U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

67–720 PDF 2011

WASTE, ABUSE, AND MISMANAGEMENT IN

GOVERNMENT HEALTH CARE

HEARING

BEFORE THE

SUBCOMMITTEE ON HEALTH CARE, DISTRICT OF

COLUMBIA, CENSUS AND THE NATIONAL ARCHIVES

OF THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

FIRST SESSION

APRIL 5, 2011

Serial No. 112–23

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

(III)

C O N T E N T S

Page

Hearing held on April 5, 2011 ................................................................................ 1

Statement of:

Botsko, David A., inspector general, Arizona Health Care Cost Containment System; Jean MacQuarrie, vice president for client services,

Thomson Reuters; Michael F. Cannon, director of health policy studies,

Cato Institute; and Rachel Klein, deputy director for health policy,

Families USA ................................................................................................ 70

Botsko, David A. ........................................................................................ 70

Cannon, Michael F. ................................................................................... 115

Klein, Rachel .............................................................................................. 136

MacQuarrie, Jean ...................................................................................... 81

Taylor, Deborah, chief financial officer, and director of the Office of Financial Management, Centers for Medicare & Medicaid Services; Peter

Budetti, M.D., deputy administrator for program integrity, and director

of the CMS Center for Program Integrity, Centers for Medicare &

Medicaid Services; Gerald T. Roy, Deputy Inspector general for Investigations, Office of Inspector General, U.S. Department of Health &

Human Services; and Loretta E. Lynch, U.S. attorney for the Eastern

District of New York ..................................................................................... 5

Budetti, Peter, M.D. .................................................................................. 26

Lynch, Loretta E. ...................................................................................... 42

Roy, Gerald T. ............................................................................................ 27

Taylor, Deborah ......................................................................................... 5

Letters, statements, etc., submitted for the record by:

Botsko, David A., inspector general, Arizona Health Care Cost Containment System, prepared statement of .......................................................... 73

Cannon, Michael F., director of health policy studies, Cato Institute,

prepared statement of ................................................................................... 117

Klein, Rachel, deputy director for health policy, Families USA, prepared

statement of ................................................................................................... 138

Lynch, Loretta E., U.S. attorney for the Eastern District of New York,

prepared statement of ................................................................................... 44

MacQuarrie, Jean, vice president for client services, Thomson Reuters,

prepared statement of ................................................................................... 83

Roy, Gerald T., Deputy Inspector general for Investigations, Office of

Inspector General, U.S. Department of Health & Human Services, prepared statement of ........................................................................................ 30

Taylor, Deborah, chief financial officer, and director of the Office of Financial Management, Centers for Medicare & Medicaid Services, prepared statement of ........................................................................................ 7

(1)

WASTE, ABUSE, AND MISMANAGEMENT IN

GOVERNMENT HEALTH CARE

TUESDAY, APRIL 5, 2011

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON HEALTH CARE, DISTRICT OF

COLUMBIA, CENSUS, AND THE NATIONAL ARCHIVES, COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM, Washington, DC.

The subcommittee met, pursuant to notice, at 2:20 p.m., in room

2154, Rayburn House Office Building, Hon. Trey Gowdy (chairman

of the subcommittee) presiding.

Present: Representatives Issa, Burton, McHenry, DesJarlais,

Walsh, Gowdy, Cummings, Norton, Clay, Davis, and Murphy.

Staff present: Ali Ahmad, deputy press secretary; Robert Borden,

general counsel; Molly Boyl, parliamentarian; Drew Colliatie, staff

assistant; John Cuaderes, deputy staff director; Adam P. Fromm,

director of Member liaison and floor operations; Tyler Grimm and

Tabetha C. Mueller, professional staff members; Christopher

Hixon, deputy chief counsel, oversight; Sery E. Kim, counsel; Justin

LoFranco, press assistant; Mark D. Marin, senior professional staff

member; Laura L. Rush, deputy chief clerk; Ronald Allen, minority

staff assistant; Jill Crissman, minority professional staff member;

Ashley Etienne, minority director of communications; and Dave

Rapallo, minority staff director.

Mr. GOWDY. The committee will come to order. This is a hearing

on waste, abuse, and mismanagement of government health care.

And again, on behalf of the witnesses and other interested folks

here, thank you for your indulgence for all of us as we had to go

vote.

The Oversight Committee mission statement is as follows: We

exist to secure two fundamental principles. First, Americans have

a right to know that the money Washington takes from them is

being well spent. And, second, Americans deserve an efficient, effective government that works for them.

Our duty on the Oversight and Government Reform Committee

is to protect these rights. Our solemn responsibility is to hold government accountable to taxpayers, because taxpayers have a right

to know what they get from their government. We will work tirelessly in partnership with citizen watchdogs to deliver the facts to

the American people and bring genuine reform to the Federal bureaucracy. This is the mission of Oversight and Government Reform.

I will now recognize myself and then the gentleman from Illinois

and the gentleman from Arizona for opening statements.

2

Again, I want to thank our distinguished eclectic group of witnesses for offering what I am sure is going to be wonderful insight

and testimony.

Congress all too often deals in abstracts, issuing directives with

broad scope and limited specificity. In other words, we pass big

ideas and then leave the details to unelected individuals who sometimes escape the scrutiny that comes with popular elections, thereby abdicating our constitutional role.

However, this malady in the past has not been limited to our

lawmaking responsibility. It has also extended into Congress’ role

to hold agencies accountable for glaring inefficiencies. Hopefully,

we are beginning to recapture that role and in doing so rein in an

overextended bureaucracy fraught with mismanagement and

abuse.

Here on the Oversight Committee, it is our duty to ask fair questions and demand honest answers, answers whose validity the

American people for too long have been conditioned to doubt. At a

time when the approval of Congress is historically and empirically

abysmal, this committee has a unique opportunity to begin the arduous process of re-inspiring trust in the institutions of government. That process begins with rooting out areas of waste, nowhere

more prevalent than in government health care.

The American people expect government to be responsible stewards of taxpayer dollars and devoted practitioners of honest introspection. However, in the areas of Medicare and Medicaid, we have

utterly failed in both regards. In the past, oversight has followed

a basic path: We identify a broken program, seek to expose the underlying cracks in its foundation, and explore possible avenues to

rectify the problems. We ask, why? What are the root causes? And

what can be done to fix the problem? In this case, however, many

of those questions have already been asked and answered, and yet

nothing has been accomplished.

Since 1990, GAO has identified both Medicare and Medicaid as

high-risk programs, highlighting a path that is fiscally

unsustainable over the long term. The GAO also found pervasive

internal control deficiencies that put billions of taxpayer dollars at

risk of improper payments for waste. From delaying the implementation of headless accounting system to ignoring GAO recommendations designed to address improper payment vulnerabilities, CMS

has repeatedly failed to properly confront these financial failures,

a burden that falls not on the Federal bureaucrats tasked with enacting these reforms but on American taxpayers across the country.

Both Medicare and Medicaid are in desperate need of fundamental wholesale systemic reform. They serve as two principal drivers

of our crippling burden of debt at a time when economic uncertainty threatens our Nation’s fiscal security. Something simply has

to be done.

However, full-scale reform is not the purpose of this hearing. We

are seeking to identify areas of inefficiency and determine why

commonsense recommendations calculated to decrease exorbitant

costs have continuously been ignored. Trust must be earned, and

addressing the mistakes of the past is an important first step in

that process. The American people expect that when money is

3

spent, it is spent properly. And when areas of mismanagement are

discovered, they are promptly and adequately corrected.

However, recent failures have left them frustrated, frustrated at

the persistent waste, frustrated with the lack of remedy, consequence, and accountability, frustrated by a problem that is so illustrative of a broken, wasteful Federal bureaucracy.

Today, I hope we can begin the process of addressing that frustration and begin to rebuild citizens’ trust in the institutions of

government.

And with that, I would yield to the gentleman from Illinois for

his opening statement.

Mr. DAVIS. Thank you, Mr. Chairman.

And I want to thank you first of all for holding this hearing,

which I consider to be vitally important.

As a Chicago native, I have long focused on the problems of the

inner city poor and disabled. The Seventh Congressional District in

which I live is the largest medical center district in the country,

with 21 hospitals, four medical schools, and 104 community health

centers.

Specifically in my district, the Affordable Care Act, which I

strongly supported, improved health insurance coverage for 334,000

residents and closed Medicare’s prescription doughnut hole for

76,000 seniors. Additionally, it extended coverage to 52,000 uninsured residents and has reduced the cost of uncompensated care for

hospitals and other health care providers by $222 million annually.

At a time when 13 million older Americans are considered economically insecure and our constituents are grappling with unemployment and the effects of the economic downturn, I am at a loss

when some in Congress are pushing to reduce or eliminate basic

health care services for vulnerable Americans.

Make no mistake, the repeal of the Affordable Care Act and deficit reduction proposals targeting Medicare and Medicaid will

equate to an assault aimed at women, the sick, and the poor.

In 2009, over 365,000 Americans were on waiting lists in 39

States to join the 3 million aged and disabled individuals receiving

long-term care services in nursing homes and in home health care

settings.

I am concerned that today’s hearing, reportedly focused on waste,

abuse, and mismanagement in government health care is less

about constructive proposals to fight fraud and is more about the

House Republican leadership’s campaign to cut Medicare and Medicaid.

For the record, this is the fourth hearing in a row in the House

on this topic, with three identical hearings held in recent weeks by

the Energy, and House Committee, the Committee on Ways and

Means, and finally the Committee on Appropriations.

It is clear to this Member that the Republican leadership has

given messages to rank and file Members for its campaign to slash

Medicare and Medicaid. Certainly targeting waste and abuse in

Medicare and in Medicaid is an important and bipartisan effort. I

note that in February, a multi-agency anti-fraud effort, coordinated

under the auspices of the administration’s Health Care Fraud Prevention and Enforcement Action Team [HEAT], resulted in criminal charges being brought against 111 individuals who allegedly

4

defrauded the Medicare program out of $225 million through false

billing claims and kickback operations.

As a proud supporter of the Affordable Care Act, which contained

essential funding and new tools for agencies to fight health care

fraud, I am especially pleased that the HEAT initiative has recently expanded to Chicago.

Again, I thank the witnesses for joining us today, and look forward to their testimony and to this hearing. I yield back the balance of my time.

Mr. GOWDY. Thank you, Mr. Davis.

Members may have 7 days to submit opening statements and extraneous material for the record.

We will now welcome our first panel of witnesses. It is my pleasure to introduce them from my left to right.

Ms. Deborah Taylor is the chief financial officer and the director

of the Office of Financial Management at the Centers for Medicare

and Medicaid Services.

Dr. Peter Budetti is deputy administrator for program integrity

and director of the CMS Center for Program Integrity at the Centers for Medicare and Medicaid Services.

Mr. Gerald Roy is deputy inspector general for investigations in

the Office of Inspector General at the U.S. Department of Health

and Human Services.

And the Honorable Loretta Lynch is the U.S. attorney for the

Eastern District of New York.

I will, as is customary, ask the witnesses to rise and receive the

oath, and then we will hear from you.

Raise your right hands.

[Witnesses sworn.]

Mr. GOWDY. May the record reflect that all the witnesses answered in the affirmative.

Thank you.

And I am sure that you all are familiar with this process. There

should be three lights that are reasonably visible to you. The yellow light is kind of a slowdown light, and the red light, particularly

given the time, and in fact, we have another panel, I would ask you

to adhere to that as closely as you can.

And starting with Ms. Taylor, we will have 5 minutes for opening

statements. Your full statement will be made part of the record. So

if you don’t get to all of it, don’t think for one moment that it won’t

be read. It will be.

So we will start with Ms. Taylor and then work our way down

the table.

5

STATEMENTS OF DEBORAH TAYLOR, CHIEF FINANCIAL OFFICER, AND DIRECTOR OF THE OFFICE OF FINANCIAL MANAGEMENT, CENTERS FOR MEDICARE & MEDICAID SERVICES;

PETER BUDETTI, M.D., DEPUTY ADMINISTRATOR FOR PROGRAM INTEGRITY, AND DIRECTOR OF THE CMS CENTER

FOR PROGRAM INTEGRITY, CENTERS FOR MEDICARE &

MEDICAID SERVICES; GERALD T. ROY, DEPUTY INSPECTOR

GENERAL FOR INVESTIGATIONS, OFFICE OF INSPECTOR

GENERAL, U.S. DEPARTMENT OF HEALTH & HUMAN SERVICES; AND LORETTA E. LYNCH, U.S. ATTORNEY FOR THE

EASTERN DISTRICT OF NEW YORK

STATEMENT OF DEBORAH TAYLOR

Ms. TAYLOR. Good afternoon, Chairman Gowdy, Ranking Member Davis, and members of the subcommittee.

Thank you for the opportunity to discuss the Center for Medicare

and Medicaid Services’ efforts to prevent and recover improper payments.

CMS is committed to reducing waste and abuse in the Medicare

program, and ensuring that our programs pay the right amount for

the right service to the right person in a timely manner. It is important to remember that most errors are not fraud.

These errors generally result from the following situations: One,

a provider fails to submit any documentation or submits insufficient documentation to support the services paid; second, services

provided are incorrectly coded on the claim; and, third, documentation submitted by the provider shows the services were not reasonably necessary. CMS is committed to reducing improper payments,

and we have developed many corrective actions to resolve and

eliminate these improper payments in the future.

CMS has extensive prepayment edits and other review activities

to identify some improper payments. However, with close to 5 million claims being processed each day, CMS cannot manually review

every claim before it is paid, so we must rely on other techniques.

