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76–611 PDF 2012

EXAMINING THE ADMINISTRATION’S FAILURE TO 

PREVENT AND END MEDICAID OVERPAYMENT 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH CARE, DISTRICT OF 

COLUMBIA, CENSUS AND THE NATIONAL ARCHIVES 

OF THE

COMMITTEE ON OVERSIGHT 

AND GOVERNMENT REFORM 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

SEPTEMBER 20, 2012 

Serial No. 112–188 

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

( 

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

http://www.house.gov/reform 

(II) 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM 

DARRELL E. ISSA, California, Chairman 

DAN BURTON, Indiana 

JOHN L. MICA, Florida 

TODD RUSSELL PLATTS, Pennsylvania 

MICHAEL R. TURNER, Ohio 

PATRICK T. MCHENRY, North Carolina 

JIM JORDAN, Ohio 

JASON CHAFFETZ, Utah 

CONNIE MACK, Florida 

TIM WALBERG, Michigan 

JAMES LANKFORD, Oklahoma 

JUSTIN AMASH, Michigan 

ANN MARIE BUERKLE, New York 

PAUL A. GOSAR, Arizona 

RAU ́ L R. LABRADOR, Idaho 

PATRICK MEEHAN, Pennsylvania 

SCOTT DESJARLAIS, Tennessee 

JOE WALSH, Illinois 

TREY GOWDY, South Carolina 

DENNIS A. ROSS, Florida 

BLAKE FARENTHOLD, Texas 

MIKE KELLY, Pennsylvania 

VACANCY 

ELIJAH E. CUMMINGS, Maryland, Ranking 

Minority Member 

EDOLPHUS TOWNS, New York 

CAROLYN B. MALONEY, New York 

ELEANOR HOLMES NORTON, District of 

Columbia 

DENNIS J. KUCINICH, Ohio 

JOHN F. TIERNEY, Massachusetts 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

JIM COOPER, Tennessee 

GERALD E. CONNOLLY, Virginia 

MIKE QUIGLEY, Illinois 

DANNY K. DAVIS, Illinois 

BRUCE L. BRALEY, Iowa 

PETER WELCH, Vermont 

JOHN A. YARMUTH, Kentucky 

CHRISTOPHER S. MURPHY, Connecticut 

JACKIE SPEIER, California 

LAWRENCE J. BRADY, Staff Director 

JOHN D. CUADERES, Deputy Staff Director 

ROBERT BORDEN, General Counsel 

LINDA A. GOOD, Chief Clerk 

DAVID RAPALLO, Minority Staff Director 

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

NATIONAL ARCHIVES

TREY GOWDY, South Carolina, Chairman 

PAUL A. GOSAR, Arizona, Vice Chairman 

DAN BURTON, Indiana 

JOHN L. MICA, Florida 

PATRICK T. MCHENRY, North Carolina 

SCOTT DESJARLAIS, Tennessee 

JOE WALSH, Illinois 

DANNY K. DAVIS, Illinois, Ranking Minority 

Member 

ELEANOR HOLMES NORTON, District of 

Columbia 

WM. LACY CLAY, Missouri 

CHRISTOPHER S. MURPHY, Connecticut 

(III) 

C O N T E N T S 

Page 

Hearing held on September 20, 2012 ..................................................................... 1 

WITNESSES 

Mr. John Hagg, Director of Medicaid Audits, Office of The Inspector General, 

Department of Health and Human Services 

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

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

Ms. Penny Thompson, Deputy Director, Center for Medicaid and Chip Services, Centers for Medicare and Medicaid Services 

Oral Statement ................................................................................................. 14 

Written Statement ............................................................................................ 16 

APPENDIX 

Committee On Oversight and Government Reform, Staff Report ....................... 36 

Question asked by Mr. Gosar to Ms. Thompson ................................................... 52 

New York’s Medicaid Reforms ................................................................................ 53 

Editorial: State’s Medicaid Abuses Cannot Stand ................................................ 55 

(1) 

EXAMINING THE ADMINISTRATION’S FAILURE 

TO PREVENT AND END MEDICAID OVERPAYMENT 

Thursday, September 20, 2012 

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON HEALTH CARE, DISTRICT OF

COLUMBIA, CENSUS, AND THE NATIONAL ARCHIVES, 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM, 

Washington, D.C. 

The subcommittee met, pursuant to call, at 2:27 p.m. in room 

2154 Rayburn House Office Building, Hon. Paul A. Gosar [vice 

chairman of the Subcommittee] presiding. 

Present: Representatives Gowdy, Gosar, DesJarlais and Davis. 

Staff Present: Brian Blase, Professional Staff Member; Will L. 

Boyington, Staff Assistant; Molly Boyl, Parliamentarian; Katelyn 

E. Christ, Professional Staff Member; Linda Good, Chief Clerk; 

Mark D. Marin, Director of Oversight; Scott Schmidt, Deputy Director of Digital Strategy and Press Secretary; Jaron Bourke, Minority Director of Administration; Yvette Cravins, Minority Counsel; Adam Koshkin, Minority Staff Assistant; Suzanne Owen, Minority Health Policy Advisor; and Safiya Simmons, Minority Press 

Secretary. 

Mr. GOSAR. The Subcommittee will come to order. 

Today we have a real chance to address Government failure 

head-on and reign in abuse and mismanagement of one of the Nation’s largest programs. 

Today marks the Subcommittee’s fifth hearing this Congress examining waste, fraud, abuse, and mismanagement in the Medicaid 

program. Each hearing has focused on specific instances when taxpayer resources were misused within the Medicaid program. 

