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57–330 PDF 2010

S. Hrg. 111–739 

OVERSIGHT OF CONTRACT MANAGEMENT 

AT THE CENTERS FOR MEDICARE 

AND MEDICAID SERVICES 

HEARING 

BEFORE THE

AD HOC SUBCOMMITTEE ON CONTRACTING 

OVERSIGHT 

OF THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

APRIL 28, 2010 

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

Printed for the use of the Committee on Homeland Security 

and Governmental Affairs 

( 


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(II) 

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

JOSEPH I. LIEBERMAN, Connecticut, Chairman 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

MARK L. PRYOR, Arkansas 

MARY L. LANDRIEU, Louisiana 

CLAIRE MCCASKILL, Missouri 

JON TESTER, Montana 

ROLAND W. BURRIS, Illinois 

EDWARD E. KAUFMAN, Delaware 

SUSAN M. COLLINS, Maine 

TOM COBURN, Oklahoma 

SCOTT BROWN, Massachusetts 

JOHN MCCAIN, Arizona 

GEORGE V. VOINOVICH, Ohio 

JOHN ENSIGN, Nevada 

LINDSEY GRAHAM, South Carolina 

MICHAEL L. ALEXANDER, Staff Director 

BRANDON L. MILHORN, Minority Staff Director and Chief Counsel 

TRINA DRIESSNACK TYRER, Chief Clerk 

AD HOC SUBCOMMITTEE ON CONTRACTING OVERSIGHT 

CLAIRE MCCASKILL, Chairman 

CARL LEVIN, Michigan 

THOMAS R. CARPER, Delaware 

MARK L. PRYOR, Arkansas 

JON TESTER, Montana 

EDWARD E. KAUFMAN, Delaware 

SCOTT BROWN, Massachusetts 

SUSAN M. COLLINS, Maine 

TOM COBURN, Oklahoma 

JOHN MCCAIN, Arizona 

LINDSEY GRAHAM, South Carolina 

MARGARET DAUM, Staff Director 

WILLIAM WRIGHT, Minority Staff Director 

KELSEY STROUD, Chief Clerk 


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(III) 

C O N T E N T S 

Opening statements: Page 

Senator McCaskill ............................................................................................ 1 

Senator Brown .................................................................................................. 3 

Senator Pryor .................................................................................................... 13 

Prepared statement: 

Senator Brown .................................................................................................. 67 

WITNESSES 

WEDNESDAY, APRIL 28, 2010 

Kay L. Daly, Director, Financial Management and Assurance, U.S. Government Accountability Office .................................................................................. 4 

Rodney L. Benson, Director, Office of Acquisition and Grants Management, 

Centers for Medicare and Medicaid Services, U.S. Department of Health 

and Human Services ............................................................................................ 6 

APPENDIX 

Benson, Rodney L.: 

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

Prepared statement .......................................................................................... 45 

Post-hearing Questions for the Record from Mr. Benson .............................. 55 

Daly, Kay L.: 

Testimony .......................................................................................................... 4 

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

Fact Sheet: New Information About the Medicare Secondary Payer, Recovery 

Contractor ............................................................................................................. 64 


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(1) 

OVERSIGHT OF CONTRACT MANAGEMENT AT 

THE CENTERS FOR MEDICARE AND 

MEDICAID SERVICES 

WEDNESDAY, APRIL 28, 2010 

U.S. SENATE,

AD HOC SUBCOMMITTEE ON CONTRACTING OVERSIGHT,

OF THE COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS, 

Washington, DC. 

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

SD–342, Dirksen Senate Office Building, Hon. Claire McCaskill, 

Chairman of the Subcommittee, presiding. 

Present: Senators McCaskill, Pryor, and Brown. 

OPENING STATEMENT OF SENATOR MCCASKILL 

Senator MCCASKILL. I am going to begin without Senator Brown, 

but I am sure he will be here momentarily and we will go ahead 

and get started since it is past the witching hour for this hearing 

to begin. So this hearing will now, in fact, come to order. 

This is a hearing on contract management at the Centers for 

Medicare and Medicaid. Just over a year ago, this Subcommittee 

began its oversight of government contracts. Over the last year, the 

Subcommittee has held more than 10 hearings on issues ranging 

from private security contractors to contract databases, covering 

areas from Afghanistan to Alaska. These hearings share a common 

focus: Making government contracting more efficient, more transparent, and more accountable. 

Today’s hearing examines one of our government’s most important agencies, the Centers for Medicare and Medicaid Services 

(CMS), which is within the Department of Health and Human 

Services. CMS is responsible for administering Medicare, Medicaid, 

and the Children’s Health Insurance Program, which provides 

health care coverage for almost 100 million Americans. 

Over the last year, Medicare and Medicaid have gotten a great 

deal of attention as we in Congress have worked to pass comprehensive health care and health care insurance reform legislation. This is not a hearing about that legislation. I was pleased that 

the health insurance reform was signed into law. We needed reform to ensure that the health care didn’t bankrupt average Americans and we also needed it to reduce our country’s deficit. 

But that is not what we are here to talk about today. This hearing is about how CMS manages the Medicare and Medicaid programs, and most importantly, the contracting in those programs. 


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1The Majority Staff Fact Sheet appears in the Appendix on page 64. 

We are here in the Subcommittee because, in fact, those programs 

are largely administered by contractors. 

Medicare contractors pay providers, enroll physicians, process appeals. They also answer questions from the public. The 1–800– 

MEDICARE hotline, that is brought to you by a contractor who 

made $258 million last year for that contract. It is contractors who 

provided day-to-day administration of the Medicare and Medicaid 

and Children’s Health Insurance Programs. 

Welcome, Senator Brown. 

Senator BROWN. Sorry I am late. 

Senator MCCASKILL. That is OK. 

It is also contractors who provide oversight of Medicare and Medicaid to the tune of almost $855 million in contracts last year alone. 

In total, CMS spent nearly $4 billion in contracts in 2009. 

The importance of the tasks performed by CMS contractors highlight the need for these contracts to be properly managed and overseen by CMS officials. According to GAO, however, that kind of 

oversight is exactly what CMS isn’t currently doing. Last October, 

GAO reported significant deficiencies with contract management 

and internal controls at CMS. This report follows a 2007 report 

with almost the same findings, and report after report documenting 

problems with CMS’s financial management. In fact, Medicare has 

been on the GAO’s high-risk list for 20 years, in part because of 

its management problems, including management of contractors. 

Despite all the reports documenting mismanagement, nothing 

seems to improve. Today, we want to ask what is necessary to ensure that CMS makes the necessary improvements to make sure 

that it is the best possible custodian of taxpayers’ dollars as we 

move forward. 

In preparation for this hearing, my staff examined in detail one 

CMS program administered by the Medicare Secondary Payer Recovery Contractor (MSPRC). Without objection, I would now ask 

that the Majority Staff Fact Sheet about MSPRC be admitted into 

the record.1

Senator BROWN. No objection. 

Senator MCCASKILL. The MSPRC is supposed to recover money 

for the Medicare program in cases where Medicare isn’t a primary 

payer for a beneficiary’s medical expense. One example is when a 

Medicare beneficiary is covered by their employer’s health plan or 

if they have expenses that should be covered by Workers’ Compensation or liability insurance. 

Last year, a group of lawyers in Kansas City contacted my office 

to bring to my attention how frustrated they were with CMS because they were trying to pay them. They were trying to send CMS 

money and no one was home to take the money. Imagine the irony 

of those phone calls in the context of the debates that were ongoing 

at that time. Here we were, discussing every day the incredible 

deficits that our country is facing because of the Medicare program, 

struggling with very controversial and difficult and complex decisions as to how we should reform the system, and I have lawyers 

calling me saying, we are trying to send them a check and no one 

will take it. That is when I realized we needed to do a hearing on 


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1The prepared statement of Senator Brown appears in the Appendix on page 64. 

contract oversight at CMS. They had been trying to return money 

to Medicare and the agency would not take it. 

The MSPRC had significant performance problems. In 2001, 

independent auditors found that the contractor, a tribally-owned 

business called Chickasaw Nation Industries, failed to respond to 

communications from beneficiaries, attorneys, and insurance companies. CMS also found problems with the contractor’s internal 

controls and case management. Reportedly, the MSPRC has now 

significantly improved its performance. 

In 2003, CMS recovered only 38 cents for every dollar spent on 

recovery. Today, the contractor reports that it is recovering $8.97 

for every dollar spent on recovery. One of the things we are going 

to try to do today in this hearing is determine whether or not that 

figure is accurate, according to CMS. 

