVICES 

Mr. HILL. Good morning, Chairmen Stark, Lewis, Ranking 

Member Camp, and distinguished Members of the Committee, 

thank you for inviting me here to discuss our audit efforts for the 

Medicare private health care plans. 

This is the second appearance I have made before this committee 

to discuss how CMS meets our fiduciary obligations to beneficiaries 

and to taxpayers. I remain steadfast in my commitment to maintaining the highest level of accountability for the agency’s financial 


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resources, and reiterate the commitment that our acting administrator has made to you for a transparent and robust compliance effort for all the programs we administer, including Medicare Advantage. 

I would like to use my time this morning to briefly summarize 

our response to the GAO report, and discuss the steps that we are 

taking to ensure the accuracy and the integrity of the payments we 

make to Medicare Advantage plans, including how we are complying with the one-third financial audit requirement of the MMA. 

As you know, the GAO study focused on ACR and bid audits of 

Medicare Advantage organizations, and made five specific recommendations. I am pleased to inform you that, as noted in our response to the GAO, we have already begun implementing the five 

recommendations. 

GAO also describes our bid audit process as insufficient to comply with the statutory requirement to conduct a financial audit of 

one-third of plans each year. We agree. It is important to note, 

however, that the scope of the GAO review was limited to CMS’s 

bid audits. In other words, the reviews we conduct are after we 

sign contracts with plans, but before the plan year is complete. The 

reviews are conducted to gather information on, and assess needed 

changes to, the bidding process for future years, which would lead 

to more complete and accurate bids from plans. 

I want to clarify for the committee that we have never intended 

the bid audits to be the mechanism by which we would comply with 

this important statutory requirement. Rather, they are one piece of 

a larger strategy to ensure the accuracy and integrity of payments 

and protect beneficiaries. 

The components of our strategy include: ensuring that bids are 

accurate up front, before the plan year begins, and before we sign 

contracts with plans; ongoing compliance monitoring throughout 

the plan year; and, a full-scale financial audit of one-third of the 

plans, once the plan year ends. 

The first element of our strategy begins with reviews we conduct 

of bids before we sign contracts with plans. Using contracted actuaries and accounting firms, we thoroughly review each bid and its 

data and underlying assumptions before we sign contracts with 

plans. This process ensures that, to the maximum extent practicable, each contract we sign results in the maximum benefit to 

beneficiaries, and accurate payments from Medicare. To fall back 

on a fee-for-service concept, we focus our efforts on paying correctly 

up front, rather than relying solely on a pay-and-chase scenario. 

The second element of our strategy includes ongoing compliance 

audits. These audits, while not financial in nature, occur throughout the plan year, and are designed to ensure that plans are complying with the various beneficiary protection requirements in our 

regulations. The audits are conducted largely by CMS staff on an 

ongoing basis, and are supplemented by ongoing data collection, ad 

hoc reporting, and complaint tracking mechanisms, to ensure that 

we identify and mitigate any compliance issues before they have an 

impact on our beneficiaries. 

The final element of our strategy is a full-scale financial audit of 

one-third of the plans, once the plan year ends, per the requirements of the MMA. CMS has a specific plan in place to meet this 


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requirement, the elements of which have been in place since last 

year. We will be contracting with CPA firms to review plan information and data regarding all elements of payments, including 

validating risk scores, claim submissions, and beneficiary out-ofpocket costs. 

We are currently reviewing the results of a small audit pilot, and 

will be refining our audit criteria in the coming weeks, so that auditing firms can build on these findings as they begin their work. 

We have selected, and have begun notifying, the first 81 plans from 

contact year 2006 that will be audited. 

These comprehensive first-round audits will examine, in detail, 

the approved components of the plan bids, as well as data supporting payments made during the year, to ensure that Medicare 

beneficiaries in the Federal Government received what the contract 

specified and the plan promised. And, to the extent that we identify 

overpayments or underpayments as part of those audits, we will be 

recouping money from the plans. 

We are on schedule to audit the first 81 plans this fall. But, we 

have a way to go to reach the 165 audits that would be required 

to meet the statutory one-third requirement. We have identified 

funds to begin the audits from within our ongoing operations, but 

do not believe we can meet the full statutory requirement, absent 

enactment of the President’s budget request for 2008. 

I want to emphasize that this administrative funding is a critical 

component of the Medicare program, and very much appreciate 

Congress support of the President’s budget levels for these important oversight activities. 

In conclusion, CMS takes our auditing responsibilities seriously, 

and has plans in place and in effect to meet our statutory and fiduciary responsibilities to beneficiaries and taxpayers. I appreciate 

the committee’s ongoing interest in monitoring CMS’s efforts on 

this front, and believe that, by working together, we can support 

Medicare beneficiaries, and ensure that they can maintain access 

to the Medicare plans that meet their individualized health care 

needs. 

This concludes my opening remarks, and I would be happy to answer any questions that you may have. Thank you. 

[The prepared statement of Mr. Hill follows:] 


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Chairman STARK. Well, I want to thank the witnesses. I am just 

going to ask, Mr. Steinhoff, if—I guess all my colleagues have a 

copy, or can see the chart. Can you just briefly explain to us 

what—— 

Mr. STEINHOFF. Okay. By all means. 

Chairman STARK.—what the chart was designed to—— 

Mr. STEINHOFF. It is really to show the degree of audit coverage here. And we have gone through, for each of the 6 years, 5 

years of ACR audits, 1 year of bid audits, and determined the percentage of the organizations—and by organizations, we mean contracts—that were audited. 


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As you can see, the percentage of audits has declined. We will 

caveat that 2006 was not, in fact, complete. These were the bid audits. And Mr. Hill mentioned the other component, which was not 

really in place when we were performing our work. 

As you can see, the percentage of contracts audited has stayed 

around 20 percent for several years, then dropped down to 18.6 

percent for 2005. And, as of today, for 2006, it rests at 13.9 percent. 

I will say that, in contract year 2000, which we covered in our 2001 

report, CMS did meet the 33 percent requirement. But the bulk of 

those audits were done by the inspector general. The inspector general did 53 of 80 audits. So CMS did, in fact, meet the requirements then, and it has gone down since. 

If you go to the second chart, it gives you an idea of what this 

means, in terms of plans. Maybe I have jumped ahead here on this, 

if you all haven’t got that chart. But when we’re speaking about 

auditing, and we’re speaking about auditing contracts typically, 

contracts have multiple plans, ranging from 1 plan to 170 plans on 

1 contract. The average is about eight plans per contract. 

So, for the 2006 bid audits, which are at the bottom of that chart, 

there were 4,920 plans. If you look at the previous chart, there 

were 80 organizations audited. Of those 80 organizations, they had 

almost 1,200 plans, and CMS audited 159 of those plans, giving 

you an audit rate of 3.2 percent of the plans. 

Now, CMS is measured based on organizations. But just to be 

clear what the magnitude of the auditing is, CMS audited roughly 

3.2 percent of the plans, so far, for 2006. And you will see for the 

other years, it declined each year, from 22 percent of the plans in 

2001, down to 5.3 percent of the plans in 2005. 

Mr. Hill mentioned the resource issue. If you go back to the first 

chart—hope I am not going too fast on this—you will see that audit 

resources are not high, and that, in fact, they went down for 2006. 

So you’ve got a program that was dramatically growing, more beneficiaries, more cost, less being spent on the audits, and you’re talking about audit costs in the range of $3 million per year for a program that is now $60 billion to $70 billion. 

So, that is, in a nutshell, what we found. CMS didn’t meet the 

audit requirement in any year. And, depending on how you slice 

and dice it, the audit rate for plans was about 3.2 percent, to date, 

for 2006. 

Chairman STARK. Thank you. You mentioned—and I’m just 

going to run through a couple of items here, Mr. Steinhoff—you 

mentioned that you performed audits, or that—I am sorry, that the 

inspector general has performed audits, the HHS inspector general 

has performed some audits, of additional MA payments. 

And the—you might, in response, let us know what the inspector 

general found, and whether or not the inspector general should be 

involved in this auditing process, and whether, if they found money 

owing, there was any effort to recover it. That is one issue. 

There has been some difference of opinion between you and CMS 

as to whether there is legal authority to seek financial recoveries. 

You believe it does. You might want to comment on whatever—— 

Mr. STEINHOFF. Okay—— 

Chairman STARK. Well, let me finish. Any statutory changes 

that you think might be made that will clarify this matter, if it is 


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needed, I think we would all be interested in your opinion as to not 

only what might be wrong, but what we might do to correct this 

in the future. 

And you might also—for those of us for whom audit is something 

that ends up at the end of a corporate annual report, or what we 

have to do for the IRS if we don’t do our tax returns right—I think 

these audits are somewhat different than the financial audit that 

many of us—you might enlighten the committee a little bit as to 

what is in the audit. 

So, that is a broad range of topics. If you could briefly address 

those, I think it would be helpful to the members. 

Mr. STEINHOFF. Okay. Let me start, Mr. Chairman, with your 

first question. And I think you are referring to the Benefit Improvement Protection Act audits. There were 6 such audits done of 

the 2001 payments. This is where the organizations were entitled 

to receive additional funds. 

The IG covered six different plans, amounting to $88 million in additional payments, and questioned $29 million of the $88 million. 

Basically, their findings zeroed in on what they thought was a lack 

of documentation that the capitation payment increase was justified, or that additional direct medical care had been provided. No 

action was taken to recover any amounts. The IG did recommend 

that amounts be paid back to CMS by the carriers. One of the companies audited is here today, Humana. They were one of the six. 

Humana of Texas was audited. 

The audited $14.4 million of additional payments to Humana under that Act, and the IG questioned $10.5 million of those 

amounts. But as we found for any audit where a number was tied 

back to the audit, CMS did not act to recover or require anything 

to be done. 

Getting to your second question on statutory changes, I believe 

that we and CMS are at a stalemate here. We believe that there 

is nothing in the law that precludes them—— 

Chairman STARK. We have been in a stalemate with them for 

years. 

Mr. STEINHOFF. Well, we believe there is nothing in the law 

that precludes CMS from placing in their regulations, and then in 

their contracts, provisions that would say, ‘‘This is what we are 

going to do if we find something wrong.’’ 

They believe they don’t have the authority to do it. So, when you 

get in that position, I think it is probably best for it to be resolved 

by the congress through a specific provision that would say yes or 

no. I have noted that the IG, when does the work to identify the 

impact of a problem, it does call on either the plan to return the 

money, or CMS to collect something. And that’s the same position 

that GAO is taking. You’re doing an audit, you’re finding something. This isn’t just an academic exercise to help the company prepare a better bid later on. There has to be more to it. 

But I think it would be very important to really resolve this and 

I think, this hearing is perhaps a good starting point for beginning 

a dialogue on exactly what the congress wishes to get out of this. 

With regard to your third question, for the ACR audits—those 

were the ones for 2001 to 2005—CMS had CPA firms apply agreedupon procedures. This is a complex academic—American Institute 


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of CPA’s jargon and Government Auditing Standards terminology, 

but these audits were done under what are called the attestation 

standards. They are not a financial audit, but they are a professional audit under professional standards. 

What the auditor is doing is auditing what you have asked them 

to audit, and nothing more. So the auditors were asked to find 

whether there were any problems in the preparation of the bids. 

They were not asked to make a determination for 2001 through 

2004 or 2006, as to what is the dollar impact of what they found. 

So, they are agreed-upon procedures. 

For 2006, CMS shifted to the bid audits. And Mr. Hill makes the 

point that CMS has plans for additional at some time in the future. 

But, to date, what CMS has done what they call bid audits. And 

those bid audits are actually actuarial reviews. There is a lot of indepth requirements that are placed on the organizations in preparing bids. It looks like there is quite a bit of rigor. 

I am not an actuary myself, but Medicare Advantage Organizations have got to really provide a lot of information to CMS. CMS 

makes a bid review, which is a desk-type review, and for 13.9 percent of the contracts, and they made an actuarial review. These are 

not audits in the same sense as you know audits, and everyone 

knows audits from financial auditing. But there was some rigor to 

them, and they are an actuarial study. I hope that answers all your 

points. 

Chairman STARK. Thank you. And I would just briefly ask Mr. 

Hill—and I apologize to my colleagues, but perhaps this will set the 

stage for future questions—do you agree, Mr. Hill, that, in whatever manner we do it, either you all do it at CMS by regulation, 

or we write into the legislation that you do it, that it would be a 

good thing for CMS to recover funds that somebody determines 

were paid in error? 

Mr. HILL. It is more than a good thing, sir. It is the thing that 

we need to do to fulfill our fiduciary obligations. 

And I would just note for a moment, just to—I am not quite sure 

we are at stalemate, I am not sure that is the word I would use. 

Chairman STARK. Okay. 

Mr. HILL. I think the issue here is where do we begin to take 

that money back. And the issue is, do you take it back on a bid 

review during the middle of a plan year, or do you do it once—a 

full-scale financial audit at the end of the year, when all the 

records are settled, and you could do a full review, as you said, of 

the benefits that have been delivered, and the records that we have 

gotten from the plans, do you take it back then? 

I think it is our contention that it is best to take it at the end 

of the audit, than in the midst of the plan year, when there would 

probably be an impact on beneficiaries. 

Chairman STARK. The other question that I would direct you— 

and at least my interest, I do not know about my colleagues—but 

in all of the—if we cut through a good bit of the plans’ sales pitches 

and the audit actuarial language, we are supposed to believe that 

paying some amount in excess of fee-for-service rates to these plans 

results in additional benefits to the members of the plans, to the 

beneficiaries. 


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Many cases, there are lower premiums. That is easy to figure. I 

mean, if I am paying $30 a month for Part B, or 40 or 90, and 

somebody offers to give it to me for 10, I have saved some money. 

I think I can understand that. The problem is, we find that many 

of the plans, they kick up the copays subsequently, so that the first 

cost may not be the last. 

But we have been unable, whether you know or not, to determine 

with any accuracy how much—first of all, what benefits are actually provided by these plans. They tell us what benefits are offered, 

but they don’t tell us whether any of the beneficiaries actually take 

up their offer. I mean, you know, they may be offering Viagra to 

every member, but if people don’t line up to get the pills, it doesn’t 

cost the plan anything. 

So, it would seem to me that it would help us—and perhaps even 

you—to know what each plan actually spends, relative to the 

amount over 100 percent we are paying, and whether these benefits were used or not used. 

That all seems to be hidden, or buried under the idea that it is 

proprietary and secret. And—but basically, we have not been able 

to find out. I don’t even know if you can find out. I hope so. 

But do you think that it would be reasonable for us to have that 

information in some detail with each plan, so that we know what 

actual extra benefits, other than the standard Medicare health benefits, are being offered and used, and how much the plans are paying for them, so we have some idea whether we are paying the 

plans appropriate amounts? 

Mr. HILL. I—— 

Chairman STARK. Does that trouble CMS in any way? 

Mr. HILL. I think the issue here is not so much understanding 

what plans are providing to beneficiaries. The question is reasonable, sort of taken on its face. 

From my perspective, not getting into a discussion of whether or 

not we should be paying plans what we are paying, and how are 

they using their benefits, the one thing I can tell you—we can say, 

and we will be able to say with some definitiveness—is, to the extent that a plan has told a beneficiary, ‘‘These are the services that 

I offer, and this is the benefit that you are getting for the premium 

that you pay,’’ at the conclusion of these audits we are going to be 

able to say if the plan has provided those benefits, or if they have 

not. 

Now, that, I do not believe, gets to your question of, you know, 

that marginal percentage above the fee-for-service payments, how 

does that work, and I think that is another level of sophistication 

to the analysis that the audits will tell you. So, an audit, yes, will 

be able to say, ‘‘Did they deliver what they said they would deliver?’’ 

The other issue, just to keep in mind, is, to the extent that during the year, if there is a beneficiary who says, you know, ‘‘I have 

signed up for this plan, and it is offering a copay of $5, and they 

are charging me $10,’’ that is an action we would take during the 

year. I mean, if a beneficiary were to call up, say, ‘‘They are charging me the wrong premium, they are charging the wrong copay,’’ 

that is a compliance action we would take immediately. 


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Chairman STARK. I want to talk about getting in touch with 

that compliance—— 

Mr. HILL. I understand. There is more coming—— 

Chairman STARK. Well, I have overstayed my welcome here, 

and I would like to give Mr. Camp a chance to get into this. Thank 

you both. 

Mr. CAMP. Well, thank you very much, Mr. Chairman. Obviously, Mr. Hill, with the GAO’s report that CMS has failed to meet 

this one-third requirement—and your testimony confirms that—I 

guess what I would like to try to understand is why CMS has 

failed to meet the statutory requirement. 

And, from what I understand of your testimony, you do not believe you have the legal authority to recoup funds once determined. 

Is that correct? 

Mr. HILL. No. Well, sort of correct. I think the area of disagreement here between us and the GAO is when we do an audit of a 

bid during the middle of a plan year—so we have looked at the bid, 

we have already signed a contract, and we have looked at the bid, 

and we find that some underlying assumption there, either it accretes to the benefit of the government, or accretes to the benefit 

of a plan, should be somehow—make that adjustment, either pay 

more money to the plan, or take money back from the plan in the 

midst of the plan year. 

Mr. CAMP. Well, I am not interested. I know the timing issue. 

Let us assume this is done at the end of the year. 

Mr. HILL. We have no—— 

Mr. CAMP. What authority do you need, or resources do you 

need, to comply with this statutory requirement? 

Mr. HILL. In terms of recouping the money, I do not believe we 

need additional authority. We believe that the statute is fairly 

clear, in terms of the requirement for the audits, and the fact that 

we can recoup money, to the extent that the audits show there is 

an issue. 

With respect to actually carrying out the audits, to do—you 

know, to spend the money—and I respect the GAO’s analysis 

here—the one-third financial audits that we are going to undertake 

as part of MA and MAPD post-MMA are quite more expensive than 

what we have done in the ACR side. And the President’s budget 

has made a request for the last 2 years above our amounts, and 

it is quite substantial, but it is one I know that Congress is—— 

Mr. CAMP. So you are telling us the type of bid review required 

is more complex than what was required under previous law. 

Mr. HILL. Oh, absolutely. The one-third financial audits are 

much more—— 

Mr. CAMP. And tell me how the resources have grown as that 

complexity has increased, and, in fact, as it looks as though the 

number of organizations offering Medicare advantage plans has increased. 

Mr. HILL. Right. I mean, and I think it is a fair assessment that, 

to do the ACR audits that we conducted, in the limited capacity 

that we did them, was a $3 million to $5 million exercise. 

When we are talking about auditing one-third of the MA and 

MAPD plans, we are talking about a $30 million exercise to get 

into the level of detail that we need to get into to validate risk 


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scores, to validate the claims data that we are getting into, to look 

at all the information that the plan has provided. It is a much 

higher level of rigor that we need to do. 

Mr. CAMP. Have the number of auditors grown at your disposal, 

or are these bid out? 

Mr. HILL. It is bid out. 

Mr. CAMP. And has that ability—obviously, with the resources 

remaining fairly constant over the last 5 years, that ability to increase the number of auditors has not been there. 

Mr. HILL. Right. I mean, we have found money within our base 

to be able to fund the things that we have funded to date. But we 

recognized, sort of on a going forward basis, we are going to need 

more resources. 

Mr. CAMP. Now, the $34 million from 2003 has not been recouped. It is unclear to me why that has not been recouped. Because you say that there is really no problem there. 

Mr. HILL. Well, again, this gets to the issue of—and this is complicated enough that it gives me headaches sometimes—prior to the 

MMA, when we are looking at the ACR audits—— 

Mr. CAMP. Yes. 

Mr. HILL [continuing]. And the audits of the adjusted rates, and 

how the plans told us they were going to spend the money on the 

extra benefits, on those issues, for the ACR audits, we do not believe we have the authority to go back and recoup that money. This 

is why there has been no action taken on plans in the $34 million 

that is there. We do believe, however—— 

Mr. CAMP. So you feel you need statutory authority from Congress to go back and recoup the money, pre-MMA? 

Mr. HILL. If it was Congress’s intention for us to do that, we 

would need—— 

Mr. CAMP. Okay. But post-MMA, you feel you have the legal authority to conduct the bid reviews, if you have the resources to do 

it, and recoup those funds? 

Mr. HILL. Correct. 

Mr. CAMP. All right. Thank you. And it is your sense that, because the complexity of the audit process has increased, that you 

need more resources in order to adequately perform your statutory 

obligations? 

Mr. HILL. Yes, sir. 

Mr. CAMP. All right. Thank you. Thank you, Mr. Chairman. 

Chairman STARK. I was not being facetious when I suggested to 

the ranking member that, if you collected this money, perhaps you 

could use it to hire additional resources, or charge the plans a fee 

to audit them. That would be—— 

Mr. CAMP. I think there are requirements as to where the recouped money goes. 

Mr. HILL. The money goes back to the Medicare trust fund, sir. 

Chairman STARK. Well, it comes out of there—— 

Mr. HILL. I understand. 

Mr. CAMP. That could be a statutory change, also. 

Chairman STARK. Sure. Chairman Lewis. 

Mr. LEWIS. Thank you, Mr. Chairman. Mr. Cosgrove, in 2003, 

is it correct that CMS estimated that there were $96 million in 

overpayments to the organization? Is that correct? 


