U.S. GOVERNMENT PRINTING OFFICE

67–152 CC WASHINGTON : 2000

RESULTS OF THE HEALTH CARE FINANCING ADMINISTRATION’S FISCAL YEAR 1999 FINANCIAL

STATEMENTS AUDIT

HEARING

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,

INFORMATION, AND TECHNOLOGY

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

SECOND SESSION

MARCH 15, 2000

Serial No. 106–162

Printed for the use of the Committee on Government Reform

(

Available via the World Wide Web: http://www.gpo.gov/congress/house

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

DAN BURTON, Indiana, Chairman

BENJAMIN A. GILMAN, New York

CONSTANCE A. MORELLA, Maryland

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

STEPHEN HORN, California

JOHN L. MICA, Florida

THOMAS M. DAVIS, Virginia

DAVID M. MCINTOSH, Indiana

MARK E. SOUDER, Indiana

JOE SCARBOROUGH, Florida

STEVEN C. LATOURETTE, Ohio

MARSHALL ‘‘MARK’’ SANFORD, South

Carolina

BOB BARR, Georgia

DAN MILLER, Florida

ASA HUTCHINSON, Arkansas

LEE TERRY, Nebraska

JUDY BIGGERT, Illinois

GREG WALDEN, Oregon

DOUG OSE, California

PAUL RYAN, Wisconsin

HELEN CHENOWETH-HAGE, Idaho

DAVID VITTER, Louisiana

HENRY A. WAXMAN, California

TOM LANTOS, California

ROBERT E. WISE, JR., West Virginia

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

PATSY T. MINK, Hawaii

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, Washington,

DC

CHAKA FATTAH, Pennsylvania

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

ROD R. BLAGOJEVICH, Illinois

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

JIM TURNER, Texas

THOMAS H. ALLEN, Maine

HAROLD E. FORD, JR., Tennessee

JANICE D. SCHAKOWSKY, Illinois

———

BERNARD SANDERS, Vermont

(Independent)

KEVIN BINGER, Staff Director

DANIEL R. MOLL, Deputy Staff Director

DAVID A. KASS, Deputy Counsel and Parliamentarian

LISA SMITH ARAFUNE, Chief Clerk

PHIL SCHILIRO, Minority Staff Director

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, INFORMATION, AND TECHNOLOGY

STEPHEN HORN, California, Chairman

JUDY BIGGERT, Illinois

THOMAS M. DAVIS, Virginia

GREG WALDEN, Oregon

DOUG OSE, California

PAUL RYAN, Wisconsin

JIM TURNER, Texas

PAUL E. KANJORSKI, Pennsylvania

MAJOR R. OWENS, New York

PATSY T. MINK, Hawaii

CAROLYN B. MALONEY, New York

EX OFFICIO

DAN BURTON, Indiana HENRY A. WAXMAN, California

J. RUSSELL GEORGE, Staff Director and Chief Counsel

BONNIE HEALD, Director of Communications

BRYAN SISK, Clerk

TREY HENDERSON, Minority Counsel

(III)

C O N T E N T S

Page

Hearing held on March 15, 2000 ............................................................................ 1

Statement of:

Brown, June Gibbs, Inspector General, Department of Health and Human

Services, accompanied by Joseph E. Vengrin, Assistant Inspector General for Audit Operations and Financial Statement Activities ................. 6

Hash, Michael M., Deputy Administrator, Health Care Financing Administration, Department of Health and Human Services, accompanied

by Michelle Snyder, Chief Financial Officer of Health Care Financing

Administration and Director, Office of Financial Management ................ 45

Jarmon, Gloria L., Director of Health, Education and Human Services

Accounting and Financial Management Issues, Accounting and Information Management Division, U.S. General Accounting Office ............... 20

Letters, statements, et cetera, submitted for the record by:

Brown, June Gibbs, Inspector General, Department of Health and Human

Services, prepared statement of ................................................................... 9

Hash, Michael M., Deputy Administrator, Health Care Financing Administration, Department of Health and Human Services, prepared statement of ........................................................................................................... 47

Jarmon, Gloria L., Director of Health, Education and Human Services

Accounting and Financial Management Issues, Accounting and Information Management Division, U.S. General Accounting Office, prepared statement of ........................................................................................ 22

Turner, Hon. Jim, a Representative in Congress from the State of Texas,

prepared statement of ................................................................................... 4

(1)

RESULTS OF THE HEALTH CARE FINANCING

ADMINISTRATION’S FISCAL YEAR 1999 FINANCIAL STATEMENTS AUDIT

WEDNESDAY, MARCH 15, 2000

HOUSE OF REPRESENTATIVES,

COMMITTEE ON GOVERNMENT REFORM,

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,

INFORMATION, AND TECHNOLOGY,

Washington, DC.

The subcommittee met, pursuant to notice, at 10:02 a.m., in room

2154, Rayburn House Office Building, Hon. Stephen Horn (chairman of the subcommittee) presiding.

Present: Representatives Horn, Biggert, Ose, and Turner.

Staff present: J. Russell George, staff director and chief counsel;

Bonnie Heald, director of communications; Bryan Sisk, clerk; Ryan

McKee, staff assistant; Louise DiBenedetto, GAO Detailee; Trey

Henderson, minority counsel; and Jean Gosa, minority clerk.

Mr. HORN. The Subcommittee on Government Management, Information, and Technology will come to order.

Today’s hearing is the third in a series of hearings to examine

the results of financial statement audits of selected Federal agencies. Today we’ll focus on the Health Care Financing Administration. This agency, which administers the Medicare and Medicaid

programs, helps pay the medical bills for millions of Americans,

from the youngest and the sickest to the oldest and most vulnerable.

In 1999, the cost of these two programs exceeded $300 billion.

Last week, the Health Care Financing Administration released the

results of its fiscal year 1999 financial audit. The Inspector General

of the Department of Health and Human Services reported that, as

of September 30, 1999, the Health Care Financing Administration’s

financial statements fairly presented the agency’s financial position

in all material respects. In accounting terms, that is often called

a ‘‘clean audit opinion.’’ I commend the Health Care Financing Administration for achieving that goal; however, we need to sweep through some of the

smoke and mirrors that cloud the agency’s overall financial condition. Because of those longstanding financial problems, the reported financial information was technically reliable for only 1

day—Thursday, September 30, 1999.

The Medicare program continues to be vulnerable to fraud,

waste, and abuse, partly because of the program’s lack of oversight

on a regular basis. For fiscal year 1999, the Health Care Financing

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Administration reported an estimated $13.5 billion in improper

payments. Last Wednesday, the ‘‘Washington Post’’ reported that

the Connecticut General Life Insurance Co., a contractor responsible for processing Medicare claims, agreed to pay about $9 million

to settle allegations it had overcharged Medicare for its expenses.

Yesterday, the ‘‘Washington Post’’ reported that the Department of Justice is seeking triple damages of $1 billion from Vencor, one

of the Nation’s largest nursing home companies, saying it had defrauded the Federal Government’s health insurance programs.

On another page of the same newspaper, reporter Steve Barr

wrote, ‘‘The patients died, but the bills kept coming, and the Federal Government kept paying.’’ In 1997, the Medicare program paid an estimated $20.6 million for health care services to people who

were dead.

In a renewed effort to reduce waste and fraud, the administrator

of the Health Care Financing Administration said that she plans

to increase the agency’s oversight of the 56 insurance companies

that process Medicare claims on behalf of the agency.

These recent examples of fraud demonstrated the great need for

vigilant oversight. We must ensure the fiscal integrity of this program, and I welcome our witnesses, who will give us a very close

examination of what they have done already in their role as the

General Accounting Office, as the Inspector General of Health and

Human Services, and as the agency itself.

We will start with panel one. If you will stand and raise your

hands, we will swear you in.

[Witnesses sworn.]

Mr. HORN. We had five at the witness table and three at

backups, the clerk will note.

We’ll just simply begin as the witness list is. We’ll start with the

Honorable June Gibbs Brown, Inspector General, Department of

Health and Human Services. She’s accompanied by Mr. Joseph

Vengrin, Assistant Inspector General for audit operations and financial statement activities.

Ms. Gloria L. Jarmon will be the next witness, and that’s coming

after Ms. Brown. We’ll introduce her then, along with Mr. Hash,

who will be accompanied by Ms. Snyder.

There’s a statement from Mrs. Biggert.

Mrs. BIGGERT. Thank you, Mr. Chairman.

I think all of us here today understand what the Medicare and

Medicaid programs mean to this country. For many Americans,

particularly the elderly and the poor, these programs are the only

thing that stand between them and disaster.

As Members of Congress, we have a fiduciary responsibility to

ensure that these programs remain solid and dependable for this

generation as well as the next.

As the agency with oversight over these programs, HCFA has an

equally critical role to play; yet, as we’ll hear today, I believe

HCFA’s management practices unnecessarily and sometimes unwittingly put these programs in jeopardy, and I don’t think I’m the

only one who thinks so.

For the last several years, the General Accounting Office has categorized programs run by HCFA as high risk for waste, fraud, and

abuse.

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Among other things, the GAO has been unable to estimate the

national error rate for fee-for-service payments, which has resulted

in billions lost annually in improper payments; has found that

HCFA has been slow to deploy tools given to it by Congress to correct these problems; and GAO has found that HCFA has material

weaknesses relating to the management of Medicare accounts receivables, financial reporting, and computer security.

I am aware of and commend the steps taken by HCFA to address

its management problems. In fact, as we will hear, estimated improper Medicare payments for this past fiscal year were $13.5 billion, down from about $20 billion reported in fiscal year 1997, and

$23.2 billion for fiscal year 1996. Despite this progress, $13.5 billion of waste, fraud, and abuse is

still too much, particularly given the poor financial condition the

Medicare program finds itself in right now. This wasted money

could have been better put to use shoring up the solvency of the

program or as a down payment on a Medicare prescription drug

benefit.

Today’s hearing presents this subcommittee with an opportunity

to review HCFA’s financial management practices.

I trust that our expert panel of witnesses will help us work our

way through the questions. Their expertise in the field of government management will be useful as we explore ways to rid our government of waste, fraud, and abuse. I look forward to hearing their

thoughts on where HCFA is headed as an agency.

