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68–043 PDF 2011

IMPROPER PAYMENTS: FINDING SOLUTIONS

HEARING

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT ORGANIZATION,

EFFICIENCY AND FINANCIAL MANAGEMENT

OF THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

FIRST SESSION

APRIL 15, 2011

Serial No. 112–26

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 GOVERNMENT ORGANIZATION, EFFICIENCY AND FINANCIAL

MANAGEMENT

TODD RUSSELL PLATTS, Pennsylvania, Chairman

CONNIE MACK, Florida, Vice Chairman

JAMES LANKFORD, Oklahoma

JUSTIN AMASH, Michigan

PAUL A. GOSAR, Arizona

FRANK C. GUINTA, New Hampshire

BLAKE FARENTHOLD, Texas

EDOLPHUS TOWNS, New York, Ranking

Minority Member

JIM COOPER, Tennessee

GERALD E. CONNOLLY, Virginia

ELEANOR HOLMES NORTON, District of

Columbia

(III)

C O N T E N T S

Page

Hearing held on April 15, 2011 .............................................................................. 1

Statement of:

Werfel, Daniel I., Controller, Office of Management and Budget; and

Kay L. Daly, Director, Financial Management and Assurance, Government Accountability Office ........................................................................... 5

Daly, Kay L. ............................................................................................... 17

Werfel, Daniel I. ........................................................................................ 5

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

Daly, Kay L., Director, Financial Management and Assurance, Government Accountability Office, prepared statement of .................................... 19

Werfel, Daniel I., Controller, Office of Management and Budget, prepared

statement of ................................................................................................... 7

(1)

IMPROPER PAYMENTS: FINDING SOLUTIONS

FRIDAY, APRIL 15, 2011

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON GOVERNMENT ORGANIZATION,

EFFICIENCY AND FINANCIAL MANAGEMENT,

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 10:07 a.m. in room

2157, Rayburn House Office Building, Hon. Todd R. Platts (chairman of the subcommittee) presiding.

Present: Representatives Platts, Lankford, Amash, Guinta,

Towns, Norton, and Connolly.

Staff present: Ali Ahmad, deputy press secretary; Michael R.

Bebeau, assistant clerk; Robert Borden, general counsel; Adam

Bordes, senior policy analyst; Christopher Hixon, deputy chief

counsel, oversight; Tabetha C. Mueller, professional staff member;

Noelle Turbitt, intern; Beverly Britton Fraser, counsel; Cecelia

Thomas, counsel/deputy clerk.

Mr. PLATTS. The subcommittee hearing will come to order.

Before I begin the opening statement, I just want to apologize for

the slight delay in starting. I anticipate that we will get through

any opening statements from me and the ranking member and our

witnesses. We are likely going to have a single vote. About that

time, we will break, vote, and come back and do a Q and A after

that vote. We will try to be as efficient as we can so as not to keep

you any longer than necessary, but rather, have our discussion.

As an oversight committee, we exist to secure two fundamental

principles. First, Americans have a right to know that the money

Washington takes from them is well spent. Second, Americans deserve an efficient, effective government that works on their behalf.

Our duty on the Oversight and Government Reform Committee

is to protect these very important 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 to bring genuine reform to the

Federal bureaucracy. This is the mission of the Oversight and Government Reform Committee.

Today’s hearing on Improper Payments continues our subcommittee’s examination of Federal financial management issues.

It also affords us, first, the opportunity to review the newly enacted

Improper Payments Elimination and Recovery Act of 2010.

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I welcome our witnesses and thank them for their efforts, both

the written testimony you have provided as well as your testimony

you will provide here today.

The Honorable Daniel Werfel is the Controller and Director of

the Office of Federal Financial Management at the Office of Management and Budget, and Kay Daly is the Director of Financial

Management and Assurance at the Government Accountability Office. We are grateful both of you are a part of this hearing.

As millions of Americans file their income taxes today, because

of a holiday here, they have a couple of extra days through Monday, the 18th, as opposed to the traditional April 15th, it is important for those of us in the Federal Government to take a step back

and remind ourselves of the responsibility we have to spend those

tax dollars wisely.

First and foremost, that responsibility means we need to make

sure that funds are being spent the way they are intended to be

spent. Unfortunately, the total dollar amount of improper payments, which could be anything from payments without documentation to outright fraud, is staggering.

As both our witnesses note in their testimony, Federal agencies

reported an estimated $125.4 billion in improper payments during

the fiscal year 2010. As a point of reference, the President requested $125.1 billion to fund the entire Department of Veterans

Affairs in 2012.

I well remember conducting a hearing in May 2003 when the estimated improper payments was $35 billion. It is important to be

clear that the increases year after year are a result of better detection and reporting. That is a very good thing because as it shows,

we are identifying the problem. The fiscal year 2010 financial report actually found the estimated error rate went down about half

a percentage point.

That being said, we still have a responsibility to the people paying their taxes today to do the best we can in handling their hard

earned funds. The total amount of improper payments is very troubling. Even with the small drop in the error rate, the dollar

amount increased by $16 billion, enough to fund the FBI, the DEA

and the U.S. Marshals Service for 1 year.

In response to these concerns, this committee played a key role

in the passage of the Improper Payments Elimination Recovery Act

and I certainly recognize then chairman of the full committee, Mr.

Towns, for his committee’s leadership and work on this issue.

The purpose of IPERA was to strengthen agency governance

practices by incorporating a more stringent risk and performance

framework for agencies to measure program outcomes. It expands

the use of recovery audits and business analytics to help agencies

recoup improper payments. These are common sense changes that

buildupon prior requirements.

Focusing on eliminating improper payments goes to the very

heart of accountability. I believe the American people are looking

to us for action and solutions. I was pleased to see that both of our

witnesses point to examples of success stories in your testimony. I

would like this hearing to be about those types of successes, about

solutions.

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Technology is certainly a part of the solution and we have access

to tools that weren’t even invented when the Improper Payments

Information Act was passed in 2002. Tools such as continuous

transaction monitoring and business intelligence can help the government move toward a ‘‘prevent and detect’’ model other than the

old ‘‘pay and chase’’ scheme.

Technology can only go so far. As always, sound internal controls

are the better opt for any successful, sustainable and cost effective

solution. Agencies need to understand the root causes of errors and

to develop better controls to prevent or detect them before the

money goes out the door.

One way to improve internal controls is to have a third party

evaluate them. I was pleased to see your testimony addressed the

issue of shifting audit resources to provide more scrutiny for payment activities.

Mr. Werfel, I see that you make reference to the upcoming report

on the CFO Act in your testimony and I am looking forward to

those recommendations to get additional ideas on how to better leverage our audit resources to focus more on accountability and internal controls.

Again, I thank you for your appearance here today and look forward to your testimony.

With that, I yield to the distinguished ranking member, Mr.

Towns, for his opening statement.

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

Let me thank both of you for your service.

This is a very important and timely hearing. I thank you for

holding it, Mr. Chairman.

Mr. Werfel, it is good to see you again. Ms. Daly, welcome. I am

looking forward to your testimony as well.

Even as the economy begins to recover from the last recession,

the Federal Government still faces fiscal challenges in cutting

spending and raising revenue. This subcommittee has continued to

explore ways the government can save money and close the deficit.