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Mr. COSGROVE. Yes it is, Mr. Chairman. 

Mr. LEWIS. Could you tell Members of the Committee, is there 

similar data for other years? 

Mr. COSGROVE. No. When we conducted this review, it was in 

terms of a comprehensive look at 1 year. That was what CMS had 

completed. 

Mr. LEWIS. Well, should CMS be required to provide information, this data, for each year? What is the position of GAO? Should 

that information be forthcoming? 

Mr. COSGROVE. Yes, it should be part of the audits. When we 

issued our report in 2001, we recommended that CMS require the 

auditors to quantify what the impact would be on beneficiaries and 

the program. And, at that time, CMS said that it would do so. In 

fact, CMS did not, for several years, amend the instructions for the 

auditors, to require them to do that kind of quantification. It was 

for 2003 that CMS hired a separate contractor to go back and look 

at all the individual auditing reports. And at that time, the contractor came up with that amount of money for 2003. 

Mr. LEWIS. Do you think it should be the responsibility of CMS, or should there be an attempt to recover some of this $96 million? 

Mr. COSGROVE. Certainly the auditors identified overstatements, that CMS should have tried to recover. So, yes. 

Mr. LEWIS. Mr. Hill, how does CMS decide which law it will or 

will not comply with? 

Mr. HILL. Sir, we make every effort to comply with every law. 

Mr. LEWIS. Do you think you have complied with the law? 

Mr. HILL. I mean, I do not think there is any way I can say to 

you that we have complied with the one-third audit requirement 

from 2001 to 2005. 

Mr. LEWIS. Mr. Hill, let me ask you. Has CMS ever sanctioned 

a plan in the Medicare Advantage program? 

Mr. HILL. Yes—— 

Mr. LEWIS [continuing]. For a payment issue or improper bid? 

Have you ever sanctioned one organization, just one? 

Mr. HILL. For an improper bid? 

Mr. LEWIS. Improper bid, or overpayment. For a payment issue. 

Mr. HILL. Not for a payment issue, no. 

Mr. LEWIS. What about an improper bid? 

Mr. HILL. Well, the sanctions that we have imposed, whether 

they be some monetary penalties, or suspending enrollment, or up 

to termination, have been largely due to larger scale contract violations, either not delivering the services that they said they were 

going to deliver, or denying access to beneficiaries, or being insolvent, marketing violations such as the private fee-for-service issues 

that we have talked about here before. 

But specifically to a payment issue, I think it would be hard to 

articulate just a payment issue. 

Mr. LEWIS. Well, just so we are clear, just over three percent 

of the plans are audited. Audits are not completed until a year 

after they are conducted. CMS apparently does not even look at the 

audits that are conducted. And not one sanction action or any other 

penalty has ever been issued for an improper bid. 

Can you honestly say that you think these audits serve as a deterrent? Or look like an invitation for big trouble, real trouble? 


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Mr. HILL. I understand your question, sir. And, based on the 

numbers that are up there from the GAO, I can appreciate your 

frustration. 

I think the issue for me is to be able to articulate for 2006, for 

this plan year, post-MMA, now that the MMA is in full operation, 

that the audit and the oversight activities that we have ongoing encompass more than just the bid reviews that are articulated here 

by the GAO. 

So, my answer to your question is, yes, I do think that the infrastructure that we have put in place, from the bid reviews to the 

one-third audits, to the ongoing compliance reviews we do with 

plans, do put in place a deterrent effect, if you will, for plans, to 

be sure that they are bidding appropriately. 

Mr. LEWIS. Who is protecting the beneficiaries? 

Mr. HILL. We are, sir. We are trying. 

Mr. LEWIS. Do you have an agency? Do you have a person? Do 

you have an office within CMS that is protecting and looking out 

for the beneficiaries? 

Mr. HILL. There are a couple of ways to answer that. I mean, 

there are two ways to answer that question. The first, and the most 

direct, is the MMA required us to have—and we do have—a Medicare beneficiary ombudsman, if you will—— 

Mr. LEWIS. What is the size of that office? 

Mr. HILL. I have those facts, I don’t have them at my fingertips—— 

Mr. LEWIS. What is the personnel make-up? What is the budget? 

Mr. HILL. I can get you that information for the record—— 

Mr. LEWIS. You are telling me you don’t know the staff makeup of that office? 

Mr. HILL. I don’t have—— 

Mr. LEWIS. The budget for that office? Can someone at GAO tell 

me? 

Mr. STEINHOFF. No. 

Mr. LEWIS. It is my understanding that the staff is about 34 

people, and to represent 43 million disabled people, senior citizens. 

Only 34 people? That is nonsense. And the budget is only, what, 

$1.6 million? You should be able to do better, much better. 

Mr. HILL. If I might, Congressman, the second part of that equation is not just the ombudsman office, but the ongoing compliance 

and oversight activity that is taking place by the plan managers in 

the regions, by the separate program integrity contractors that we 

have contracted with to oversee these plans, the—— 

Mr. LEWIS. Are you telling us that you have enough resources 

to look out for our seniors, to look out for the people that are taking 

part in this program? 

Mr. HILL. I believe that we have enough resources to watch out 

for the seniors in this program. 

Mr. LEWIS. Thank you, Mr. Chairman. 

Chairman STARK. Mr. Becerra. 

Mr. BECERRA. Thank you, Mr. Chairman. Thank you for your 

testimony today. 

Mr. Hill, I am not sure if there is any other way to put it but 

to say that CMS should be embarrassed by what we are hearing 


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today. I do not know if any senior who is trying to figure out 

whether to make a payment for a copay, or figure out how to take 

care of a premium payment for his or her Medicare benefits to 

which he or she contributed years worth of taxpayer dollars while 

they were working, could sit and watch this and say, ‘‘I am struggling to figure out how to pay for that prescription drug or for that 

next doctor visit, and here I hear that CMS has failed to collect 

millions upon millions of dollars that were overpaid,’’ for which 

they received nothing. 

I hope that you are sufficiently impressed by the questions and 

the concern expressed by members on this panel, that the next 

time we have a chance to talk with CMS, that we will see some 

significant change. 

You have mentioned that you need more resources. Is your 2008 

budget request going to reflect that need for more resources to do 

the auditing oversight responsibilities that CMS has? 

Mr. HILL. It absolutely does, and both the House and Senate appropriations committees have considered that request. And, to the 

extent they go through and get enacted, we should be okay. 

Mr. BECERRA. With regard to the statutory authority that you 

possess, according to CMS’s opinion, to collect monies for—in the 

particular case of pre-MMA overpayments, that is pre-2003 overpayments, are you proposing to the administration that it seek, 

through this Congress, the authority to go after any overpayments 

prior to 2003? 

Mr. HILL. No, sir, we are not. 

Mr. BECERRA. Are you planning to ask the Congress—— 

Mr. HILL. I am not aware that we are. We can go back and consider that. But from—— 

Mr. BECERRA. Would you support this Congress giving you the 

authority to go after overpayments dating before 2003? 

Mr. HILL. I think it is something we would need to talk about, 

because, quite frankly, some of those plans are no longer in the 

program. 

Mr. BECERRA. For those that are? 

Mr. HILL. Right. 

Mr. BECERRA. Do you support it? 

Mr. HILL. I need to defer, sir. I would need to go back and—— 

Mr. BECERRA. Is there a reason why you wouldn’t want to support a repayment of taxpayer dollars that went to plans that did 

not provide a service? 

Mr. HILL. If it is true that plans have not provided services that 

they said they were going to provide, we would absolutely want to 

go back and recoup that money. 

Mr. BECERRA. So, you would support having the authority 

given to you by Congress to go ahead and review pre-2003 plans 

that may have—may have—overcharged? 

Mr. HILL. To the extent that they have delivered benefits—or 

not delivered benefits they said they were, absolutely. 

Mr. BECERRA. So you would—— 

Mr. HILL. I don’t mean to be—— 

Mr. BECERRA [continuing]. Support having the authority to do 

pre-2003 audits? Yes or no? 


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Mr. HILL. I would—I don’t know that I can make that commitment, sir. 

Mr. BECERRA. Okay. That is why I think you should be sufficiently embarrassed. Because if you can’t tell the American taxpayers, American seniors, that you believe that the government 

should have the authority to recoup monies that were overpaid, it 

is—— 

Mr. HILL. I think that is the issue, that there is the notion of 

whether or not it is a strict overpayment. 

Mr. BECERRA. Well, wait a minute. If you don’t request the authority to audit and recoup, how can you ever get the money back? 

If you don’t ask us to give you the authority to go after that money, 

you are telling the taxpayers, ‘‘It is okay,’’ that, ‘‘We know that we 

overpaid using your taxpayer dollars, but we don’t want to go after 

it.’’ 

Mr. HILL. I can appreciate what you are saying, sir. I just— 

there is some disagreement as to whether or not the nature of 

those audits, and what they found, that they represented any true 

overpayment. 

Mr. BECERRA. And I understand that point. I don’t want to be 

overzealous in my questions. I do understand that point. But my 

question is very simple. It is a very innocent question. 

Mr. HILL. Well, let me answer it very simply, and sort of—you 

know, I am the CFO for the agency, I am not the program manager 

for Medicare Advantage, I don’t sign those contracts. 

I will tell you, as the CFO, to the extent that there is an overpayment, I want to go back and collect that overpayment. 

Mr. BECERRA. That is fair. And I think many of us can interpret that as saying that we should give you the authority, then, to 

go after anything that was overpaid back before 2003. 

Now, let me ask this. Going forward, is there any reason why we 

should hear you say that—CMS say—that it does not have the authority, statutory authority, to do a full audit, and any subsequent 

actions to recoup overpaid dollars? 

Mr. HILL. No, sir. I believe we have that authority. 

Mr. BECERRA. Okay. Mr. Steinhoff, at one point you seemed to 

have heartburn at one of Mr. Hill’s responses. I think it had to do 

with the 2003—pre-2003—overpayments. And maybe it was on 

something else. 

Let me ask this. Do you believe that you are—and I will end with 

this, Mr. Chairman, because I know my time has expired—do you 

believe that you are receiving the cooperation from CMS that you 

need in order to be able to conduct sufficient oversight of CMS, and 

also then to make the appropriate recommendations to CMS on 

how to proceed, in making sure we are preserving taxpayer dollars? 

Mr. STEINHOFF. Yes. In looking at this particular issue, let me 

go back to our first review of this program, which covered 2000. 

At that time, we were told by CMS that it planned, as part of 

the audit process, to quantify the effect of any audit findings. And 

we recommended that it do exactly that. In our view, the intent of 

quantifying the impact was to do something with the result. 

CMS did not act, did nothing for 2001, 2002, 2003, 2004, or 2005 

to ever change its regulations, to ever change its contracts. Went 

back for 2003, and did some work, but didn’t take any action, other 


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than telling the organizations that were audited, ‘‘We found these 

problems.’’ Didn’t do anything with the six audits by the IG, and 

showed no intention, during our review, of ever doing anything 

with the results. 

I would agree fully with Mr. Hill, in his earlier response to you, 

when he said, ‘‘If we find an overpayment, based on benefits delivered or costs not incurred, we will go back and recoup it.’’ Well, if 

you look at the audits done between 2001 and 2005, none of those 

audits were directed at determining whether there was an over 

payment. They were directed at looking at a bid, or a proposal. And 

when they found problems with the proposal. They did not know 

whether or not the actual results were better or worse than the 

proposal. 

So, you have to, one, design the audit in a proper manner to get 

a result, and to, in fact, hold the plans accountable to the American 

taxpayer. And then, two, have a very clear set of actions to go back 

and follow up. And that is really, I think, the differences that we 

and CMS have had all along. 

Mr. BECERRA. Thank you. Thank you, Mr. Chairman. I yield 

back the time. 

I do want to make the point, Mr. Chairman, that this is a—we 

hope to be able to do oversight over all of Medicare, not just Medicare Advantage; Medicare fee-for-service as well. This is not an attack on one type of plan or another. It is to preserve Medicare for 

seniors who are on Medicare. Thank you, Mr. Chairman. 

Chairman STARK. My distinguished friend from Texas, would 

you like to inquire? 

Mr. JOHNSON. Thank you, Mr. Chairman. I appreciate that. 

I am wondering. It is my understanding that the GAO report 

found that Medicare Advantage audits conducted in 2003 yielded 

a net overpayment of roughly $35 million. Did you find any instances where the plans were, in fact, underpaid, resulting in enrollees receiving additional benefits they wouldn’t have otherwise 

received, if the bid were calculated correctly? 

Mr. STEINHOFF. Yes. What the audits showed were that there 

were overstatements and understatements. The $35 million number that was computed by CMS was made up of $64 million of 

overstatements, and $29 million of understatements. 

If you shift to the work that was done by CMS’s contractor, who 

CMS had come in to review the audits, they found—and Mr. Lewis 

used this number—$96 million of overcharges, $37 million of undercharges. And this contractor was looking at, in this case, the adjusted community rate proposal. None of this is actual cost, getting 

back to Chairman Stark’s initial questions. This is based on the 

rate proposal. 

So, there were both overcharges and undercharges, based on the 

audits. 

Mr. JOHNSON. So your 35 net is net out. 

Mr. STEINHOFF. If a net number, yes. Correct. 

Mr. JOHNSON. Okay. Do you know if those companies were ever 

coming back for the—— 

Mr. STEINHOFF. Nothing was done to collect, or to provide for 

or to require any additional benefits. 


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Mr. JOHNSON. Earlier this year, GAO reported 21,000 Part B 

providers, many of them physicians, are collecting federal Medicare 

payments while owing billions. What is CMS doing to address that 

issue? 

Mr. HILL. We have—after the GAO report, we have been now 

working with the Department of the Treasury and Financial Management Service, as well as the IRS, to implement the tax levy offset program for Medicare, so that we are sharing our data on an 

ongoing basis with the Treasury Department, so that, before we 

make payment, or as we make payment, we are being sure to offset 

payments to the extent that physicians, owe taxes, or—physicians, 

or any other provider, I would say. 

Also, back to the Medicare Advantage issue, those plans already 

are subject to the tax offset process. So, to the extent that Medicare 

Advantage, or a Part D plan has tax debt to the IRS, those monies 

are recouped before we make payments. 

Mr. JOHNSON. Well, you know, following up with what Mr. 

Becerra was talking about, you’ve got from 2001 to 2005, really, 

overpayments that haven’t been recouped. What are you all going 

to do about it? 

Mr. HILL. Well, as we have discussed here, I think the Agency’s 

position—or I know the Agency’s position—at this point is that the 

audits are going to be closed out. We are going to look at each of 

the individual audits, and are looking at each of the individual audits, to be sure that, to the extent a plan misrepresented the information that had been provided, or was somehow trying to game us, 

as opposed to just an honest error in the system, we are going to 

make the appropriate referrals to the OIG, or to others, to the extent that we want to pursue action that way. 

But we are—it is not our intent, right now, to go back and try 

and recoup those overpayments, because—— 

Mr. JOHNSON. Well, what are you going to do about this year, 

then? 

Mr. HILL. For 2006, for the plan year beginning the first year 

of the MMA, if you will, the Medicare Advantage and Part D programs, we have put in place a process to be sure the bids—unlike 

the proposals we got in the ACRs, we are now reviewing bids as 

they come in, before we sign a contract, to be sure that they are 

appropriate. 

And at the end of the plan year, as the GAO has indicated, we 

are going to look at actually the benefits that had been provided, 

the services that the plans provided, the information that they gave 

us to support their risk scores and other payments, do a full scale 

audit of those, and recoup overpayments, to the extent that we find 

them. 

Mr. JOHNSON. So, you will take care of the people who were 

underpaid, and you will take care of the people who were overpaid? 

Mr. HILL. Yes, sir. It is a symmetrical—— 

Mr. JOHNSON. Guaranteed? 

Mr. HILL. Well, that is the approach now. I—hopefully—— 

Mr. JOHNSON. Okay, thank you very much. Thank you, Mr. 

Chairman. 

Chairman STARK. Thank you, sir. Mr. Doggett. 


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Mr. DOGGETT. Thank you. Thank you for the audit that you 

conducted. I think it is very helpful. 

And, Mr. Hill, if I understand the answer that you just gave my 

colleague from Texas, what is it that you’re not going to go back 

and recoup now, for the taxpayers? 

Mr. HILL. I think that the OIG has identified an amount that 

we now agree, about $34 million—— 

Mr. DOGGETT. We can just write that off? 

Mr. HILL. We don’t believe that it is a debt that is owed. 

Mr. DOGGETT. You don’t believe it’s a debt that is owed? 

Mr. HILL. That is correct. 

Mr. DOGGETT. Well, in addition to the tens of millions of dollars 

pointed out in this audit, the CMS attitude has been, ‘‘We might 

not have authority, but we are not going to bother asking for any 

authority.’’ 

I asked back at the July hearing about the $100 million that 

CMS paid to these Part D plans for retroactive coverage for dualeligibles who were never told that they—in a timely way—that 

they had the coverage. And I have been asking for documents 

about that $100 million that may well have been wasted, in addition to all these tens of millions of dollars, ever since. 

The CMS reply was that there was a reconciliation in August. As 

is usually the case, CMS isn’t returning calls or e-mails. Is the reconciliation complete? 

Mr. HILL. Yes, sir. 

Mr. DOGGETT. Why don’t we have the answers that I have 

asked for since July? 

Mr. HILL. I don’t know why you don’t have those answers, but 

I will—— 

Mr. DOGGETT. Well, sir, that seems to be typical of CMS. 

Let me ask you, with regard to the material that I have been 

provided from CMS, a big stack of materials concerning CMS’s decision-making on abusive marketing practices, if, in your work, you 

ever have occasion to communicate with Abby Block at the Center 

for Beneficiary Choices that administers Medicare Advantage? 

Mr. HILL. Do I? Yes, sir, I do. 

Mr. DOGGETT. Do you do any of that by e-mail? 

Mr. HILL. Yes. 

Mr. DOGGETT. Do you have any idea why, in all of the documents that I have been provided, there is not a single e-mail back 

or forth with Abby Block, who runs the program? 

Mr. HILL. No, sir. I do not. 

Mr. DOGGETT. Well, would you go back and try to get me an 

answer on that? Because that is another of the—— 

Mr. HILL. Is there a particular—— 

Mr. DOGGETT [continuing]. Answer questions. 

Mr. HILL. We will find out. 

Mr. DOGGETT. Okay. Now, much of the focus has, of course, 

been with regard to marketing practices. But, as I look through 

this audit, it is not only—you know, as you look through all this 

audit, to me, I have a slightly different impression than my colleague. Because I don’t see just a few bad apples, I see an entire 

orchard. And it is a very expensive and unproductive one. 


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Every time someone gets sucked into these Medicare Advantage 

programs, the taxpayer is out about $1,000 a year that it wouldn’t 

have to pay unless—if they were in traditional Medicare. 

But in addition to those marketing abuses, there are outlined in 

here a significant number of what are called chapter 13 abuses, 

where there have been corrective action plans. And those are when 

a person wants in, then has a grievance or can’t get coverage, and 

then calls to try to get help. 

My question to you about those corrective action plans is whether 

any Medicare Advantage plan has ever been sanctioned in any of 

these corrective action plans for not having a sufficient grievance 

and appeals process. 

Mr. HILL. I can tell you that we have sanctioned plans for multiple contract violations. 

Mr. DOGGETT. Well, I am just asking about grievance and appeal processes, since it appears, from my analysis of the audit, that 

there were more corrective action plans that were issued with regard to plans not the way they declined grievances and didn’t handle the appeal process—there were more appeals process corrective 

action plans than there are marketing abuse action plans. 

Mr. HILL. Right. And I know that a significant amount of the 

CMP activity, civil monetary penalty activity, we did last year was 

around the annual notice of change, which is a grievance process, 

but it is the notice that plans are required to give to beneficiaries, 

as we transition from one plan year to the next, outlining what the 

benefits are going to be or not be. 

And we did issue CMPs on a number of plans last year on that 

issue. 

Mr. DOGGETT. And does—do you require bids to include a line 

item in the bid, demonstrating that the plan has sufficient funds 

in their budget to handle appeals? 

Mr. HILL. Well, their bid includes the administrative cost, which 

includes the administrative cost of meeting our regulations. 

Mr. DOGGETT. Well, I understand it includes administrative 

costs. But how do you determine whether they have a sufficient 

amount to cover appeals? 

Mr. HILL. I would need to get back to you exactly on how they 

make that determination. 

Mr. DOGGETT. Okay. It appears to me that these plans get 

through deceptive marketing practices, in many cases at a cost of 

$1,000 to the taxpayer. Once they get in, they have great difficulty 

getting their grievances processed. And then I note if a care giver 

wanted to look at the website that CMS has to find out if they are 

getting in a good plan, great inflation at CMS seems to be rampant. 

And in Texas, at least, when I looked at it, it looked like everybody was, you know, on the dean’s list on these plans. They all got 

three-star, very good, ratings, except for one. I noticed that one 

Humana plan had 18 corrective action plans pending for appeals 

process violations at the same time it got a 3-star rating. 

Is there ever any attempt to inform the consumer, relative to 

what is happening with the corrective action plans? 


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Mr. HILL. Well, yes, actually. The corrective action plans, as you 

know, are now posted on the web, and folks have access to that information. 