One important tool in our efforts to recover improper payments

is the recovery audit program. In this program, recovery auditors

work to identify overpayments and underpayments in the Medicare

program. Recovery auditors are paid on a contingency fee basis,

which means they are paid based on a percentage of the total

amount of claims they correct.

The Medicare Modernization Act of 2003 required that we establish a recovery audit demonstration to pilot the potential usefulness of recovery auditing in the Medicare fee for service program.

During the demonstration project, the recovery auditors corrected

over $1 billion in improper payments, including returning and collecting overpayments in the sum of $990 million.

Congress expanded the recovery audit program in the Tax Relief

and Health Care Act of 2006, directing CMS to implement a national recovery audit program by January 2010. We considered the

lessons learned from the demonstration in establishing the national

program. It was important that we design a national program

around five key elements: Minimizing provider burden, ensuring

accuracy of the auditor’s determinations, establishing an efficient

and effective process, tracking and correcting program

6

vulnerabilities, and ensuring program transparency. I would like to

talk a little bit about some of the specific actions we took.

To address provider burden issues related to voluminous requests for medical records, we established limits to the number of

medical records an auditor could request from a provider within a

45-day time period. We also required that every recovery auditor

hire a physician medical director. This gives physicians additional

assurance that the claim denial decisions are accurate. To improve

program transparency, we created a recovery audit Web site. This

Web site contains valuable information to providers about where

errors are occurring and the reason for those errors.

And, last, we wanted to address recovery audit concerns around

pervasive incentives to overidentify improper payments. So now we

require that recovery auditors must refund any contingency fee related to decisions overturned on appeal.

Although the national program is relatively new, we have already seen significant benefits from it. To date, the program has

collected or corrected a total of $365 million in improper payments.

Of that, $313 million is related to overpayments that have been collected.

Another benefit of the program is identifying vulnerabilities

where policy changes, system changes, and provider education and

outreach are needed to prevent improper payments in the future.

We are taking aggressive actions to address these vulnerabilities,

and we have done many systems changes to stop payments from

going out the door. I am confident that the national recovery program and ongoing corrective actions we have in place will continue

to reduce improper payments.

Thank you. And I look forward to any questions you may have.

[The prepared statement of Ms. Taylor follows:]

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

Mr. DOWDY. I thank you.

Dr. Budetti.

STATEMENT OF PETER BUDETTI, M.D.

Dr. BUDETTI. Chairman Gowdy, Ranking Member Davis, members of the subcommittee, thank you for this opportunity to discuss

our work at the Centers of Medicare and Medicaid Services to reduce fraud, waste, and abuse in our programs. I am delighted to

be here accompanied by my colleague Deborah Taylor from the

CMS, Deputy Inspector General Roy, and U.S. Attorney Lynch,

who are very close colleagues in the fight against fraud, waste, and

abuse.

From the first day that I had the privilege to take this job a little

over a year ago, I have been asked two questions: Why do we let

crooks into our programs? And why do we keep paying them after

they get into the program when we think their claims are fraudulent?

I am pleased to tell you that with the new authorities that have

been provided in recent laws and the commitment of this administration to fight fraud in our programs, we will be keeping the people who don’t belong there out of our programs, and we will be rejecting fraudulent claims before they are paid. We now have the

flexibility to tailor our resources to the most serious problems and

to quickly initiate activities that will be transformative in bringing

about the results that I mentioned.

Under the leadership of Secretary Sebelius, Centers for Medicare

and Medicaid Services have taken several administrative steps to

better meet emerging needs and challenges in fighting fraud and

abuse. CMS consolidated the Medicare and the Medicaid program

integrity groups under a unified Center for Program Integrity,

which I have the privilege to direct. This allows us to pursue a

more coordinated and integrated set of program integrity activities

across both programs. This has served both our program integrity

activities well, this reorganization, as well as our ability to collaborate with our law enforcement colleagues in the Office of Inspector

General and the Department of Justice.

The Affordable Care Act greatly enhanced this organizational

change by providing us with the opportunity to jointly develop

Medicare, Medicaid, and CHIP policies on these new authorities.

Affordable Care Act provisions, such as enhanced screening requirements apply across the programs, and this ensures better consistency in CMS’s approach to fraud prevention.

Some might believe that an organizational change is of questionable value, but I can tell you that creating a Center for Program

Integrity that is on par with other major operational units within

the Centers for Medicare and Medicaid Services sends a powerful

message about our serious commitment to fighting fraud and also

puts the bad actors on notice.

We have made sure that our sights are fixed on the goals that

we want to accomplish, and I would draw your attention to the

chart that illustrates our new approach that we are pursuing.

No. 1, we are embarking on a number of changes that will allow

us to move beyond our traditional way of fighting fraud, which is

27

known as pay and chase, to prevent problems in the first place and

to avoid them from occurring.

Second, we will not take a monolithic approach to dealing with

fraud. We are focusing on the bad actors who pose an elevated risk

of fraud.

Third, we are taking advantage of innovation and sophisticated

new technology as we focus on prevention.

Fourth, consistent with this administration’s commitment to

being transparent and accountable, we are developing performance

measures that will specify our targets for improvement.

Five, we are actively engaging public and private partners because there is much to learn from others who are engaged in the

same endeavor of fighting fraud in health care programs.

And, sixth, we are committed to coordination and integration

among all of the CMS programs, drawing on best practices and lessons learned.

We are concentrating our actions so that we are doing a better

job of preventing bad actors from enrolling in the first place, avoiding fraudulent or other improper payments, and working to achieve

the President’s goal of cutting the error rate in Medicare parts A

and B by 50 percent by 2012. We are taking advantage of today’s

cutting-edge tools and technologies to help us at the front end and

throughout the implementation of our programs.

In doing this, one point bears stressing. We are mindful of the

necessity to be fair to health care providers and suppliers who are

our partners in caring for beneficiaries, and to protect beneficiary

access to necessary health care services. We will always respect the

fact that the vast majority of health care providers are honest people who provide critical health care services to millions of CMS

beneficiaries every day.

Mr. Chairman, I welcome this opportunity to appear before the

subcommittee, and I look forward to your questions. Thank you

very much.

Mr. GOWDY. Thank you, Doctor.

Mr. Roy.

STATEMENT OF GERALD T. ROY

Mr. ROY. Good afternoon, Chairman Gowdy, Ranking Member

Davis, and distinguished members of the subcommittee. I am Gerald Roy, Deputy Inspector General for Investigations at the U.S.

Department of Health and Human Services Office of Inspector General. Thank you for the opportunity to discuss fraud within the

Medicare and Medicaid programs.

OIG is committed to protecting the integrity of more than 300

programs administered by HHS. The Office of Investigations employs over 450 highly skilled special agents who utilize state-of-theart investigative technologies and a wide range of law enforcement

actions. We are the Nation’s premier health care fraud law enforcement agency.

Over the past 16 years, I have served in every capacity from field

agent to the special agent in charge of the Los Angeles region to

agency head. It is from this perspective that I will share my observations and experiences.

28

As a new OIG agent in 1996, I investigated a case that took me

from Southern California to Miami. I gathered evidence on a father

and daughter team that had worked for several years to steal almost $1 million. The investigation and the prosecution took more

than 3 years. The father, a former drug dealer, told us he found

stealing from Medicare far safer and more lucrative than trafficking.

Their scheme was simple. They used handwritten lists of beneficiary numbers to submit paper claims for durable medical equipment they never provided. Both ultimately pled guilty to health

care fraud and conspiracy charges.

Sixteen years later, I see this same general scheme on a grander,

more sophisticated scale. Today, such schemes go viral. That is,

they replicate, spread quickly, with national implications.

Perhaps the most challenging and disturbing trend is the infiltration of Medicare by sophisticated organized criminal networks

and violent criminals, who have little fear of law enforcement and

view prison time as a badge of honor.

In Los Angeles, Eurasian organized criminals rely on stolen physician identities and compromised beneficiary numbers to perpetrate fraud. In 2003, we had nearly 2,500 compromised beneficiary numbers shared electronically around Southern California.

By 2007, that number was well in excess of 100,000.

With these compromised numbers, criminals can steal well over

$1 million in 90 days without ever filing a single sheet of paper or

providing a single service. In one case, they had ties to employees

at a Medicare provider enrollment.

These pictures you see here show weapons seized during a health

care fraud search warrant. When I joined OIG, this criminal element and their tactics were unheard of. Throughout my tenure at

OIG, major corporations and institutions have committed health

care fraud on a grand scale.

Today, what is most troubling is the possibility that some unethical health care corporations build civil fines and penalties into

their cost of doing business. They may believe they are too big to

be fired, as to do so may compromise the welfare of our beneficiaries. As long as the profit from fraud outweighs punitive costs,

abusive behavior is likely to continue.

Built on trust, Medicare has allowed enrollment of any willing

provider and fraud perpetrators have exploited this. OIG has long

advocated strengthening enrollment standards, making participation a privilege, not a right.

Also, those who steal from Medicare often perceive a low risk of

detection and minimal penalties compared to street-level crimes.

However, reinvigorated partnerships and an emphasis on this issue

by our stakeholders, including DOJ and CMS, reinforce my belief

that a sustained effort will make significant strides toward eradicating fraud. Together, we are utilizing new techniques to combat

fraud. We now catch criminals in the act, conduct investigations

and prosecute offenders in a fraction of the time.

At OIG, we protect the Nation’s most vulnerable citizens and the

Federal health care programs they depend on. OIG special agents

diligently and effectively investigated health care fraud long before

29

this issue hit the national spotlight. We will be here for the American taxpayers, even if that spotlight fades.

However, from my perspective, we cannot afford to let up. Sustained efforts and continued interest by law enforcement, prosecutors, CMS, Capitol Hill, and the American taxpayers is paramount

to our future success.

Thank you.

[The prepared statement of Mr. Roy follows:]

30

31

32

33

34

35

36

37

38

39

40

41

42

Mr. GOWDY. Thank you, Mr. Roy.

We will now recognize Madam U.S. attorney, Ms. Lynch.

STATEMENT OF LORETTA E. LYNCH

Ms. LYNCH. Thank you.

And good afternoon, Chairman Gowdy, Ranking Member Davis,

and distinguished members of the subcommittee.

Thank you for inviting me to speak with you today about the Department of Justice efforts to combat health care fraud. I am honored to appear before you on behalf of the Department of Justice

along with my colleagues from HHS, OIG, and CMS.

As you know, the U.S. attorneys and their assistant U.S. attorneys are the principle prosecutors of Federal crimes, including

health care fraud. We represent the Department of Justice and the

interests of the American taxpayer in both criminal and civil cases

in the Federal courts in the 94 judicial districts across the country.

The Department’s civil attorneys, both in the U.S. Attorneys Offices and the Department’s Civil Division, aggressively pursue civil

enforcement actions to root out fraud and recover funds stolen in

health care fraud schemes.

Since the year 2000, the U.S. Attorneys Offices working with our

civil division colleagues, as well as with the FBI, HHS, OIG, and

other Federal, State, and local law enforcement agencies, have recovered over $1 billion every year on behalf of defrauded Federal

health care programs. And in fiscal year 2010, the Department secured approximately $21⁄2 billion in civil health care fraud recoveries, more than in any other previous year.

Working with our colleagues in the Criminal Division, our criminal health care fraud efforts have also been a tremendous success.

In fiscal year 2010, this departmentwide coordination led to the

largest number of criminal health care fraud convictions since the

inception of the HCFAC program. Today, our criminal enforcement

efforts are at an all-time high. In fiscal year 2010, the Department

brought criminal charges against 931 defendants and secured 726

criminal health care fraud convictions.

The Medicare Fraud Strike Force is a supplement to the Department’s successful criminal health care fraud enforcement efforts

and is currently operating in nine districts, including my own district of Brooklyn. Each district has allocated several AUSAs and

support personnel to this important initiative, and partners with

the Criminal Division attorneys as well as with agents from the

FBI, HHS, and State law enforcement.

The strike force teams use data analysis techniques to identify

aberrational billing patterns in strike force cities, permitting law

enforcement to target emerging or migrating schemes, along with

chronic fraud by criminals operating as health care providers or

suppliers.

This model is working. The strike force initiative has been an unqualified success. In fiscal year 2010, the strike forces secured 240

convictions, more than in any other year of strike force operations.

EDNY strike force criminal prosecutions cover a variety of health

care fraud schemes, including kickbacks to patients. The principle

focus of the Medicare Fraud Strike Force in Brooklyn has been to

shut down medical clinics that pay cash kickbacks to dual Medicare

43

and Medicaid beneficiaries to lure these beneficiaries to the clinics

through the illegal use of transportation services reimbursed by

Medicaid and then illegally bill Medicare for services either medically unnecessary or never provided. I have included three of those

major cases in my written testimony.

Coordination of our health care fraud enforcement resources

works. AUSAs and the U.S. Attorneys Offices, trial attorneys in the

Civil and Criminal Divisions, FBI and HHS agents, as well as

other Federal, State, and local law enforcement partners are working together across the country with great success.

Since the HCFAC program was established, working together, the two departments have returned over $18 billion to the Medicare trust fund. Over the life of the HCFAC program, the average

return on investment [ROI], has been $4.90 for every dollar expended. Very good. But through our enhanced efforts over the past

3 years, the average ROI has been even higher. As reported in the

HCFAC program’s annual report for fiscal year 2010, the average

ROI for 2008 through 2010 was actually $6.80 for every dollar expended, nearly $2 higher than the historical average.

We are poised to continue these successes in the months and

years ahead, and we look forward to working with our Federal,

State, and local partners to that end.

Mr. Chairman, thank you for this opportunity to provide this

overview of the Department’s health care fraud enforcement efforts.

[The prepared statement of Ms. Lynch follows:]

44

45

46

47

48

49

50

51

52

53

54

55

56

57

58

Mr. GOWDY. Thank you, ma’am.