Mr. Werfel, the last time you visited with us, you gave us an excellent overview of the current financial conditions of the Federal

Government as we looked at the consolidated financial statements.

Today, we focus on the reduction of improper payments. We look

to you and Ms. Daly to provide us with deeper insights on how we

can quickly begin to conserve our financial resources by eliminating

and recapturing improper payments.

President Obama’s administration has put forth very robust initiatives to eliminate improper payments which is one of the key

components of the efforts to eliminate waste. I am encouraged to

see that we have some positive results in response to these efforts.

The President called for a do not pay list in June 2010, so that

we don’t keep giving money to the same ineligible recipients repeatedly. We now have the verified payment.gov Web site which allows agencies to check recipients’ eligibility before they receive

their Federal payments. This is a great beginning and I would like

to hear more about this effort today.

The President also asked agencies to be transparent about the

amount of improper payment and to account to the American public for their actions in addressing these problems. I am pleased to

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see that we now have the payment accuracy.gov Web site that

shows exact information. This is also a very good response.

President Obama signed the Improper Payments Elimination

and Recovery Act of 2010 into law last July. That law became effective in January 2011. I am looking forward to hearing about our

progress under the new law as well. A healthy financial future for

the United States requires sustained effort from more than one

source. We must work together. We have to watch what we spend,

get rid of waste, increase revenue and reduce improper payments,

all at the same time to accomplish this goal.

I am looking forward to working in a bipartisan way to reduce,

to capture and to eliminate improper payments.

On that note, Mr. Chairman, I yield.

Mr. PLATTS. I thank the gentleman and certainly look forward,

as well, to working together in that bipartisan fashion within the

committee as well as with our executive branch colleagues.

With that, I yield to the gentleman from Virginia, Mr. Connolly,

for an opening statement.

Mr. CONNOLLY. Thank you, Chairman Platts.

I want to thank you for holding this hearing to assess progress

in reducing improper payments. Although this is a common topic

of inquiry, sustained oversight can produce dividends for taxpayers

by highlighting progress and identifying other opportunities for improvement.

Congress and the administration have focused on reducing improper payments. President Obama issued Executive Order No.

13520 reducing improper payments. President Obama also ordered

that a do not pay list be created to avoid repeated improper payments and issued two memoranda to agencies to provide guidance

in reducing improper payments.

Despite these efforts, improper payments grew by $16 billion in

fiscal year 2010, indicating the need for further action. Therefore,

Congress continued to ramp up efforts to reduce improper payments. During the last session, Congress included language to reduce improper Medicare payments in the Affordable Care Act, saving up to $80 billion annually.

Congress also passed the Improper Payments Elimination and

Recovery Act, as Mr. Towns just indicated, introduced by former

Congressman Patrick Murphy and co-sponsored by many Members

including yourself, Mr. Chairman.

IPERA expanded reporting requirements and improved agencies’

ability to recover improper payments. Many of IPERA’s provisions

became effective in fiscal year 2011, so we will need to continue

monitoring its implementation to see how well it works and whether it can be strengthened.

In his written testimony, Mr. Werfel, a familiar figure now here

in this committee, I think we need to make him an honorary member at some point, Mr. Chairman, estimates the successful implementation of improper payment reduction programs could save

$160 billion over 10 years, so there are substantial cost savings.

There is evidence we already are making progress. While the

total amount of improper payments grew during the last fiscal

year, the improper payment rate across the Federal Government

actually fell from 5.65 percent to 5.49 percent. While that still is

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far too high, it is important to recognize the progress agencies have

achieved as this reduction in improper rates saved the taxpayers

$4 billion and it is progress upon which we can build.

I want to again thank you for holding the hearing and I look forward to hearing the testimony.

Mr. PLATTS. I thank the gentleman.

We will now move to opening statements of the witnesses. Again,

we have the Honorable Daniel Werfel, Controller and Director of

the Office of Federal Financial Management of the Office of Management and Budget. We certainly would be honored to have him

as an honorary member. Whether he would be willing to associate

himself with us, I am not sure.

We also have Ms. Kay Daly, Director, Financial Management

and Assurance, Government Accountability Office. We are always

delighted and grateful to partner with GAO as well on your important work.

It is the practice of the subcommittee that all witnesses be sworn

before testimony. Please rise to take the oath.

[Witnesses sworn.]

Mr. PLATTS. The record will reflect that both witnesses answered

in the affirmative. Again, we are grateful for your testimony.

Mr. Werfel, would you like to begin?

STATEMENT OF DANIEL I. WERFEL, CONTROLLER, OFFICE OF

MANAGEMENT AND BUDGET; AND KAY L. DALY, DIRECTOR,

FINANCIAL MANAGEMENT AND ASSURANCE, GOVERNMENT

ACCOUNTABILITY OFFICE

STATEMENT OF DANIEL I. WERFEL

Mr. WERFEL. Thank you.

Chairman Platts, Ranking Member Towns, Congressman

Connolly, and distinguished members of the subcommittee, I want

to thank you for inviting me to testify today. I appreciate the opportunity to discuss the Federal Government’s current efforts to

prevent, reduce and recapture improper payments, as well as how

the audit process can be improved to focus on key programmatic

issues like payment errors.

As has been discussed in fiscal year 2010, Federal agencies estimated approximately $125 billion in improper payments were

made to individuals, organizations and contractors. Although not

all errors represent fraud, all payment errors degrade the integrity

of government programs and compromise citizen trust in government.

As part of the administration’s Accountable Government Initiative, we have set aggressive goals to prevent $50 billion in improper payments and recapture at least $2 billion in improper payments between fiscal years 2010 and 2012. In addition to the enactment of IPERA, the administration is taking numerous steps to

prevent, reduce and recapture improper payments.

First, as mentioned earlier, in November 2009, the President

issued an Executive order dedicated to the sole purpose of reducing

improper payments. The order drives transparency, increased agency accountability and new incentives for State and local governments to reduce error.

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Second, last June, the President issued a memorandum to agencies on enhancing payment accuracy through a Do Not Pay list, as

Congressman Towns referenced. The Do Not Pay list will serve as

a single source through which all agencies can check the status of

a potential contractor, grantee or individual beneficiary by linking

the agency to relevant eligibility data bases such as the Social Security Administration’s Death Master File and the General Service

Administration’s Excluded Party list.

The initial portal has been built. However, full implementation

of this Initiative will be done over several phases, including where

we are now which is currently pilot testing the solution with Federal agencies.

As envisioned, the Do Not Pay list, when fully operational, will

not just be a data match tool, but will leverage cutting edge, fraud

technology for a detection technology to further reduce the number

of improper payments.

Third, in March 2010, the President issued a memorandum to

agencies directing them to intensify and expand their efforts to recapture error. We have set a goal of recovering at least $2 billion

in improper payments between fiscal years 2010 and 2012. I am

pleased that in this area we are making significant progress in

meeting this goal as agencies reported in fiscal year 2010 that they

had recaptured $687 million improper payments which is nearly a

300 percent increase from prior recoveries.