Again, Mr. Chairman, I thank you for calling this important

oversight hearing.

Mr. HORN. Well, I thank the vice chair.

I would like to ask if the gentleman from Texas, the ranking

member, would like to have an opening statement.

Mr. TURNER. Mr. Chairman, I think I will forego my opening

statement and file it for the record so we can proceed with the

hearing.

Mr. HORN. It will be put on the record between my opening statement and Mrs. Biggert’s as if read.

Thank you.

[The prepared statement of Hon. Jim Turner follows:]

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Mr. HORN. We will now proceed with Ms. Brown, the Inspector

General.

STATEMENT OF JUNE GIBBS BROWN, INSPECTOR GENERAL,

DEPARTMENT OF HEALTH AND HUMAN SERVICES, ACCOMPANIED BY JOSEPH E. VENGRIN, ASSISTANT INSPECTOR

GENERAL FOR AUDIT OPERATIONS AND FINANCIAL STATEMENT ACTIVITIES

Ms. BROWN. Thank you, Mr. Chairman.

I’m pleased to report to you, as you’ve all mentioned, that the

Health Care Financing Administration [HCFA], has made great

progress in reducing Medicare payment errors, and also in presenting reliable financial information.

I’d like to begin by acknowledging cooperation and support received from the Department, HCFA, and the General Accounting

Office. HCFA’s assistance in making available medical review staff

at the Medicare contractors and peer review organizations was invaluable. Also, we worked closely with GAO in carrying out its responsibility for auditing the consolidated financial statements of

the Federal Government.

My statement today will focus first on our review of Medicare

payment errors, which we conducted at HCFA’s request, and then

on the fiscal year 1999 financial statement.

Our review included a statistical sample of 5,223 Medicare claims from the population of $169.5 billion in fiscal year 1999 feefor-service claim expenditures. Payments to providers for 1,034 of

these claims did not comply with Medicare laws and regulations.

By projecting these sample results, we estimated that the fiscal

year 1999 net payment errors totaled about $13.5 billion nationwide, or about 9.97 percent of Medicare fee-for-service benefit payments.

This is the mid-point of the estimated range at the 95 percent confidence level. The range is $9.1 billion to $17.9 billion, or about

5.4 to 10.6 percent.

I mention those details because the sampling is not statistically

significantly changed from what it was last year, because we work

with these ranges.

As in past years, improper payments could range from inadvertent mistakes to outright fraud and abuse.

It should be noticed that medical personnel detected almost all

of the improper payments in our sample. When these claims were

submitted for payment to Medicare contractors, they contained no

visible errors.

Mr. Chairman, our 4-year analysis substantiates HCFA’s continued vigilance in monitoring and reducing payment errors. This

year’s $13.5 billion estimate is, in fact, $9.7 billion less than that

for fiscal year 1996.

In addition, our audit results clearly show that the majority of

health care providers submit claims to Medicare for services that

are medically necessary, billed correctly, and sufficiently supported.

For both fiscal years 1998 and 1999, we estimated that over 90

percent of the fee-for-service payments met Medicare reimbursement requirements; however, our analysis also demonstrates that

unsupported and medically unnecessary services remained pervaVerDate 11-MAY-2000 11:32 Nov 08, 2000 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 C:\DOCS\67152.TXT HGOVREF1 PsN: HGOVREF1
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sive problems. These types of errors accounted for more than 70

percent of the total improper payments over the 4-years.

Our chart, which is also attached to the written testimony, demonstrates the trends in improper payments by the major types of

errors we have found. The chart is on the board there. The red area

indicates unsupported services where we saw a substantial increase. The blue indicates medically unnecessary services, a continuing problem. The green indicates incorrect coding. Finally, the

yellow shows uncovered services and miscellaneous errors.

I’d like to talk a little bit about these error categories. Unsupported services represents the largest error category every year except in 1998, when they dropped dramatically. Although these errors increased by $3.4 billion over last year’s estimate, they remained below the levels found in fiscal years 1996 and 1997.

Unsupported services were largely attributed to three provider

groups this year—home health agencies were $1.7 billion; durable

medical equipment, or DME suppliers, $1.6 billion; and physicians,

$1.1 billion.

Medicare regulations specifically require providers to maintain

records that contain sufficient support to justify the diagnosis, admissions, and other services.

As the second-largest error category this year, medically unnecessary services totaled $4.4 billion. For these errors, medical reviewers found enough documentation in the medical records to make an

informed decision that the services were not medically necessary.

These types of errors in inpatient prospective payment system, or

PPS hospital claims, were significant in all 4 years.

Incorrect coding was the third-largest coding category. Physician

and inpatient PPS claims accounted for 90 percent of the coding errors over the 4-years.

For most of these errors, medical reviewers determined that the

documentation submitted by providers supported a lower reimbursement code.

Now, turning to our audit of the financial statements for fiscal

year 1999, we are pleased to issue the first unqualified or clean

audit opinion, both for HHS and for HCFA.

In achieving this important milestone, HCFA has successfully resolved billions of dollars in problems that affected our previous

audit opinions. In particular, problems in Medicare accounts receivable, which are debts that the providers owe to HCFA, have been

systemic and longstanding.

This year, HCFA embarked on an extensive effort to validate and

document receivables, with the assistance of my office and two

independent accounting firms. The validation effort, together with

HCFA’s aggressive action to require that contractors maintain support for this debt, enabled us to conclude that the receivables balance was fairly presented and sufficiently documented for the first

time in 4 years.

However, the underlying internal control environment and accounting systems at the Medicare contractors still need substantial

improvement. Even such things as a basic double entry bookkeeping system are needed, and adequate checks and balances to

promptly detect errors and irregularities.

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The control weaknesses impair HCFA’s ability to reliably report

activity related to Medicare debt and increase the risk that future

debt may not be collected timely.

Our report also discuses our concern that HCFA has not yet established adequate financial controls, such as routine accounting

analysis to detect accounting aberrations or sufficient controls over

Medicare electronic data processing systems.

To briefly summarize, Mr. Chairman, we’re encouraged by

HCFA’s sustained success in reducing Medicare payment errors

and by the important progress made in resolving prior years’ financial reporting problems.

We remain concerned, however, that inadequate internal controls

or accounts receivable leave the Medicare program vulnerable to

potential loss or misstatement.

As HCFA begins the lengthy process to integrate its accounting

system with the Medicare contractor systems, internal controls

must be strengthened to ensure that this debt is accurately recorded and an adequate debt collection process is in place.

With the year 2000 remediation challenge successfully completed, we urge HCFA to focus these critical internal controls,

while continuing its effort to reduce payment errors and ensure

provider integrity.

I appreciate the opportunity to appear before you today and I

welcome your questions.

Mr. HORN. Thank you very much for your very full statement.

[The prepared statement of Ms. Brown follows:]

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Mr. HORN. Next is the representative of the General Accounting

Office, Mrs. Gloria Jarmon, Director of the Health, Education and

Human Services Account and Financial Management Issues in the

Accounting and Information Management Division, the part of the

legislative branch which we are proud to have your fine staff working for us.

Please proceed, Mrs. Jarmon.

STATEMENT OF GLORIA L. JARMON, DIRECTOR OF HEALTH,

EDUCATION AND HUMAN SERVICES ACCOUNTING AND FINANCIAL MANAGEMENT ISSUES, ACCOUNTING AND INFORMATION MANAGEMENT DIVISION, U.S. GENERAL ACCOUNTING OFFICE

Mrs. JARMON. Thank you.

Mr. Chairman and members of the subcommittee, I am pleased

to be here today to discuss our review of HCFA’s financial management activities for Medicare. Our report on these issues is being released today, and copies have been given to the subcommittee.

As Ms. Brown mentioned, over the past 4 years HCFA has

worked hard to improve its auditor’s opinion on its financial statements, from the auditors not being able to issue an opinion in fiscal

year 1996 to the clean opinion in fiscal year 1999.

As you know, while getting a clean opinion is an important goal

that HCFA should be commended for, it is not an end in and of

itself. The ultimate goal is to keep improving internal controls and

financial systems that support them and to generate reliable, timely, accurate, and useful information for decisionmaking on an ongoing basis.

Our report discuses some of the significant challenges that HCFA

faces in meeting this goal. I will summarize these challenges into

three areas.

First, Medicare contractor oversight—HCFA’s over 50 contractors

process about 3.5 million claims, worth an average of $650 million

each business day, yet HCFA’s procedures for following up on audit

findings and evaluating actions of these contractors to correct them

were not up to par.

Audits of HCFA have repeatedly cited these contractors for internal control and financial reporting weaknesses, such as not safeguarding checks that providers give them for overpayments, and

incorrectly reporting billions owed to the Medicare program for

such overpayments.

Further, HCFA was not routinely analyzing the contractors’ financial data to find irregularities and assess risks as part of daily

monitoring, nor did it have up-to-date guidance for contractors on

key financial matters.

The second challenge relates to financial reporting and related

systems issues, which have been material internal control weaknesses in HCFA’s auditors’ reports for several years, since 1996.

HCFA relied on a manually intensive process to prepare annual

financial statements. It had to make extensive adjustments, totaling billions of dollars. In short, HCFA obtained a clean audit opinion through a lot of hard work because its financial systems were

not adequate.

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The auditors reported that HCFA’s systems did not fully meet

the requirements of the Federal Financial Management Improvement Act. Basically, this means that HCFA’s systems cannot reliably produce timely and useful financial information for day-to-day

decisionmaking.

The auditors also cited weaknesses related to computer security,

which is of high concern because of the sensitivity of the data in

HCFA and its contractors’ systems.

The third challenge relates to controls over Medicare accounts receivable. These receivables represent amounts due back to the

Medicare program for things like overpayments to health care providers and other entities.

For fiscal year 1999, HCFA spent a lot of time and effort on this

problem. It entered into an inter-agency agreement with the Department’s Office of Inspector General, as mentioned by Ms.

Brown, to help validate accounts receivable balances, and it wrote

off billions of dollars of receivables that it considered invalid,

uncollectible, and/or unsupported.

While these actions greatly improved HCFA’s accounts receivable

balance at year end, the basic control problems related to these accounts—namely, knowing what should be collected and from

whom—remain. For this reason, the auditors still reported the

Medicare accounts receivable issue as a material internal control

weakness.