I would at this point recognize the distinguished gentleman from

Illinois, Mr. Davis, for 5 minutes of questions.

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

And I want to thank each of the witnesses for their testimony.

Dr. Budetti, it seems to me that since the organization of CMS,

that one of its primary focuses has been on cost containment, that

there has been much conversation over an extended period of time

about reducing the cost of health care and containing the cost. It

has been difficult to do. What would you consider to be the primary

elements of fraud in the Medicare, Medicaid programs?

Dr. BUDETTI. Thank you, Mr. Davis.

I think, as Mr. Roy alluded to, we have seen the evolution of a

new generation of fraudsters in these programs. We have had problems with major health care entities, companies and delivery systems and so forth for many years, of course, but more recently

what we have seen is the criminal element coming into the programs and taking advantage of the fact that Medicare and Medicaid really were open for providers and suppliers to join in order to

take care of our beneficiaries as necessary. So we have seen a shift.

And I think that is a very troubling but important thing for us

to recognize that now we are not just dealing with the kinds of

problems that we faced in the past where somebody is going to be

in business a few years down the road and we have a few years

to track after them and audit them and try to recover or prosecute

them, but where there are criminals who are going to disappear

very quickly. So we need to be able to deal with both kinds of fraud

these days and be nimble and stay ahead of the ones who just don’t

belong in the programs at all.

Mr. DAVIS. Are there loopholes in our system that not only attract but kind of give individuals the idea that there are ways to

defraud the system?

Dr. BUDETTI. Well, I think one of the loopholes was not a loophole, but it was a deliberate part of the program which, as I mentioned, was a relative ease of getting providers and suppliers into

the program so that they could take care of beneficiaries.

I think in terms of the way that programs are organized and

structured and funded, however they are structured, somebody is

going to look for vulnerabilities, and it has to be our job to stay

ahead of them and to figure out where the vulnerabilities are. No

matter how we organize and pay for health care, there are going

to be people, unfortunately, who will try to steal from us, and they

will look at however the money is flowing and try to figure out a

way to go after that money. So I think we need to be aware of all

of these incentives, the financial incentives, the organizational

structures, every aspect of the program, but I think it is not unique

to any aspect of it.

Mr. DAVIS. Attorney Lynch, let me ask you. There used to be a

time, and I guess there still is, when there were what was called

Medicaid mills, where practitioners just kind of had running

streams of individuals coming through their clinics, and they were

just seriously ripping off the public. Are we still finding those?

Ms. LYNCH. I think we are seeing attempts to recreate them. I

think the benefits of the Department’s recent efforts have been

59

partnering with CMS and HHS, we have been able to use techniques that get us quicker data so that we can and we hope to

intercept these Medicaid and Medicare mills as they are operating

and move in to shut them down quickly.

The problem of course is, as Dr. Budetti has intimated, is these

organizations will spring up, close, and then reemerge under a different name. So with the increased tracking that we have been able

to utilize with our partners, we think we are doing much better at

finding these clinics and finding these doctors. But it is still a continual problem.

Mr. DAVIS. Quickly, Mr. Roy. Could you think of some recommendations, based upon your experiences, that might be helpful

to implement as to further reduce the opportunities for fraud and

abuse?

Mr. ROY. Yes, sir. Thank you for the question.

In my experience, and as I spoke to in my testimony, for me personally it all comes down to provider enrollment. It really comes

down to ensuring that those people that come into our program are

there to serve our Medicare beneficiaries.

It seemed to be a theme throughout my tenure at OIG that those

who wish to perpetrate fraud recognize the low barrier to entry,

and they exploit that to the maximum. So I would recommend a

concentration on a provider enrollment to that aspect of the program.

Mr. DAVIS. Thank you very much.

Thank you, Mr. Chairman.

Mr. GOWDY. Thank you, Mr. Davis.

The chair would now recognize the gentleman from Arizona, Dr.

Gosar.

Mr. GOSAR. Mr. Roy, could you agree with this description of

fraud: Misusing a process to gain a financial advantage?

Mr. ROY. Yes, sir.

Mr. GOSAR. How about you, Ms. Lynch?

Ms. LYNCH. I think it is part of the description of fraud. Obviously, when it comes to criminal fraud, we would have to have intent requirements. But, yes, that is part of the description of fraud.

Mr. GOSAR. What if it was the government? Would that still

qualify? In a process. Let me go a little deeper. How about that?

How do we audit our federally qualified health centers? I am going

to give you some personal experiences just so you know.

I am a dentist. I have been practicing 25 years until last year.

Why on the WIC program would it take a single mom, most of the

time, five or six visits to see the doctor, repeated entry, not on the

same day? Why would we take a child with a full mouthful of decay

and only allow one tooth be taken care of one at a time? Can you

describe why would we do that? How about you, Doctor? You are

talking about processes. What kind of process would mandate this

kind of care?

Dr. BUDETTI. I am not familiar with those policies, Dr. Gosar.

But——

Mr. GOSAR. Do you know what an encounter is?

Dr. BUDETTI. Yes, sir.

Mr. GOSAR. Why would that be misused?

60

Dr. BUDETTI. I can understand your concern if that is what you

were observing.

Mr. GOSAR. I am alluding exactly to that. Why would we—what

is the purpose of an encounter?

Dr. BUDETTI. The purpose of an encounter, sir, of course, is to

deal with the patient and the issues the patient has and try to take

care of them.

Mr. GOSAR. How about we take five different visits for a WIC

woman to be able to fill out a health history? And that took 5

weeks, five different visits for an encounter. Would you not call

that fraud?

Dr. BUDETTI. I am not familiar with the situation that you are

describing, but that certainly doesn’t strike me as the best way to

go about the business of taking care of patients, sir.

Mr. GOSAR. When you look at processes, how do we review the

process when we look at FQACs? You said that you are constantly

are updating and looking at processes. How do we look at that

process?

Dr. BUDETTI. In our area, sir, the work that we are doing focuses

principally on both Medicare payments and Medicaid payments.

And so we look at the way that the money flows and look for patterns of problems no matter where the money is going. So we intend to look no matter where the money is going.

I can’t tell you that I am familiar with particular emphasis on

the kinds of issues that you are talking about, but certainly we are

looking at all of the ways that the money is flowing and the possibilities for problems like that.

Mr. GOSAR. What kind of audit do you on a federally qualified

health center, or health center? And when are they done? Are they

announced, or are they unannounced?

Dr. BUDETTI. I would have to get you specific information on

that, sir. It is not something that I am personally familiar with at

this point.

Mr. GOSAR. What if I was to tell you that it is standing procedure that what we do is we have standing patients that come in

to seek services on Medicaid and they are supposed to be seen first

come, first serve. And they sit all day long, and they just get transferred to a hospital. And they are isolated to one segment of the

day? Wouldn’t you call that fraud? It is a process. Right? An inappropriate process. Right?

Dr. BUDETTI. It sounds like a process that would need some attention to me, the way you describe it, sir, yes.

Mr. GOSAR. Mr. Roy, you said that you look and review these

kind of processes. Would this be something that you have looked

into before?

Mr. ROY. Sir, the Office of Investigations does not look into such

processes.

Mr. GOSAR. How would you have to go back into looking at them?

Mr. ROY. I am an investigator. Our office investigates fraud and

brings those cases to a criminal prosecutor either at the Federal or

State level. The audit process would be from another component

within our OIG.

Mr. GOSAR. And where would that come from?

61

Mr. ROY. Our Office of Audit. And I am more than happy to find

out and get additional information for you on that process.

Mr. GOSAR. Ms. Lynch, would we persecute that individual who

was the head of that health center for that kind of misuse of patients?

Ms. LYNCH. Congressman, I hope we don’t persecute anyone.

Mr. GOSAR. I mean, prosecute. I am sorry. It’s been a long day.

Ms. LYNCH. OK.

On the facts as you’ve described, I certainly don’t have enough

information. It certainly sounds like an inefficient process, but I

would have to know more about it.

Mr. GOSAR. If we had an administrator misusing a process,

fraud, that is misusing a process for a financial aspect and an upward gain, it seems to me like we have to do a much better job on

that because we are seeing a lot of this. It is not just the private

sector. It is also the government and the entities that it pays.

I yield back my time.

Mr. GOWDY. I thank the gentleman from Arizona.

The chair would now recognize the gentleman from Maryland,

the ranking member of the full Oversight Committee, Mr.

Cummings.

Mr. CUMMINGS. First, I want to thank the witnesses for your testimony. And as I listened to Mr. Gosar, I could not help but think

about the young boy in Maryland, Diamonte Driver, who died 3 or

4 years ago because he could not get a doctor, Medicaid doctor to

treat him; $80 worth of treatment would have saved his life, and

he eventually died, and his mother was in search of somebody to

treat him.

And I guess as I listened to those questions, I had to change my

own line of questioning because I want to make sure that we focus

where the fraud is.

Ms. Lynch, I am sorry. U.S. Attorney Lynch, I really appreciate

what you said when you talked about in fiscal year 2010, the Department secured approximately $21⁄2 billion in civil health care

fraud recoveries. And I think before that, it had been, what? What

was the highest before that?

Ms. LYNCH. It was roughly around $1 billion per year.

Mr. CUMMINGS. $1 million.

Ms. LYNCH. $1 billion, sir.

Mr. CUMMINGS. And I am trying to figure out what—I assume

you believe—first of all, that is great. Congratulations to the Department, to all the people who work so hard to accomplish that.

I assume you believe that there is more to be done?

Ms. LYNCH. I do.

Mr. CUMMINGS. And what kind of tools do you need to accomplish

that? Because we on—first of all, on both sides of the aisle, we

want to see this fraud, waste, and abuse addressed, and we want

to see it addressed on every level. And as you answer me, I just

want to just mention that the Coalition Against Insurance Fraud

estimates that 80 percent of health care fraud is committed by providers and 10 percent by consumers. The remaining 10 percent is

thought to be committed by others, such as insurance companies or

their employees.

62

And so I am just wondering, what do you see—what can we do

to address this issue in an even more effective and pattern—manner?

Ms. LYNCH. Thank you for the question, Mr. Cummings.

I think that the President’s budget outlines several provisions

that would increase the resources being brought to bear on this

problem that would allow us to expand the strike force system, for

one, which would be an important tool in targeting the transitory

nature of this fraud, the emerging nature of this fraud, and the

ever evolving nature of this fraud.

Another important initiative currently pending on the Affordable

Health Care Act actually did mandate that the Sentencing Commission put forth a schedule for higher sentences for those individuals convicted of health care fraud based upon the amount of false

billings, not just what they actually received. Sometimes that is

less than the amount actually billed. But the Sentencing Commission was directed to in fact revise the guidelines to cover the

amount billed as well as to raise the guidelines for the type of

fraud that we are seeing. We think these are important resources

and tools that the Department would use in fighting this battle.

Mr. CUMMINGS. Now, I assume that when you spend a certain

amount of money to go after folks, there is a yield. In other words,

there is a benefit that comes back in the form of prevention; hopefully, the message gets out, but also in the form of dollars. And I

was just wondering, if the budget is cut substantially—say, for example, the strike force that you talked about. We actually are kind

of—I mean, if that is the situation where you can actually show,

I guess, where X dollars spent yields X dollars, we are kind of—

I mean, if we in the Congress slash your budget, I guess we are

kind of working against ourselves. Is that right?

Ms. LYNCH. Well, I think we are certainly working against the

public fisc. I think it has been documented, as I mentioned, over

the last 3 years, the HCFAC fund is returning almost $7 back for

every dollar spent. A lot of that money has been allocated since

2008, I believe. And so if we were to reduce or eliminate certain

funding streams, we would severely curtail our efforts to go after

this fraud.

Of course, we would keep the focus up. We would still work these

cases. But we would have fewer resources to do them, fewer people

with which to do these cases, and obviously, I think the return to

the American taxpayer would be significantly diminished.

Mr. CUMMINGS. I think it was you, Mr. Roy, who said that these

folks who are involved in this criminal activity a lot of times see

getting caught—reminds me of drug dealers, these big drug cartels.

They see getting caught as a part of the tax they pay. And so they

don’t—they are committed to accomplishing this because they see

the benefits are so great.

Mr. ROY. Absolutely, sir. Thank you for the question.

The Eurasian organized crime element in Los Angeles when I

was a special agent in charge out there and an assistant special

agent in charge, this criminal element had no fear of law enforcement whatsoever. And indeed, when they were caught and sentenced to jail, they considered it a badge of honor. And in fact what

63

they would do is they would have Mickey Mouse tattooed on their

arms behind bars to signify that they had done time in a U.S. jail.

Mr. CUMMINGS. Thank you very much.

Mr. GOWDY. Thank you, Mr. Cummings.

At this point, the chair would recognize the gentleman from

North Carolina, Mr. McHenry.

Mr. MCHENRY. I thank the chairman.

And thank you for your testimony.

Mr. Roy, now, the incidents of fraud in different types of Medicare programs are—fall in different rates. Is that correct?

Mr. ROY. I would say so. Yes, sir.

Mr. MCHENRY. For instance part D, Medicare part D, is there a

higher level of incidents of fraud in that program compared to the

rest of Medicare?

Mr. ROY. Right now, we see the emphasis in terms of fraud on

durable medical equipment. Certainly part D is up there. Home

health seems to be an area of Medicare where perpetrators like to

prey. And I also would go back to corporate fraud element in terms

of the tremendous amount of dollars in the corporate culture that

goes along with that. I would say those are some of the top areas

of fraud. But I think certainly part D falls within that realm.

Mr. MCHENRY. OK. Meaning you compare it to A and B, for instance, what part of Medicare actually has the highest incidence,

according to your study and research?