As you can see, we are working toward preventing and recapturing improper payments across the government. However, we are

continuously looking for better and more creative ways to address

these challenges. For example, a financial statement audit result

addressed whether the agency had the appropriate accounting in

place to record that a payment has occurred. However, the audit

opinion too often stopped short of scrutinizing the integrity of that

payment. This leads to a result where there is no correlation between an agency’s ability to obtain a clean audit opinion on their

financial statements and an agency’s ability to mitigate instances

of improper payments.

I believe an important improvement that should be considered as

we reexamine our Federal reporting model is holding the agency

accountable as part of their financial statement audit for reporting

the various root causes and components of their payment errors,

identifying those areas of error that are within their direct and immediate control for the agency to mitigate, and then having the

auditor evaluate whether the agency has taken sufficient action to

mitigate the risk associated with such errors.

I believe this proposed change would reinforce the Federal financial community’s current focus and ongoing commitment to improving results in this area.

I want to thank you again for inviting me to testify and I look

forward to answering any questions you have.

[The prepared statement of Mr. Werfel follows:]

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Mr. PLATTS. Chairman Issa. Thank you, Mr. Werfel.

Ms. Daly.

STATEMENT OF KAY L. DALY

Ms. DALY. Thank you, Chairman Platts, Member Towns and

Congressman Connolly.

I appreciate the opportunity to be here today to discuss the governmentwide problem of improper payments in Federal programs

and agencies’ efforts to address key requirements of the Improper

Payments Information Act of 2002, commonly referred to as IPIA.

For fiscal year 2010, 20 agencies reported improper payment estimates for over 70 programs that totaled over $125 billion. This

is an increase from the fiscal year 2009 estimate of about $109 billion, primarily due to increases in estimated improper payments for

four major programs—Unemployment Insurance, Earned Income

Tax Credits, Medicaid and Medicare Advantage.

The agencies administering these programs reported that the increases in the estimates were primarily attributable to an increase

in program outlay. That was the case for Medicaid and Medicare

Advantage programs even though those two programs reported

lower error rates. Both the Unemployment Insurance and Earned

Income Tax Credit programs reported higher program outlays and

higher error rates for fiscal year 2010 when compared to fiscal year

2009.

Although overall improper payments rose by about $16 billion,

we view this as a positive step because it indicates that agencies

have increased their efforts to identify and report improper payments which will ultimately improve transparency over the full

magnitude of the improper payment problem. This is a critical first

step in establishing effective accountability measures to reduce

them.

Some agencies reported they had made progress to reduce improper payments in their programs and activities. Since initiative

IPIA implementation in 2004, we found that more programs are reporting every year and that 17 agency programs that had reported

improper payment error rates from between 2004 and 2010, reported reduced error rates in those programs. While these error

rate reductions are promising, some major challenges do remain.

For example, we found that the $125 billion improper payment

estimate does not reflect the full scope of improper payments across

all agencies. Seven programs that had been identified as susceptible to the risk of improper payments with 2010 outlays totaling

about $85 billion, did not report an estimate. Most notable of these

is the Medicare Prescription Drug Benefit Program which had outlays of about $59 billion in 2010 but has not yet reported a comprehensive estimate of improper payments. The program does expect to do so in fiscal year 2011.

During fiscal year 2010, there were a number of actions taken intended to strengthen the framework for reducing and reporting improper payments. As we noted, the President signed the Executive

order in November 2009 to increase transparency and accountability for improper payments and the President also issued two

memoranda in June and March that were intended to expand efVerDate 17-JUN-2003 11:14 Sep 22, 2011 Jkt 000000 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\68043.TXT KATIE PsN: KATIE
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forts to recapture improper payments and also use recovery audits,

in addition to establishing a Do Not Pay List.

The President also set the goal to reduce improper payments overall by $50 billion and to recapture at least $2 billion by the end

of fiscal year 2012. In addition, in July 2010, the Improper Payments Elimination and Recovery Act, commonly referred to as

IPERA, was passed and is intended to enhance reporting and reduction of improper payments.

IPERA established additional requirements related to Federal

manager accountability, recovery auditing aimed at identifying and

reclaiming payments made in error, and compliance and noncompliance determinations based on Inspector General assessment

of whether an agency is meeting IPERA requirements. For example, IPERA required agency managers and the programs to be held

accountable for achieving the agency’s goal.

In closing, we recognize that measuring improper payments and

taking action to reduce them are not simple tasks. The ultimate

success of the governmentwide effort to reduce improper payments

hinges on each Federal agency’s diligence and commitment to identify, estimate, determine the causes of and take corrective actions

to reduce improper payments.

Mr. Chairman, Ranking Member Towns and Representative

Connolly, I would like to thank you for providing the opportunity

for me to speak before you today. I also appreciate your commitment to addressing this serious problem. I would be pleased to respond to any questions you may have at the appropriate time.

[The prepared statement of Ms. Daly follows:]

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Mr. PLATTS. Thank you for your testimony. I appreciate both of

you sharing your knowledge and insights.

I will yield myself 5 minutes a first round of questions.

I certainly appreciate the headway we have made since the

former Chairman Steve Horn authored the original Improper Payments Information Act and got us on a good track to where we are

today, almost 10 years later. It seems we certainly are doing a

much better job as I referenced in my statement and you both have

as well that we are now identifying the amounts and therefore,

know what to go after, but it is still pretty significant.

Mr. Werfel, in your written testimony you reference that not all

errors are fraud, in fact, ‘‘most payment errors are inadvertent,’’

and you further say not all errors are waste, and in fact, ‘‘significant amount of error is based on missing documentation.’’ How

would you roughly calculate percentage if it is not fraud, it is not

waste, it is inadvertent and maybe missing documentation? Is that

50 percent of the $125 billion number; is it 75 percent?

Mr. WERFEL. There are a couple of answers. First, in terms of

the overall error report portfolio, we think about one-third associates to the lack of appropriate documentation. That means we go

down and we audit or sample the payment and test its accuracy

and the people involved cannot provide us the relevant information

for us to do an appropriate validation of whether the payment was

accurate or not. Under longstanding audit principles, we don’t assume the best, we assume the worse and we characterize that as

an error. That is about one-third.

What happens is later on as that documentation improves, we

find not all of those payments turned out to be error. It reverts

back to the general error rate that we see in government programs

which is about 5 percent.

Your other question about fraud is something that we are looking

at but we don’t yet have an exact percentage. What we see in the

other two-thirds of the problem—I am being very general now—is

most often the problem is an inability to validate eligibility or authenticity, whether data matches that should be occurring are not

occurring or whether there really is at this time no third party

data source to validate the current situation.

In some cases, it turns out that our inability to validate eligibility is driven by the fact that we are actually being defrauded,

that someone has set up a fake identity or a fake account of some

kind. We believe based on all the information that we have that is

a serious problem but it is not a large percentage of the problem.

We just don’t have the exact percentages at this time. In order to

do so would take a different approach to our measurement that

would involve a lot of resources and the community as a whole is

considering and continues to consider whether to establish a particular fraud metric. It would be interesting to hear the interest of

this subcommittee on that topic as well.

Mr. PLATTS. I assume in the area of improper documentation, it

is safe to believe that a lot of that relates to programs that are

State-administered such as Medicaid where the verification is not

done by a Federal entity but a partner at the State or local level?

