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74–889 PDF 2012

IS GOVERNMENT ADEQUATELY PROTECTING 

TAXPAYERS FROM MEDICAID FRAUD? 

JOINT HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH CARE, DISTRICT OF 

COLUMBIA, CENSUS, AND THE NATIONAL ARCHIVES, 

AND THE

SUBCOMMITTEE ON REGULATORY AFFAIRS, 

STIMULUS OVERSIGHT AND GOVERNMENT 

SPENDING 

OF THE

COMMITTEE ON OVERSIGHT 

AND GOVERNMENT REFORM 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

APRIL 25, 2012 

Serial No. 112–151 

Printed for the use of the Committee on Oversight and Government Reform 

( 

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

http://www.house.gov/reform 

(II) 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM 

DARRELL E. ISSA, California, Chairman 

DAN BURTON, Indiana 

JOHN L. MICA, Florida 

TODD RUSSELL PLATTS, Pennsylvania 

MICHAEL R. TURNER, Ohio 

PATRICK T. MCHENRY, North Carolina 

JIM JORDAN, Ohio 

JASON CHAFFETZ, Utah 

CONNIE MACK, Florida 

TIM WALBERG, Michigan 

JAMES LANKFORD, Oklahoma 

JUSTIN AMASH, Michigan 

ANN MARIE BUERKLE, New York 

PAUL A. GOSAR, Arizona 

RAU ́ L R. LABRADOR, Idaho 

PATRICK MEEHAN, Pennsylvania 

SCOTT DESJARLAIS, Tennessee 

JOE WALSH, Illinois 

TREY GOWDY, South Carolina 

DENNIS A. ROSS, Florida 

FRANK C. GUINTA, New Hampshire 

BLAKE FARENTHOLD, Texas 

MIKE KELLY, Pennsylvania 

ELIJAH E. CUMMINGS, Maryland, Ranking 

Minority Member 

EDOLPHUS TOWNS, New York 

CAROLYN B. MALONEY, New York 

ELEANOR HOLMES NORTON, District of 

Columbia 

DENNIS J. KUCINICH, Ohio 

JOHN F. TIERNEY, Massachusetts 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

JIM COOPER, Tennessee 

GERALD E. CONNOLLY, Virginia 

MIKE QUIGLEY, Illinois 

DANNY K. DAVIS, Illinois 

BRUCE L. BRALEY, Iowa 

PETER WELCH, Vermont 

JOHN A. YARMUTH, Kentucky 

CHRISTOPHER S. MURPHY, Connecticut 

JACKIE SPEIER, California 

LAWRENCE J. BRADY, Staff Director 

JOHN D. CUADERES, Deputy Staff Director 

ROBERT BORDEN, General Counsel 

LINDA A. GOOD, Chief Clerk 

DAVID RAPALLO, Minority Staff Director 

SUBCOMMITTEE ON HEALTH CARE, DISTRICT OF COLUMBIA, CENSUS AND THE

NATIONAL ARCHIVES

TREY GOWDY, South Carolina, Chairman 

PAUL A. GOSAR, Arizona, Vice Chairman 

DAN BURTON, Indiana 

JOHN L. MICA, Florida 

PATRICK T. MCHENRY, North Carolina 

SCOTT DESJARLAIS, Tennessee 

JOE WALSH, Illinois 

DANNY K. DAVIS, Illinois, Ranking Minority 

Member 

ELEANOR HOLMES NORTON, District of 

Columbia 

WM. LACY CLAY, Missouri 

CHRISTOPHER S. MURPHY, Connecticut 

SUBCOMMITTEE ON REGULATORY AFFAIRS, STIMULUS OVERSIGHT AND GOVERNMENT

SPENDING

JIM JORDAN, Ohio, Chairman 

ANN MARIE BUERKLE, New York, Vice 

Chairwoman 

CONNIE MACK, Florida 

RAU ́ L R. LABRADOR, Idaho 

SCOTT DESJARLAIS, Tennessee 

FRANK C. GUINTA, New Hampshire 

MIKE KELLY, Pennsylvania 

DENNIS J. KUCINICH, Ohio, Ranking 

Minority Member 

JIM COOPER, Tennessee 

JACKIE SPEIER, California 

BRUCE L. BRALEY, Iowa 

(III) 

C O N T E N T S 

Page 

Hearing held on April 25, 2012 .............................................................................. 1 

WITNESSES 

The Honorable Charles E. Grassley, a U.S. Senator from the State of Iowa 

Oral Statement ................................................................................................. 2 

The Honorable Michele Bachmann, a Representative in Congress from the 

State of Minnesota 

Oral Statement ................................................................................................. 4 

Written Statement ............................................................................................ 6 

Gabriel E. Feldman, M.D., Local Medical Director for the Personal Care 

Services Program, New York City 

Oral Statement ................................................................................................. 15 

Written Statement ............................................................................................ 18 

Christine Ellis, D.D.S., M.S.D., Orthodontist, University of Texas Southwestern Medical Center 

Oral Statement ................................................................................................. 25 

Written Statement ............................................................................................ 28 

David Feinwachs, M.H.A., M.A., J.D., PH.D., Former General Counsel, Minnesota Hospital Association; 

Oral Statement ................................................................................................. 36 

Written Statement ............................................................................................ 38 

Ms. Claire Sylvia, J.D., Partner, Phillips & Cohen, LLP 

Oral Statement ................................................................................................. 46 

Written Statement ............................................................................................ 48 

Ms. Lucinda Jesson, J.D., Commissioner, Minnesota Department of Human 

Services 

Oral Statement ................................................................................................. 71 

Written Statement ............................................................................................ 74 

Ms. Cindy Mann, J.D., Director, Center for Medicaid and State Operations, 

Centers for Medicare and Medicaid Services 

Oral Statement ................................................................................................. 90 

Written Statement ............................................................................................ 93 

Ms. Carolyn L. Yocom, Director, Health Care, U.S. Government Accountability Office 

Oral Statement ................................................................................................. 106 

Written Statement ............................................................................................ 108 

APPENDIX 

The Honorable Dennis J. Kucinich, a Member of Congress from the State 

of Ohio, Subcommittee on Regulatory Affairs, Stimulus Oversight and Government Spending, written statement ............................................................... 137 

Mr. David Feinwachs, Attorney and Counselor at Law, submittance of responses to additional questions to Chairmen Gowdy and Jordan ................... 139 

Levy, Phillips and Konigsberg, LLP, responses to the supplemental questions 

posed in connection with Chairman Issa’s letter ............................................... 145 

Ms. Carolyn L. Yocom, responses to the questions posed by The Honorable 

Trey Gowdy ........................................................................................................... 152 

Ms. Cindy Mann, responses to the questions posed The Honorable Trey 

Gowdy and The Hoonorable Jim Jordan ............................................................ 154 

(1) 

IS GOVERNMENT ADEQUATELY PROTECTING 

TAXPAYERS FROM MEDICAID FRAUD? 

Wednesday, April 25, 2012 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON HEALTH CARE, DISTRICT

OF COLUMBIA, CENSUS, AND THE NATIONAL

ARCHIVES, JOINT WITH THE SUBCOMMITTEE

ON REGULATORY AFFAIRS, STIMULUS

OVERSIGHT AND GOVERNMENT SPENDING, COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM, Washington, D.C. 

The subcommittees met, pursuant to call, at 9:37 a.m., in Room 

2154, Rayburn House Office Building, Hon. Jim Jordan [chairman 

of the Subcommittee on Regulatory Affairs, Stimulus Oversight and 

Government Spending] presiding. 

Present from Subcommittee on Health Care, District of Columbia, Census, and The National Archives: Representatives Gowdy, 

Gosar, DesJarlais, Davis, and Murphy. 

Present from Subcommittee on Regulatory Affairs, Stimulus 

Oversight and Government Spending: Representatives Jordan, 

DesJarlais, Kucinich, and Speier. 

Also Present: Representatives Issa, Burgess, Cummings, Ellison, 

Cravaack and McCollum. 

Staff Present: Michael R. Bebeau, Majority Assistant Clerk; 

Brian Blase, Majority Professional Staff Member; Molly Boyl, Majority Parliamentarian; Drew Colliatie, Majority Staff Assistant; 

John Cuaderes, Majority Deputy Staff Director; Adam P. Fromm, 

Majority Director of Member Liaison and Floor Operations; Linda 

Good, Majority Chief Clerk; Tyler Grimm, Majority Professional 

Staff Member; Christopher Hixon, Majority Deputy Chief Counsel, 

Oversight; Sery E. Kim, Majority Counsel; Mark D. Marin, Majority Senior Professional Staff Member; Tegan Millspaw, Majority 

Research Analyst; Mary Pritchau, Majority Professional Staff Member; Laura L. Rush, Majority Deputy Chief Clerk; Jaron Bourke, 

Minority Director of Administration; Yvette Cravens, Minority 

Counsel; Ashley Etienne, Minority Director of Communications; Susanne Sachsman Grooms, Minority Chief Counsel; Devon Hill, Minority Staff Assistant; Jennifer Hoffman, Minority Press Secretary; 

Carla Hultberg, Minority Chief Clerk; Adam Koshkin, Minority 

Staff Assistant; Una Lee, Minority Counsel; Suzanne Owen, Minority Health Policy Advisor; Rory Sheehan, Minority New Media 

Press Secretary; and Safiya Simmons, Minority Press Secretary. 

Mr. JORDAN. All right, the Committee will come to order. We are 

pleased today to have a hearing on, Is Government Adequately ProVerDate Aug 31 2005 08:51 Sep 21, 2012 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 C:\DOCS\74889.TXT APRIL
2 

tecting Taxpayers from Medicaid Fraud? We are excited about our 

first panel, two individuals who worked tirelessly on this issue and 

a host of issues. True great public servants. We are glad to have 

the Senator from Iowa, Mr. Grassley, with us today. We will start 

with him and then followed by Representative Bachmann from 

Minnesota’s 6th District. 

Senator, take all the time you want, and the floor is yours. 

WITNESSES STATEMENTS 

STATEMENT OF THE HONORABLE CHARLES E. GRASSLEY 

Senator GRASSLEY. Well, I appreciate very much the opportunity 

to be here and to be with the famous congresswoman from Minnesota. And thank you for this very important work you are doing 

to help measure this along and get our money’s worth out of Medicaid and other programs. 

I appreciate the opportunity to be invited. I will have a very long 

statement, but I have a shorter statement, so I hope my entire 

statement will be put in the record. 

Mr. Chairman, members of the Committee, for over 10 years the 

Federal and State government in the future will be spending 

roughly $7 trillion in combined dollars to run Medicaid programs. 

A very significant percentage of the Medicaid program will be run 

through what is called managed care. 

Essentially, the States will take the Federal dollars that they receive, merged with their own dollars, and hand them over to a 

third party, a managed care company, to provide services for Medicaid beneficiaries. The Federal Government has encouraged States 

to do so, and certainly the current trend is for more and more managed care. 

It is also Federal policy that States are supposed to conduct due 

diligence and oversight by knowing where Medicaid dollars are 

being spent. And CMS, likewise, is supposed to confirm that States 

are properly overseeing where the Medicaid dollars are being disbursed. 

In August 2010, the Government Accountability Office issued a 

report that highlights the inconsistency of CMS’s oversight of State 

rate setting. My ongoing investigation into Federal and State oversight of managed care contracting leaves me gravely concerned that 

accountability is severely lacking in a program that is spending $7 

trillion of combined Federal and State taxpayer dollars 

Today this hearing will focus largely on what has occurred in the 

State of Minnesota. There are allegations that the States systematically overpaid managed care companies to cover Medicaid beneficiaries while underpaying the same plans for coverage of individuals paid for with State-only dollars. This appears to be another 

example of the old game of States pushing the bounds to maximize 

Federal dollars received while minimizing State dollars spent. 

If that isn’t bad enough, when one of the plans tried to return 

the overpayment, documents show that the State schemed to keep 

the Federal Government from receiving its share of overpaying to 

one specific company, UCare. My investigation has turned up troubling questions that I am very pleased your committee will be able 

to explore further with relevant witnesses today. 

3 

Lucinda Jesson, of the State of Minnesota, has very difficult 

questions to answer, and some of these questions are: 

So, was the State systematically overpaying managed care plans 

on Medicaid while underpaying the same plans to provide care for 

individuals covered by State-only dollars? 

Documents show that at least once before a managed care company returned funds in 2003. So, how long has systematic overpayment been occurring in Minnesota? 

Documents from the four plans in Minnesota prove that each one 

consistently showed excess revenues derived from Medicaid while 

showing losses to State-only plans. So, was the State aware of this 

disparity? 

And while the State now trumpets the fact that they collect repayments for excess revenue over 1 percent, so does the State have 

any auditing mechanism in place to confirm that the amounts reported by the managed care companies are accurate? 

Cindy Mann of CMS also has some very difficult questions to answer. In 2010, the Government Accountability Office raised significant questions about CMS’s oversight of rate setting. So, what have 

you done, Ms. Mann, to assure beneficiaries and taxpayers that 

rates are being appropriately set? 

In your March 21, 2011, letter to the State of Minnesota, you 

ask, ‘‘If the State included reserve fund requirements in calculating 

actuarially sound managed care rates‘‘? So, isn’t it the job of CMS 

to actually know that answer? 

So, what assurance can you give us that what has gone on in 

Minnesota has not gone on all over the United States? 

Mr. Chairman and Mr. Chairman, my investigation should not 

be interpreted as questioning the role of managed care in Medicaid. 

Quite to the contrary. I think having a risk-based outcome-driven 

role for managed care in Medicaid has tremendous potential to 

produce high-quality care to Medicaid beneficiaries. However, for 

this to happen, CMS and the States have to live up to their responsibilities in overseeing contracts with managed care. 

So, in closing, Mr. Chairman, while my investigation is ongoing, 

one specific solution is fairly clear to me: States should be required 

to know the medical loss ratio of every managed care company they 

contract with specific to the Medicaid beneficiaries they serve. That 

medical loss ratio should be clearly defined by CMS and consistently implemented across every State that uses managed care. 

That medical loss ratio should be based on independently audited, 

verifiable encounter data and expense data. 

That medical loss ratio should make clear what administrative 

expenses are related to the provision of Medicare benefits and what 

administrative expenses are not. That medical loss ratio should be 

transparent for CMS, the States, and the public to see. 

So, let me be very clear. I do not support a federally-defined minimum threshold for medical loss ratio that requires all plans below 

a certain threshold to refund dollars. Instead, I believe the purchasers, in this case the States, using transparent information 

about how their dollars are being spent, are best suited to make 

decisions about the value provided for managed care companies. 

We have legitimate disagreements about many issues in Congress, but on this issue it seems to me there can be no disagreeVerDate Aug 31 2005 08:51 Sep 21, 2012 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 C:\DOCS\74889.TXT APRIL
4 

ment. We must have a better understanding of where $7 trillion 

will be spent over the next period by Medicaid programs. 

Thank you. 

Mr. JORDAN. Thank you, Senator, for your good work and for 

your testimony. Your entire written statement will be made part of 

the record. 

Before recognizing the gentlelady, I would ask unanimous consent that Mr. Burgess, Mr. Cravaack, Ms. McCollum, and Mr. 

Ellison be allowed to participate in today’s hearing. Without objection, so ordered. 

The gentlelady from Minnesota, where some of this activity took 

place, is now recognized for as long as she would like to. 

Senator GRASSLEY. Mr. Chairman, I want to go because we have 

an oversight hearing with the Secretary of Homeland Security and 

I have a lot of questions I want to ask him. 

Mr. JORDAN. We understand. Go ask your questions, Senator. 

Thanks for being with us. 

The gentlelady from Minnesota is recognized. 

STATEMENT OF THE HONORABLE MICHELE BACHMANN 

Ms. BACHMANN. Good morning. Thank you, Chairman Jordan 

and Ranking Member Kucinich. Thank you, also, Chairman Gowdy 

and also Ranking Member Davis. It is a privilege to speak before 

the Committee today. 

It was about a year ago when my office became aware that there 

was a problem going on in Minnesota. We actually had providers 

contacting our office and telling us they were not receiving the 

amounts of money under Medicaid, their reimbursements, they 

thought they were being due and, as a result, they were no longer 

taking Medicaid patients. So poor people in Minnesota who deserved and needed the Medicaid help weren’t able to receive it anymore. 

We began looking into the issue and we were shocked at what 

we found. What we found is that in the last 20 years there had 

been no verifiable, independent, third-party audit done of Medicaid 

money. This is unbelievable. There were audits conducted on Medicare money, but not under Medicaid money. 

We started to look a little further. We investigated and we found 

this isn’t just a Minnesota problem; this is a problem that appears 

to be happening all across the Country, that CMS, at the Federal 

level, which is tasked with auditing and supervising how the Medicaid monies are spent throughout all 50 States, has been remiss 

in doing their job on two counts: number one, we found there was 

no verifiable data, no standards of data, of meaningful data that 

CMS could look at to see if the charges that the Federal Government was being charged were even legitimate. So there wasn’t any 

decent data, so to speak, to look at to see if the monies were spent 

right. But, number two, there weren’t any independent third-party 

audits. 

Now, let me just give you an example. And I should ask, first, 

that the Committee would receive my testimony in its written form 

that I presented for you today. I am just giving you my off-the-cuff 

remarks right now. 

5 

Probably an analogy would be if anyone would go to a grocery 

store and buy a grocery cart full of food, they would go up to the 

grocery store counter, they would run it all through the scanner, 

and then the grocery store clerk would say, ‘‘I would like to have 

$150 for your groceries.’’ And you would write out the check, hand 

it to the person at the counter, and then you would say, ‘‘I would 

like my grocery tab, I would like to have my receipt so I can know 

if you charged me for three cans of peas or one can of peas’’; and 

they would say, ‘‘Well, we are not going to give you the grocery 

tape.’’ In other words, we are not going to itemize what it is that 

you owe. 

So it appears that maybe a game has been played where managed care organizations can charge virtually anything they want 

for any expense they want because there is no one to make sure 

that the organizations are charging what they will. 

And that brings us to the fact that Senator Grassley brought up, 

that over the next 10 years $7 trillion will be spent on this program. Now, if we don’t have an accurate pulse on where this money 

is going today, under the new rules under ObamaCare, which is 

coming forward, in my State of Minnesota alone, Medicaid will expand 21 percent. If we have no accountability, no transparency of 

these monies, then what will we do when it is 21 percent more? 

We are a relatively small population in Minnesota; we are less 

than 5 million people. Imagine how that would translate in a highly populated State such as California or New York or Illinois or 

Florida. This is something that has to end, because we know the 

budget constrictions that we are up against. This isn’t way off in 

the future; this is in the near term. And the people who will be 

most at risk in the future, I believe, will be poor people who are 

in need of Medicaid money. For them we need to have accountability. 

And that is why, in the coming weeks, I will be introducing the 

Medicaid Integrity Act of 2012. This is not a partisan issue in any 

way; this is a complete bipartisan issue. Both Democrats and Republicans believe in accountability. We believe in transparency. We 

all want to make sure that the patients get the care they deserve 

and that providers get the reimbursements they deserve so that we 

can continue this program. 

If we are to have any hope of having a viable program going forward, we have to have standards and we have to have accountability. This is something we can all agree, both chambers, Senate 

and House, both Republicans and Democrats, and I intend to reach 

out to my Democrat colleagues across the aisle because this is not 

partisan in any way; this is about making sure we all carefully 

watch over the taxpayers’ money. 

And I thank the Committee. 

[Prepared statement of Ms. Bachmann follows:] 

6 


Insert offset folio 1 here 74889.001
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Insert offset folio 2 here 74889.002
8 

Mr. JORDAN. I want to thank the gentlelady for her hard work 

on this issue and a host of others, and for being here and testifying. 

And, as I said, we will make your full statement part of the record. 

Ms. BACHMANN. Thank you, Mr. Chairman. 

Mr. JORDAN. Now we will get ready for our second panel. So if 

we can just take a short little break here while the Committee staff 

prepare the table for our next set of witnesses. 

[Pause.] 