I think, with respect to the rankings—take the Humana example 

for a minute—the 18 corrective actions that are on the web for 

Humana may relate to Humana as an organization. And it is the 

same violation, but it runs through all their contracts. So it is not 

like it is 18 separate—— 

Mr. DOGGETT. Have you ever taken a star off one of these allstar Medicare Advantage plans because they were doing such a 

sorry job with their marketing practices and their grievance processes, that they got one corrective action plan after another? 

Mr. HILL. Well, this is the first year we have done the rankings 

the way we’re doing them. But I can imagine that we are going to 

be removing stars from folks. Yes, sir. 

Mr. DOGGETT. Okay. Thank you. 

Chairman STARK. Mr. Emanuel. 

Mr. EMANUEL. I will take the time. What I would—more of a 

statement, here. I mean, a lot of focus has been on the percentage 

on the reports, how many reports have actually been done, et 

cetera. 

I know we had a hearing earlier on a lot of the state insurance 

commissioners, who said they would like to have the authority to 

do not only the investigations, but also the enforcement. And one 

of the—you know, CMS argues that they don’t have the authority 

to do the proper type of—not just investigations, but then pursue 

those investigations. And my own sense here, Mr. Chairman, is 

that we can either have CMS do what they’re supposed to do—they 

do it now on the supplemental Medicare—or give it to 50 different 

state commissioners, and then we can watch what they do on the 

oversight of these plans. 

But somebody has to be a police on the beat who is overlooking 

these plans. And if it was up to me, I don’t think the insurance 

companies would want to see this happen, but I would be more 

than willing to become a convert to the new sense of federalism 

here, and let 50 state insurance commissioners all of a sudden regulate and prosecute where they think there has been some violations here. But somebody has to be on the job to see, not only if— 

not only auditing, but then prosecuting, if there are any violations 

here. 

And, to anyone who wants to pick up on this, I mean, which 

would you think would be more effective in overseeing this marketplace insurance plan? Would it be 50 different state insurance commissioners? Or would it be, in fact, CMS actually exercising what 

I think they have the authority to do? Mr. Hill? 

Mr. HILL. Speaking for CMS, clearly, we believe that CMS has 

the authority, the wherewithal, and the obligation to be overseeing 

the plans, and their marketing practices, and how they are dealing 

with beneficiaries, and believe that is in the best interest of our 

beneficiaries, to have a single, consistent set of oversight activities 

and corrective actions being put in place. 

Mr. EMANUEL. Well—— 

Mr. HILL. As opposed to having 50 different states. Now, the 

states have a role here, their—— 


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Mr. EMANUEL. Well, Mr. Hill, let me just say this. As Abraham 

Lincoln once said to McClellan, ‘‘If you aren’t going to use that 

army, do you mind if I borrow it for a time?’’ 

Mr. HILL. I—— 

Mr. EMANUEL. And so, my question to you is, since you are 

woefully short on the audits, on the prosecution side, or, in fact, enforcing what is in the interest of the beneficiaries there, I don’t 

think you have been fully exercising what we believe is in your authority and capacity. 

Mr. HILL. I can appreciate the frustration that you are exhibiting, with respect to CMS in the past. I can only tell you, as I 

mentioned in my opening statement, that we are going to use the 

army. As you may have heard from Kerry Weems, the new acting 

administrator, that the start-up period here for Medicare Advantage is over. We are beyond the initial phase of getting plans in. 

And the focus now is on accountability, oversight, and access for 

our beneficiaries. 

Mr. POMEROY. Will the gentleman yield? 

Mr. EMANUEL. Yes, I yield to my colleague from North Dakota. 

Mr. POMEROY. Thank you. Mr. Hill, there is no army. I believe 

you testified earlier your entire staffing was 34. Is that correct? 

Mr. HILL. That is not correct, no. 

Mr. POMEROY. Help me with the number. We have had different testimony from CMS over the time. How many people do you 

have all ready to go to sign with this new much-belated imperative 

of CMS? 

Mr. HILL. A little bit over 500 staff, sir, and a budget of, right 

now, roughly $30 million, but that will grow to roughly 120, to the 

extent that the Congress enacts the President’s fiscal year 2008 

budget proposal. 

Mr. POMEROY. You’ve got 500 staff people. What are they doing 

today, if they are not doing this today? 

Mr. HILL. I believe they are doing this today, sir. 

Mr. POMEROY. They are doing this today? 

Mr. EMANUEL. Mr. Chairman. 

Mr. POMEROY. I yield back. 

Mr. EMANUEL. No, it’s okay. Mr. Chairman, I would like to suggest, though, that if there is not a change—and not to—you know, 

beyond audits, if you are not going to oversee the marketplace correctly—and there is no numerical sense of what is hitting a certain 

number. 

But the leverage is here, in fact, that either CMS does its job— 

and if the committee, as a whole, does not think it is, then in six 

months, nine months’ worth of time, we take a look back of the performance. And if not, then we move on legislation, as it relates to 

the state insurance commissioners. 

Mr. HILL. I think—— 

Mr. EMANUEL. There are many roads to take to enforcement. 

Chairman STARK. The distinguished gentleman from North Dakota, when he was an insurance commissioner, made that deal 

with us some years back. And found that, eventually, in the case 

of supplemental insurance, that is just what he had to do. 


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Mr. EMANUEL. I mean, they have done a good job there. And 

so, the question is how you pursue that. And my colleague from 

Wisconsin, I do not know if he would like to add on this. 

But I would like to thank you for both holding this hearing, and 

talking about it. But, Mr. Hill, we may have cut you off from—— 

Mr. POMEROY. May I just have a second more? 

Chairman STARK. Sure. 

Mr. POMEROY. I think that this 500 representation really does 

need some scrutiny. And if you have had 500 people waiting 

around to do this, they should have been doing it. If they had been 

doing it, we wouldn’t have had the audit report that we have got. 

The reality is, you have got these people, they have got all their 

jobs to do. We have heard testimony about them loosely dispersed 

through the regions, no clear business plan offered by the Agency, 

in terms of how they are suddenly providing new measures of consumer protection, reflecting, basically, what has been taking place 

in state insurance departments. 

I believe the chairman’s suggestions that we ought to look at— 

we ought to assess the failure of the Federal Government—— 

Mr. CAMP. Mr. Chairman, could we have regular order? 

Mr. POMEROY.—and look at an expanded role for states that already have the capacity to do it. I yield back. 

Chairman STARK. Thank you. The time for the gentleman from 

Illinois has expired. 

Mr. Tiberi. 

Mr. TIBERI. Thank you, Mr. Chairman and Mr. Hill. In talking 

to my Medicare case worker in my office, he tells me that most of 

the complaints that we get from seniors are seniors that are in the 

Medicare fee-for-service program. I know most of the focus has 

been on Medicare Advantage today, and the audit, and I know 

some of my colleagues are skeptical of the private sector’s involvement in providing health care benefits to beneficiaries, Medicare 

beneficiaries. 

From your perspective at CMS, what have you seen the benefit 

for those Medicare beneficiaries with this new market-oriented benefit called Medicare Advantage? What do you see today? 

Mr. HILL. I think if you were to talk to the folks at the Agency, 

and tried to understand how Medicare Advantage and Part D has 

changed the landscape—— 

Mr. TIBERI. Right. 

Mr. HILL.—you will see beneficiaries who are generally satisfied 

with the coverage that they have, in terms of drug coverage that 

they have now that they have not had in the past. You are generally seeing savings, relative to what they had had prior to BBA— 

prior to me, prior to the MMA. 

For me, as the CFO’s standpoint, the overall cost of the program 

is lower than we had originally projected, which is—— 

Mr. TIBERI. Can you say that again? 

Mr. HILL. The overall cost of the program is lower than we had 

originally projected, both in terms of premiums and the absolute 

outlay for Part D and MA. So that is—from my perspective, that 

was a good thing, and which generally relates to lower overall Part 

D costs for taxpayers, generally. 


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Mr. TIBERI. We all acknowledge that there is a one-third audit 

requirement for the Medicare Advantage oversight. We have gone 

over that today on numerous times. Is there any comparable requirement for the regular fee-for-service program? 

Mr. HILL. In terms of a requirement to look at a standard set? 

The only sets of requirements that exist are on the quality side for 

the state agencies who do survey and certification who go into 

nursing homes, home health agencies, other institutional settings, 

to be sure they are meeting our levels of care for quality. 

But on the payment side, there are no statutory requirements for 

the level of payments that—— 

Mr. TIBERI. Is there anything that you have done, comparably, 

on the audit side, on the payment side? 

Mr. HILL. On the payment side, we use a performance metric to 

ensure that we are paying appropriately. 

As many of you know, and as I have testified before on this committee, we are measured by a fee-for-service error rate over time. 

And at one point that error rate was in double digits. We spent a 

lot of time and effort over the past 4 or 5 years to get it down, and 

now it is at roughly 4.5 percent, 4.4 percent, which has, I think— 

you know, using a risk-based approach to how we devote our resources to get that error rate down. 

Mr. TIBERI. Well, let me just go over this again, and see if I am 

missing something that I cannot quite understand. 

In the September CMS—you posted a list of current corrective 

action plans, CAPs, to your website. 

Mr. HILL. Correct. 

Mr. TIBERI. Do you believe this is a fair representation of the 

Agency’s Medicare Advantage oversight activities, or does it represent just one aspect of a much broader, or larger picture? 

Mr. HILL. Oh, I think it is one aspect of a much broader picture. 

Mr. TIBERI. Can you expand on that? 

Mr. HILL. It is a planned time estimate, as of that day, of the 

open caps that were in place. It doesn’t reflect action that has 

taken place since before—corrective action plans that had been 

open and closed, subsequently closed out since prior to that date. 

Nor does it represent the amount of work that is ongoing with 

beneficiaries and providers and plans on a day-to-day basis, both 

centrally, in our central office, as well as with the regions, to be 

sure that beneficiary complaints are being dealt with, and that 

plan compliance issues are being dealt with on a daily basis. 

Mr. TIBERI. Anything comparable on the fee-for-service program? 

Mr. HILL. In terms of reporting—— 

Mr. TIBERI. Yes. 

Mr. HILL.—compliance issues? Other than the error rate, no sir. 

Mr. TIBERI. Would that be helpful, to compare apples to apples, 

rather than apples to oranges, as we seem to be doing? 

Mr. HILL. I—given the absolute level of providers in the Medicare fee-for-service program—you are talking about more than a 

million, versus the plan side—it would be very difficult, other than 

the aggregate, you know, sort of hospitals have these sorts of 

issues, physicians have these sorts of issues, to have a comparable 

sort of set of metrics. 


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Mr. TIBERI. Final question. Assuming that you have 49 organizations representative of the Medicare Advantage program that 

were part of this audit that has been talked about today. If you 

take the $35 million in overpayments, divide it by the total amount 

paid of the plans, you will find that the overpayment represents .4 

percent, if my math is correct here. 

What would be the error rate for payments under the fee-forservice Medicare plan? 

Mr. HILL. 4.4 percent right now. 

Mr. TIBERI. Say it again. 

Mr. HILL. The error rate in Medicare fee-for-service is 4.4 percent. 

Mr. TIBERI. So, the error rate for Medicare fee-for-service is 4.4 

percent, versus the Medicare Advantage rate for error under 

your—under the GAO study, is .4 percent? 

Mr. HILL. And—— 

Mr. TIBERI. That would be a good headline to see in tomorrow’s 

paper. Thank you, Mr. Hill. 

Chairman STARK. I am going to ask Mr. Steinhoff to comment 

on that. I think there is some—I think we have got some apples 

and oranges. If—— 

Mr. STEINHOFF. Yes, correct. We did not project an error rate. 

What our audits showed were, that CMS’ audit rate for 2003 was 

around 22 percent. And for those audits that were done, they were 

done of the adjusted community rate proposal. This is the proposal, 

not what actually happened. This is what was actually paid. 

So, you had less than 100 percent coverage, and you had a net 

of $35 million per CMS. You did not have, though, a review of 

every payment that is being made. So, I don’t think it is even apples and oranges, I think it is more like apples and something else. 

Chairman STARK. I would say, to CMS’s credit, the 4 percent, 

or 4.5 percent—— 

Mr. STEINHOFF. Yes. 

Chairman STARK.—used to be 14, I believe. 

Mr. STEINHOFF. That is right. 

Chairman STARK. And, in those days, it was half—and I don’t 

know whether it still is—half was theft, fraud, and half was just 

mistakes, you know, processing 80 million pieces of paper a day, 

there are just mistakes. 

But I think, if that is correct, I think that CMS is entitled to a 

real round of applause, because they have cut that error rate by 

at least two-thirds that I have known over the past 15 years, and 

that is—I don’t mean to diminish that, that is a hell of a record. 

But I just wanted to add that. 

I thank the gentleman. You have completed your inquiry, sir? All 

right. Mr. Kind? 

Mr. KIND. Thank you, Mr. Chairman. I want to thank you and 

Mr. Lewis for offering this hearing today, and also to our witnesses 

for your testimony. 

And as someone who reviewed the GAO report, and has been sitting here listening to the testimony so far this morning, I will guarantee you there wouldn’t be a taxpayer in America that wouldn’t 

be horrified by what is taking place with this program. And I also 


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guarantee that most of the seniors in MA plans today would be 

shocked and dismayed with the lack of oversight. 

This—it really strikes you as the Blackwater of health care in 

this country today. You know, no oversight, no accountability, no 

consequences. And, just as the administration was quick to privatize our security needs in Iraq, in this experiment to try to privatize the Medicare program, this is the type of oversight that we 

are getting. And it is just clearly not acceptable. 

Mr. Steinhoff, let me ask you. In preparing your report, and the 

investigation that the GAO did, is the lack of the audits being accomplished, not meeting the one-third requirement, due to a lack 

of will within CMS, or a lack of resources? 

Mr. STEINHOFF. When one steps back and looks at the audit 

rate, when one looks at the fact that CMS didn’t really have any 

program in place to even determine what the audit rate was, when 

one looks at the fact that CMS did not require the auditor to determine the impact, when one looks at the fact that CMS never looked 

at what actually happened, what benefits were delivered, what 

costs were incurred, it looked like CMS was going through just a 

minimal compliance effort. There wasn’t much value to it, wasn’t 

much coming out of it. And one could really question CMS’s will 

to really aggressively pursue this. 

Mr. KIND. Well, you hear of 35 people in CMS that’s in charge 

of the audit department here, which just smacks as severely insufficient. And then, not only do we have a lack of the audits being 

conducted, but even a lack of the quality information that we need 

in order to make policy decisions based on the audits aren’t even 

getting accomplished. 

So, my question again, Mr. Steinhoff, to you, is what do we need 

to do to try to fix this? I mean, do we have to do a separate line 

item with specific instructions to CMS with specific resources? Because it is my understanding right now that the audit budget 

comes out of the overall administrative fund at CMS, and there is 

no specific line item from the appropriate bill that goes to CMS. 

Do we need to look at that? Do we need to explore the possibility 

of user fees to help pay for the audits, to ramp up the army that 

we need here to conduct and to meet these requirements that—— 

Mr. STEINHOFF. Okay. I think certainly people should sit down 

with a clean sheet. Mr. Hill outlined some plans that CMS has, 

going forward, following the MMA. And—going forward, he said 

they CMS is going to do X, Y, and Z. I think that is, at least, a 

starting point. 

If one looks back at the 1997 law, there was a provision requiring audits. It mentioned looking at the financial books. It mentioned one-third audits coverage annually. But there wasn’t much, 

other than that, in the law. There was no clear legislative history, 

no clear committee report on it, and no real clear commitment or 

understanding on CMS’s part as to what it was, in fact, to be. 

So, I think, stepping back, taking a hard look at whether or not 

this new plan that Mr. Hill has mentioned today will, in fact, get 

us where we want to be. And, again, this plan was emerging and 

evolving as we were doing our work. But is this truly a post-audit? 

Is this truly going back and determining, did we get what we were 

paying for? Did our beneficiaries get a fair break? Were providers 


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offering services but they weren’t being used? What were the profit 

margins, et cetera, et cetera. 

Mr. KIND. Well, Mr. Steinhoff, on that point, let me ask you. 

Does CMS right now have the authority or the discretion to look 

into executive compensation with these MA providers in the course 

of the audit, and report back to us what is taking place? 

Mr. STEINHOFF. I don’t know of any limits they have, as to 

what they can and can’t look at. And certainly that is something 

CMS can explore. But I know of no legal limits—I will caveat I am 

not a lawyer, but I know of no legal limits. 

But the time is really here today to rethink Medicare Advantage 

oversight, as I was kind of hopeful, as Mr. Hill laid out the future, 

that while perhaps the last 6 or 7 years will be a very expensive 

lesson learned, that the lack of oversight during that period will be 

rectified, going forward. 

But there is going to have to be a real change in culture here. And whether it is a $35 million oversight program as Mr. Hill mentioned, or much more expensive, you are talking about $60 billion, 

$70 billion being spent annually on the Medicare Advantage Program, a lot of money, a lot of complexity, a lot of plans, over 4,000 

plans. And you are going to have to have a very good strategy, and 

a strategy that is enforced, a strategy with metrics, and a strategy 

that you can hold CMS accountable for meeting. 

Mr. KIND. Mr. Hill, may I quickly ask you? Are you familiar 

with Humana’s second quarter profit report that came out in August of this year? 

Mr. HILL. I am not. 

Mr. KIND. It is the second largest provider of MA, $217 million 

profit, doubling their profit. The analysts on Wall Street said 

Humana reported its strongest quarterly result in recent memory 

on the back of stronger-than-expected performance in the government segment. In line with the company’s recently updated forecasts, and indicative of continued strong Medicare performance, 

how can you not look at that profit in the last—in the second quarter of this year, and not view it as a huge profit at taxpayer expense? 

Mr. HILL. I—— 

Mr. KIND. Because it appears to be directly related with the MA 

compensation. 

Mr. HILL. There is no evidence that Humana is making profit 

at the expense of taxpayers—based on what they have told us, and 

what they have told us in their bid, and what we are paying them. 

If what we are paying them is leading them to make money in the 

market, I think that is the purpose of the program, is for private 

plans to come in and deliver the program. 

Mr. KIND. Thank you, Mr. Chairman. 

Mr. LEWIS. [Presiding] Thank you. Mr. Pascrell is recognized. 

Mr. PASCRELL. My good friend from Wisconsin, whatever the 

market can bear. Because it is very, very interesting that the— 

while reporting huge profits, the outgoing CEO of United, he had 

a $400 million bonus. I feel sorry for the guy. And he had a total 

retirement package worth a reported $1.5 billion. 

You know, I am outraged. And I know you could care less, but 

I am still outraged. And I am outraged about these windfall profits, 


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because they go back to the debates of 2003, when we discussed the 

Medicare Modernization Act, plan D, which is now pretty famous. 

And to hear what I am hearing today, hard working Americans 

are facing increased premiums and decreased quality of care, I am 

disappointed by the unwillingness to provide any accountability or 

oversight to ensure our tax dollars—and I know we’re talking about 

civil situations, we’re not talking about criminal. Are we? Are we, 

Mr. Hill? We are not talking about criminal actions, we are talking 

about civil actions. Some of these are pretty close, though. The difference between one and the other, many times, is very questionable. 

It means that private insurance companies are free to determine 

a substantial portion of the services that are covered by Medicare. 

There is 43 million people on Medicare, 7 million of those people 

are in the Medicare Advantage. This is a big deal. This is pretty 

significant, as to what is happening. 

And if you read the last issue of AARP Magazine, which I get 

because of obvious reasons, very clear about a couple of examples 

they give in that magazine. Bobby Boxer, a retired construction 

worker, he was very content with the regular Medicare. But—he 

was content, but last December a sales woman comes to his house 

and sells him a plan of Medicare, a Medicare HMO, when he 

thought he was buying a medigap policy. She lied. All MA plans 

are obliged to cover emergency care, as you well know. But what 

happened was he wound up with a bill of $16,000. Now, CMS is 

telling him, ‘‘Don’t worry about that, we will get you back into regular Medicare.’’ 

This is baloney. This is not the way to deal with what is going 

on with these people, day in and day out. You confuse the senior 

community enough, and darn it, you better stop. You better end it 

right now. You confuse them. With all of these plans, how could 

they make sense of what is going on? How can they make sense? 

I want to ask you a question, Mr. Hill, if I may. According to the 

GAO’s assessment of the statutes, that CMS had the authority to 

pursue financial recoveries. But its rights under contracts for 2001 

to 2005 are limited, because it is implementing regulations that are 

not required, that each contract include provisions to inform organizations about the audits and about the steps that CMS would 

take to address—identify deficiencies, including the pursuit of financial recoveries, which many have asked about. 

Why would your agency write regulations for the MA contracts 

that did not include the recovery authority? Why would you do 

that? 

Mr. HILL. I cannot speak to the ACR process that was in place 

from 2001 to 2005, and why those requirements are not in there, 

or why the Agency chose not to pursue that. 

I can speak to the MAPD and the Part D plans that are in place 

now, post-MMA, and can tell you and assure you that it is very 

clear for the plans that, to the extent that we find overpayments 

on an audit, we have the authority to go back and recoup those 

funds. 