Mr. WERFEL. It is a significant problem in State-administered

programs. You have 50 different administrations of the program,

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50 different approaches, so we see sometimes the controls and the

documentation, and the rigor with which programs are carried out

at the State level vary greatly. That is one of the areas. You are

right, we do not have as direct, immediate control over how those

States are running their operations and what kind of internal controls they are putting into place to maintain good documentation.

That is why it becomes very significant.

Mr. PLATTS. On a specific program, the idea of whether it is more

fraud or inadvertent, lack of documentation, Medicare fee for service, you reference in your testimony, the President’s efforts to really

go after improper payments in this category, certainly it is a good

sign to go from an estimated 12.4 percent to now 101⁄2 percent.

In that specific program, what was the most significant change

or effort that got us from over 12 down to 10, so we are coming

down, and how would you characterize the issue of fraud versus inadvertent or lack of documentation?

Mr. WERFEL. That is a very good question. Medicare is the largest source of error in the Federal Government. It is obviously the

top priority of the administration to address that because as we address and do a better job on that, the whole governmentwide error

rate and improper payment problem shrinks.

In terms of how they have been able to improve, the Medicare

Program, the folks at CMS have had an ongoing and longstanding

corrective action plan that continues to move forward and continues to get refined, and they continue to make more and more

progress. It has multiple elements to it.

They are holding providers more accountable for documentation,

they are working with the provider community to understand what

they are required to maintain in terms of documentation, so that

problem is there. There are other elements to Medicaid error,

whether they are doing a better job in identifying coding errors.

For example, they reimburse for an MRI but only a chest x-ray occurred or we reimbursed for a $4,000 procedure when only a $1,000

procedure occurred. These sometimes are coding errors and they

are building better automated solutions and contractor review modules that can pick up on these things.

I think the real driver here and the most promising benefit to

Medicare is their predictive modeling and their business intelligence and analytics, to identify procedures that look anomalous

and activities that look anomalous. As the information age

emerges, we become better at detecting these different trends with

the data.

Sometimes there is a legitimate provider who didn’t realize the

activities they conducted are technically not Medicare-eligible and

we need to train those medical providers better. In some cases, it

is fraud.

Mr. PLATTS. Just to conclude on that specific point, the business,

the analytics and doing better, this is something the credit card industry is way ahead in. How are OMB specifically or departments

individually trying to reach out to the private sector? I am a big

guy with Discover Card. No annual fee, I pay it in full every

month, cash back. But each year my wife has chaired the Teacher

Appreciation Program at our local elementary school and one of the

things was through the PTA to do a gift card for each teacher. My

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wife purchased them for the whole school, all the faculty and then

is reimbursed by the PTA when they are provided, so there is a big

charge out of the norm. I actually get a phone call from Discover,

as the member of record, saying a big charge has been made 5 minutes ago. If there is a problem with this and you didn’t authorize

it, let us know right away.

Mr. CONNOLLY. Mr. Chairman, I would like that system that I

get a call every time my wife put a big charge on the credit card.

[Laughter.]

Mr. PLATTS. I do sometimes, not in any distrust of my wife’s

spending habits, but Discover, but it is the example, saying something is out of the ordinary because of the amount of the charge.

Those things happen when I make the charge too, Mr. Connolly.

How are we doing as a government in trying to replicate and not

reinvent the wheel but use the expertise from the private sector

who had a real financial incentive to do this and they are doing it

very well. Are we reaching out to the private sector or are we trying to reinvent the wheel instead of learning from what they have

done?

Mr. WERFEL. An excellent question and to me it is one of the

more exciting opportunities that we have. I used the phrase earlier

leveraging the information age and that is a mantra that I have

tried to promote within the community around this area.

To answer your question more directly, I think we are going to

look back and see one of the most critical moments in the history

of our journey in improper payments as being the creation of the

Recovery, Accountability and Transparency Board and some of the

innovative things that have been going on at that board. They have

really been serving as the major bridge between these cutting edge

solutions, whether in the credit card industry, counter intelligence

or otherwise and saying these solutions can be used in programs

like Medicare and Medicaid.

They demonstrated that during the Recovery Act where we started to get wind of some of the things they were doing by using data

out there in the public sphere, gathering enormous quantities of

data in real time and then using very sophisticated and well

thought out algorithms, questions and queries of the data to say

looking at this payment, it looks fine when I look at it like this but

with the data I am going to twist it on its axis a bit and suddenly

there are a bunch of red flags there.

We were basically wowed by what they were able to do, so we

started bringing in more and more agencies. They tell us they don’t

know what they are more busy doing, finding fraud or demoing the

solutions to other agencies which I think is a great problem to

have.

Mr. PLATTS. That resource, they are serving as a kind of clearinghouse to educate and train departments and agencies to replicate what they are doing?

Mr. WERFEL. Right. One of the major moments was when we

brought in CMS and they saw the solution. They have a forensic

unit at CMS that does a good job, a very good job. They challenged

the Recovery Board, said here is a bunch of data, we know where

the fraud is within this data, let us see if you can find it. Not only

did the Recovery Board find it, they found fraud that CMS had

37

missed. They did it using a better, more comprehensive, different

type of algorithm.

CMS is very good, for example, at finding providers with unusual

treatments like here is a provider in Texas who had seven of these

types of treatment in the last few weeks and that is unusual. You

don’t see that kind of treatment out of a small provider. They

forensically look at that stuff well. The Board’s tool found identity

fraud. It found a doctor in Texas using a license of a legitimate doctor in North Carolina, saying this doctor really doesn’t exist. They

had missed that in the CMS algorithms and forensics.

The goal now is they shouldn’t miss it anymore, so now CMS is

creating a fraud lab where they have different types of people with

different perspectives and expertise including some of the Recovery

Board expertise driving to improve their overall algorithm.

It is fantastic and it is going to take time before we see the full

impact of the result, but they already have an investigation underway with an Inspector General around a fraud ring that was discovered through this.

Mr. PLATTS. Good news that we are headed in the right direction.

I appreciate my colleague’s understanding in going well over my

time, but I yield to the ranking member.

Mr. TOWNS. Let me begin, Ms. Daly. Can you explain to me what

a payment recovery audit is?

Ms. DALY. Yes, sir. Payment recovery audits are actually audit

tools, although not audits in the true sense of the word, typically

performed by contractors who specialize in this area. They comb

through invoices and other documentation that an agency maintains and identify improper payments that are in there and actually go out and recoup those improper payments.

They typically work on a contingency fee basis, therefore there

is little cost to whoever is employing them. These payment recapture audits or recovery audits are actually performed not just in

the Federal Government, but in State and local governments and

also in the private sector.

Mr. TOWNS. In your testimony, both of you discussed the annual

increases in improper payments. You said the government started

out with $45 billion and reported improper payments in 2004. You

indicated 7 years later it was $125 billion in improper payments.

That represents about a $70 billion increase in 6 years. Can either

of you explain the cause for the major increase?

Mr. WERFEL. I think the biggest cause is just more programs reporting. When we first started on this journey after the Improper

Payments Information Act was enacted in 2002, one of the first lessons learned was measuring error in programs isn’t easy. It requires resources, expertise, creating partnerships with your funding recipients who now have to be subjected to these payment audits, so it took us a while on the learning curve to figure out the

right and the appropriate way to measure a number of programs.