We know that HCFA’s management recognizes that these problems are serious, and it has shown a commitment to making things

better; however, with billions of dollars at risk, we cannot overstate

the importance of safeguarding Medicare assets. The serious financial management weaknesses mentioned and described in more detail in our report stress the need for HCFA to have a very comprehensive strategy to direct its financial activities and assess its

human capital needs related to these activities.

In responding to our report, HCFA’s management outlined its ongoing and planned initiatives to address the problems highlighted

in our report. Top management’s continued support of these initiatives and sustained actions will be key to its success in resolving

these problems. We plan to continue to monitor HCFA’s progress

in implementing its financial management improvement efforts.

Mr. Chairman, this concludes my statement. I’d be happy to answer any questions from you or other members of the subcommittee.

Mr. HORN. Thank you very much, Mrs. Jarmon.

[The prepared statement of Mrs. Jarmon follows:]

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Mr. HORN. We now move to the agency. Representing the Health

Care Financing Administration this morning is the Deputy Administrator, Mr. Michael Hash, and he is accompanied by Ms. Michelle

Snyder, the Chief Financial Officer of the Health Care Financing

Administration.

Welcome.

STATEMENT OF MICHAEL M. HASH, DEPUTY ADMINISTRATOR,

HEALTH CARE FINANCING ADMINISTRATION, DEPARTMENT

OF HEALTH AND HUMAN SERVICES, ACCOMPANIED BY

MICHELLE SNYDER, CHIEF FINANCIAL OFFICER OF HEALTH

CARE FINANCING ADMINISTRATION AND DIRECTOR, OFFICE

OF FINANCIAL MANAGEMENT

Mr. HASH. Thank you, Chairman Horn, Congressman Turner,

Mrs. Biggert, and other members of the committee. I want to thank

you for the opportunity to come here today to discuss our efforts

to get Medicare’s financial house in order and to fight and continue

our fight against waste, fraud, and abuse.

With me, as you noted, Mr. Chairman, is Michelle Snyder,

HCFA’s Chief Financial Officer and the Director of our Office of Financial Management.

I would also like to acknowledge, in the effort that we have been

talking about this morning, the invaluable assistance of our IG at

the Department of Health and Human Services and the staff at the

General Accounting Office for their highly constructive assistance

in our efforts.

First, let me say that we are pleased that we were able to obtain

a clean opinion this year. As you know, that represents a lot of

hard work and confronting some very difficult issues.

We’ve worked with a number of CPA firms and with the IG’s office to clean up our books, and so that we can delete bad debt and

aggressively pursue the money that is owed to us. We are continuing a wide range of additional efforts to strengthen financial management and accounting systems and, importantly, we are developing an automated, integrated, and dual entry accounting system

that we all agree is needed.

The audit also found examples of system weaknesses and human

errors that need to be addressed. For example, funds that should

have been credited to one of our trust funds were instead posted

to another. And, while no taxpayer money was lost, we are working

hard to fix what is broken and to make sure that these types of

problems do not occur again.

We have also made progress in improving system security for the

sensitive information that is included in our data bases, and we expect to make more progress on this front now that we have cleared

the Y2K challenge.

Meanwhile, our payment error rate is holding steady. That’s both

good news and bad news, I think. The rate is a lot better than it

was when it was first measured 4 years ago, and it is proof that

last year’s dramatic reduction was not a one-time phenomenon. It

can and is being sustained.

It is noteworthy because this year’s audit sample includes many

more claims for known problem areas, including home health and

durable medical equipment, but we all agree that the error rate

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has to come down further, and we’re working hard to make that

happen.

We are focusing our immediate attention on the documentation

problems that increased the error rate in this year’s findings. To

that end, we are contacting all physicians, home health agencies,

and medical equipment providers to explain the seriousness of this

issue and how to avoid common errors that they are making.

We also are testing new documentation guidelines for physician

services that should be easier to use, and we are establishing tollfree lines where providers can get answers to billing questions.

While much remains to be done, we have made significant, I

think, and sustained progress. With your support, we will continue

to do so, Mr. Chairman.

I want to assure you that we are attacking our financial management challenges and problems with the same focus and energy that

we brought to bear on our Y2K challenge, and we intend to be just

as successful.

Thank you, again, for inviting me to be here. I would be happy

to answer any questions that you or other members of the subcommittee may have.

[The prepared statement of Mr. Hash follows:]

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Mr. HORN. Ms. Snyder, do you want to add anything at this

point, or just respond to questions? What would you like?

Ms. SNYDER. I will be responding to questions.

Mr. HORN. OK. Because of the complexity of this situation and

the money involved, we are going to have 10 minutes per member.

I’ll start, Mr. Turner will be next, and Mrs. Biggert will be next.

Then, if we need more time, we’ll go back and have another 10-

minute round.

I read Mr. Barr’s quote there on how they were still paying out

the payments to the dead, and I guess my query is this, Mr. Hash:

the Social Security Administration faces the same type of problem,

that they might still be grinding out checks. Is there a coordination

between the Medicare file and Social Security so that we wouldn’t

be paying checks to dead people?

Mr. HASH. Yes, there is, Mr. Chairman. There are two sources

of information about deceased beneficiaries—one is the Social Security Administration and, one can be from our health plan, our

Medicare-Plus-Choice plans.

In the instance that Mr. Barr referred to and that you are talking about, those systems did not work properly. We’ve taken steps

to modify the reporting system on beneficiary death, and we believe

that those errors will not reoccur, and we have recovered the funds

that were paid inappropriately as a result of those system errors.

Mr. HORN. Yes. It came right to mind that Social Security does

this, and, of course, we built the whole idea of Medicare on top of

Social Security, so I hope those agencies are talking to each other

in their computers.

Mr. HASH. They are, Mr. Chairman.

Mr. HORN. OK. Now, both the Inspector General and the General

Accounting Office have reported various examples of instances resulting from inadequate controls and the oversight of the Medicare

program. Now, we also have learned about a bank participating in

the Medicare program, which was making a practice of withdrawing funds prematurely from the Federal Reserve System, which allowed the bank inappropriately to earn interest of $13.2 million. So

I guess I would ask the Inspector General, Ms. Brown, could you

describe how this happened and how it was discovered? I think we

have a chart here on that.

Ms. BROWN. Yes. Mr. Vengrin actually ran the audit which is

still in progress, I might add—and I’d like him to give you the detail on that.

Mr. VENGRIN. Mr. Chairman, there are two instances where the

bank did premature draw-downs during a 10-day period in February 1999. There were instances where the bank actually needed

$60 million. They drew down excessively between $110 and $450

million. We computed the interest on that at $740,000.

This review was done at the request of Michelle Snyder, the

CFO, who did learn about this. I believe this instance here was

learned from the contractor. The other one I’m going to describe to

you was learned by the FDIC auditors, who did notify HCFA.

We do believe that the bank has monthly limits. This particular

bank services nine Medicare contractors. At their disposal, under

the letter of credit system, they can draw down approximately $3

billion. It is going to be our recommendation to Health Care FiVerDate 11-MAY-2000 11:32 Nov 08, 2000 Jkt 000000 PO 00000 Frm 00062 Fmt 6633 Sfmt 6633 C:\DOCS\67152.TXT HGOVREF1 PsN: HGOVREF1
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nancing that they consider periodic caps other than a monthly

basis that would preclude banks from doing this.

The second instance was during a 7-year period, from fiscal year

1993. This bank withdrew funds 1 day to 2 days in advance of

when they needed cash. For example, Mr. Chairman, if the contractor notified the bank that basically it was going to electronic transfer $60 million and also it needed money to cover current cleared

checks, if the bank actually needed this money on a Friday they

would prematurely draw it down on Thursday. This practice, the

bank estimated earned the bank approximately $12.5 million in interest.

The bank, on its premature draw-down a day early, sent the

money over and sold it to another bank, earning interest.

That is a clear violation, Mr. Chairman, of the agreement that

HCFA has with this bank; namely, that these funds should not

leave the Medicare account. In fact, they did.

Our review is still ongoing, sir, and we should have the final results in a couple weeks. We’re trying to go back and secure the

records for the prior period to compute the interest.

Mr. HORN. Just so we’re clear on how this process works, the

FDIC found it when they went through the bank records; is that

correct?

Mr. VENGRIN. Again, there are two separate issues. The latter

one, sir, I believe the facts are the FDIC auditors did note it when

they were at the bank and they did notify HCFA.

Mr. HORN. Now, that bank would regularly draw down to pay the

various bills of what? The intermediaries? Or was the bank the

intermediary?

Mr. VENGRIN. As the contractors processed their check electronically, they would forward that information to their bank. The bank

would consider both the electronic wire that they needed plus the

cleared checks minus any deposits.

So on Thursday afternoon they would ascertain exactly how

much cash they needed, and they would pull this down 1 day in

advance from the Federal Reserve.

Mr. HORN. Now, you’re telling me that the regulations of the

Health Care Financing Administration are quite specific on this;

that you only get from the Federal Reserve the funds you need to

pay the bills? Is that it?

Mr. HORN. My understanding, Mr. Chairman, is that is in the

contract that the banks have with us and with our intermediaries

and carriers.

Mr. VENGRIN. I confirm that, Mr. Chairman. It is clear.

Mr. HORN. So you are saying every bank that is doing this, getting the money to go out to the intermediaries to pay the bills of

the hospitals, the doctors, and so forth, that they all should know

that, that anything else is a violation? In other words, you’re saying they can take the money out of the Federal Reserve the night

before, and then they’re supposed to issue the checks?

Let’s say they take it out Thursday night and they issue the

checks on Friday, but they’re not supposed to keep running interest

game on the float.

Mr. HASH. Absolutely not. And not only is that a violation of our

contract, but, as I understand it, Mr. Chairman, it is also a violaVerDate 11-MAY-2000 11:32 Nov 08, 2000 Jkt 000000 PO 00000 Frm 00063 Fmt 6633 Sfmt 6633 C:\DOCS\67152.TXT HGOVREF1 PsN: HGOVREF1
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tion of banking laws and, in fact, when it came to the attention of

the FDIC, it was because the bank, as I understand it, was having

difficulty meeting its obligation to get the money to the Federal Reserve Bank each day. It was late in transferring the money. As the

bank examiners looked more carefully, they determined that, in

fact, the money had been deposited overnight in another account,

in another interest-bearing account, and that interest was being

kept by the bank and it was causing them to be late to make their

deposits in the Federal Reserve system.