The improvements on this contract would be encouraging, but 

the overall picture painted by GAO should be a wake-up call for 

CMS on the need to take swift action. I hope CMS will listen carefully to what GAO and the Members of the Subcommittee have to 

say about how to improve their management and oversight of contracts. 

I am encouraged that we now have a nominee in Dr. Donald Berwick to be Administrator of CMS and I hope that my Senate colleagues will recognize that leadership is needed here and at other 

Federal agencies. We need to begin to work together to put the 

President’s nominees in place so that government can work at its 

very best for the taxpayers of this country. If there are any measures that can be taken to improve their stewardship of taxpayer 

dollars, this Subcommittee will work with CMS to achieve those 

goals. 

I look forward to hearing the witnesses’ testimony and hope that 

this hearing represents a step forward in ensuring that the costs 

of health care are kept under control by solid, aggressive contract 

management at CMS. 

Senator Brown. 

OPENING STATEMENT OF SENATOR BROWN 

Senator BROWN. Thank you, Madam Chairman. I appreciate it. 

I try to be punctual. I lost track of time. I apologize. 

Senator MCCASKILL. That is OK. 

Senator BROWN. As you know, this is my second meeting as 

Ranking Member of this Subcommittee, and again, it is an honor 

to join with you, Madam Chairman, in exploring the important 

issues of this Subcommittee and I look forward to trying to tackle 

these tough issues. 

I just want to submit my opening statement and make it part of 

the record and then I just want to ad lib a little bit, if that is all 

right.1

The bottom line is, with all due respect, I am very concerned 

about where the taxpayer dollars are going and the oversight of 

those $4 billion and counting of tax-obligated dollars in CMS—the 

complaints, the lack of oversight, some of the failure to grab monies 

that are owed the government and the people of the United States 


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1The prepared statement of Ms. Daly appears in the Appendix on page 27. 

in a timely manner. I am curious as to whether it is a tools and 

resources problem, where you need more of something. Is it an IT 

problem? Is it an oversight problem? Where and how can we 

streamline this process to make sure that we can save the taxpayers money and get more bang for our dollar? That is my bottomline concern. 

In listening to the Chairman’s comments and opening statement, 

I think she shares very similar concerns about, if someone is trying 

to pay us, I mean, just show me where the check is. I will handdeliver it. We will go get it. If they want to give money, we should 

be sending somebody out for them to get the money and get it in 

the system and get reimbursed as quickly as possible. 

I am going to reserve the opening statement. I certainly appreciate it. It is easier to do it on the record, which I will submit that. 

But I just want to get down to business and start asking questions. 

Thank you. 

Senator MCCASKILL. Thank you, Senator Brown. 

Let me introduce the witnesses today. Kay Daly is the Director 

of the Financial Management and Assurance team at the U.S. Government Accountability Office (GAO), in my opinion, the premier 

government auditing agency in the world, where her responsibilities include financial management systems, improper payments, 

contracting costs analysis, and health care financial management 

issues. Ms. Daly joined GAO in 1989 and has participated on a 

number of high-profile and groundbreaking assignments. 

Rodney Benson serves as the Director of the Office of Acquisition 

and Grants Management at the Centers for Medicare and Medicaid 

Services. In this position, he is responsible for the award and administration of all contracts and discretionary grants for CMS. Mr. 

Benson has served in this position since October 1997. 

It is the custom of this Subcommittee to swear in all witnesses 

that appear before us, so if you don’t mind, I would like you to 

stand and take the following oath. 

Do you swear that the testimony that you will give before this 

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

the truth, so help you, God? 

Ms. DALY. I do. 

Mr. BENSON. I do. 

Senator MCCASKILL. Let the record reflect that the witnesses answered in the affirmative. We will be using a timing system today. 

We would ask that your oral testimony be no more than 5 minutes. 

We are not strict in this Subcommittee. We would ask that you 

submit your written testimony for the record in its entirety. 

And we will turn to you first, Ms. Daly. 

TESTIMONY OF KAY L. DALY,1 DIRECTOR, FINANCIAL MANAGEMENT AND ASSURANCE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE 

Ms. DALY. Thank you so much, Madam Chairman and Members 

of the Subcommittee. I am pleased to be here today to discuss contract management at the Centers for Medicare and Medicaid Services (CMS). CMS administers Medicare and Medicaid, two proVerDate Nov 24 2008 14:07 Dec 06, 2010 Jkt 057330 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 P:\DOCS\57330.TXT SAFFAIRS PsN: PAT

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grams that are included on GAO’s high-risk list, and relies extensively on contractors to assist in carrying out its basic mission. 

In fiscal year 2008, CMS reported that it had obligated about 

$3.6 billion under contracts for a variety of goods and services, including contracts to administer, oversee, and audit claims made 

under the Medicare program, provide information technology systems, and operate the 1–800-MEDICARE help line. 

In November 2007, we reported pervasive deficiencies in internal 

control over certain contracts that were used by CMS. We reported 

that CMS’s internal control deficiencies resulted in millions of dollars of questionable payments to contractors, primarily because 

CMS did not obtain adequate support for billed costs from certain 

contractors. Internal control—that is the plans, methods, and procedures used to meet missions—are the first line of defense in safeguarding assets and protecting our taxpayer dollars. 

Our follow-up audit was a comprehensive, in-depth review of internal controls over CMS’s contract management practices. This review, which culminated in a report in October 2009, again found 

pervasive deficiencies in internal control over contracting and payments to contractors. The internal control deficiencies occurred 

throughout the contracting process and increased the risk of improper payments or waste. These deficiencies were due in part to 

a lack of agency-specific policies and procedures to ensure that the 

Federal Acquisition Regulation (FAR) and other control objectives 

were met. 

As a result of our work, we estimated that for at least 84 percent 

of FAR-based contract actions made by CMS in fiscal year 2008 

contained at least one instance in which a key control was not adequately implemented. Not only was the number of internal control 

deficiencies widespread, but also many contract actions had more 

than one deficiency. We estimated that at least 37 percent of FARbased contract actions made in fiscal year 2008 had three or more 

instances in which a key control was not adequately implemented. 

For example, based on our statistical sample of the fiscal year 

2008 contract actions, we estimated that for at least 59 percent of 

those contract actions, the project officer did not always certify the 

invoices. We noted in our 2007 report that CMS had used negative 

certification. That is a process whereby it pays contractor invoices 

without knowing whether they were reviewed or approved in order 

to ensure that the invoices are paid timely. This policy continued 

throughout 2008. In one case, although a contractor submitted over 

100 invoices for fiscal year 2008, only eight were certified by the 

project officer. The total value of this contract through January 

2009 was about $64 million. 

The control deficiencies we identified in our statistical sample 

stemmed from a weak overall control environment. CMS’s control 

environment was characterized by the lack of strategic planning to 

identify the necessary staffing and funding, reliable data for effectively carrying out contract management responsibilities, and follow-up to track, investigate, and resolve contract audit and evaluation findings for purposes of cost recovery. 

GAO has made a total of 19 recommendations to address the 

shortfalls in contract management we identified in the two audits 

and the agency has agreed with each of our 19 recommendations, 


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1The prepared statement of Mr. Benson appears in the Appendix on page 45. 

but has disagreed with our determination that actions to address 

about five of those were not sufficient. We believe that the limited 

actions CMS management had taken to date on those recommendations had fallen short of what our expectations were and did not 

always address our intent. 

In conclusion, the continuing weaknesses in the contract activities and limited progress in addressing the known deficiencies really raises questions on whether they have got the appropriate tone 

at the top regarding contract management. Until CMS management takes actions to address those additional recommendations 

and deficiencies that were identified in our report, its contracting 

activities will continue to pose a significant risk of improper payments, waste, and mismanagement. 

So, Madam Chairman and Members of the Subcommittee, this 

concludes my prepared statement and I would be happy to answer 

any questions you may have. 

Senator MCCASKILL. Thank you, Ms. Daly. Mr. Benson. 

TESTIMONY OF RODNEY L. BENSON,1 DIRECTOR, OFFICE OF 

ACQUISITION AND GRANTS MANAGEMENT, CENTERS FOR 

MEDICARE AND MEDICAID SERVICES, U.S. DEPARTMENT OF 

HEALTH AND HUMAN SERVICES 

Mr. BENSON. Thank you, Chairman McCaskill and Ranking 

Member Brown. I am Rodney Benson, the Director of the Office of 

Acquisition and Grants Management (OAGM), an office within the 

Centers for Medicare and Medicaid Services. I welcome today’s opportunity to speak with the Subcommittee on contract management 

oversight at CMS. 

CMS is committed to the highest degree of integrity in the performance of its many responsibilities, and more specifically in the 

management and oversight of its contracting activities. We serve 

the aged, disabled, and poor of our Nation—the most vulnerable of 

our population. 