That $45 billion that you referenced takes into account a smaller

footprint of programs, so what happened each year is we have the

good news of we measured three more programs, add their error,

the next year we measure in five more programs, add their error

and the error amount grows.

38

The other cause is outlays. We outlaid significantly more money

in 2010 than we did in 2004. Even if the error rate stays constant

at 5 percent, if you are going from $100 to $1,000 to $100,000, even

at a 5 percent error rate, the improper payment amounts go up.

Those are the two causes.

Without making any excuse, we still have a $125 billion problem

that we need to solve. I have explained to you why it is increasing,

but we need to be very, very focused on how to start turning that

tide back the other way.

Mr. TOWNS. Mr. Werfel, IPERA included many important provisions aimed at reducing improper payments. One provision relates

to sanctions for programs that are not complying with the law. Specifically, if any agency is determined not to be in compliance for

two consecutive years and the Director of OMB determines that additional funding would help the agency come into compliance, the

head of the agency shall obligate additional funding in an amount

determined by the Director to intensify compliance efforts.

Would you please explain how you would determine what needs

to be done at the agency level?

Mr. WERFEL. It is going to be challenging. I think one of the most

important things that IPERA does that I am most excited about is

it really integrates the Inspector General into this problem more

than in the past. Because 2 years of non-compliance is based on a

conclusion reached by the Inspector General and I am hopeful that

in reaching that conclusion, the Inspector General is going to provide us some degree of a road map in terms of where some of the

deficiencies are occurring and where the investments are needed.

I also think the agencies on the management and payment side

are also very dedicated. My vision is if we get to a place where we

have an Inspector General who finds an agency has been non-compliant for two consecutive years, we are going to come to the table

with OMB, the agency and the Inspector General and have a

strong diagnosis of where the money can best be spent, where is

the most positive return on investment.

It is not going to be easy but I think with the right partnerships,

we should be able to find the answers more often than not.

Mr. TOWNS. My time has expired. Thank you, Mr. Chairman.

Mr. PLATTS. Thank you, Mr. Towns.

I now yield to the gentleman from Virginia, Mr. Connolly.

Mr. CONNOLLY. Thank you so much, Mr. Chairman.

I really want to thank you for having this hearing because this

is the kind of public policy thing I love to sink my teeth into and

I look forward to working with you on followup legislation because

I think this is a promising area. Not all of the Federal budget or

Federal deficit lends itself to promise, this one does.

I want to ask as many questions as I can fit in, so please try to

be concise and bear with me.

Mr. Werfel, if I understood your testimony, you talked about

$125 billion in improper payments made last year. You said there

was a goal to recapture $2 billion. That seems awfully modest.

Mr. WERFEL. I will try to be as concise as I can. The sweet spot

for where you can recover error is recovering improper payments

to vendors. The reason is the measurement that we have is real,

every time we find an improper payment to a vendor, we can actuVerDate 17-JUN-2003 11:14 Sep 22, 2011 Jkt 000000 PO 00000 Frm 00042 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\68043.TXT KATIE PsN: KATIE
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ally find the vendor, the date the payment was made and go back

and get it.

In the broader scheme, the way we estimate errors is we pull a

small sample size and extrapolate that to a universe. For Social Security, which could have $1 billion in errors, we don’t know in

every case that it was John Smith or Jane Smith that got the

error. We pull a sample size, say 400 or 4,000 samples versus the

actual 100,000 or 200,000 payments that were made. We only know

about the errors in the small sample size. That is why.

Mr. CONNOLLY. Let me say to you as someone who ran a fairly

large local government, I don’t think you make a lot of progress unless you make heroic goals, stretch goals; $2 billion doesn’t cut it.

It is not sufficiently robust, in my view. I understand the limitations but it is something I think we have to come back to, not when

the universe is $125 billion.

Ms. Daly, you indicated that Medicare prescription benefits, Part

D, does not yet even track, but it is going to next year, improper

payments, correct?

Ms. DALY. Exactly. The Medicare Prescription Drug Benefit Program has actually done estimates on subsets of its population but

does not have a total comprehensive estimate for that program.

Mr. CONNOLLY. That program has been in place now for how

many years?

Ms. DALY. I believe it was put in place in 2004, but I am not certain.

Mr. CONNOLLY. So we have 6 or 7 years of track record. That

seems awfully sluggish to me. They have had plenty of time to get

with the program, haven’t they?

Ms. DALY. I think they have been trying. As Mr. Werfel indicated, it is challenging to come up with a valid, comprehensive estimate for many of these programs. It is not always easy to measure

where the errors are occurring.

Mr. CONNOLLY. Particularly with the doughnut hole, however, it

just lends itself to gaming, some of which would be illegal one

thinks. Prescription drug prices are all over the lot. There are discount drugs, generic drugs, brand drugs, expensive drugs, orphan

drugs and all kinds of other things. It just seems to me that is ripe

for the picking. I would hope we are going to put a lot of heat on

them to make sure they get this program up and running.

Mr. Werfel, in terms of analytical tools, I was intrigued by the

chairman’s recitation of how credit cards clearly have a monitoring

system for ourselves and our spouses and we could learn a lot from

the private sector. I thought I heard you say we are doing that on

a pilot basis.

I want to give you an opportunity with three things quickly. One,

how do we expand that beyond a pilot so we are actually using the

expertise of the private sector in the public sector given the

amounts we are talking about?

Second, in terms of diagnostic tools, what are we doing on the

diagnostic end to better get a handle on what is the cause, a more

accurate cause of improper payments?

Finally, what incentives are we providing for agencies to have a

better track record than $2 billion out of $125 billion?

40

Mr. WERFEL. The first question, we have definitely moved beyond

the pilot phase, but I don’t think we are where we need to be. I

think the private sector is way ahead of us in terms of leveraging

the type of information networks to find anomalies and errors, but

we have isolated examples of success stories. Almost every agency

has a forensic unit and we have some expertise in this area and

we have brought them together in a working group recently to try

to make sure we pushing ourselves to better and better things.

The examples I provided are real. The Defense Department is

one; they have a very sophisticated pre payment algorithm tool

that they use that has prevented something like $1 billion in error

over the last few years. The Recovery Board is real and it is happening today. CMS’s Fraud Lab is real and is happening today.

The reality, I would argue and my belief, is the credit card companies with the networks that they are developing are more sophisticated and ahead of us and we need to catch up.

Your second question I believe was on diagnostics and root

causes. I think that is an area of real progress that has been made

since 2004. When we talk to agencies, it is not about a lack of understanding of what is causing the error. It is more what are the

appropriate solutions. There are two things that drive our challenge on solutions.

One is do we have the information that we need. Sometimes

whether it is the Privacy Act or just the lack of an automated tool

to pull it, we don’t always get the information we need to validate.

The second is the tougher we make the world for recipients to prevent improper payments, it can create other programmatic challenges. I often find myself in a meeting with an agency and say,

here is how you do it, just create a policy that makes it much,

much more difficult to get a payment error. That tends to have reverberations around the rest of the program and could either create

access barriers or create other complications, so it is finding that

equilibrium.

I don’t think I remember your third question.

Mr. CONNOLLY. The third question was are the right incentives

in place for agencies to put together a robust program and making

this a priority?