Mr. ROY. Durable medical equipment right now.

Mr. MCHENRY. And where do those payments come from? Which

component of Medicare?

Mr. ROY. They come from part B.

Mr. MCHENRY. Part B.

Mr. ROY. Yes, sir.

Mr. MCHENRY. So comparing part B to part D, which has the

higher incidents of fraud?

Mr. ROY. Clearly part B overall.

Mr. MCHENRY. Now, is there something different about the construct of those two programs? Or is it, for instance, what they are

paying for? Is there something different about those two that would

leave a greater component of taxpayers paying more for the program?

Mr. ROY. I would say that one of the issues on why part B would

be higher than part D is simply because part D is a newer program. We are looking at the prescription drug benefit, which is

part D, is considerably newer than part B, and the schemes haven’t

developed yet as they have in our part B programs.

Mr. MCHENRY. Interesting. OK.

Ms. Taylor, is that similar to what your findings—or, your experience, I should say?

Ms. TAYLOR. I think in the part D program, we do find some

issues there. But for the most part, the errors that we identify are

mostly in the DME, the durable medical equipment arena, which

is the part B program.

Mr. MCHENRY. Mr. Roy, is there something intrinsic about the

relationship between Medicare and providers and patients, is there

something intrinsic in the construct of the program that leads to

greater incidents of fraud?

64

Mr. ROY. That is an interesting question. Not that I could put

my finger on.

Mr. MCHENRY. For instance, if you are writing—if Medicare is

required to stroke a check on a base amount of proof that a device

has been delivered or a service has been rendered, you know, is

there a way to change how that is structured?

Mr. ROY. Go back to what I said earlier about, again, keeping a

better eye on who we let into our programs. We need to screen and

scrutinize our providers better. That is my opinion.

Mr. MCHENRY. OK. So private sector providers of health care.

Like compare CMS to one of the Blues or one of the other health

care providers, do they have a similar level of incidents of fraud?

Mr. ROY. I am not familiar with what is happening in the private

sector. OIG for HHS, we concentrate on Medicare. And clearly

sometimes we will be partnering with those entities, law enforcement entities that have oversight and work in the private sector

health care fraud arena as well. But there is nothing—I am not the

person to say that those involved in Medicare fraud are exponentially more than what we see in the private sector.

Mr. MCHENRY. OK. Well, thank you, Mr. Chairman. I would be

happy to yield my time to the chairman if you would like it.

Mr. GOWDY. I thank the gentleman from North Carolina. And I

will keep that in mind.

I am going to go last. If there is anybody here when I go, I will

keep that in mind.

I would yield to at this point to the gentleman from Connecticut,

Mr. Murphy.

Mr. MURPHY. Thank you, Mr. Chairman.

Ms. Taylor, I just want to get a couple facts on the table so we

have a clear understanding of the Medicaid program. Medicaid covers about 60 million at-risk Americans. Is that right?

Ms. TAYLOR. I believe it is around 40 to 50, but it is in that ballpark.

Mr. MURPHY. And covers about half of all of the long-term care

expenses, half of all the nursing expenses in the country?

Ms. TAYLOR. Correct. Yes.

Mr. MURPHY. About a third of the money goes into community

services, and about half of all Medicaid recipients are kids. Right?

Ms. TAYLOR. I am not a Medicaid expert, but—I am not sure

about that number, but I assume it is probably a large chunk of

children. Yes.

Mr. MURPHY. I ask these questions because what I see is a disconnect here today. This is an incredibly important hearing.

But there is I think a gap between a very worthy discussion that

we are having here today and what happened earlier today, where

my Republican friends outlined a proposal to essentially end the

Medicaid program as we know it and dramatically cut Medicaid

funds for kids, for seniors in nursing homes, for States, and essentially results in millions of vulnerable seniors and children losing

access to our health care system. I think this is a really important

conversation. But it happens on the same day that we are talking

about essentially ending preventative health care services and crisis health care services for a lot of vulnerable Americans.

65

And to Ranking Member Cummings’ question, there also seems

to be a disconnect between the budget debate that we are having

today, in which we are talking about potentially dramatically cutting the budgets for many of your agencies while asking you to do

more with respect to fraud and abuse. And in addition to the bottom line numbers that are being cut out of your budgets, there are

also riders to the continuing resolution, including the repeal of the

Health Care Reform Act. And as we talked about, there are some

incredibly important provisions in that act which bolster your efforts.

And so it is a frustrating hearing today, because we are talking

about radical changes to Medicare and Medicaid being proposed

today that will withdraw services from millions of vulnerable

Americans. And we are talking about cutting your budgets at the

same time that we are holding multiple hearings in the Capitol

about asking you to do more.

And I guess I take—Representative Cummings hit on a couple

issues here, but I guess I would pick one piece out of the Health

Care Reform Act that would go away with the continuing resolution as passed originally through the House of Representatives and

pose the question maybe to Mr. Roy and to Attorney Lynch. That

is, the element of the Health Care Reform Act that focuses on data

sharing, a really important piece of understanding fraud and trying

to make sure that all agencies, whether they be at the Federal or

State level, have the information that they need to try to track

fraud and to address it when necessary.

So I guess I would ask both Mr. Roy and to Attorney Lynch, how

important are the provisions of the Affordable Care Act with respect to increasing data sharing? And do you have worries, should

that act be repealed, whether you have the resources necessary to

try to track information as it moves through the system?

Ms. LYNCH. Thank you, Mr. Murphy.

I would say that, yes, repeal of those particular provisions would

in effect harm our efforts to eradicate fraud. In particular, data

sharing is important because as CMS and HHS are working on

their processes, they are able to provide to us, the prosecutors, almost real-time data on claims that are being made. And if we can

identify those fraudulent claims as they are going into the system,

we have a much greater chance of stopping them before they get

to the large numbers that we are seeing currently.

We also have a much greater chance of identifying the players.

As I mentioned before, they do tend to shut down and move on.

This would allow us to identify those players, those fraudsters

much earlier.

So, for us, for the Department, the Department’s perspective, the

data sharing provisions of the Affordable Care Act have been extremely important.

Mr. MURPHY. Mr. Roy.

Mr. ROY. Thank you, sir.

Ultimately, I think that I would probably survive the data angle.

Data—and the way you described the issues is very important to

investigators. I talk about it in my testimony about how we are

catching criminals in the act as opposed to finding out 90 days

66

later that they are stealing money from us, and by that time, they

are already gone on their way to the next scheme.

What concerns me more are the funding aspects, the long-term

funding for HCFAC. OIG, OI is human resources driven, and I

need to ensure that I have the funding to keep bodies on the

ground and engaged in the process.

Other that than that, I think Dr. Budetti and I—I think I would

be OK getting the data out of Mr. Budetti.

Mr. MURPHY. Thank you, Mr. Chairman.

Mr. GOWDY. I thank the gentleman.

The chair would now recognize the gentleman from Indiana, Mr.

Burton.

Mr. BURTON. Thank you, Mr. Chairman.

I just have a couple of questions.

Ms. Lynch, you said for every dollar that is spent on prosecution,

you get $7 back or you recover $7?

Ms. LYNCH. Yes. Roughly, sir. Yes.

Mr. BURTON. The estimated fraud over the last several years has

been $150 billion each year since 2008. I don’t know how that dovetails into the results you say you are getting. If you’re getting $7

back for every $1 invested, then you are saying that you actually

need a lot more money in order to stop the fraud that is so prevalent. Right?

Ms. LYNCH. Well, I think that certainly funding is an important

part of what we need. The other tools that we have mentioned in

terms of—and I would defer to the agencies, in terms of changing

their protocols, are also very important as well. But the resources

that we have enable us to sharpen our focus on these particular activities, and they do bring great benefits back to the taxpayers.

Mr. BURTON. Well, the system that we have right now just if you

are getting $7 back for every $1 that you get for investigations or

prosecutions, this is just overwhelming you. There is just no way

that you are going to be able to really make a big dent in an estimated $150 billion in fraud each year. I mean, if you are doing

such a good job, which I don’t disagree that you are, but if you are

getting $7 back for every $1 that is being invested in you and we

have $150 billion in fraud each year, my gosh, you would need $20

billion in order to keep up the 7–1 ratio if you went and got everybody.

So it just seems like to me it is almost an insurmountable task

that you have before you to stop the waste, fraud, and abuse or

even make a big dent in it because it is so prevalent.

Ms. LYNCH. Well, Congressman, I would prefer not to view any

crime problem as insurmountable but more as a challenge to be

met. And I think we have a number of tools. We have the civil enforcement as well. We have a number of options there. I would

rather—certainly rather not give up on the problem.

Mr. BURTON. No. No. I don’t want you to give up. Don’t misunderstand. I just think that the whole system needs to be revamped, because no matter how hard you work, all of you collectively, to stop fraud, waste, and abuse in the system, it is not going

to work. I mean, when you have an estimated $70 billion to $234

billion in fraud, as hard as you work with the money we give you,

67

you are never going to be able to make a big dent in it. The system

needs to be revised.

We need to do something like—and this has nothing to do with

you. But it seems to me that the government ought to provide a

mechanism for people to buy insurance through private sources

rather than have the bureaucracy try to contain waste, fraud, and

abuse, because you can’t do it. As hard as you work—and I am sure

you all work very hard. If you get $7 back for every $1 in investment that you make, and we still have $150 billion a year in fraud,

the system is not working. And it is not going to get any better unless we take a hard look at the system and revise the whole thing.

And I think that is what we are talking about right now.

And I hope that both sides of the aisle, my colleagues on both

sides of the aisle will take a hard look at that. Because if we still

have $150 billion in fraud that we can’t stop and we haven’t been

stopping, and we have people who are working so diligently like

Ms. Lynch and the others, and they are getting $7 back for every

$1 we give them for investigations, it is a task that is not doable.

And so we have to look at a different way to deal with the problem

of health care and the system needs to be revised.

Obamacare—I know you call it something else, but we call it

Obamacare. Obamacare is only going to exacerbate the situation.

So I think we need to as a Congress go back and take a look at

the whole system and try to make this system more responsive to

the individual. In other words, if they buy insurance from a health

care company and we provide a mechanism for them to do that, we

will be able to keep track of the losses and whether or not there

is fraud, at least to a much greater degree than we are right now.

Mr. CUMMINGS. Would the gentleman yield? Just very quickly.

Mr. BURTON. Sure, I will be glad to yield.

Mr. CUMMINGS. Just very quickly. Just on this side, we were trying to figure out where you—just give us the cite for your $150 billion, since you——

Mr. BURTON. Sure. The New England Health Care Institute estimates that the United States wasted $150 billion each year since

2008. But the losses or the waste and fraud and abuse has ranged

from $70 billion to $234 billion. Even if you take the lower figure,

these people who are doing a good job—and I am not criticizing

them. I am just saying there is not enough money that we can give

them to enforce the laws that will overcome at least $70 billion.

And the estimate is it is $150 billion a year. And I thank the gentleman. I yield back.

Mr. GOWDY. I thank the gentleman from Indiana. I will recognize

myself now for 5 minutes.

Ms. Taylor, do agree with the President when he said there is

$900 billion of waste, fraud and abuse in Medicare and Medicaid?

Ms. TAYLOR. I think that is probably a better question for Dr.

Budetti.

Mr. GOWDY. I mean yes or no?

Ms. TAYLOR. I——

Mr. GOWDY. Is it a $900-billion-a-year problem?

Ms. TAYLOR. I am really not familiar with that quote or that

number. I am not familiar at all.

68

Mr. GOWDY. All right. Let me ask you, there was a chart put up

initially that had, we want to go from pay and chase to verify. And

it strikes me the frustration that I have heard listening to the testimony or frustration that I have felt listening to it is that it is—

the strategy seems to be pay and then pay again to investigate and

then pay again to prosecute and then pay again to pretrial services

to do a PSI and then pay the probation and pay to the marshals

and pay to the Bureau of Prisons. What I want to know is, when

are we going to invest the same amount of money in stopping the

fraud before it happens? We cannot investigate and prosecute our

way out of this problem.

So Mr. Roy, let me ask you this, last night I was reading and

I could be wrong, let’s say I am, I counted 55 different recommendations that have been made with respect to reforming

Medicare and Medicaid that have not been implemented, 55. Let’s

say I am off by 25, let’s go down to 25, or let’s just take your issue,

durable medical equipment. Can you give us specific things that

should be done to start ferreting out fraud, waste, abuse, whichever

of the three you want to call it, with respect to durable medical

equipment?

Mr. ROY. I would go back to my earlier testimony, sir, and concentrate on provider enrollment. Scrutinizing——

Mr. GOWDY. Right, criminal background checks.

Mr. ROY. Absolutely.

Mr. GOWDY. What else? Make sure they are familiar with the

policies and procedures so they can’t claim they didn’t know.

Mr. ROY. Make sure they have office and office hours. Make sure

that they have products to actually provide to durable medical

equipment beneficiaries.

Mr. GOWDY. OK.

Mr. ROY. Again, I also would throw in there that you have to

look at the environment in which they are working. In Los Angeles,

for example, we once had 25 durable medical equipment companies

in a 5-mile radius serving a very, very small——

Mr. GOWDY. All of which can be done with a site visit, right? A

criminal background check, an interview and a site visit? It is not

high mass, so I would ask you Dr. Budetti or Ms. Taylor, why

hasn’t that been done?

Dr. BUDETTI. Well, thank for the question Chairman Gowdy,

Chairman Gowdy, I must say I agree with you that this is exactly

what needs to be done, and that is exactly what we are doing. As

of Friday of March 25th, our major regulation took effect that put

into place risk-based screening for applications to be new providers

and suppliers.