I am extremely proud of the contracting staff of OAGM and the 

important work we do in overseeing its many contracts. OAGM 

staff is dedicated to meeting the mission of Medicare and Medicaid 

programs and our more than 100 million beneficiaries. Furthermore, OAGM’s managers, contracting officers, and contracting staff 

are highly skilled and dedicated to the agency. I can assure you 

that the staff of OAGM is committed to excellence in everything we 

do. 

However, we are aware there is always room for continued improvement and new approaches to effective oversight. CMS appreciates the attention that GAO has given to our contracting processes and the issues they have raised. The thorough and thoughtful 

work of GAO and this Subcommittee is serving as an important 

catalyst to drive new improvements to CMS’s contracting functions 

and internal controls and has helped to enhance our contracting 

oversight. 

Our work is highly technical and complex, yet we have an obligation to the American taxpayers to perform our work in accordance 

with applicable acquisition laws and policies. I firmly believe that 


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the most significant internal control to ensure the proper performance of CMS’s contracting functions is the knowledge and skills of 

our contracting staff. We have worked hard to recruit people with 

technical and contracting expertise and to provide the CMS acquisition workforce with necessary skills, resources, and leadership to 

perform their jobs effectively. 

To this end, we have instituted a number of changes and initiatives to ensure the appropriate resolution of GAO’s findings. We 

conduct monthly internal training for contracting staff that includes topics such as invoice review and approval, acquisition data 

entry, contract types, and the use of competition. We also made 

available to our staff a web-based acquisition tool that gives access 

to the information they need to be efficient and effective. 

Furthermore, we have senior leadership in place working alongside our staff as experienced resources and efforts to guide and 

mentor our staff as they acquire the knowledge and abilities they 

need to perform their jobs well and advance to the GS–1102 certification levels. 

We recently created a deputy position which is responsible for acquisition policy and for strategically placing OAGM in a position to 

meet CMS’s contracting needs. We were extremely fortunate to 

have a very senior and experienced government executive who has 

an extensive background in government contracts and is a Certified 

Public Contracts Manager assume this position for our organization. 

We also hired a new Director for our Division of Policy and Support who is responsible for issuing acquisition policies, establishing 

internal controls, and acquisition career development. This individual came with a wealth of experience and expertise in acquisition policies and acquisition workforce development and was recruited from the Veterans Affairs Acquisition Academy Internship 

School for this position. 

We have also created a new Cognizant Contracting Officer position which will be devoted to ensuring the proper oversight of our 

cost reimbursement contracts. 

We have developed a detailed and comprehensive plan to address 

every one of GAO’s findings. We have engaged an audit firm to review our plans and ensure that we have it right. The firm has extensive expertise regarding internal controls that apply to all Federal activities, which will provide us with guidance about best practices in other agencies and ensure we put in place the internal controls that will fully address GAO’s concerns. This same firm will 

assist us in developing a comprehensive and strategic acquisition 

workforce plan. 

A lot remains to be done. You can be sure that you have the commitment of CMS to improving our contracting oversight. I am sincerely grateful for the work that GAO has done for our agency. I 

am also appreciative for the interest and the support of this Subcommittee. 

Thank you again for the opportunity to talk with you this afternoon about CMS’s contracting activities. 

Senator MCCASKILL. Thank you both very much for being here. 

Let me start out with you, Ms. Daly. You found in the latest 

work that the contract management, the problems were, and I am 


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quoting the report, ‘‘pervasive.’’ That is a troubling word to use 

when we have $4 billion worth of contracts. In light of your findings, including staffing issues, data problems, lack of contract management and controls, what do you think, if you had to prioritize 

the problems and if Mr. Benson called and said, list them for us, 

what would you put at the top of the list that they need to go after 

first? 

Ms. DALY. Well, Senator McCaskill, that is a very good question. 

There were, like I said, pervasive problems when 84 percent of the 

contracts we looked at had at least one key control failure. There 

are a number of issues I mentioned in my oral statement; for example, negative certification, is one that is troubling to me in that—— 

Senator MCCASKILL. Explain negative certification so that people 

who are not familiar with the term understand it. 

Ms. DALY. Certainly. Negative certification is a process where 

the invoices, when they come in, they are paid within the time 

frame without being first reviewed and approved. So they will not 

be paid if someone raises their hand and says, ‘‘don’t pay this, 

there is an issue with it.’’ But if not, it moves forward and it is 

paid. So if there is an issue—— 

Senator MCCASKILL. So there is an assumption that the invoice 

be paid unless someone raises something negative? 

Ms. DALY. Exactly. So that is one case where you can become 

part of a pay-and-chase cycle that we see a lot of times with other 

agencies: That once the dollars have gone out the door and then 

you realize there is a problem, then that has to be addressed. So 

that is certainly very troubling. 

There is also the issue of getting incurred cost audits done, and 

all of the audits done very timely. CMS does a lot of cost reimbursement-type contracts, so it is critical that the contractors for 

those contracts have good cost accounting systems in order to be 

able to bill accurately to the Federal Government. At CMS, we 

found error rates as high as about 50 percent in getting those contract audits done timely. And then again, there were issues with 

contract closeouts, the last chance the government has to recoup 

those costs. So I think it is very important. Those are some of the 

key issues that need to be addressed sooner rather than later. 

Senator MCCASKILL. So just to boil it down in, I hope—not that 

I mind the terminology used by auditors—to make sure that in 

plain language what you are saying is because so many of the contracts, the amount of money these contractors are paid are based 

on assertions they make about what their costs are in performing 

those contracts, and the only way the government has to ‘‘keep 

them honest’’ is by auditing those costs. 

So if you have a cost plus contract or a cost incurred contract, 

there is not an incentive on the part of the contractor to keep costs 

down, because whatever their costs are, they are going to get paid. 

So there is not any incentive. It is not a fixed cost. It is costs incurred. 

So the incentive is to turn in big bills. So if the audits aren’t 

done, if the agency that is paying the money is not doing the audits, if they don’t have a constant sense that someone is looking 

over their shoulder, that is where you can have runaway costs. And 

it is even worse if it doesn’t happen—a serious accounting doesn’t 


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happen before the closeout because once the closeout happens then 

the only way you get that money back is with very expensive lawyers. Is that a fair summary of what cost incurred auditing and 

closeout means? 

Ms. DALY. I can tell you have been here before. [Laughter.] 

Senator MCCASKILL. OK. I just want to make sure that everybody understands that this is not just terminology that is thrown 

around. This is real money that we are probably letting go out the 

door that we shouldn’t. 

What allowed CMS—and I would like both of you to weigh in on 

this—how did we get to the point that we have such a large reliance on contracting? I have said in this Subcommittee many times, 

I am not against contractors, but it does appear that our government, especially in the last decade, has really expanded contracting 

without the requisite acquisition personnel and oversight to manage it. So any hope we had of saving money by contracting out, I 

think at this point I would characterize as a pipe dream because 

I don’t think that has been the case at all based on the work of 

this Subcommittee. 

So let us start with you, Mr. Benson. Why do you think that the 

contracting has become the meat and potatoes at CMS instead of 

the appetizer or dessert? 

Mr. BENSON. Well, Senator McCaskill, I have 35 years of experience in government contracting, most of it working with the CMS 

in various capacities, and I could give you a long story, but I will 

spare you. And I think the reason for the reliance goes to our statutory authorities. 

For most of CMS’s existence, we had major contracts with Medicare Intermediary Carriers. They are our legacy contractors. They 

paid the claims. They had the call center. They did the fraud and 

abuse for us. They did the audit recovery, the MSP recovery work. 

They did everything. All our work was performed by these contractors. 

Over time—and it was pursuant to statutory authority. There 

was authority in the Social Security Act that actually required, for 

example, for paying Part A claims, we contracted with fiscal intermediaries, and they were organizations who were nominated by 

providers to make payments to them. 

Senator MCCASKILL. Is that right? 

Mr. BENSON. Yes, very unique statutory authorities. 

Senator MCCASKILL. I did not realize that. 

Mr. BENSON. Congress really controls what we do. Congress 

started reengineering the Medicare program to a large degree. 

They formed the Medicare Integrity Program, so we were required 

to contract out the fraud and abuse functions to different contractors. They have contracted out, like different kinds of reviews. We 

have contractors called Qualified Independent Contractors (QIC). 

We have so many acronyms. But they do second-level appeals of decisions again, pursuant to statutory authorities. 

So we had statutory authorities that require that we contract out 

certain functions. As an agency, too, in order to manage the program more efficiently and effectively, we started also pulling out 

functions from the Medicare intermediary carriers. It used to be 

that our data centers, we had individual data centers at every one 


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of those contractors. When I first started, there were like 135 of 

them. You can imagine, that was pretty inefficient and ineffective. 