Mr. JORDAN. We will be back in order here. I want to thank our 

witnesses. We will swear you in here just a second, but you know 

the typical routine is you have to listen to us talk for a few minutes. That is the way we do things. And today, because it is a joint 

hearing, you have to listen to four of us talk. But we will get to 

you as quickly as we can. So we will do our opening statements. 

Today’s hearing focuses on the serious problem of waste, fraud 

and abuse, and mismanagement in the Medicaid program. These 

problems are not new. In fact, in 1982, the House Select Committee 

on Aging issued a report concluding that ‘‘State enforcement of the 

Medicaid program has been an unmitigated disaster.’’ Unfortunately, 30 years later, government’s ability to safeguard taxpayer 

money in Medicaid is still an unmitigated disaster, but the actual 

dollar amount of waste, fraud, and abuse is much, much greater. 

Over the past 20 years, Federal Medicaid spending has grown from $75 billion to $450 billion a year. And as our witnesses in the 

first panel indicated, it is slated to be $7 trillion over the next decade. No one knows how much this spending consists of waste, 

fraud, and abuse, but it may exceed $100 billion each year. 

As Americans struggle to pay their bills and make ends meet, 

the Federal Government borrows 40 cents of each dollar it spends. 

Fraudsters are collecting tens of billions of dollars from Medicaid 

every year. 

At the root of all the waste, fraud, and abuse is the open-ended 

Federal reimbursement of the Medicaid program. If the typical 

State identifies and recovers $1 of fraud or abuse in its program, 

it only keeps about 40 cents. Rather than protecting taxpayer dollars, the Federal reimbursement encourages each individual State 

to grow their programs unsustainably. When most States behave in 

this manner, there is waste, fraud, and abuse on a massive scale. 

Most States employ a contingency fee to consultants to figure out 

how to maximize Federal Medicaid money. Rather than focusing on 

improving efficiency of the State programs, these consultants, who 

are highly compensated out of the funds that are supposed to go 

to the poor, as Representative Bachmann indicated, many poor 

were left untreated because of the situation in Minnesota, they 

spend their time figuring how to make Federal taxpayers pay for 

State spending. 

For example, what we have learned about Minnesota’s Medicaid 

program suggests that there is a new and creative way, a State 

scheme, to maximize Federal dollars. Information obtained through 

Senator Grassley’s investigation shows that Minnesota’s insurance 

companies were making large profits on Medicaid. One of the witnesses at today’s hearing, David Feinwachs, has independently obtained information that shows the State was deliberately inflating 

Medicaid rates in order to leverage the Federal reimbursement. 

9 

In response to this controversy, Minnesota’s governor has admitted that past contracts between the State and the insurance companies were ‘‘too generous with taxpayer money.’’ The response to 

this is, of course, you have been too generous with taxpayers’ 

money, but how long has this been going on and what are you 

going to do about it? And how many other States are in on the 

same game? 

GAO and the IG have made numerous recommendations to improve program oversight. Regrettably, many of their recommendations have been ignored by CMS. 

Today’s hearing will shed light on some of the flagrant examples 

of waste, fraud, abuse, and mismanagement in the program. It is 

both shocking and disheartening that the Government failed to 

catch any of these cases. If it were not for the work of whistleblowers and investigative reporters, CMS may never have uncovered the problem. 

At a more fundamental level, when a program becomes as big 

and complex as the Medicaid program, waste, fraud, and abuse are 

inevitable. The magnitude of taxpayer dollars wasted through Medicaid signifies the need for policymakers to immediately reform the 

program. Our Nation’s limited tax resources must be targeted at 

individuals who genuinely need the public assistance, and cannot 

be used to provide huge windfall profits for large insurance companies and corporate dental practices, as took place in Texas. 

Tragically, for both taxpayers and individuals who genuinely 

need public assistance, ObamaCare does not reform the Medicaid 

program; rather, it expands it by 20 million people and by nearly 

$1 trillion over the next 10 years, as Representative Bachmann 

pointed out. It also contains a feature that will undoubtedly make 

waste, fraud, and abuse in the program much worse. And as a 

sweetener to the States, ObamaCare makes the Federal Government reimburse at least 90 percent of State spending on newly eligible populations. It does not take an expert to realize that State 

manipulation of the Federal Medicaid reimbursement will become 

much worse. 

While today’s hearing will shed light on problems in the current 

program, I expect it will also provide some insights on a better way 

forward for the Medicaid program. 

With that, I would yield to the gentleman from Ohio, the Ranking Member, Mr. Kucinich. 

Mr. KUCINICH. Thank you very much, Chairman Jordan, Chairman Gowdy, for holding this hearing. 

According to Harvard University scholar Malcolm Sparrow, the 

health care industry’s complexity and volume of health care payments presents a business opportunity for a few bad actors suitably 

placed to steal hundreds of millions of dollars from Medicare and 

Medicaid. 

The Government Accountability Office estimates that in 2010 

Medicare and Medicaid made about $70 billion in improper payments. Improper payments include overpayments, underpayments, 

and fraudulent payments. Fortunately, the Center on Medicare and 

Medicaid Services, under Director Cindy Mann, and the U.S. Department of Justice are taking the threat of health care fraud very 

seriously. 

10 

CMS has moved quickly and aggressively to stand up its Office 

of Medicaid Program Integrity, utilize high speed computing and 

data analysis to identify patterns of fraudulent billing in real time, 

and adapt to Medicaid’s successful anti-fraud initiatives developed 

to deal with Medicaid. 

The Department of Justice has increased health care fraud prosecutions since fiscal year 2008 by nearly 75 percent. In fiscal year 

2011, DOJ and the Department of Health and Human Services recovered a record $4.1 billion from health care fraud statements and 

settlements. Almost $600 million of that came from Medicaid antifraud efforts. 

The Affordable Care Act made a significant contribution to Federal anti-fraud efforts both in terms of increased resources and authority to enhance oversight and screening measures, clarifying law 

enforcement access to claims and payment data, and expanding key 

anti-fraud programs to Medicaid, among other things. 

But Federal anti-fraud efforts face a number of threats. At this 

very moment, the U.S. Supreme Court is considering striking down 

the Affordable Care Act. If they do, aggressive Federal anti-fraud 

activities authorized and financed by the Act will be compromised. 

The House Republican budget also targeted the Affordable Care 

Act, calling for its repeal and banking on cuts of $106 billion in 

new Medicaid spending created by the law. The budget also would 

change the financing of Medicaid to block grants, which would lead 

the States to manage all aspects of Medicaid, including the bulk of 

anti-fraud efforts. 

As one health care fraud expert testified to the Senate last year, 

health care fraud is an exceptionally complex crime. The perpetrators of this crime have proven themselves to be creative, nimble, 

and aggressive. Therefore, investing in and employing the most effective fraud prevention and detection techniques is critical to 

achieving success. 

That level of investment can only come from the Federal Government. Today, Federal Medicaid, the Inspector General for the Department of Health and Human Services, and Justice Department 

prosecutors are mounting anti-fraud efforts with more success than 

ever before. Yet, unfortunately, my friends on the other side of the 

aisle have a budget and we have a U.S. Supreme Court which 

poses great threat to the continued existence and development of 

initiatives that would actually help to cut fraud. 

So, with that, respectfully, I yield back. 

Mr. JORDAN. I thank the gentleman for this statement. 

We will now yield to the Chairman of the Subcommittee, the gentleman from South Carolina, Mr. Gowdy. 

Mr. GOWDY. Thank you, Mr. Chairman. 

More than $450 billion will be spent on the Medicaid program 

this year and, for context, there are only two companies in the 

world that have larger worldwide revenue than Medicaid’s budget. 

Medicaid spending is actually 40 percent larger than the entire 

economy for a country we have heard a lot about lately, Greece. 

So, Mr. Chairman, while it is hard to quantify with certainty, 

some experts believe waste, fraud, and abuse constitute more than 

$100 billion a year. And as we see time after time after time, we 

11 

are all too willing to overlook the waste of other people’s money 

more so than we would if the money were our own. 

I actually prefer a little different perspective. I think we should 

zealously protect the public treasury because the money was collected as part of a sacred trust. And as the money flees, Mr. Chairman, due to waste, fraud, mismanagement, or simply because we 

just don’t seem to care, so too goes trust in the institutions of government. 

Problems within Medicaid’s Federal and State Medicaid partnership are the focus of today’s hearing. We will hear from expert witnesses with firsthand knowledge of how the government is failing 

to prevent waste, fraud, and abuse in the program. Specifically, 

there will be witnesses who will share testimony regarding problems in New York’s Medicaid home health program, Minnesota’s 

Medicaid managed care program, and Texas’s Medicaid dental program. We will examine how these problems occurred, why they remained undetected for so long, and whether States or local jurisdictions were complicit in the fraud and abuse. 

But if all we do, Mr. Chairman, is have yet another hearing 

where we perform an autopsy on some program or initiative that 

failed, we are not doing our jobs. Something concrete must come 

from this. Accountability for fraud in the form of license revocations, debarment, indictments, restitution, seem to me to be an appropriate place to start. 

When problems are identified, the people we are supposed to 

work for expect corrective measures to be taken immediately. When 

money is mismanaged, the people we work for expect us to seek a 

full recovery, not settling for cents on the dollar. When a fraud is 

suspected, the people we work for do not understand why it takes 

multiple prompts to see any real action taken and, frankly, Mr. 

Chairman, neither do I. 

I lived in Texas for four years, Mr. Chairman, and I absolutely 

love that State. But it doesn’t, or shouldn’t, take an IG investigation to notice more money was being spent on orthodontia in Texas 

than the rest of the States combined. Either people are gaming the 

system or there is some genetic malady which leads to more crooked teeth in Texas than the rest of the Country put together. And 

I highly suspect it is the former and not the latter. 

Which leads to this question, Mr. Chairman: Has the money been 

paid back? Do we know how this occurred? Or is it just another exhibit in the trial entitled this is what you get when give perverse 

incentives to spend more, you talismanically get more spending. 

In New York City, the city failed to comply with State and Federal regulations and unlawfully enrolled thousands of people in a 

Medicaid personal care service’s program without regard to their 

need for the program. The statistical expert hired for the lawsuit 

estimated the total damages caused by the City’s conduct were between $1 billion and $3 billion. And this total included only the 

fraud in one relatively small program in New York City’s enormous 

Medicaid budget. 

Over the past 10 years, Mr. Chairman, the Inspector General for 

the Department of Health and Human Services has conducted 19 

audits. Ten of the 19 audits and 5 of the 6 audits with the largest 

findings, each of which exceeded $170 million in improper State reVerDate Aug 31 2005 08:51 Sep 21, 2012 Jkt 000000 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 C:\DOCS\74889.TXT APRIL
12 

ceipts of Federal Medicaid dollars, were the result of problems in 

just one State, New York. 

So, Chairman Jordan, it strikes me that we can keep doing autopsies once the patient is dead to confirm what we already know, 

or we can practice preventive medicine. And the way to practice 

preventive medicine is to put everyone on notice, State officials, 

service providers, customers, and especially those who seek to take 

advantage of the generosity of our fellow citizens, that there will 

be consequences. 

This is not a game to see how much money we can get from the 

Federal Government to run our State; this is a program designed 

to provide a safety net for the poor and the disabled. If you abuse 

this safety net and turn it into a trampoline, you will be prosecuted, barred from participating, and exposed as a fraud. Perhaps 

then we will have fewer hearings on what went wrong. 

Mr. JORDAN. I thank the gentleman. Spoken like a prosecutor. 

We appreciate that opening statement. 

The gentleman from Illinois, the Ranking Member of the Subcommittee, is recognized, Mr. Davis. 

Mr. DAVIS. Thank you very much, Chairman Jordan, Chairman 

Gowdy, and Ranking Member Kucinich for holding this hearing. 

Making sure that laws are carried out the way we intended for 

them to be carried out and making sure that money spent is spent 

the way we intended for it to be spent are great parts of our responsibilities as members of Congress. 

Reducing health care fraud is a policy shared by both Democrats 

and Republicans. We must be vigilant in locating potential waste 

of precious Federal dollars. The amount of Federal dollars expended for managed care make oversight and limiting abuses of 

Federal dollars critically important. 

Medicaid is a complex, high risk designated program, and I want 

to take this opportunity to encourage CMS to fully utilize all of the 

tools provided for in the Affordable Care Act. I am certain that 

these advancements will be invaluable to program integrity and 

have already begun to show great promise. 

I am encouraged by the Federal efforts to stop fraud in the Medicare and Medicaid programs. Last year, the Government recouped 

more than $4 billion. Between 2009 and 2011, the Federal Government recovered more than $7 for every $1 spent on fraud prevention and recovery activities. The return on investment is about $2 

higher than the historical average, and increased coordination between the State and Federal Governments will yield even greater 

results. 

Yes, we want to ensure that every dime designated for beneficiaries, the elderly, the disabled, and the children, is spent exactly 

where it was intended to be spent, how it was intended to be spent, 

and for the purposes which it was intended to be spent. 

So I want to thank our panel of witnesses that have come today 

to share issues related to their State programs. I appreciate your 

presence and I am certain that at the end of this hearing and other 

inquiries we will find a way to make sure that waste, fraud, and 

abuse is rooted out of these valuable programs and exist only to a 

minimum. 

So I thank you, Mr. Chairman, and yield back. 

13 

Mr. JORDAN. I thank the gentleman for his statement. 

We now yield time to the gentlelady from Minnesota, Ms. McCollum. We have a couple of Minnesota members with us and Ms. 

McCollum has asked to make an opening statement, so the 

gentlelady is recognized. 

Ms. MCCOLLUM. Thank you very much, Mr. Chair. And I would 

like to thank you all for including me in this hearing today. 

In this Congress, the safety net which protects millions of Americans, elderly, children, and the disabled, is under attack. While tax 

cuts for millionaires and billionaires are being protected, critical 

services for our most valuable citizens are being slashed. Medicaid 

provides a critical health service, keeping people in their homes, 

and contributes to a society that values human dignity. There 

should be no confusion about the current Republican plan, which 

was voted on in the chamber a week or two ago regarding Medicaid: they want to cut it and they want to block grant it. 

Today’s hearing, as far as it relates to Minnesota’s Medicaid program, is about accusations of fraud under the administration of a 

former Republican, and the story of today is about the Democratic 

successor who made reforms to the program. Whether it is Medicaid or any other government program, I, along with the members 

of this Committee, want the dollars to be spent wisely and effectively. If waste, fraud, and abuse is taking place, it must be investigated and the responsible company, individual, or State needs to 

be held accountable. Mrs. Bachmann, Mr. Ellison, and I are here 

because of the focus today on Minnesota. 

I think it is terrific. Our State is delivering high-quality, lowcost, better care than anywhere else in the Country. Last month, 

the Commonwealth Fund released a scorecard comparing all local 

health care regions in the United States. St. Paul, Minnesota, my 

home, ranked number one in the Nation for best overall health care 

system; Rochester ranked number three; Minneapolis number four; 

St. Cloud was number seven. Minnesota is a model for delivering 

quality health care and I applaud our doctors, nurses, hospitals, 

and health care professionals and policymakers for their partnership that works better than anywhere else. 

Minnesota has long been committed to expanding health care 

coverage, containing costs, improving quality. We are unique in requiring HMOs to be nonprofit organizations. Quality health care 

for our State is to be a priority, not profit-taking. In 1992, we created Minnesota Care to provide access to services to more than 

148,000 children and working parents who had no other insurance 

that they could turn to. 

Clearly, I know Minnesota is not perfect and we have more work 

to do, but I ask this Committee to show a State that has a better 

performing record in providing quality health care. However, for 

eight years the Republican administration of Governor Tim 

Pawlenty negotiated Medicare contracts with health plans with little or no transparency, and the terms of these contracts were negotiated poorly. If they allowed fraud, waste, and abuse to take place, 

then this Committee has an obligation to investigate those claims. 

But, unfortunately, those members of the Pawlenty administration 

responsible for negotiating those very contracts on behalf of taxpayers, they are the ones who are not here to testify. 

14 

Starting January 11th, Democratic Governor Mark Dayton’s administration took bold action to increase transparency and accountability for taxpayers. Here are some of the reforms that have been 

implemented by Governor Dayton and Commissioner Jesson: enacting competitive bidding for managed care contracts, saving the 

State and Federal taxpayers millions of dollars; committing the Office of Inspector General and Department of Human Services to rid 

out waste, fraud, and abuse; and launching a single website with 

managed care contracts and reports, financial data, and quality 

measurements available to the public, a truly unprecedented level 

of transparency that the Dayton administration engaged in. 

In addition, Governor Dayton and Democrats and Republicans in 

the State House and Senate have worked bipartisan to require 

third-party financial audits of managed care plans going forward, 

and I am glad Ms. Bachmann has seen this as a way forward for 

the Federal Government to move on. Mr. Ellison and I couldn’t 

agree more, and the State of Minnesota has already done it. 

But I do say if this Committee is serious about investigating 

Medicare fraud, for-profit and nonprofit health plans must be required to open their books and let the public see if profit-taking at 

taxpayer expense is going on. 

Other States and Congress must follow Minnesota’s lead for 

transparency. I am proud of the health care system we have in 

Minnesota and we will continue to make it better for the people we 

serve and for the taxpayers we are responsible for. I believe that 

we can lead in being an example for the rest of the Country. 

And again, Mr. Chair, thank you so much for the courtesy of allowing me and Mr. Ellison to be here today. 

Mr. JORDAN. Great. I thank the gentlelady for her statement. I 

would just make one point about the Republican plan dealing with 

Medicaid. Our plan is to not cut Medicaid, but it is to block grant 

it back to the States. We actually think if you take away the incentive for States to try to leverage Federal dollars and say, no, here 

is the amount of money you are getting, now you manage it, that 

is what you get, and you serve your population; we think it takes 

away this perverse incentive that exists in the current program 

and would better help those individuals who may have not got 

treatment because of all the fraud that was going on. 

With that, we would ask—— 

Ms. MCCOLLUM. Mr. Chairman, just a point of clarification. You 

know how all of us sometimes slip up and say Medicaid and Medicare? 

Mr. JORDAN. Medicaid. 

Ms. MCCOLLUM. I would like my statement to reflect Medicaid. 

Thank you. 

Mr. JORDAN. Okay. 

We have, first, with us Dr. Gabriel Feldman. He is the Local 

Medical Director for New York City’s Personal Care Services Program. We also have with us Dr. Christine Ellis, an orthodontist 

and a member of the faculty of the University of Texas Southwestern. Mr. David Feinwachs is the former general counsel of the 

Minnesota Hospital Association; and Ms. Claire Sylvia is an attorney at Phillips & Cohen. 

15 

The practice of this Committee is we actually swear you in, so 

if you would stand and raise your right hand. 

Do you solemnly swear or affirm that the testimony you are 

about to give will be the truth, the whole truth, and nothing but 

the truth? 

[Witnesses respond in the affirmative.] 

Mr. JORDAN. Let the record show that everyone answered in the 

affirmative. 

Thank you. 

We will start with Dr. Feldman and we will just go right down 

the line. Dr. Feldman, you are recognized for five minutes. 

STATEMENT OF GABRIEL E. FELDMAN 

Dr. FELDMAN. Good morning. My name is Dr. Gabriel Ethan 

Feldman and I am a whistleblower. 

I would certainly like to start by thanking Senator Grassley, 

Congresswoman Bachmann, Congressman Issa, Gowdy, and Congressman Jordan, of course, and the other Committee members for 

convening this important hearing and for inviting me to discuss my 

role in helping the Federal Government recover $70 million that 

was improperly billed for New York City’s Personal Care Services 

Program. I would also like to make very clear that all my comments here today are my own and do not reflect my employer, my 

colleagues, or any other entity. 

I was born in Brooklyn, New York, and have lived on Manhattan’s Upper West Side in a small studio apartment for most of the 

last 20 years. I am a registered Democrat. I received my medical 

degree from the Sackler School of Medicine in Tel Aviv, Israel. I 

have a BA from Brandeis University, a Master’s degree in Public 

Health from New York Medical College, an MBA and a Master’s in 

Health Administration from Georgia State University in Atlanta. I 

am board certified in both preventive medicine and public health, 

and I hold an active medical license in New York. 