At the last hearing in April, we learned that Texas Medicaid program was spending more on braces than the rest of the Country’s 

Medicaid dental programs combined. We also learned that the Center for Medicare and Medicaid Services failed to detect hundreds of 

millions of dollars in fraudulent claims for years, and that CMS 

only learned of these improper payments after an enterprising 

Texas journalist broke the story. 

Today’s hearing highlights another brazen example of Government failure. For decades New York has received a windfall from 

the Federal taxpayers through Medicaid overpayments that are so 

large I needed to double and triple-check with my staff that the information was accurate. 

2 

In Arizona, skilled nursing facilities which provide services comparable to New York’s developmental centers receive about $200 

per patient per day to treat patients. Last year New York’s developmental centers received over $5,000 per patient per day, a rate 

nearly 25 times greater than a comparable rate in Arizona. A report by the Health and Human Services Inspector General shows 

these rates were ten times higher than rates received from private 

facilities in New York that perform similar functions. 

Last year taxpayers paid nearly $2.5 billion for about 1,300 patients residing in New York’s developmental centers. To put this 

number in perspective, Medicaid spending on New York’s developmental centers alone exceeded the entire Medicaid budgets of 14 

States. Moreover, Kansas’ Medicaid program spends about as much 

to cover nearly 400,000 enrollees as New York’s developmental centers received for their 1,300 residents. 

What do we know about these excessive payment rates? We 

know the rates began to increase dramatically around 1990 as a result of New York’s proposals that were repeatedly approved by 

CMS. We know that the payment rate skyrocketed because the 

payment rate formula allowed the State-operated facilities to retain 

two-thirds of the total Medicaid reimbursement when an individual 

left the facility. According to the HHS Inspector General, this 

meant taxpayers would pay twice for individuals who left the developmental centers, since most of them were transitioning into 

settings such as group homes also financed by Medicaid. 

We know that from 1990 to 2010 CMS never questioned the excessive rates, and the reimbursements continued flowing to New 

York’s State-operated developmental centers. CMS did not even 

identify overpayments until 2007, when they had reached over 

$3,700 per patient per day. 

To make matters worse, we know that CMS failed to take any 

specific actions for three years after it had identified the problem. 

In July of 2010, CMS chose to send a letter to New York officials 

only after a story appeared in the Poughkeepsie Journal about 

these excessive payment rates. We know that these high payment 

rates caused New York to backtrack on its plan to close developmental centers, as the overpayments allowed the State to plug 

holes in its budget. 

And we know that as of three months ago CMS was negotiating 

a plan with New York that would allow New York’s developmental 

centers to continue to receive billions of dollars in overpayments 

over the next five years. 

We also know that the excessive payment rates received by the 

New York developmental centers break the law. The high rates violate title 19 of the Social Security Act, which mandates that Medicaid payment rates must be effective and economical. The high 

rates also violate Medicaid upper payment limit requirements, 

which prohibits States from claiming Federal matching funds for 

Medicaid payments that are in excess of what Medicare would have 

paid for similar services. 

According to the Committee’s estimates, Federal payments to 

New York’s developmental centers may have exceeded the upper 

limit payment limits by $15 billion over the past two decades. 

3 

Penny Thompson, a witness today and the Deputy Director of the 

Center for Medicaid and CHIP Services at CMS has admitted that 

CMS failed to adequately protect taxpayers dollars in this case. Ms. 

Thompson is here today to address three key questions: 

First, how could daily payment rates grow to exceed $5,000 per 

patient? 

Second, how is the Federal Government going to correct this specific problem? 

Third, how is the Federal Government going to prevent this type 

of wasteful spending in the future? 

As I mentioned at the start, Arizona sent me to Washington to 

solve problems. Hard choices will have to be made on how to reduce Federal spending, but ending overpayments to New York’s 

State-operated developmental centers should not be a hard choice 

at all. We must end it now. 

I thank our witnesses for being here today and I look forward to 

hearing their testimony about how we can best act to stop these 

overpayments immediately and end similar abusive practices in 

any State in the near future. 

Thank you. 

I now recognize the distinguished Ranking Member, Mr. Davis, 

for his opening statement. 

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

I have always felt that waste, fraud, and abuse have no place in 

Government programming, so I thank you for holding today’s hearing about how the flexibility provided to States in setting the maximum rates payable under the Medicaid program, referred to as 

upper payment limits, were misused to obtain Federal Medicaid 

matching payments, exceeding actual cost of services to the States. 

But this was not a problem created by the current Administration. Unfortunately, the title of the hearing obscures the reality 

that the problem with excessive New York reimbursement rates 

spans several decades and Administrations, including those of 

President George W. Bush, George H.W. Bush, and Ronald Reagan. 

It does not appear that the Obama Administration may be the first 

to deal with the problem, but holding them responsible for this 

problem is a bit like blaming a detective for the case he has not 

solved. 

In the past, New York, like many States facing budget deficits, 

sought an advantageous Medicaid State plan to help pay for its 

share of health care costs, while balancing the long list of needs of 

a financially strained State. However, a recent New York Times 

editorial on September 17th describes the New York Medicaid program as undergoing an extensive transformation over the last year. 

The current Administration is changing its Medicaid program and 

could become, according to the Times, a model on how to cut Medicaid without harming beneficiaries. 

We have provided new tools and innovations through the Affordable Care Act to perform the necessary oversight to detect and punish fraud. That is necessary to retain the confidence of taxpayers 

and meet the required statutory standard of efficiency and economy. 