Mr. WERFEL. I think they need to be stronger. IPERA is a great

start with the compliance penalties, the push to get this into performance appraisals. Earlier Chairman Platts referenced the audit

situation. You are probably aware that on November 15th of each

year, agency financial statements are due and their audits are due.

I always talk about in the push to November 15th, is remarkable

how the agencies are so dedicated, working through the night, 17

hours a day and this tremendous, intense push to get our financial

statements out on time and to get them with clean audits. I think

if we can harness that energy, the accountability is there. The

CFOs take it personally if they don’t get a clean audit, it is a big

deal. If we can somehow harness that energy around this problem,

I think you would see a tremendous change. That is something I

want to promote with this subcommittee.

Mr. PLATTS. I thank the gentleman.

Before I yield to Mr. Guinta, just to follow on that, the premise

that the audit of the internal controls that we required of DHS

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was, I believe, one of the keys to their getting on a good track. As

you referenced, someone could get a clean opinion on their annual

audit, yet have $100 billion of improper payments going out the

door because the audits we are doing now don’t go after identifying

those improper payments, just that they can account for the money,

not necessarily that it was properly spent.

With that, I yield to the gentleman from New Hampshire, Mr.

Guinta.

Mr. GUINTA. Thank you, Mr. Chairman.

Thank you both for your testimony.

First of all, the number $125 billion, how accurate is that number?

Mr. WERFEL. I will give that to the auditor.

Mr. GUINTA. I know that is a reported number, but what would

be your guesstimate of additional moneys that we are not identifying in overpayments or improper payments?

Ms. DALY. That is the unknown answer because we have to wait

until an empirically sound method is developed for providing an estimate. Right now, the best we know is that it is $125 billion for

2010. We do know there are at least seven major risk susceptible

programs that have not reported. I can’t give you a sense of how

much those particular programs may have in improper payments

or others where they maybe tightening up their methodologies and

moving forward that might provide a more precise estimate for programs that have already reported.

That happened a year or so ago with the Medicare fee for service

program. They initially reported an estimate for 2009 of about $24

billion and then applying a more stringent methodology, raised

that estimate to about $35 billion. That is a case where when they

do a more precise estimate, they are able to identify what the various reasons and causes are.

I wanted to add to something discussed just a minute ago that

I do think the estimates coming out are getting better, but it is also

very important to have consistency in measuring because that way

you are comparing apples to apples and you don’t have the differences that may come about just because you are using a different approach in your measurement.

Mr. GUINTA. In the seven major programs not reporting yet,

which are the top two?

Ms. DALY. Medicare Prescription Drug and then I believe TANF

would be the next larger dollar value program that has not reported.

Mr. GUINTA. Over the last 5 years, has this number been roughly

the same, this $125 billion or has it progressively increased?

Ms. DALY. The number has been progressively increasing. Last

year’s estimate was $109 billion. Prior to that, I have to check a

cheat sheet, if you don’t mind, I believe the number was $72 billion

in 2008, $55 billion in 2007, so we have seen a consistent progression upward. As Mr. Werfel indicated, a lot of that is because there

are more programs reporting every year.

Mr. GUINTA. Do you have a breakdown of how much would be

Medicare and how much would be Medicaid?

Mr. WERFEL. I can answer that question. It is a very large portion in Medicare fee for service, $34.3 billion in error and Medicare

42

Part C, $13.6 billion, and in Medicaid, $221⁄2 billion. That is more

than half our balance sheet on error just in Medicare and Medicaid

alone.

Mr. GUINTA. Is there ever a likelihood of us achieving real savings in these three areas? When I say real, I mean 70, 80 or 90

percent?

Mr. WERFEL. Yes, but it is going to take time and it is going to

take congressional help. For example, there is in the President’s

2012 budget a series of program integrity proposals for a variety

of different programs, but in Medicare alone, our proposals, we believe if enacted, would have the impact of saving $42 billion over

10 years if you combine the legislative proposals we are seeking

and some additional funds to do program integrity work. That

doesn’t get you to the 70 or 80 percent, but again, we think this

is an extremely important step to be taken.

Mr. GUINTA. Would you send some of those recommendations to

my office? I don’t know if other Members would like them, but if

you would, I would like to take a look at that.

Mr. WERFEL. Absolutely.

Mr. GUINTA. Thank you. I yield back.

Mr. PLATTS. I thank the gentleman.

I yield to Mr. Lankford from Oklahoma.

Mr. LANKFORD. Thank you.

I would say keep going. There are a lot of people counting on you

based on the budget and the American people looking forward to

getting some of this cleared up over time. This has been a long ongoing process. It is not a simple task by any means, we understand

that, but keep going with what you are doing.

Mr. Werfel, you know my propensity on some of the Web sites

that we have on the dot govs. Can I ask a quick question on the

paymentaccuracy.gov? How is that connected and are there other

places that people can go to be able to find that and track it? Is

the information connected to data.gov and other places as well as

the agency’s Web site as well so it is easy to identify and find?

Mr. WERFEL. That is a good question.

First of all, just to promote the Web site, paymentaccuracy.gov,

we have been pleasantly surprised with the number of hits and foot

traffic we get on the site. It is a well visited site and we are very

excited about that.

I can’t say that we have the perfect architecture of all the different links but there are a lot of different opportunities to get

there. In particular, it is in our USA spending family and I would

say that is probably our most visited Web site in this terrain, so

I think that is most critical.

Mr. LANKFORD. I would continue to encourage you to find a central portal that we can promote as a Federal Government site and

say if you are looking for something, you can go here, get a chance

to connect and jump off and it is also searchable so you can connect

and it connects with different things rather than having to search

in one, search another and another and be able to track it.

The consequences for an employee, vendor or contractor that

were discovered in improper payment, how is that working? We

talked about incentives. Obviously we want incentives for the agency to be able to find and reuse that money in other areas if it is

43

done appropriately. What are the consequences, give me some examples of that?

Mr. WERFEL. I think the major consequence is that once a payment is identified as error, and we identify the vendor that received the error, if they don’t pay back the money in a timely way,

we have a suite of different activities we can undertake to enforce

that debt collection. One of the things I am working to do with the

procurement community is to figure out all the additional steps we

can take.

When we make a payment error to a vendor, that is the United

States making an error. I believe the vendor has an obligation to

report that error as soon as possible. So we are looking at ways—

we haven’t identified the perfect solution—to increase the vendor’s

responsibility to help in this hunt for improper payments.

Mr. LANKFORD. There is both a balance in that because I have

talked to a physical therapy center in Oklahoma City not long ago

and they had a longstanding battle with Medicare reimbursements

where they would get a random contact saying this was inappropriate. They would pull their file and say no, it was very appropriate, here is the code. I am sure it is being identified as inappropriate, they are telling me no, I have the full verification, this is

the right code, this is the right thing.

How are we hitting that balance between the two where we don’t

have an individual vendor that is being crushed in the process and

having to fight for a year to get the payment they deserve versus

finding real fraud and saying we have to sniff this out? There has

to be a balance.

Mr. WERFEL. You are hitting on the central issue. I made this

point in response to Congressman Connolly’s question. There is a

tension when I sit in a room with an agency, often I say, why can’t

we do this more aggressively? Why can’t it be more comprehensive?

Why are you waiting until you are 95 percent confident to go after

an error? Why don’t you go after an error when you are 80 percent

confident and cast a wider net?