I began working as a New York City PCSP, or Personal Care 

Services Program local medical director in 1990, worked through 

1993, and returned to work there in 2006, and hopefully I will be 

still working there tomorrow. 

As an LMD, I am responsible for impartially evaluating a client’s 

home health care needs and appropriateness for the PCS program. 

Not every State has a PCS program. The Federal Medicaid Act was 

amended in 1990 to permit States to offer PCS as an optional home 

health care benefit. States that choose to implement the PCS program are required to set forth ‘‘reasonable standards’’ for determining individual eligibility and benefits. 

New York State has always offered the most generous and comprehensive safety net, including the most comprehensive Personal 

Care Services Program in the world. New York State regulations 

mandate that personal care services should only be provided if they 

are medically necessary and only if the patients have physical and 

medical conditions that are ‘‘stable.’’ 

The PCS program has two levels: one is limited to basic housekeeping and chores; the other includes assistance with daily functions such as bathing, dressing, feeding, grooming, walking, and 

16 

toileting. The PCS program aides do not provide any sort of skilled 

nursing care or monitoring. 

While the State is ultimately responsible for overseeing the 

PCSP and for providing a fair hearing appeals process, the program is run day-to-day at the county level. Thus, PCS is run quite 

differently in New York City than it is in upstate or rural counties. 

My false claims case involved Medicaid clients who received PCS 

around the clock, either on a sleep-in or split shift basis. Sleep-in 

refers to an assistant that sleeps in the home; split shift refers to 

two separate, always awake assistants who provide care to the client in separate shifts. Sleep-in costs about $75,000 a year; split 

shift costs twice that. 

In 2009, the year my qui tam complaint was filed, New York spent about $50 billion on Medicaid. About $20 billion of this was 

on long-term care, of which about $10 billion was home health and 

personal care services. These figures are by far the highest in the 

Country and partly reflect the fact that, nationwide, Medicaid now 

spends most of its funds on long-term care and not on primary, 

acute, or preventive care. 

For the last 20 years, Medicaid clients in New York City have 

received far more PCS service hours than any other group in the 

Country, and I believe that this was likely due in part to poor oversight at both the State and local levels. 

New York State does have a dense set of regulations that dictate 

criteria for admission to and reauthorization of its PCS benefits, 

yet I frequently found myself at odds with city level staff and my 

own supervisors regarding the determination of level of service. 

In New York State, those of us who work in the PCS program 

are under tremendous pressure from advocacy groups, politicians, 

administrative law judges, and family members of clients to rubber-stamp service requests. 

I have found my independent and very well supported recommendations regarding home care needs routinely overridden by 

the City’s powers that be, or by administrative law judges, who are 

not required to even have any formal medical, nursing, or disability 

training. When I would suggest that a client was no longer appropriate for the PCS program or appeared to be unstable, I was taken 

to task as being one of those unfeeling bureaucrats. 

Until recently, a pervasive culture of non-accountability and noncompliance to PCS State regulations made it simply far too easy for 

local social service offices in New York City to spend billions in taxpayer money without regard to common sense oversight, regulations of the State, or patient safety concerns. 

Despite my complaints to appropriate internal parties, little 

seemed to change. I grew tired of seeing so much waste in the Medicaid system while hundreds of thousands of poor children in my 

State had no health insurance at all. As Justice Brandeis said, sunshine is the best disinfectant. So I contacted Levy Phillips & 

Konigsberg and decided to become a whistleblower. 

My complaint was filed under seal and I hoped the issue would 

be resolved quickly and quietly. After the case was unsealed, however, New York City still defiantly proclaimed that they would win 

their fight and the case in the end. The case was heavily litigated 

before Judge Rakoff in the Southern District. I continued to show 

17 

up for work each day and was grateful that family, friends, and coworkers supported me. The case was finally settled just a few 

months ago. 

In sum, New York City’s Medicaid program is still in dire need 

of reform. Many providers simply refuse to accept Medicaid. The 

cost growth is unsustainable and a million people in New York City 

have no health insurance at all. Higher spending simply had not 

led to better outcomes, higher patient satisfaction, or to better access to care. In New York City, Medicaid simply does not excel with 

regard to quality, access, cost, or oversight. This simply must 

change. 

I would also like to suggest much stronger oversight and independent auditing of ALJ, administrative law judges, who hear appeals. 

Mr. JORDAN. Doctor, can you close up? 

Dr. FELDMAN. Yes. 

While Governor Cuomo has taken bold steps to redesign Medicaid in New York State, the Medicaid industrial complex is thriving, especially in New York City. I hope today to make some sort 

of impact on this situation. 

Thank you very much. 

[Prepared statement of Dr. Feldman follows:] 

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Mr. JORDAN. Thank you, doctor, for your testimony and for your 

courage in stepping forward and bringing this to our attention. 

Dr. Ellis, you are recognized. 

STATEMENT OF CHRISTINE ELLIS 

Ms. ELLIS. Thank you very much for inviting me to speak today. 

In Texas, Medicaid has provided funding for the orthodontic 

treatment of severe handicapping malocclusions, which are defined 

as an HLD index score of 26 points. In plain English, a severe 

handicapping malocclusion is found in the mouth of a child whose 

teeth are so far out of position that they cannot do normal things 

like eat and talk without difficulty. 

Everyone who knows them knows that these kids desperately 

need braces. Children born with a cleft lip and palate are an example. So are kids born with craniofacial syndromes and certain special needs. The handicapping malocclusion exists because of their 

medical diagnosis. They are in need of orthodontic treatment if 

they are to have any hope of having teeth in a position remotely 

approaching normal. 

In many cases these kids depend on Medicaid for the funding of 

their orthodontic treatment. 

On screen 1 is an example of a child with a cleft lip and palate. 

While I certainly appreciate the value of an attractive smile, it 

is important to recognize the difference between the crooked teeth 

of an otherwise healthy child and a handicapping malocclusion. 

Unlike a healthy child with crooked teeth, children with handicapping malocclusion must be treated as they are growing up. Postponing orthodontic care until adulthood risks devastating consequences like speech that is difficult to understand, premature 

loss of teeth, and greater surgical risk. Braces for these kids are 

not optional and they are definitely not just for aesthetics. But in 

Texas these kids are at risk of losing the orthodontic providers who 

are most capable of providing care. 

As they say, everything is bigger in Texas, and thanks to the investigative reporting of WFAA’s Byron Harris, we now know that 

orthodontic Medicaid fraud is no exception. Since September of 

2011, Texas OIG has been investigating high volume providers suspected of Medicaid orthodontic fraud. I have consulted with them 

by auditing the patient records of these offices. 

The flagrancy of the fraud that I found is truly unbelievable. It 

was not accidental; providers submitted falsified HLD index forms 

to obtain preapproval for their care. These scores weren’t off by just 

a point or two; they were inflated by all 26 points in some cases. 

If scored accurately, at best, only 10 percent of the cases would 

have qualified. These providers didn’t want to put braces on the 

kids that Medicaid was designed to help, they were only interested 

in treating children without any real problems. Once they had 

them in braces, they delivered inefficient care and a whole lot of 

additional unnecessary appliances to increase their payment from 

Medicaid. 

Amazingly, Texas is making a bad problem worse. In March, the 

administration of Medicaid-funded orthodontics was outsourced to 

three dental managed care companies. The complexity of the approval process increased and provider reimbursement was cut. This 

26 

is the wrong response and will only attract unqualified orthodontic 

providers, if anybody at all, to help these kids. 

The corrective measures needed are: one, ensure that only children who qualify for orthodontic care are approved and, two, ensure that they are adequately funded. 

In supporting increased Medicaid reimbursement of orthodontics, 

I am in no way advocating for greater amounts of public money to 

be spent on braces. Elective orthodontic treatment should not be 

funded by Medicaid. The eligibility for orthodontics should be limited to children with a medical diagnosis and an accompanying 

dental deformity. It is not just my opinion, but also that of the 

American Association of Orthodontists. These recommendations 

will help ensure that children truly needing orthodontic treatment 

will have access to high quality care. 

As you are aware, there is significant disagreement between dental policymakers on how best to ensure access to care. Policy 

groups like the Pew Dental Campaign and Kellogg Foundation advocate for greater public spending for pediatric dental care. To 

these groups, numbers define success; they advocate for greater 

numbers of dental procedures performed, patients treated, and dollars spent. I do not question their good intent. But as a boots on 

the ground provider, I am here to warn of the side effects that accompany some of their recommendations. Texas has learned a painful and expensive lesson in the folly of simply increasing public 

funds in hopes of increasing access to care. 

Several years ago, Texas settled the long-running Frew class action lawsuit. It claimed, among other things, that children covered 

by Medicaid did not have access to care mandated under EPSDT. 

Part of the settlement mandated the increased spending of $1.2 billion to increase their access to care. While Medicaid dental spending took off, Texas looked at the increasing numbers and they 

thought that they had achieved success. 

Things did not work out as they had planned. Five years and 

over half a billion dollars later, Texas has spent a lot of money 

straightening basically already straight teeth and has gained a lot 

of fraudulent orthodontic providers, including many private equityowned dental clinics that are engaged in the illegal practice of dentistry. 

The sad conclusion to this entitlement-driven transfer of money 

is that, in Texas, we have used the mouths of children to enrich 

unethical providers and private equity investors. While access to 

care has increased, access to quality care remains a problem. In 

fact, it is possible that these children are more at risk of receiving 

unneeded poor quality care than they were before the changes 

mandated by Frew took effect. 

In conclusion, we all realize that public dollars must be carefully 

allocated to the areas of greatest need. Even though I am an orthodontist, I know that crooked teeth do not prevent one from enjoying 

life, liberty, and the pursuit of happiness. 

However, for a child with a true handicapping malocclusion, it is 

good and proper to craft public policy that addresses their deformity through Medicaid-funded orthodontic treatment. You can ensure 

their public safety net by clearly defining these children as the only 

patients who are eligible for well funded Medicaid orthodontic 

27 

treatment. You can help ensure the public that their dollars are 

well spent by clearly defining dentists as the only people qualified 

to own and operate a dental business. 

Thank you for your time. 

[Prepared statement of Ms. Ellis follows:] 

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Mr. JORDAN. Thank you, Doctor. 

Dr. Feinwachs, you are recognized for five minutes. 

STATEMENT OF DAVID FEINWACHS 

Mr. FEINWACHS. Thank you. Mr. Chairman, distinguished members, thank you for the privilege of being allowed to participate in 

the process today and for asking me to be here. 

My name is David Feinwachs. I was, for 30 years, the general 

counsel of the Minnesota Hospital Association. In 2010, I was fired 

from that position. The reason I was fired is because I asked the 

wrong question. The question I asked was: Was the State of Minnesota using Federal Medicaid dollars for purposes other than 

Medicaid, or are we using it to cross-subsidize non-qualified programs, maybe even prop up commercial insurance products, or 

other things which were clearly impermissible? That was the wrong 

question. 

Minnesota, in 2010, did in fact seek legislation to provide for a 

medical loss ratio for these public programs. During the course of 

that time, one of the fascinating things was that our Department 

of Human Services produced a fiscal note that discussed why that 

proposal would never yield any savings for either the State or the 

Federal Government. They said that any assessment on one of our 

HMOs in Minnesota, any payment of a penalty, a fine, a clawback, 

a give-back would never benefit the government because it would 

simply be built into the rate calculation for the subsequent years 

and be returned to the HMOs. 

This is a strange assertion because, number one, it flies in the 

face of the notion that these companies are assuming insurance 

risk in their administration of these programs and, number two, it 

raises the question of why do these companies reserve, in massive 

amounts, against what appears to be non-existent risk. So the fiscal note raised a number of questions. 

In July of that same year I reported to the management of the 

Hospital Association that I believed that we had uncovered a substantial and massive fraud against the Federal Government. In August, on August 13 of 2010, I was asked to participate in a conference call involving our State Department of Human Services, an 

employee named Karen Peed. Ms. Peed was the Director of Medicare Managed Contracting. 

During the course of that conference call, Ms. Peed made the following statement: If you can’t keep a secret, you have to leave the 

room, but we have been adjusting the reserve amount for Stateonly funded programs by making it essentially zero, and increasing 

the amount for PMAP Federal programs, blending the rate, and returning it to the insurers. 

Upon hearing this statement, I believed that all the pieces of the 

puzzle had now been assembled. We suspected that there was a 

massive fraud; Ms. Peed’s statement explained the mechanism by 

which the fraud was being accomplished. 

I again went to the management of the Hospital Association and 

told them what had been discussed and urged them to do something. They did something: within 60 days I was terminated. 

Following my termination, I continued my advocacy on this issue; 

I returned to our State capital and continued to lobby. In 2011, a 

37 

number of bills were introduced, but the most interesting thing 

that happened in 2011 is one of our HMOs, UCare, said that they 

were going to give a donation to the State of Minnesota of $30 million, a give-back. This, coincidentally, was exactly the amount that 

the year before we had claimed would be owing as a clawback or 

return because of the elimination of one of the programs in Minnesota that was not a federally qualified program. 

When UCare announced the donation, as it was called and attributed, they distributed to a select group of legislators a letter explaining the reason for the donation, and the letter said that the 

money was being returned because Medicaid rates had been inflated to subsidize the program, which was now being eliminated, 

and, therefore, since the Medicaid rates had not been lowered, they 

were returning what they characterized in their own words as an 

overpayment. 

Now, clearly that is not a donation. 

If we fast-forward another year, to 2012, our media in the State 

of Minnesota got hold of this letter, as well as documents related 

to Ms. Peed’s statement and some other things, and began to take 

a close look and to scrutinize the statements which were made by 

UCare and, in fact, the statements which were made by the State 

of Minnesota saying that this was in fact a donation and that the 

Federal share was not required to be returned. 

During the course of these investigations, the media went to 

Commissioner Jesson and presented to her the Karen Peed statement, as well as other documents and, of course, the letter that 

UCare had written, and they asked her if this would be defrauding 

the Federal Government. Commissioner Jesson responded as follows: Let me say two things. Let me be very clear. We are not 

doing it that way anymore and Karen Peed is no longer in charge 

of contracting with the health plans. 

Now, this is an interesting and simultaneously troublesome 

statement because currently we are, in part, celebrating the return 

of $15 million to the Federal coffers. But the celebration is a little 

premature, and let me explain why. 

Mr. JORDAN. Dr. Feinwachs, can you close up here in just a few 

seconds? 

Mr. FEINWACHS. In the last year, this return has been called a 

donation, a refund, and now an administrative expense, and it is 

the last that is most important. As an administrative expense, it 

is going to be billed into the rate certification and you are going 

to return half to the State and the HMOs next year. The $15 million they are giving you, you are going to give them back next year 

because there are no audits, there are no accountability, and there 

is no verification. 

Thank you. 

[Prepared statement of Mr. Feinwachs follows:] 

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Mr. JORDAN. Thank you, doctor. 

Ms. Cohen, you are recognized. 

Ms. Sylvia, go ahead. 

STATEMENT OF CLAIRE SYLVIA 

Ms. SYLVIA. Chairman, Ranking Members, members of the Committee, thank you for the opportunity to speak with you today. My 

name is Claire Sylvia. I am a partner with Phillips & Cohen, which 

specializes in representing whistleblowers under the Federal and 

State False Claims Acts. 

Much of the discussion today has been about auditing and oversight, and as important as those efforts are, even if they worked 

perfectly, and they don’t always work perfectly, there would still be 

waste, fraud, and abuse. As many have acknowledged, that is sort 

of inevitable. And I would like to talk about a different way of addressing waste, fraud, and abuse, also a preventive method. 

The Government’s most important tool in fighting fraud against 

the Government is the Federal False Claims Act, with its qui tam 

whistleblower provisions, which provide incentives to private citizens to pursue lawsuits on behalf of the Federal Government to redress fraud. 

The Act, first enacted in 1963, was substantially amended 25 

years ago, when Senator Charles Grassley and Representative 

Howard Berman led successful efforts to amend it and to provide 

additional incentives for whistleblowers. The changes Congress 

made in 1986, which provided whistleblowers the opportunity to 

play an ongoing role in the cases that they initiate and enhance the 

resources of the Federal Government in pursuing these cases, have 

proven phenomenally successful in addressing fraud, including 

Medicaid fraud. The Department of Justice reported that more 

than $30 billion has been recovered under the False Claims Act 

since 1986. 

The reason the Act is so successful and the State Acts are also 

successful is that they address two key problems in addressing 

fraud that are a problem for the Government, and the first is a 

lack of information. No matter how much auditing you do, what 

whistleblowers provide that the Government doesn’t have is information about fraud. 

As Congress recognized when first enacting the False Claims Act 

and again amending it in 1986, it is very difficult to detect fraud 

without the cooperation of close observers of the activity. The False 

Claims Act provides incentives to persons with knowledge of the 

fraud to report that information to the Government. Those incentives include not only the possibility of a reward, but the opportunity to have an ongoing role in the case, as well as protections 

against retaliation. 

Without those incentives, few individuals would be willing to risk 

the cost to their careers of the type that we have heard about 

today. Other oversight methods, such as data mining and audit 

programs, can also serve an important role in detecting fraud, but 

the ability to harness the information of insiders has proven especially effective. 

The False Claims Act qui tam provisions also address another 

important problem that the Government has in fighting fraud, and 

47 

that is resources. The Government would never have enough resources to pursue fraud. As Government recognized in 1986, large 

corporations that are the subject of fraud investigations are often 

able to devote significant resources to these cases and often outmatch the Government. The False Claims Act addresses that problem by providing incentives to whistleblowers and their lawyers to 

assist the Government. Cases under the False Claims Act can take 

a very long time, many years to develop and pursue, and typically 

require tremendous investment of legal resources. The combined efforts of the Federal Government and private resources have been 

uniquely effective in pursuing fraud. 

The recent changes in Federal law will actually assist further in 

addressing Medicaid fraud. Congress amended the False Claims 

Act in 2009 to clarify a number of provisions of the Act that were 

inconsistent with Congress’s original intent. The Affordable Care 

Act provided additional tools and, importantly, the Deficit Reduction Act in 2006 provided incentives to States to adopt their own 

False Claims Act acts and a number of done so, and together with 

the Federal Government they have been very effective in pursuing 

Medicaid fraud. 

The success of these provisions in addressing Medicaid fraud is 

undeniable. According to the Department of Justice, in the fiscal 

year ending 2011, recoveries under the False Claims Act reached 

a record $3 billion, and the year before also was close to $3 billion. 

Of that amount, $2.8 billion in recoveries was attributable to 

claims brought under the whistleblower provisions of the False 

Claims Act and $2.4 billion of that amount involved fraud against 

Federal health care programs, including Medicaid. 

Medicaid fraud takes a variety of forms and we have heard about 

a few of them today. They can be as simple as a single provider 

addressing Medicaid fraud, but they can also be incredibly complex. 

They can include things like unlawful pricing schemes offered by 

marketing and other types of complicated frauds, and all of those 

take resources beyond those that the States have to address them. 

Not to be lost in all of this is the deterrence value that these 

suits can have on preventing future fraud. 

So, in summary, this is a bipartisan effort, fighting fraud. Everyone wants to make sure that the money is spent on the people that 

it was intended to help, and the False Claims Act is one way to 

do that. 

[Prepared statement of Ms. Sylvia follows:] 

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Mr. JORDAN. Thank you, Ms. Sylvia. 

I now recognize the Chairman of the full Committee for a statement and his questions. 

Mr. ISSA. I thank the Chairman. Thank you for going to me first. 

Ms. Sylvia, since you were last, you shall be first. Three billion 

sounds like a lot of money. GAO indicates that Medicare alone, 

$100 billion; probably about $35 billion in Medicaid or greater; and 

a huge amount in dual eligibles. Is it really that effective if we are 

talking about small single digit percentages of the overall problem? 

Ms. SYLVIA. Well, the $3 billion is only a part of the amount that 

is being recovered. That is the dollars and cents that you get back 

to the Treasury, but it is unknown how significant the deterrent 

effect is, how much fraud is being prevented. 