Mr. HORN. Without objection, I would like the language that is

in the Medicare regulations put at this point in the record so it is

very clear that those regulations exist.

And you’re saying all banks have signed off on that?

Mr. HASH. It is in their contract language, Mr. Chairman.

Mr. HORN. And how often is that reviewed?

Mr. HASH. I beg your pardon?

Mr. HORN. How often is that reviewed, that contract?

Mr. HASH. I think the contracts have been pretty stable over the

life of the Medicare program. In fact, this bank has been a depository bank for the program since 1978. We do look at those contracts on an annual basis, but I think the substance of those contracts has not significantly changed over the years.

Mr. HORN. OK. But in all the audits by either the Health Care

Financing Administration—let’s ask if GAO had ever done those

audits, and if the Inspector General. This is the first time it has

come up, I take it?

Mr. HASH. Yes, sir.

Mr. HORN. But the tip-off was the FDIC auditors.

Mr. VENGRIN. Right.

Mr. HORN. So they had never discovered it either; is that correct?

Mr. VENGRIN. That’s correct, sir.

Mr. HORN. Yes. And have they looked at other banks in the country now?

Mr. VENGRIN. I don’t know whether they are, sir, but we are expanding our review and we’ve got pilots in three additional banks,

and we’re in there right now. Plus, after the results of this survey,

we will reassess and expand it even further to make sure other

banks are not doing this.

Mr. HASH. If I may, Mr. Chairman, when this matter came to

our attention from the FDIC, we brought it immediately to the attention of the Inspector General’s office and we did ask them to expand their review of these practices at other contracting banks, and

we also sent letters reminding all of our banking contractors of

these particular requirements. So we have tried to followup aggressively on this once it was uncovered.

In the first instance, it took place, as Mr. Vengrin described. Actually, what brought it to our attention was the providers who were

served by a particular intermediary were not getting paid in a

timely basis, and when they inquired about not being paid it

turned out that that was a result of the banks not properly processing the electronic funds transfer in a timely manner, and that’s

how that happened to come to our attention.

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Mr. HORN. Because of letting another bank use the money overnight and thus gaining the interest for bank one, does that mean

that they were slow in getting the needed money to the providers?

Mr. HASH. I’ll let Mr. Vengrin speak to this, because he knows

more of the details than I, but I believe that the instance that I

was talking about, which was the 10-day period of drawing down

too much money, was a systems failure of the bank.

Mr. VENGRIN. That is correct. In the instance that you just described, Mr. Chairman, what happened, as Mr. Hash was alluding

to, was they encountered trouble with the banking institute, because when they made electronic transfer, actually they were short

of funds because bank B delayed getting the money back. So this

set off the whistles and bells with the Federal Reserve System that

money should have been there but was not, because of this delay

getting the money back overnight from bank B.

Mr. HORN. Now, do we know if the Federal Reserve System is

depending strictly on the FDIC auditors, or do they have their own

auditors?

Mr. VENGRIN. I believe it is depending on the FDIC.

Mr. HORN. So where are we with the FDIC? Have they looked

at all of these banks just to check them, or is that the Inspector

General doing it?

Ms. BROWN. Well, I’m afraid I can’t speak for what the FDIC is

doing, but we have let everyone know that is concerned in this that

we are expanding our review to see whether this is an anomaly,

which I think it is, but it is possible that that has happened in

other banks, and we want to make sure that that hasn’t become

a practice.

Mr. HORN. Well, can the Inspector General reveal what bank it

is, or are they under review by the U.S. Attorney?

Ms. BROWN. They are not at this point. It is Highland Bank in

Chicago.

Mr. HORN. And they have been a long-time bank for

depositories—— Ms. BROWN. Yes, they have.

Mr. HORN [continuing]. To pay the bills. And do you know how

far back that practice goes?

Ms. BROWN. We’re going back to 1993, and it appears to have

gone back that far, at least.

Mr. HORN. And when did they start? Are they considered an

intermediary or simply the funding of the intermediaries?

Ms. BROWN. Strictly the people who arrange for the funds. The

money is transferred to them, and then they are supposed to electronically, that same day, distribute the money that is needed as

a result of the contractors work. Contractors let them know the

exact amount that they are going to have to disburse, and they are

supposed to take that exact amount out of the Federal Reserve and

have it available for payment.

Mr. HORN. Do we know whether or not, when the money goes

from the Federal Reserve to the bank in Chicago, and then goes to

a variety—maybe a dozen or more—intermediaries that are paying

the bills under either part A or part B of Medicare, how do we

know they aren’t keeping the money and not paying the hospitals

or the doctors and making a little money off of it?

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Ms. BROWN. The money never goes to the contractor. The money

is available. The contractor makes it known how much is to be

transferred, and the bank electronically transfers that amount for

payment.

Now, there is another account where there are a few paid by

check, but relatively few. Most of the money is electronically transferred.

So the bank is the only one who really has possession of the

money, other than the Federal Reserve, and, of course, the recipient.

Mr. VENGRIN. Mr. Chairman, if I could embellish Ms. Brown’s

statement—— Mr. HORN. Yes.

Mr. VENGRIN [continuing]. HCFA does monitor the Federal Reserve draw-down on a monthly basis and compares monthly expenditures on a report called a 1522/21, so they do monitor that.

There is a tie-in to the draws, as well as the expenditures paid.

Mr. HORN. Yes, Mr. Hash?

Mr. HASH. I want to say, since we’ve named the particular institution, Mr. Chairman, that that institution is withdrawing from

participation as one of our contracting banks.

Mr. HORN. And has that already happened, or what?

Mr. HASH. It has happened. They served eight of our contractors,

and I believe they have ceased serving seven of them. The remaining one they are serving is only to, I think, next month, and it happens to be a contractor that is otherwise leaving participation in

the Medicare program.

Mr. HORN. OK. Any other comment, Ms. Snyder?

Ms. SNYDER. No, sir.

Mr. HORN. OK. I now yield to the ranking member, Mr. Turner,

for 13 minutes. That’s what we took here.

Mr. TURNER. Thank you, Mr. Chairman.

Mr. Hash, I’m interested in the use of sampling. I understand

that the contractors are utilizing sampling. In many cases, I’m told

by some of the providers that sampling methodology, when applied

to an individual provider, can be very burdensome, and oftentimes

of questionable validity.

Who sets up the standards for sampling techniques used on an

individual provider?

Mr. HASH. Mr. Turner, what you are referring to is some of our

program integrity activities, where we may be doing enhanced

medical reviews of a particular provider because of a pattern we’ve

discerned in their billing, and we go in and actually audit the

claims or a sample of the claims to determine whether they can be

supported by the medical record.

That process is governed by a statistically valid sampling methodology, which we would be happy to supply for the record. It has

been reviewed independently by statisticians, and it is found to be

an appropriate tool from which we can extrapolate to the universe

of claims that a particular provider has filed with us.

Mr. TURNER. So you just go in and take one sample, and, based

on that sample, the provider would be advised that they owe back

X number of dollars? That’s basically the way it works, as I understand it.

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Mr. HASH. I believe that’s correct, Mr. Turner.

Mr. TURNER. It just seems to me, from some of the discussions

I have had with providers, that you could do a sampling process

twice and come up with entirely different numbers; that there’s not

any way of really verifying that the sampling technique is all that

accurate.

Mr. HASH. My understanding of how this process works is that

when the sampling is done and the extrapolation is computed, that

a provider has the option of having all of their claims more intensively reviewed or to accept the results of the sample. Most providers have accepted the results of the sample, but they’re not bound

to accept that result. They have the option for a more-thorough review of all their claims.

Mr. TURNER. But if they exercise that option, which is quite a

lengthy process, and during that interim they’re still charged back

for the amount that the sample reveals they owe the Government.

Isn’t that the way it works? And so it is very difficult for an individual provider to want to exercise that option of having all their

claims reviewed.

Mr. HASH. I’m not totally certain of the detail of that, Mr. Turner, but I would be happy to get you a more-definitive answer.

I believe that they have the option to have a more-intensive review. During the pendency of that review, what I’m uncertain

about is whether the extrapolated amount is beginning to be offset

from the future claims that they may be submitting. I don’t know.

I would like to get a more-complete answer for the record, if I

may, Mr. Turner.

Mr. TURNER. For example, I would be interested in knowing

what the policy is if the sample is taken and the provider immediately shows that certain individual payments that you put in the

sample were simple errors—somebody forgot to make an entry, or

something that didn’t represent any fraud or really any actual

over-payment, but just a clerical oversight—whether those can be

corrected and that sample adjusted and the extrapolated number

changed in short order.

Mr. HASH. The answer to that I’m more confident is yes. And,

clearly, this process is not designed to make a judgment that, in

fact, the ones that are in error are in error because of intentional

fraud. They just happen to be erroneous for various reasons, some

of which you have just suggested. But it is not a judgment that,

in fact, the errors are the result necessarily of intent or wilful defrauding.

Ms. SNYDER. If I could add, Mr. Turner, this statistical sampling

methodology was well discussed and well reviewed, both by the

provider community as we went through this process, and the statisticians who worked with us in figuring out how to select and assess those samples.

Mr. HORN. Ms. Snyder, you’re going to need to put that microphone within 2 inches of your mouth. That’s the only way we can

hear you.

Ms. SNYDER. The statistical sampling methodology, as I was saying, was well reviewed by the provider community. This statistical

sampling methodology was presented to the provider community as

we started to move to that type of sampling technique. We worked

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through it with them. We had a number of meetings with different

groups. There were a number of independent statisticians who

looked at this to say it was a sound methodology.

If I might, it’s the same type of methodology that is used by the

Office of the Inspector General in doing the statistical error rate.

So we’ve tested this in a number of ways in a number of sort of

formats, and so we are pretty confident that it is a good way of projecting those overpayments as a way of also saving resources, and

working through it pretty quickly.