4 

Currently the State of New York and CMS are under intensive 

negotiations to determine a path forward. I applaud their efforts 

and look forward to a resolution. 

Finally, I hope that today’s hearing is not intended to undermine 

Medicaid or to provide a political plug for Paul Ryan’s plan for 

block granting Medicaid and dismantling Federal oversight. We 

must remember that Medicaid ensures critical health services to 

our most vulnerable populations: low-income children and families, 

people with disabilities, pregnant women, and the elderly. 

A recent poll released in July of this year by the nonpartisan 

Kaiser Family Foundation found that 67 percent of respondents favored expanding Medicaid to cover more low-income, uninsured 

adults under the Affordable Care Act. We must ensure Medicaid remains strong and under Federal oversight and distribution. 

I look forward to the testimony of our two witnesses and again 

I thank you, Mr. Chairman, for calling this hearing. I think it is 

particularly relevant and important to making sure that our taxpayers get the most for their money. 

I thank you and yield back the balance of my time. 

Mr. GOSAR. I thank the gentleman. 

A statement on Medicaid overpayments will be placed in the 

record. Without objection, so ordered. 

Members may have seven days to submit opening statements 

and extraneous material for the record. 

We would like to now welcome our panel. 

First of all we have Mr. John Hagg, who is the President of the 

Medicaid audit team at the Office of the Inspector General for the 

Department of Health and Human Services. We also have Ms. 

Penny Thompson, who is the Deputy Director of the Center for 

Medicaid and CHIP Services at the Centers for Medicare and Medicaid Services. 

Pursuant to Committee rules, all witnesses will be sworn in before they testify. Would you please rise and raise your right hands? 

Do you solemnly swear or affirm that the testimony you are 

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

the truth? 

Mr. HAGG. I do. 

Ms. THOMPSON. I do. 

Mr. GOSAR. Let the record reflect that the witnesses answered in 

the affirmative. 

Thank you. Please be seated. 

In order to allow for a timely discussion, please limit your testimony to five minutes. Your entire written statement will be made 

part of the record. 

Mr. Hagg, you may go first. 

WITNESS STATEMENTS 

STATEMENT OF JOHN HAGG 

Mr. HAGG. Good afternoon, Mr. Chairman, Ranking Member 

Davis, and other distinguished members of the Committee. Thank 

you for the opportunity to testify about the Office of the Inspector 

General’s recent audit report regarding Medicaid payments in New 

York. 

5 

Medicaid payment rates for State-operated developmental centers in New York are extremely high. In state fiscal year 2009, 

New York claimed more than $2.2 billion in Medicaid reimbursement for these centers. The actual cost of operating the developmental centers was $578 million. The $2.2 billion equaled over 

$4,100 per day for each of the 1,700 beneficiaries and resulted in 

New York receiving Federal matching funds of over $1.1 billion. 

So why are these Medicaid payment rates so high? Chiefly, because there is no requirement that Medicaid payments be limited 

to the actual cost of providing services. When the current rate-setting methodology began in 1985, New York’s daily payment rate for 

the developmental centers was $195 per beneficiary. By 2009, the 

rate had grown to over $4,100 per day. The $4,100 far exceeds the 

daily payment rate for all other similar public and private facilities 

in New York which provided similar services for a fraction of the 

cost of Medicaid. 

Unlike the developmental centers, the payment rates for these 

other facilities were based on cost and ranged from $257 to $902 

per day. If New York had used actual cost as part of its rate-setting 

methodology for the developmental centers, total Medicaid reimbursements could have been at least $1.4 billion less in 2009. This 

could have lowered Federal Medicaid payments by at least $700 

million for that year alone. 

For over a decade, OIG has recommended that payments to public providers be limited to the actual cost of providing services. This 

would help ensure that in New York and other States Medicaid 

payment methodologies for public providers are reasonable and economical. Until such time as payments to public providers are limited to actual cost, CMS should work with New York to ensure an 

appropriate Medicaid daily rate for State-operated developmental 

centers. 

Thank you for your interest in this important issue. I would be 

happy to answer your questions. 

[Prepared statement of Mr. Hagg follows:] 

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Mr. GOSAR. Thank you very much, Mr. Hagg. 

Now Ms. Thompson. 

STATEMENT OF PENNY THOMPSON 

Ms. THOMPSON. Mr. Chairman, Ranking Member Davis, and 

members of the Subcommittee, thank you for the invitation to come 

here today to discuss Medicaid payments to New York’s State-run 

developmental centers. 

As a former senior manager at the HHS Inspectors General, a 

former CMS director of program integrity, and deputy director now 

of Medicaid and CHIP Services, I am committed to safeguarding 

taxpayer dollars in the Medicaid program through rigorous financial management, as well as through comprehensive anti-fraud activities. 

The payments for New York’s developmental centers are excessive and unacceptable. As you have both said in your statements, 

this problem is longstanding. CMS’ current priority is to correct 

New York’s payment rate so that it is an economic and efficient 

rate, as appropriate and required by law. While, as you mentioned 

in your statement, we had considered for a time a transition period, we have ultimately decided to require an adjustment to proper payment levels without a transition. Once we have agreed upon 

a finalized payment methodology with New York, CMS will review 

past overpayments and determine if there are additional sums that 

need to be returned to the Federal Treasury. 

Beyond our priority of fixing the problematic rate and recovering 

past over payments, CMS has developed a plan of action and management controls to drive future policy and guidance and correct 

the vulnerabilities that led to the overpayments in New York. 