Mr. PASCRELL. Now, the National Association of Insurance 

Commissioners, when they were asked what can be done, they advocate a stronger role for the states. The states play a stronger role 


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in the Medicaid program. In many of the states, the attorney general’s office oversees it. You administer the MA program. You administer it. Am I correct in saying that? When we talk about administering the program, that means very specific things. 

So, the states would have more authority and oversight of the 

MA marketing, especially in the regulation of agents and brokers, 

which is a state law issue in the first place. The language in the 

CHAMP bill, which the President said we should not vote on, because it would throw seniors off of Medicare—that is what he said, 

I know what he said—CMS had argued that state laws are preempted by this Medicare Modernization Act. That is what you said. 

On September 28, 2007, an Alabama district court judge held 

that the state could sue for Medicare Advantage marketing abuses 

in state court under state insurance law. What is your reaction to 

that, Mr. Hill? 

Mr. HILL. I am not familiar with the lawsuit, and I would like 

to take a look at it before I offer—— 

Mr. PASCRELL. Well, what do you think about the idea of states 

assuming a greater responsibility in going after the very abuses 

and deficiencies that you have heard questions about from this 

panel? 

Mr. HILL. I don’t think that we disagree that the states are our 

partner here. They are on the ground. The state insurance—— 

Mr. PASCRELL. Well, what do you mean by being a partner, Mr. 

Hill? 

Mr. HILL. I think this is—they have their regulatory authority 

for brokers and—— 

Mr. PASCRELL. So you feel they have the ability, then, to pursue these civil complaints? 

Mr. HILL. No, sir. I think they are our partners in this, and we 

work with them closely. We have entered—— 

Mr. PASCRELL. So you have no problems with this? 

Mr. HILL. With? 

Mr. PASCRELL. You have no problems with the states pursuing, 

as Alabama has? 

Mr. HILL. As I said, I would need to take a look at that suit, 

to know exactly what it is they have pursued. 

Mr. PASCRELL. Thank you, Mr. Chairman. 

Chairman STARK. [Presiding] Thank you. 

Mr. Nunes. 

Mr. NUNES. No. 

Chairman STARK. No? Mr. Hulshof. 

Mr. HULSHOF. Thank you, Mr. Chairman. Let me try to put 

things in perspective. I do this at my own peril, Mr. Chairman. At 

a previous hearing in front of the full committee on income and 

equality, I pointed out that the 4.6 percent national unemployment 

rate was considered by most mainstream economists to be full employment, and my friend from California, a gentleman from Los 

Angeles, took me to task and chided me that every American deserves a job. I guess 0.0 percent unemployment is our goal. 

But let me put things in perspective. The fact is that there are 

many on the majority side who have shown disdain for Medicare 

Advantage. I am not saying that is the genesis of this hearing, but 

I think that needs to be spoken. 


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The gentleman from Texas says that seniors have been ‘‘sucked 

in’’—his words—to the Medicare Advantage program. I would like 

to quote specifically what the chairman of the oversight subcommittee has said, and I agree with him, where he says in his 

written statement, ‘‘Over 8 million Americans rely on Medicare Advantage, and there are 15,000 of those 9th congressional district of 

Missouri.’’ 

I am a small business owner. I pay Medicare taxes for the workers I hire. Every employer and every employee alike, every taxpayer in America deserves the comfort, or knowledge, or confidence 

that they are getting the bang for the buck, whether they are on 

Medicare Advantage, or whether they are helping fund the program. 

So, with that in mind, at the end of Mr. Tiberi’s questioning— 

I want to go back to that, because I think that has been glossed 

over to some degree. Now, I acknowledge, Mr. Steinhoff, that you 

take issue with the assumptions that Mr. Hill made regarding this 

error rate. So I take that as a given. My most famous constituent, 

Mark Twain, once said that there are lies, there are damn lies, and 

then there are statistics. So allow me, then, to talk about statistics. 

Mr. Hill, let me flesh out a little further what Mr. Tiberi inquired of you. Because I think he asked, trying to put this in perspective again, there were audits of 49 organizations, which is 

about a 22 percent of those participating organizations, is that 

right, Mr. Hill? 

Mr. HILL. That is correct. 

Mr. HULSHOF. And as I also understand—again, I took this figure from Mr. Tiberi—in 2003, we spent—we taxpayers spent roughly $36,800,000,000 on Medicare Advantage. Is that number correct? 

Mr. HILL. That is roughly correct. 

Mr. HULSHOF. And we have learned, through this hearing, a net overpayment of about $35 million in overpayments? 

Mr. HILL. That is correct. 

Mr. HULSHOF. And that is a net, because, in addition to overpayments, there are also underpayments. Is that true? 

Mr. HILL. That is correct. 

Mr. HULSHOF. So, in other words, again, making sure that 

every taxpayer gets what they are entitled to—so, in other words, 

some on Medicare Advantage plans were getting benefits that they 

weren’t paying for. Is that a fair assessment? 

Mr. HILL. It would be implied, yes, sir. 

Mr. HULSHOF. So, you calculated that, given all of that, the 

amount of money going to Medicare Advantage—and if we were to 

extrapolate those participating organizations, the error rate is 

what, for Medicare Advantage? 

Mr. HILL. I think that is—I think, as Mr. Steinhoff indicated, we 

did not extrapolate that $35 million. I think if you did the math, 

the $35 million as a proportion of the total Medicare Advantage 

payments, it is a tiny fraction, a very tiny fraction. But it is not 

the extrapolated error rate for Medicare Advantage. 

Mr. HULSHOF. Mr. Tiberi—and again, I know him to be a 

knowledgeable, reputable man—a .4 percent error rate, which 

again, I—every dollar should be legitimately spent or collected. So 

that—in my mind, again, I accept Mr. Tiberi’s math—99.6 percent 


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correct, .4 percent incorrect, as opposed to you have calculated the 

fee-for-service error rate, and that is significantly higher. True? 

Mr. HILL. Correct. It is 4.4 percent. 

Mr. HULSHOF. So, I acknowledge this is useful, I think. You 

know, I know the righteous indignation by some, talking about 

profits and whatever, I mean, that is great political speech. 

But I think, as far as making sure that the taxpayer gets the 

bang for their buck—and I hope, Mr. Chairman—I am not privileged to serve on the oversight subcommittee, but I hope that there 

is equal righteous indignation or aggressiveness looking at other 

areas of the Tax Code. For instance, the 25 to 30 percent error and 

fraud rate on the income supplement program called the earned income tax credit. I think every dollar that we allocate should be a 

dollar well spent. And I appreciate you having this hearing. 

Mr. PASCRELL. Mr. Chairman, can I have a moment to speak 

out of turn for one minute? For 30 seconds? 

Chairman STARK. Sure. 

Mr. PASCRELL. Thank you. Chairman, I listened very carefully 

to my good friend, economics 101. This whole program is so efficient that is has been paid for by deficit financing. Thank you Mr. 

Chairman. 

Chairman STARK. Okay, I—— 

Mr. PASCRELL. They have not paid for this program. 

Chairman STARK. I was just—I suppose, as one of the two here 

who had asked for these hearings, I stipulate to my good friend 

that I happen to think that Medicare Advantage plans offer good 

medical care. Half of the residents—not half of the insured, but 

half of the people—who live in my district belong to one plan alone, 

Kaiser Permanente, and they are probably as good as any managed 

care plan in the country, and I happen to think that managed care 

is perhaps a better way for all of us to receive our medical care. 

But the issue before us, the basic issue, is that we are overpaying 

by—according to MedPAC. And CBO and OMB all agree that we 

are overpaying these plans by about $40 billion over 5 years. That 

is the issue. Now, out of that $40 billion in overpayment, we can 

argue about what kind of inefficiencies there are, and how we collect that money. 

But the basic problem is that, as compared to fee-for-service, 

which has no control over utilization, so you may actually find that 

we’re actually paying more in fee-for-service than to say we are 

paying anywhere from 12 to 40 percent more is the issue. 

Now, if we could somehow find out how to fairly pay the Medicare Advantage plans and recoup a good bit of that $40 billion, we 

would have a double win. We would have perhaps more efficient 

delivery of medical care, and we would save $40 billion for the taxpayers. And that, I think, would be an objective that we could all 

be proud to work toward on this committee. 

So, I—the gentleman is right, we may be picking at small nits 

here, but let us not forget there is a big chunk of change out there 

that we have to distribute. Ms. Tubbs Jones is next. 

Ms. JONES. Mr. Chairman, I thank you for holding the hearing. 

You know, today is Tuesday. And in two days, we are going to be 

voting to override the President’s veto. And it is just hard for me 

to believe that we are arguing over $35 million to cover health care 


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for children. And I keep trying to read this correctly to figure out 

how many dollars we are concerned about here, with CMS. 

I am interested, Mr. Hill. What did you do before you came to 

CMS? 

Mr. HILL. I worked at the Office of Management and Budget. 

Ms. JONES. And what did you do there? 

Mr. HILL. I worked on the Medicare—— 

Ms. JONES. I am asking for your curriculum vitae, so you aren’t 

concerned about the question. I am just wondering what your skill 

set is. 

Mr. HILL. I was a budget examiner, working on Medicare and 

Medicaid issues. 

Ms. JONES. And how long did you do that? 

Mr. HILL. I was there for about 4 years. 

Ms. JONES. Four? 

Mr. HILL. Yes. 

Ms. JONES. And what did you do before that? 

Mr. HILL. Before that, I was a legislative analyst at the thenHCFA. 

Ms. JONES. At what? 

Mr. HILL. HCFA. What was then—I was a legislative analyst at 

the Centers for Medicare & Medicaid Services before I was at 

OMB. 

Ms. JONES. In your responses, you said you have no idea what 

happened between 2001 and 2005 on the contract for Medicare Advantage, but you know what has happened since 2005, because you 

have been in charge. Is that a fair statement? 

Mr. HILL. I think that is a fair statement, yes. 

Ms. JONES. But when you looked at 2001 and 2005, did you say 

to anybody, ‘‘Let’s look at the contract, we’re having a problem 

here, we need to go back and reassess them’’? 

Mr. HILL. I can only tell you, ma’am, that there were some full 

and frank conversations between me and our Office of General 

Counsel about what we could or could not do with those overpayments from—— 

Ms. JONES. And the good lawyers that you have in the office of 

general counsel, didn’t they have some idea that—I am sure, if they 

were great lawyers, and I am confident that they were—there had 

to be some provision in these contracts for them to address some 

of the issues that you raise. 

Mr. HILL. Right. And the provisions in the contracts that allow 

us to address those issues are, to the extent there was misrepresentation by the plans. So, some of the plans on that $35 million 

disagreement—— 

Ms. JONES. Say that number again. 

Mr. HILL. $35 million. 

Ms. JONES. Okay, go ahead. 

Mr. HILL. Disagreement—were misrepresenting what they told 

us. And that is what led to that discrepancy. Then we have authority under the statute to either pursue a civil monetary penalty, or 

to pursue a referral to the Office of the Inspector General. 

Ms. JONES. So, now that you have received this GAO study that 

says something about why audit, or whatever—— 

Mr. HILL. Right. 


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Ms. JONES. What are you doing to make some changes? 

Mr. HILL. I can tell you that, for 2006, we are not going to ignore the one-third audit requirement, as laid out in the MMA. We 

have put in place what I characterize as a sort of three-prong strategy here. 

We make sure that, before we sign contracts with plans—as you 

know, they bid, we spend the summer looking at bids, and then we 

sign contracts in the fall. Before we sign those contracts, we look 

very clearly—in detail—at these bids, to be sure they accurately reflect the benefits and the assumptions that need to go into making 

a reasonable bid. To the extent that they don’t, we ask plans to 

make changes, yes, ma’am. 

Ms. JONES. So, consistent with your oath, as an employee of the 

U.S. government, and a representative of the people of America, 

you are saying that we made a commitment that we won’t be in 

a position, on the contracts that you negotiate that we are in 

today? 

Mr. HILL. That is correct. 

Ms. JONES. Mr. Steinhoff, how are you, sir? 

Mr. STEINHOFF. Real fine. 

Ms. JONES. How long have you been in your job? 

Mr. STEINHOFF. I have been with the Government Accountability Office since 1973, my current job probably for the last 8 or 

9 years. 

Ms. JONES. So, when you make or issue a report like you have 

issued with regard to Medicare Advantage to CMS, I mean, here 

we are, 2007. Your report speaks to—what years did this last report cover? 

Mr. STEINHOFF. We are talking about 2001 through 2006, as 

of the end of the May/June 2007 time frame. 

Ms. JONES. Let me ask you this. The report for 2001—okay, I 

am an official in the government, you are my auditor. 

Mr. STEINHOFF. Yes. 

Ms. JONES. Something happened bad in 2001. How soon do I 

know after that, that I made mistakes in my conduct? 

Mr. STEINHOFF. Actually, you would have expected that CMS 

itself would have had the rate of audit, and the selection of audit, 

and the results of audit every year. 

GAO—— 

Ms. JONES. Hold on a minute. I would have expected. They do 

not? 

Mr. STEINHOFF. You would have expected that they would 

have had that information. 

Ms. JONES. My question is, do they? 

Mr. STEINHOFF. They did not have that kind of information. 

Ms. JONES. 2001? 

Mr. STEINHOFF. They didn’t have—it. 

Ms. JONES. 2002? 

Mr. STEINHOFF. They didn’t have it. 

Ms. JONES. 2003? 

Mr. STEINHOFF. They didn’t have it. 

Ms. JONES. 2004? 

Mr. STEINHOFF. They didn’t have it. 

Ms. JONES. 2005? 


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Mr. STEINHOFF. They didn’t have it. 

Ms. JONES. 2006? Come on. 

Mr. STEINHOFF. 2006 was—— 

Ms. JONES. You are joking me, right? 

Mr. STEINHOFF. 2006 was not completed yet. But no, they 

didn’t have it. 

Ms. JONES. I am out of time. 

Chairman STARK. Mr. McDermott. 

Mr. MCDERMOTT. Thank you, Mr. Chairman. I want to commend you on having this hearing. And I think, particularly when 

you read the article in the October 7th New York Times by Robert 

Pear, you realize that there are some audit problems. 

But I think that one of the things that is troublesome to me is 

that there is a growing concern that the Medicare administration 

contracting, the macro form, in Section 911 of the Part D bill, is 

being implemented in a way that is setting up Medicare for failure. 

And I think that the chairman and members should be looking 

to the future of what it is going to do when you take 49 contractors 

across the country and reduce it to 15, and put those contracts out 

purely on the basis of cost. Because you are going to have everybody talking about cutting offices. 

Now, I had the—when you ride from Seattle on the airplane, you 

have a long time. And sometimes you have a seat mate who actually has something that is important to learn about. I sat next to 

a medical administrator for one of the national contracting organizations and talked to him about what is happening. 

And right now when a doctor has billing, and you have auditing 

and you are doing—and you have what are called LDCs, local determinations, where you help the doctor try and figure out how to 

put his information in correctly, you try and pick up everything in 

advance. What is being set in place is a way to destroy Medicare 

fee-for-service because there is going to be a great reduction in the 

LDCs. The doctors won’t get any help at the front end. 

So everything will be paid, and then the contracts go out to the 

folks who are sitting there doing the payment safeguard, and recovery audit contractors will be going out into doctors’ offices saying, 

ah-hah. We have got a fraud here. 

Now, if you don’t help people up front and then you hit them at 

the back end, it is going to set the place for a hearing in this room 

where people are going to come in and say, see all the fraud in the 

doctors. It will have been created by the way we set it up. 

I came to Congress in 1989 when we were going through the savings & loan crisis. We said to the savings & loan, you can lend the 

money anywhere you want. You can lend swimming pools or golf 

courses or whatever. And the second thing they did was they cut 

down the number of auditors so that many of those savings & loans 

never had anybody coming in and saying, hey, let’s look at your 

portfolio. Let’s see what you are actually doing here, and stop it up 

front. We waited until the whole thing collapsed, and then we had 

hearings in the banking committee on endless days. We sat and listened to one folly after another that could have been prevented if 

we had decent auditing. 

Now, I see us in this effort. We are going to put together North 

Dakota, South Dakota, Nebraska, Kansas, Arizona, New Mexico, 


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and Wyoming, I think are all in one. And it is going to have one 

office. One office for six or seven states. 

Now, how is a doctor going to get any information whatsoever 

under that kind of system? And it is supposed to be reform. It is 

going from 46—each state has their own now. So we are going to 

cram them all together. Alaska, Washington, Idaho, and Oregon 

will all be one office. Right? California and Nevada will be one office. Now, you tell me how any doctor practicing is going to have 

any chance whatsoever to get any help up front. 

And I think I would like to hear your ideas because those regulations are being written right now, and they are being put in place, 

and they are letting the contracts. I would like to hear you talk 

about what you think will happen in three or four or 5 years in 

this regard. 

Mr. HILL. Right. I mean, I have to tell you, if I had heard sort 

of this laid out as the way the medical director or whoever it was 

you were sitting next to on the plane had described it, I too would 

be concerned. But I think it is safe to say that it is not quite as 

advertised. 

So yes. For example, for the five states that you mentioned, there 

will be one contract and one entity that will be responsible for processing those claims. But it is also the case that contractor has to 

have an office and a medical director in every state. And that contract has to make its local coverage decisions based on what is 

going on in any individual state or geographic area to account for 

the variations that we see from region-to-region in the way that 

medicine is practiced differently. 

And so the intent here isn’t to sort of nationalize the way we 

process claims and nationalize where physicians or home health 

agencies or DME suppliers have to go to get the information. It is 

more for us to get economies of scale on the back end for the people 

who stuff the envelopes and the people who process the claims or 

answer the phones for more routine issues. 

We would be shooting ourselves in the foot and being penny wise 

and pound foolish to not maintain that education and communication up front because, quite frankly, as we talked about the Medicare error rate earlier, the way we got that rate down was by communicating very aggressively with the providers who provide services. 

Mr. MCDERMOTT. It is your testimony today that there will not 

be a reduction in the educational effort for physicians in this country who are in fee-for-service medicine taking care of Medicare patients? 

Mr. HILL. Absolutely. That is my testimony. 

Mr. MCDERMOTT. That is your testimony? 

Mr. HILL. Yes, sir. 

Mr. MCDERMOTT. Well, we will mark it down and we will see 

because I intend to be here a couple years from now when this 

whole thing begins to play out. Because my belief is if you are 

rushing through payment, you are going to ultimately wind up 

catching people in the net down there that are not necessarily 

fraudulent physicians. 

Mr. HILL. Right. 


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Mr. MCDERMOTT. I think that is what makes doctors the most 

angry, is when they can’t figure out the system, and then somebody 

comes in and treats them like they are a fraudulent doc. That isn’t 

fair. And I think we ought to look at it up front. You say it is not 

going to happen. I hope you are—maybe you won’t even be in the 

office. That will be the problem. I won’t be able to find you. But 

we will bring up your quote. 

Mr. HILL. If I can get out of this hearing, I think I may—— 

Mr. MCDERMOTT. Thank you, Mr. Chairman. 

Chairman STARK. Well, you will be happy to learn we are winding up. I just wanted to ask Mr. Steinhoff, finally, regarding the 

$29 million that wasn’t returned to Medicare, was any of that— 

maybe you can summarize whether that came and whether any of 

that is owed to us from United and Humana, and maybe in the 

next panel I can help you collect some of that, Mr. Hill. 

Mr. STEINHOFF. With respect to the $29 million that the IG 

found on the six audits of the supplemental payments, 10.5 million 

of that related to Humana. They audited 14.4 million of costs reimbursed to Humana, and questioned 10.5 of that. 

Chairman STARK. And with United? 

Mr. STEINHOFF. I don’t believe they were one of the six, but 

I would have to check on that for you. But I do not believe they 

were one of the six. 

Chairman STARK. Well, Mr. Camp, do you have any further inquiry? If not, I want to—Mr. Chairman? 

Chairman LEWIS. No, sir. 

Mr. CAMP. I just have one quick question. 

Chairman STARK. Please. 

Mr. CAMP. We heard some comments about salaries. But does 

CMS have the authority to review the salaries of hospital administrators, for example, with the result to Medicare payments? 

Mr. HILL. No, sir. 

Mr. CAMP. All right. And many of them have fairly significant 

salaries as well. So it is not just managers of Medicare Advantage 

plans. 

Thank you, Mr. Chairman. 

Chairman STARK. Thank you. And I want to thank the panel, 

all of the staff from GAO, and Mr. Hill’s staff, who have been sitting there trembling all morning for fear he would make a mistake. 

And see, he didn’t, so your worries were in vain. Thank you all for 

being here. And we will proceed with our next panel. 

And I will introduce them as they make their way to the witness 

table: Mr. Paul Precht, the Policy Coordinator of the Medicare 

Rights Center; Mr. Harry Hotchkiss, who is the Senior Products 

Actuarial Director of Humana of Louisville, Kentucky; Ms. Cindy 

Polich, the Senior Vice President of Secure Horizons, UnitedHealth 

Group of Minneapolis, Minnesota; Dr. Bart Asner, the Chief Executive Officer of Monarch Healthcare of Irvine, California. 

I want to welcome the panel. My guess is in the next 15 minutes 

or so, they will call a series of votes. Perhaps we can get through 

the summation of your testimony, and then we will recess. We are 

not sure yet how many votes there will be, but I suspect it will be 

about at least a half an hour. 