Mr. ISSA. And I appreciate that, except the deterrent doesn’t seem to be working if you have more than $100 billion in Medicare 

alone, according to the General Accountability Office. So, again, 

isn’t it true that, in fact, qui tam looks, quite frankly, for cases. 

These cases often are about financial return to the law firms and 

to the individual, and that one of the challenges we have is we 

have lots of Federal workers and lots of people who are paid 

through Federal dollars who aren’t living up to their basic responsibility to call foul when there isn’t any money involved or when 

the money is unknown. And I think Dr. Feldman would be a good 

example of, yes, there were a lot of dollars involved, but ultimately 

the question is do we have the protections for the whistleblower 

who comes to us simply to stop a wrong. 

Ms. SYLVIA. Most whistleblowers, I assume, come to the Government to stop the fraud. Most of the money isn’t returned to the 

whistleblowers and the law firms, it is returned to the Government. So the qui tam provisions do provide an important role in 

addressing fraud. It is not perfect; there is always going to be more 

fraud, but they do provide an important deterrent effect. 

Mr. ISSA. Dr. Feinwachs, I think you would say that we have a 

more rampant expansive problem that is not being addressed even 

at State level, wouldn’t you? 

Mr. FEINWACHS. Yes, sir, I would say exactly that. What we have 

discovered in Minnesota is a situation where there is a collaboration between the private parties to defraud and elements of State 

government. 

Mr. ISSA. The Chairman was kind enough to come to me first. 

I will be brief. 

This week we are going to be marking up on the House Floor the 

Data Act, literally changing the way reporting goes on so that 

every dollar, including Medicare, Medicaid dollars, the intention is 

the service providers will in fact be reported in a transparent way 

so that the public and the government, once and for all, will be able 

to see in real time, across all government services, where the 

money is being spent with a set of reporting. One of the challenges 

we are going to face is how do we leverage—and I am not asking 

for an answer here, but it is a challenge—how do we balance the 

private whistleblower’s participation in this vast amount of new 

data versus cost effectiveness of employing Federal workers, if you 

would inspector general types, whose primary job will be to try to 

find most of that $100 billion in Medicare and probably half a trilVerDate Aug 31 2005 08:51 Sep 21, 2012 Jkt 000000 PO 00000 Frm 00058 Fmt 6633 Sfmt 6633 C:\DOCS\74889.TXT APRIL
55 

lion dollars in unnecessary spending, not the least of which would 

be GSA conferences throughout the Country. 

With that, Mr. Chairman, I respect the fact that you went to me 

first, and I yield back. 

Mr. JORDAN. I thank the gentleman. 

We will now recognize the Ranking Member of the full Committee, the gentleman from Maryland, Mr. Cummings. 

Mr. CUMMINGS. Thank you very much, Mr. Chairman. 

Mr. ISSA. You can have an opening statement and or your time. 

Mr. CUMMINGS. I will be brief. 

First of all, I want to thank all of our witnesses for being here. 

I think this is a very important hearing. I want to thank those who 

find it important to talk about the things that you see that are 

wrong. 

Dr. Ellis, as you were talking, I could not help but think about 

a young man who you are probably familiar with from my State, 

who is now dead, the 12-year-old, Deamonte Driver, who died five 

years ago because he had an infected tooth that would have taken 

$80 worth of treatment, but could not find a Medicaid dentist to 

treat him. He is dead at 12. 

And as I sat here and I listened to what we were saying, I could 

not help but think about something that Mr. Gowdy said, about 

and I agree with him, doing autopsies, but not coming up with results; doing autopsies, but not figuring out how to make sure we 

don’t have to do future autopsies. We are going to have to address 

this issue and the False Claims Act may be a good tool. We need 

to figure out, Dr. Sylvia, how we make it even more effective. And 

I guess that is the one question that I would ask. 

But I also want to be in fairness to the folks there in Minnesota. 

Dr. Feinwachs, you just said something that was very interesting. 

I am always very careful about when we say things that may be 

harmful to anyone. The reason why I am going to ask you this 

question is because Ms. McCollum talked about the differences in 

the administrations. She talked about the previous administration 

there in Minnesota and the present administration, and you just 

said something that I just want you to clear up. You said that you 

felt that the—and correct me if I am wrong—that some government 

people, employees, were working with some providers and causing 

some of these problems. Is that right? In other words, some of this 

fraud. I am not trying to put words in your mouth, it is just that 

I want to make it clear. You are going to be on national TV and 

we are making accusations, and I want to make sure we are clear 

as to who we are accusing of what. You can go ahead. 

Mr. FEINWACHS. Mr. Chairman, Congressman, yes, it does appear from what has occurred in Minnesota that some public employees and our HMOs were in fact collaborating, if I may use a 

kind word, in the conduct that we are questioning today. 

Mr. CUMMINGS. And that is under the previous administration 

and this administration, is that what you are saying? 

Mr. FEINWACHS. Mr. Chairman, Congressman, it appears this 

has been going on for some years; it looks to me like at least from 

2003. 

Mr. CUMMINGS. Until the present day? 

Mr. FEINWACHS. That is correct, sir. 

56 

Mr. CUMMINGS. I understand. Well, I just wanted to make it 

clear, and I am sure somebody will ask you some questions because 

we will be interested to know who these people are since you made 

this accusation. And if they are doing this as government employees, they ought to be fired, but, more importantly, they need to go 

to jail. That is why I am very careful with those kind of accusations. 

Finally, let me say this. The reason why I started out by talking 

about Deamonte Driver is because when these resources are going 

places that they should not go, that is, in the pockets of other folks 

who are probably rich, and every time I think about this stuff it 

makes me mad because I live in the inner city of Baltimore, and 

if somebody steals a $30 bike, a bike for $30, they are probably 

going to go to jail, but at least they are going to get a record. So 

I want to make sure that some of these folks who are stealing hundreds of thousands, if not millions, get their chance to see their picture on a mug shot. 

My simple question, Ms. Sylvia, is what can we do to enhance 

the False Claims Act? 

And I am finished, Mr. Chairman. I just want to know the answer to the question. 

Mr. JORDAN. She can answer the question. 

Ms. SYLVIA. I think the Act is working quite well. One of the 

most important developments has been the adoption of the State 

Acts to create coordination between the States and the Federal 

Government. So I don’t have recommendations for how to address 

it other than to have more States follow the lead of the ones that 

have already adopted their own False Claims Acts. 

Mr. JORDAN. Thank you. 

I now turn to the dentist on the panel, Dr. Gosar, the gentleman 

from Arizona, is recognized for five minutes. 

Mr. GOSAR. Thank you, Chairman. Thanks for allowing me to go 

here. 

As you know, before I came to Congress, I was a general dentist 

for 25 years. In fact, I was a dentist that served cleft lip and cleft 

palate for a number of years early on in my clinical life. I owned 

my own practice. I hired my own staff and cared for my own patients. 

I also want to commend you, Dr. Ellis, for coming forward, because that is what we have to do; we have to police our own. 

This is not unusual, what we see in raiding Medicaid and false 

providing accounts, but we need more people to do that. And it is 

not just limited to corporate entities, either; it is also community 

health centers, WIC reimbursements and stuff like that. So it 

across the board. You know, when you sit down with one child and 

do a procedure only on one tooth because that is all we are going 

to afford them, that is also disrespectful to the patient and that is 

fraud. Compensation through encounter forms, where it takes a 

woman seven or eight times to see a physician is also fraud on 

seven or eight different visits on seven to eight different weeks. 

But I am also not surprised at the corporate dentistry’s aspect 

and dental clinics as a central player. In Arizona, where I am from, 

we have had a number of problems. But a lot of that is State laws 

57 

and how we actually empower that. In fact, laws are worthless unless you have enforcement. 

And that is where I come to you, Dr. Ellis. In your testimony you 

say that All Smiles Clinic in Dallas area is a majority owner by a 

private equity firm. Is that correct? 

Ms. ELLIS. That is correct as far as I know. 

Mr. GOSAR. Is that legal under the Texas law? 

Ms. ELLIS. My reading of the Texas law is it is not. 

Mr. GOSAR. I agree with you, I don’t think it is. 

Ms. ELLIS. I think there is a big debate over that issue right now 

in Texas. 

Mr. GOSAR. Okay. So if a dental clinic, no only operating ille- gally, but collecting $10 million in 2010 for Medicaid, which is 

more than half the entire State of California collected in the same 

year, is that true? 

Ms. ELLIS. They collected $10 million in orthodontics. They 

also—and I would say their primary business is actually in pediatric dentistry, so I do not know the numbers that they collected 

total for dental care. 

Mr. GOSAR. And what was done about it? 

Ms. ELLIS. What was done about it? Nothing. That is the problem. 

Mr. GOSAR. So I am curious how many laws does one have to 

break before the State Dental Board and CMS cracks down. This 

is just one of the examples of a clinic that stole millions. 

I just want to point out one more thing while I have some time. 

Part of the problem has to do with our oversight, and I think Ms. 

Sylvia may be able to answer this. Until we actually empower the 

private sector, the patients, we are not going to truly have reforms, 

are we? 

Ms. SYLVIA. Well, I think the False Claims Act is one way of empowering patients to report fraud that—— 

Mr. GOSAR. But actually allowing patients to be selective in their 

care and empowering them, I think that is what is going to be necessary to get some total reform, would you not say that? 

Ms. SYLVIA. I am not sure that I would say that that is the key 

to addressing fraud. I think the patients are an important part of 

it, but it is the providers that we are most focused on, their efforts 

to abuse the system. 

Mr. GOSAR. Well, I may go a step further. I think that in Arizona 

we have a very active Dental Board, one of the most active in the 

Country. So this doesn’t go passed very easily. We actually have 

empowered them to actually have oversight over corporation clinics 

because it puts providers in double jeopardy in many cases, particularly when they are brought in front of the board. 

But State legislatures have been part of the problem. They have 

raided professional licensing fees, basically additionally taxing 

them. So what happens is it further restricts State boards into having that oversight. So in many cases it is the State board, and in 

our State of Arizona that is exactly what they have done, is they 

have raided those accounts, making it very, very impossible for 

them to have the financial funds, the manpower to actually go after 

them. And it is a form of additional taxation. So we have to have 

the ability for them to do that. 

58 

Second of all is also empower carveouts. Dentistry is very proud 

of their track record, and what carveouts basically do is give them 

better oversight of that population. And I think the States that 

have those types of carveouts, and I think Texas is now going 

through the process of doing a carveout so that they have better 

management of their funds, but you also need to have the funds 

to have that type of oversight as well. 

So, Dr. Ellis, thank you for stepping forward. We need a lot more 

of you to do the same thing because we have to police our own. 

I yield back the balance of my time. 

Mr. JORDAN. I thank the gentleman. 

I would now recognize the gentleman from Minnesota, and I 

apologize, I did not realize that the representative wanted to make 

an opening statement. So, Mr. Ellison, you are recognized. 

Mr. ELLISON. Thank you, Mr. Chairman. Just one quick question. 

Is the time for opening statements or for questions? I can consolidate both. 

Mr. JORDAN. If you can consolidate, that would be great. 

Mr. ELLISON. All right. Thank you. 

I would simply like to just say that I applaud this Committee, 

Mr. Chairman, and, of course, our Ranking Members for looking 

into the good use of the public dollar. The more efficiently we can 

use dollars for Medicaid, the more people we can help, and that is 

very important to me. 

I do want to point out, however, that my State, Minnesota, is a 

leader in health care, providing in access one great example is of 

a Minnesota program is a program called Hennepin Health, run by 

Hennepin County in my district. This is an innovative program 

which integrates care for individuals with the highest need by identifying the holistic needs of the individual, whether those needs are 

medical, housing, mental health treatment, or finding a job. By 

combining social services with health care, Hennepin Health is 

making promising steps to reduce costs, while also providing better 

care. 

Another example of the great work being done in Minnesota is 

the opening of the health plan contracts to competitive bidding. 

This has provided savings of over $500 million to taxpayers. In addition, the Dayton administration has negotiated a voluntary 1 percent cap on profits companies keep for reserves, resulting in a return of about $73 million to the State. 

So right now we are spending time, as we should, regarding allegations of fraud in Minnesota under previous administrations for 

a program that doesn’t exist anymore and for which both the Minnesota legislative auditor in 2008 and the current State administration have found no proof. I still support this process, but I will 

note that there are many important and innovative steps being 

made to improve the quality of health care in Minnesota of which 

I am very proud. 

So that would lead me to a few questions I would like to ask, if 

I may. 

Mr. Feinwachs, the current administration in Minnesota has 

made a number of changes to health plan reimbursement. For instance, Minnesota used to have one set of rates for the plans in 

each county, looking at factors such as historic rate claims. Now 

59 

the State has implemented a successful competitive bidding process 

that has achieved over $500 million in taxpayer savings. Do you 

agree that Minnesota’s move to a competitive bidding has been 

beneficial? 

Mr. FEINWACHS. Mr. Chairman, Congressman Ellison, no, sir, I 

do not. Minnesota’s competitive bidding process began with four 

predominant HMOs controlling the market, and after the so-called 

competitive bidding the winners were the four predominant HMOs. 

The competitive bidding, as it has been initiated, appears to be 

nothing more than a market allocation among these four HMOs to 

maintain the mechanism that has been employed for many years. 

Mr. ELLISON. Also, the State negotiated a voluntary 1 percent 

cap on profits for 2011, and this resulted in $73 million being returned to the State. Do you agree that the 1 percent voluntary cap 

was a win for the taxpayers? 

Mr. FEINWACHS. Mr. Chairman, Congressman Ellison, I believe 

that the return of money is a good start, but I disagree with the 

characterization as a 1 percent cap. Last year the current administration asked the plans to follow the lead of UCare in giving back 

money that had been received from a clearly inflated Medicaid 

rate. They didn’t want to do that, so an agreement was negotiated 

whereby it would be called a voluntary cap. The voluntary cap, of 

course, is subject to manipulation of administrative expenses in 

order to achieve the cap and to limit the amount. My characterization of what has occurred in Minnesota is because we said the word 

audit, we have recovered $103 million. Imagine what would happen 

if we did an audit. 

Mr. ELLISON. You point out in your testimony that a 2008 report 

by Minnesota’s legislative auditor found the State’s payment rates 

to be high compared to other States. Do you agree that the State’s 

recent efforts have improved its payment rates? 

Mr. FEINWACHS. Mr. Chairman, Congressman Ellison, Minnesota’s payment rates to the plans are high. Minnesota’s payment 

rates to its providers are dismal. I don’t think anything in recent 

history has changed that. 

Mr. ELLISON. No further questions. 

Mr. JORDAN. I thank the gentleman. 

Now recognize the Chairman of the Subcommittee on Health 

Care, the gentleman from South Carolina, Mr. Gowdy. 

Mr. GOWDY. Thank you, Chairman Jordan. I want to thank all 

of our witnesses. 

Dr. Ellis, you used the word fraud twice. That word has legal 

consequences, it is not just a term of art. And then Dr. Gosar asked 

you about whether there had been any consequences. I think you 

used the phrase police your own, which is fine, although I probably 

don’t trust somebody’s own group to administer the punishment. 

Has there been any punishment, any consequences for what happened in Texas? 

Ms. ELLIS. I will be the first to say there is probably a person 

better qualified to answer that. As far as I am aware, there have 

not been any consequences. 

Mr. GOWDY. Who should I ask whether anyone has had their license to practice suspended, whether they are suffering the threat 

60 

of criminal liability, civil liability, disgorgement of their profits? 

Who would be the proper person for me to ask? 

Ms. ELLIS. The Texas State Board would be the one that handles 

the licensure of dentists, and they would be the ones that would 

take away the license of a dentist. Part of the problem is the Texas 

State Board has said that they do not find any ability to bring any 

kind of action against a corporation because a corporation does not 

hold a license; that they can only bring action against the individual dentist. The allegations that I have made are against All 

Smiles as a corporation and not the individuals at All Smiles. 

Mr. GOWDY. So dentists—— 

Ms. ELLIS. So I would guess it would be the attorney general. I 

am sorry, the short answer would be is the attorney general would 

probably be the place to go. 

Mr. GOWDY. Which the frustration, which I do not mean to take 

out on you because you did the right thing, the frustration is that 

when poor people steal they go to prison; and when rich people 

steal, they keep their title, sometimes they get promoted, if they 

work for GSA, and every now and again they get invited to testify 

before a congressional committee. So it is this two-track justice system that the more you steal, the less likely you are to have any 

consequences at all. These were orthodontists or dentists who had 

to certify that it met the criteria for—I saw a sign that said free 

braces. I can’t help but smile when I see the word free. Free to 

whom, I am not sure. But somebody had to certify that this case 

fit the program, didn’t it? 

Ms. ELLIS. Yes. The HLD index sheet that I referenced does require a provider signature, and the orthodontist or the dentist that 

holds the license would have signed that paperwork. 

Mr. GOWDY. So dentists or orthodontists were certifying that 

something met the strictures of a program when in fact it did not. 

Ms. ELLIS. That would be correct. 

Mr. GOWDY. That just doesn’t seem to be a hard case to win. 

Ms. ELLIS. I don’t disagree with that. 

Mr. GOWDY. There are no studies that suggest there are more 

crooked teeth in Texas than there are other States, are there? 

Ms. ELLIS. No. 

Mr. GOWDY. And there certainly wouldn’t be any studies that 

suggest there are more crooked teeth in Texas than all other States 

combined. 

Ms. ELLIS. No. 

Mr. GOWDY. And yet it took a reporter to unlock this mystery? 

No one at CMS happened to notice, gosh, we are spending more 

money on crooked teeth in Texas than we are the rest of the Country? 

Ms. ELLIS. That is right. It is unbelievable. 

Mr. GOWDY. Well, it may also come as something as a surprise 

to you, it did to me. We spend $500 billion a year to investigate 

and prosecute fraud in the health care system, and here we missed 

something that my 15-year-old daughter could have detected. 

Mr. Feinwachs, I want you to help me understand an email, if 

you can, even though you didn’t send it and you didn’t receive it. 

In order to have a good chance of keeping all this money, it must 

be characterized as a donation. I find the word characterized to be 

61 

interesting. The writer did not say it must be a donation, it just 

must be characterized as a donation. Am I putting too much emphasis on the word characterized? 

Mr. FEINWACHS. Mr. Chairman, no, I do not believe that you are. 

The donation was accompanied by a letter describing it as the refund of an overpayment, so to call it a donation would require some 

modification or recharacterization of the event. 

Mr. GOWDY. Which then instructs the next line in the email, 

which is if a refund, Feds clearly get half. Can you work with Scott 

on redrafting? And then the final sentence is the one that I find 

most interesting: Also, I thought we were going to handle this 

through phone calls. I can’t imagine why someone would prefer 

phone calls over emails unless perhaps it were to avoid a trail. Am 

I too cynical, Dr. Feinwachs? 

Mr. FEINWACHS. Mr. Chairman, no. Let me say that what I have 

trouble imaging is why anyone would put a directive not to put 

things in writing in writing. But that is not for me to answer. The 

point you raise is quite interesting because redrafting suggests that 

there was in fact an original draft, and it would be fascinating to 

know what the original draft said. 

Mr. GOWDY. And if we had a team of investigators who also were 

not in some way complicit or desirous of a State keeping the 

money, perhaps they would be just a tad bit more aggressive in 

finding out the answer to that question. 

Thank you, Mr. Chairman. 

Mr. JORDAN. I thank the Chairman for his good questions. 

We will now recognize the Ranking Member of that same Health 

Committee, the gentleman from Illinois, Mr. Davis. 

Mr. DAVIS. Thank you very much, Mr. Chairman, and again I 

want to thank all of the witnesses for being here. 

I have always thought of myself as being sensitive to the question of waste, fraud, and abuse. But I have also attempted, in my 

own thinking, of trying to make sure that I wasn’t guilty of throwing out the baby with the bath water, that is, throwing out things 

that might work, might be necessary. 

So, Dr. Feldman, I am interested in hearing a little bit more 

about what the State of New York has done, or New York City, to 

try and ensure compliance with PCS regulations as was outlined 

in the settlement that you had mentioned. 