The issue that it creates more false positives and it creates the

potential for more litigation and inequity, so the question is finding

that right equilibrium and finding that right balance plane.

Mr. LANKFORD. If there is some way to be able to notify the vendor that this is something that is suspicious, if you would provide

some simple documentation to make sure we can clear that up,

that would certainly help rather than the cutoff point of saying, we

think it is, reimburse our money to us, pay us whatever it may be.

It provides some sort of interim step that would be very helpful in

that process on both sides. We want to be able to tell people we

are tracking it aggressively. If more people are getting that contact

and saying we are watching, that helps. If more people are finding,

I had better pull this and have my documentation in place, that is

a helpful thing.

It is somewhat disturbing to hear about Medicaid, dealing with

$22 billion in this abuse, fraud, whatever it may be, whatever we

are going to call it. That is running 8 to 10 percent of Medicaid

costs, a significant amount that we are processing. I would encourage we continue in any way we can to track that.

44

Is there a single area you can look at and say this is the big

issue with Medicaid and why we are having so much come out of

it? Is there anything that comes to the top of that $22 billion?

Ms. DALY. Actually, the agency reported that typically for both

Medicare and Medicaid, they have medical necessity issues, trying

to determine whether the medical procedure should have been performed. Oftentimes it is, as you mentioned, things like insufficient

documentation commonly reported as one of the key causes of improper payments for those programs.

Eligibility status is another for Medicaid that you don’t see for

Medicare. Typically, these are the causes that the agencies report

are contributing to those estimates of improper payments.

Mr. WERFEL. I would add one thing to that. The other challenge

HHS has on the Medicaid front is 50 different States running 50

different Medicaid type programs. It is sometimes difficult to say

here is a unifying solution to our eligibility or documentation problem. It doesn’t always translate for every State. It just means we

have to work harder and get more granular in our solutions on a

State by State basis. I think CMS is doing that but clearly at $22

billion, a lot more needs to be done.

Mr. LANKFORD. On our side legislatively, we are working on correcting that with the budget we are putting out today on the House

floor, block grants, Medicaid back to the States, it puts the accountability side on them. We are dealing with 50 different States and

we are trying to resolve that in a different way.

I appreciate that and I yield back.

Mr. PLATTS. I thank the gentleman.

We are honored to be joined by the distinguished Chair of the

full Committee on Oversight and Government Reform from California, Mr. Issa.

Mr. ISSA. I thank the chairman. I apologize for not being here for

the whole hearing but we are doing two at once, so I was over in

National Security.

Mr. Werfel, I sent you a letter about a month ago that today happens to be miraculously the deadline, that asked what your policy

was and the basis for not sitting on panels if they weren’t to your

liking. Am I going to see that letter today?

Mr. WERFEL. I believe we are on track to get you a response

today, yes.

Mr. ISSA. Today will end soon, you know.

Mr. WERFEL. At OMB, our COB is later than normal, but we will

get yours.

Mr. ISSA. As you are finalizing it, since it is not here, I understand a longstanding policy for this committee is not the 2-years

in which the Obama administration had your own party looking

over your shoulder, it has to be a basis that would transcend any

one administration. Otherwise, it is an administrative choice which

is not acceptable to the other body that has the obligation for oversight, so hopefully your answer will be creative and maybe a yes,

we will come more often.

Mr. Lankford was asking about the false positives and so on.

Two days ago, I was in front of one of the many groups we keep

bringing in from AmericanJobCreaters.com, people who are talking

about abuse within the Federal system, talking about the checks

45

and balances, the absence of the ability to track in real time,

waste, fraud and abuse. I asked them because we were on the subject how many of you have received a call from Visa or Master

Card telling you that there is a suspicious problem? Virtually every

hand went up. It was probably 80 percent at least.

Then I asked how many of you had identity theft or your card

actually stolen? About four hands went up, one of whom was on my

staff. The amazing thing was I asked if anyone was upset and they

said, of course not. Why? Because it reduces the cost of that card.

If it wasn’t for the millions of false positives that are asked and explained, the cost of those cards would go up by multiple percentage

points because, as you know, Master Card eats the losses.

My question to you is, why in the world wouldn’t you develop a

system that would allow you to basically be false positive ten times,

twenty times more often, ask the question and in an analytical and

inexpensive way accept the answers and then sift through those

answers? Why isn’t that the approach since it works for VISA and

Master Card in real time and for us, it doesn’t work so well the

way we’re doing it?

Mr. WERFEL. That is a very good question, a challenging question

and I can assure you, Congressman, I am typically the person at

the table pushing for a broader net and a more aggressive posture

so that we can drive down errors.

Coming back at me across the table are very legitimate programmatic and policy concerns, in particular the concern that setting up these types of internal controls and stop points or moratoriums on payments or keeping a payment from going out the door

can create situations not only in which an eligible beneficiary is denied a payment, but also can create the risk of litigation and due

process that can slow down the process.

Mr. ISSA. May I stop you for a second? I would narrow my concern and request. Unless they don’t get answers after a period of

time, your credit card doesn’t actually get frozen, so let us go back

again. Why wouldn’t you send them out and expect responses and

not necessarily shut off the payment, but simply increase because

so much of this to the physicians and others can be done electronically, why wouldn’t you send out and only when there is a complete

absence of response, multiple times or if you take what you are

presently sending and do stop if you don’t get the answer you want,

and add nine times more?

But you don’t stop except for the ones you are already stopping,

all you are really doing is creating the alert, improving the system

and eventually eliminating some of the false positives if you have

a quality circle where you are learning from it. Why isn’t that at

least on a pilot basis on your radar screen to basically make Medicaid and Medicare oversight similar to credit card companies that

can do this so automated and so efficiently that you are talking

about a fraction of the fraud and the cost?

Mr. WERFEL. It is totally on our radar screen and it fits right

into our strategic plan.

Mr. ISSA. Then I am going to ask one more because my time has

expired and I want to be conscious we also have a vote.

The President’s fiscal year 2012 budget appears as though the

Board success is being rolled into the Department of Treasury’s BuVerDate 17-JUN-2003 11:14 Sep 22, 2011 Jkt 000000 PO 00000 Frm 00049 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\68043.TXT KATIE PsN: KATIE
46

reau of Public Debt for the creation of yet another new system.

Why is it we would spend $10 million to take a program that has

proven its successfulness because it didn’t fall into Treasury’s existing trap. It especially makes health care reform look less complicated when you look at all the report ‘‘froms’’ and the report

‘‘tos.’’

Why in the world would we do that? Isn’t the Board proof that

you have to do it differently and not simply roll it into one more

report? Ms. Daly, I think I will start with you on that because from

an efficiency standpoint, I think you see what we are getting to.

Ms. DALY. Yes, Congressman. I am really not familiar with the

particular proposal you are talking about but I can say the Board

did identify a number of very promising techniques that could and

should be used throughout the government to try to help prevent

improper payments.

Mr. ISSA. Mr. Werfel.

Mr. WERFEL. I have a couple of responses to that.

Mr. ISSA. You do ask for more money to move it than it costs to

produce it, just in case you are looking at the scale.