Mr. GOWDY. I don’t want to interrupt you——

Dr. BUDETTI. Putting those kind of screens into place, sir.

Mr. GOWDY. But can you appreciate the frustration——

Dr. BUDETTI. Absolutely.

Mr. GOWDY [continuing]. Of this problem not having arisen in

March of this year, it has been a problem for a number of years.

And I think folks question what takes us so long to deal with—that

is not high math what he just suggested. We could come up with

that over lunch. So what has taken so long?

69

Dr. BUDETTI. I can’t speak to what happened before I took this

job a year ago. But I can tell you that those are some of the same

reasons I took the job. And those are exactly the things that we are

working on everyday.

Mr. GOWDY. Mr. Roy, what about home health, give me three

things that you would do if you were emperor for the day with respect to home health?

Mr. ROY. I would go back to, once again, looking at those, who

is coming into our program? Who is providing those services? And

then, again, I would look at the environment to see how many providers are in a certain area. Does it really make sense to have an

exponential amount of providers to serve a community that probably doesn’t exist? Those are the types of issues I would focus on

if I was looking at it from an administrative position.

Mr. GOWDY. Dr. Budetti, do you agree with me that Ms. Lynch

and her colleagues cannot ever prosecute and enforce our way out

of this problem?

Dr. BUDETTI. Yes, I think we all agree that we need a teamwork

approach here, that we need to keep the bad guys out in the first

place, not pay them when they are submitting fraudulent claims,

and also go after the ones who do get into the program and who

do need to be prosecuted. We can’t do away with that side of the

equation by any stretch of the imagination.

Mr. GOWDY. I am not advocating—that would be one of the last

things I would advocate would be doing away with prosecutors. But

how are you going to change the pay-and-chase model to a verify

and then pay?

Dr. BUDETTI. Through our new screening, through our new authorities to declare a moratorium on new enrollments of providers

and suppliers when necessary to fight fraud, through our new ability to exclude—to keep people out of the Medicaid program. When

they have been terminated for cause in one State, they will be terminated everywhere, same for Medicare.

We have a number of new authorities put into effect that will

have exactly that effect. It is keeping the bad guys out and suspending payments when there is a credible allegation of fraud

pending an investigation by our colleagues at the Office of the Inspector General. All of those are in place, sir.

Mr. GOWDY. My time is up, so I am going to ask one very quick

question. Have those changes already been implemented, or are

they yet to come?

Dr. BUDETTI. Many of them have—the regulation I referred to

took effect, and we are actively implementing it as I speak.

Mr. GOWDY. And when would you expect the country to have confidence that they are fully implemented?

Dr. BUDETTI. I would expect that all of the advanced technologies

and other sophisticated techniques that we are applying will be in

place later this year and will be well into our payment systems

fully integrated by next year. But we are implementing them bit

by bit as we go forward, as we learn what we can do in the meantime. But this is something we are working on very diligently everyday now, sir.

Mr. GOWDY. All right, thank you.

Dr. BUDETTI. You are welcome, thank you.

70

I want to thank our panel, and we are going to take a 5-minute

recess. I am going to come down there and thank you all personally

for coming, and then we will set up for the next panel.

[Recess.]

Mr. GOWDY. Good afternoon, we now want to welcome our second

panel of witnesses: First, David, Mr. David Botsko is the inspector

general of the Arizona Health Care Cost Containment System.

Ms. Gene MacQuarrie, is that close.

Ms. MACQUARRIE. It is.

Mr. GOWDY. Is vice president for client services at Thompson

Reuters; and Michael Cannon is director of health policy studies at

the Cato Institute.

Pursuant to committee rules, all witnesses will be sworn in, so

I am going to ask you to please rise and raise your right hands.

Ms. Klein, I can see your last name, but I don’t have my information so when I get it, I will do due diligence in your introduction,

too, OK.

Ms. KLEIN. Sure.

Mr. GOWDY. But we can still take the oath.

[Witnesses sworn.]

Mr. GOWDY. Let the record reflect all witnesses answered in the

affirmative.

I am going to start with Mr. Botsko, and we will move from my

left to right, and you will have 5 minutes. I think if you were here

for the first panel, you know there are lights and what the lights

mean. Ms. Klein, by the time we get to you, I will have a full introduction worthy of your distinguished background, OK?

We will start with Mr. Botsko.

STATEMENTS OF DAVID A. BOTSKO, INSPECTOR GENERAL, ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM; JEAN

MACQUARRIE, VICE PRESIDENT FOR CLIENT SERVICES,

THOMSON REUTERS; MICHAEL F. CANNON, DIRECTOR OF

HEALTH POLICY STUDIES, CATO INSTITUTE; AND RACHEL

KLEIN, DEPUTY DIRECTOR FOR HEALTH POLICY, FAMILIES

USA

STATEMENT OF DAVID A. BOTSKO

Mr. BOTSKO. Good afternoon, Chairman Gowdy, Ranking Member Davis, and the other distinguished members of the subcommittee. Thank you for the invitation to speak before this committee,

I am David Botsko, the inspector general of the Arizona Health

Care Cost Containment System, the state Medicaid agency.

I have spent my entire career enforcing laws and protecting citizens. Prior to my 11 years with Medicaid, I was a Special Agent

with the U.S. Government for 22 years conducting criminal investigations. The program I work for, AHCCCS, was established in October 1982 as a managed care agency and is a leader in controlling

medical costs within the Medicaid program. The $10 billion

AHCCCS budget serves 1.3 million beneficiaries. The AHCCCS

OIG was created in November 2009, replacing the program integrity office.

As of February 2011, the OIG has recognized the total savings

and cost avoidance of approximately $31 million during the past 8

71

months alone. We also have achieved 9 criminal convictions, with

11 additional individuals pending prosecution as I speak.

Even though overall staffing for the AHCCCS program is down

due to budget challenges, we have actually increased OIG staffing.

My testimony will focus on three elements that impact the success or failure of Medicaid investigations, and I have some recommended solutions. The OIG utilizes a dedicated team of investigators to screen Medicaid applications that meets suspected fraud

criteria. The applications are referred to the Fraud Prevention

Unit, which strives to conduct the initial investigation within 24

hours of receipt.

During the State fiscal year 2010, the unit received almost 8,200

referrals, and we conducted approximately 8,000 investigations.

The investigations resulted in 1,500 ineligible individuals being denied benefits. The estimated cost avoidance for these denials was

in excess of $15 million. During this timeframe, the Fraud Prevention Unit saved an average of $1.9 million per investigator per

year. We are working to expand this program for more offices, but

the State is limited to available matching funds for additional staffing.

The OIG has two units for investigating member and provider

compliance issues in addition to the Fraud Prevention Unit. The

average cost per investigator is $58,000 per year per investigator.

In 2010, these two units opened 450 investigations and closed 300

cases. During the State fiscal year 2010, these two units realized

the total cost avoidance in recovery of $13 million with the return

on investment of 9.1.

We’re utilizing an analytical tool produced by EDI Watch to discover suspicious payment patterns and apply this information to

other providers within the system. These tools generate additional

information and potential cases that also require more State match

for funds for investigations.

We have developed a successful outreach program that has dramatically increased the amount of fraud referrals received by our

office. However, because of our success, we have created more back

logs.

Other issues that impact our resources, such as countless staff

hours working with federally mandated audit contractors, which

have historically had little positive impact while draining resources. Recently imposed Affordable Care Act rules mandate additional screening requirements and accountability for receiving provider application fees, etc. These mandates will have had and will

continue to impact the agency resources as they continue to strain

our overburdened work force.

The ongoing efforts at the Federal and State level to reduce

fraud and waste in health care programs is critically important. We

are confident that we can continue to improve our oversight by focusing responsibilities and resources on those who are best

equipped and most informed, which is the States.

Each State Medicaid program is unique. In Arizona, we rely significantly on managed care, and we work with our managed care

partners, but as the State, we play a critical role in investigating

and pursuing fraud. The State Medicaid Fraud Control Units are

funded with 75 percent Federal matching dollars. Why not fund the

72

State Medicaid OIGs and Program Integrity Units with the same

funding but require that the State document the rate of return on

that investment to the Congress? Change the Federal code to allow

the State OIGs or program integrity units to conduct full investigations and avoid duplication of effort and save valuable time and

money.

To summarize, the State Medicaid programs are best positioned

to target limited resources. We also use a program called CLEAR

in investigating our members. My recommendation is to increase

matching dollars that should not require additional Federal expenditures if duplicate Federal initiatives were streamlined and focused on State efforts. Medicaid is a Federal-State partnership, the

States are doing everything in their power to ensure the Medicaid

program that we are responsible for operates efficiently. Thank

you, and I’ll be happy to answer any questions.

[The prepared statement of Mr. Botsko follows:]

73

74

75

76

77

78

79

80

81

Mr. GOWDY. Thank you, sir.

We will now recognize Ms. MacQuarrie for her 5-minute statement.

STATEMENT OF JEAN MACQUARRIE

Ms. MACQUARRIE. Chairman Gowdy, Ranking Member Davis,

members of the subcommittee, my name is Jean MacQuarrie, and

I am vice president for health care payment integrity for Thompson

Reuters. Thompson Reuters has been engaged with our public and

private sector customers to ensure payment integrity for decades.

The U.S. health care system is complex with providers treating

differently for the same condition. Data mining alone is not sufficient to validate the reasonableness of services being billed. Clinical intelligence must be embedded in analytic software to allow for

identification of inappropriate bills.

Additionally, most fraud investigators are not physicians or professional coders. Therefore, it takes software to accommodate the

complexities of health care for the fraud investigator.

The foundation of clinically based fraud, waste and abuse detection systems are essential. Within the Thompson Reuters Advantage Suite products, we include episodes of care which aggregate

inpatient, outpatient and drug claims and into disease categories

with severity stages. Episode grouping enables validating submitted claims against patient’s medical conditions, identifying services

that might be fraudulent or abusive. Clinical intelligence is also

added to the data. These clinically intense data additions save our

customers hundreds and thousands of investigative hours each

month by allowing rapid and clinically accurate data mining.

Congress has recognized the critical importance of predictive

modeling in the fight against fraud and waste and now needs to

recognize the critical importance of clinically intensive models to

further advance the analytics essential to fraud, waste and abuse.

As an example, it is a well-known fact that some types of fraud are

pervasive, and they occur because it is hard to catch them in

claims data. Your screen will have some screen shots from this system.

Having a clinically based detection system is essential to identify

the issues. For example, diabetic test strips are not needed by patients without diabetes. We use our episode technology to identify

patients who get test strips and then make sure that they have diabetes. The subset selection process allows me to run these reports

in English without having to understand the complex coding behind disease conditions.

The report shows individual pharmacies and the number of diabetic test strips that they distribute to patients who do not have

diabetes with some of these pharmacies in the 95 to 99 percent

range. This could be an indication that beneficiaries are purchasing

these items, which are frequently sold at flea markets, or that

pharmacies billing for products that aren’t delivered.

In Medicaid, the Payment Integrity Units run complex statistical

analyses for specific provider types, like mental health, dentistry

and therapy. These complex reports rank providers by their degree

of deviation from their peer groups based on numerous statistical

measures calculated over time. The comparisons to the peer group

82

are automatically adjusted for the severity of illness of the patients

so that rankings of the providers are fair for those providers who

treat really sick patients. Good providers greatly appreciate clinical

intelligence.

It would take an investigator hundreds of hours to perform dynamic risk-adjusted profiling, capabilities all embedded in the

Thompson Reuters Advantage Suite product. With our clinically

based solution, these complex measures can be adjusted by our clients which just a few mouse clicks. To investigate the providers

who ranked at the top of the report, we also go to CLEAR, the

Thompson Reuters public records data access solution. It is important to use public records and other disparate data when we look

for fraud and abuse.

Investigators should not use claims data alone. Public records

data sets includes Federal and State sanctions from all States as

an example. Those data banks can be queried automatically and as

available as a standalone, searchable platform. This screen shows

how easy it is to request a review of one of the ranked providers.

And when we drill down, we can see this provider has four sanctions and leads us to a link analysis chart showing to providers related to 19 total providers on boards of directors of each other’s

companies who practice out of the strip mall you see in front of

you, which does not seem to support the millions of dollars billed

to Medicare by these providers.

Our Thompson Reuters clients who use this analytic software include 22 State Medicaid agencies who identify hundreds of millions

of dollars in fraud, waste and abuse annually. In addition, CMS

has Advantage Suite implemented and is rolling it out now.

In closing, as documented in the white papers, you will find on

the table to my right, the problem of fraud, waste and abuse in

health care as clearly noted today is huge. We have done a lot to

help our clients combat the problem.

CMS has taken many steps to implement predictive modeling

and now clinically based detection systems. With that said, there

is still much to do. Thompson Reuters won’t let up; we will continue to work hard and fast to deploy the best technology and subject matter experts to stay ahead of those who would defraud the

government. Thank you very much.

[The prepared statement of Ms. MacQuarrie follows:]

83

84

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99

100

101

102

103

104

105

106

107

108

109

110

111

112

113

114

115

Mr. GOWDY. Yes, ma’am, thank you.

Mr. Cannon.

STATEMENT OF MICHAEL F. CANNON

Mr. CANNON. Thank you, Mr. Chairman and Ranking Member

Davis, for this opportunity to address the committee on this very

important issue.

My name is Michael Cannon. I am the director of health policy

studies at the Cato Institute. The Cato Institute is a libertarian

think tank founded in 1977 to promote the ideas of individual liberty, limited government, free markets and peace.

The best evidence that we have suggests that $1 out of every $3

that Medicare spends is pure waste; that is, it provides zero benefit

to Medicare enrollees, either in terms of improved health or greater

patient satisfaction.