There are also, within the process, itself, opportunities to correct

the kind of errors that you mentioned. If we get into that and we

find out it was simply the document was missing, they can submit

that. If, for some reason, a plan or something that needed to be

there as a process matter isn’t there, we accept that. That does

modify the amount of the overpayment.

It is not perfect, but, we think, in light of resources and the dollar volume that is involved, it is a good way to estimate the overpayments.

Mr. TURNER. When there is an overpayment determination made

after the provider has exercised whatever options they have to appeal, what is the options for how to handle the repayment of the

overpayment? I know there are many providers who complain

about the fact that once they have been assessed an overpayment

they really, in some cases, can’t even figure out financially how to

handle it. So are there options that you have for the providers

there?

Ms. SNYDER. Yes, sir, there are. From the agency perspective,

though, I must say our preferred option is that we have a continuing business relationship with them to net that overpayment out

of the next month’s payments that are due to them, and we do collect a lot of our debt through offsetting collection and have been

pretty successful.

But when we have folks that are having financial difficulties, we

do work with them to do what we call ‘‘extended repayment’’ plans,

where we look at their financial ability to repay, and I think an example of that where we’ve used it quite a bit is with our home

health agencies, where, as many of you probably know, there were

difficulties there because of changes in payment methodology.

So we do work with people to try to do extended repayment

plans. If we have to have an extended repayment plan, we like to

do it within 12 months. We have gone up to 3 months, and in some

cases even longer than that, so we do try to work with the provider

and consider their financial viability.

Mr. HASH. If I may, on the home health I think what Ms. Snyder

meant to say was up to 3 years, because in the case of home health

agencies who had overpayments as a result of the interim payment

system, I’m sure you may be aware that we have provided many

of them with up to a 3-year and some longer than 3-year opportunity, the first year of which has been interest free.

Mr. TURNER. How many home health agencies do we have in this

country today, as compared to, say, 3 years ago, before the changes

were implemented?

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Mr. HASH. I think we were, 3 years ago—and these are round figures. I would be happy to get more specific for the record; 3 years

ago we had 10,500 agencies, and now we have about 7,500.

Mr. TURNER. You have an initiative that I understand will begin

this summer with four companies that will take a look at the durable medical equipment providers. Why were those providers selected, as opposed to any others, for this particular emphasis?

Mr. HASH. I think, in part, the Inspector General may want to

respond to this, as well, but this is an area where we have uncovered significant problems in billing, particularly in the documentation area. Durable medical equipment items are generally—not all

of them, but many of them need to be accompanied by something

called a ‘‘certificate of medical necessity,’’ which is a document that

is executed by a prescribing physician that details what he believes

an individual patient needs, and that that document must be

present in the records to justify a claim for certain items of medical

equipment and supplies.

We’ve had problems in documentation that have been pretty significant. As a matter of fact, I think this year’s audit indicates that

that is a significant problem.

We have a select group of contractors who process only claims associated with durable medical equipment, and what we are going

to do—we are going to eventually do this for all of our contractors,

but, beginning this summer, we are going to put into place a procedure for calculating an error rate, and we are going to take the

same approach that the Inspector General’s annual error rate activity on the national basis does—draw a sample of claims from

each of these durable medical equipment contractors—intermediaries or carriers, I should say—and determine their error rate

using the same statistical methodology that is being applied to generate the error data that we have been talking about here this

morning.

That is really for two purposes: in order for us to be able to work

with those contractors to improve and correct the reasons for the

errors that we find, and it also gives us an opportunity to focus our

oversight activity and contractor management on those areas

where error rates are a significant performance problem.

Mr. TURNER. I’ve read that the total Medicare claims in this

country are much lower than had previously been estimated. Is

that because of the aggressive work that you have done to try to

attack overpayments, or are there some other elements that resulted in the estimates of total Medicare payments being lower?

Mr. HASH. Mr. Turner, I think the answer to that is that it is

a multi-faceted set of reasons for why estimates of Medicare expenditures have not, in reality, been as high as previously estimated.

A significant portion, we believe, is related to a greater scrutiny

and intensity of our review of claims processing, which we think

has had an effect of making providers more knowledgeable about

proper ways to bill and more sensitive to the accuracy of their coding and those kinds of activities.

We also think that there are significant changes in the economy,

in general, that have affected Medicare expenditure rates. For example, for the last several years we have had extraordinarily low

66

inflation rates, which means that the cost of medical care that

Medicare pays for has not risen as rapidly as was anticipated a

number of years ago.

We also have had some changes in our payment systems that

have probably slowed down the processing of claims in some regards, and that has caused, in various accounting periods, for

things to lag over into another accounting period and to produce a

lower outlay of expenditures.

So I think the most accurate answer is that there are a number

of factors that are contributing to the lower growth in Medicare expenditures. No one has been able to pull out from that experience

exactly what portion is attributable to fraud and abuse activities,

although we think it has played a significant role.

Mr. TURNER. Thank you. Thank you, Mr. Chairman.

Mr. HORN. I thank the gentleman for those good questions, and

now I yield 13 minutes to the vice chairwoman of the committee

and the gentlewoman from Illinois.

Mrs. BIGGERT. Thank you, Mr. Chairman. Is there something

special about 13 today? [Laughter.]

We’ve heard testimony today focusing on the payment errors, incorrect coding, and non-covered services and the lack of medical necessity. Mr. Hash, you just said you don’t know what part of some

of these categories would be attributed to fraud. But I am concerned, in a report by the GAO which was done in October, I think,

of 1999, that there is a growing trend in Medicare fraud that has

a criminal element coming in with absolutely no medical experience, licenses, and training who are getting into the Medicare program for the sole purpose of bilking the system.

In this report that was released, it looked at fraud in three

States—Florida, North Carolina, and my home State of Illinois— and they reviewed seven cases and found as many as 160 sham entities submitting fake Medicare claims, ranging from $795,000 to

more than $120 million.

The GAO said, ‘‘Criminals previously involved in other types of

crime are now migrating into the health care fraud arena.’’

I wonder if you could comment on this, and then I have just a

couple of questions to ask you on that.

Mr. HASH. Yes, Mrs. Biggert. We have been trying to address

that kind of problem by strengthening the enrollment process— that is to say, the process that providers and other people who are

rendering services to Medicare beneficiaries must go through in

order to obtain a billing number, a provider number, which allows

them to bill the program.

We are, for example, doing site visits for certain kinds of providers where we think the prevalence of unscrupulous and unqualified

providers is very high.

For example, we are now doing site visits for people who are applying to get a provider number as a durable medical equipment

supplier. We are also putting into place a regulation which will

allow us to, in effect, go back and recertify providers to make sure

they continue to meet the requirements of the law and regulations.

So we have, I think, a significantly aggressive program to tighten

up on the procedures for admission into billing into the program,

and I would be happy to also furnish more detail about that.

67

I don’t know if you want to add anything to that, but we figure

the most important thing is to keep people out of the program who

don’t meet certain basic qualifications, and we have been trying to

do a much more effective job of that.

Mrs. BIGGERT. Well, specifically, do you require background investigations on all new providers?

Mr. HASH. In the case of suppliers of durable medical equipment,

we are doing the checks to determine whether they’ve had any

record of fraud or abuse with our programs or any other criminal

activity.

Mrs. BIGGERT. Is that for every provider, or is that a sampling?

Mr. HASH. In the case of durable medical equipment, I believe it

is virtually all of the ones who are applying now to get a number

for that.

We are also in the process of going back and reviewing durable

medical equipment suppliers to make sure that they are a bona

fide business entity, that they are, in fact, meeting appropriate requirements.

Mrs. BIGGERT. Is there, then, a requirement for site inspections

of all new DMEs?

Mr. HASH. We are doing that now. Yes, ma’am. That’s my understanding.

Mrs. BIGGERT. Of all sites?

Mr. HASH. All new ones who are applying for a Medicare provider number.

Mrs. BIGGERT. OK. And what about community health centers?

Mr. HASH. We are also doing site visits there, both for ones who

are already billing us, as well as the ones who are applying to become a part of our program.

As you know, the statue has provided that these organizations

must provide four core services laid out in the statute. We determined that a number of them have not met those requirements,

and if they were already in the program, we have lifted their certification. If they were applying, we did not allow them to receive

Medicare certification.

There are also some changes that need to be made in the design

of the partial hospitalization benefit that community mental health

centers are often providing, and in the President’s 2001 budget proposals there are some important legislative recommendations to

tighten up the design of this particular benefit.

Mrs. BIGGERT. Well, we have been talking about Medicare, but

what about the Medicaid program? The Inspector General has reported the need for estimating the amount of improper payments

being made in the Medicare program. Why isn’t this being done?

Mr. HASH. Well, the payments under Medicaid, of course, are

made by State agencies, and some of them have contractors who

actually make the payments. We have, in fact, launched an effort,

through our regional office in Atlanta, of Medicaid fraud and abuse

activities around the country. We have a website that shares best

practices in identifying waste, fraud, and abuse in Medicaid. We’ve

run a number of national conferences associated with Medicaid

fraud. We’ve tried to bring together the State fraud units, the attorneys general, as well as the Medicaid program administrators to

work together to establish stronger protections against fraud.

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With respect to your specific question, we are now working with

the States to see if we can get them to apply a methodology of calculating an error rate in the administration of the Medicaid programs.

Mrs. BIGGERT. Thank you.

Ms. Brown, you were talking about the bank, and that’s the

Highland Community Bank? Is that the name of it?

Ms. BROWN. Yes.

Mrs. BIGGERT. OK. Do you believe that if you had criminal prosecutorial powers—in other words, if you had the laws that would

allow you to prosecute criminally, would that help you?

Ms. BROWN. Well, we do, of course, prosecute a great many criminally every year, and also have civil settlements with many of

those folks that, for one reason or another, good reason, they are

meant to stay in the system to provide the service and there aren’t

other alternatives.

We not only get a monetary collection——

Mrs. BIGGERT. I guess I was thinking of full law enforcement authority within your agency. Do you have that now?

Ms. BROWN. We have law enforcement authority, but the full law

enforcement is done through a blanket deputization from the Department of Justice. We have about 300 criminal investigators that

are out doing this type of thing.

Between 1997 and 1999, while we were getting the HCFA funding, which was provided by Congress, we won or negotiated over

$2.2 billion in judgments, settlements, and administrative impositions of fines, and collected $1.6 billion back to the trust fund from

that amount.