Dr. FELDMAN. The City and the State have taken great measures 

to improve the program and to comply with regulations. I know because I work there every day; I will be there tomorrow. I see that 

folks are getting completely retrained. They are bringing in new 

staff. People were let go; many people retired. Many people who 

were in high positions are no longer there. 

In fact, in some ways the program is run even closer to the regulations that I had anticipated. What I usually tell folks is that now 

the program that I work in is a little bit like working for the Green 

Bay Packers a couple of years after Lombardi came, because now 

it is extremely careful about how we approach each case and how 

PCS services are provided. 

Throwing the baby out with the bath water, I really need to say 

very clearly I am not here to advocate slashing Medicaid spending 

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62 

icaid or privatizing it, or throwing the elderly into nursing homes 

or to throw disabled children into snake pit institutions. These are 

the kids of things that I get hit with all the time. What I am trying 

to do here is to help both sides of the aisle realize that if we are 

going to have reasonable cost growth, we need reasonable oversight, so that people get better care. 

The problem in New York City is not the same as in Minnesota. 

Minnesota has a wonderful reputation for providing health care; it 

is always known as a model. New York City is not. We spend the 

most in New York State; we spend $50 billion a year. I cannot tell 

you how much of that money is wasted; I can only assure you that 

in my program specifically I am fairly comfortable in knowing that 

in the old days we wasted more than $823,000 every day. 

Mr. DAVIS. You know, you caused me to remember the days of 

the Medicaid meals that were rampant in many places, especially 

in inner city communities throughout America that I have spent a 

great deal of time in, and I certainly think that we have made 

progress since then and things have become more sophisticated, 

more complex. 

So, Ms. Sylvia, can I ask you the schemes that you have mentioned that pharmaceutical companies sometimes might use, could 

you share what some of those may be and may have been? 

Ms. SYLVIA. Sure. A lot of the emphasis at today’s hearing has 

been on sort of simple frauds, but a lot of the frauds that affect 

Medicaid are things like off-label marketing. And we have several 

cases involving that, which would include using kickbacks and promotions to doctors and hospitals to recommend and use devices and 

drugs that are approved for those particular uses. And that costs 

Medicare and Medicaid money because they wouldn’t pay for those 

goods or services if they had known that those practices were going 

on. And no amount of oversight is going to produce information 

about those practices that whistleblowers who actually work on the 

inside and can report the types of emails or the types of things that 

aren’t being written down that whistleblowers can report. 

Mr. DAVIS. Does the utilization of samples as promotional activity fall into any of this, to your knowledge? 

Ms. SYLVIA. Well, use of kickbacks to encourage or induce the 

use of goods or services provide or paid for by Federal health care 

dollars can be a violation of law and can be a violation of the False 

Claims Act, so there are circumstances where samples could fit 

that model. 

Mr. DAVIS. Thank you very much. 

Thank you, Mr. Chairman. I yield back. 

Mr. JORDAN. I thank the gentleman for his questions. 

We now yield to the gentleman from Texas, Dr. Burgess. 

Mr. BURGESS. Thank you, Mr. Chairman. Thank you for letting 

me be part of your hearing today. I sit on the Committee on Energy 

and Commerce, which does have a lot of jurisdiction over the Medicaid program, and I will just tell you that I have had a personal 

interest in this for some time because, Dr. Ellis, I have seen the 

billboards back home. My home is not too far from where you work, 

so I have been aware of there being some type of problem because 

generally, in my experience in the practice of medicine, it was not 

necessary to advertise for Medicaid patients, they found you if you 

63 

were willing to see them, and many providers, of course, will not 

because of the low reimbursement rates. 

So generally how would a clinic like this, how would they go 

about patient recruitment? 

Ms. ELLIS. Well, the billboards apparently worked pretty well. 

There have been offices accused of having solicitors go out and recruit business from places such as where they go to receive their 

food stamps or their State benefits. I have heard of the same thing 

going on at areas where children will be, like CC’s Pizza; other 

areas wherever they feel that they can target a Medicaid population. 

Mr. BURGESS. And let me just ask you this, because Mr. Gowdy 

asked a very important question about the enforcement action of 

all of this. Have you been contacted by the Attorney General’s Office of the State of Texas regarding the things that you have 

brought to light? 

Ms. ELLIS. I was contacted by both Texas OIG and the Attorney 

General within about a week’s period after one of Byron Harris’s 

stories ran and was basically told that I needed to work with just 

one, and the decision was made that OIG was the place where I 

could be best of service. 

Mr. BURGESS. So that is the State Inspector General. 

Ms. ELLIS. Yes, Texas OIG. 

Mr. BURGESS. Has the Office of Inspector General at the Department of Health and Human Services talked to you? 

Ms. ELLIS. The Federal? 

Mr. BURGESS. Yes. 

Ms. ELLIS. No. 

Mr. BURGESS. Region 6 is down in Downtown Dallas, they are 

right next door to where you work at Children’s Medical Center, 

but you have not talked with them? 

Ms. ELLIS. No, I haven’t talked with them. 

Mr. BURGESS. And as far as anyone from the Fraud Division at 

the Department of Justice, have they visited with you? 

Ms. ELLIS. No. 

Mr. BURGESS. But it sounds like there may be a significant number of dollars that have been fraudulently transferred, so just to 

the man on the street it would seem likely that this would be something that would be of interest to the Fraud Division at Department of Justice, would it not? 

Ms. ELLIS. I would agree with that, yes. 

Mr. BURGESS. And, again, just following the reasonable person 

concept, I don’t see how they have missed that. And you make such 

an important point about the risk and potential damage from unnecessary care. I mean, this is not a question of denying care to 

a needy child or a child who has a diagnosis that compels the care, 

but when you indiscriminately apply care across a population that 

is not in need, there is also the possibility that you are going to 

be causing future difficulties for these kids, is that not correct? 

Ms. ELLIS. That is true. 

Mr. BURGESS. And that is why it is so important that, yeah, people do the right thing, but not only that; if they are doing the 

wrong thing, that they be stopped and that they be held accountable. When I was in the practice of medicine, and I grant you it 

64 

has been a few years that I have been in active practice, but it 

seems to me you had a law on the book that prevented the corporate practice of medicine in the State of Texas. Now, that may 

have changed in the last legislative session, I am not sure. Is there 

also a similar prohibition on the corporate practice of dentistry in 

Texas? 

Ms. ELLIS. There is a paper that has been provided to this Committee, and I can make it available to you, that actually summarizes the corporate practice of dentistry in all 50 States. The basic 

answer to your question, no, it is not legal. 

Mr. BURGESS. And, again, since that is a State statute, it would 

appropriately be the attorney general’s office that would prosecute 

those cases, would it not? 

Ms. ELLIS. I don’t know how to answer that. 

Mr. BURGESS. You know, I am not asking this to be contentious, 

but we need to get the people who should be enforcing the law to 

be interested in enforcing the law. In all sincerity, that is the purpose in asking the question. I want this to happen. During the time 

I was in practice, I always felt that if I broke the law, something 

serious would happen to me; it would happen quickly, and I wasn’t 

sure what would happen, but I knew it would likely be bad. 

Now you have the situation completely turned on its head, where 

no one seems to care that it is illegal because not only is no one 

looking, but if it is put right in front of someone, there is no enforcement action. And, again, not just picking on the State here, 

because we are going to be hearing from the Center of Medicare 

and Medicaid Services in a little bit. They also bear a tremendous 

responsibility here about not just allowing the money to go out the 

door inappropriately, money that should be going to good purposes 

and taking care of people that we are obligated to care for, but people are being damaged in the process; and it is their dime that is 

allowing it to happen. 

So, again, I am just frankly stunned that the Center for Medicare and Medicaid Services—I mean, what is involved in an audit? 

When I get audited by the IRS, again, I know that it is going to 

be pretty dreadful. What is involved in these audits? Is no one noticing the flight of dollars out the door? I realize Texas had some 

problems in the initiation of SCHIP, and when President Bush was 

a candidate back in 2000, he received a lot of criticism because his 

State spent less than other States. But in the process of trying to 

deal with that, we have now created the nightmare scenario for a 

lot of families in Texas that are receiving care that, again, not only 

unnecessary, but likely to be damaging to their future health. 

Mr. Chairman, I appreciate the time that you have allowed me 

and appreciate the generosity. I am going to yield back, but we 

haven’t heard the end of this, and this story is one that is important and we need to get the people who are supposed to be in 

charge of watching the hen house back to doing their job. 

Mr. JORDAN. I thank the gentleman. 

Before yielding to the gentleman from Connecticut, let me just 

ask Dr. Feldman and Dr. Feinwachs has anyone from CMS, the Inspector General from CMS or HHS, or anyone from the Justice Department contacted officials in New York City or State officials in 

Minnesota? And we will start with Dr. Feldman. 

65 

Dr. FELDMAN. I have encouraged them to; I have given them 

plenty of names and fodder. I don’t know exactly what the followup was. 

Mr. JORDAN. But, to your knowledge, no one has contacted the 

City of New York officials regarding the issue, Dr. Feldman? 

Dr. FELDMAN. No. 

Mr. JORDAN. Okay. 

Dr. Feinwachs? 

Mr. FEINWACHS. Mr. Chairman, in mid-year 2011, when the 

State of Minnesota’s 1115 waiver came up for renewal, we contacted CMS and implored them not to renew the demonstration 

waiver because of problems. But our concerns, to the best of my 

knowledge, have not been addressed. 

Mr. JORDAN. And no one from the Justice Department has contacted officials in the State of Minnesota, to your knowledge? 

Mr. FEINWACHS. To my knowledge, no, sir. 

Mr. JORDAN. All right, thank you. 

We will now yield to the gentleman from Connecticut, Mr. Murphy. 

Mr. MURPHY. Thank you very much, and thank you all for your 

testimony and for your courage in bringing all of this forward. 

I think it is appropriate, Dr. Ellis, that a lot of the questioning 

has focused on the revelations that you have brought to light because it speaks to this much larger issue of an explosion of for-profit institutional care in this Country. It is not just for-profit dental 

clinics; we, today, have more for-profit hospitals than ever, more 

for-profit hospices, for-profit nursing homes, dialysis centers, outpatient surgical centers, walk-in clinics. And you have hinted at 

this in some answers to questions, but I might ask you sort of a 

broader one, which is that you speak to one of the solutions here 

being a crackdown on the private equity ownership of dental practices. In response to Mr. Burgess’s question, you were talking about 

some of their innovative recruitment methods. 

Let me ask you this question. What is that you think is unique 

about private equity ownership of a dental clinic or, frankly, of any 

other institution that makes it more likely that fraud will occur in 

that setting versus a nonprofit setting? 

Ms. ELLIS. In my opinion, there is a conflict of interest in who 

holds the doctor’s interest. Is it his employer and their investors or 

is the doctor’s patients? There are plenty of private practitioners 

who are guilty of what has been going on in Texas as well. They 

just aren’t able to leverage the dollars that the private equity companies are. 

In my written statement I hope I don’t throw all the blame on 

just private equity, but certainly they are part of the problem. But 

it just comes down to a conflict of interest. If you are the doctor 

and the patient is your patient, and you are interested in maintaining the integrity of your private practice, you have to make sure 

that you are delivering care or your reputation within the community is going to become not that that will attract patients to your 

business. 

The private equity groups tend to operate by name, they don’t 

identify themselves by dentist. The patient comes to the company. 

They are coming to an image, they are not coming to an individual. 

66 

And the dentists that are in their employment are under a contract, and in a lot of these companies they will have bonuses tied 

to production. The production is expected to be in the patient’s best 

health, but the corporation is clearly in the interest of pursuing 

greater and greater profits. 

Mr. MURPHY. Bonuses tied to production, not necessarily bonuses 

tied to quality. 

Ms. ELLIS. Exactly. 

Mr. MURPHY. Dr. Feinwachs, in Connecticut we have had a long 

history with Medicaid managed care, and I won’t go through the 

song and dance of all the problems that we had, but eventually, 

last year, we decided to bring our Medicaid program back in-house, 

and that has resulted in a pretty substantial savings to taxpayers. 

Representative Ellison hinted at this question, I think, but can you 

talk about this broader issue of whether fraud is more likely under 

a Medicaid managed care system and whether, ultimately, we have 

a guaranty that we are saving taxpayer dollars by continuing to 

manage Medicaid dollars in a private HMO system versus a system 

run by a State government? 

Mr. FEINWACHS. Mr. Chairman, Representative Murphy, let me 

say, first, before I address that question, I may have misspoken 

previously. While I have no personal knowledge, I believe there is 

a deal, a Department of Justice inquiry going on in Minnesota. I 

think there have been stories run about it in the newspaper. So I 

don’t mean to suggest that that is not happening, but I know what 

I read about it. 

Having said that, sir, let me address your question. I don’t think 

that there is any guaranty of efficiency, network adequacy, or any 

of the hallmarks that we would attribute to a properly and efficiently run Medicaid system because of the presence of managed 

care, so-called. I think in Minnesota we have a tremendous health 

care system, which is due to the commitment and dedication of our 

health care providers; hospitals, physicians, dentists, podiatrists, 

chiropractors, across the board. That is the fuel which moves the 

engine of health care forward in our State. 

What we need to do is to engage in auditing designed to answer 

exactly the question you have raised: What is the value of managed 

care in its involvement in this system, does it add value, does it 

add expense, what exactly does it do and how does it do it, in order 

to reach an intelligent conclusion to that very important question. 

Mr. MURPHY. I know my time has expired here. I asked the question because the budget that we just voted on here proposes effectively doing the same thing for Medicare that we do in most State 

systems for Medicaid, essentially handing the system over to the 

private sector. And I think it is useful to look at both the equality 

experience and the fraud experience of States that have done the 

same thing with their Medicaid programs. 

Mr. Chairman, thank you very much for the time. 

Mr. JORDAN. I thank the gentleman. 

Let me just start with you, Dr. Feinwachs. The overpayment/do- nation, the $30 million that was referenced several times in the 

hearing, that was just one company, right, that was UCare? You 

had four companies involved in the Medicaid managed care program, correct? 

67 

Mr. FEINWACHS. Mr. Chairman, that is correct, there are four 

companies and UCare is the smallest, and smallest by quite a—— 

Mr. JORDAN. Okay. So in your judgment, in your estimation, in 

your professional opinion, what is the potential overpayment/donation concerns if you factor in the other three managed care companies? 

Mr. FEINWACHS. In the absence of complete data, it is somewhat 

difficult to answer, but assuming that the overpayment was for 

UCare alone, that would have been $30 million relative to six 

months for that company. If you work that math backwards, you 

come out with about a half a billion dollars. If the overpayment 

was to—— 

Mr. JORDAN. Half a billion dollars in a six month time frame? 

Mr. FEINWACHS. No, sir, half a billion dollars—— 

Mr. JORDAN. Over several years. 

Mr. FEINWACHS. —back to 2003. 

Mr. JORDAN. All right. 

Mr. FEINWACHS. If the $30 million was to represent the overpayment for six months to all companies, the result will be different. 

The problem is we have no audit trail, we have no—— 

Mr. JORDAN. Safe to say that it is significantly more than $30 

million. 

Mr. FEINWACHS. Much, much more. 

Mr. JORDAN. Okay. Let me just ask. I assume you are all involved in some national association, with the hospital association. 

You probably travel to national events, conventions, or what have 

you. Dr. Feldman, Dr. Ellis, the same thing. When you are at those 

events or when you get a chance to interact with your colleagues 

from around the Country talking about this issue may come up, to 

what extent do you think this is across the Country, so it is not 

just isolated in Minnesota, Texas, and New York? And let me start 

with Dr. Feldman. 

Dr. FELDMAN. I have no doubt whatsoever in my mind that if you 

go to the top five States—New York, Ohio, Florida, California, 

Texas—where a third of all Medicaid money is spent, you will find 

similar patterns. I think New York is probably the most egregious 

situation because of our sociopolitical situation, but I am very confident that you will find similar schemes, similar problems all 

across the Country. The point is to go where the money is, and, as 

you said, this program is going to cost over $7 trillion whatever 

time period you want to use. But it is important to understand 

most of that money over the next 10, 20, and 30 years is going to 

be spent on long-term care and custodial care and nursing home 

care. So you better be prepared to be lambasted by advocacy groups 

who are constantly saying you are just doing this because blah, 

blah, blah, blah, blah. So I would urge you all to start where the 

money is, in long-term care and personal home health care. 

Mr. JORDAN. And if I could—and I will get to Dr. Ellis and Dr. 

Feinwachs, but while I have you, Dr. Feldman, you talked about 

the Medicaid industrial complex. Is that what you are referring to 

in those—— 

Dr. FELDMAN. Yes. I think that this is an absolutely terrific example of a joint situation; it is nonpartisan. I talked about the military industrial complex. Well, let me tell you something, in 1970 

68 

we spent about 6 percent of our GDP on defense and we spent 

about 6 percent of our GDP on health care. We now spend maybe 

3, 4, 5 percent on defense and we spend 17 percent on health care. 

This is what the voters want and I support it. I am a physician. 

All I am asking is to understand and accept the fact that whenever 

there is money out there that is labeled Medicaid, and whenever 

you have deserving beneficiaries, it is so easy to defraud people. 

Mr. JORDAN. And let me just ask you, and all those concerns and 

potential problems are exacerbated by the fact that if in fact the 

ObamaCare legislation becomes law and takes effect, approximately 20 million more individuals are going to be part of the Medicaid program. 

Dr. FELDMAN. Yes. And I think both side of the aisle should be 

aware of this. If it passes, we are going to expand Medicaid greatly. 

And, believe me, you guys are going to be very busy and CMS will 

have to probably two, three times the amount of money worrying 

about fraud. And if it doesn’t pass, I think the right side of the 

aisle is quite naive to think that that 17 percent GDP number isn’t 

going to go to 25 percent in the next 25 years. 

Mr. JORDAN. No, that has to be changed. 

Dr. Ellis, while Texas, you understand the situation there, but in 

your opportunities where you have had to interact with colleagues 

around the Country, while it may not be as widespread as what 

you have seen in your State, do you think it exists in other States 

as well? 

Ms. ELLIS. Well, Texas blows every other State away by a mile. 

Mr. JORDAN. I understand that. 

Ms. ELLIS. So, quite honestly, I don’t—my feeling is that, no—— 

Dr. FELDMAN. I resent that. New York is far above everyone else 

in this. 

[Laughter.] 

Ms. ELLIS. When it comes to orthodontics, it is just such an obvious no-brainer. I just don’t think that if it is not stopped, surely 

it will spread to other States, but right now I don’t feel that that 

is the case. 

Mr. JORDAN. Okay. 

Dr. Feinwachs, quickly? 

Mr. FEINWACHS. Not to be outdone, Minnesota’s fraud is more 

massive and more clever than yours. 

Mr. Chairman, I do believe the problem is widespread across the 

Country. I also believe that it is a bipartisan issue because whether 

your issue is deficit reduction or expansion of access to health services, our system is terribly broken and we have to repair it. 

Mr. JORDAN. Great point. As Dr. Ellis and I think you have all 

pointed out, there are people who needed care and qualified for the 

care who didn’t get the care because of the fraud that was taking 

place, and then there is just the waste and the unfair treatment 

of taxpayers. So I think that is well said. 

And we have the gentlelady from Minnesota. 

Ms. MCCOLLUM. Thank you, Mr. Chair. And I think you summarized why we need to address this really well, watch out for taxpayers and make sure that people who deserve access to these 

health care opportunities have them. 

69 

Mr. Feinwachs, I want to thank you for all the years of service. 

I remember when I was on Health and Human Services in Minnesota, you testifying; always straightforward, always answer questions directly like you are today, so thank you very much for everything that you have done. 

I have three questions, and I am just going to put them out there 

altogether for you. 

Minnesota’s nonprofit, we have some things written into the law 

which has a little more transparency than other States do as to 

what is going on with their Medicare contracts. The State, right 

now, it will be at the governor’s desk to provide a third independent party audit. If you can kind of give us some pointers of 

where you think we should be going as a Committee for looking for 

what type of audits. 