Now, we have consolidated data centers. We maintain the software 

for paying the claims ourselves. 

We have been able to manage the program on a much smaller 

budget, much more efficiently and effectively, by consolidating 

those functions. But we started out from the get-go pursuant to a 

statutory scheme with having the program managed by contractors 

and it evolved to where, as I said, pursuant to the statutory 

schemes and in order to manage to the program in the most efficient and effective manner possible, we use a number of different 

contractors to manage our program. 

Senator MCCASKILL. Well, there was not a statutory requirement 

that you consolidate data centers with a contractor. 

Mr. BENSON. There was not a statutory requirement. 

Senator MCCASKILL. And there is not a statutory requirement 

that you do the Medicare help line with a contractor. 

Mr. BENSON. There is not a statutory requirement, ma’am, there 

is none. 

Senator MCCASKILL. There are some, obviously, that are statutory. But the preference for contractors, do you think that it is saving money? 

Mr. BENSON. That is a very difficult question to answer. But you 

say, saving money. It certainly is saving money over the way we 

had historically administered the program. 

Senator MCCASKILL. But that has a lot to do with combining 

data centers, not necessarily hiring contractors to do the work. 

Mr. BENSON. Right. 

Senator MCCASKILL. I mean, you guys realized efficiencies, but 

the work that you did to realize those efficiencies could have been 

done by government employees and contractors and you still would 

have enjoyed the efficiencies. 

Mr. BENSON. Yes, ma’am. 

Senator MCCASKILL. OK. GAO found the internal controls at 

CMS were deficient and resulted in inadequate strategic planning 

for both staffing and resourcing. I understand that you are planning to hire Grant Thornton to conduct a staffing study for you. 

First, when do you expect the study to be complete? 

Mr. BENSON. We expect the study to be complete, I believe by the 

end of May, beginning of the summer. 

Senator MCCASKILL. And is this study going to also show you 

what the right mix of contractors and government employees are? 

Mr. BENSON. No, ma’am. We are really looking for this study, it 

is an acquisition capital workforce plan. It is going to focus on the 

workforce for the acquisition function. 

Senator MCCASKILL. All right. Should I be worried that we need 

to hire somebody to tell you that? 

I am curious what they cost. What are you paying Grant Thornton for this? 

Mr. BENSON. I am not exactly sure, but there is a lot of work 

that is on the Grant Thornton task order because they are particularly focusing on the internal controls. Altogether, I believe we are 

paying about $500,000, but that is for a fairly robust task order. 

This is just one part of it, that the workforce developed. 


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Senator MCCASKILL. I would like to see the task order—— 

Mr. BENSON. Sure. 

Senator MCCASKILL [continuing]. That we are paying a half-amillion dollars for. 

Mr. BENSON. Yes, ma’am. 

Senator MCCASKILL. GAO has given you a pretty specific list 

about internal controls, and they didn’t charge you for it. I am concerned in some ways that we feel that we need to contract out 

somebody to tell you how many folks you need to do just acquisition. How many people do you have working in acquisition? 

Mr. BENSON. We currently have a ceiling of 126, and we have 

just over 100 of those that would be devoted to the acquisition 

function. 

Senator MCCASKILL. And what is the payroll on those 100 employees on an annual basis? 

Mr. BENSON. We don’t budget for an office exactly by total payroll. Our average salary would be around a GS–13. I don’t know 

exactly whatever that would compute to, and I don’t know the overall—— 

Senator MCCASKILL. Clearly, you are not a GS–13 anymore or 

you would know. 

I am just trying to think in my mind, calculate what we are 

spending on figuring out how many people we need versus what we 

pay how many people we are using a year. That is a pretty hefty 

price tag, so I would be anxious to see the task order. 

Let me turn it over to Senator Brown now for some questions 

and I will return for a number of questions after he has an opportunity to question. 

Senator BROWN. Thank you, Madam Chairman. You actually 

asked one of my questions, which is how much the Grant Thornton 

contract is going to be, and I mirror your thoughts. We had GAO 

that did a nice review, made recommendations, yet we are then 

going to an outside entity, paying them another half-a-million dollars which we don’t have, and what if they come back and confirm 

what they said? I mean, are we better off, worse off? I don’t get it. 

Mr. BENSON. Senator, the main purpose of the Grant Thornton 

task order is to help make sure that we put the right internal controls in place. They have experience working throughout the government with other Federal agencies. They are an audit firm, think 

like an audit firm, and they can help us to make sure that our internal controls are exactly right. 

Senator BROWN. But you guys have been doing this for quite a 

while. I mean, if the audit control is on right now, what do we have 

to say with what has happened in the past in terms of collecting 

money, hiring contractors. I mean, if this stuff has been broken, because apparently you are doing a study to find out what needs to 

be done better, what confidence should we have in what has been 

done prior to this? 

Mr. BENSON. Well, Senator, improvement and change is a continuous and an iterative process. We try to bring every resource we 

can to make sure we are doing things in the right way. 

Senator BROWN. OK. I think a GS–13 makes about $85,000 and 

you have 120, 126 employees, just for the record. But in your initial 


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statement, you said we are a highly technical and complex agency. 

Am I correct that you are still doing your billing manually? 

Mr. BENSON. It is not our billing, exactly. We do receive invoices 

from contractors in hard copy, and that is because we are in the 

process now of developing a new internal accounting system. We 

haven’t been able—it wouldn’t be a wise investment today of resources to build the interfaces between our acquisition system and 

the accounting system because we are in the process now of developing a new overall accounting system for the agency. 

Senator BROWN. Because it seems to me that if you are highly 

technical and complex and yet we are still doing billing manually, 

it doesn’t make much sense to me. Let me just tell you what my 

impression is after doing the research and having some experience 

dealing with your agency back home in the State Senate. There are 

some efficiency problems and they bother me greatly, because as 

somebody who prides himself in being a fiscal conservative, I want 

to make sure that not only me as a taxpayer, but everybody else 

as taxpayers are getting the best value for their dollar. 

And now that we have done a health care bill that is going to 

basically provide you more money and resources to apparently go 

out and get fraud when we haven’t even collected some of the monies from the fraud and abuse that we have already identified, it 

seems like we are just adding good money after bad. 

I personally, Madam Chairman, have a little bit of trepidation 

and confidence as to whether you can, in fact, save money when we 

give you additional money to go and seek out that fraud and abuse. 

What are your comments on that? 

Mr. BENSON. Well, in my position, I am responsible for the contracting function itself. We have a center that is devoted to the actual program work around the program integrity work. 

Senator BROWN. Is that under your jurisdiction? 

Mr. BENSON. It is not under my jurisdiction. 

Senator BROWN. That is your answer? So you don’t have any 

comments on that? OK. That is fine. 

Would you agree or is it true that the CMS is, in fact, addressing 

a lot of the concerns—or let me backtrack. Do you think it is possible for you to address the concerns in the GAO report, and if so, 

what time frame are we talking about and how much will it cost? 

Mr. BENSON. Sir, that is a great question, and we intend to fully 

address every single one of those GAO findings. We take them very 

seriously and we are committed to addressing each one of them. 

We are putting together schedules and plans. We have plans in 

place to address those findings quickly and aggressively. 

And as far as the cost, beyond the Grant Thornton task order, 

the assistance we are getting there, we will be doing that entirely 

with our own staff. So there wouldn’t be any additional cost. 

Senator BROWN. So are you responsible at all as to how the fraud 

money is allocated, for fighting fraud? Does that—— 

Mr. BENSON. No, sir, I am not. 

Senator BROWN. Madam Chairman, I am going to just table for 

a minute and give it back to you. I just want to get my thought 

process organized a little bit. Thank you. 

Senator MCCASKILL. OK. Senator Pryor, welcome to the hearing. 

We are glad you are here. 


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OPENING STATEMENT OF SENATOR PRYOR 

Senator PRYOR. Thank you. Thank you for doing this today, 

Madam Chairman. 

Let me start with you, Mr. Benson, and talk about where you see 

most of the waste, fraud, and abuse in Medicare and Medicaid contracts. What is the biggest problem? 

Mr. BENSON. Well, in terms of our contracting itself, we haven’t 

encountered a lot of fraud. We had waste or abuse. We haven’t 

really encountered a whole lot in terms of any sort of GAO IG report of our contractors. 

Senator PRYOR. Ms. Daly, what are the biggest areas of concerns 

from your standpoint? Where is most of the fraud, waste, and 

abuse in the system? 