Fraud and improper payments exceed—likely exceed 9 percent of

Medicare spending and have been estimated to be as high as 40

percent in the New York State Medicaid program. Medicaid abuse

is so great, entire cottage industries of consultants and lawyers

have emerged to help individuals and States abuse the program.

It is difficult to convey the magnitude of waste, fraud and abuse

in Medicare and Medicaid. We often hear about how private insurance companies earn excessive profits, while insurance company

profits on an annual basis come to about $12 or $13 billion a year.

Improper payments in Medicare, including fraud, have been

clocked at $48 billion per year. So for every $1 the private insurance companies earn in profits, Medicare loses $4 to fraud and

other improper payments. When we include Medicaid, the Federal

Government loses nearly $6 to fraud and improper payments for

every $1 that insurance companies earn in profits.

We often hear about how there is too much money in political

campaigns. Well, if you look at all Federal campaigns, if you look

at spending by all candidates, all parties, all independent groups

seeking to influence Federal elections in both 2007 and 2008, the

sum total of all that spending comes to just over $5 billion. Medicare loses roughly 25 times that amount each year to wasteful

health care spending, that is health care spending that does nothing to improve the health or improve patient satisfaction for Medicare enrollees.

Medicare fraud is not confined to the behavior of criminals and

a few health care providers. Elected and unelectedofficials in both

the legislative and executive branches of the Federal Government

routinely defraud the American public by pretending that the socalled Medicare trust funds contain actual assets that may be used

to pay Medicare benefits. As the Clinton administration explained

in its 2000 budget submission, the balances in the Medicare and

Social Security trust funds, ‘‘Do not consist of real economic assets

that can be drawn down in the future to fund benefits. The existence of large trust fund balances therefore does not by itself have

any impact on the government’s ability to pay benefits.’’

I should note that was an aberration that appeared in one of the

Clinton administration’s budgets. And I don’t know that any statement that frank has appeared in any budget submission since.

116

Congress and the White House under the control of the both parties have also defrauded the American people by using budgetary

gimmicks to hide the full cost of Medicare. These fraudulent gimmicks include the legislative reductions in Medicare payments to

physicians under the Balanced Budget Act of 1997, passed under

Republican control of Congress, and to part A providers under the

Patient Protection and Affordable Care Act of 2010, passed under

a Democratically controlled Congress.

Such spending reductions are so politically implausible that Congress routinely rescinds them, yet their inclusion in statute makes

Medicare appear less costly than it actually will prove to be in a

10-year budget window and beyond. This type of fraud has become

so routine that the Congressional Budget Office attempts to correct

for it by projecting future Medicare outlays based on current policy,

assuming that Congress rescinds the spending reductions as opposed to current law, which assumes the reductions will take affect.

I think this hearing is particularly timely given the budget blueprint that House Budget Committee Chairman Paul Ryan has introduced today. The Medicare and Medicaid reforms in that proposal could dramatically reduce waste, fraud and abuse in those

programs, and I think that expanding those proposals would do

even more to combat fraud, waste and abuse. Thank you.

[The prepared statement of Mr. Cannon follows:]

117

118

119

120

121

122

123

124

125

126

127

128

129

130

131

132

133

134

135

136

Mr. GOWDY. Thank you.

Ms. Rachel Klein is the deputy director for health policy at Families USA.

Welcome, Ms. Klein.

STATEMENT OF RACHEL KLEIN

Ms. KLEIN. Thank you very much, Mr. Chairman, members of

the subcommittee. Thank you for inviting me here today to speak

to you about the important role that Medicaid plays in our Nation’s

health care system. As you mentioned, I am deputy director of

health policy at Families USA, the national organization for health

care consumers.

The Medicaid program has become the backbone of our health

care for seniors, people with disabilities and children. In 2010, the

program covered 68 million people nationwide. Starting in 2014,

Medicaid will become the platform for an important expansion of

health coverage for low-income working adults filling an unfortunate hole in our safety net.

Medicaid was designed as a partnership between the Federal

Government and States, and States have a lot of flexibility in that

partnership. The Federal Government provides, on average, 57 percent of the cost of the program and establishes the minimum requirements regarding who is eligible and what it covered. The

States administer the program and make choices about whether to

expand beyond the minimum requirements from eligibility and coverage, how to structure the delivery of health care and pay providers.

States have taken advantage of their flexibility to design very

different programs. Eligibility levels vary widely across States, who

is covered varies widely, what services are covered, as well delivery

systems all vary widely.

Today Representative Paul Ryan, chairman of the House Budget

Committee released a budget proposal that suggests radical

changes to the Medicaid program that will severely restrict State

flexibility. The proposal would reduce Federal Medicaid funding by

35 percent, more than one-third, over the next 10 years. It would

eliminate the Medicaid expansion authorized by the Affordable

Care Act enacted last year, and it would end the Federal commitment to sharing Medicaid health care costs with States by capping

Federal Medicaid funding.

States are already struggling with Medicaid costs in a difficult

economic climate. The Federal Medicaid cuts proposed by Chairman Ryan today will not help States with the difficult budget

choices before them; rather, they will compound the difficulties facing States by shifting more costs to them. States would be forced

to cut eligibility, benefits and provider payment rates or raise taxes

significantly, thus shifting costs to working families. This proposal

does nothing to contain or reduce health care costs, it just shifts

the burden.

The proposal will make it very difficult for States to meet the

needs for residents when demand for Medicaid increases sharply,

such as during a recession, a hurricane or an epidemic. States are

already operating very lean Medicaid programs, and there are not

a lot of places for them to cut. In fact, Medicaid costs 27 percent

137

less than private insurance for children and 20 percent less than

private insurance for adults, according to the Center on Budget and

Policy Priorities. These cuts will leave Governors, as a letter from

17 Democratic Governors released yesterday attests, little choice

but to eliminate health coverage for many vulnerable people.

When the Federal Government cuts Medicaid, it is important to

know these cuts will particularly hurt America’s senior citizens and

people with disabilities. Medicaid is the largest payer of nursing

home care, allowing seniors to receive the intensive care they need

it as they grow more frail and aren’t able to live at home. It is also

the largest payer of home and community based services, allowing

seniors to live in their homes or with their families longer before

they need to enter a nursing home. All together, Medicaid pays for

nearly half of all long-term care received in the United States.

These services are critically important, not only for seniors but

for the estimated 52 million family caregivers who are able to continue working or get respite when they need it because of services.

Medicaid also makes Medicare work helping seniors who have low

incomes pay their Medicare premiums and copayments.

Medicaid is also an engine for State economies. Federal funding

provided to States generates jobs and business activity that

wouldn’t otherwise be in those State economies. For example, every

$1 million of additional Federal Medicaid funding in South Carolina supports 24 jobs and $2.2 million in business activity in a

year. In Illinois, a million dollars of Federal funding spend on Medicaid generates 22 jobs and $21⁄2 million in business activity in a

year. Likewise, a reduction in Federal spending on Medicaid would

cost jobs, wages and business activity.

Moreover, Medicaid helps working families when they lose their

jobs in a recession. Despite high unemployment rates, there was no

increase in the number or rate of uninsured children in 2009 during the height of the recession. Between 2008 and 2009, Medicaid

enrollment increased significantly as families were able to rely on

Medicaid when they lost their job-based health insurance.

A proposal such as that offered by Chairman Ryan would seriously undermine this Nation’s and States’ ability to meet the

health care needs of our most vulnerable citizens. Seniors, people

with disabilities, and children will suffer, and State economies will

be strained.

Mr. Chairman, I thank you for this opportunity to speak here

today.

[The prepared statement of Ms. Klein follows:]

138

139

140

141

142

143

144

Mr. GOWDY. Thank you.

At this point, I would call on the distinguished gentleman from

Illinois, Mr. Davis.

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

Medicaid is a vital program that serves the most vulnerable

Americans in this country. I often have said that it was the best

thing that happened to health care since Indians discovered

cornflakes. But the vast majority of these individuals are either

young children, senior citizens or individuals with disabilities who

rely on the services that Medicaid provides.

In February, Mississippi Governor Haley Barbour told a joke

about Medicaid beneficiaries driving fancy cars to get their prescription drugs while attending a National Governors Association

meeting. Governor Barbour told the Washington Post, and I am

quoting, ‘‘we have people pull up at the pharmacy window in a

BMW, and they say they can’t afford their copayment.’’

On March 2nd, the Washington Post fact checker gave Governor

Barbour’s story four Pinocchios, meaning that it was a whale of a

story and it was inaccurate.

Ms. Klein, let me ask you, in your extensive analysis of Medicaid

programs, do you think that the Governor’s assertion is an accurate

depiction of people who are seeking services through Medicaid?

Ms. KLEIN. No, I don’t. There are many, many millions of vulnerable people in the United States who rely on Medicaid because they

cannot afford to get health care anywhere else. Health care is extremely expensive, and when people have very low-paying jobs,

they really rely on Medicaid to make sure that their kids can go

to the doctor when they have an ear infection or that their parents

can afford the home care or nursing care services that they need.

Mr. DAVIS. I am old enough to remember when there was no

Medicaid. And I recall individuals who actually had no access to

care at all. I mean, there was simply nothing that they could do.

I mean, they used home remedies. They did whatever they could

come up with. What do you think would happen to these individuals today if there was no Medicaid? What would they be able to

do?

Ms. KLEIN. Without Medicaid, people will be uninsured. Health

insurance is very expensive, and most of the people who rely on

Medicaid for their primary form of health coverage cannot afford

to purchase health care on a private market, so they would go uninsured.

They would miss out on a lot of health care. As we know, people

who are uninsured do not get as much health care even when it

is needed as people who have Medicaid coverage. And so we would

see a lot of unmet needs going on, and they would delay care until

they ended up in the emergency room.

Mr. DAVIS. So if they are uninsured, unemployed, over taxed

emergency rooms, places where the emergency rooms may come

like an old man’s teeth, few and far apart. They are in serious trouble. I mean, the ultimate has to be that the only individuals who

could benefit from this kind of system would be undertakers and

cemeteries because there would be no way for these individuals to

receive just a modicum of care. And so I—it would be a terrible

way to run a health care system. And I certainly would hope that

145

our look at waste, fraud and abuse is not taking us in that direction, although we know that there are individuals who exploit systems in both the public and private sector.

And Ms. MacQuarrie, I would like to just ask you, how does your

organization work with providers in both of those elements to try

and get rid of waste, fraud and abuse?

Ms. MACQUARRIE. Thank you for your question. In both of those

elements, you mean in Medicare and in Medicaid?

Mr. DAVIS. Yes.

Ms. MACQUARRIE. Yes, we provide information, independent

data, data mining to our customers. As I mentioned, we have 22

State Medicaid agencies who use our data to help identify cases of

fraud, waste and abuse in their programs. We support CMS in its

initiatives as well.

Mr. DAVIS. Thank you very much—please go ahead.

Ms. MACQUARRIE. Yeah, I am sorry.

The important point that I was making earlier is that the software has to be smarter. We just can’t aggregate numbers and

crunch data and say, we are spending too much money on a particular program. We have to look at it from a clinical perspective

so we have positions and clinicians who help validate the clinical

intensity that we build into this data mining software.

Mr. DAVIS. Thank you very much.

Thank you, Mr. Chairman, I am going have to run out, but I am

not abandoning you.

Mr. GOWDY. I do not feel abandoned.

Mr. DAVIS. I have just have to go and protect my redistricting

process. Thank you.

Mr. GOWDY. The chair will recognize the gentleman from Arizona, Dr. Gosar.

Mr. GOSAR. Thank you.

Ms. Klein, why do we have so many emergency visits?

Ms. KLEIN. Um——

Mr. GOSAR. Why are we all stacked up in the emergency room?

Ms. KLEIN. I am sorry?

Mr. GOSAR. Why are we all stacked up in the emergency room?

I mean, you know the facts and figures.

Ms. KLEIN. Well, there are lots of people who use emergency

rooms for a lot of different reasons. Many of them have actual

emergencies.

Mr. GOSAR. Oh, yes. But, I mean, we are seeing an undue thing.

Let’s kind of go to statistics. We can make statistics do anything

we want them to, OK. Wouldn’t you say the No. 1 reason we have

a problem in our emergency room is we are lacking family docs?

Ms. KLEIN. You know, actually, I do not know, because I am not

an expert on how the health care system is divvied up. I know they

are certainly shortages of providers in certain areas of the country.

That is true in—across the health care sector.

Mr. GOSAR. It is pretty much, but the No. 1 reason why we don’t

have family docs is because of unfunded mandates; isn’t that true,

Mr. Botsko?

Mr. BOTSKO. Thank you for the question. Regarding whether that

is the reason, I am not really at liberty to say, that is not my specialty.

146

Mr. GOSAR. Uh-huh. But one of the unfunded mandates is that

we are asking providers to do more and more with less, and they

are not actually seeing patients. And so the only recourse patients

have is to go to the emergency room.

Mr. BOTSKO. And yes, sir. We are certainly are being asked to

do a lot more with a lot less.

Mr. GOSAR. Can you tell me some of the strings that are attached

with the Federal money for Medicaid money?

Mr. BOTSKO. Some of the ones that we are seeing are the unfunded mandates where we are asked to go out and do site visits,

and we have received no additional funding for that. We are also

asked to account for the money that is to be collected for providers

to register under the new act, which I believe this year is about

$505. So we have to collect it, account for it and be able to do our

due diligence in counting for the public’s money.

Mr. GOSAR. I know, I have talked to the Governor from Arizona,

being from Arizona, we have some difficult circumstances. How

would you see that—could you see us working more collaboratively

or more—how do I say, from a State’s vantage point versus what

the Federal Government’s dictating?