First, the current methods of enforcing the upper payment limit, 

which you mentioned in your statement, are not sufficient to protect Federal dollars. The defined payment methodologies in the 

plan in the case of New York do not necessarily ensure appropriate 

rates when elements of those methodologies trigger an overall escalation in the rates over time. 

In the case of New York, the original payment methodology CMS 

reviewed, approved, was acceptable at that point in time, but over 

a period of time those automatic escalators resulted in a rise in 

cost, and through essentially the magic of compounding, as we can 

see in your chart, those rates took off at a very vertical pace. 

To address these issues, CMS has been investing in its own data 

infrastructure to ensure that we have complete and timely Medicaid data so that we can look for these kinds of escalations and 

outliers and address them more quickly, and we have been investing in that infrastructure through a series of efforts, including 

some recent activities with a group of ten States to test a more 

complete and timely Medicaid data feed to CMS. 

But our State partners bear responsibility and accountability, 

and they are in the best position to monitor their own data to ensure that they are adjusting rates as appropriate, responding to 

problems that indicate excessive payment rates or excessive utilization. We will be writing a letter to the State Medicaid directors and 

reminding them of their obligations and requiring them to report 

to us on a regular basis on the results of their efforts of looking 

15 

at data trends and identifying aberrancies and anomalies, and any 

corrective actions they are taking as a result of those results. 

We also plan to convene a group of Medicaid directors and State 

program integrity subject matter experts to improve program integrity and financial management at both the Federal and State levels. We will be using case studies such as those that we discussed 

earlier this year, and in the case of New York, to identify ways in 

which we can improve our management controls and our financial 

controls. 

Members of this work group will also provide input for a framework for measuring program integrity return on investment, and 

for increasing collaboration and alignment between Medicare, Medicaid, and commercial program integrity efforts. This work group 

will allow CMS and its State partners to address problems in a collaborative comprehensive manner. 

To summarize, the Medicaid payments made to New York for the 

developmental centers were excessive and inappropriate. We are 

working to correct the payments to New York, as well as reviewing 

past overpayments to recover Federal dollars. We are also improving our monitoring and approval processes to detect excessive payments more quickly and to prevent excessive payments from being 

made in the first place. 

I appreciate the Subcommittee’s work and interest in this matter, and I continue to look forward to working with you as we make 

our improvements. 

[Prepared statement of Ms. Thompson follows:] 

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Mr. GOSAR. Thank you, Ms. Thompson. 

I recognize myself for five minutes for questions. 

Ms. Thompson, how many of CMS’ 4,500 employees work in the 

program of integrity or financial review capacities? 

Ms. THOMPSON. I don’t have those figures off the top of my head. 

I mean, we do have some breakdowns that we can provide the Subcommittee following the hearing. 

Mr. GOSAR. Do you have some idea of the percentages? 

Ms. THOMPSON. There are about 500 individuals who work on 

Medicaid and CHIP issues throughout the agency, and the number 

that work on financial management with respect to Medicaid and 

CHIP are a portion of those. 

Mr. GOSAR. Gotcha. Now, how is it possible that CMS was unaware of the high developmental center rates until 2007, given the 

massive amounts of Federal money going to these developmental 

centers? I mean, this should have been a lightning bolt that we 

should be seeing. 

Ms. THOMPSON. I agree, and I think part of the problem here has 

been that at the Federal level the agency has not invested enough 

resources in the data infrastructures and the discipline of reviewing and assessing the results of that data in order to identify these 

kinds of outliers and anomalies on an ongoing basis. That is part 

of the work that we are doing to ensure that we can address that 

appropriately. 

Mr. GOSAR. Well, I know that between 2007, when CMS identified the overpayment, how is it that these payments increased another $800? 

Ms. THOMPSON. Well, let me preface my answer to that question 

by saying that I have not had the opportunity to speak directly to 

any of the officials in the prior Administration that made those decisions, so I don’t want to represent their decision-making process 

inappropriately here. But we have had an opportunity to have a 

talk with some of the staff to try to understand why, once having 

discovered this issue, there wasn’t rapid response. 

And essentially, as far as we can reconstruct, it appears as 

though CMS agency staff thought that the regulation that had 

been developed and was awaiting finalization, which would have 

held Government providers to cost, would have been the appropriate enforcement mechanism for correcting the problem, and then 

when the Congress issued a moratorium preventing CMS from enforcing that rule, they believed that, out of an abundance of caution, perhaps an overabundance of caution, that to proceed on the 

basis of a cost argument with New York on its developmental centers would be a contradiction of the moratorium. 

Mr. GOSAR. Do you think it was only because of the Poughkeepsie article that drew our attention that we actually are highlighting and actually are talking about this today? 

Ms. THOMPSON. Well, it was certainly the first time it came to 

my attention was after a result of the Poughkeepsie Journal article, so once, even after having dispensed with the actions and 

issues associated with the cost regulation, we didn’t have a mechanism by which to go back and re-review those issues which had 

been held in abeyance during that period. That was the first time 

that I became aware of the issue. 

27 

Mr. GOSAR. So when those employees, when you go back to review, when they knew about these overpayments in 2007, do you 

believe that those employees that knew about that should be disciplined? And how should they be disciplined? 

Ms. THOMPSON. Well, no. Most of the employees that are currently in the agency that were involved in that issue at that time 

are mid-level employees. All of the decision-makers associated with 

that have left the agency. 