Ms. DALY. Well, Senator Pryor, in our 2007 report, we had identified some issues that we were concerned about that appeared to 

be waste. It looked as though there were some contractors that 

were subcontracting with each other. Therefore, because of that, instead of having CMS directly contract with them, a contractor 

when it contracts with someone else can have their add-on fees for 

serving that function be paid by the government also. So I think 

there was a total of close to $3.6 million that we thought was questionable because of that and should be addressed. 

Senator PRYOR. And when you talk about contracting, just for 

clarification, are you talking about where CMS actually as an agency enters into a contract, or are you talking about for services provided under Medicare and Medicaid? 

Ms. DALY. Sir, I am referring to cases which CMS enters into a 

contract, not as part of the provider providing care to an American 

citizen. 

Senator PRYOR. OK. I think you said in your written testimony 

that GAO estimates that there is at least 46 percent of fiscal year 

2008 contract actions that did not meet the Federal Acquisition 

Regulation requirements, is that right? 

Ms. DALY. Well, yes sir. We were specifically referring to the controls in that area. For example, they considered whether the cost 

accounting system had been approved prior to contract award, and 

these are in the cases where it is a cost reimbursement contract. 

So what I think is very important for cost reimbursement contracts, is that the contracting systems that are being used by those 

contractors be reviewed and approved ahead of time to make sure 

that what is billed to the government are fair charges. 

Senator PRYOR. OK. And do you know if the agency is addressing 

that? 

Ms. DALY. I am not aware of the status of addressing that particular recommendation. 

Senator PRYOR. Mr. Benson. 

Mr. BENSON. We are addressing those recommendations. We are 

taking our obligations in the administration of cost reimbursement 

contracts very seriously. We have done a number of things, primarily of which is to create a contracting officer’s position which 

is entirely focused on ensuring the proper administration of cost 

contracts. 

Senator PRYOR. OK. Will that result in less waste? 


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Mr. BENSON. Well, sir, it will result in making sure that the contract terms are adhered to. I am not sure that I consider that to 

be waste, exactly, but we want to make sure that the contract 

terms and the rules in the FAR are strictly followed. 

Senator PRYOR. OK. Ms. Daly, are there, I guess I would call 

them best practices for the Federal Government in contracting? 

Ms. DALY. Well, Senator Pryor, the Federal Acquisition Regulations certainly serve as the basis for all of government contracting 

throughout all the agencies. I am not aware of any particular best 

practice studies that may have been done, but I am certain that 

there may be vendors out there willing to help you with that. 

Senator PRYOR. Is there room for improvement over at CMS? 

Ms. DALY. From our work, it shows that there is clearly room for 

improvement. 

Senator PRYOR. And why is CMS not doing the things that they 

should be doing? 

Ms. DALY. Well, what we saw were some of the root causes was 

that they had not determined the appropriate level of staff and resources needed to do what they had been tasked with doing. So it 

is basically they needed to analyze what their workload was and 

then identify what resources are needed to accomplish those tasks. 

We also noted that their policies and procedures had not kept 

pace with what the Federal Acquisition Regulations called for, and 

they have been working to try to address that. One of the things 

they had done was they had implemented a web-based system that 

provides the staff with access to the FAR and other things, but we 

still think they need to customize that so it explains how it should 

be done at CMS: How to use the specific forms; what is appropriate 

for them; and what supervisor it goes to; those kinds of things, to 

help them in doing their day-to-day activities. 

Senator PRYOR. And tell me about the Contract Review Board. Is 

there a Contract Review Board and how is CMS doing with that? 

Ms. DALY. The Contract Review Board was what appeared to be 

a promising control to put in place to help ensure that some of the 

regulatory and quality assurances were provided, but unfortunately, it wasn’t fully implemented as envisioned. They did not do 

the number of reviews that they had expected to do, nor were all 

of their reviews acted upon. So its value as an internal control was 

not the best that it could be. 

Senator PRYOR. Mr. Benson, do you know why the Contract Review Board did not do all the reviews that they were supposed to 

do and why they did not follow up? 

Mr. BENSON. Well, the Contract Review Board was something 

that we created internally to try to enhance the effectiveness and 

efficiency of our contracts. We are in the process now of revising 

that policy and we are really going to bolster it, making sure that 

we look at more of our contracts, that we really do a thorough job 

with that board. And I am going to, as a result of our new review 

policy, going to be reviewing contracts over $50 million personally. 

So we are in the process now of trying to make sure that we do 

have an effective Contract Review Board. 

Senator PRYOR. And Ms. Daly, you also included in your written 

testimony that GAO found that in 54.9 percent of the contracts, 


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CMS did not promptly perform or request an audit of direct costs. 

Do you want to comment on that? 

Ms. DALY. Yes, sir. I think that has been one of the problematic 

areas at CMS. The audit of direct costs generally occur towards the 

end of the contract and it is very important that be done very 

promptly and very timely so that you are sure that the contractor 

has billed for the amounts correctly. 

Senator PRYOR. And how does CMS’s number compare with the 

other government agencies? 

Ms. DALY. I am not aware of statistics related to that for other 

agencies, so I could try to get back to you with that information. 

Senator PRYOR. Thank you. Madam Chairman, that is all I have. 

Thank you. 

Senator MCCASKILL. Thank you very much, Senator Pryor. 

Mr. Benson, one of the things that is most frustrating to people 

who do audit work is when they do a report and then they come 

back and they do another report and the things they reported on 

the first one don’t appear to have been fixed. That is a waste of 

money for the taxpayers who are paying the folks at GAO, because 

if they produce a product and nobody pays any attention to it, that 

is the same as all those hours of work just basically going up in 

smoke. 

Two years later, after there were nine recommendations, GAO is 

indicating that on seven of the nine recommendations, they had not 

been fulfilled. Let us talk about that. Give me your best excuse as 

to why you need longer than 2 years to do something as basic as 

criteria for negative certification. Why would that not get fixed in 

2 years? That is pretty basic to paying attention to the money 

going out the door. 

Mr. BENSON. Ma’am, I agree, and I don’t want to make excuses. 

We took actions as a result of the original GAO findings. GAO 

came back and said what we did was not sufficient. So this time, 

we want to get it right. This time, we are going to make the 

changes. For example, we changed our invoice review policies, but 

GAO didn’t feel we went far enough in making those changes. So 

now we are going to do what we need to do on all those findings 

to make sure that we satisfy GAO’s findings. 

Senator MCCASKILL. Because of all of the things that must occur 

as it relates to our Medicare program over the coming years, there 

is going to be a lot of scrutiny on your agency. I cannot stress 

enough that a very basic would be getting the GAO stuff done. You 

talk about cranky. If this GAO stuff doesn’t get done, like immediately, it is a real problem because this is really not low-hanging 

fruit. 

It is my understanding that the original report found $90 million 

in questionable contract payments. Now, we are not talking about 

payments to medical providers here. We are talking about payments you made to contractors. You have stated that your current 

investigation and an audit will address $67 million of those costs. 

Now, here is the problem. The $90 million they identified was for 

years 2004, 2005, and 2006. The audit you did where you found 

$67 million was in 2008. So you didn’t even audit the right year 

to address what they found in the previous years. Do you see what 

I am saying? 


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Mr. BENSON. Yes, ma’am. 

Senator MCCASKILL. Now, that doesn’t inspire confidence. 

Mr. BENSON. Yes, ma’am. 

Senator MCCASKILL. Do you want to speak to that and make me 

feel better? 

Mr. BENSON. When we got the initial GAO report, our practice 

is to resolve audit findings when we do the close-out audit of the 

contracts. We had intended to do those contract audits expeditiously. We didn’t. We now have a very concrete plan to get those 

audits done in the next few months and we are going to make sure 

that no payments under those contracts were made inappropriately. 

Senator MCCASKILL. Why are all these contracts cost incurred? 

Why aren’t they fixed price? 

Mr. BENSON. Well, the Federal Acquisition permits us to use 

cost—— 

Senator MCCASKILL. I am not asking if you can. I am asking you 

why. 

Mr. BENSON. Because our program is subject to continuous 

change and we have contract statements of work that are subject 

to continuous change, and a cost reimbursement contract is generally appropriate when the government can’t draft a statement of 

work with sufficient, like, certainty to assure—to shift the risk to 

the contractor of performance. And because of the statutory 

changes, the regulatory changes, the changes in the Medicare program, we just have not been able to develop statements of work 

with sufficient certainty to facilitate fixed price solutions. 

Senator MCCASKILL. Is the Medicare hotline cost incurred? 

Mr. BENSON. Yes, it is. 

Senator MCCASKILL. How can that not be fixed cost? 