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And so I will ask Mr. Precht to summarize, as with the previous 

witnesses. Your prepared testimony will appear in the record in its 

entirety. If you would like to summarize it any way you are comfortable. And we will start with Mr. Precht. 

STATEMENT OF PAUL PRECHT, POLICY COORDINATOR, 

MEDICARE RIGHTS CENTER 

Mr. PRECHT. Chairman Stark, Ranking Member Camp, members of the health and oversight subcommittees, thank you for this 

opportunity to testify. I am Paul Precht, Deputy Policy Director for 

the Medicare Rights Center. 

For the past 2 years, the staff and volunteer counselors at the 

Medicare Rights Center have been preoccupied with two types of 

cases: helping victims of deceptive, fraudulent, and abusive marketing by private Medicare plans; and helping people enrolled in 

those plans obtain coverage for their medical care and prescription 

drugs. 

The subject of today’s hearings, the oversight of private Medicare 

Advantage plans by the Centers for Medicare and Medicaid Services, goes to the heart of this work. In short, the laxer CMS’s oversight of these MA plans is, the more problems we see. The looser 

the rules CMS sets for MA and drug plans, the harder it is for our 

clients to get the medical care they need. 

Earlier today, GAO reported how CMS had failed to conduct the 

audits of MA plans mandated by law, and when it did audit plans, 

failed to recoup subsidies that the audits showed should have funded additional benefits for plan members. In my testimony, I would 

like to touch on three different aspects of CMS’s oversight of MA 

plans: CMS’s review of plan benefit packages, CMS’s review of the 

plan appeals and grievance procedures, and CMS oversight and enforcement of marketing guidelines. 

MA plans and private fee-for-service plans in particular are being 

marketed as low cost alternatives to supplemental insurance, yet 

they often fail to provide the protection against catastrophic medical expenses that people receive under any of the standard supplemental Medigap plans. Individuals who enroll in Medicare Advantage plans cannot purchase supplemental coverage to cover the 

gaps in the benefits like they can under original Medicare. 

Health insurance that works when you are healthy but cuts out 

when you are sick is not what Medicare has offered for over 40 

years. In my written testimony, I describe how a client of ours from 

Long Island was hit with $3,000 in copays from her Medicare Advantage plan for the treatment of ovarian cancer after she had 

been told before enrolling that all of the costs associated with her 

chemotherapy would be covered. 

Unfortunately, our review of the benefit packages offered by MA 

plans shows that coverage of chemotherapy is one of a number of 

areas where plan coverage is often inadequate. Plans charge more 

for chemotherapy and other Part B drugs than the 20 percent coinsurance charged under original Medicare. 

More commonly, plans carve out chemotherapy and the other 

Part B drugs from the annual caps they place on enrollees’ out-ofpocket spending, if they have a cap at all. Some plans do both, 

charge more for chemotherapy and carve this service out of their 


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out-of-pocket cap. In our view, these practices are unacceptable. 

They discriminate against people with cancer and other illnesses 

that require treatment with high cost drugs administered by their 

doctor. 

CMS has the authority to prohibit such plan designs as discriminatory. Such plans continue to be approved by CMS, however, because the agency takes an overly restrictive view of its legal authority to prohibit discriminatory benefit packages. In 2004, 

MedPAC recommended that CMS exercise its full authority to reject plans that have benefit designs and cost-sharing structures 

that discriminate on the basis of health status. Still, CMS has not 

acted. 

The Medicare Rights Center has a small team of lawyers and 

counselors who help people appeal when their private Medicare 

plan denies coverage for a drug or medical procedure they need. 

Often people come to us after they were stonewalled by their plan. 

We know now, from a review of CMS audits of plan appeals and 

grievance procedures, that a failure to abide by the timelines, notice requirements, and procedures for appeals seems to be the rule, 

not the exception, among MA and drug plans. A full 94 percent of 

the plans audited failed to meet CMS requirements on handling 

appeals and grievances, requirements that are fundamental to ensuring that plan members know their appeal rights and can pursue 

them effectively. 

For the benefits offered by MA plans to become real for people 

with Medicare, plan enrollees must actually be allowed to fill the 

prescriptions and obtain the medical services that they need. I 

began this testimony by recounting how one of our clients was 

charged high copayments for chemotherapy. The other aspect of the 

story, the false promise she received from plan representatives that 

her chemo would be covered, illustrates the deception that is too 

often used in the marketing of MA plans. 

There are many much more egregious examples. Agents go door 

to door, pretending they are from Medicare. Agents threaten people 

under that pretense that they will lose their Medicare or Medicaid 

coverage if they do not sign up. Agents fraudulently obtain signatures for plan enrollment by having people sign up to receive more 

information, or for a raffle. 

A CMS official recently told a conference of health plans that the 

reports of deceptive and fraudulent marketing were not abating, 

but were growing in intensity and volume. We know from the corrective action plans released by CMS that such marketing misconduct is widespread in large part because the Medicare advantage plans do not have the systems in place to prevent it. For example, audits consistently find that agents are inadequately 

trained and supervised and are not properly licensed. 

Faced with the absence of these basic safeguards, CMS’s response is to insist, at some future date listed in the corrective action plan, that the company actually do what is already required 

of it. The pattern is clear, whether it concerns marketing violations, denial of appeal rights, or the inflated bids discovered upon 

audit: The response by CMS is not to punish the plans for misbehavior, not to recover for taxpayers the money we have paid for 

services not delivered, but to wag their finger at the plans. 


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When oversight is lax and enforcement is absent, enrollees in 

Medicare Advantage plans are shortchanged on their benefits and 

their access to care is compromised. We applaud this committee for 

holding this hearing and urge you to do what you can to ensure 

that CMS makes all Medicare private plans play by the rules. 

Thank you again for this opportunity. 

[The prepared statement of Mr. Precht follows:] 


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Chairman STARK. Thank you. 

Mr. Hotchkiss. 

STATEMENT OF HARRY HOTCHKISS, SENIOR PRODUCTS ACTUARIAL DIRECTOR, HUMANA INC., LOUISVILLE, KENTUCKY 

Mr. HOTCHKISS. Chairman Stark, Chairman Lewis, Representative Camp, and distinguished Members of the Subcommittees, 

thank you for inviting me to testify about Humana’s Medicare Advantage or MA bid process. As an actuarial director for senior products for Humana, my responsibility is limited to working on the 


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team that develops and submits bids and responds to CMS MA bid 

audits. 

Humana has served Medicare beneficiaries for many years. We 

currently offer prescription drug and MA plans in all states. Today 

I will discuss Humana’s compliance with the regulatory requirements for bid submission following the enactment of the Medicare 

Modernization Act. My written testimony also describes how this 

worked prior to MMA. 

The MMA changed the way plans develop and submit bids and 

how they determine the value of the premium and benefit structure 

for their MA plans. Humana has detailed structures and controls 

in place to meet bidding, process, and audit requirements. 

The MMA changed the timing and submission rules for premium 

and benefit filings. CMS’s 45-day notice of rates comes out in midFebruary, and the final rate book containing the benchmarks 

comes out the first Monday in April. CMS issues bid instructions 

soon after, and bids are due the first Monday in June. 

As you can see from this chart off to my right, we begin our bid 

and pricing modeling in January. The bids represent Humana’s expected average cost for the Medicare-covered benefits for each plan. 

The expected average costs for Medicare-covered benefits are then 

compared to the CMS MA benchmark. If the plan’s bid is below the 

benchmark, the plan must use 75 percent of the savings to increase 

members’ benefits, decrease members’ premiums, or cost-sharing. 

The remaining 25 percent of savings is returned to the federal 

treasury. 

Bids are completed by the first week of May and are peer-reviewed by a team of internal qualified actuaries. Revisions are 

made, and bids are then processed through an internal audit program that checks for outliers based on preestablished parameters. 

CMS uses a similar process. Each outlier is reviewed, and adjustments are made where necessary. We then develop the actual documentation required by CMS, including 2-year look-back claim cost 

forms. We upload this information to CMS’s system by the filing 

deadline. We then correct any discrepancies identified by CMS in 

their validation tests. By mid-June, we submit actuarial bid certifications. 

For the next 45 days, CMS’s audit firms conduct a thorough review of all bids and benefit packages. When issues arise, we generally respond within 48 hours. The auditors sign off on our bids. 

In mid-August, CMS releases the final PDP and RPPO benchmarks. We reconcile these final benchmarks with our earlier expected benchmarks and resubmit affected bids. In early September, 

CMS approves our bids. 

CMS’s auditors then evaluate the reasonableness and consistency 

of our assumptions with applicable actuarial standards of practice 

and CMS’s instructions for completing the bid forms. Auditors conduct a desk audit, followed by a one-week onsite visit. We then respond to an initial draft of their findings and/or observations. Auditors then issue a final agree/disagree letter, to which we provide a 

final response. 

For contract year 2006, CMS audited two contracts, resulting in 

no material findings. For contract year 2007, CMS audited two contracts, yielding one finding and two observations. We inadvertently 


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used a rate development factor for provider expenses that didn’t reflect all provider reimbursement structures for the plans. This resulted in beneficiaries in the two affected plans receiving a slightly 

better benefit. For 2008, we improved our methodologies based on 

this finding. 

As you evaluate improving this process, we respectfully suggest 

that final audit reports be issued in March of the contract year in 

order to impact the following year’s bids. Humana has mechanisms 

and controls in place to internally and externally audit our processes to comply with statutory, regulatory, and contractual MA program requirements. 

My written testimony also describes actions related to other 

areas of the MA program, including corrective action plans and site 

audits. I am part of the bid and audit team, and our processes are 

vigorous in all areas. 

We take seriously the trust that the government has placed in 

us to offer coverage to Medicare beneficiaries and understand the 

vulnerability of this population. We seek to cure any issues brought 

to our attention, whether by external or internal sources. Thank 

you. 

[The prepared statement of Mr. Hotchkiss follows:] 


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Chairman STARK. Thank you. 

Ms. Polich. 

STATEMENT OF CINDY POLICH, SENIOR VICE PRESIDENT, SECURE HORIZONS, UNITEDHEALTH GROUP, MINNEAPOLIS, 

MINNESOTA 

Ms. POLICH. Thank you, Mr. Chairman, and thank you to the 

committees for giving me an opportunity to testify today. I am 

Cindy Polich, Senior Vice President of Secure Horizons, which is a 

part of UnitedHealth Group, and I help lead the company’s efforts 

in the areas of geriatric health and long-term care. 


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I have spent the last three decades working in the field of managed care and aging, am co-author of a book called ‘‘Managing 

Health Care for the Elderly,’’ which has been used as a college textbook, and I have done extensive research and teaching in gerontology and health care. 

At UnitedHealth Group, we take our role as partner with the 

Federal Government very seriously. We are committed to working 

with Congress and regulators to make sure that CMS has the information it needs to provide timely, impartial, and effective oversight. 

Our participation in the Medicare program is fundamental to 

UnitedHealth Group’s mission: to support the health and wellbeing of individuals, families, and communities. We are proud to 

serve the 1.3 million members who have chosen our Medicare Advantage plans. These plans provide integrated benefits, enhanced 

coverage, lower out-of-pocket costs, and coordinated care. 

Medicare Advantage plans are a health care success story for 

millions of Americans. Fully 90 percent of Medicare Advantage 

beneficiaries say they are satisfied with their coverage. We also 

know that over the past 4 years, the pace of change in the Medicare program has created a steep learning curve for insurers, for 

regulators, and for beneficiaries alike. However, we believe that the 

new bidding and oversight provisions that recently took effect 

should greatly improve the ability of CMS to audit and monitor 

plans effectively. 

The recent GAO report focused largely on CMS auditing of the 

old adjusted community rate process, a process that no longer exists. The new bid process that went into effect in 2006 is a significant improvement. While the old process was based on the costs 

and assumptions for a plan’s commercial business, the new bid 

process is focused specifically on Medicare. It is more in line with 

the way the business is actually managed, which means that CMS 

will now have more relevant processes and data to audit. Also new 

in 2006 was a requirement for actuarial certification of bids before 

they are submitted to CMS. This provides a higher level of rigor 

in bid development. 

CMS also has an important role in operational oversight. We 

take a diligent and aggressive approach to implementing any action plan that is requested by and developed with the agency. 

Often we find that issues raised by CMS already have been identified through our own internal audit process, and work to implement improvements is already well under way. 

UnitedHealth Group is also a strong supporter of rigorous oversight of the sales and distribution of Medicare Advantage products, 

particularly private fee-for-service plans. That is why we backed 

CMS and the industry this summer in accelerating adoption of 

marketing guidelines that had been planned for 2008. 

Medicare Advantage was created in part to give Medicare beneficiaries additional health coverage choices because all of us understand that a one-size-fits-all approach cannot possibly meet the 

needs, the individual needs, of every Medicare beneficiary. 

Medicare Advantage plans provide benefits that do go beyond 

original Medicare and Medicare supplement. These benefits can include integrated prescription drug coverage at no additional cost, 


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1Kaiser Family Foundation, June 2007 fact sheet, http://www.kff.org/medicare/upload/2052- 

10.pdf. 

preventive and wellness services, vision and hearing benefits, and 

caregiver support. 

Moreover, Medicare Advantage plans can cover all of a person’s 

health care needs in one integrated benefit package. This means 

more than just convenience. It means better health. Medicare Advantage plans encourage members to access primary and preventive care, which reduces acute episodes and hospitalization, providing better outcomes at lower costs. 

An integrated benefit plan reduces fragmentation that can occur 

when a patient has multiple chronic conditions and multiple health 

care providers. This integration allows for better coordination and 

attention to individual needs across the continuum of care. 

Medicare Advantage plan sponsors have pioneered care and disease management programs to support managers with serious 

chronic conditions and who are nearing end of life. Besides providing great value to the individuals who need them, these programs are also critical to the long-term financial health of Medicare, since 20 percent of beneficiaries with five or more chronic conditions consume more than two-thirds of Medicare spending. 

At UnitedHealth Group, we believe that smart and effective government regulation is good for beneficiaries, and we firmly believe 

that what is good for beneficiaries will be good for our company as 

well. We are committed to continuing to work in cooperation and 

in a collaborative manner with CMS and all Members of Congress 

to further this goal. 

Thank you. 

[The prepared statement of Ms. Polich follows:] 

Statement of Cindy Polich, Senior Vice President, 

Secure Horizons, UnitedHealth Group, Minneapolis, Minnesota 

Good morning, Chairman Stark, Chairman Lewis, Representative Camp, Representative Ramstad, and other distinguished members of the Subcommittees on 

Health and Oversight. I am Cindy Polich, Senior Vice President, Secure Horizons, 

which is a UnitedHealth Group business unit dedicated to serving the needs of 

Medicare beneficiaries. 

I have spent the past three decades working in the fields of gerontology and managed care. I am co-author of a book called Managing Healthcare for the Elderly, 

which has been used as a college textbook, and have done extensive research and 

teaching in gerontology and aging. At UnitedHealth Group, I have helped lead the 

company’s efforts in the areas of geriatric health and long-term care, including work 

with PacifiCare, UnitedHealthcare, and in the 1990s with the Evercare nursing 

home demonstration project, which became one of the models for Special Needs 

Plans in the Medicare Modernization Act of 2003 (MMA). 

My personal focus and commitment on improving health care for elderly Americans is one of the reasons that I came to work at UnitedHealth Group. 

UnitedHealth Group has long been committed to meeting the health care needs of 

older Americans. In fact, we serve one out of every five Medicare beneficiaries 

through Part D, Medicare Advantage, Special Needs and Medicare Supplement 

Plans. We offer such a comprehensive range of Medicare products and services because we believe fundamentally in enabling beneficiaries to make choices based on 

their individual healthcare needs and preferences. We are proud to serve 1.3 million 

Medicare Advantage members in over 1,500 counties nationwide. 

For more than 20 years, private Medicare plans have been a health coverage option for beneficiaries. Today, more than eight million Americans have chosen this 

option through a variety of Medicare Advantage plans offered nationally.1 When 


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2 ‘‘Chronic Conditions: Making the Case for Ongoing Care,’’ Partnership for Solutions, 2004. 

asked why they chose Medicare Advantage, members tell us they value the integrated benefits, enhanced coverage, lower out-of-pocket costs and coordinated care. 

The overwhelming majority of beneficiaries are satisfied with their Medicare Advantage plan. According to a survey conducted earlier this year for America’s Health 

Insurance Plans, 90 percent of Medicare Advantage beneficiaries expressed satisfaction with their coverage, an increase over the 84 percent who were satisfied in a 

similar 2003 survey. For millions of Americans, Medicare Advantage plans are a 

health care success story. 

Our participation in the Medicare program is fundamental to UnitedHealth 

Group’s core mission: to support the health and well-being of individuals, families, 

and communities. And we know that our role in caring for seniors and the disabled 

brings with it heightened responsibility. With that in mind, I appreciate the opportunity to testify today and offer perspective about Medicare Advantage and the important role it plays in our health care system. 

Let me state at the outset that as one of the nation’s largest providers of Medicare 

Advantage plans, UnitedHealth Group and its Secure Horizons business unit support the need for the Centers for Medicare & Medicaid Services (CMS) to gather, 

through audits and other means, the information it needs to provide timely, impartial and effective oversight of these programs. 

We take our role as a partner with the federal government very seriously, and 

want to continue to work with the Congress, CMS and other key stakeholders to 

address issues in a constructive way. We take very seriously the important role of 

Congress, and these Subcommittees, as stewards of the Medicare program. 

The Real Advantages of Medicare Advantage 

Medicare Advantage (as well as its predecessors, including Medicare + Choice) 

was created, in part, to give Medicare beneficiaries additional health coverage 

choices. Because health care requirements and preferences vary greatly and are 

very personal, a ‘‘one-size-fits-all’’ approach cannot possibly meet the individual 

needs of every Medicare beneficiary. 

Medicare Advantage members expect their plans to provide them with more value 

than they could receive from Original Medicare and at a lower cost than they would 

pay for a Medicare Supplement plan. Medicare Advantage plans accomplish this by 

providing: • Integrated Benefits and Care Coordination: Medicare Advantage plans are 

often the most cost-effective and convenient way for Medicare beneficiaries to cover 

all their healthcare needs in one integrated benefit package—rather than, for example, enrolling separately in a Part D plan, purchasing a Medicare Supplement policy, calling multiple phone numbers for service, and managing the entire process 

themselves. 

But convenience and seamless customer experience is only a small part of the 

value of an integrated benefit plan. A comprehensive and integrated benefit plan reduces the fragmentation that can occur when a patient is treated by a number of 

physicians and other health care providers, and allows us to manage across the continuum of care. This care coordination is critically important for Medicare beneficiaries, especially those with multiple chronic conditions. 

Medicare Advantage plans offer a range of programs and services to help beneficiaries navigate the fragmented health care system, and ensure they receive the 

care most appropriate to their health condition. Medicare Advantage plan sponsors 

have pioneered programs that focus on pro-active clinical support for members with 

serious chronic diseases, such as diabetes, congestive heart failure or chronic obstructive pulmonary disease. Offerings vary by plan, but can include care management, disease management and enhanced preventive and screening programs. These 

programs are particularly valuable to members with multiple chronic conditions and 

those nearing the end of life. These programs are critical to the future financial 

health of the Medicare program, since the 20 percent of Medicare beneficiaries with 

five or more chronic conditions consume more than two-thirds of Medicare spending.2

The Medicare Advantage program also includes Special Needs Plans, which provide coordinated care and benefits that are uniquely appropriate and tailored to people with complex health care needs and chronic illnesses. 

• For example, when one of our Rhode Island members was hospitalized for serious health problems including hypoglycemia, coupled with Type 2 Diabetes, her physician recommended that she move to a nursing home or assisted living facility after 

discharge, since she could not take care of herself. But instead she enrolled in one 


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of our Special Needs Medicare Advantage plans. A Care Manager came to her house, 

did an assessment and worked with her physician, social workers and home- and 

community-based service providers to develop a care plan that would allow her to 

live at home. Today, our member—who just over a year ago could not leave the 

apartment without assistance—lives in an independent living apartment complex for 

the elderly. She is thirty pounds lighter and goes out for walks every day. • Enhanced Coverage and Reduced Out-of-Pocket Costs: Medicare Advantage members tell us that what they value most from their plan are the extra benefits, lower costs and catastrophic protection provided by Medicare Advantage. Medicare Advantage plans provide benefits that go beyond Original Medicare and Medicare Supplement, including in many cases: integrated prescription drug coverage at 

no additional cost, which in some cases includes coverage in the gap; preventive/ 

wellness services; vision and hearing benefits; and caregiver support, to name a few. 

Obtaining comparable coverage from Medicare Supplement and Part D plans could 

cost hundreds of dollars more per month. 

Moreover, Medicare Advantage plans have designed benefit structures that not 

only appeal to beneficiaries, but encourage them to access primary and preventive 

care. This is very important when managing chronic illness, as it reduces the probability of an acute episode, lowers the incidence of hospitalizations, and improves 

the overall cost and quality outcome for beneficiaries. • Medicare Advantage makes a real difference in the lives of real people. For example, when a 78-year-old Secure Horizons member from Fort Worth suffered a heart 

attack and kidney failure, he had a quadruple bypass and months of rehabilitative 

therapy. The total bill was $1.3 million—but with his Secure Horizons Medicare Advantage plan, he paid only $2,300 in out-of-pocket costs for the year. 