Mr. GOSAR. Okay. And when you do audits, I mean, the IRS does 

audits pretty darn well, and they do sporadic audits throughout different agencies. Do you think there is something you could learn 

from the IRS in the way that you do your audits of agencies and 

States? 

Ms. THOMPSON. Well, I think that there is a lot of lessons from 

a lot of people in terms of making sure that we have proper management controls and oversight. I think that we actually have a 

pretty good process for reviewing State claims. We take a number 

of deferrals and disallowances on a regular basis and conduct focused financial reviews. We have a partner, which is the Office of 

the Inspector General, that can help us with auditing claims when 

we need their assistance. 

So I think the issue here was not so much the question of whether or not we had adequate auditing approaches as much as whether we had the right data and the right decision-making process to 

ensure issues were being addressed in a timely and comprehensive 

manner. 

Mr. GOSAR. But it also seems to me like big-ticket items ought 

to be scrutinized in the highest—— 

Ms. THOMPSON. Absolutely. 

Mr. GOSAR. And it seems like we had this discussion about Texas 

orthodontics, and now we are having this discussion about New 

York’s service centers, so from that standpoint it seems like there 

are some common-sense applications so we could bypass some of 

this confusion. 

Ms. THOMPSON. You are right about that. And I will also say that 

one of the other discussions that we are having is how Medicaid 

integrity contractors, who are supported by dedicated funds to protect the program against fraud, waste, and abuse, can be better 

employed to help us address some of these issues. 

Mr. GOSAR. Thank you. 

My time is up. I would like to recognize the gentleman from Illinois, the Ranking Member Mr. Davis, for his questions. 

Mr. DAVIS. Thank you, Mr. Chairman. 

Before I begin I would like to ask unanimous consent to insert 

into the record this New York Times editorial: New York’s Medicaid Reforms. 

Mr. GOSAR. So ordered. 

Mr. DAVIS. Thank you. 

Mr. Hagg and Ms. Thompson, thank you both for being here. 

President Obama directed you to initiate unprecedented law enforcement efforts to detect fraud in Medicare and Medicaid. Could 

you describe the impact and benefit of multi-jurisdictional and 

multi-agency investigations on the recoupment of Federal Medicaid 

dollars? 

28 

Mr. HAGG. Thank you, Mr. Davis. 

Certainly there are additional PI tools, program integrity tools, 

that are used by the OIG as part of ACA. For this specific issue 

in Medicaid, this is something that the issue, similar issues like we 

found in New York, that are happening in New York, we have been 

involved with these type issues going back to about 2001. Going 

back to that period between 2001 and 2005, we conducted a series 

of audits that identified similar issues with county-operated nursing homes and hospitals. Based on that work from that time period, we made recommendations that the payments for public providers be limited to the cost of providing services. 

We still feel strongly about that recommendation. We feel like it 

makes sense. If somewhere along the line it had been implemented, 

the issue in New York wouldn’t have been able to happen, and if 

it had, then there would have been a clear link for the Federal 

Government to get funding back that exceeded the actual cost of 

providing services. 

Mr. DAVIS. Ms. Thompson? 

Ms. THOMPSON. Well, to go back to your question about the tools 

and the approach that the President has asked us to start employing in order to address program integrity and financial management across programs, some of those additional tools have been extremely important from new ways of doing provider screening, to 

new ways of collecting and utilizing and analyzing data, to the use 

of predictive analytics, to the use of contractors and support services in new and innovative ways in order to protect the integrity 

of the program. We have seen great results from a number of those 

activities. 

Mr. DAVIS. Thank you. When Budget Committee Chairman Paul 

Ryan unveiled his budget for fiscal year 2012, it called for repealing the Patient Protection and Affordable Care Act, turning Medicaid into a block grant. As a result, Federal oversight activities 

and investigations under the Department of Health and Human 

Services and the Department of Justice would come to a halt. The 

job of protecting Federal monies from fraud and misuse would devolve entirely to State officials. No more Federal program integrity 

initiatives, no more coordination of anti-fraud activities across 

Medicare and Medicaid, no more collaboration across State lines. 

The Ryan budget considers that a budget savings. 

Let me ask you, what would be the impact of cutting Federal 

funding in the areas of oversight, management, and anti-fraud efforts? 

Mr. HAGG. Well, certainly if program integrity tools that are a 

part of ACA were cut, they would need to be someplace. You know, 

those tools would need to be somewhere so that we could continue 

to do the work that we are doing in trying to root out fraud, waste, 

and abuse within the HHS programs. 

Mr. DAVIS. Ms. Thompson? 

Ms. THOMPSON. Well, this is a case in which I think how I would 

describe the problem that we are talking about this afternoon is a 

failure of management controls, so I don’t think the answer to a 

failure of management controls is less management control. 

There was a press report after this Subcommittee’s last hearing 

on Medicaid in April that describes the Subcommittee’s message as 

29 

being that States are as accountable for the stewardship of Federal 

funds as they are for the stewardship of State funds, and I thought 

that was a very important and accurate characterization of what 

the Subcommittee was trying to say and I can’t associate myself 

with it more strongly. 

So I think that, regardless of how Federal funding flows to 

States, there needs to be appropriate oversight and controls to ensure those Federal funds are being used properly and for approved 

purposes under the statute. 

Mr. DAVIS. Would it be accurate to suggest or state that if the 

resources are not available then it is virtually impossible to do the 

oversight that is necessary to prevent or to further prevent fraud 

and abuse? 