The second point I would like to bring up, I am very concerned 

about block granting Medicaid because when you block grant it, it 

is just a dispersal out there; there aren’t as many strings attached. 

And even with the strings that we have attached now, we are not 

doing a good job of watching taxpayers’ dollars, making sure that 

those individuals have providers who can afford to give them treatment that they needed. 

And I know Senator Hahn I believe was here promoting block 

grants. He stopped by our office, I believe, and it is something I 

am very skeptical of. 

And then my third point is I agree, and I know that the Chair 

is going to ask a little more about the email and the returning of 

the money between the Federal and the State. I guess the State 

should, as a resident of Minnesota, we have a shortfall. If it gets 

returned to the State coffers, that is one thing, but we also have 

a shortfall here in the Federal, so having it returned to the Federal 

Government is as good as well. But the fact is that it was even 

caught in the first place. So if you can just talk a little bit about 

audits and maybe your opinion of block grants, it would be very 

helpful to me to hear from a fellow Minnesotan. 

Mr. FEINWACHS. Mr. Chairman, Representative McCollum, I 

would be happy to try to address those questions. 

First, let me say something about nonprofit status in Minnesota. 

Our HMOs are required by statute to be not-for-profit. In my estimation, corporate nonprofit status confers tax exemption, not sainthood. What is important in any organization is the integrity of its 

management and codes of ethics that are present in order to provide proper service and accountability. 

To the issue of audits, the audit question I believe is relatively 

straightforward. You need rigorous oversight and audits by independent third parties. We also need to determine, in Minnesota 

and elsewhere, if the consulting actuary to the State has been permitted to consult with the State’s vendors. This would seem to 

raise a problematic issue, a red flag, if you will. 

We know now that in Minnesota that such things have been permitted in the past, historically, and even now the argument is 

made that it is not occurring anymore, but the safeguard I believe 

that is being proposed now is that different employees from the 

same firm will consult both with the State and the State’s vendors, 

and that seems less than well advised. 

70 

So these audits need to be truly independent; they need to be accountable to the Federal Government; and, above all, they need to 

enforce the standards we have because all of the practices that you 

have heard described today, not only in Minnesota, but elsewhere, 

are in fact unlawful and should be addressed and dealt with. 

So audits retrospective, prospective, and ongoing need to occur. 

In Minnesota we just enacted an audit bill. First audit won’t start 

until 2015. And unless I miss my guess, because of funding problems in the future or arguments related to less accountability, perhaps due to block grants, perhaps not, but like all things political, 

when there is a delay, there is time to dismantle the good work 

that has been proposed. So our need for audits are immediate and 

prospective and retrospective, and done by a truly independent 

third party. 

Ms. MCCOLLUM. Mr. Chair, in the time that is remaining, it used 

to be our county, we had a county system that delivered care to 

people who found themselves in the gap, and we were told that the 

private sector could deliver it better. And now I think we have to 

question as to, without proper oversight and penalty for defrauding 

taxpayers, if in fact a private sector business model is in the best 

interest of the taxpayers. 

Mr. JORDAN. I thank the lady. 

Now I will yield to the gentleman from Ohio, the Ranking Member in the Subcommittee. 

Mr. KUCINICH. I am going to wait for the next panel. 

Mr. JORDAN. We appreciate that. 

We want to thank you all for—— 

Mr. DAVIS. Mr. Chairman? 

Mr. JORDAN. Mr. Davis? 

Mr. DAVIS. Can I just make a clarification? 

Mr. JORDAN. Sure can. 

Mr. DAVIS. One, I just need to clarify that there is current investigation taking place in Minnesota by the Department of Justice. 

There has been a settlement in the allegations in New York. Also, 

the CMS has no authority to determine or prosecute fraud; that 

falls to the Office of the Inspector General or to the Department 

of Justice, and CMS can only take financial action related to the 

Medicaid matching programs. I just wanted to make those clarifications. 

Mr. JORDAN. Yes, but it is also true that CMS has to approve the 

waiver when a State decides that it is going to operate under this 

plan, the rate reimbursement that they are going to receive. 

And they did in fact approve the request by the State of Minnesota, isn’t that correct, Dr. Feinwachs? 

Mr. FEINWACHS. Mr. Chairman—— 

Mr. JORDAN. They approved it after several provider groups had 

written and said, hey, you need to take a look at this and maybe 

think twice about doing this, and yet they went right ahead. Isn’t 

that correct, Dr. Feinwachs? 

Mr. FEINWACHS. Mr. Chairman, Representative Davis, that is 

correct. Also, we do something called Medicaid rate certification. 

We certify, we attest to the Government that the rates are correct. 

And even though CMS may lack enforcement, they should be 

71 

verifying and looking at that process to make sure that those certifications—— 

Mr. JORDAN. But don’t they have to sign off on it before they 

have to pay it? 

Mr. FEINWACHS. They do, sir. 

Mr. JORDAN. So that took place, correct? 

Mr. FEINWACHS. Correct. 

Mr. JORDAN. Okay. I thank the gentleman. 

I thank the gentleman from Illinois. 

We want to thank our first panel for being here and for your 

work. 

We will now ask the staff to prepare for our second panel. 

[Pause.] 

Mr. JORDAN. The Committee is in order. 

We want to thank our second panel for being here. It is still this 

morning. We have with us Ms. Lucinda Jesson, who is the Commissioner of Minnesota’s Department of Human Services; we have Ms. 

Cindy Mann, Director of Center for Medicaid State and Operations 

for the Centers for Medicare and Medicaid; and, of course, Ms. 

Carolyn Yocom, who is the Director for Health Care at the U.S. 

Government Accountability Office. 

We have to do the same routine, so if you will stand up and raise 

your right hand. 

Do you solemnly swear or affirm that the testimony you are 

about to give will be the truth, the whole truth, and nothing but 

the truth? 

[Witnesses respond in the affirmative.] 

Mr. JORDAN. Let the record reflect that all of our witnesses answered in the affirmative. 

You get five minutes. You guys know the drill. We will include 

all of your written testimony in the record, but if you can keep it 

to five, approximately five, that would be great, because I know 

that Mr. Gowdy, Mr. Kucinich, and Mr. Davis, we have some questions for you. 

So, Commissioner, we will go right down the list and you are up 

first. 

STATEMENT OF LUCINDA JESSON 

Ms. JESSON. Thank you, Mr. Chair. Mr. Chair and members, my 

name is Lucinda Jesson. I am Commissioner of the Department of 

Human Services for the State of Minnesota. Thank you for the opportunity to discuss Minnesota’s Medicaid program. 

You know, Minnesota is a leader, and has been, in using managed care to serve its Medicaid population, and I was happy to accept this invitation because, as more and more States move Medicaid populations into managed care, there are a lot of lessons to 

be learned from Minnesota; lessons about what works and lessons 

about what needs to be done differently, both types of lessons. 

First let me talk about what works. Access, quality, innovation, 

delivery models. Minnesota has placed a high priority over many 

years in providing good access to health care for its low income citizens, and managed care is available to enrollees statewide through 

our nonprofit HMOs and county-based health plans. And let me be 

clear. Managed care has been critical to providing access to health 

72 

and long-term care services for our Medicaid population. You often 

hear in other States that having public insurance doesn’t mean 

much if you can’t see a doctor. Not in Minnesota. Overall, our enrollees have access to quality care. 

What needs improvement? Better contracting, being a smarter 

purchaser of health care, and, frankly, increased oversight. And let 

me address each of these concerns and briefly outline the steps 

Minnesota has taken over the past 15 months, since Governor 

Mark Dayton took office, to address them. 

When Governor Dayton and I took office last year, we had serious concerns about how the Department of Human Services under 

the previous administration had purchased health care for its Medicaid managed care program. We also had concerns about the 

transparency and oversight of the contracting process itself. Our 

concerns stemmed from increasing profit margins that health plans 

earned from public programs, the particularly high level of health 

plan reserves—and I attached some charts on these things to my 

written testimony—which resulted in part, these reserves, from 

profits on public programs, and we had concerns about the contracting process itself. 

We were struck that the contracts we inherited from the previous 

administration offered few incentives for improving quality and reducing costs. Moreover, at a time when the private sector was making considerable progress on payment reforms, doing more creative 

things, the State contracts remained stuck in the old way of doing 

business. 

We also felt that the actuarial soundness requirement was inherently inflationary, because you ended up setting rates in the future 

based upon primarily what had happened in the past, and we questioned where the incentives were for more efficiency. 

So while there are and were many positive aspects to managed 

care, there was also a lack of creativity and a lack of focus on value 

on how health care was purchased in Minnesota, and we moved 

very quickly to address those. First, we addressed the 2011 contracts we inherited by asking all four major health plans to voluntarily agree to cap their 2000 earnings at 1 percent of operating 

margins for our programs, and I want to thank the plans for agreeing to that. 

Earlier this month we announced that an estimated $73 million 

will be returned to the Federal and State governments due to this 

cap on excess profits. And when you add to the $30 million from 

UCare, which we have agreed with CMS to treat under that 1 percent cap so that the Federal Government is returned its share, 

when you add those two together, you have over $100 million we 

recovered for Federal and State taxpayers from the previous administration’s 2011 contracts. 

But we didn’t stop there. Just a little over a month after I took 

office, we put the major health plan contracts for the Twin Cities 

metropolitan area out for bid. In the past, DHS, working with its 

actuaries, basically set the capitation rates, and any plan could 

participate if they accepted those rates. Those rates were approved 

by CMS. But under competitive bidding, we changed the incentives. 

Plans had an incentive to give us their best proposal in terms of 

cost and quality. 

73 

And there were winners and losers among the health plans, but 

the real winners were the Federal and State taxpayers who, under 

the new contracts, had $175 million in savings to the State and an 

equal $175 million to the Federal Government. When you combine 

this with our other managed care reforms that we passed with 

strong legislative support, our managed care reforms totaled over 

$600 million, and that is in addition to the $100 million from the 

cap, in savings to the State and Federal Government. 

But we need to not only be a smarter purchaser of health care; 

we need to increase the oversight of these large contracts, and no 

one believes that more than I do. In Minnesota, there are, as you 

have heard, very real questions and some mistrust over where 

these billions of dollars are going, and that is why Governor Dayton, just two months into office, ordered additional audits of the 

health plans, and those audits started this month. They are being 

conducted by outside vendors contracted by the Minnesota Department of Commerce. 

Additionally, at DHS, I created the Office of Inspector General to 

enforce increased program fraud detection and prevention efforts. 

We also changed the contracts we had with the health plans to 

have better compliance, and we added reporting requirements 

about what they were doing on their own program integrity office. 

Finally, as someone mentioned, the Human Services Bill, which 

just passed our legislature and is headed to Governor Dayton’s 

desk, requires a requirement for third-party financial audits in addition to the ones the governor has ordered. These audits will 

strengthen our oversight that we have conducted through our legislative auditor’s office and Governor Dayton strongly supports this 

requirement. 

Minnesota has long been a leader in how managed care plans 

serve our Medicaid enrollees, but changes needed to be made in the 

way we do business now and in the future. We have made an unprecedented number of them just in the last 15 months, and we are 

not done. 

Thank you. 

[Prepared statement of Ms. Jesson follows:] 

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Mr. JORDAN. Thank you, Commissioner. 

Director Mann? 

STATEMENT OF CINDY MANN 

Ms. MANN. Good morning, Chairman Gowdy and Gordon, Ranking Members Davis and Kucinich, and members of the Committee. 

Thank you for the invitation to discuss Medicaid’s financial management. 

No matter could be more central or important to the Medicaid 

program, or indeed to any health care program. Medicaid, as you 

all know, is the primary source of medical assistance for millions 

of low income, disabled, and elderly Americans, children and adults 

alike. In fiscal year 2012, an estimated 56.6 million people will receive their health care coverage through the Medicaid program. 

The Medicaid program establishes, at the Federal level, we establish minimum requirements. States design, implement, oversee 

their Medicaid programs and federalism is the hallmark of the program. Our basic financial management arrangement works as follows: States pay for the health care benefits provided to eligible individuals and the Federal Government, in return, matches qualified State expenditures at a rate that varies between 50 and 75 

percent. On average, States are responsible for about 43 percent of 

program costs. The matching structure ensures that both the 

States and the Federal Government have a very strong fiscal interest in assuring that the program operates efficiently. 

I am going to use my time this morning to briefly describe our 

methods of financial oversight that relate specifically to the issues 

raised at this hearing, but let me first make a few quick observations. 

Medicaid, like other payers, is very interested in supporting new 

ways of delivering and paying for care to promote better care at 

lower costs. Fortunately, we have at our side something most payers don’t have, which is 50 State partners. We have a number of 

States that have been approved to operate and create health homes 

that are looking for shared savings arrangements with their providers, and States as diverse as Texas and Massachusetts that are 

redesigning in fundamental ways their Medicaid delivery systems. 

Second, because Medicaid, like the marketplace, generally is experiencing significant change, our goal is not just to manage the 

issues that were identified last year or five years ago, but, rather, 

to develop new tools and methods to respond to and, indeed, to anticipate the changing landscape. Therefore, like many prudent purchasers, we value in our investing in data and measurement to assess what is working, to rapidly adjust when things aren’t working, 

and to rapidly scale when things are going well. Improved data and 

measurement will take a while for us to fully implement, but it will 

allow us to better track costs, utilization, integrity, and quality. 

Third, nothing that has been talked about today is unique to 

Medicaid. Orthodontists doing improper billing, health plans overcharging, those aren’t unique to the Medicaid program, sadly. The 

work that the Attorney General of the United States, that Secretary Sebelius have done to aggressively fight health care fraud 

with the private sector, has focused on health care fraud more 

broadly and the notion that it is a broad issue that affects public, 

91 

as well as private payers. We have a major responsibility to do so, 

but it is not a problem that is unique to either Medicaid, Medicaid, 

or commercial payers. 

I am going to now turn to a general description of our methods 

for overseeing the payment of Federal matching funds. 

States report their expenditures to us on a quarterly basis 

through an online system, and a team of accountants and financial 

management specialists review those States’ submissions of expenditures. They review them carefully and approve them or defer 

them before we pay our Federal matching payments. 

Our teams also coordinate with State auditors and with the HHS 

Office of Inspector General to ensure that State expenditures and 

corresponding claims for Federal funds are allowable, and every 

year we also establish with our regional offices a work plan for an 

in-depth financial management review that reflects our assessments or risk. We might follow up with an OIG report that suggest 

a problem that might be widespread; we might focus on an area of 

spending that we think is prone to abuse. When we question expenditures, we defer payment; we defer the Federal funds to the 

States pending resolution, and then we disallow the funds for 

claims for which adequate documentation or justification is lacking. 

We are not, as Congressman Davis pointed out, we are not the 

fraud office; we are not the law enforcement office. But we, of 

course, work very closely with those offices as appropriate. And I 

might say, in that regard, that the Office of Inspector General, the 

HHS Office of Inspector General, the Department of Justice has 

been involved in each and every one of the matters that we have 

discussed today, both in New York, in Minnesota, as well as in 

Texas. 

Let me turn next to our oversight of plans and provider payment 

rates. Under Federal Medicaid law, States are responsible for setting their rates to providers and plans in a fair and efficient manner, and assuring that plans and providers are paid enough so that 

Medicaid beneficiaries have access to care. Both of these elements 

of the equation are really critical. We and States must have measurement systems in place to assure that rates are sufficient to provide our beneficiaries with access to care. 

This relates directly to the matter that Representative 

Cummings mentioned earlier with respect to Deamonte Driver, 

who died for lack of being able to find dental care in the State of 

Maryland. We issued proposed rules on how we might monitor access last year and plan to finalize that rule later this year. 

At the same time, plans and providers must not be paid more 

than what is fair and efficient, or else the program is wasting 

money or spending money inappropriately. As a result, we set outer 

bounds in the Medicaid program. For example, we won’t pay more 

than the upper limit of what Medicare would pay for certain classes of providers, and we require rates paid to plans to be actuarially 

sound and certified. 

And one very important control that is embedded in the structure of the program itself is that because States are spending their 

own money, as well as the Federal Government’s money, they will 

take every opportunity to act as prudently purchasers. We know, 

of course, that States also will seek to maximize Federal funding, 

92 

and so we have measures in place to ensure that States in fact pay 

their State share of costs. 

Turning specifically to the payment rates in managed care, we 

are grateful to the GAO for its work over the years and its recommendations specifically in 2010. We have taken those recommendations very seriously and we are working towards implementation. We have made good progress, but more needs to be 

done. We have supported our regional offices through training and 

guidance; we are creating a stronger database for the evaluation of 

rates; we are developing an online system of contract review; and 

we are planning to strengthen our financial management and oversight to move more toward a risk-based approach, modulating the 

depth of review based on risk factors. 

With respect to Minnesota—and I will just be a moment—we are 

pleased to report, as the Commissioner noted, that Minnesota determined that it will provide, appropriately, we believe, the Federal 

Government with its share of the UCare $30 million that was received by the State, and we also have added, contrary to, I think, 

the implications earlier, in the terms and conditions to the waiver 

in Minnesota, very specific provisions to assure that there is increased oversight in the Minnesota plans, and we continue to work 

very closely with the State as we move forward. 

Thank you. 

[Prepared statement of Ms. Mann follows:] 

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Mr. JORDAN. Thank you, Director. 

Director YOCOM?

STATEMENT OF CAROLYN L. YOCOM 

Ms. YOCOM. Chairman Jordan and Gowdy, Ranking Members 

Kucinich and Davis, and members of the Subcommittee, I am 

pleased to be here today as you discuss oversight of the Medicaid 

program. 

The Medicaid program has been on GAO’s list of high-risk programs for nearly 10 years, in part because of concerns about the 

program’s fiscal management. CMS and its State partners continue 

to face challenging finding the proper balance between Federal 

oversight and States’ flexibility to administer their Medicaid programs. Both the States and the Federal Government must take responsibility for managing program finances efficiently. 

My remarks today summarize some of GAO’s prior work on 

CMS’s oversight of three areas of the Medicaid program: States’ 

rate setting methodologies for capitated managed care, supplemental payments, and program integrity. Overall, our prior work 

has shown that that CMS has faced challenges with the fiscal management of Medicaid in these three areas. 

First, with regard to rate setting methodologies, in August of 

2010, we reported on CMS’s oversight of States’ compliance with 

actuarial soundness requirements which govern the process used to 

develop capitated managed care rates. At the time of our reporting, 

we found significant gaps in CMS’s oversight of two States. In particular, CMS had not reviewed one State’s rate setting for multiple 

years, nor had it completed a full review of another State’s rate setting since the actuarial soundness requirements became effective, 

which was in August 2002. Beyond these two States, we identified 

additional inconsistencies in oversight, raising concerns that CMS 

was not ensuring other States’ compliance with actuarial soundness. 

In this same report, we noted that actuarial certification does not 

ensure that the data used to set the rates are reliable because actuaries may not audit or independently verify these data. CMS’s efforts to ensure the quality of the data used to set the rates were 

generally limited to requiring assurances from States and health 

plans. From GAO’s perspective, these efforts do not provide enough 

information to ensure the quality of the data used to set rates. 

With limited information on data quality, billions of Federal and 

State dollars are at risk for misspending. 

Second, for over a decade we have reported on various financing 

arrangements involving supplemental payments that shift the cost 

from the States to the Federal Government. Our work has found 

that while a variety of congressional and CMS actions have helped 

curb such arrangements, gaps in oversight remain. Statutory 

changes have resulted in recent regulations that have the potential 

to improve oversight of some, but not all, supplemental payments. 

Effective in 2011, there are improved transparency and accountability requirements for supplemental payments to hospitals that 

treat large numbers of low income and Medicaid patients. However, 

these requirements, such as facility-specific reporting, are not in 

place for other types of supplemental payments, which appear to be 

107 

increasing. Because such financing arrangements effectively increase the Federal Medicaid share above what is established by 

law, they threaten the fiscal integrity of the Medicaid program and 

they damage the Federal-State partnership. 