Mr. BENSON. Ma’am, if I could, may I get back to you? I think 

there is a per call cost and then there are certain aspects of it that 

are fixed price, but I need to clarify that for the record, if I may. 

INFORMATION SUBMITTED FOR THE RECORD 

The 1–800–MEDICARE Beneficiary Contact Center (BCC) is a performancebased, cost-plus-award fee (CPAF) task order. A CPAF task order is appropriate in 

order to meet CMS’s objectives of enhanced customer service while increasing efficiency of operations. In this case, a CPAF task order is being utilized because the 

workload of the BCC is uncertain with large cyclical variances and added spikes in 

call volumes, which does not permit costs to be estimated with sufficient accuracy 

to use a fixed price vehicle. To manage a normal load of calls from Medicare beneficiaries, there are currently 2,650 customer service representatives. During the fall 

when call volumes rise during open enrollment periods for the Medicare Advantage 

and Part D plans, more than 4,000 staff is employed. We have also seen times when 

BCC needed over 6,000 staff members to service calls. 

Additionally the Agency must respond to a dynamic environment, which includes 

legislative changes or responses to media attention. This CPAF pricing arrangement 

allows the government to provide technical direction as required, and evaluate performance with a structured process that considers both objective and subjective criteria. 

Senator MCCASKILL. Well, let me just say that a per call cost for 

a Medicare hotline, doesn’t seem to pass the common sense test to 

me. You are going to have to hire so many people to man the hotline whether the phone is ringing or not. It seems to me you ought 

to be able to resource a hotline with sufficient folks and set a price 

for that and get some bids and do it on a fixed price. 


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I have watched so many contracts get out of control when it is 

cost incurred, cost plus, and the incentives are on the wrong side 

of the table. They are not on the taxpayers’ side of the table, they 

are on the contractors’ side of the table. They are easier to administer, admittedly, because you don’t have to work as hard on the 

scope. You don’t have to work as hard on what it is that you are 

laying out in terms of what is going to be performed on the contract, and I realize that is challenging in the Medicare-Medicaid 

environment, but it doesn’t appear to me that you all are even focusing on a way that you can move as many contracts that is practicable to a fixed-cost price. 

We may follow up with more specific information about cost incurred, cost plus versus fixed price on the various areas that Medicare and Medicaid are, in fact, contracting now. I think it is important. 

The Subcommittee asked GAO to provide some additional background on some of the case studies. There was a company called 

Palmetto GBA. You awarded a cost reimbursement contract to 

them despite the contracting officer’s knowledge that this contractor had an inadequate accounting system. So this is what I was 

just discussing, except it is even worse, because not only have you 

given them cost plus, cost incurred, you are giving it to a contractor 

that you already know doesn’t have an appropriate accounting system to keep track of what they should be charging you. Why would 

that occur? Why would a contracting officer give a contract to a 

company when you knew they had inadequate accounting in order 

to document what we owe them? 

Mr. BENSON. That should not occur, ma’am. 

Senator MCCASKILL. OK. I think we agree on that. Is the contracting officer that did that, have they been disciplined? Have they 

been held accountable? 

Mr. BENSON. They have not been disciplined. We have done internal training to reinforce to all of our contracting officers the 

FAR requirement that a contractor have an approved accounting 

system. 

Senator MCCASKILL. OK. In another, GAO found the contractor 

submitted over 100 invoices of which only eight had been certified 

by the project officer. Now, your policy provides that the project officer review each contractor invoice, recommend payment approval 

or disapproval, and sign a certification form. The contract value of 

this particular contract was more than $90 million. What happened 

here? Why weren’t these invoices being reviewed? 

Mr. BENSON. Again, they should have been reviewed. We have 

done a lot of training of both our contracting staff and our project 

staff. We are also taking the GAO recommendation, which was to 

start having managers review some sample to make sure that, in 

fact, all the invoices that are in a contract file have been approved 

by both the project officer and the contracting officer. That is our 

policy. 

Senator MCCASKILL. Well, I think one of the things that is going 

to have to start happening, if things have been this loosey-goosey 

over there, that you are awarding cost incurred contracts to people 

who don’t have an approved accounting system and you have got 

eight out of 100 invoices that have been certified when 100 percent 


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should be certified, I think just saying to people, we really mean 

it this time, it may take more than that. You may have to, as somebody who is managing this effort, you may have to say to these employees, you are going to be disciplined if this stuff occurs. We have 

watched, especially in the Department of Defense, when people 

don’t get disciplined, nobody takes it seriously. It is like Monopoly 

money to them. 

This is really important, that we hone in or home in—I have 

been told that I should say home in—on this problem because this 

is a huge amount of money. And candidly, if the contractors know 

that you are not paying close attention, they are on the front lines. 

That encourages the kind of environment where they don’t have to 

pay close attention. And now we are talking about hundreds of billions of dollars. 

Let me turn it over to Mr. Brown for any of his questions. 

Senator BROWN. Thank you. You have been in this position since 

1997, is that accurate? 

Mr. BENSON. Yes, sir. 

Senator BROWN. And I am listening and I am learning. I know 

I don’t know it all, Madam Chairman, but I think we are bonding 

because the question you asked about the recouping of 90—— 

Senator MCCASKILL. I just had this thought for a minute. 

[Laughter.] 

Senator BROWN. We are bonding. 

Senator MCCASKILL. We are bonding. 

Senator BROWN. We are reading each other’s minds, because I 

am curious as to the fact that, I mean, when she was asking the 

question, I said, my gosh, she is cheating. She is looking at my 

notes here. [Laughter.] 

And what I am finding is that in a November 2007 report, that 

$88 million or $90 million from prior years hasn’t been recouped 

and it is 2010. And you say, well, we are working on it. We are 

doing this. We have got more checks and balances. We are doing 

this and doing that. With all due respect, how long does it take to 

collect the money and get reimbursed from the people that have 

been overpaid or there have been losses or whatever? 

Mr. BENSON. Sir, as I said, we have a plan in place and we are 

going to be as expeditiously as possible addressing every one of 

those findings and making sure that we have made any appropriate adjustments—— 

Senator BROWN. Well, who is responsible, though, for having—I 

mean, why does it take coming to the hearing, or why does it take 

the GAO recent report to deal with a GAO report that is from 

2007? That one hasn’t been addressed yet. So what confidence 

would I have or would the American taxpayers have or this Subcommittee Chairman and the Members have to think that the new 

report is going to be adhered to? 

Mr. BENSON. Sir, our office needed some change and some improvement. We are making those changes now. We are going to address those findings. 

Senator BROWN. Well, you have, you say, it is a highly technical 

and highly specialized office, and I am presuming that the contract 

approval officers have training. They have been schooled. They are 

certified. And yet they haven’t bothered to check to see if basic 


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common sense stuff that should have been done when signing off 

on a contract wasn’t done. 

And now you are getting more bodies, you are getting more 

money, and you are getting more opportunity, I hate to say it, for 

problems. What assurances do we have, once again, if these same 

people who have made these mistakes or didn’t adhere to their 

basic training are still making these decisions, what confidence 

should I have? 

Mr. BENSON. Sir, I understand. As I said, we have made some 

really significant changes—— 

Senator BROWN. Well, like what? I have heard that, like, 10 

times. 

Mr. BENSON. Thank you. One of the things we have done, as Ms. 

Daly pointed out, we have instituted an automated system for all 

our contracting staff that sets forth in a very concise way all the 

requirements of law and regulation. We are customizing that with 

all our own internal rules. So, first of all, contracting officers have, 

or contract professionals have the tools they need to make sure 

they know the policies, they have the policies right there at their 

fingertips and they are following them. 

Senator BROWN. All right. What tools are you talking about that 

they have now that they didn’t have before? 

Mr. BENSON. We have a Web-based tool that is in a very comprehensive way—— 

Senator BROWN. Is it a checklist that they have to go through 

when they are signing off on a contract? 

Mr. BENSON. Exactly. It has checklists—— 

Senator BROWN. So that hasn’t been in place before? 

Mr. BENSON. We instituted it just over a year ago. 

Senator BROWN. OK. 

Mr. BENSON. And we also have been developing a contract checklist in concert with the Department of Health and Human Services 

that are going to also—it was one of the GAO’s recommendations 

that in a meaningful way should assure that contracting officers 

have complied with all the steps in awarding a contract. 

Some of the other things we have done, and I think this is really 

significant, is made some really significant leadership changes. I 

think I said earlier in my opening statement that we have created 

a second deputy position to help us focus not only just the strategic 

aspects of managing our office, but on the policies, the internal controls, somebody who is very experienced in government acquisition. 

Senator BROWN. Who was handling that stuff before? 

Mr. BENSON. Well, before, it was really more or less on my plate 

and the other managers in the office. 