Ms. THOMPSON. Well, certainly, and I will let John chime in too 

on this question, certainly the proper protection and oversight of 

any programmatic activities or funding requires both people and 

technology and the appropriate kinds of financial and management 

controls that are necessary to protect the program against abuses. 

Mr. HAGG. Yes, we would need appropriate funding and appropriate tools so that we are able to perform the work that we perform. 

Mr. DAVIS. Thank you very much, Mr. Chairman. I yield back. 

Mr. GOSAR. I thank the gentleman. 

I now recognize my colleague, Dr. DesJarlais from Tennessee. 

Mr. DESJARLAIS. Thank you, Mr. Chairman. 

I thank you both for appearing here today. 

First, I would like to ask unanimous consent to put the editorial: 

State’s Medicaid Abuses Cannot Stand, from the Poughkeepsie 

Journal, into the record. 

Mr. GOSAR. So ordered. 

Dr. DESJARLAIS. Ms. Thompson, the Committee learned that 

CMS’ plan as of two and a half months ago was to continue to 

allow the overpayments in the case of New York. Is that still CMS’ 

position? 

Ms. THOMPSON. No. We have been very open and transparent 

with the Subcommittee staff about our thinking and the progression of our talks with the State. We were in a place where we were 

considering that, for a variety of different reasons, but ultimately 

concluded, I think, as the Subcommittee demonstrated in its report, 

that the proper thing to do here, especially given the longstanding 

nature of this problem and the fact that it is taking us a little bit 

of time to work with the State to resolve it, even from the last time 

that we started expressing our concerns, was simply to move to 

make the payment level or payment methodology as appropriate 

and leveled-out as possible on an as-soon-as-possible basis. 

Dr. DESJARLAIS. Okay. So this may be redundant. Is it a factor 

in CMS’ current negotiation with the New York’s developmental 

centers that they have received Federal overpayments in excess of 

$15 billion over the past two decades? 

Ms. THOMPSON. Well, it is certainly true that, because of the way 

that we have been allowing New York to draw down these dollars, 

that the abrupt cessation of those payments will require some considerable adjustment on the State’s part, but that is an adjustment 

they have been prepared for. 

30 

I will say that we talked earlier about the fact that this has been 

a longstanding problem, in addition to the fact that I think certainly this Administration is committed to solving it. I am happy 

to report that we also have a State Administration that is at the 

table, recognizes this is the problem and is committed to solving it. 

Dr. DESJARLAIS. Can CMS issue an immediate deferral so that 

the overpayments cease until a reasonable rate is restored? 

Ms. THOMPSON. That is a tool that is available to us. 

Dr. DESJARLAIS. Okay. 

Ms. THOMPSON. So that, you know, if we continue to be unable 

to reach a proper conclusion in a short amount of time, we can consider making deferrals. 

Dr. DESJARLAIS. Let me ask this, and this is not directed at you, 

but I have just been here two years, came out of the practice of 

medicine for 20 years, and I think for everyone sitting in the room, 

if this was your business and this was identified and that was 

money coming out of your bank account, would you be dragging 

your feet or making the same type of considerations for New York 

if that was your business? 

And Mr. Davis is talking about the oversight that is needed in 

the Federal Government to ensure these programs shouldn’t go to 

the States and let the States handle them. I mean, my gosh, from 

what I am hearing here, maybe that is the best thing that could 

happen, because if this is an example of how we do oversight in the 

Federal Government, then when I am told that $0.48 on every $1 

that comes in from our taxpayers is wasted, this seems to make 

sense. 

So if this were your business, would you be waiting or would you 

be doing it yesterday? 

Ms. THOMPSON. I appreciate the question, and I think the answer 

to that is, as we look at what we are trying to accomplish here, we 

tried to be cognizant of two things: one has been the payment rate, 

themselves, and what is making them reach these levels and what 

are the underlying dynamics and data that we need to be looking 

at, which has taken us more time than we would like to sort out 

with the State; but the other is a concern that the State has made 

assertions that the abrupt cessation of these payments will cause 

tremendous dislocation for the State’s DD system, and so we try to 

take that into account. 

Dr. DESJARLAIS. This is again not directed to you, but if I have 

an employee in my office and they have been embezzling from me 

for two decades, and I find out that that is the case but they tell 

me if I abruptly stop that that would create a real hardship because they couldn’t pay for their Cadillac and their boat, you know, 

that is kind of I look as a taxpayer when they look at something 

like this, a case like this. How do we justify that? 

Ms. THOMPSON. Well, unfortunately, in this case it is not a matter of buying a Cadillac as it is supporting services to very vulnerable beneficiaries, so that is our concern. It is really the concern 

about the beneficiaries. It is not a concern about whether it is convenient or inconvenient for the State. 

Dr. DESJARLAIS. So the beneficiaries—— 

31 

Ms. THOMPSON. But, having said that, I will say that we have 

ultimately concluded that this is not the proper place for that consideration. 

Dr. DESJARLAIS. Okay. 

Ms. THOMPSON. And if the State has some needs that it wants 

to submit to us for consideration, we can deal with that on its own 

merits in a separate conversation. 

Dr. DESJARLAIS. Thank you. What is the per patient payment 

rate that CMS believes satisfies the legal requirement that Medicaid payments be efficient and economical? 

Ms. THOMPSON. We are still finalizing those methodologies and 

numbers, and that is one of the reasons we are not at completion 

yet, but I think you can expect to see a rate that is at about onefifth of its current levels. 

Dr. DESJARLAIS. Okay. I see my time has expired. 

Mr. GOSAR. We can go a second round. 