Last, in December 2011, we testified that a key challenge CMS 

faced in implementing its Medicaid Integrity Program was ensuring effective coordination to avoid duplicating States’ program integrity efforts, particularly in the area of auditing provider claims. 

The largest component of the Medicaid Integrity Program, the National Provider Audit Program, has had disappointing results, as 

these overpayments identified by its audit contractors were not 

commensurate with its contractors’ costs. 

For example, CMS’s audit contractors identified about $15.2 million in overpayments in fiscal year 2010, but the combined cost of 

the National Provider Audit Program is over twice that amount, 

about $36 million. CMS has announced plans to redesign this program, but it remains to be seen if this redesign will achieve improved results. 

CMS’s other core activities are broad in scope and raise similar 

concerns regarding duplication. 

On a more positive note, its collaborative efforts on auditing with 

States and CMS’s Medicaid Integrity Institute, a national training 

program for State program integrity officials, both show promise. 

In particular, these efforts appear to promote effective State coordination and collaboration, and show more promising results. 

Mr. Chairman, this concludes my prepared remarks. 

[Prepared statement of Ms. Yocom follows:] 

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Mr. JORDAN. Thank you. Thank all the witnesses. 

I will now yield five minutes to the Chairman of the Subcommittee, the gentleman from South Carolina, Mr. Gowdy. 

Mr. GOWDY. Thank you, Chairman Jordan. 

Director Mann, since 9:30 this morning we have learned, in that 

whopping less than three hours, that there is an expert witness 

who will testify that perhaps as many as 90 percent of the cases 

in Texas were outside the guidelines. We have providers who were 

certifying otherwise in writing. You have before and after pictures. 

You have photographs of providers who were advertising free 

braces. So it would not be tough, I don’t suspect, to send an investigator to these free braces clinics to find out what percentage of patients they actually denied, as opposed to accepted. You have no 

study showing any hirer rate of malocclusion in Texas than any 

other State. 

So, with that bevy of evidence, what has CMS done about the 

Texas orthodontia scandal? 

Ms. MANN. Well, several things that I would like to note. First, 

there is an HHS Office of Inspector General is conducting an investigation now, as well as the Department of Justice. They are deeply 

involved and actually just made an announcement about some 

agreement—— 

Mr. GOWDY. Have you talked to the attorney general recently 

about this case to get an update on its status? 

Ms. MANN. I have not talked to the attorney general recently. 

Mr. GOWDY. Have you talked to the United States attorney and 

the appropriate district in Texas to get an update on the status of 

the case? 

Ms. MANN. Yes. We have been in touch with the Office of Inspector General. Our regional office has been in touch with them and 

I have been in daily, well, regular contact, I should say, with the 

State Medicaid director and with the commissioner—— 

Mr. GOWDY. Have any orthodontists lost their license to practice 

medicine? 

Ms. MANN. I don’t know that. You asked that earlier and I 

thought that was an important question, and I have sought the answer to that. We don’t oversee that, but I don’t know the question. 

I do know that the orthodontists, if they have bilked the Medicaid 

program, not properly billed the Medicaid program, they should be 

terminated not just from that Medicaid program, but from any 

Medicaid program across the Country. 

Mr. GOWDY. Which would be debarment, right? That is the 

phrase we use, debarred. 

Ms. MANN. Well, our jurisdiction is to terminate them form participating in the program. We don’t honestly control—— 

Mr. GOWDY. How about to disgorge them of the profits? Has 

there been any attempt at restitution or disgorgement of the profits? 

Ms. MANN. My understanding—you will have to talk to the Department of Justice, we can get you that information, but my understanding is, at least as to the corporation for whom they 

worked, some of them, that is part of it. Certainly from our point 

of view—again, we are not the law enforcement arm—— 

Mr. GOWDY. I understand that. That is why—— 

124 

Ms. MANN. From our point of view—— 

Mr. GOWDY. That is why I haven’t asked you who has gone to 

jail. But you do have a role in getting restitution, do you not? 

Ms. MANN. That is exactly right. And we will—— 

Mr. GOWDY. So all I can ask you about—I will just ask you how 

much money you have collected in restitution. 

Ms. MANN. We are looking at which claims were improperly paid 

and we will defer all those claims and any that were improper—— 

Mr. GOWDY. How long do you think that will take? Because it 

just doesn’t strike me as being that difficult of a case, to be honest 

with you. 

Ms. MANN. Generally, when the Department of Justice is involved in an investigation, we usually wait until their investigation 

is complete so that we don’t get in the way, but we will defer the 

claims pending the investigation. 

Mr. GOWDY. So you are going to insist that restitution be part 

of any criminal settlement with any of these orthodontists or corporations? 

Ms. MANN. I can’t comment on what will happen with respect to 

the criminal actions—— 

Mr. GOWDY. But you are going to ask for it? 

Ms. MANN. I can commit that our authority is, and we will, defer 

and disallow any claims that were improperly paid. 

Mr. GOWDY. All right, Commissioner Jesson, do you know a 

Christopher Ricker? 

Ms. JESSON. Mr. Chair, that name sounds familiar, but I don’t 

know who it is. 

Mr. GOWDY. Well, I don’t either, but this is what he wrote in an 

email: We do not want to give any appearances that the money 

might be coming to DHS, parenthetically, it bolsters our argument 

with CMS that this wasn’t a provider return and, therefore, doesn’t 

need to be shared with them. I guess them being CMS, which may 

go to why you want to have telephone calls as opposed to emails. 

So I will ask you why your preference for telephone calls and not 

emails. 

Ms. JESSON. Mr. Chair, actually, that email was talking—if you 

look at the whole chain of them, about two things. One of them, 

I was correcting a draft press release, and that was where I said 

it should be a donation. But it was also in my emails—— 

Mr. GOWDY. Well, let me ask you about that. The context of it 

is in order to have a good chance of keeping all this money, it must 

be characterized as a donation. It doesn’t read in order to keep the 

reader of our press release from getting the misapprehension, it 

must be corrected, it clearly is calculated to be able to keep all the 

money, agreed? 

Ms. JESSON. Mr. Chair, UCare, when they came to tell me about 

this call to the donation, I was trying to characterize it the same 

way they characterized it to me—— 

Mr. GOWDY. Well, if it were just to correct a press release, why 

would you say, if a refund, Feds clearly get half? Why wouldn’t you 

say we just have to get the press release right? 

Ms. JESSON. Mr. Chair, there is, as you know, a difference between a bona fide donation, which I believe this was, and a return 

of money, and I was trying to make that clear. 

125 

Mr. GOWDY. Is there a strict policy on emailing press releases? 

Is that why you asked for telephone calls instead of emails? 

Ms. JESSON. No, Mr. Chair. Actually, the reference to telephone 

calls was going back to an earlier part of that email where we were 

talking about informing the chairs of the legislative committees—— 

Mr. GOWDY. You certainly can understand how it might read otherwise, can’t you, Commissioner? 

Ms. JESSON. If you only read that portion of the email chain and 

not the entire one, I understand that. 

Mr. GOWDY. Well, what I am reading is in order to have a good 

chance of keeping all this money, it must be characterized as a donation; not that it must be a donation, it must be characterized as 

a donation. If a refund, Feds clearly get half. Can you work with 

Scott on redrafting? Also, I thought we were going to handle this 

through phone calls. Surely you can see how a casual reader might 

get the impression that this was calculated to keep the full $30 

million, and not to correct some press release, can’t you? 

Ms. JESSON. What I was doing, Mr. Chair, was what I think my 

job calls for when someone makes a donation, and I think have a 

good faith basis that it is a donation. 

Mr. GOWDY. Do you have a lot of people making $30 million donations? 

Ms. JESSON. That is a really good point, sir. 

Mr. GOWDY. So how many $30 million—if it is a good point, what is a good answer? How many $30 million donations did you have 

that you sent emails to make sure they were characterized correctly? 

Ms. JESSON. Congressman, I think that is an excellent point, because this was a very unique situation, and one which we didn’t 

have a play book for, where there wasn’t a clear answer. We took 

one position; CMS took another. And I am glad we are able to resolve this by basically—— 

Mr. GOWDY. Well, I don’t know that we have resolved it. The 

only thing that has been resolved to me is that there is a perverse 

incentive to keep as much of other people’s money as you possibly 

can, even if it means re-characterizing something. That is the impression I got. 

Mr. Chairman, I am out of time. 

Mr. JORDAN. I thank the gentleman for his important question. 

Before going to the Ranking Member, Mr. Kucinich, let me just 

ask you, Director Mann, when did you first learn about the situation in Texas? Was it through the media, through the press accounts? 

Ms. MANN. It was—— 

Mr. JORDAN. After it had become public knowledge, is that when 

you first learned about it? 

Ms. MANN. After it had become public knowledge—— 

Mr. JORDAN. What about the situation in Minnesota, when did 

you first learn about the—— 

Ms. MANN. Through the commissioner also of Texas; we talked 

about the problem. 

Mr. JORDAN. After it had become public. What about the situation in Minnesota, when did you first learn about that, was it after 

126 

it had become public knowledge through the efforts of Mr. 

Feinwachs and others? 

Ms. MANN. Yes, after it had become public knowledge. 

Mr. JORDAN. How many people work at Health and Human Services? 

Ms. MANN. I don’t have that number off the top of my head, but 

I would be happy to give you—— 

Mr. JORDAN. I think it is 65,000 is what I have been told. How 

many people work at CMS? 

Ms. MANN. A little over 300. 

Mr. JORDAN. So of that 65,000 folks, 300 folks at CMS, do you 

have anyone who—I mean, it would seem to me someone would be 

watching particularly the Texas situation, where you have one 

State doing more of this than the rest of the Country combined, 

and yet the first time you found out about it is when the press 

broke a story on it? 

Ms. MANN. Chairman, we do not pay claims directly; we—— 

Mr. JORDAN. Do you have anyone who does oversight at HHS? 

Ms. MANN. The State pays claims and then we would look and 

see what happens to those claims and whether those claims are legitimate claims. There were $200 million, as I understand it, in orthodontia claims in an account of about $2 billion spent for dental 

care that was rising. It should have been detected; it was clearly 

an outlier claim. The State did not, in its surveillance of outlier 

claims, did not specifically look at the coding for orthodontia 

claims. It expected—— 

Mr. JORDAN. So it was the State’s problem? 

Ms. MANN. It is certainly in the first—— 

Mr. JORDAN. It was their fault that it wasn’t recognized and no 

fault rests with CMS, even though we just heard from Director 

Yocom, who had all kinds of concerns about what goes on at CMS 

and how you fail to audit, how you—— 

Ms. MANN. I think we have joint responsibility. What I am saying is that in the first instance—— 

Mr. JORDAN. It sounded like what you were saying is you were 

blaming Texas. 

Ms. MANN. I am saying we have joint responsibility. In the first 

instance the State had—— 

Mr. JORDAN. You have 65,000 employees—— 

Ms. MANN. I don’t have 65,000 employees. 

Mr. JORDAN. Sixty-five thousand employees at HHS and you just 

said it was joint responsibility, even though you said Texas has the 

responsibility. 

Ms. MANN. We have joint responsibility. 

Mr. JORDAN. Okay. Sixty-five thousand employees and no one 

could see this? No one saw this coming? Until it was public, no one 

knew about it? 

Ms. MANN. We did not know about it until it was revealed. We 

are working in many States and many States are doing predictive 

modeling, where you can track the expenditures on different codes 

and you would identify outliers. That was not done in this circumstance. 

Mr. JORDAN. We will be generous for the time for the Ranking 

Member. We now recognize Mr. Kucinich from Ohio. 

127 

Mr. KUCINICH. Thank you very much, Mr. Chairman. 

I want to follow up on a line of questioning that my friend, Mr. 

Gowdy, began of Commissioner Jesson. 

Commissioner, until just the day before yesterday you maintained that the Federal Government was not entitled to any part 

of the $30 million UCare transfer, isn’t that right? 

Ms. JESSON. That is correct. 

Mr. KUCINICH. Okay. Now, after CMS pursued this matter with 

you, you have apparently changed your mind and you intend to 

give the Federal Government its share of the UCare transfer. I 

have questions about how you got to the point of believing and acting to keep all of the UCare funds from Minnesota, when many believed at the time, and you now concede, that the funds needed to 

be divided with the Federal Government. 

Now, you note in a letter to CMS a discussion of the donation 

announcement with Ms. Mann while you were attending a conference in Baltimore in March of 2011. Is it your testimony that 

you provided Ms. Mann with full information on the matter at that 

encounter and that Ms. Mann then gave you an approval of your 

intention to keep all the funds from Minnesota? 

Ms. JESSON. No, Congressman, that is not what I am saying. I 

did—Nancy Feldman, who is CEO of UCare, came to my office and 

told me on March 14th that they were going to make this donation. 

I was in Baltimore on the 16th and 17th of that week; during that 

time I met with Cindy Mann and people from CMS, and it was 

more of a here is a heads-up; we are issuing a press release today 

about this donation. 

Mr. KUCINICH. So when this discussion occurred, were you at a 

reception, was it a formal business meeting, were either present? 

Did you present a legal analysis? Help me understand this. How 

did that come up? 

Ms. JESSON. This came up during, it was a scheduled meeting; 

we were there for what was called a pace car event and we were 

meeting with CMS about exchange-related matters about the 

health exchange. So there was a group of people from Minnesota 

and a group of people with CMS. It was not on the agenda of the 

meeting; I just said it to let her know what was going on. I have 

never said that she said that is fine. As a matter of fact, I believe 

when I said it I said something along the lines of—— 

Mr. KUCINICH. So you are saying now that you didn’t believe that 

you had some form of approval from Ms. Mann, or indirectly from 

CMS, of your characterization of the funds as a donation solely to 

the State be placed in the Minnesota general fund, is that right? 

Ms. JESSON. That is right. 

Mr. KUCINICH. Where did you get the idea, then, that it was a 

donation? How did that come up? 

Ms. JESSON. Congressman, it came up because UCare, when they 

came in, they said, we are making a donation to the State of Minnesota of $30 million from our reserves; and that was really just 

two days before I talked to Ms. Mann, and that was what I knew. 

I did look at the contracts myself to see did they owe us this 

money? They didn’t owe us this money under the contract and we 

hadn’t asked for the money. So from my perspective—— 

128 

Mr. KUCINICH. They didn’t owe you the money, you hadn’t asked 

for it, but you wanted $30 million to go to the general fund of Minnesota. How does that happen? I don’t understand. 

Ms. JESSON. Congressman, what UCare told me when they came 

to meet with me was Minnesota had a historic budget deficit of 

$5.3 billion. They felt like they had the money available in the reserves; they made a donation. But, if I may, Congressman, I just 

want to be clear, as far as changing my mind. We believed we had 

a bona fide donation, and there are disagreements—— 

Mr. KUCINICH. But what is a bona fide donation? I don’t understand that. I mean, the rule is you would have to give half to the 

Federal Government. Now, in fact, as early as July 2011, according 

to what we have, Ms. Mann began to question you, asking you for 

your justification in keeping the entirety of the UCare transfer for 

Minnesota. Now, to me, that doesn’t seem consistent with this notion that somehow CMS had known, signed off. Help us with this. 

Help us understand this. 

Ms. JESSON. Congressman, we took the position that it was a donation. CMS took the position that it was a refund and had to be 

shared with the Federal Government. After we got the donation, 

we provided additional information to CMS. We have differences 

with CMS over large amounts of money often. Sometimes if we 

don’t—— 

Mr. KUCINICH. Really? Such as what? Give me another example 

of a difference you have with CMS on a large amount of money, 

and are you withholding that money from CMS? 

Ms. MCCOLLUM. Mr. Chair, if the Commissioner could finish the 

thought, please. 

Mr. KUCINICH. Excuse me. The gentlelady from Minnesota, I 

have a line of questioning here which is important for the work of 

this Committee, and I would ask the gentlelady to suspend. 

Would you answer the question, please? 

Ms. JESSON. Congressman, it is frequent that we will have disagreements where there are unique situations, which this was, or 

ambiguity in interpretations. For example, just a couple of examples, in 2006 CMS disallowed over $19 million in the Federal 

match regarding a supplemental payment to nursing homes. We 

disagreed about that; we couldn’t resolve it. We went to the appeals 

board and that board found in favor of the State. In 2008 there was 

a disagreement about $8 million in Federal funds, which we, once 

again, went to the appeals board and the appeals board came down 

somewhere in the middle between the Feds and the State. 

These are discussions that frequently happen. What I am happy 

about here is that we were able to, because of the one percent cap, 

resolve this, I think, appropriately with CMS. 

Mr. KUCINICH. So there was nothing unusual about the kind of 

exchange where the State claims $30 million as a donation, you go 

back to CMS and you work it out, is that what you are saying? 

Ms. JESSON. A $30 million donation, Congressman, is certainly 

unusual. 

Mr. KUCINICH. Well, this is why we are here to discuss it. I think 

it is unusual, but I am just trying to find out how it happened and 

I am still not sure. 

129 

I just would like to conclude, Mr. Chairman, and say that based 

on the testimony that is presented here and other information 

given to the Subcommittee, I think that the chronology of events 

went like this: the commissioner or the State claimed all $30 million of a transfer from a Minnesota Medicaid managed care organization; the Federal Center for Medicare and Medicaid Services 

questioned the justification for claiming the entire amount for the 

State, rather than returning to the Federal Government its share 

of the transfer; and ultimately you, Commissioner, reversed yourself and you are now returning about $15 million to the Federal 

Government. 

Now, I am not saying that you did any wrong, perhaps you 

thought you were doing the right thing; somebody else is going to 

have to determine that. But I think in this instance the Federal 

Center for Medicare and Medicaid Services did something right, 

and it is important to go over the sequence to sustain that view. 

So I thank the gentleman for his indulgence with time here. 

Mr. GOWDY. [Presiding.] I thank the gentleman from Ohio. 

The Chair would now recognize the gentleman from Illinois, Mr. 

Davis. 

Mr. DAVIS. Thank you very much, Mr. Chairman. 

Commissioner Jesson, let me just ask you did you seek a legal 

opinion relative to the status of the contribution? 

Ms. JESSON. Congressman, after we got the July letter from CMS 

taking the position that this was not a donation, I did seek a legal 

opinion about this. 

Mr. DAVIS. This was afterwards that you sought it. 

Ms. JESSON. After we got the July letter, but it was still before 

we actually received the donation, Congressman. 

Mr. DAVIS. Let me just say that I think there has obviously been 

some mistake in judgment in terms of this whole matter. But I also 

want to indicate that I have been looking at Minnesota for a long 

time in terms of its health care, and there is a great deal that is 

right with Minnesota. It has been a model for efficiency as a result 

of this tremendous nonprofit health care system efficiency that I 

have observed. But I would like to hear about improving the contracting operation. Can you speak to us about the competitive bidding process now and what it is that you have done to improve 

that? 

Ms. JESSON. Thank you, Congressman. Actually just a month 

and two weeks after I started in the governor’s budget, Governor 

Dayton proposed competitive bidding for really half an area that 

included half of our Medicaid enrollees, and the reason we did that 

is because, as I said earlier, we had serious questions about the excess money that the health plans were making and we really wanted to reset and get the best rate we could, but also looking at quality. 

So what we did was issued an RFP, request for proposals, for all 

the health plans to bid on our Medicaid population by county. They 

had to give us both the cost bids, but also, importantly, include a 

lot of quality information. And when we sat back to judge those 

bids, we judged them half on their quality and half on their cost, 

and after doing that we ended up reducing the number of health 

plans that served most of the counties. So we took the best bids 

130 

and we reduced the projected cost to the State and the Federal 

Government for those plans by I think it was almost 7 percent and 

saved over $300 million just on the competitive bidding. 

But then what we did was we took what we learned about the 

fact that obviously these rates could be a lot lower than people had 

thought in the past, a lot lower. 

Mr. DAVIS. So you recouped $73 million this year and you have 

shared that with the Federal Government? 

Ms. JESSON. Correct. 

Mr. DAVIS. Can I ask why were the UCare funds of 2011 initially 

handled differently? 