Mr. WERFEL. On the one hand, I will say that I have talked to

Chairman Deviney about the possibility of defraying some of the

costs by leveraging the hardware/software and expertise that he

has, but he is an independent entity and I would never presume

to ask for the keys to his car. I want to make sure that he understands that we want to emulate what he is doing because it is a

best practice and figure out the best way to emulate it. If we can

leverage his infrastructure to make our endeavor less expensive,

and he would agree, that is definitely a path forward.

In terms of Treasury, I think we can be extremely successful in

deploying this technology at Treasury. Treasury makes almost all

the payments for the Federal Government ultimately. They take

the information from the agency and they cut the checks, as I am

sure you know. That means all this information is flowing centrally

into Treasury. They have what I believe to be the bench strength,

the expertise and the right network and relationship with the

agencies to develop a very powerful fraud detection technology that

can centrally utilize some of these credit card neuro-networks that

you referenced earlier.

We have to find a place for it and it seems to me that finding

the place where all the information converges before the payment

goes out seems logical. If there are concerns with Treasury in

terms of their operations, let’s talk about them, sort through them

and see if we can find corrective actions, but from a design standpoint, I think we have a strong argument around Treasury as being

the right location.

Mr. ISSA. Very good.

Mr. Chairman, Chairman Deviney has told us he is more than

willing to meet with all the parties. I would suggest that a less formal environment with the chairman, members of our committee

and staff and people from your organization might be the best way

to strategize whether or not the keys to the car could be handed

over in a more efficient fashion.

Thank you. I yield back.

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Mr. PLATTS. I thank the chairman. Certainly that focus of learning what has been done and applying it in the best way is what

we want to be about. I appreciate the chairman’s participation here

today.

I yield to the gentlelady from the District of Columbia, Ms. Norton.

Ms. NORTON. Thank you, Mr. Chairman.

I note a great deal of executive action. After all, these are agencies under the control of the President. An Executive order in November 2009, another memorandum on finding the payments in

March 2010, followed in June by what I really like, a Do Not Pay

List, is this the first time there has ever been an Executive order

on this subject?

Mr. WERFEL. Yes, Congresswoman. This is the first Executive

order that I am aware of that is dedicated to this problem. As you

just noted, I have served under multiple Presidents and I have

never seen this level of attention to the improper payments problem coming from a President.

Ms. NORTON. This looks like a real focus that has been continuous and systematic. It is frankly very impressive, particularly considering how difficult it is to recoup money if some agency writes

you and says they have overpaid you like the IRS and they want

their money back. That is enough to send you up the wall.

I am satisfied that we have the first systematic effort to do something about a problem that is, to say the least, elusive and difficult

because you have to deal after the fact. When you see how large

the government, it is inevitable absolutely that there would be

overpayments.

I am always interested in the cause because prevention seems

the best strategy. I am sure you may have spoken of the causes.

Based on some of the figures I have from OMB, I want to ask you

about improper payments when one looks comparatively, and we

are looking at very different agencies, so I don’t know how to evaluate the different agencies.

For example, you have Medicare fee for service and improper payment amounts, $34.3 billion. That is a rate of 101⁄2 percent.

When I first saw that, I thought the money goes through so many

hands, maybe it has to do with that. Then I looked at the national

school lunch program where I don’t think anybody has to put up

any money and that rate of overpayment was 16.3 percent. I am

trying to get a grip on some anchor factor that may lead to overpayments because if you retrace that, maybe you could know how

to prevent it.

Do you have any insights into why, for example, school lunch

would have such great overpayment percentage than Medicare fee

for service?

Mr. WERFEL. Congresswoman, certainly this is something we

have studied very closely to try to understand the root causes. I

think we are in a good place right now to understand those root

causes. Our challenge has been finding the right solutions.

To answer your question directly, eligibility is a key issue across

the board for programs generally, confirming eligibility and eligibility is often driven by factors like what the household size is,

what their adjusted gross income is, what their assets are in order

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to determine whether they are the right population to receive this

particular income maintenance or social benefit.

It is no different in school lunch. We have a lot of school districts

with a variety of different procedures in place to make sure the

right kids are receiving subsidized or free and reduced price

lunches. When we audit it, we find that overpayments are made in

the form of a greater population of children receiving the school

lunch subsidy than otherwise would if the requirements were technically followed.

Ms. NORTON. That is very helpful. You see the low rates for disability insurance, the Social Security Administration.

Mr. WERFEL. Correct.

Ms. NORTON. That is 0.05 percent there. Does it have to do with

experience? Does that have to do with what it takes to qualify because you would think the same would be true in terms of qualifications being so nailed down, the same would be the case with

Medicare fee for service. We know exactly who those people are or

aren’t. Does that have to do with the hands through which it goes

and the providers whereas with disability insurance, you have a

very low rate which perhaps goes through less hands or fewer

hands?

Mr. WERFEL. That is a very good question. My answer to that

question is the Social Security Administration has a direct connection to the beneficiary it is paying. The process is one straight line

from the Social Security Administration determining eligibility to

the payment and it is a unified system throughout whereas school

lunch is 50 different States, different State Departments of Education.

Ms. NORTON. Medicare fee for service, you would think there is

a straight line there between the physician or whoever gets the

money, the State or whoever.

Mr. WERFEL. Medicare is unique in terms of one of the major

drivers of error is a cousin of eligibility, it is medical necessity.

Medicare is probably the most challenging of all the programs because, for example, a patient comes in and the doctor makes a decision on the spot to keep that patient overnight but when you go

back and look at it, Medicare only would have reimbursed for an

outpatient experience. That is about training doctors and figuring

how to better understand the decisions that are made. It is an

enormously complex challenge because it is very difficult to validate medical necessity in real time. That is why you see such high

numbers in Medicare.

Mr. PLATTS. I apologize to the gentlelady, but I have to run to

the floor.

Ms. NORTON. I appreciate your graciousness, Mr. Chairman.

Mr. PLATTS. As we have seen here on both sides, there is tremendous interest in the issue and I want to wrap up quickly.

When Mr. Lankford talked about block granting Medicaid, I

know it is a controversial issue, but it is to go after the issue of

saying to the States, we are going to give you a block grant of

money so they then buy in and have much greater incentive to go

after the improper payments than today when we are paying 57

percent, they are paying 43. They have less incentive than when

it is their own money. I think that is what Mr. Lankford discussed,

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to after school lunch where it is local verification. If we are paying

the bill, they are not as concerned because we are paying the bill.

The bottom line is we want to work with you, with the administration, both sides of the aisle, with the committee and really partner with you. I know Mr. Towns and Mr. Connolly both have

talked to me about partnering with me. I think Mr. Lankford and

others on this side want to work with you on legislative fixes that

we need to help you go to the next step, also how we can partner

with the administration on getting the Department of Transportation and the Postal Service to comply with the original Improper

Payments Act to adequately identify the possible risk.

Any way we can work together, the bottom line is to identify improper payments and how to prevent them in the long term or recovery when they are made.

We appreciate you both being here. Mr. Werfel, you were in the

hot seat a little here but we are glad to have the partnership we

have with you and your office and look forward to continuing that

and working closely with you.

We will keep the record open for 7 days for any additional information you would like to provide or any statements Members

would like to submit for the record. We thank you for your testimony.

This hearing stands adjourned.

[Whereupon, at 11:27 a.m., the subcommittee was adjourned.]

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