Mr. BOTSKO. I believe the States are probably the best resource

that we have right now in combating fraud, waste and mismanagement. As in my testimony, I spent 22 years with the Federal Government as a Federal Agent and a supervisory Special Agent, and

11 years currently with the State Medicaid program. We are the

best equipped to fight the fraud because we are closest it; we know

what is going on in our States. We work collaboratively with our

health care programs. We work with the managed care system.

And I believe that increasing the Federal match, such as right now

the Medicaid prosecutors receive 75 percent and we, the OIG, receive 50 percent—and I believe matching that and making it at

least equal with the prosecutor would be a wise solution to the program.

Mr. GOSAR. So one-size-fits-all doesn’t work?

Mr. BOTSKO. Not really.

Mr. GOSAR. So we are really too big as a Federal program; it

should go back to the States.

Mr. BOTSKO. That is my belief.

Mr. GOSAR. Mr. Cannon, one of the aspects of medicine is defensive medicine. Can you talk to me a little about tort reform and

how we can look at tort reform as the overall cost and why we

haven’t had any tort reform, particularly last year and years before?

Mr. CANNON. There is a lot of belief that defensive medicine is

driving wasteful health care spending. There is some evidence to

suggest that it is, but I think it is important to recognize that there

are two types of defensive medicine. One is efficient defensive medicine so that if the—let’s take the example of back pain: Should everyone with back pain receive an MRI as a matter of course? Well,

if it turns out that not giving those patients an MRI results in injuries to them, they suffer losses because we didn’t detect serious spinal injuries, that would exceed the cost of providing those MRIs,

then yes, we should provide those MRIs. That is efficient defensive

medicine.

147

So there is also inefficient defensive medicine where the cost of

not providing those MRIs is not that great, maybe because we don’t

have very good treatments for back pain, in which case the cost of

providing the MRIs would exceed whatever losses they would suffer

from not receiving them.

So it is very difficult, first of all, to tease out the inefficient stuff

from the efficient defensive medicine, and it is important to distinguish between the two, but it is also to discern whether it is the

fear of lawsuits that is driving the use of more and more services,

or is it the fact that in this country as a result of mostly Federal

policy, most doctors are paid on a fee-for-service basis where they

make more money the more services they provide. Both the fear of

lawsuits and fee-for-service payment are pushing in the same direction. So I am not sure that—first of all, it is very difficult to figure

out how much defensive medicine is contributing—inefficient defensive medicine is contributing to wasteful health care spending, but

I believe that it is not a significant factor.

I think that the fact that the Federal Government subsidizes

health care so much through the Medicare and Medicaid programs

and the Tax Code plays a much larger role.

Now why have I—with that said, I think that we do need serious

medical malpractice liability reform in this country. Why have we

not seen it? I think the biggest reason is that judges will not enforce contracts that allow individuals either with their health care

providers or through an insurance plan as an intermediary to set

their own—basically to pick their own medical malpractice liability

reforms. Judges won’t enforce those contracts. I think it is a much

superior approach to trying out things like caps, loser pay rules

and so forth because if something doesn’t work, it is easier for patients to rewrite the contracts than it is for the Federal Government to State governments to rewrite the laws once they have been

put in place.

Mr. GOSAR. Hold that thought. We will come back for a second

round.

Mr. GOWDY. At this point, I will recognize the distinguished gentleman from Maryland, Mr. Cummings.

Mr. CUMMINGS. The—this morning, the Budget Committee

Chairman Ryan unveiled his budget for fiscal year 2012, which

calls for repealing the Patient Protection of Affordable Care Act,

turning Medicaid into a block grant and forcing Medicare beneficiaries to spend more of their fixed income on purchasing private

health insurance.

In my district, if I go to a town hall meeting, and there are 100

people and I ask them, what is their source of income, do they have

more than one source, usually 90 percent, sometimes as many as

95 percent, tell me all they have is a Social Security check.

According to the Wall Street Journal article Monday, Chairman

Ryan’s proposal would—and this is what the Wall Street Journal

said—would essentially end Medicare as the program that directly

pays those bills. Instead, seniors would be forced to venture out

into the private insurance marketplace to purchase insurance. The

Wall Street Journal mentioned giving insurance companies approximately $15,000 toward beneficiaries’ purchase of private

148

health insurance leaving beneficiaries to pay the remainder out of

pocket.

And since my Republican friends also want to repeal the Affordable Care Act, seniors are not going have any of its protections

against abuses by private insurance, by the private health insurance industry, such as prohibiting preexisting condition exclusions

and charging sicker beneficiaries higher prices than younger

healthy people.

I am trying to figure out, and I haven’t—we just got the proposal

today. Ms. Klein, help me with this, who is going to insure an elderly person? I am just curious. You know, I can’t see how $15,000

is going to do that. Who is going—who is going—I—I mean, I have

people that I know who are 40 years old and can’t get insurance

because of a preexisting condition. So now you are going put all

these seniors out—not you, but the proposal—to put the seniors out

there, give them a little piece of paper with $15,000. One visit in

1 day or maybe, at best, a day and a half will take care of that

$15,000 quick. And we have a lot of seniors with chronic conditions.

Have you gone through that? Have you figured that out?

Ms. KLEIN. No, I haven’t figured that out. Thank you very much

for the question. I think it is really important to take a very close

look at this proposal, which is essentially removing the promise

and guarantee of access to affordable health coverage that we have

made to America’s seniors as well as other vulnerable people.

The Medicare program and the Medicaid program work together

to ensure that seniors, people with disabilities as well as children

and working families have access to affordable health coverage that

is comprehensive and that meets their needs. Without those programs, we will see a lot of people who are unable to get necessary

health care.

Mr. CUMMINGS. I remember I was talking to my mother a few

weeks ago, and she came up from South Carolina, rural South

Carolina and she was telling me, we were talking about my grandparents, who died long before I was born. And they died in their

40’s. And I said, ‘‘Mother, that is kind of young to die.’’ She said,

‘‘Well, back then, there was no—we expected to die that early.’’

Can you see us going back to that kind of situation? And I don’t

like to just throw death out there, but the question becomes what

are the alternatives? And it just seems to me that people—say, for

example, we didn’t have Social Security; we’d have seniors literally

either having to depend on their relatives or begging for money.

And it seems like in a country as great as ours, we can do better

than that. And I think a lot of people have said to me, well, Republicans aren’t going to go through with that. And I said, well, it is

out there. And I think we have to be very, very careful with that.

Would you agree?

Ms. KLEIN. I would, thank you.

Mr. CUMMINGS. And does anybody else have any comments on

this?

Mr. CUMMINGS. Yes, sir, Mr. Cannon.

Mr. CANNON. Thank you for the opportunity, Congressman.

I think lots—all seniors under the chairman’s proposal, as I understand it, would be able to obtain health insurance coverage, and

that is because the payment they receive from the Federal GovernVerDate 11-MAY-2000 11:31 Sep 14, 2011 Jkt 000000 PO 00000 Frm 00152 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\67720.TXT KATIE PsN: KATIE
149

ment to purchase that coverage will be adjusted for income, so that

lower-income people will get larger vouchers, if you will. He doesn’t

call them that; I will use the V word. And they will also be riskadjusted, so that people with severe illnesses will get larger vouchers and be able to purchase insurance coverage. That will cover a

lot of people who have preexisting conditions. And another——

Mr. CUMMINGS. Which is probably about all of them, by the way.

Mr. CANNON. Well, that is true. That is why the average voucher

amount, $15,000, would be more than the amount to cover—it

would cost to cover someone under 65. And if you are concerned

about that the not being enough money, remember the Dartmouth

Atlas of Health Care has shown pretty convincingly that one-third

of all Medicare spending is pure waste; it does nothing to improve

the health of Medicare patients. Think of that as a huge margin

of safety. So that seniors, even if they consume one-third less care

than they do today, under say a very inefficient Medicare program,

it would not harm their health.

Mr. CUMMINGS. I see my time is running out.

Mr. GOWDY. Thank you, Mr. Cummings.

Ms. Klein, do you disagree that we are $14 trillion in debt?

Ms. KLEIN. I am actually not an expert on the Federal budget.

Mr. GOWDY. Well, you were just very critical of our colleague

Paul Ryan’s budget. So do you disagree that we are $14 trillion in

debt?

Ms. KLEIN. No, I do not.

Mr. GOWDY. Do you disagree that the annual deficit is $11⁄2 trillion?

Ms. KLEIN. No, I do not.

Mr. GOWDY. Do you disagree with the President when he says

there is $900 billion in waste, fraud and abuse in Medicare and

Medicaid?

Ms. KLEIN. No, I don’t.

Mr. GOWDY. Have you proposed a budget for 2012?

Ms. KLEIN. No, sir.

Mr. GOWDY. Has your organization proposed a budget for 2012?

Ms. KLEIN. No.

Mr. GOWDY. Well, I am struck with your willingness to criticize

Representative Ryan when you have no alternative yourself.

By 2031, every single cent in revenue generated by this, the most

powerful economy on the face of the earth, will only be sufficient

for the entitlements. That is it, by 2031. So what is your plan to

reform Medicare and Medicaid?

Ms. KLEIN. I think we need to remember that these programs

provide vital services to people who, without them, would be left

without access to care.

Mr. GOWDY. You don’t think we know that? You don’t think Representative Ryan knows that?

Ms. KLEIN. I wouldn’t want to conjecture about what Representative Ryan knows. I think it is important to remember whenever we

are looking at proposals to reform these programs the vital role

that they play in protecting people’s access to health care who

would otherwise go without.

150

Mr. GOWDY. You would agree with—is the government the only

way indigent folks can have access to health care? Is that the only

model we have ever pursued in this country?

Ms. KLEIN. I don’t believe it is the only model that we have ever

pursued, but it has been a very successful model over the past 40-

plus years. And I know that there are many folks, even within the

health insurance industry, who agree that the existing programs

that we have are the right way to go, particularly for people who

have very high medical costs, as seniors and very low-income people tend to do.

Mr. GOWDY. Well, where—I won’t say it again without contradic- tion. We are $14 trillion in debt. So I would beg to differ that the

programs are going swimmingly, or we would not be on the precipice of a financial slew of despond that we may not get out of. With

specific reference to the commerce clause, can you tell me whether

or not you think the Federal Government does not have the authority to send Medicaid back to the States?

Ms. KLEIN. I am not sure I understand the question.

Mr. GOWDY. Can Congress send the Medicaid program back to

the States?

Ms. KLEIN. The States already administer the——

Mr. GOWDY. I mean block grant. The very part of Representative

Ryan’s budget that you just criticized, the block granting of Medicaid moneys back to the State, do we have the authority to do that?

Ms. KLEIN. I haven’t examined the legal authority for that.

Mr. GOWDY. So you don’t challenge that we do have the authority

to do that?

Ms. KLEIN. I do not challenge, I have not looked at the legal authority.

Mr. GOWDY. What plans have you put forth to eliminate waste,

fraud and abuse in Medicare and Medicaid?

Ms. KLEIN. I think it is very important to make sure that both

of those programs run as effectively and as efficiently as they can.

I think we need to make sure and, in fact, it is our responsibility

as a Nation to make sure that Federal dollars as well as State dollars spent on health care are actually going to pay for health care

for the people they are designed to serve.

Mr. GOWDY. Well, you and I are in agreement on that. My question was, what specific plans have you put forth to reform Medicare

or Medicaid?

Ms. KLEIN. I have not.

Mr. GOWDY. Mr. Cannon, if you could do three things with respect to Medicare, by the end of April, to cut costs, what are the

first three things you would do?

Mr. CANNON. Mr. Chairman, I would give each—I would take the

existing Medicare budget and convert it into a fixed voucher that

each senior would receive to purchase health insurance, private

health insurance plan of their choice, adjusting those vouchers for

income and risk, as I mentioned before, was No. 1.

Mr. GOWDY. Now, when you say voucher, in a voucher model, the

money goes to the patient?

Mr. CANNON. It would be very much like cash, but it would be

restricted to health care expenses. They could use it to purchase a

health insurance plan. And whatever they don’t spend, they would

151

get to keep and even pass on to their heirs, which gives seniors an

incentive to weed out waste, fraud and abuse that just doesn’t exist

in the program today.

Mr. GOWDY. Would you have copays for any of the patients under

Medicaid, any disincentive to go to the physician whenever you

want to for whatever you want to?

Mr. CANNON. In Medicaid?

Mr. GOWDY. In Medicaid.

Mr. CANNON. What I would do with Medicaid is block grant the

program, and give the States maximum flexibility to spend that

money on providing medical care to the needy and let them decide

whether to use copayments or not. A lot of folks on Medicaid, a copayment is going to keep them away from lifesaving care. It

could—it could, that is a feasible—that could happen. What I—the

reason I don’t want to be making those decisions is because I don’t

think I have the wisdom to make those decisions.

But the reason that I want block grants is because I think that

the States are going to do a much better job of coming up with innovative ways of structuring those benefits so that they provide

care to the people who are needy, who are truly needy. And they

don’t induce people to become dependent on government for their

health care as the current Medicaid program does.

The way the Federal Government pays for Medicaid by matching

State funds creates a pay-for-dependents incentive. If you spend

another dollar, that gets someone—for every dollar a State spends

they get $1, $2, $3, in some cases $4, from the Federal Government; they can quintuple their money. That encourages States to

make people more dependent on the government for their health

care so that is the motivation behind block grants.

It will also reduce waste, fraud and abuse in that program because the State would bear the full cost of waste, fraud and abuse,

as opposed to right now where they only bear 43 percent of the cost

on average.

Mr. GOWDY. Thank you, Mr. Cannon.

I will call on the gentleman from Arizona for a second round of

questioning, Dr. Gosar.