Ms. JESSON. Congressman, they were initially handled differently 

because we were told and believed it was a donation. But once we 

looked at the one percent cap, we realized that if UCare hadn’t 

made that donation, then they would be paying back $38 million, 

instead of just $8 million, to the State and Federal Government. So 

we thought it was only fair to share that $30 million with the Federal Government, as well as the $73 million, as well as the over 

$600 million that we have saved in our managed care reforms. 

Mr. DAVIS. So this transaction came as a result of prior contractual relationships under the former administration? 

Ms. JESSON. Yes, Congressman, the one percent cap did because 

we inherited the contracts. We thought they were too generous, so 

we negotiated a cap with the health plans. 

Mr. DAVIS. Did you have the feeling that there had been any 

cross-subsidizing of Minnesota’s program by improperly inflating 

the Medicaid costs? 

Ms. JESSON. The program, General Assistance Medical Care, that 

is being accused of—it is a State-funded program, so the allegation, 

as I understand it, is they were paying more for Medicaid to pay 

less for the State-funded program. That program is no longer in existence when I started as commissioner, so I didn’t work at the department, so I do not have firsthand knowledge of whether that 

happened; and actually, Congressman, when I started, I brought in 

a whole new team in this part of the department because I thought 

we needed to change direction. 

But I will say I very clearly thought that the State of Minnesota 

and the Federal Government were paying too much money under 

our Medicaid contracts. That is why I put them out for competitive 

bids. 

Mr. DAVIS. Thank you very much. 

Director Mann, can I ask you if there is a separate office of CMS 

responsible for fighting fraud? 

Ms. MANN. Yes, there is. Also, let me try and be clear on my answer on numbers before. CMS itself has 4500 full-time employees; 

Medicaid office, which I oversee, has about 350; and we have the 

Center for Program Integrity, Congressman, about 150 people. 

They are primarily responsible for fraud, but really it is—I would 

certainly, as the director of the program itself, see it as also good 

strong financial management as my responsibility, as well as the 

Center for Program Integrity. 

Mr. DAVIS. So you have 150 people fighting fraud. That is for the 

entire Country? 

131 

Ms. MANN. Well, that is for the Center for Program Integrity, 

that is actually Medicare and Medicaid. 

Mr. DAVIS. Yes. 

Ms. MANN. There are about 60 within that for Medicaid. 

Mr. DAVIS. Thank you very much. 

And thank you, Mr. Chairman. I yield back. 

Mr. GOWDY. I thank the gentleman. 

The Chair would now recognize the gentleman from Texas, Mr. 

Burgess. 

Mr. BURGESS. I thank the Chairman for the recognition and 

again appreciate the opportunity to be here with you. Obviously, I 

am on another committee, but this issue is so important that I 

wanted to participate today. 

Ms. Mann, we have heard three specific cases here today, every 

one of which is startling in and of its own right, but tell us what 

you are doing and going to do at CMS to prevent this from happening and to deal with the issues that have already occurred. 

Ms. MANN. Well, in terms of the issues that have already occurred, there are investigations going on in all three situations. Actually, reports have already been issued in the New York case and 

investigations going on in both Minnesota and Texas by the HHS 

Office of Inspector General and the Department of Justice involved. 

To the extent that we determine that there are questions about 

any particular expenditures, we defer those expenditures; we won’t 

pay until there has been full resolution, and then we disallow if we 

do not feel that there is justification for paying for those—— 

Mr. BURGESS. How many payments have you disallowed so far 

in Texas on dental procedures? 

Ms. MANN. We have not taken the disallowance yet; it is still 

within the regional office to consider the disallowance. 

Mr. BURGESS. So these clinics are still being paid? 

Ms. MANN. I believe the State has moved forward and the clinics 

are not being paid. So I don’t think the problem is continuing. The 

State has taken a number of different steps to change their process; they had a prior authorization, a company that did prior authorization to review those claims. That company should have 

screened out and not allowed the kind of claims that went in. They 

obviously didn’t do their job. 

The State has changed that contract. The State has also changed 

its method of payment for orthodontia services so you weren’t getting the situation where, if you came in 22 times, you got paid 22 

times, but has moved to a global payment. 

So there have been a number of changes that the State itself has 

made to stop the problem going forward, but we still need to see 

what claims were paid that should not have been paid. 

Mr. BURGESS. Well, I certainly appreciate the work that the 

State is doing and of their understanding of the fact that they had 

a problem. But you had a problem. 

Ms. MANN. Correct. 

Mr. BURGESS. And I guess my interest at the Federal level is 

what is being done right now to correct that problem and to prevent it from happening again. 

Ms. MANN. Well, what we first do is make sure that the problem 

stops going forward. So that is an important part—— 

132 

Mr. BURGESS. So the State guys are doing that. 

Ms. MANN. State does that in consultation with us, but yes. That 

was our first line of—— 

Mr. BURGESS. Forgive me, but it just seems like there was a big 

failure at whoever was in charge of oversight, the OIG. This is OIG 

101. Mr. Gowdy pointed out that his 15-year-old daughter could 

have probably picked up the problem here. This was not obscure. 

There is plenty of fraud that is obscure, but this was not; it was 

out in the open for all to see. And we talk about audits and we talk 

about actuarial soundness, but really that never came into play, 

did it? All we got were assurances that, hey, we are okay; we are 

doing everything the right way, and the checks continued to go out. 

That is a massive failing on the part of the Federal partners who 

were responsible for providing those funds. 

Ms. MANN. We do do audits of State Medicaid programs. We do 

look at outlier claims of State Medicaid programs. We do not do audits of every single claim in every State. 

Mr. BURGESS. Why wouldn’t these have, then, come to the top of 

the radar screen? I mean, they seem pretty obvious. 

Ms. MANN. Because they were not separately coded. What was 

growing overall was the dental account in Texas because of major 

changes that the State did in its dental account. These were basically hidden claims within that. So neither we nor the State identified them as an outlier. We do that in many instances. It is a lesson learned in terms of how to break out certain codes and make 

sure we are all examining those codes in a very particular way. 

Mr. BURGESS. I will be the first to admit that Texas used to be 

its own country and in many ways we behaved that way. But here 

you had Texas charging or paying more than the rest of the Country combined. Seems like that had to get someone’s attention at 

some level, because that is just such a stark difference. I mean, 

Texas was paying more than Florida. Texas was paying more than 

California. 

Ms. MANN. And the problem, which is a lesson learned in terms 

of moving forward, is that it was not pulled out as a separate code, 

but inside the broader dental claiming, and so neither Texas nor 

CMS identified it in a timely way as to something that we should 

all look at. 

Mr. BURGESS. Two years ago the president identified McAllen, 

Texas, as an outlier with Medicare spending and criticized the 

State because of that. And this was happening right under your 

noses and no one said anything about it. Where was the integrity 

at the Office of Inspector General? Consequently, why has the Department of Justice been so slow to get involved in this? 

I respect the fact that a lot of the problems were State specific, 

but you had a duty, you had an obligation as well, as the steward 

of these funds, that were going out. I mean, here you have the dentists testifying that there were recruitment activities going on at a 

pizza parlor to get patients to be inappropriately referred, to have 

procedures they might not have needed on children. I mean, that 

should be assault and battery. People should be going to jail for 

this, not just we are looking into it and we hope to have some better answers for you in the future. 

133 

I am stunned by the revelations that we have had today. You 

have spent enormous money and press time focusing on a public 

hospital in Dallas, Texas, and this was happening right under your 

nose. You criticized the hospital because it wasn’t following procedures, because it wasn’t doing things correctly, and your own procedures aren’t being followed. I mean, this is a classic case of take 

care of your own problems first, before you start criticizing someone else. This is an enormous problem. We are not, obviously, anywhere near the end of it, and I am just so grateful to the Committee for initiating this. I promise you that this will continue to 

get my full attention in my office and at our Committee. We have 

to do right by the taxpayers. We have to do right by the people who 

have, in fact, been harmed by these activities. 

Mr. Chairman, you have been indulgent. I will yield back the 

balance of my time. 

Mr. GOWDY. I thank the gentleman from Texas. 

The Chair will now recognize the gentlelady from Minnesota, Ms. 

McCollum. 

Ms. MCCOLLUM. Thank you. 

Commissioner, this was an unusual thing to have UCare come 

and say we would like to give you $30 million, and it was a contribution. There is Federal money that goes into Medicare disbursements and there is State taxpayers’ money. So I am glad you had 

a discussion with CMS. And as a resident of Minnesota and as a 

person who looks after the Federal purse strings, I think we have 

come to a good conclusion with that. So thank you to everyone for 

their work on that. But I don’t think we are going to see many donations coming forward again in the future. 

Could I maybe shift this a little bit to CMS and to GAO while 

we have them here? And I am going to combine two questions and 

then just ask your professional opinion. 

The Affordable Care Act, which was just passed into law, will 

streamline Medicaid eligibility as part of the health exchanges. It 

is going to standardize quality measurements for adults; it is going 

to provide new tools to provide fraud, waste, and abuse. So if you 

could maybe tell me a little bit about how you two can see, and, 

Commissioner, if you have anything to add, how these tools included in the Affordable Care Act, will improve State and Federal 

oversight in the Medicaid program. 

And then to GAO specifically, has GAO ever looked at the differences between for-profit and nonprofit health plans in respect to 

fiscal management and quality outcomes within Medicare managed 

programs? 

And then to GAO—this also goes to CMS—150 employees. Every 

Medicare contract is different between it is different between the 

two States, they are constantly being renewed and refreshed, so 

can you provide me maybe a little more information about the challenges that you have? Maybe some of the successes that you can 

identify in CMS’s Medicaid Integrity Institute, especially as it relates to States investigating and prosecuting Medicaid fraud? Or 

perhaps this is grossly understaffed, grossly staffed so that we can’t 

do the very things that I agree with Chairman Gowdy on, we need 

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134 

ployees for 50 States, all the contracts different and constantly 

changing. 

And I yield my time to you to have a discussion. 

Ms. MANN. Well, thank you, Congresswoman. Let me just respond to the first part of your question about what the Affordable 

Care Act does in terms of providing some new tools. Let me identify a few of them that I think are really directly relevant to some 

of the issues we have discussed here. First, it requires that every 

State have a RAC program to look at fraud and have modeled after 

the Medicare program, which has been successful in terms of bringing in a rate of return that is effective now. States are implementing that requirement as of January 2012 and it allows payments of basically dollars for collections identified by the contractors. So it is an encouragement for States to move forward and a 

new method for them to identify and pursue improper payments. 

Secondly, we have a new provider enrollment requirements in 

the Affordable Care Act that assure that if a provider has been terminated, for example, in Texas, for improperly billing in the Texas 

program, that they can’t start billing in Oklahoma; that we have 

set up a system so that States know about terminations from one 

State to another, as well as from Medicare to Medicaid, so that if 

we have problems in South Florida in the Medicare program, the 

Medicaid program in Florida or elsewhere also takes action to ensure that that provider is no longer participating in the program. 

We also have, in the Affordable Care Act, an emphasis on program analytics to be able to detect fraud, improper payments before it occurs. That is certainly all of our goal; not just to detect 

it afterwards and get repayment, but to avoid it going forward. 

Ms. MCCOLLUM. Thank you. I have about 42 seconds left for 

GAO. And all that oversight disappears with repeal of the Affordable Care Act. 

If GAO would like to comment 

Ms. YOCOM. To my knowledge, we have not done work that has 

looked specifically at profit versus nonprofit, so I can get that question out quickly. 

With regard to the Medicaid Integrity Institute, some of the 

promising practices that we have heard from States is really just 

a chance to be educated on ways to detect improper payments, 

ways to recover, ways to analyze; and that has been an extreme 

benefit. State Medicaid programs are widely varied in size and in 

support, so having a Federal role to provide instruction and oversight has been helpful. 

Lastly, I want to underscore something that Director Mann said, 

which is being able to look across States. That capability is quite 

limited right now in the Medicaid program and it needs to be developed. Until this program has good data and strong data that allows for comparisons that can be more easily done, we won’t be 

successful in combating improper payments and other types of 

fraud. 

Mr. GOWDY. I thank the gentlelady from Minnesota. 

I want to follow up on something the gentlelady from Minnesota 

made reference to. I think she said that we would not be having 

anymore donations in the future. My question is a little different, 

135 

which is how many had you had in the past. How many $30 million 

donations from corporations had you had in the past? 

Ms. JESSON. Mr. Chair, this is the only one I am aware of. 

Mr. GOWDY. So there is only one, and we are left to conclude that 

it was either donated out of the beneficence of the corporate heart, 

which isn’t that likely, or maybe there is another alternative explanation, which leads me to ask this: Was there a letter that accompanied that check or was it just a check in the mail? Did they offer 

any explanation in writing as to why they may make a $30 million 

donation? 

Ms. JESSON. Mr. Chair, there was a letter from the CEO in July, 

I believe, she sent to the State of Minnesota. The check actually 

we received in November. 

Mr. GOWDY. And what was the explanation that the giver of the 

donation actually gave? 

Ms. JESSON. That it was just that, a donation to help the State 

during this budget crisis. 

Mr. GOWDY. Right. Is there any evidence that perhaps UCare 

had been overpaid in any way by the State of Minnesota? 

Ms. JESSON. Mr. Chair, as I said, I believed that the contracts 

that had been negotiated during the previous administration were 

too generous. I don’t think they were overpaid in the sense that 

those were not actuarially sound contracts—— 

Mr. GOWDY. So there is no evidence that UCare was overpaid 

and that maybe a State health plan may have underpaid. 

Ms. JESSON. Mr. Chair, I think the evidence would say that those 

contracts were actuarially sound and approved by CMS, so I don’t 

think there was an overpayment. But I do understand that the 

health plans historically have said—this is, once again, before I 

was commissioner—that they lost money on the State-funded program. 

Mr. GOWDY. So they lost money on the State. Okay. Well, can 

you understand at all the cynicism of maybe questioning the motive behind the corporate heart making a once in a lifetime $30 

million donation? 

Ms. JESSON. Mr.—— 

Mr. GOWDY. Am I the only one that has any amount of cynicism 

about that? 

Ms. JESSON. Mr. Chair, I was certainly surprised when they 

came into my office to tell me about the donation; it was highly unusual. 

Mr. GOWDY. Director Yocom, do you have any experience with 

the beneficence of the corporate heart making a $30 million donation simply because a State was unable to manage its finances appropriately? 

Ms. YOCOM. No, sir, I don’t. 

Mr. GOWDY. Do you happen to have a copy of the letter that accompanied the $30 million donation? 

Ms. JESSON. Mr. Chair, I don’t have a copy of the letter here. As 

I said, I know that there was a letter in July and we got the donation in November. 

Mr. GOWDY. And is there any chance that letter referenced overpayments? 

Ms. JESSON. I—— 

136 

Mr. GOWDY. Actually, I think there is a really good chance that 

letter referenced overpayments. I think there may be like a 100 

percent chance it referenced it. So given the fact that the donation 

was for overpayments, why would there be any argument that 

CMS wasn’t entitled to half of it? 

Ms. JESSON. Mr. Chair, they characterized it as a donation. They 

were not—under the contract, they were not required to—— 

Mr. GOWDY. Well, I mean, it doesn’t—— 

Ms. JESSON.—pay it back to us. 

Mr. GOWDY. Does it really matter what you call something? I 

mean, I could call the check I just had to write the IRS a donation. 

It is not a donation. I mean, come on, it is $30 million. No corporation is ever going to give a State $30 million out of the benevolence 

of their shareholders’ hearts. 

Ms. JESSON. Mr. Chair, it’s a nonprofit corporation. I thought it 

was very generous. I acknowledge there are reasonable positions on 

both sides of that—— 

Mr. GOWDY. Well, would you acknowledge that it may very well 

have been because they had been overpaid systematically? Isn’t 

that a little better explanation than beneficence? 

Ms. JESSON. Mr. Chair, I believe they were paid according to the 

terms of the contract—— 

Mr. GOWDY. Well, then why would they—— 

Ms. JESSON.—but I believe those contracts were too generous. 

Mr. GOWDY. Why would they say they were overpaid? 

Ms. JESSON. You would have to ask UCare about why they 

phrased it that way. They told me it was a donation. They weren’t 

required to make it. 

Mr. GOWDY. Okay. 

The gentleman from Minnesota. 

Mr. ELLISON. Thank you, Mr. Chairman. 

Commissioner Jesson, could you talk a little bit about what Minnesota has done in the Dayton administration to try to be more efficient and to give greater value to the taxpayer vis-a-vis the Medicaid program? 

Ms. JESSON. Certainly, Congressman Ellison. I spoke earlier 

about competitive bidding and really trying to get better value and 

recovering a lot of money for the taxpayers through that, and the 

1 percent cap where we, in addition to the $600 million through 

our managed care reforms, about $73 million through the 1 percent 

cap, there are some additional things that go beyond just money, 

but that we believe will save money as well, that we are doing in 

Minnesota. 

You mentioned one of them, our Hennepin health projects. That 

is where we are contracting with Hennepin County on a capitated 

basis to serve some of the poorest people who make less than 

$8,000 a year, those who use a lot of our social services. We just 

started that in January, just one year after the governor took office, but preliminarily we believe they will better serve those folks 

and save money, because we are actually integrating social services 

with our health care. 

We are starting health care demonstration projects, where we 

will, by the end of the year, we hope, have contracts with nine different provider groups, where we are directly contracting with proVerDate Aug 31 2005 08:51 Sep 21, 2012 Jkt 000000 PO 00000 Frm 00140 Fmt 6633 Sfmt 6633 C:\DOCS\74889.TXT APRIL
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viders, changing the incentives once again so that they share any 

savings that they get, as long as they meet our quality measures. 

And those are providers that are agreeing to care for populations, 

kind of Medicaid ACOs, all around our State, very different types 

of populations. We believe there is a lot to learn from what we are 

doing. 

Mr. ELLISON. Now, earlier on, one witness, when I asked him, do 

you agree that Minnesota’s move to competitive bidding is beneficial, that witness’s response was no. It was a pretty flat no. I 

guess my question is do you agree with that? And do you think 

that the competitive bidding process can be improved even more by 

maybe even allowing more bidders? I think the witness said that 

it was limited to the four HMOs. I think I got that right. So could 

it be improved if there were more bidders and allowed access to the 

program? 

Ms. JESSON. Congressman, I think that the competitive bidding 

was a success. It was a success for quality care. I know it was 

clearly a success for taxpayers. 

Mr. ELLISON. Five hundred million dollars, right? 

Ms. JESSON. Yes. But I think we can improve it, and we are 

going to be expanding it. We are expanding it into Greater Minnesota, where there is enough competition, and we are opening it 

up. Those who won the bids, and there were typically two in each 

county, were some of the major health plans, but we are opening 

this up. We want to increase competition because we think it is a 

good way to get better value for taxpayers. 

Mr. ELLISON. Commissioner, I have a little less than two minutes. I was hoping to get your impression on this question. I believe 

that the witness that I was referring to, Mr. Feinwachs, and I do 

want to thank him for being a vigilant steward of the public dollar; 

we want to encourage people to step up. But I am trying to understand this, so I just want to get your opinion. He pointed out in 

his testimony that a 2008 report by Minnesota’s legislative auditor 

found the State’s payment rates to be high compared to other 

States. What do you think about that? Are we doing better? Are 

they high? Are they getting lower? Could you comment on that? 

Ms. JESSON. Congressman, I agree, actually, with what the legislative auditor said in that report, which is that Minnesota’s rates 

are higher, but they are probably higher because we cover more 

people with disabilities in Minnesota than in many other States, 

and that is more expensive; and we also cover a lot more benefits. 

That is a choice our legislature in Minnesota has made, to have 

broader coverage, and that is, I think, a major reason that it is 

more expensive. 

Mr. ELLISON. Okay. 

I yield back, Mr. Chair. 

Mr. GOWDY. The gentleman from Minnesota yields back. 

On behalf of all of us, we want to thank our panel of witnesses 

for taking time out of their busy schedules to appear before us. We 

look forward to seeing you again soon, either at this Committee or 

another. 

With that, the Committee stands adjourned. 

[Whereupon, at 12:49 p.m., the subcommittee was adjourned.] 

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