Regulatory Oversight 

Over the past four years, the rapid pace of change in the Medicare program has 

created a steep learning curve for insurers, regulators and consumers alike. After 

all, the Medicare Advantage program in its current form was approved in 2003— 

just four years ago—and implemented less than 22 months ago. 

New bidding and oversight provisions implemented with contract year 2006 

should greatly improve the ability of CMS to audit plans effectively going forward. 

Two improvements that should have a materially positive impact include replacing 

the Adjusted Community Rate (ACR) proposal process with a new bid process, and 

requiring actuarial certification. 

In prior years, the rules governing the ACR proposal process required Medicare 

Advantage organizations to estimate the cost of providing benefits based on trend 

data related to how much they would charge commercial customers to provide the 

same benefit package. The projected Medicare costs were then adjusted to reflect expanded variations in trend or other factors. The recent GAO report focused primarily on CMS auditing of this old ACR process—which no longer exists. 

The new bid process is a significant improvement, because it recognizes that the 

Medicare business and the commercial business are not the same. The new bid process focuses on actual costs, trends, and projections for providing coverage for the expected mix of Medicare beneficiaries served by the plan. The shift away from the 

commercial standard means that the rate-setting process now more accurately reflects the requirements for serving Medicare beneficiaries and is more in line with 

the way the business is actually managed. This means CMS will be evaluating more 

relevant data and information. 

Also new in 2006 was the requirement that Medicare Advantage bids be actuarially certified before submission to CMS. This provides a higher level of rigor to bid 

development and ensures that the bids meet standards of actuarial practice. 

Finally, additional oversight provisions were implemented in 2006. Bids receive 

multiple levels of review: from outside auditors hired by CMS and the CMS Office 

of the Actuary before bids are approved, through post-contract-year audits; and from 

the CMS two-year ‘‘look-back’’ process. 

We support CMS in its continuing efforts to improve the Medicare program and 

its process of regulatory oversight. We are committed to doing our part to improve 

all areas of our Medicare Advantage programs. The GAO has made a number of recommendations for improving the contracting and auditing process of Medicare Advantage programs. CMS has concurred with the GAO’s recommendations and 

UnitedHealth Group strongly supports this position. 

As a further area of consideration, we recommend that as the financial audit process evolves that it focus on a company’s methodology for developing Medicare Advantage bids across the range of plans the company offers. Ultimately, this might 

allow for a refinement of the current standard—which emphasizes the number of 


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audits conducted—freeing up resources to focus more on the underlying approaches 

a company uses to create its bids and the consistency with which these approaches 

are applied. 

In addition to its financial oversight, CMS has an important role in the operational oversight of the Medicare Advantage program. 

With respect to our action plans, we take a diligent and aggressive approach to 

implementation, including conducting our own internal reviews and checks to ensure that issues are resolved quickly and thoroughly. And, often, in areas that CMS 

highlights for further improvement, we have already engaged in activity, reflecting 

the work of our internal quality audits. 

Beneficiaries indicate they are highly satisfied with our offerings, and we are committed to continuous improvement. 

Conclusion 

For millions of elderly Americans, Medicare Advantage plans provide not only 

needed flexibility, but also a wide range of benefits for meeting their unique health 

care needs. Smart and effective regulation is good for consumers, and we firmly believe that what’s good for consumers will be good for our company as well. We are 

committed to continue working in a cooperative and collaborative manner with CMS 

and all members of Congress to further this goal. 

Thank you, Mr. Chairman and other distinguished members of the Subcommittees 

on Health and Oversight, for the opportunity to speak today on behalf of 

UnitedHealth Group. 

f 

Chairman STARK. Thank you. 

Dr. Asner. 

STATEMENT OF BART ASNER, M.D., CHIEF EXECUTIVE 

OFFICER, MONARCH HEALTHCARE, IRVINE, CALIFORNIA 

Dr. ASNER. Thank you, Mr. Stark. My name is Dr. Bart Asner, 

and I am privileged to testify before this committee today. I am 

here representing CAPG, the California Association of Physician 

Groups, a trade association comprised of 150 medical groups in 

California who provide coordinated health care services to 12 million Californians, including 1.4 million Medicare Advantage beneficiaries. 

I am also the chief executive officer of Monarch Healthcare, a 

medical group in Orange County, California, which provides care 

for 175,000 patients, of whom 27,000 are Medicare Advantage 

beneficiaries. Monarch Healthcare physicians have real-life experience in taking care of these patients, many of whom are fragile, 

vulnerable seniors. 

Let me first state that oversight of health plans is correct and 

appropriate. I am not here to defend or criticize CMS in its audit 

function, but rather to defend the Medicare Advantage program by 

providing a contrast between the episodic, disorganized care in traditional Medicare and the comprehensive, coordinated care in 

Medicare Advantage. 

Critics of the Medicare Advantage program have used this GAO 

report as proof that Medicare Advantage plans are not using the 

money they receive to provide additional benefits to seniors. I am 

here today to say that this couldn’t be further from the truth. 

Seniors in California choose to join Medicare Advantage, such 

that in many areas, as Mr. Stark has alluded, 40 to 50 percent of 

seniors have enrolled in these programs and satisfaction is high. 

Enormous challenges lie ahead as the baby boomers age and enter 

the Medicare system, coupled with the rising rate of chronic illness 


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such as diabetes and heart disease. Medicare Advantage can and 

will address this challenge in California by having built the infrastructure to care for these patients. 

Medicare Advantage provides seniors with greater value, in both 

economic and human terms, when compared to Medicare fee-forservice. The true value of Medicare Advantage is evident and realized in enhanced benefits, additional services, better quality care, 

and at a lower total cost to our senior citizens. 

Medicare Advantage plans provide additional benefits to our patients, including vision, dental, podiatry, chiropractic, and, very importantly, coverage of the doughnut hole in the drug benefit. Everyone deserves these benefits. For the many low income beneficiaries 

in our programs, these services are vital to their health and wellbeing. 

Much has been made of the difference in the cost to the government of Medicare Advantage versus traditional Medicare. In fairness, one should consider the cost to the beneficiary as well. When 

the costs to the beneficiary of coinsurance, Medigap coverage, and 

non-covered drugs are taken into account, the true cost of Medicare 

Advantage is less than traditional Medicare. In addition, this lower 

cost to the beneficiary promotes better access to health care services. 

The value proposition for Medicare Advantage is lower total program costs coupled with superior quality, as I will explain. Medicare Advantage beneficiaries receive comprehensive care under our 

model in California. Many seniors are frail elderly with chronic illnesses who are confused by the complexity of the health care system. Under Medicare Advantage, California physician groups provide care coordination programs to guide these patients through 

the health care system and ensure that they receive the right care 

at the right time in the right setting. 

We employ experienced nurse care managers to work with these 

seniors in both the inpatient and outpatient setting to be certain 

that they do not fall through the cracks that inevitably arise as patients move from doctor to doctor and from inpatient to outpatient 

settings. We employ hospitalist physicians who provide high quality, consistent care to patients in the hospital and skilled nursing 

facilities, as well as staff in clinics for the high-risk patients 

transitioning to the outpatient setting. 

Monarch nurses provide case management services for our patients at high risk of complications to see that they receive the care 

that they need, such as specialist visits, medications, and durable 

medical equipment. We work with their primary physicians to offer 

disease management programs and other preventative services to 

keep people healthy. 

Monarch has invested in and deploys technology unavailable to 

the individual physician in private practice to remind them of recommended preventative care, such as vaccinations, and of chronic 

illness patients who have not come to see them in their office. 

Medical groups in California have made multi-million-dollar investments in disease registries, electronic health records, and technology to improve the care of our patients. Thanks to the aforementioned programs, additional resources, and investments in techVerDate Mar 15 2010 04:01 Jun 10, 2011 Jkt 062696 PO 00000 Frm 00137 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\62696.XXX GPO1 PsN: 62696

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nology, the quality of care received by these patients is superior in 

Medicare Advantage. 

It is difficult to be a physician today and to think beyond the immediate needs of the patient who is being seen in the examining 

room. Under Medicare Advantage, we manage the care of populations of patients, not merely the one-time episodic interactions of 

a patient and physician. 

California physician groups participate in programs that measure quality and performance, and align the incentives of physicians 

with the goals of these programs. No comparable programs exist in 

traditional Medicare. 

CMS has recently stated that it will no longer pay for volume, 

but must pay for value. Medicare Advantage programs in California provide that value. Let us together optimize health care 

quality at a cost our nation can afford for these deserving seniors 

through the Medicare Advantage program. CAPG and its members 

urge Congress to consider both the true economic performance of 

Medicare Advantage as well as the superior care this program provides to enhance the health and well-being of our nation’s seniors. 

Thank you. 

[The prepared statement of Dr. Asner follows:] 

Statement of Bart Asner, MD, Chief Executive Officer, 

Monarch Healthcare, Irvine, California 

Good morning. My name is Dr. Bart Asner, and I am the Chief Executive Officer 

of Monarch HealthCare, a medical group of 1,900 physicians serving 175,000 patients in Orange County, California. I am here as a board member and past Chairman of the California Association of Physician Groups (CAPG). On behalf of CAPG, 

its 150 member groups, the 59,000 physicians who practice in those groups, and the 

12 million patients, including 1.4 million Medicare Advantage beneficiaries, they 

serve, I would like to thank Chairman Stark, Ranking Member Camp, Chairman 

Lewis and Ranking Member Ramstad for inviting us to participate in this important 

hearing on Statutorily Required Audits of Medicare Advantage Plan Bids. 

The medical groups and physicians of CAPG are working on many of the same 

issues that you are grappling with here on Capitol Hill—how best to provide high 

quality health care, improve efficiency of the care model, ensure that the system can 

adjust to complex problems with innovative solutions, reduce health care costs, and 

improve the quality of life for our patients. 

In that respect, we support requiring the Centers for Medicare and Medicaid 

Services (CMS) to comply with audit and financial oversight obligations for Medicare Part C organizations required by the Balanced Budget Act of 1997 and the 

Medicare Prescription Drug, Improvement, and Modernization Act of 2003 and for 

this audit process to be monitored by the Government Accountability Office (GAO). 

This practice ensures that Medicare Advantage (MA) plans are accountable to the 

government, to the taxpayer and to the beneficiaries they serve. To that end, we 

urge Congress to provide CMS with sufficient funds to carry out its oversight responsibilities. By protecting the integrity of the MA program, we are ensuring that 

this important program can continue to serve the millions of beneficiaries who rely 

on it now and in the future. 

For more than 25 years, California physicians have been able to care for their senior patients through both a Medicare managed care model and through the traditional Medicare fee-for-service system. Our history and experience with both programs has given us a unique perspective of their various strengths and weakness. 

Earlier this year, CAPG released a report, ‘‘From the Point of Care,’’ sharing the 

perspective of CAPG members—those physicians on the front lines in America’s 

health care system—and their experience with Medicare Advantage. 

In summary, CAPG physicians found that they are able to provide better health 

care to their patients who are in MA plans than those in traditional Medicare. Their 

report was the first of its kind, in that it discussed value not just in economic terms, 

but in human terms. CAPG’s members were able to assess MA and traditional 

Medicare on other key characteristics, including quality, efficiency, flexibility, and 


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modernization. Against this backdrop, CAPG members found that MA produces significant benefits for its enrollees. Specifically, CAPG members found: 

• Chronic care coordination is significantly stronger under MA. Traditional Medicare’s fee-for-service reimbursement system incentivizes episodic, acute services on 

a hit-and-miss basis. This approach does not accommodate the need for care coordination of people with chronic illnesses that require daily attention over years or decades. 

Conversely, MA allows for specialized outreach, oversight and care coordination 

for patients with frail and unstable conditions, patients entering complex phases of 

care with many providers, and patients approaching the end of life. 

• The benefits of California’s Pay for Performance (P4P) program are demonstrable in the MA program, resulting in better quality of care, more efficient care, 

and better experiences and outcomes for MA beneficiaries. There is no comparable 

P4P program in traditional Medicare and, given the importance of organized systems of care and population based measures, P4P in traditional Medicare faces 

many challenges. • California’s physician groups and their physicians, working with MA plans, are 

making better and more frequent use of healthcare information technologies than 

their traditional Medicare counterparts. • Physician groups working with MA plans are able to scientifically direct care 

and avoid unjustifiable care. 

Chronic Care Coordination 

According to a recent study by the Commonwealth Fund, an estimated 20 percent 

of Medicare beneficiaries have five or more chronic conditions. These beneficiaries 

are treated by an average of 14 different physicians, leading to medical costs that 

equate to two-thirds of the federal program’s spending. It is the experience of CAPG 

physicians that the traditional fee-for-service model is ill equipped to manage seniors with multiple chronic conditions. 

For many chronic illnesses such as diabetes, arthritis, congestive heart failure, hypertension and others, there are a range of proven interventions and therapies. 

These therapies can minimize, delay, or entirely prevent a range of secondary complications, resulting in improved comfort, productivity and quality of life for the beneficiary while reducing the cost of avoidable crisis intervention. 

Unfortunately, the current reimbursement structure cannot respond to these 

types of treatment needs. Multiple studies have pointed out that many patients in 

traditional Medicare receive chronic care oversight in a sporadic and incomplete 

fashion. The following example illustrates how Medicare Advantage is able to better 

respond to beneficiaries with multiple chronic diseases: 

Mr. Q.S. is a 92 year old gentleman with multiple diagnoses, including congestive 

heart failure, history of pulmonary embolism, hypertension, ataxia and chronic gastrointestinal hemorrhage. Although he lives with his son, his son does not usually 

participate in his healthcare needs. The primary care doctor attempted to provide 

quality care to this gentleman, but unfortunately the patient was not proactive in 

contacting his doctor or follow-up with specialists. His preferred action was to call 

911 to take him to the hospital for much of his primary care needs. Because of frequent emergency room visits and in-patient hospitalizations, we as the medical group 

evaluated his needs and identified him as a frail elderly at risk. Our case management team communicated with him on a regular basis to make sure his healthcare 

needs were being met. Our continuity of care case manager would see him in the hospital to assist with discharge planning and assure that continuity of care occurred 

post discharge. We placed him in our homecare program where a nurse practitioner 

was assigned to evaluate him at his apartment home. This entire management team 

facilitated both in-patient and outpatient care. This included facilitating and assisting in transportation to doctor’s appointments. An integral part of this team approach was communication with the primary care doctor. As a result, his primary 

care doctor was much more involved in the overall care of the patient, his outpatient 

care was better coordinated and he was no longer receiving the bulk of his ambulatory services in the emergency room. The end result is that the patient became more 

proactive in his healthcare and had a significant decrease in his emergency room use 

and in the number of hospitalizations. 

As demonstrated in this scenario, organized delivery systems under Medicare Advantage have embraced a chronic care model that employs a fundamental redesign 

of the care delivery system. This model requires computerized, centralized registries 

that allow providers to know which patients have certain diagnoses, when their 

services are due, their lab results and personal measures, and when those results 


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indicate the need for intervention. These care management services are only possible in the context of the Medicare Advantage program and are virtually non-existent in traditional Medicare. 

Pay for Performance (P4P) 

California medical groups, in collaboration with MA plans and others, have led 

the nation in the development of clinical performance measurement programs and 

economic incentives which reward high-performing providers. Under the auspices of 

the Integrated Healthcare Association, these efforts have set the foundation for California’s annual Pay for Performance (‘‘P4P’’) bonus payment system. These bonuses 

have created economic incentives which have resulted in health care improvement 

strategies being implemented across the entire state. 

Our P4P program has been closely studied by the Centers for Medicare and Medicaid Services to determine which components can be exported to geographic areas 

where traditional Medicare payment methodologies predominate. Two characteristics seem essential to a successful P4P program: 1) medical groups need to be effectively integrated with their local provider community and 2) population-wide care 

improvement is the criterion for a financial reward. 

The benefits of California’s P4P program are demonstrable in the MA program, 

resulting in a new culture of measurement, public reporting, annually improving 

quality, an objective assessment of efficiency, and better personal experiences and 

clinical outcomes for MA beneficiaries. There is no comparable P4P program in traditional Medicare, and given the importance of organized systems of care and populations based measures, P4P in traditional Medicare is likely to be unsuccessful in 

stimulating meaningful changes in practice patterns. 

The Use of Health Information Technologies To Improve and Manage Care 

Monarch HealthCare has the distinction of being repeatedly recognized in the industry for our investment in Information Technology and our ability to integrate 

medical information in a comprehensive way that allows our physicians to make informed decisions regarding patient care. 

Other groups in California’s organized systems of care are also widening the application of electronic health registries, which help with the management of chronic 

illnesses, particularly those requiring cyclical oversight. They are also used to assure routine screening and preventive services such as mammography, cervical cancer screening, colorectal cancer and screening for other treatable illnesses. 

Furthermore, California’s medical groups are deploying electronic health records 

(EHR) well ahead of the national trend. The use of EHRs in seniors has resulted 

in: 

• Physicians managing multiple simultaneous conditions with complete access to 

clinical information necessary for the best medical decision; 

• Electronic prescribing and subsequent tracking to assure accuracy, continuity 

and safety, 

• Coordination of care among multiple providers with instantaneous sharing of 

information to support clinical decision making to avoid redundancy, missed opportunities, and mistakes; and providing patients with portable access to critical 

medical records when away from home. 

The structure of the MA program in California, and its reliance on physician 

groups and other organizes systems of care, has contributed to the development and 

adoption of Health IT. The use of EHRs, electronic registries, electronic prescribing 

and other Health IT is not nearly as prevalent in traditional Medicare. 

Evidence Based Medicine 

Providing evidenced based medicine is another area where MA has been able to 

make significant progress. In partnership with Medicare Advantage plans, California physician groups have worked to avoid inappropriate utilization by focusing 

on scientifically justifiable clinical decisions. 

Physicians who are part of physician groups routinely submit clinical rationale 

and justification for procedures, especially those with ‘‘gray areas,’’ clinical controversy, or complex choices. This exercise does not replace a physician’s clinical 

judgment nor is it an excuse to thwart necessary care, but rather a quest to deliver 

the right care, at the right time, at the right place. Objective, scientific, and ethical 

oversight is the cornerstone of the efficient use of finite resources in a costly environment. 


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I think we can all agree that our health care system should promote prevention, 

chronic care management, and avoidance of unnecessary and unjustifiable health 

care. The Medicare Advantage program has made considerable progress on these, 

and other fronts. 

Putting it in Context 

Based on my perspective and experience, which is shared by the 59,000 physicians 

in CAPG member organizations, there is no question that MA provides superior 

value for its beneficiaries in both economic and human terms. But there are several 

other factors to consider when measuring the benefit and value of this program. 

Recent reports indicate that MA members enjoy significant savings over traditional fee-for-service. According to CMS, in 2006 MA plans provided beneficiaries 

with an average $82 per month savings. With approximately 7 million beneficiaries 

enrolled in Medicare Advantage plans at that time, this translated into aggregate 

savings of more than $6.8 billion annually. MA enrollees are also protected from 

high out-of-pocket costs—more than 93% of all beneficiaries had access to an MA 

plan that limits out-of-pocket costs to $2,500 for Medicare-covered benefits. 

Despite arguments that MA plans are overpaid when compared to traditional feefor-service, it is important to note that in most cases MA plans are actually less ex- pensive when calculating both the costs to the federal government and the beneficiary. Specifically, MA beneficiaries do not need to purchase Medicare supplemental insurance, which alone can cost beneficiaries $100 per month or more. Immediately, this results in cost savings to the beneficiary. Furthermore, these ‘‘overpayments’’ do not account for administration of the fee-for-service program, the costs 

of fraud and abuse—which occur almost exclusively in the traditional Medicare program due to the incentives of fee-for-service reimbursement, the hidden costs of inefficiency when medical and drug therapies are not coordinated, and more. 

MA also has spillover benefits that impact the fee-for-service population as well. 

Adoption of Health IT, electronic medical records and quality measures provides 

benefits to the entire Medicare population. Similarly, many CAPG providers offer 

disease management services to all Medicare beneficiaries, irrespective of whether 

they are enrolled in MA plans or traditional fee-for-service. 

Finally, little attention has been paid to the readiness of the Medicare program 

and America’s health care delivery system to meet the tidal wave of demand that 

will come as the post-World War II generation becomes eligible for Medicare benefits. In our estimation, traditional Medicare, with its incentives for piecemeal disconnected approaches to care, will be incapable of coping with the demands that it 

will confront in less than 10 years. By comparison, CAPG views MA and its incentives for organized systems of care as the best mechanism to delivering evidence 

based, coordinated and efficient care to the next generation of older Americans. 

For more than two decades, CAPG’s members, their physicians and their patients 

have directly experienced the clinical and administrative successes of the MA program. If those successes are to continue and be widely shared, Congress should promote the program—not weaken it. 

f 

Chairman STARK. Thank you. 

Mr. Hotchkiss, how many beneficiaries does Humana have altogether? 

Mr. HOTCHKISS. We have 1.1 million MA members and 3.4 million PDP members. 

Chairman STARK. 3.4 million what? 