We had 1,085 defendants that were convicted for health care

fraud and related crimes, and 8,697 individuals and entities have

been excluded. My office processes the exclusions, where those entities can no longer work in any government health care system. So

it is effective not only with Medicare, Medicaid, but Tri-Care from

Department of Defense, VA, and other types of medical programs.

Mrs. BIGGERT. When providers who are unscrupulous use recruiters to obtain beneficiary identification numbers so that these providers can bill for services, there is no statute to prohibit such a

practice, is there?

Ms. BROWN. Well, we use a variety of statutes, even RICO, which

would be conspiracy. We have found such things as a room about

this size filled with medical records from floor to ceiling which we

have subpoenaed. Not one of those medical records are true

records. They have all been actually produced by this criminal element who were providing no services but were taking extensive

care to actually develop medical records against which they could

charge millions and millions of dollars to Medicare.

There are many cases like that. Many of them have nothing to

do with honest providers. These are people who have found, in the

past, at least, it was easy to get into the system and get a Medicaid

number so that they could start billing, or Medicare number, and

they could start billing as a provider.

We have a very small percentage who are not actually medical

professionals who have been providing honest services, or even dishonest services. Most of these that we find that have conspiracies

69

are not medical folks or real providers, but people who have gotten

into the system, as you mentioned.

Mrs. BIGGERT. How have you discovered them?

Ms. BROWN. We have a variety of ways, some even from our congressional Representatives that send us leads. We get about 50,000

calls a month on our hotline, which we screen. We have an active,

large group of people who answer this hotline. They’re really speaking to an individual, even with Spanish-speaking operators where

that is appropriate.

We have a lot of things that are referred from the auditors, when

they go in and find that there not only are discrepancies, where

they should get money back, but it appears there could be something more behind that. They turn that over to the investigative

units who followup.

We do a lot of analysis of the payment trends. If we see something, for instance, that there is a 1,000 percent increase of a certain type of payment and not an epidemic that would give a reason

for this kind of thing, we look into it and see whether it is an audit

issue, whether or not it might be an investigative issue, or there

is some new billing scam that is going on.

Mrs. BIGGERT. Would you agree that there is a growing criminal

element trying to make a profit off of the Medicare?

Ms. BROWN. I think the Medicare program was developed by people who really wanted to provide service to the beneficiaries, and

they did not take all of the precautions to keep everybody out who

would want to bilk the program. It became well known that there

is a lot of money here, and it was pretty easy to get a provider

number and start billing. We even have cases where people learned

about it in jail from jail mates, came out and did business together—had no medical background whatsoever, but learned about

the ease of getting into this system.

Now, as we developed these cases, of course, we had extensive

meetings with HCFA, and many of the precautions that HCFA is

now undertaking, which were described by Mr. Hash, were as a result of that.

The first time I think it was HCFA folks that went out and

checked about 10 new DME applicants they found about 7 of them

were just fronts—you know, an entire store or something where

somebody had an extra telephone in the back room that they used

to answer any questions about their DME business. They had no

business, no supplies, no legitimate contacts of any kind.

Mrs. BIGGERT. Is there anything else that you think that we can

be doing legislatively to help?

Ms. BROWN. Well, we have presented different possibilities. Most

of them take funding. And so if we can get the budget for them,

there are a number of additional things that we can do that I think

would certainly help a great deal.

We are getting back in my office in the last 2 years, $98 and $99

for every $1 spent, or at least savings of that nature. And HCFA

certainly has seen this decline in the inflation of what they have

to pay out for Medicare.

So I think that the combined efforts are really producing a lot

of results, and they are very cost effective, and for both of our ofVerDate 11-MAY-2000 11:32 Nov 08, 2000 Jkt 000000 PO 00000 Frm 00073 Fmt 6633 Sfmt 6633 C:\DOCS\67152.TXT HGOVREF1 PsN: HGOVREF1
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fices additional funding would allow us to do more. That is always

the constraint.

Mrs. BIGGERT. Thank you.

Thank you, Mr. Chairman.

Mr. HORN. Thank you very much.

I am going to ask Ms. Jarmon, on behalf of the General Accounting Office, you stated that the Health Care Financing Administration has not yet established an adequate foundation for control and

accountability over Medicare programs, financial operations, and

you further stated that the Health Care Financing Administration

lacked two key components to successful financial management reform. Could you elaborate on some of the problems you have found

and what the Health Care Financing Administration should be

doing in the short term to address those problems?

Mrs. JARMON. We believe there are several key initiatives that

are ongoing, and, like we said, if successfully completed——

Mr. HORN. You might want to move that microphone closer.

Mrs. JARMON. OK. The two things that we were referring to

there was the need for a very comprehensive plan or strategy to address the audit findings that have been reported over the past

years, because, like I mentioned in my statement, several of their

weaknesses have been reported since 1996, the key weaknesses

that we saw related to oversight of the contractors, financial reporting and systems problems, and the problems with the EDP controls, and the computer security controls. But I know that HCFA

has an initiative underway to develop a comprehensive plan to look

at their human resource needs, and we just think it is very important that those initiatives are completed timely and that the results are seriously considered to address these longstanding problems so that we are not here next year talking about the same material weaknesses.

Mr. HORN. And you are saying, from GAO’s eyes, that the administration there is taking the advice and implementing it; is that

correct?

Mrs. JARMON. I think many of the initiatives that they have

started are relatively recent or over the last 6 or 7 months, and we

are encouraged by those, but I think it is too early for us to say

what the results will be.

Mr. HORN. How about it, Mr. Hash? Are you going to address the

GAO concerns?

Mr. HASH. Well, Mr. Chairman, we actually think the glass is at

least half full. We have embarked on a number of efforts to address

financial management concerns, both within the offices of HCFA,

as well as, importantly, in our contractors.

On the longer-range track, because of our attention to Y2K, we

have not been able to implement as quickly as we would like an

automated dual entry accounting system at all the contractors,

which can also interface with HCFA’s systems in the central office,

which would be a much more effective way of monitoring financial

controls across our contractors.

We expect to have that in place by 2004, but, in the meantime,

we have undertaken a number of efforts to put into place special

automated systems related to accounts receivable. We are also particularly addressing, within that, the area of Medicare secondary

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pay. These are liabilities owed by other insurance companies or employers because the Medicare is the payer of last resort. That is a

significant part of our accounts receivable, and we are taking a

number of steps to address that.

We are also hiring a number of CPA firms to go out and do independent reviews of financial controls at contractors. In the course

of this year, I believe we will be visiting 25 of our contractors that

represent over 80 percent of all the Medicare dollars, and we will

be doing financial audits of their financial systems to ascertain

what kinds of changes need to be put into place to be sure that

they are accurately reflecting financial affairs and that they are following proper procedures.

In my longer written testimony, I outlined a number of significant initiatives to strengthen internal financial controls.

Mr. HORN. Ms. Brown, as Inspector General is there anything

else you would like to see them do?

Ms. BROWN. Well, I think that HCFA is taking some good steps

in the right direction. As Mrs. Jarmon said, it is too early to evaluate the results of those things.

I do want to add that I was quite appalled. I think, of the whole

financial statement process, the most astonishing thing to me was

that there was essentially no financial system at these contractors,

because it was not specified expressly in the contracts. They do not

even have double entry bookkeeping systems. They do not have

subsidiary ledgers, so that if there are amounts owed back to the

Government, they did not even have records, in some cases, of who

owed that money. So, of course, it would be impossible to ever collect it.

I am sure the Congress had the intent of getting experienced, reliable people from the private sector when they set up the system

of only using insurance companies to pay these claims. There must

have been an assumption that they would use the same kinds of

financial controls. They do not. And I think HCFA and the Department have, for a number of years now, asked for greater flexibility

in who they contract with, and that would certainly go a long way

in making this more competitive.

They are taking steps now to try to get the contractors, even

though it might not be a specific provision in the contract, that

they have to use generally accepted accounting principles, as would

anybody in the private sector. Up until now, they are not available.

Mr. HORN. Mrs. Biggert asked the question on what laws do we

need here, and I guess I would ask, can the administration implement that by administrative regulation so you do need legislation?

Mr. HASH. With respect to the financial control matters, I think

we have administrative discretion to do contract changes. With respect to the broader issue that the Inspector General spoke to,

which is the shrinking pool of contractors that, under the law, we

are allowed to do business with, it is a real impediment for us. For,

I think, 5 or 6 years running, the Administration has submitted to

the Congress legislation asking for authority to have greater flexibility more like the Federal acquisition regulations that exist for

other agencies to identify appropriate and qualified entities to contract with us for claims processing.

72

Mr. HORN. Well, I have never seen it, so do me the favor of getting together with the Inspector General and sending me the language you need.

Mr. HASH. I would be happy to do that, Mr. Chairman.

Mr. HORN. Because when it comes to economy and efficiency, we

have got jurisdiction. I realize you have got authorizing committees

and they sometimes, for one reason or another, have other things

to do.

I think it is very important that you have the legislative language you need, so let us know about it.

Mr. HASH. Could I just followup, Mr. Chairman, for a moment

about actions that were taken that I did not mention a moment ago

that the Inspector General’s comments triggered in my memory?

One of the things we are doing is amending our contracts with

all of our contractors to make it a contractual obligation to submit

to us detailed plans of corrections related to audit findings, to give

us a plan with timeframes and milestones for meeting and correcting those deficiencies, and to actually make that a part of their

contractual obligation, which has not been in the past and, I think,

importantly, the development for all contractors of an error rate

methodology that will help us to determine the performance level

of our contractors by taking a sample and subjecting it to the kind

of analysis that the Inspector General does on a national basis.

So those are, again, I think, important tools to strengthen accountability in financial management by our contractors.

Mr. HORN. Well, that is very helpful.

Now, you mentioned 2004. Why cannot we speed that up? What

does it take to speed it up?

Mr. HASH. Let me ask Ms. Snyder to talk about what is involved

in the design of this, but it will be a system that is double entry

automated accounting system. It will also interface with the new

financial management system within HCFA. So we are actually

putting together both a new financial management system for contractors, as well as for HCFA.

And the goal here, of course, is to make sure that we can roll up

in a comparative way information about performance of the contractors across the country. We can compare fairly one contractor

to another.