Senator BROWN. So how many managers are in the office? 

Mr. BENSON. Well, previously, we had myself and a deputy, and 

then we have two groups in the office, two group directors, and we 

have seven divisions. So we had nine people. 

Senator BROWN. So now you have a new deputy that has this 

amazing experience, so he is going to solve all the problems, or 

she? 

Mr. BENSON. Well, I believe that when you assign accountability 

and responsibility to somebody, things get done. 


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Senator BROWN. But didn’t the head of CMS give that accountability and responsibility to you guys? 

Mr. BENSON. Yes. So we have created a position to help us really 

focus and make sure we get this right. We have also created a— 

well, not created, we have hired a new Director for our Division of 

Policy and Support, someone who, first of all, comes to us from the 

Veterans Affairs Acquisition Workforce Academy, who has extensive experience in workforce development, is a nationally recognized expert in that field, as well as extensive experience and expertise in developing acquisition policy. 

Senator BROWN. But don’t the taxpayers have the right to make 

sure that you do get it right, because we are not talking about a 

few hundred thousand dollars here. We are talking about hundreds 

of millions of dollars. You are getting a pay increase now to do your 

job to find fraud, and yet we haven’t even been able to collect the 

overpayments from 2004, 2005, 2006, 2007. You haven’t been able 

to follow through in this 2007 report. We had another report that 

talks about waste and other types of things. 

I tell you, Madam Chairman, I am concerned, and I am hoping 

to submit some additional questions about the fact that you are 

getting all this money and you have all—we are going to do this, 

we are going to do that, we haven’t done this, we haven’t done that. 

I don’t have much confidence. I know I am new here, but maybe 

I am looking at it in a different way to try to figure out who is responsible. 

I know you are not the top guy, but you are one of the senior 

people. Is it fair to say that—and my initial question which I tried 

to get, and I wasn’t saying it quite correctly. Is it true that you are 

responsible for approving or issuing the contracts and hiring the 

contractors that are responsible for pursuing fraud and improper 

payments? Is that your responsibility? 

Mr. BENSON. It is the responsibility of my office, yes, sir. 

Senator BROWN. OK. So who is overseeing those contractors to 

make sure that they are doing their jobs in pursuing the fraud and 

waste and improper payments and then making sure that they collect the money and give it back to the Treasury of the United 

States? 

Mr. BENSON. Yes, sir. In the award and administration of contracts, there is a team of government officials involved. We perform 

the contracting officer function in my office, which is the legal aspects of awarding, negotiating, and awarding a contract in accordance with the FAR. We also have a program staff. There is an official there, the contracting officers, technical representative, but 

there is a project manager, a program manager. They oversee and 

manage the program aspects of a contract. 

Senator BROWN. So if that is the case, then if we have all these 

people doing all these jobs, why haven’t we still collected—I am 

still getting back to the basic—why haven’t we still collected the 

money that is outstanding that should be coming back that the 

GAO has identified? 

Why is it taking so long? I mean, we could use the money. You know that, right? We are almost at a $13 trillion debt. 

Mr. BENSON. Yes, sir. 

Senator BROWN. So who is responsible? 


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Mr. BENSON. Well, as I said earlier, I think, our normal process 

for resolving audit findings like that are to perform an audit of the 

contract and to resolve those findings at the time we close out the 

contract. We realize that process here was taking too long, so we 

are going to put particular attention, specific attention, expedited 

attention on those findings—— 

Senator BROWN. All right. So when is the 2004 contract going to 

be closed? Is that closed? 

Mr. BENSON. It is not closed yet. Again, we are going to be taking 

expedited action to address that. 

Senator BROWN. All right. I know I am taking a lot of time, 

Madam Chairman, but Ms. Daly, what confidence do you have 

that—you have heard my line of questioning. I don’t want to throw 

stones, believe me. I just want to solve problems and try to find out 

how we can better help your agency to perform a very valuable 

function for our citizens. What confidence do you have with all the 

new money that they are getting that they will be able to fulfill all 

of the concerns that the Chairman and I have? 

Ms. DALY. Well, Senator Brown, Mr. Benson has made some very 

important promises to all of us here and I am certainly hopeful 

that he will follow through with those and make sure that CMS 

does take action, because just as you have noted, there is a lot of 

money at stake here. The Medicare and Medicaid programs are two 

of the largest in the Federal Government. To make sure that the 

contractors handling those programs and ensuring that we combat 

improper payments so that we can try to prevent them, is critical. 

I think this year, improper payments for Medicare and Medicaid 

totaled something like $55 billion, and addressing that will be exceptionally important. 

So what has been entrusted to Mr. Benson and his staff is critical. I don’t know that I could put a particular rating, if I had to, 

on it, but I am encouraged that they seem to have a good attitude 

about trying to fix things. 

Senator BROWN. You are being very generous. I am wondering, 

do you have a time frame that we have made a recommendation 

that they implement these things, or is it open-ended like some of 

these other things? 

Ms. DALY. Well, yes, sir. Our recommendations in general are 

open-ended. We would like, of course, them to be fixed as soon as 

possible. We generally start to follow up anywhere 6 months to a 

year after the recommendation has occurred, and then we hope to 

have everything closed out no later than 4 years, which is one of 

GAO’s performance metrics. 

Senator BROWN. Great. Thank you. 

Senator MCCASKILL. Let me ask, when I visited with you about 

Palmetto a minute ago, I didn’t realize at the time that it was the 

fourth-largest contractor. Since this contract was entered into with 

you all full well knowing that they did not have a qualified accounting system to have the kind of contract they have, what has 

happened to address that in the interim? Do they now have the appropriate accounting system? 

Mr. BENSON. Yes, ma’am, they do. 

Senator MCCASKILL. OK. I wanted to make sure I didn’t leave 

that detail hanging. I believe we spend over $130 million a year 


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1The chart referred to appears in the Appendix on pages 56 and 57. 

with that contractor and it puts them in the top five of the companies that you contract with. 

The Medicare Secondary Payor Recovery Contractor, which really—that whole problem is what piqued my interest in this area, 

that we were having a hard time getting Medicare to accept money 

that Medicare was owed—never a good sign. This is a cost-plus-fee 

contract also, correct? 

Mr. BENSON. Yes, ma’am. 

Senator MCCASKILL. Once again, I don’t understand why this 

area would be particularly complicated, why you would need to 

make this cost incurred. Did they receive the full amount of the 

award fee? 

Mr. BENSON. Ma’am, I will have to get back to you on that. I 

don’t know the answer. 

INFORMATION SUBMITTED FOR THE RECORD 

In accordance with the most recent modification issued, the subject contract’s current payment schedule is reflected below. The contract was initially awarded (i.e., 

structured) as a ‘‘Cost Plus Award Fee’’ (CPAF) contract. However, due to an unforeseeable growth in workload, CMS renegotiated and modified portions of the contract. Specifically, CMS renegotiated the contract to address the backlog in the 

workload volume, revise the CPAF pricing structure to include only a base fee and 

eliminate the award fee portion of the fee structure, and to revise the overall cost 

ceilings based on these changes. The revised pricing structure applies to all periods 

of the contract as shown in the chart below with the exception of Option Period 5, 

Contract line item 0006, which is an option period not exercised.1

Senator MCCASKILL. Was this awarded on a sole source basis? 

Mr. BENSON. Not exactly. It was awarded pursuant to special authority under Section 8(a) of the Small Business Act, which permitted us to award a contract to this organization because they 

qualified as a Native Alaskan contractor. 

Senator MCCASKILL. I thought they were from Oklahoma. They 

qualified under the Native American, not the Alaskan—— 

Mr. BENSON. Oh, I am sorry. Did I say Alaskan? Excuse me. 

American. 

Senator MCCASKILL. So because they qualified in that program, 

you didn’t have to compete it? 

Mr. BENSON. Yes, ma’am. 

Senator MCCASKILL. Well, I would be interested to know, a company that was not returning phone calls and taking money, if they 

got—how long has this contract been in place? Two-thousand-andsix, I see. 

Mr. BENSON. Right. Yes, ma’am. 

Senator MCCASKILL. You consolidated several of these into a single cost plus contract awarded on a sole source basis to Chickasaw 

Nation Industries. So I would be interested to know if they have 

been getting the award fees on the various years they have had the 

contract, since clearly there were pervasive problems with this contractor. 

They are now claiming—in 2003, you have stated you only recovered 38 cents for every dollar spent on recovery activities. That 

would mean we were losing money trying to recover money. 

Mr. BENSON. Yes, ma’am. 


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Senator MCCASKILL. You don’t need an accountant to tell you 

that is a bad outcome. The contractor is now claiming they are recovering $8.97 for every dollar we are spending on recovering this 

money. Do you have confidence that is a correct number? 