Mr. HOTCHKISS. 1.1 million MA members and 3.4 million PDP 

members. 

Chairman STARK. PDP? 

Mr. HOTCHKISS. Prescription drug plan. 

Chairman STARK. For a total of 41⁄2 million? 

Mr. HOTCHKISS. 4.5 million. 

Chairman STARK. And out of your $500 million in profit in 

2006, how much of that profit came from managed care, Medicare 

Advantage? 

Mr. HOTCHKISS. I don’t have that information. 


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Chairman STARK. Why? 

Mr. HOTCHKISS. I do know that when we develop our MA 

plans, we target a 5 percent profit margin. And for—just a moment 

please—for 2006, our profit was 2.9 percent, and in the first half 

of 2007 it was 2.4 percent. 

Chairman STARK. It grew from 300 million to 500 million from 

2005 to 2006. So could you get me the figures as to how much of 

the 500 million in 2006 came from Medicare Advantage and how 

much came from the—somebody behind you is shaking their head. 

Mr. HOTCHKISS. I will follow up. 

Chairman STARK. Will you? I would like to have it. 

There was a statement made by some analyst or another that 

your loss ratio in the unmanaged private fee-for-service plans is 

150 basis points better than it is in traditional products. That 

would indicate that not all of the additional reimbursement you are 

getting goes for additional benefits. Would you agree? 

Mr. HOTCHKISS. I don’t have access to that or I haven’t seen 

that report. I would like to see it before I respond to it. 

Chairman STARK. Would you see whether you could? Because if 

that is correct, this would indicate that you are paying for fewer 

additional benefits in the Medicare Advantage plans, wouldn’t it? 

Mr. HOTCHKISS. I still need to read the reports, Mr. Chairman. 

Chairman STARK. Okay. I will see that you get it. 

Mr. HOTCHKISS. Thank you. 

Chairman STARK. Ms. Polich, you have got a million three 

Medicare Advantage beneficiaries. Correct? 

Ms. POLICH. That is correct. 

Chairman STARK. How many total beneficiaries in 

UnitedHealth? All plans? 

Ms. POLICH. Actually, I am not sure what the total number is, 

including the commercial business. But I can get you that information. 

Chairman STARK. Can you make a guess? Five million? Six million? 

Ms. POLICH. Oh, more than that. We have 1.3 million Medicare 

Advantage members. We have over 5 million Part D prescription 

drug members. We also serve a large number of Medicare supplement—— 

Chairman STARK. How many do you have in AARP? You must 

have millions there. Right? 

Ms. POLICH. With the Part D? 

Chairman STARK. With AARP’s plan. 

Ms. POLICH. With the Part D, the prescription drug plan? 

Chairman STARK. The supplemental—— 

Ms. POLICH. Oh, the Medicare supplement? Also have millions 

of members inform Medicare supplement. But I can get you the 

exact figures. 

Chairman STARK. What was your total profit in the last, what, 

2006? Do you know? 

Ms. POLICH. I don’t have that information with me. But again, 

I can take that question and get back to you. 

Chairman STARK. Make a guess. You must have heard. 

Ms. POLICH. Again, I—— 


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Chairman STARK. They don’t post it on the wall when you come 

into the lobby? 

Ms. POLICH. No. Actually, we don’t. 

Chairman STARK. Gee. Well, that would be of some interest to 

us. Let me suggest this to you. It has been announced by AARP 

and you that you all are going to underwrite a Medicare Advantage 

plan that will be sold through AARP. You are aware of that? 

Ms. POLICH. We have a partnership with AARP around Medicare Advantage starting in 2008. 

Chairman STARK. Right. And AARP tells us that they are not 

going to sell that for more than 100 percent of fee-for-service. Now, 

why then, if a great company like yours, through the marketing 

arm of a great institution like AARP, is going to offer all of us 

AARP members a Medicare Advantage plan at what I would call 

par, at no more than 100 percent of the cost for fee-for-service, why 

shouldn’t you do that for the rest of your Medicare advantage 

plans? 

Ms. POLICH. Actually, I am not familiar with that comment 

from AARP, so I really can’t—— 

Chairman STARK. It was made to me. I challenged them on it, 

and they swore to God that they weren’t going to charge us more 

than 100 percent of fee-for-service. So if they can do it, I would suspect it is really you doing it. So we ought not to pay you—the taxpayers then ought not to pay you any more than us AARP members pay you, do you think? 

Ms. POLICH. Well, Mr. Chairman, I am not familiar and can’t 

really comment on AARP’s position on that. But I would say that 

we continue to believe that steep and rapid cuts in Medicare Advantage funding would harm beneficiaries. 

Chairman STARK. No. It would harm stockholders. Beneficiaries 

still get the same benefits by law. It just might cut the stockholders a little bit. But we are not in the business here of protecting your stockholders. 

One other question. In the marketing of all of your plans, of 

the—let’s guess, there are 5 or 10 million of your beneficiaries over 

and above the 1.3 million Medicare Advantage, in every instance 

the marketing of those plans is controlled or under the auspices of 

one or another state insurance commissioner, are they not? 

Ms. POLICH. The Medicare supplement. 

Chairman STARK. Every plan you sell other than Medicare Advantage is under the auspices of one of the 50 insurance commissioners in the states that you operate. Isn’t that the case? 

Ms. POLICH. I know they have some authority over many of our 

products, yes. 

Chairman STARK. All of your products. Can you think of a product other than Medicare Advantage that isn’t subject to the rules 

of state insurance commissioners? 

Ms. POLICH. Yes. I don’t believe the Part D plans are, either. 

Chairman STARK. Stipulated. Good idea. That is one of the 

other problems we have. 

Is there any reason that your sales people, as long as you are 

obeying the laws of the State of California or the State of Michigan 

or the State of Georgia, shouldn’t obey those rules—sales people, 

now—in regard to marketing of Medicare Advantage plans? 


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Ms. POLICH. We absolutely share your concern around marketing and sales abuses and—— 

Chairman STARK. No. But would you be willing to have the 

state insurance commissioners regulate them as they do now for all 

your other products? 

Ms. POLICH. We believe that the states have absolutely a role 

in overseeing the sales and marketing practices. However, I would 

also say—— 

Chairman STARK. I will take that as a tentative yes subject to 

your boss’s approval. All right? 

Ms. POLICH. I would also say that Medicare is a federal program and really needs to be overseen at a federal level. And we are 

also concerned about consistency of the oversight across all of our 

geography. 

Chairman STARK. How about Humana? All your other insurance products are subject to state insurance commissioners. 

Mr. HOTCHKISS. We have the same position, that we have concerns that there would be inconsistency among the states. 

Chairman STARK. There is now, isn’t there, for all your 

other—— 

Mr. HOTCHKISS. No. We would be concerned that—you know, 

it is a federal program—that there would be inconsistencies if it 

was—— 

Chairman STARK. I am just talking about the sales people, you 

know, things like telling the truth, that sort of thing. All of whoever sells—brokers or agents who sell your plans now, with the exception of D, as Ms. Polich has so correctly informed me, and Medicare Advantage, are subject to regulation by state insurance commissioners, are they not? 

Mr. HOTCHKISS. Yes. 

Chairman STARK. Why then couldn’t they regulate all of it, and 

then we might not have these problems of rogue agents going off, 

which bother you, I am sure, as much as they bother me, don’t 

they? You don’t want that. 

Mr. HOTCHKISS. Well, they bother Humana. But in all fairness, 

sir, I am an actuarial director, and that is really outside the scope 

of my expertise. So I would prefer to respond in writing. 

Chairman STARK. Okay. But just as a guy in the insurance 

business in general, isn’t it better for the reputation of Humana to 

have good agents, honest agents, representing you? 

Mr. HOTCHKISS. Absolutely. 

Chairman STARK. There you go. And they already do, don’t 

they? 

Mr. HOTCHKISS. Yes. 

Chairman STARK. Except for Medicare Advantage and Part D. 

And I am just suggesting that if you can have three-quarters of 

your business regulated by state insurance commissioners, why not 

the other quarter? And then you would only have one—you 

wouldn’t have to fuss with us. You would get all that federal regulation off your back. Sounds like, on your way to becoming executive vice president of the whole company, that it would be a good 

decision, wouldn’t it? I will tell the board of directors—— 

Mr. HOTCHKISS. Again, it is outside the scope of my expertise. 


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Chairman STARK. I will tell the board of directors how perspicacious you are in this, and that may help. 

Mr. Camp, I am going to suggest that we have another ten minutes before we have to vote. 

Mr. CAMP. All right. 

Chairman STARK. I am going to have to ask the witnesses, if 

they would mind, I will probably recess us till the end of a series 

of votes, which may take us as many as 45 minutes, and urge you 

to get some lunch or stretch, seventh inning stretch. 

Mr. Camp. 

Mr. CAMP. Well, thank you, Mr. Chairman. I want to thank the 

witnesses for coming. I appreciate your testimony very much as we 

try to understand these issues. 

Dr. Asner, I understand in the California Association of Physicians Groups, there are about 59,000 physicians in that organization. And you outlined some of the additional—well, you treat both 

Medicare beneficiaries as well as those enrolled in Medicare Advantage. 

Dr. ASNER. That is correct. 

Mr. CAMP. And I appreciate that you outlined some of the additional benefits that are provided to seniors in Medicare Advantage. 

And you mentioned vision, dental, podiatry, covering the doughnut 

hole; also, more importantly, I think some of the disease management, prevention, as well as the coordination of care. And it is a 

very difficult thing to have multiple conditions and to deal with 

those in a hospital setting, going from physician to physician, group 

to group, in some cases. 

Now, earlier this year the House passed a bill that would have slashed Medicare Advantage payments by $157 billion. And what 

sort of impact do you think that would have on the patients who 

rely on Medicare Advantage and the doctors who care for those patients? 

Dr. ASNER. If there were cuts of that magnitude in Medicare 

Advantage, that would undo the entire infrastructure that we have 

built up in California to care for these patients. 

The investments we have made and continue to make in information technology to identify these patients, to identify them for their 

physicians, to give the physicians the information they need to better care for them, the coordination programs we have put in place 

which require a number of highly skilled nurses, the hospitalist 

program that I described to you, which are inpatient specialists 

who care for these patients in a coordinated fashion—it would be 

devastating to our ability as physicians to take care of these patients in the coordinated fashion that they deserve. 

It would, in fact, move us back to what was a traditional fee-forservice mode of care for patients, and our physicians all say that 

would be detrimental to their patients. Our physicians care, as you 

said, for both the fee-for-service patient and the coordinated care 

patient. These patients who are sick, frail, elderly, need that care 

coordination. Our physicians know that, and I think you need to 

understand that as well. 

Mr. CAMP. You also mentioned and I commend you for the advances you have made in health IT, electronic medical records, and 

quality measures. Now, we have often heard that if we could just 


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use electronic medical records, that alone would reduce the number 

of medical mistakes, this new technology. 

With the compilation of the quality measures that you have seen 

in your practice, are there advances being made as a result of the 

technological changes that you have been able to make? 

Dr. ASNER. Absolutely. The Integrated Healthcare Association 

in California has been the organization that has come forth with 

the pay-for-performance program, which is emulated across the 

country. And their most recent data show that there is a clear correlation between improvement in clinical care and the use of electronic health records and technology. So there is definitely a linkage between those two. 

Mr. CAMP. All right. And Ms. Polich, you mentioned in your testimony a recommendation for improving the audit process, to reflect the methodology for developing Medicare Advantage bids 

across the range of company plans. 

Can you explain this recommendation a little bit further, please? 

Ms. POLICH. Certainly. One of the things that we found in our 

audits, in the bid audits that we have had with CMS in the past 

on the ACR process, that many of the findings relate to the supporting documentation and approach that we take to making assumptions. Because of course a bid is always a forward-looking 

process. We have to make assumptions and forecasts based on 

what we think is going to happen. 

And so much, I think, of how solid those bids are is a function 

of the methodology and approach you are taking to using past data, 

and the methodology that you have in creating assumptions. In my 

view, in our view, the extent to which CMS can work with us, 

which they have started doing in this new bid process, to help us 

get guidance and understand methodologically how plans are approaching the bids and these assumptions, would make for not only 

the submissions of the bids much more valuable and solid, but also 

make sure that there is consistency across a plan’s bids and even 

across the industry. 

Mr. CAMP. All right. Thank you very much. And again, I want 

to thank you all for being here. I appreciate your testimony very 

much. 

Thank you, Mr. Chairman. 

Chairman STARK. Mr. Lewis. 

Chairman LEWIS. Thank you very much, Mr. Chairman. And 

thank each of you for being here today. 

Mr. Precht, is there an office in CMS that protects beneficiaries? 

Mr. PRECHT. There is the ombudsman’s office, yes. 

Chairman LEWIS. Should this office be independent? 

Mr. PRECHT. I believe that is the idea. 

Chairman LEWIS. Well, should it be something like we have at 

the IRS, the taxpayer advocate, which is independent to the IRS? 

Shouldn’t there be something within CMS? 

Mr. PRECHT. Well, I can only speak to my personal and our organization’s experience with the ombudsman, and that is we had 

a couple of meetings with the ombudsman at the outset of 2006 

when a lot of the problems surfaced around the new Medicare drug 

benefit. 


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And that is it, essentially. I have not—and for whatever reason 

in terms of resolving particular problems, that has no longer been 

the channel. It has been more informal channels, going through the 

administrator’s office. So I can’t really speak to what that office 

does at this point in time. 

Chairman LEWIS. Well, in Georgia, insurance agents are selling 

Medicare Advantage plans to the elderly when they are in the room 

alone. Have you ever heard of anything like this? 

Mr. PRECHT. Oh, yes. We have heard quite a bit of that. And 

unsolicited door-to-door sales are prohibited, but it happens anyway. And the other way that the plans get around it or the agents 

get around it is to essentially get an invitation. So somebody will 

call a plan and say, I would like to sign up for drug coverage, and 

they are told, you know, it would be better if we had somebody 

come and visit you. 

Then that person comes and visits them and sells them an HMO 

or another Medicare Advantage product. And, you know, when we 

talked to CMS about this problem, they said, well, the agents want 

to go in the home because they have a higher closing rate. 

Chairman LEWIS. Are there laws or regs that protect a beneficiary? 

Mr. PRECHT. Well, there are regulations that prohibit this doorknocking, and an agent that is found to do that can be fired from 

the plan. Theoretically, at least, CMS could punish the plan for the 

actions of its agents for conducting this. 

In terms of the beneficiary themselves, the only protections they 

have is they—and it is a difficult process, but they can get back 

into original Medicare and into the plan that they—you know, after 

they have been fraudulently coerced into one of these plans. 

Chairman LEWIS. We are running out of time here. Earlier in 

the hearing, the GAO reported that the Inspector General audited 

the 2001 payment to Humana’s Medicare plan and questioned 10.5 

million of this payment. These amounts were not refunded to Medicare. 

Are there any plans to refund this or maybe to make it available 

to the beneficiary or to cover co-payments or premiums? What do 

you plan to do with the overpayment? 

Mr. HOTCHKISS. Well, Mr. Chairman, Humana received a letter from CMS in December of 2006—— 

Chairman LEWIS. But you didn’t refund it. Right? 

Mr. HOTCHKISS. No. CMS stated that we did not have to refund any money because we filed our—— 

Chairman LEWIS. Oh, they told you to just keep it? 

Mr. HOTCHKISS. We did not file—we filed our BIPA ACRs consistent with the instructions that we received from CMS in January of 2001. 

Chairman LEWIS. Thank you. 

Chairman STARK. We have about four or five minutes till the 

votes. They will be about 30 minutes anyway. So why don’t we just 

say that we will come back around 1:30 or immediately after the 

fourth or fifth vote, however many there are. And I hope the witnesses will bear with us till that time. 

The committee will be in recess. 

[Recess.] 


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Chairman STARK. If we can find our patient and accommodating 

witnesses, we would ask them to come back to the table. I hope you 

all had a great lunch. 

Mr. Hulshof, it looks like it is your turn. 

Mr. HULSHOF. Thank you, Mr. Chairman. First of all, I appreciate you having us come back to continue questions. And I know 

this will be a bit disjointed in the sense that we had some ebb and 

flow of questions before. And so let me sort of resurrect a couple 

of those issues. 

And one of the questions I think perhaps put to the panel by the 

chairman, or maybe someone else, regarded this idea of regulation 

at the federal level vis-a-vis regulation by individual states. And I 

think that, Mr. Chairman, the Federal Employee Health Benefit 

Plan, the system that Members of Congress enjoy, is a federally 

regulated set of plans, not at the state level. 

Chairman STARK. That is right. 

Mr. HULSHOF. And I think—also correct me; I will turn to the 

witnesses, Mr. Hotchkiss and Ms. Polich in particular. I believe 

that on the fee-for-service plans, that state insurers and regulators 

really play little to no role in those plans. Is that true, Mr. Hotchkiss, if you know? I know you are an actuary, and maybe that is 

beyond your expertise. 

Mr. HOTCHKISS. Cindy, do you want to—— 

Chairman STARK. Ms. Polich? 

Ms. POLICH. Sure. So the question was private fee-for-service 

and the regulation of sales and marketing practices? 

Mr. HULSHOF. Correct. 

Ms. POLICH. Actually, the states do have a role in overseeing. 

We work very closely with the states in terms of our—you know, 

understanding what brokers are appointed, and if in fact we need 

to terminate brokers, to notify the states. 

Mr. HULSHOF. But in regards to the Federal Employee Health 

Benefit Plan—— 

Ms. POLICH. Oh, you are right. Absolutely. That is correct. 

Mr. HULSHOF. Absolutely what? 

Ms. POLICH. Oh, that is not regulated—that is a federally regulated program. Yes. 

Mr. HULSHOF. Okay. I just wanted to make sure that we heard 

from someone that is an expert in the field. 

Regarding that expertise, Mr. Hotchkiss, I also understand as 

the chief actuary, and you have been asked some questions maybe 

beyond that bounds of expertise, but I wanted to focus on a question that you responded to make sure I got that answer correctly. 

And one question that you weren’t allowed to respond: Ideally, 

when you are putting a package out for bid—which is in fact a 

binding contract once the bid is out and it is accepted by a beneficiary; correct? 

Mr. HOTCHKISS. Right. 

Mr. HULSHOF. That ideally your company says, we would like 

to have a 5 percent return on our investment, a 5 percent profit. 

But I thought you said that for Medicare advantage in the year 

2006, that you were significantly less than that, less than 3 percent. Is that true? 


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Mr. HOTCHKISS. Correct. Yes. In 2006, we had a pre-tax profit 

of 2.9. And for the first half of 2007 it is 2.4 percent, 

Mr. HULSHOF. 2.4 percent extrapolated for the entire year or 

for just that—— 

Mr. HOTCHKISS. No. Just the first half of the year. 

Mr. HULSHOF. Okay. Well, let me get to—and again, I welcome 

all of you here, but especially Mr. Hotchkiss and Ms. Polich. You 

may have felt like you were being led into the lion’s den, and I 

know that at least during the previous panel—and I know that 

there has been some period of time, and members have other commitments, but some of the members that were quite outspoken. 

And so let me take the persona of maybe a colleague of mine who 

spoke earlier and pick on you, Ms. Polich. 

Ms. POLICH. Okay. 

Mr. HULSHOF. You are an executive, are you not, with 

UnitedHealth Group business? 

Ms. POLICH. Yes. 

Mr. HULSHOF. And even though you say that you have spent 

three decades working in the field of gerontology, even though you 

have co-authored a book, even though you have done extensive research and teaching in gerontology and aging, and even though you 

have helped lead your company’s efforts in this area, the fact is you 

really just are about gouging seniors. You have executives that are 

over-compensated. The private sector really has no business in the 

Medicare field at all. And the only needs that you intend to serve 

are those not of your patients, but of those shareholders and the 

stock price, as one of my colleagues mentioned. 

How dare you come here and say that you actually care about 

seniors? 

Ms. POLICH. The reason I can say that is because I have spent 

three decades caring for seniors. I am a gerontologist by training. 

I work, and the work that I do is all geared toward trying to improve the way in which we care for seniors, and making sure that 

Medicare is a program that not only today serves seniors well, but 

is there forever to serve seniors in the future. You know, that is 

why I work. That is why I get up in the morning. And that is my 

personal mission. 

Mr. HULSHOF. Thank you for that. And my facetious question, 

and you took it in the spirit it was given, is that, Mr. Chairman, 

my fear—it is entirely appropriate that we have oversight, and we 

should have aggressive oversight. That is our constitutional role. 

Every taxpayer deserves to have his or her tax dollars spent in the 

most positive fashion possible. 

And yet I think sometimes we talk past one another, and that 

there are too many political speeches and ideologies. Because I take 

your answer, Ms. Polich and Mr. Hotchkiss—and Mr. Precht, you 

have done a good job in your industry, and obviously, Dr. Asner, 

you are on the front lines caring for patients. 

And I think too often we get caught up in the rhetoric of trying 

to condemn the private sector or a particular company and forget 

the fact that our primary role for Medicare is to make sure that 

patients live longer, healthier lives. And if Medicare Advantage can 

accomplish that, Dr. Asner, as you have so eloquently stated, then 


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why would we be so insistent on doing harm to a program that 

does good? 

Thank you, Mr. Chairman. 