Dr. DESJARLAIS. Keep going? 

Mr. GOSAR. You can do it in the second round. 

Dr. DESJARLAIS. Okay. I will yield back. Thank you. 

Mr. GOSAR. Well, we are going to go along those same lines, Ms. 

Thompson. Dr. DesJarlais started talking about how we are going 

to get to that number, and you said about one-fifth. Is it the same 

per patient payment rate that would satisfy Medicaid upper payment limit requirement? 

Ms. THOMPSON. Yes. The mechanism by which we would actually 

enforce this payment rate is through a new methodology associated 

with an upper payment limit. 

Mr. GOSAR. And so it will comply along with the Federal Government regulation? 

Ms. THOMPSON. That is right. 

Mr. GOSAR. Does CMS still plan on giving New York five years 

to bring these payment rates into compliance? 

Ms. THOMPSON. No. 

Mr. GOSAR. So we are going to have an abrupt cut 

Ms. THOMPSON. Yes. 

Mr. GOSAR. Okay. Do you believe that New York’s Medicaid program deserves specific scrutiny from CMS, and additionally the individuals? 

Ms. THOMPSON. Well, New York—— 

Mr. GOSAR. I mean like politicians and those supervising this 

process? I mean, this is deceiving and fleecing of the American taxpayer. 

Ms. THOMPSON. Well, in terms of how we treat New York, it is 

on its merits as any other State, if that is the question. I have 

never been a part of any conversations that would suggest that our 

considerations are other than programmatic and financial and consistent with the statute. 

Mr. GOSAR. But you do know that in New York politicians have 

been charged with Medicaid fraud over the past decade? You know 

there have been six of them: Guy Verelli, Joseph Bruno, Anthony 

Samarino, William Boilen, Carl Krueger, and Pedro Espada. Are 

you aware of that? 

Ms. THOMPSON. No, I wasn’t specifically aware of that. 

32 

Mr. GOSAR. I think it is very crucial that we know those individuals because of the predication that this has been going on. And 

this should also be a highlight for CMS to be noting the politicians 

and those directors that are indicted based upon their previous actions. 

Are you aware that the two former New York Senate majority 

leaders have been indicted on Medicaid fraud: Joseph Bruno and 

Pedro Espada? 

Ms. THOMPSON. No. 

Mr. GOSAR. I think these are real glaring issues that we ought 

to continue to pay attention to. 

In a 2010 news article, a deputy commissioner for fiscal and administrative solutions at the Office for People with Developmental 

Disabilities, James Morin, said, ‘‘I am not saying reimbursement 

doesn’t exceed cost by any stretch. Quite honestly, the reimbursement is what it is. CMS has supported it.’’ What do you say to New 

York State officials that have said CMS supported the high developmental center payment rates? 

Ms. THOMPSON. Well, again, I am cautious about not characterizing prior Administration’s or decision-makers’ comments, but certainly since the moment that it came to our attention, New York 

State was quite aware we were not in support of those rates or 

methodologies. 

Mr. GOSAR. You weren’t, but previous individuals in your position definitely have been? 

Ms. THOMPSON. It is actually hard for me to believe that they 

would have been, and I think the—— 

Mr. GOSAR. Well, no action was taken, so by abdication they were 

doing it. 

Ms. THOMPSON. Well, again, it is hard for me to speak for them, 

but I actually think that, had they been aware as we are today of 

the dollars involved and where the rates are, that they would have 

taken different action. 

Mr. GOSAR. Has the State of New York been real cooperative? 

Ms. THOMPSON. They have under the current administration. 

Yes. 

Mr. GOSAR. So let me ask you more about this payment mechanism. You know, you are from this obviously cost-shifting scenario 

and now we are going to cut it off, and we were talking about 

somewhere, one-fifth of that compensation. This is a big chunk of 

change. 

Ms. THOMPSON. Yes. 

Mr. GOSAR. What kind of conversation has New York expressed, 

or have they expressed any kind of dire consequences for other 

types of services that this was compensating for? 

Ms. THOMPSON. Well, indeed they did originally appreciate that 

they had a problem, that it was a bad problem, that it needed to 

be solved, but they were expressing this concern about the impact 

on State budgets and how that would reverberate through the 

health care system in New York, and that was why we were giving 

some consideration at one point in time to the idea of some kind 

of transition. 

But ultimately I think the argument has to be placed back on 

New York that if it has a claim for Medicaid funding it needs to 

33 

meet the requirements of the Medicaid statute, and we ought to be 

talking together and dealing out on those issues on that basis. 

Mr. GOSAR. So individuals should be held accountable in those 

actions? I’m getting back to accountability. 

Ms. THOMPSON. Yes. 

Mr. GOSAR. Because Main Street America—I am from Arizona 

and this amount of money is huge in our State. 

Ms. THOMPSON. Yes. 

Mr. GOSAR. I mean, we are cutting services right and left, and 

I come from one of the poorest Districts in the Country. I have got 

lots of Native Americans where our dollars are really spread thin. 

So we have got to have a common-sense application in making sure 

that people in the know and those making decisions are held accountable for what is right and what is wrong; wouldn’t you agree? 

Ms. THOMPSON. Yes. 

Mr. GOSAR. Well, I am running out of time. I am going to acknowledge my good friend, Mr. Davis from Illinois. 

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

On page nine of the majority report it states, ‘‘The Obama Administration has not taken any serious actions to prevent inappropriate State leveraging of Federal Medicaid money; rather, the 

stimulus bill made it more advantageous for States to figure out 

how to game the Federal Medicaid reimbursement since it contained the massive increase in each State’s F-map.’’ 