Mr. GOSAR. In part of the—Mr. Cannon, part of the problem that

we find is for physicians and particularly in costs associated in why

we are having problems is basically cost shifting because we have

so many physicians or so many services that are not compensated

for and unfunded mandates, so it is constantly shifted.

How do you see—how do I want to put this? How do you see the

insurance companies be a part of a problem in the tort reform aspect? Because most physicians are part of panels so there are certain things that insurance companies will tell the physician or the

patient they can or cannot do, it puts physicians in harm’s way.

Mr. CANNON. I am not sure I am aware of any ways that the insurance companies are creating a problem in the tort system. Medical malpractice liability insurers actually do a lot of good communicating the signals that the tort system creates into quality improvement measures to help physicians improve the quality of care

that they provide.

152

Mr. GOSAR. I understand. But certain procedures, let’s say somebody comes in, and they are going do an MRI, and the insurance

company has to pre—you have to pre——

Mr. CANNON. Get pre-authorization.

Mr. GOSAR. Pre-authorization to get that done. And maybe it

doesn’t happen. Who is put in harm’s way when that doesn’t occur,

and we have a litigation?

Mr. CANNON. If the insurance company requires preauthorization

before necessary care, then—and they don’t get that pre-authorization and the care isn’t delivered, then that can put the patient in

jeopardy. If it is that clear-cut a case, however, then the insurance

company isn’t really preventing the provider from providing those

services; they are just saying, we are not going to pay for it. So

there is an option for the provider to provide those services and

then——

Mr. GOSAR. But hasn’t that been part of the problem, particularly in hospitals and emergency rooms in some of the cost-shifting

aspects within tort reform? That has been a big question mark as

to who is saddled with that jurisdiction.

Mr. CANNON. I am not——

Mr. GOSAR. Who is going to get the claim? It is obviously not the

insurance company; it is the doc.

Mr. CANNON. In these disputes, whenever you have an insurance

company and the provider that are not part of the same entity, you

are going to end up with these sorts of disputes. And I don’t really

know what is the best way to resolve those disputes. What I know

is that we need more experimentation and competition, and we

need to let people choose different ways of structuring the financing and delivering of health care, so that they can pick whatever

way works best for them.

There are some health plans where the insurance plan and the

providers are essentially part of the same entity. There is still friction but a lot less friction than when you just have the health insurance company paying the bills. So I don’t have a magic bullet

solution to that, other than choice and competition, which will let

people find the solution that works best for them.

Mr. GOSAR. So an increased and competitive marketplace would

definitely help us.

Mr. CANNON. And I think that Chairman Ryan’s proposal is a

step in that direction.

Mr. GOSAR. Would it also not have some competition within the

insurance industry?

Mr. CANNON. Absolutely. That is to be desired.

Mr. GOSAR. And isn’t that a problem for the States right now, in

most cases?

Mr. CANNON. Too much competition?

Mr. GOSAR. Not enough competition for States and not having

the jurisdiction over them now.

Mr. CANNON. I am not sure about the jurisdictional issue. However, I think that within each State, there is far less competition

than there could and probably should be in health insurance, if

only because each State prevents their residents from purchasing

health insurance licensed by another State.

153

I think that is an idea that has been—that tearing down those

barriers to trade is an idea that has been advanced here on Capitol

Hill. Certainly we at the Cato Institute have endorsed it, and I

think that would dramatically increase competition, probably even

more than Chairman Ryan’s proposal would.

Mr. GOSAR. So maybe even utilizing the Federal Government to

actually instill that. For example, having FTC look in inclusionary

monopoly type rules.

Mr. CANNON. I am more skeptical of antitrust laws—although I

am not an expert in that area—I am more skeptical of them than

I am of Congress’ ability to use the commerce clause of the Constitution to tear down barriers to trade between the States, which

was the original intent of the original meaning the commerce

clause. It was intended to allow—to create a free trade zone within

the United States. We don’t have that in health insurance right

now, and competition suffers as a result.

Mr. GOSAR. Mr. Botsko, you see competition being a problem in

Arizona?

Mr. BOTSKO. Thank you for the question, sir. I don’t really think

that I am equipped to answer that question. The IG’s Office tries

to stay out of those types of things.

Mr. GOSAR. Competition would definitely help you as far as taking your dollar further, right?

Mr. BOTSKO. Yes, I believe it would.

Mr. GOSAR. Thank you.

Mr. GOWDY. Well, the chair would recognize the gentleman from

Maryland, Mr. Cummings.

Mr. CUMMINGS. Mr. Cannon, help me with this, if you have 100

people, seniors, who are all sick, who all have preexisting conditions, and you are going to give them a maximum of $15,000 for

an insurance policy, help me understand how that works. In other

words, who is going to insure a senior who is sick? I am curious,

maybe I am missing something.

Mr. CANNON. My understanding, Congressman, is that the

$15,000 amount——

Mr. CUMMINGS. That is like a max, right?

Mr. CANNON. My understanding is that would be an average. Right now I think Medicare spends something like $10,000 or close

to that on average per enrollee. And Mr. Ryan’s proposal would

take today’s average amount, let that grow over time, and I think

GDP plus 1 percent until 2021, at which point that would be the

average voucher amount seniors would receive—I am sorry, premium assistance amount seniors would receive.

Mr. CUMMINGS. And they would go out, and they would purchase

this insurance.

Mr. CANNON. Let’s say that $15,000—I sort of suspect it would

be more—that would then be adjusted for income so that low-income people would get more than $15,000; adjusted for illness, so

that if you are low-income and sick, you would get even more.

Mr. CUMMINGS. Do you know what the max would be?

Mr. CANNON. I am not aware of what the maximum would be.

That would be a result of the rules, the specific risk-adjustment

rules that haven’t been spelled out in his budget, but you would

have sick people getting a lot more money. The key is that they

154

would own that money. It would be theirs. If they spent it wisely,

then they would get to keep it to help pay for their out-of-pocket

expenses in future years. And if they have some left over when

they die, they could pass that on to their children.

Mr. CUMMINGS. Wouldn’t it concern you? I know that you are

concerned about the health of our seniors. Right?

Mr. CANNON. Absolutely. I am very closely related to two Medicare enrollees.

Mr. CUMMINGS. So I am trying to figure—now, let me break this

down to my district, because I have to be concerned about them.

A lot of people in my district are your sicker population. In other

words, it would not shock me if they—if I had a room of 50 seniors,

that perhaps at least out of the 50, 10 might spend some time in

the hospital with dealing with maybe perhaps a chronic disease or

some emergency situation, like heart problems or whatever. And

those expenses could escalate very rapidly.

And I guess what I am trying to figure out is I know insurance

companies are out there to make money. They make their money.

They are going to find a way to make their money. And I am trying

to make sure I understand, when they take that piece of paper—

I know you don’t want to use voucher, but that is basically what

it is.

Mr. CANNON. I don’t mind that term.

Mr. CUMMINGS. They take their voucher and they are shopping

around for these insurance companies, they get—assuming they

can get one. So you have confidence that these companies are going

to insure them. And when we do away with preexisting conditions

as an element that is, you know, my friends on the other side are

saying they want to do away with the Affordable Care Act, one of

the main things that my constituents are most concerned about is

preexisting conditions. So—and as I tell my constituents, you know,

some of the younger folks to say to me, well, Cummings, I am not

worried about preexisting conditions. I tell them, you just keep on

living; you will have some preexisting conditions.

So if I have a person who does not have the protection of preexisting conditions, got a voucher, and—I am just wondering, do

you—is there a concern that they may not able to get insurance?

Mr. CANNON. Within the context of the chairman’s budget—

Chairman Ryan’s budget—I am sorry—Medicare reforms, no. I believe that he would require insurance companies to take all-comers.

Now, the—what we call these bans on discrimination against

people with preexisting conditions, they are really a government

price control. A competitive marketplace would set the price for

the—health insurance for someone very sick at a very high level,

maybe prohibitively expensive for that individual. When the government says that you can charge them no more than you charge

a healthy person, well, then that insurance company has to charge

all enrollees a weighted average. The government is forcing down

the price for sick people by forcing up the price for healthy——

Mr. CUMMINGS. I got that. So——

Mr. CANNON. And so the problem with government price controls

is that they can change the prices that people offer in the marketplace, but they don’t change the underlying economic reality that

drives those market prices. And so what happens is you have inVerDate 11-MAY-2000 11:31 Sep 14, 2011 Jkt 000000 PO 00000 Frm 00158 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\67720.TXT KATIE PsN: KATIE
155

surance companies trying to mistreat, avoid, and dump sick people

as a result of these government price controls. If a patient costs

$50,000 to insure but the government says you can only charge

them $10,000, well, an insurance company is going to have to get

rid of those sick people by providing them lousy coverage, lousy

service, or else they are going to go out of business.

And research by President Obama’s—some of President Obama’s

economic advisers has shown that is what happens under those

government price controls. I would rather do without them precisely because I think we would have better protection for people

with very expensive illnesses.

Mr. CUMMINGS. I see my time has expired.

Mr. GOWDY. Mr. Botsko, the first panel talked a little bit about

this pay first, verify second, third, fourth, recapture if we think we

paid out incorrectly, which seems like a very inefficient model. Propose a better model to us, maybe one with verification or investigation on the front end.

Mr. Botsko. Well, I am proud to say that the State of Arizona actually does that. We have the Fraud Prevention Unit. That unit is

staffed by a group of investigators who go out upon referrals that

originate from hospitals due to fraud indicators that the Office of

Inspector General has set forth. Once that referral is received by

my office, the investigators are out on the street within 24 hours

conducting interviews. So we stop the people from getting into the

system, those that are ineligible and that the investigation has

shown are ineligible, and we stop it right at the very beginning.

And I believe last year it was about $1.9 million in cost avoidance

per investigator.

Mr. GOWDY. You have a background in law enforcement?

Mr. BOTSKO. I do.

Mr. GOWDY. How many years did you serve in law enforcement?

Mr. BOTSKO. Twenty-two years in Federal law enforcement.

Mr. GOWDY. With the Bureau?

Mr. BOTSKO. I was with the U.S. Department of Defense doing

contract fraud, and also with the U.S. State Department Diplomatic Security Service.

Mr. GOWDY. Did you ever run an NCIC background check?

Mr. BOTSKO. Yes, sir.

Mr. GOWDY. Those aren’t hard. Are they?

Mr. BOTSKO. No, sir. A matter of seconds.

Mr. GOWDY. Is it too much to ask to run a background check or

an NCIC on people who purport or want to be durable medical

equipment suppliers?

Mr. BOTSKO. Absolutely not. And in fact, the Arizona Office of Inspector General, we are a criminal justice agency so we have an

NCIC terminal, and we do those checks.

Mr. GOWDY. Did you ever do something as outlandish as actually

go interview a target or a suspect?

Mr. BOTSKO. All the time, sir.

Mr. GOWDY. Do you think it is too much to ask that we go have

a field interview with someone who aspires to be a supplier of durable medical equipment to make sure that they have an office and

it is staffed and it is something other than a pizza parlor or a post

office box?

156

Mr. BOTSKO. That would certainly be a very proper and appropriate means of attack on the program to stop those that are perpetrating fraud. However, as with everything, more money, more

staff are necessary to do those things.

Mr. GOWDY. Perhaps. Or perhaps we go to Ms. MacQuarrie. And

is there technology that can help? Not to eliminate any investigators’ jobs, but is there technology that can help?

Mr. BOTSKO. Let me just add that we actually use one of their

products.

Ms. MACQUARRIE. Thank you for the question. Regardless of how

health care is paid for, there is going to be fraud in it. And it is

critically important to continue the fight against fraud, first in a

prepayment mode as you have just indicated, Mr. Chairman. And

there are technologies available. The CLEAR product that we had

in our written testimony and in my verbal testimony does a complete research check of all individuals for whom we mine the data

for. And that would be all of those DME suppliers who want to get

into the program.

We take that a step further, however, and we can link the risk

indicators within this public record data, things like criminal

records or preexisting tax liens or sanctions in one State and the

providers move to another State and the State doesn’t know that

they were sanctioned someplace else. We can link all of that to historic claims data and do predictive modeling and actually assign a

risk indicator.

This is work that we do today, assign a risk indicator on those

who would be providing applications to get into the program. So if

we did have some limited field investigative staff, we would have

them go out against those who have the highest risk indicators, as

opposed to just every 10th supplier who might submit an application for enrollment.

Mr. GOWDY. Mr. Cannon, quickly.

Ms. MacQuarrie indicated that you are going to have fraud regardless, which is probably true. Do you have any statistics or perspective on whether or not fraud is more pervasive in the private

insurance market or in the government health care delivery system?

Mr. CANNON. You are going to have fraud I think wherever you

have human beings. But I think you are going to have more fraud

in government health care programs than you are in the private

sector for the simple reason that government is people spending

other people’s money, and nobody spends other people’s money as

wisely or as carefully as they spend their own.

So we have heard some discussion about tightening provider enrollment in Medicare. We could do that. We could also insist that

providers provide more documentation with the claims that they

file so we can ensure that those are valid claims. But when you,

Congressman, hear from people in your district, providers in your

district that these measures that they have to—the legitimate providers have to comply with now are too onerous and can’t we repeal

them, you and other Members of Congress are going to say, maybe

we should repeal these things.

They would prevent fraud, but you will roll them back. Why? Because it is not your money that is being lost to fraud. That is how

157

government operates. That is why waste, fraud, and abuse are endemic to government programs, because government is people

spending other people’s money.

Mr. GOWDY. On that happy note, we will end. I want to thank

all four of our witnesses and everyone else in the audience for participating, as well as my colleagues on both sides. Thank you.

[Whereupon, at 4:40 p.m., the subcommittee was adjourned.]

Æ