Chairman STARK. Thank you. 

Do you have any further questions? 

Chairman LEWIS. No. I don’t want to get involved in a debate 

with my friend from Missouri who is such a wonderful friend. But 

I must tell you, there is an old saying that the road to hell is paved 

with good intentions. And, you know, good people sometimes go off 

track, and good people can do bad things. I think we have an obligation to engage in oversight. 

Mr. HULSHOF. Would my friend yield? 

Chairman LEWIS. Pleased to yield. 

Mr. HULSHOF. I absolutely agree with you, Mr. Chairman. I do. 

And the oversight function—again, I appreciate the fact we have a 

joint hearing here because I am not privileged to serve on the oversight subcommittee, but I am with Mr. Stark’s committee on 

health. And I think it is good that we have these joint hearings so 

that, in effect, the oversight and health committees can have the 

opportunity. 

And I think tough questions are appropriate. Some good tough 

questions have been asked today of this panel and other panels. 

But I would say to my friend from Georgia, in our effort to provide 

that good quality care—and the chairman of the health subcommittee stated it, and I appreciate his acknowledgment that 

many of these plans are providing very good, beneficial services 

and benefits. 

Now, the question then of the overpayments is a fair question. 

But to tar and feather or to say because you work for a particular 

industry, or in this case, as has been stated, and I don’t want to 

mention the gentleman’s name earlier, but to call out by name certain companies and to insinuate that those health care professionals who have come here today somehow are more interested in 

the almighty dollar than they are about the health care of the people that they serve, I think is not constructive. 

And that was my only comment. Thank you for yielding. 

Chairman STARK. It is your turn. 

Chairman LEWIS. I yield back, Mr. Chairman. 

Chairman STARK. I would just say to all my friends on the committee and the witnesses, the issue here before us came up basically as one governmental agency, GAO, criticizing another governmental agency—not the industry, not us—for not performing a series of audits according to a law which was written actually by the 

minority. 

In other words, there was a requirement in the beginning of 

these plans that the bids be audited, and there was some suggestion—and it is pretty arcane. As they said earlier, it is not a financial audit to determine the integrity of their assets. 

But there was some feeling that there were several companies 

that had received 5, $10 million to which the rules didn’t entitle 

them; maybe that is the way to say it—and that there had been 

no effort, perhaps because there was a disagreement as to whether 

they were legally required to collect the money back. 


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And it may be that the law is confusing as to whether they owe 

the money. But it seemed to us that in the light of the GAO report, 

that we ought not to find out, one, can we clarify those rules? Will 

the audits find out information that will help us determine not 

whether there should be Medicare Advantage plans—I think that 

is a given—but what is a fair rate to pay them, both from their 

standpoint and their ability to provide the benefits, earn a profit, 

if that is—or a margin for expansion; if they are not for profit, give 

the taxpayers a fair price for their dollars. 

I think to assert that there is any other agenda here would not 

necessarily be the case. And I would hope that we will have better 

cooperation between GAO and CMS. And if there is a requirement 

that we legislate or review the legislation, I hope that we could do 

that. It hardly seems partisan. 

In other words, if there is something confusing in the laws now, 

I think we could sit down and fit out what it ought to be. What 

is the best way for these audits to be conducted that is efficient, 

that doesn’t create major inconvenience on the providers. And we 

ought to go ahead with that. 

I was going to ask that either—if I may at this time, and I would 

recognize others for a second round here. But Mr. Hotchkiss or Ms. 

Polich, I have been concerned that we are not clear or we are not 

informed—we aren’t—and we have had some trouble getting this 

information as between what services are actually provided to patients or beneficiaries versus what are offered. 

Now, in many cases I have heard proponents of an overpayment—by overpayment, I don’t mean that as a pejorative, but over 

the fee-for-service rate—that that provides extra services. And the 

question, of course, is it access to extra services or is it actually 

paying for services provided? 

So my question to both of you would be: Do you track internally 

what extra services are in fact provided to your Medicare Advantage beneficiaries? Mr. Hotchkiss, do you suppose you could come 

up with that information? I am not sure you have to now, but—— 

Mr. HOTCHKISS. Not at this time, but I would be more than 

happy to respond. 

Chairman STARK. But you would have the records, would you 

not? 

Mr. HOTCHKISS. I think we would be able to supply the information. 

Chairman STARK. Would United have those, too, as far as you 

know? 

Ms. POLICH. Yes. In most cases we do. We do have some supplemental services that, for example, may be part of a capitation rate 

to a physician group that we may not be able to track precisely. 

But yes. In general, yes. 

Chairman STARK. I think that, from my own—it would be a lot 

easier for us to determine the value of the services offered and 

what we should pay if we had some idea of what were used and 

what were just offered. So that is an area which I would like more 

information. And we are not getting it now, routinely at least. 

Mr. Camp, did you want to—— 

Mr. CAMP. Mr. Tiberi has not had a first round yet. 

Chairman STARK. I am sorry. 


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Mr. TIBERI. Mr. Chairman, thank you. 

Chairman STARK. Mr. Tiberi, dive in. You go right ahead. 

Mr. TIBERI. Thank you. I apologize I didn’t get here sooner after 

votes. I got stopped along the way. I apologize I didn’t hear your 

opening testimony. 

But to the panel specifically, and my question is to the two plan 

participants who are here today, when we were debating and eventually passing the bill earlier this year in the House on SCHIP and 

where we had the Medicare Advantage cuts, my office, like I am 

sure most offices, received a number of calls and e-mails and letters from participants, Medicare Advantage participants, in my 

congressional district. And some of those were generated by Medicare Advantage companies. 

And so what I did is I took some of those calls and I called some 

of those folks who had sent letters and e-mails in. And to a person, 

I was shocked at the level of understanding and emotional commitment to the new Medicare Advantage plans. 

Some of the people that I talked to, constituents—one lady in 

particular stands out. She said, I used to work for the Federal Government. I used to work for Medicare. I was on Medicare for 10 

years. And now I am on a Medicare Advantage plan, and it is the 

best thing that has ever happened to me with respect to my health 

care. A pretty knowledgeable person with respect to Medicare and 

the way it worked. 

Do you all—and really in concert to the chairman’s question—do 

you all internally have a system in place, to the two plan participants here, that tracks either complaints or customer/client comments explaining how they feel about the program, pro or con? 

Ms. POLICH. Yes. Yes, in fact, we do, both complaints that come 

in through our customer service as well as our physician offices, 

complaints that come in to us from external organizations, like 

state insurance commissioners or CMS. So we track all those complaints, follow up on them, track them, investigate them, and work 

very diligently to resolve them on behalf of our members. 

Mr. TIBERI. Just to follow up, and then I will go to the next participant, do you have any positive comments that come in? And 

why I am—I know that people are speaking with their feet obviously by saying, I am going to choose your plan rather than these 

20 other plans that may be offered to me. But do you have any 

other way of showing to you the quality customer assurance program or anything like that? 

Ms. POLICH. Absolutely. I get letters, and actually, this is part 

of what really motivates me every day, is I get letters from members all the time telling me about how their membership in Secure 

Horizons plans have saved their life—the money that they have 

saved, the quality of care that they have gotten. 

So yes, we do get positive feedback, which is always greatly appreciated. But also, as I say, we also have members that are having 

problems or concerns, and we take those very seriously as well. 

Mr. TIBERI. Mr. Hotchkiss? 

Mr. HOTCHKISS. I would have to agree with what she has said, 

that we do have policies in place that focus on customer satisfaction. Good or bad, we follow up. So I think in general, Humana 

does a strong job of following up with the customer. 


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Mr. TIBERI. Do both of you have any idea what percentage of 

beneficiaries that you represent were before on the fee-for-service 

program versus new participants to Medicare, meaning have 

switched? Like my mom and dad were on Medicare fee-for-service 

and switched to an Advantage plan, rather than maybe a person 

who is just qualifying for Medicare and went straight to a Medicare 

Advantage plan? 

Mr. HOTCHKISS. I don’t know the number that have switched 

over to an MA plan. But I know that the members that have 

switched over, 99 percent are still on that MA plan. So they are 

happy. They enjoy it. It is their choice, not ours, and they have chosen that MA plan. 

Mr. TIBERI. Same question. 

Ms. POLICH. Yes. I could not give you the exact numbers, but 

we do surveys. And so I can take that question for the record 

around where our members are coming from. And the last data 

that I saw did suggest that there was a nice mix of members that 

are coming in from fee-for-service that are aging into the program, 

as well as those are switching from Medicare supplement or possibly another Medicare Advantage plan. So we see members coming 

from all of those areas. 

Mr. TIBERI. Thank you. Thank you, Mr. Chairman. 

Mr. CAMP. Thank you, Mr. Chairman. 

Dr. Asner, I appreciate the direction that your testimony took in 

evaluating the Medicare Advantage plans and actually comparing 

them to traditional fee-for-service, not just in terms of the cost to 

the Federal Government or the taxpayer, but the cost to the beneficiary, who often are taxpayers as well. And you mentioned a couple of factors. 

Could you just sort of outline that for us again? 

Dr. ASNER. Sure. I think when you look at this from the beneficiary’s point of view, there are a number of factors that are savings for the beneficiary. As an example, the coinsurance that feefor-service, traditional fee-for-service, Medicare beneficiaries have 

to pay is not an issue in Medicare Advantage. There are Medigap 

policies that they pay for as individuals. That is not an issue in 

Medicare Advantage as well. 

And then in the drug benefit area, if you have traditional Medicare, there is an enormous doughnut hole that we all know about. 

And in Medicare Advantage, those drugs are covered for those 

beneficiaries in most cases. In addition, all of the programs that we 

are providing to coordinate the care of these patients don’t exist in 

the traditional fee-for-service arena. 

So they are getting enhanced benefits. We also talked earlier 

about the vision, the dental, the chiropractic benefits. These are 

benefits that don’t exist for the traditional fee-for-service. 

Mr. CAMP. Limits in out-of-pocket costs, for example, in Medicare Advantage programs? 

Dr. ASNER. In our experience in California, the limits on outof-pocket are lower than they are in traditional Medicare. 

Mr. CAMP. The other point that you make, too, is the whole direction that medicine is taking, and that is to coordinate care, particularly as we see seniors having several chronic conditions. And 

you mentioned in your testimony the coordinating of medical and 


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drug therapies, for example, as really bringing efficiencies to the 

system. And we talked earlier a little bit about health IT. 

Could you elaborate on those just a bit? 

Dr. ASNER. Well, let me tell you a story that maybe will illustrate this very well. I will tell you the story of an 88-year-old 

woman who was an Orange County patient visiting in Los Angeles. 

And she had a mild stroke, and got admitted to one of the finest 

institutions in Los Angeles. 

She ended up seeing a cardiologist and a neurologist. The only 

problem was this was out of area, so it was in the fee-for-service 

realm that first day. They made rounds at 12:00 midnight and 

12:00 noon, so they never talked to each other. She was put on a 

medication that actually could have been fatal for her. 

We moved her back immediately to Orange County. She came 

into our coordinated system. She had the nurse care manager 

there. She had our hospitalist there. And they discovered this problem immediately, took her off that medicine, and frankly, probably 

saved her life. 

And these are anecdotes, I am sure. But frankly, we see this all 

the time. The coordination, the intensity with what we pay attention to the needs of these patients, inpatient, outpatient, preventing them falling through the cracks as they leave the hospital 

and go home, these are huge, huge benefits to the beneficiaries. 

When our patients leave the hospital, we know that they are 

going to sometimes forget to get their drugs, be confused, not get 

their equipment that they need. We have nurses who make sure 

by guiding them through that system, calling them to make sure 

that they are following through and getting those things. 

That prevents these patients from getting sicker. It prevents 

them from having to be readmitted to the hospital. These are all 

very, very important issues. So that is what we mean by coordination of care. And it takes programs. It takes IT systems to know 

who these patients are and know what interventions need to be accomplished. 

Mr. CAMP. Particularly, I think, when you see many seniors 

don’t have a family member or advocate who can help them 

through really the intense administrative side of health care as 

well, especially as care gets more complicated. So I certainly appreciate your comments there. And I think it is something that we certainly want to look forward to. 

I guess with that, Mr. Chairman, I appreciate your time. I 

think—I would be happy to yield to you, or do you want your own 

time? I am done with my time, Mr. Chairman. I think Mr. Hulshof 

would like to question as well. 

Chairman STARK. Go ahead, Mr. Hulshof. 

Mr. HULSHOF. Thank you, Mr. Chairman. I appreciate your 

generosity in allowing this time. And again, I appreciate some of 

the statements that you have made, Mr. Chairman, about trying to 

focus. I mean, when you consider the number of senior citizens that 

now depend upon Medicare, when you look down the road not that 

much further, I mean, the number of senior citizens that will be 

dependent upon Medicare is going to be a staggering number, nearly 78 million. And we are living longer, which is a good thing. 


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Thank you, Dr. Asner, on behalf of all medical people for helping 

make that happen. 

And I guess I have kind of a Pollyanna-ish point of view about 

Medicare, is that if we can focus on the quality of the health care 

provided to the beneficiary, not only is the senior citizen going to 

be in better personal health, but the system itself is going to be in 

better financial health. And so that is why, in a bipartisan way, we 

focus on wellness, and prevention, and early screening for 

colorectal cancer, and a host of other things. 

Along that line, Dr. Asner, here is my question. Last year Congress passed a bill that implemented a program that actually 

would provide physicians with a bonus payment, if you will, if physicians reported some quality measures to CMS. Personally, I 

thought this was a good first step because if we are going to go— 

if we go in the direction of pay for performance, this was one of the 

ways to do that. 

Now, that is my point of view, and I know there are differing 

points of view. But for instance, an earlier bill that we considered 

here on this committee repealed that provision. In your view, is repealing that bonus payment to report quality initiatives, is that 

good thing to repeal it? Or should we maybe rethink that in the 

future? 

Dr. ASNER. I would strongly encourage you to continue the pay 

for performance program in fee-for-service Medicare. 

Mr. HULSHOF. Why? 

Dr. ASNER. There is no question in my mind that you need to 

have physicians paying attention, especially in the fee-for-service 

arena, to quality metrics. The initial step is to tell them what they 

need to be measured on and then have them report on that, which 

is what has begun. 

And those metrics have actually taken hold. I actually sit on a 

committee that works with the AMA to help them understand California’s expertise in this area. And as I said earlier, measurement 

of these metrics does improve performance. We have seen that in 

California. We have seen the clinical improvements. 

So I do believe that we need to do that. There is much more of 

a challenge in fee-for-service Medicare because the individual physician doesn’t have the systems in his or her office to even do the 

reporting. You ought to ask the question about how many physicians were reporting. The numbers are not as high as they should 

have been. 

And it is not the fault of the physicians. It is really a problem 

with the system. It is difficult to report on these types of metrics 

off of your paper charts and your office computer. Most of the offices aren’t set up for that. 

In California, we have invested in the type of technology and infrastructure to report on our metrics. But again, those are the IT 

investments that I talk about that medical groups have made. We 

need to have that everywhere in this country. We need individual 

physicians to be measured. Physicians don’t mind being measured. 

Physicians have been measured their entire life. Through all of 

their schooling, they were measured and they got good grades. 

They want that. We can actually influence physician behavior. If 

we tell them what we expect of them, they will perform. 


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Mr. HULSHOF. Thank you, Mr. Chairman. 

Chairman STARK. Mr. Tiberi. 

Mr. HULSHOF. Thank you, Mr. Chairman, for your indulgence. 

One last question, Dr. Asner. I am convinced, in talking to my 

constituents and physicians, that there is a benefit to the Medicare 

Advantage program. However, the critics would say that it costs 

more money and it creates a higher unfunded liability in the Medicare system that, with baby boomers getting ready to retire, is 

going to create greater unfunded liability. 

In your estimation, having dealt with both long-term, what is 

your sense of measuring Medicare Advantage costs long-term 

versus fee-for-service Medicare long-term going to do to the unfunded liabilities? 

Dr. ASNER. Well, obviously I am not an economist. But I can tell 

you that there is no question that high quality care is cost-effective 

care. And as we approach the baby boomers coming in 2011, I am 

very concerned about what that is going to do to our Medicare system if those patients don’t have the benefits of Medicare Advantage. 

If we don’t focus on prevention, coordination of care, and quality 

care, I think the system will collapse under the economics that we 

will face in the future. I am not yet a senior citizen, but I am a 

baby boomer. When the time comes for me, I want to be in that 

system from a quality perspective. And I do know from our experience that is the most cost-effective way to take care of patients and 

provide the best quality. And those two go hand in hand. 

Mr. HULSHOF. But which? 

Dr. ASNER. Medicare Advantage. 

Mr. HULSHOF. Why? 

Dr. ASNER. As I said, if you focus on prevention, then you are 

going to diminish the number of complications for patients with 

heart disease, diabetes, obesity. All of these are coming. And we 

focus on that. And at least 85 percent of the cost of the system is, 

as we heard earlier, in about 15 percent of the Medicare Advantage 

patients. And those are the patients with chronic disease. 

We need to make sure we keep those people well, avoid complications, keep them out of the hospital. That we do in Medicare Advantage. In Medicare fee-for-service, the incentive is, frankly, pay 

for volume. The more you do as a physician, the more you get. That 

is not the incentive that we want to have in place as we have the 

baby boomers aging into Medicare. 

Mr. HULSHOF. Thank you, sir. 

Chairman STARK. Mr. Precht, isn’t it your understanding that 

most of the Medicare Advantage drug plans do not cover pharmaceuticals in the doughnut hole except for some inexpensive drugs? 

Is that not correct? 

Mr. PRECHT. That is correct. 

Chairman STARK. Okay. I just wanted to set that record 

straight, that it is a rare—other than generics, there are very few 

plans that cover. That has been suggested several times that the 

case was otherwise, and set that record straight. 

Dr. Asner, you refer in your testimony, and I don’t know whether 

I think it is an error or cute, but that 90 percent of Medicare beneficiaries have access to a Medicare Advantage plan with a $2500 


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cap on out-of-pocket costs. And that might be a reference to regional PPOs. But fewer than one-half of one percent of Medicare 

Advantage beneficiaries actually are enrolled in that kind of plan. 

So there is a world of difference between the 90 percent who 

have access to those plans and the half of one percent who are enrolled in them. And I just thought I—from the standpoint of accuracy. 

But there are different plans. And while most members in Medicare plans do not now have a cap on out-of-pocket costs, would you 

support a cap on out-of-pocket costs for all plans? 

Dr. ASNER. For Medicare Advantage programs? 

Chairman STARK. Yes. 

Dr. ASNER. Oh, I would support a cap on out-of-pocket expenses. 

Chairman STARK. Good. I think that is—in our recent bill that 

we just passed, I think we had that in there, didn’t we? A rule that 

they couldn’t pay more than—charge more than the Medicare 

deductibles or copays. In other words, many plans, while they have 

a lower premium, might charge $500 a day for a hospital copay, 

where Medicare would charge $900 and change for the whole encounter. So if you are in the hospital three or four days, you are 

doubling the cost of what you would pay under fee-for-service. 

We had suggested in that bill that the plans could charge no 

higher a copay or deductible than fee-for-service Medicare. And I 

presume that you would be agreeable with that as well. 

Dr. ASNER. As you know, we don’t design the benefits. The 

plans do. So I know you are referring to the plans. 

Chairman STARK. Yes. 

Dr. ASNER. But I have been in discussions with plans over benefits, and it seemed to me that at least in our market in Southern 

California, they are well aware of trying to keep the benefit cost 

to the beneficiary below fee-for-service Medicare. 

Chairman STARK. Well, as I say, I thank the panel, reminding 

them that the purpose of the hearing was not to suggest that Medicare Advantage plans, perhaps with the exception—maybe, Dr. 

Asner, would you care to comment on the difference? Because I 

suspect you are—either a staff model or HMO plans that mostly 

you are referring to in Southern California. 

What has been your experience with the private fee-for-service 

plans? 

Dr. ASNER. That is a great question. We actually are an organization of physicians who are private practice, so our physicians are 

independent. We don’t employ them. And in our organization, we 

don’t have any experience with the private fee-for-service plans. In 

fact, when I talk about Medicare Advantage and the coordination 

of care, that is what I am referring to, our type of coordinated care 

plan. 

Chairman STARK. Or a staff model like—— 

Dr. ASNER. My understanding is in private fee-for-service there 

is no coordination of care. 

Chairman STARK. Or staff model plans like—— 

Dr. ASNER. Well, and again, staff models have the coordination 

of care as well. But I am not referring in any of my testimony to 

the private fee-for-service component. 

Chairman STARK. Thank you for that clarification. 


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Again, I want to thank all of you for your patience and your willingness to participate. I will look forward both to Mr. Hotchkiss 

and Ms. Polich giving me some idea of whether there is a great difference in profits between the commercial book and the private— 

well, actually, private fee-for-service where you have it, and the 

other Medicare Advantage plans. 

Because what we are really trying to determine here is not 

whether—I think we would all stipulate that managed care plans 

are beneficial as a delivery system for medical services. The question is: How do we pay for it, and how much should we pay? And 

that is the road we have to go down. 

Thank you all for your participation. The hearing is adjourned. 

[Whereupon, at 2:25 p.m., the subcommittees were adjourned.] 

[Questions for the Record follow:] 


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