I would like to ask you, Ms. Thompson, to respond to this allegation. How does CMS respond to the assertion that the stimulus bill 

encourages fraud? 

Ms. THOMPSON. Well, certainly the purpose of the enhanced 

match under the stimulus bill for States was a reflection of the fact 

that States were facing dire fiscal and economic conditions and 

were in desperate need of additional Federal funding to continue 

and stabilize their Medicaid programs. 

I will go back to the point that I made earlier, which is that, regardless of what the level of Federal funding is or how the underlying financing works, State officials have responsibilities for the 

stewardship of those Federal funds, and there were no changes 

made in our act to the requirements on States to claim dollars appropriately or to our structure or controls under which they could 

claim those dollars. 

Mr. DAVIS. Page 12 of the report asserts that CMS failed to take 

any specific actions for three years after it admitted to having identified the problem. Is this a fair characterization, to your knowledge, and can you explain to the Subcommittee what actions were 

taking place from 2007 to 2010? 

Ms. THOMPSON. Well, again, I want to characterize this carefully, 

because some of that time was in the prior Administration with 

prior officials making some of those decisions, but, again, it was, 

in my understanding, the view of the staff at the time that the cost 

regulation that was being finalized would be the appropriate enforcement mechanism to solve the problem. 

Indeed, I think Mr. Hagg made that point that if we had such 

a regulation that that would have prevented these excessive payments. But that subsequent moratoria on enforcing that regulation 

issued by the Congress constrained further action on CMS’ part. 

34 

Mr. DAVIS. Are you comfortably satisfied that there has been 

enough review of what may have been taking place that, if there 

were gaps, if there were opportunities, have those been closed sufficiently or closed to the point where you know that the kind of 

things that may have been taking place would have as much opportunity to do so? 

Ms. THOMPSON. Well, I think specifically in the case of New 

York, that is one of the things that has taken some time to work 

through, because we don’t want to place a new payment methodology or payment rate inside the New York State plan. We don’t 

want that and the State officials don’t want that. That doesn’t actually solve the problem. So part of what we have been doing is actually pulling apart together, both the Federal and State side, what 

the methodology does, how it works, and what the underlying data 

tells us about how that is played out in terms of overall costs and 

rates. 

In the case of the Nation, we are really taking New York as a 

case study and determining what additional steps we might need 

to take to improve our management controls overall so that we 

don’t see this kind of situation occurring again, and so we are sure 

that we have looked and determined that no other similar situations are already in existence. 

Mr. DAVIS. I thank you both for your testimony. 

Thank you, Mr. Chairman. I yield back. 

Mr. GOSAR. Thank you, my colleague 

I have just got two more questions if you will bear with us. 

So I want to make sure, for the record, that we are going to scale 

payments back to one-fifth of what they currently are? 

Ms. THOMPSON. We would be happy to keep you informed on the 

actual rates and methodologies that arise. That is an approximation based on the best estimates that I have right now. 

Mr. GOSAR. Okay. I just wanted to make sure I had that. And 

do you agree with the Inspector General’s recommendation that 

limits the reimbursement rate of State-operated providers such as 

the New York developmental centers to actual cost? 

Ms. THOMPSON. So that was the regulation. Regulation to actually effectuate that kind of a policy was issued by CMS in 2007 to 

great consternation on the part of the Congress on a bipartisan 

basis, which led to two moratoriums and a sense of the Congress 

that CMS should not proceed on that basis, so we have had some 

experience going down that route. 

Having said that, I think we would be happy to have more conversations and discussions with the Inspector General’s office as 

well as with the Subcommittee staff and cognizant Congressional 

staff to discuss that in more detail. 

I will say in this case effective enforcement of the upper payment 

limit would have prevented this problem from occurring, as well, 

so I think part of the conversation should also be talking together 

about how we are going to improve the ongoing monitoring of our 

upper payment limit as also another mechanism by which to avoid 

these kinds of problems. 

Mr. GOSAR. Mr. Hagg, would you agree with that statement, because I know in your testimony you alluded to it. 

35 

Mr. HAGG. Well, as part of our audit work we did not determine 

whether or not the State was or was not in compliance with the 

upper payment limit rules. Certainly it would appear, since the 

rates are so high, they may not be in compliance with those rules. 

That being said, based on the example in New York and based 

on previous work that we have performed, we believe strongly that 

paying the public providers or limiting payments to public providers to the cost of providing the services is something that is 

needed because it will bring a higher level of accountability and 

transparency and make it much easier to see how Medicaid funds 

are used. 

Mr. GOSAR. That sounds wonderful. 

Mr. Davis, do you have any other questions? 

Mr. DAVIS. No, Mr. Chairman. 

Mr. GOSAR. Well, first of all, Ms. Thompson, I want to commend 

you. This is an action well deserved, and boy, you are right on top 

of it, so I would like to commend you for those actions and, Inspector General, as far as looking at the whole scenario, and we would 

like you to keep it up. This is about services, but it is also about 

accountability and making sure that dollar goes to the proper 

places, so I do want to commend you for that. 

I would also like to keep in touch to make sure we are understanding how that rate looks, to make sure we have some accountability from our oversight. 

With that, I would like to thank our witnesses for taking the 

time out of their busy day and schedules to appear before us today. 

The Committee stands adjourned. Thank you. 

[Whereupon, at 3:15 p.m., the subcommittee was adjourned.] 

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