Mr. BENSON. Ma’am, again, the programmatic responsibility, the 

officials that are responsible for that statistic are in another area 

of CMS. We can provide you more information regarding how that 

return on investment was arrived at. But I am not—I can’t really 

speak to that. 

INFORMATION PROVIDED FOR THE RECORD 

The cumulative Return on Investment (ROI) from FY2007 through the first quarter of FY2010 for the MSPRC is $8.97. CMS believes that this amount is generally 

correct; however, the amount has not been audited. 

The ROI is calculated using the following methodology: 

1. Take the total amount collected and subtract the refunded amount (e.g. waivers, appeals, three party checks) to arrive at the ‘‘Actual Collected Amount;’’ 

then 

Divide the ‘‘Actual Collected Amount’’ by the cost of the contract. 

CMS cautions against comparing the FY2007 through first quarter of FY2010 ROI 

amount with the ROI from 2003. The cumulative total $8.97 reflects actual ROI for 

both group health plan (GHP) and Non-GHP (e.g. liability insurance, no-fault insurance, and workers compensation) collections during this period. GAO calculated the 

FY2003 ROI of $0.38 from GHP collections only; therefore, these are not directly 

comparable figures. 

Senator MCCASKILL. Well, it is important, and let me just tell 

you, I know that you are going to say this maybe isn’t under you, 

but here is why I think you should know about it. Are you involved 

in deciding whether they get an award fee? Is your office involved? 

Mr. BENSON. Yes, ma’am, it would be. 

Senator MCCASKILL. And wouldn’t how well they are doing collecting money be relevant to whether or not they should get an 

award fee? 

Mr. BENSON. It would be, yes. 

Senator MCCASKILL. So that is my point here. We should not be 

giving award fees to sole source contractors that are cost-incurred 

contractors unless we are confident that they deserve an award fee 

because they have done an outstanding job. So I would hope in 

these kinds of contracts that you would not only be checking ahead 

of time to make sure they have the appropriate accounting system 

so we are getting charged the amount of money, but on the back 

end, that you know how well they have done. 

There has been a way-too-common practice in government just to 

give award fees because everybody gets them. That needs to stop. 

I mean, that is like tipping 25 percent for bad service. We can’t afford to do that in our government. 

This is a sweet contract for them. They don’t have to compete. 

It is big. Clearly, there wasn’t a lot of oversight going on until all 

of a sudden Members of Congress started getting notified that they 

were hearing from their people at home that nobody would take 

their money. 

So I would like you to follow up on those and find out, and if it 

takes me having to inquire in the program office or in the Secretary’s office to find out—and I want to know when this contract 

is up and if there is any intention on competing it. 


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And I will look into whether or not this is one of these exceptions 

that it doesn’t matter how big they get. Do you know if this is a 

front or whether they are actually doing the work? 

And let me explain what I mean by that for the record. You know 

what I mean? 

Mr. BENSON. Yes, ma’am. 

Senator MCCASKILL. I want to make sure everybody understands. This is this carve-out that we are busy campaigning 

against that certain contractors—typically in the 8(a) program, you 

get some leverage and advantage for being in the 8(a) program, but 

when you get to a certain size, you age out of the 8(a) program. 

Well, there is a carve-out, and that is if you are an Alaska Native 

corporation, you can be as big as you want to be for as long as you 

want to be, and even more importantly, you don’t even have to do 

the work. You can apply as the contractor and then subcontract the 

whole thing, and really what you do is you rent out your corporation for purposes of not having to compete. 

Is this a situation that they have subcontracted for all the work? 

Mr. BENSON. Ma’am, I am not exactly sure what proportion of 

the work is subcontracted. We can provide that information. 

INFORMATION SUBMITTED FOR THE RECORD 

CNI is performing approximately two-thirds of the work in the MSPRC contract 

and is subcontracting out the remaining third. The Small Business Administration’s 

guidelines require 8(a) firms to directly perform 51 percent of the contract workload. 

CMS works closely with CNI, and all our contractors, to ensure the appropriate balance between work performed by the prime contractor vs. that of any subcontractors. 

CNI’s subcontractors for this contract are: 

a. Cahaba Government Benefit Administrators (Cahaba) 

b. Group Health Incorporated (GHI) 

1. JP Morgan Chase 

2. United Systems of Arkansas 

3. Neil Hoosier and Associates 

c. ViPS 

Senator MCCASKILL. I think that is important. I have nothing 

against the 8(a) program, but within the 8(a) program, it needs to 

be fair, it needs to be balanced, and it needs to be equal. Because 

you are an Alaska Native corporation should not allow you to get 

non-compete contracts that you actually aren’t doing the work on. 

You have told the Subcommittee staff that you are exceeding the 

goal for small businesses. I am curious if that is because the CNI 

has such a big contract. 

Mr. BENSON. Actually, those dollars aren’t counted in our small 

business goals and it is because we use money that was appropriated under statute for the Medicare Integrity Program. I am not 

sure why, but it is considered to be non-appropriated funds. So, actually, no, it is not counted in that goal. 

Senator MCCASKILL. OK. Do you know how many contractors 

your assertion that your goal has been met, do you know how many 

contractors go into that? What I am trying to get at is we found 

that in some of these agencies, they say they are making their goal 

for small contractors, but it is because they sometimes have one or 

two big ones as opposed to many smaller businesses. 


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1The analysis submitted by Mr. Benson appears in the Appendix on page 62. 

Mr. BENSON. To the best of my knowledge, we don’t have those 

big contractors like you are talking about, like a CNI, in that base. 

It is a number of smaller contractors. 

Senator MCCASKILL. OK. That is terrific. 

Let me also ask you, the MSPRC rule, there is a new rule that 

they have put in, and in October of last year, for some reason, they 

changed the number of consent forms that primary plan and thirdparty administrators have to sign. I think the need for beneficiary 

consent is legally required and important, but I am trying to figure 

out why we went from one to three forms. That is usually a bad 

sign, that we have to go from one form to three forms. And what 

is happening is that it is our understanding that it is causing these 

files to stay open for months because there aren’t three forms. 

If you can track down who the person was that thinks we need 

three forms instead of one, I would be happy to have a conversation 

with them in this hearing room about it, because I don’t—somebody needs to explain why that is necessary. 

Mr. BENSON. Yes, ma’am. We will provide you that information. 

Senator MCCASKILL. Thank you very much. I have no more questions. Do you have any more questions, Senator Brown? 

Senator BROWN. Thank you, Madam Chairman. One more. 

What percentage of contractors are actually getting award fees? 

Do you know that? And if not, you could provide it to me in writing. 

Mr. BENSON. I will provide that, sir. 

INFORMATION SUBMITTED FOR THE RECORD 

As you requested, we are providing, under separate cover, an overview of award 

and incentive fee contracts. It includes an analysis that is based on contract actions 

from October 1, 2008 through October 31, 2009. This information was originally prepared for Senator Carper but addresses your concerns as well.1

Senator BROWN. Because if it is 100 percent, I mirror what your 

thoughts are on this. It is almost like your analogy, tipping for bad 

service. There is no incentive to do well. It is a disincentive if they 

know, at the end of the term, regardless of how they do, they are 

going to get an automatic bonus. It is a joke. So I wanted to just 

ask if you could submit that to the Subcommittee. 

Senator MCCASKILL. I want to thank both of you for being here 

today. I want to thank Senator Brown. We will note for the record 

that bonding was put on the record today. I think that is a good 

sign, right, Senator? 

Senator BROWN. A most flattering—— 

Senator MCCASKILL. I like that. 

I do want to say sincerely, Mr. Benson, that it is time for you 

to be aggressive. We have this new health care bill that is going 

to put even more pressures and responsibilities on accountability, 

and this Subcommittee is not going anywhere. Whether I am here 

or not, the Subcommittee is going to be here, and I can assure you, 

we are going to keep looking. I see the role of this Subcommittee 

as giving voice and volume to many of these GAO audits that have 

been done so that we don’t come back in another 2 years and have 


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another seven findings that were repeated from the findings before 

that, repeated from the findings before that. That has to stop. 

Accountability has to begin within your agency. And if you need 

tools, if you don’t have the tools to do the job, now is the time to 

speak up and let us know, because we are not going to take that 

as an excuse 2, 3, or 4 years down the line when we have problems 

implementing the new law because you are not ready and you don’t 

have the proper internal controls or contract oversight management in place. 

Thank you, Mr. Benson, and thank you, Ms. Daly. 

The hearing is adjourned. 

[Whereupon, at 3:51 p.m., the Subcommittee was adjourned.] 


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