Mr. HORN. So you would use the software, I take it, and develop

it for all of the various intermediaries?

Mr. HASH. That is correct. And, unfortunately, Mr. Chairman, I

do not believe it is an off-the-shelf product. It is one that has to

be designed, and I think that accounts for the time.

Part of the delay is, of course, associated with our Y2K obligations, and obviously put us behind. We are looking at whether or

not off-the-shelf products could meet our needs in this area, and

therefore accelerate our time table, but maybe you would like to

elaborate a little bit on the plans for this system.

Ms. SNYDER. The Administrator and the Deputy Administrator

have charged me and the Chief Information Officer, Dr. Cristoff,

who I know has appeared before you many times—— Mr. HORN. Right.

Ms. SNYDER [continuing]. To develop the integrated general ledger accounting system.

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Dr. Cristoff and I are absolutely committed to doing this the

right way, which I think has a lot to do with the schedule, the estimation of 2004.

We have pulled together that project team. We brought in a senior systems expert to head that team, someone who had had a lot

of experience over at the Social Security Administration. So Dr.

Cristoff and I think we have the right resources in place.

The thing that makes this a long-term problem is just the fact

that we have business at so many different entities. If we had a

central mainframe kind of operation, it would be a pretty easy

thing, but what we have is distributed processing over many different locations and many different sites.

We are going about this very carefully. We are using Clinger

Cohen to estimate what is the best way to go about this, how

should we do it. We are looking very, very carefully at the commercial, off-the-shelf software that is out there that has been approved

and certified by the joint Federal management improvement program.

We do not want to reinvent the wheel. If we can get functionality

out of something that is already there, we are going to use it. In

fact, as an interim step we are going to try to look at, over the next

year, commercial, off-the-shelf software that is on the schedule so

that we can get some control over the accounts receivable in an

automated fashion sooner than 2004.

But I think the reason for the longevity is the complexity of the

project, the fact we just want to do it right, and we want to follow

all the technology guidelines.

And it is a two-part—I think this is important, too. At the same

time we are doing the contractor piece, we are looking at our financial accounting system in our headquarters and in the HCFA system, itself, because those two things have got to be able to work

together if we are going to be able to produce the audited financial

statements from an accrual perspective.

Mr. HORN. Well, I am glad to hear that you are going to try to

get it off the shelf, because I think I can go back to my freshman

year here in 1993–1994, where the FAA blew $4 billion before the

plug was pulled. There was no management in that project. I could

walk through the door and you could tell right away there was no

management. Everybody had their new bright idea at 7 a.m., the

next morning and there was no focus, no time table, no nothing.

And then, of course, the IRS blew $4 billion and did not get anything out of it.

So I wish you well, but what it takes is on-the-site management

that says, ‘‘Folks, we just cannot have every idea in here. We have

got to do this by this time, et cetera.’’

If you manage it well, it ought to work. But I know what you are

going through, and we have asked the General Accounting Office

to go look throughout the executive branch on both the capacity,

the generation that both the hard frames as well as the software

is and see if we cannot upgrade the executive branch, and we ought

to do that.

You mentioned, Mr. Hash, that you said the Y2K obviously held

you up a little, but I would hope in that Y2K exercise that you

would say, ‘‘Hey, do we really need this? Get rid of that system,

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and merge this,’’ and so forth. I would hope it would be a constructive exercise when you look at it from that perspective.

Mr. HASH. Absolutely, Mr. Horn. We clearly learned—I think

there are a lot of silver linings to the Y2K experience, particularly

in the ADP area, and I think the extensive attention, renovation,

testing, and retesting has really helped renovate all of this in a

way that hopefully this kind of project will benefit from, just as you

indicated, because I think our systems, claims processing systems,

have never been so thoroughly renovated as over the last 2 years,

and that has got to—will pay dividends, I think, in putting in this

management information system for financial controls.

Mr. HORN. Before I yield to Mr. Ose, let me ask, you mentioned

the Atlanta website. Is that just for waste, fraud, and abuse in that

area?

Mr. HASH. No, sir. It is a website, a national website, and it is

not just in Atlanta, by any means. Atlanta happens to be the regional office that heads up our efforts on Medicaid waste, fraud,

and abuse.

That website has been contributed to by State fraud units, by

Medicaid agencies, by States attorneys general, and a host of law

enforcement and programmatic people, and what it includes are information about successful investigations, best practices, ways in

which you can more appropriately target your law enforcement and

oversight responsibilities to get the most yield from the resources

that are available.

So it is a tool to actually bring together and strengthen the efforts of a multiple group of folks who are involved in waste, fraud,

and abuse for Medicaid.

Mr. HORN. Besides WWW or whatever, what comes next in access to it? Or just send it to us.

Mr. HASH. I will send it to you for the record. I do not want to

misstate it.

Mr. HORN. Thank you.

Mr. HASH. It also has a compilation, importantly, of State laws

that have been passed to address fraud and abuse in Medicaid, and

that is very important, because other States, who are trying to

strengthen their Medicaid fraud activities, want the benefit of the

laws, themselves, as tools, and this website includes information

about laws that States have passed to provide more effective tools

to law enforcement.

Mr. HORN. Well, let us know what the access is on it.

The gentleman from California, Mr. Ose?

Mr. OSE. Thank you, Mr. Chairman.

I think I would like to direct my questions to Mr. Hash, initially.

One of the things we struggle with up here is that oftentimes it

seems that the interpretations HCFA puts out for Congress’ intentions diverge from what we on the Hill think might have been the

point. I am trying to find out—and I did not see it in the testimony—who is responsible for making such interpretations? In

other words, who do I call up and say, ‘‘No, I disagree with your

interpretation’’?

Mr. HASH. Well, in our regulation or in our guidance, where we

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able individuals are the administrator of our agency and the Secretary of the Department.

Mr. OSE. Pardon my ignorance. What would those people’s names

be?

Mr. HASH. Secretary Shalala and Administrator DeParro.

I mean that in the sense of, when we make regulations in the

Medicare program, they are technically regulations of the Secretary. Under her authority, under the law, she is issuing them, so

the process of developing those regulations, while they start in the

Health Care Financing Administration if it is on Medicare—and we

are certainly accountable for that—they are also reviewed by the

Department of HHS, as well, because they represent the Secretary’s use of her authority under the law to implement the Medicare program.

Mr. OSE. The reason I bring it up, there is not a single Member

of Congress on any side of any aisle who has not heard the horror

stories that constituents or their parents have been faced with

when various service providers say, such as Vencor or other convalescent hospital and nursing home facilities, are put in a position

where they have to cut therapeutic services and the like in order

to continue to cover their basic housing costs of operation.

I do not believe it was the intention of Congress to, in effect, provide with one hand various services and take away by administrative fiat with another hand, and I am just curious what your

audit—what role the audit process plays in reconciling congressional intent with administrative ruling on these reimbursement

rates.

Mr. HASH. Well, in terms of the audit, I would yield to my colleagues from Inspector General’s office, but, with respect to implementation, for example, of the prospective payment system for

skilled nursing facilities that you may have been referring to, Congress included a very significant change in the Balanced Budget

Act to how we pay for services in nursing facilities. That law was

quite prescriptive in its design of what the payment system is.

For the most part, I think you would find that, in publishing the

regulation that implemented that payment change, the law was

largely self-executing. In other words, the law was very specific

about exactly how that new payment system should be operated,

and we did not exercise discretion. We did not have under the law

very much discretion at all with respect to that payment system.

Mr. OSE. I am also aware of Congresswoman Northup’s letter

last fall that, in the space of about 2 hours, collected over 180 signatures on the floor of the House, challenging the interpretations

that had been implemented relative to the 1996 BBA, and I think

was a great contributor to the additional funding the House put

forward last fall in the—I do not recall if it was the BBRA, or

whatever you call it. I lose the acronyms after a while.

But it is my intention to inspect congressional intention there so

that you will respect congressional intention there. I appreciate the

information that you have provided so far.

I want to move on to the other two questions I have.

One of the things we struggle with, particularly in my District,

is that being so efficient to date, as it relates to the operational

side of various providers, our cost base is relatively low, compared

76

to, say, New York or Florida or whatever, and I am wondering

whether or not—and this might be more accurately directed to Ms.

Brown—I am wondering whether or not you have any data comparing reimbursement rates for Medicare services amongst such regions—for instance, this one. I apologize for picking on Illinois. It

is not my intention to pick on Illinois, but do you have a comparison of the reimbursement rates provided in California with, say, Illinois or Alaska or New Mexico for any given service?

Ms. BROWN. That would be HCFA’s responsibility to determine

the rates by region.

Mr. OSE. Back to you, Mr. Hash.

Mr. HASH. Yes, sir. We do have information about the rates that

are paid in different parts of the country. Obviously, each one of

the provider categories has, generally, its own payment policies,

and they vary quite dramatically, but——

Mr. OSE. By region?

Mr. HASH. No, no. I mean just the basic way we pay hospitals

or nursing homes or home health agencies or physicians or the durable medical equipment suppliers. All of those are different payment systems, but all of them have embedded within them procedures for adjusting them to reflect the various costs that are associated geographically, usually on the basis of wage cost, because

wage costs frequently make up such a large portion of the cost of

the service. We have a national wage index that provides for payment adjustments in many areas, based on the cost of labor to provide the services.

So we do not have in the Medicare program uniform national

rates where we pay the same amount for a service everywhere in

the country.

Mr. OSE. Do the adjustments accurately reflect inflation or the

ability of a region, for instance, where they have had significant

HMO investment and involvement, significant savings generated

by that—I guess I am more accurately asking what are the adjustments based on.

Mr. HASH. The adjustments typically are based on either the relative cost of wages in the particular locality—and we have a wage

index that does that—and they are adjusted with respect to inflation, as measured by several different indices—the CPI, or there is

a medical care inflation index. Those are typically the kinds of adjustments that payments get made, or that are made to payments.

I am trying to answer this in the most specific way I can. If you

are asking why typically there are differences in payments between

rural and urban areas, much of that is the result of, in the Medicare program, historic differences in the costs that have been reported for those services in those different areas, and that has been

kind of the basis.

As you look around the country and compare costs for medical

care in different marketplaces, they vary, as I know you know, very

dramatically from one area to another.

One of the best illustrations of the range of variation is we calculate a per capita cost for Medicare in each of the counties, over

3,000 counties around the country. We have done that for purposes

of the method for paying for managed care organizations. But what

that number shows to you is that on a monthly basis the range is

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from something like $230 a month to as much as nearly $800 a

month per person in terms of the Medicare expenditures that are

made on a county-by-county basis. So that produces different payment rates.

Mr. OSE. I would submit to you, at least as it relates to the seven

rural counties that I represent, that the algorithm you use to come

to that payment level does not equitably reflect, if you will, a minimum survival level for provision of adequate medical services. That

has resulted in a reduction in the level of medical care available

in many of the rural counties that I represent.

I would hope that you would convey that back to your colleagues,

and perhaps we could have some attention focused on that.

Mr. HASH. I agree. It is an important issue, and one which we

need to pay attention to, because providing access to our beneficiaries who reside in rural areas is an important concern and objective of our program, and we definitely want to work to make

sure that there is not only adequate access, but that the quality of

care that beneficiaries receive who live in rural areas also meets

the highest standards.

I think in some of these cases, if I may, the differences relate to

the way in which the statute is designed, and that really calls on

all of us to take a look at those payment systems and see whether

they need to be revised in light of the experience that some rural

health care providers are having.

Mr. OSE. I appreciate your comments. The reason I broach this

subject is that I would hate to get us in a position where, for financial reasons, we find ourselves quite literally denying medical service to those folks who live in rural areas.

Mr. OSE. Mr. Chairman, if I may, one other question and observation.

In my District, we have a very efficient number of HMOs, and

you can like them or dislike them, but they are a fact of life. Oftentimes, under the prospective payment system, they end up in a situation where they will self-report having received an overpayment

from Medicare and attempt to return such funds to Medicare, as

the law requires.

The thing that I find most incredible is that, in the situation I

am familiar with related to some $7 million, the provider has proffered the money back to—having identified it by themselves, proposed returning the money, and they find themselves in a dispute

with Medicare over whether they can return the money and the circumstances under which they can.

The thing that is so aggravating is that, instead of being able to

return the money and going on about business, having self-identified it—it had gotten past all the other auditors—they now find

themselves in the position of spending scarce resources battling

with Medicare over legal issues that they brought to the table in

a good faith effort, rather than providing medical services to their

participants.

I cannot tell you how aggravating—I mean, I love attorneys. Do

not get me wrong. But I cannot tell you how aggravating it is to

take scarce resources and quibble over this, that, or the other thing

when we could use those resources to provide medical care.

78

So I am curious whether or not, either in the course of the regular audit or the operational side, Mr. Hash, whether we have any

information regarding the aggregate cost that arises in circumstances of this nature across the country, where a provider has

self-reported overpayment and then ends up in the position of battling to return the money, having to spend money to battle rather

than money to provide medical service.

Mr. HASH. Well, I share the frustration that you have just voiced

on behalf of folks in your District, because there has been, I think,

in the past an issue about the procedures for the acceptance, on the

traditional fee-for-service side of Medicare, by our contractors of

voluntarily returned amounts.

What we did last year—in fact, it will be a year next month— in April 1999 we sent out guidance to our contractors, the fiscal

intermediaries and carriers, and informed them that they were to

take checks or cash or whatever the instrument was to convey the

money and to deposit it into their account, and then, subsequently,

we would determine the proper allocation or crediting of that to the

proper trust fund, and so forth.

But the failure of contractors to have had procedures in place to

accept and deposit such refunds or voluntarily submitted funds is

something we have tried to correct, and we believe that now there

is an understanding among our contractors that these returned

moneys are to be deposited into their accounts and that they are

to be recorded, and then we will make a determination later about

the appropriateness of where they should be credited.

Mr. OSE. I think my question was more oriented toward do you

have any sense of the amount of money that is being expended to

battle over this between, say, Medicare or HCFA and the providers,

contractors? Do you have any—— Mr. HASH. In the case of voluntary returns, I would hope that

there are no fights going on. Once it was—my understanding was

the fight was the contractors were not accepting the checks. I think

we have gotten past that.

There may be issues about overpayments that have come up in

the Inspector General’s experience with respect to compliance plans

that have been entered into by organizations because of settlement

agreements or one kind of thing that may result in disputes about

returned money, but a voluntarily self-disclosed, self-returned

amount should be accepted by our contractors and should not be

the occasion of an ongoing dispute about it.

Mr. OSE. Perhaps we could visit more about this privately.

Mr. Chairman, my last observation would be—and I am not normally given to this, but as recently as 14 months ago I was on the

private side dealing with all these questions emanating from Congress and the State legislature.

My private experience tells me that, as a buyer of goods and

services, you tend to get what you pay for. And I have to take exception. I know it does not emanate from the distinguished persons

testifying here, but I have to take exception to some of the claims

emanating from other parts of the Administration that the medical

community is not doing its job.

The reality is that the medical community is in a position where

they are receiving less and less for their services, and the spin, if

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you will, that is coming out of that, from some portions of the Administration, is that doctors are not providing the same level of

care that they have historically provided, and it has resulted in a

higher mortality rate because of errors or omissions or what have

you.

Well, the reality is that if HCFA, by virtue of its interpretations

of Congress’ intentions, reduces reimbursement rates to providers.

The doctors are going to be in a position where they cannot provide

therapy or they cannot have nurse assistants in the operating

rooms for thoracic surgery and the like, and the result is a higher

mortality rate.

There is an inescapable connection between what we are willing

to pay for inservices and the level of service that a doctor can provide. It is inescapable.

I submit that for the record.

Mr. HORN. Well, I agree with what the gentleman has said so

eloquently. There is no question about it, as far as I am concerned.

I now yield 16 minutes to the gentleman from Texas, the ranking

member, Mr. Turner. See, you get more and more time with the

more time my colleagues take.

Mr. TURNER. I am going to yield to you, Mr. Chairman. At this

time, I do not have any further questions.

Mr. HORN. OK. Are there any other questions then? The gentlewoman from Illinois?

Mrs. BIGGERT. OK. I just want to go back to the issue of site inspections and provider numbers. An example is that two doctors submitted in excess of $690,000

in Medicare claims and listed nothing more than a Brooklyn, NY,

Laundromat as their office location. In Florida, over $6 million in

Medicaid funds were sent to a medical equipment company that

provided no services whatsoever, and one of these companies listed

their address that would have put the business in the middle of the

Miami International Airport. I know we have all heard about that.

Another one, a medical equipment company, provided adult diapers, which were not covered under Medicaid and were priced at

30 cents apiece, to nursing home patients, but they billed Medicare

$8 an item after coding these diapers as an item under Medicaid.

So my question is: is there mandatory site inspection? Now, you

said you do have it. Is it mandatory, or is it just that you could

do it if it looks like it is necessary?

Mr. HASH. It is my understanding that we are currently site visiting any applicant who applies for a provider number as a durable

medical equipment supplier.

Mrs. BIGGERT. And that is only the new ones?

Mr. HASH. And we are putting into place a process whereby we

will be visiting current ones to validate that they are, in fact, bona

fide businesses and appropriately qualified.

Mrs. BIGGERT. Well, then, why did these happen?

Mr. HASH. I beg your pardon?

Mrs. BIGGERT. Well, then, why would these cases come up?

Mr. HASH. I am speaking also specifically of Medicare. I do not

know how many of your examples related to Medicaid.

Mrs. BIGGERT. They were all Medicare.

Mr. HASH. Medicare?

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Mrs. BIGGERT. Yes.

Mr. HASH. Then they should not be happening now. I think we

have been working on this. We started, actually, the stepped-up attention to provider qualifications as a part of the operation to restore trust that the Inspector General’s office and our agency entered into back in 1995, and part of the outgrowth of that was that

we identified several. Perhaps some of the ones you named are

ones that we actually identified and removed from the program and

instigated collection procedures for.

We are, obviously, zero tolerance for letting people into the program who are not qualified and who are intent to defraud the taxpayers and the Medicare beneficiaries, and we think we are making progress on that.

As I say, I think many of those examples are ones that we actually identified, ourselves, through our stepped-up attention to the

qualification of suppliers.

Mrs. BIGGERT. And then I think in the paper just yesterday was

the Medicare program paid an estimated $20.6 million for health

care to people that are dead. How is this found?

Mr. HASH. That was a systems problem that related to the notification of the death of beneficiaries and the failure of that notification to have triggered the timely suspension of capitation payments

to HMOs. We have, we believe, corrected that systems problem,

and we have collected all of the overpayments, or are in the process

of collecting the overpayments associated with that mistake.

Mrs. BIGGERT. Thank you.

Mr. Chairman, before we conclude—I do not know if you have

more questions—I think that I would like to thank all the participants for their testimony, but I still believe that we need to really

address the issue of the Medicare and Medicaid fraud and abuse

at a different time, so I would ask at some time that we do schedule a hearing on this issue separately and look at the GAO report

that was issued in October.

Mr. HORN. Thank you. That is a good suggestion. We will do

that.

Any other questions?

[No response.]

Mr. HORN. OK. I want to thank you all for coming. There have

been very good questions here that have gotten a lot of these important issues. I particularly thank all of you that have been so

knowledgeable in this, and we are depending on you to be the ones

that figure out a way that we do not defraud the government, in

particular.

Obviously, we want to help you, if it takes additional legislative

language.

I want to also thank the staff on both the Democratic side and

the Republican side for putting things together for this hearing: J.

Russell George is the staff director and chief counsel for the majority; Louise DiBenedetto is the chief auditor on loan from the General Accounting Office for the subcommittee and the counsel for

this hearing, and that is the distinguished member of the staff on

my left and your right; Bonnie Heald, director of communications;

Bryan Sisk, clerk to the subcommittee; and Ryan McKee, staff assistant.

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And for the democratic staff we have Trey Henderson, counsel to

Mr. Turner and the subcommittee there, and Jean Gosa, minority

clerk, and our faithful court reporter, who I think can now hear

what people are saying. Thank you. That is Mike Willsey.

Thank you very much for coming.

With that, we are adjourned.

[Whereupon, at 11:48 a.m., the subcommittee was adjourned.]

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