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80–217 PDF 2013

MEDICARE CONTRACTORS’ EFFORTS TO FIGHT 

FRAUD—MOVING BEYOND ‘‘PAY AND CHASE’’ 

HEARING 

BEFORE THE

SUBCOMMITTEE ON OVERSIGHT AND 

INVESTIGATIONS 

OF THE

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

JUNE 8, 2012 

Serial No. 112–149 

( 

Printed for the use of the Committee on Energy and Commerce 

energycommerce.house.gov 

COMMITTEE ON ENERGY AND COMMERCE 

FRED UPTON, Michigan 

Chairman 

JOE BARTON, Texas 

Chairman Emeritus 

CLIFF STEARNS, Florida 

ED WHITFIELD, Kentucky 

JOHN SHIMKUS, Illinois 

JOSEPH R. PITTS, Pennsylvania 

MARY BONO MACK, California 

GREG WALDEN, Oregon 

LEE TERRY, Nebraska 

MIKE ROGERS, Michigan 

SUE WILKINS MYRICK, North Carolina 

Vice Chairman 

JOHN SULLIVAN, Oklahoma 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

BRIAN P. BILBRAY, California 

CHARLES F. BASS, New Hampshire 

PHIL GINGREY, Georgia 

STEVE SCALISE, Louisiana 

ROBERT E. LATTA, Ohio 

CATHY MCMORRIS RODGERS, Washington 

GREGG HARPER, Mississippi 

LEONARD LANCE, New Jersey 

BILL CASSIDY, Louisiana 

BRETT GUTHRIE, Kentucky 

PETE OLSON, Texas 

DAVID B. MCKINLEY, West Virginia 

CORY GARDNER, Colorado 

MIKE POMPEO, Kansas 

ADAM KINZINGER, Illinois 

H. MORGAN GRIFFITH, Virginia 

HENRY A. WAXMAN, California 

Ranking Member 

JOHN D. DINGELL, Michigan 

Chairman Emeritus 

EDWARD J. MARKEY, Massachusetts 

EDOLPHUS TOWNS, New York 

FRANK PALLONE, JR., New Jersey 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

ELIOT L. ENGEL, New York 

GENE GREEN, Texas 

DIANA DEGETTE, Colorado 

LOIS CAPPS, California 

MICHAEL F. DOYLE, Pennsylvania 

JANICE D. SCHAKOWSKY, Illinois 

CHARLES A. GONZALEZ, Texas 

TAMMY BALDWIN, Wisconsin 

MIKE ROSS, Arkansas 

JIM MATHESON, Utah 

G.K. BUTTERFIELD, North Carolina 

JOHN BARROW, Georgia 

DORIS O. MATSUI, California 

DONNA M. CHRISTENSEN, Virgin Islands 

KATHY CASTOR, Florida 

JOHN P. SARBANES, Maryland 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

CLIFF STEARNS, Florida 

Chairman 

LEE TERRY, Nebraska 

SUE WILKINS MYRICK, North Carolina 

JOHN SULLIVAN, Oklahoma 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

BRIAN P. BILBRAY, California 

PHIL GINGREY, Georgia 

STEVE SCALISE, Louisiana 

CORY GARDNER, Colorado 

H. MORGAN GRIFFITH, Virginia 

JOE BARTON, Texas 

FRED UPTON, Michigan (ex officio) 

DIANA DEGETTE, Colorado 

Ranking Member 

JANICE D. SCHAKOWSKY, Illinois 

MIKE ROSS, Arkansas 

KATHY CASTOR, Florida 

EDWARD J. MARKEY, Massachusetts 

GENE GREEN, Texas 

CHARLES A. GONZALEZ, Texas 

DONNA M. CHRISTENSEN, Virgin Islands 

JOHN D. DINGELL, Michigan 

HENRY A. WAXMAN, California (ex officio) 

(II) 

(III) 

C O N T E N T S 

Page 

Hon. Cliff Stearns, a Representative in Congress from the State of Florida, 

opening statement ................................................................................................ 1 

Prepared statement .......................................................................................... 4 

Hon. Diana DeGette, a Representative in Congress from the State of Colorado, opening statement ...................................................................................... 6 

Hon. Henry A. Waxman, a Representative in Congress from the State of 

California, prepared statement ........................................................................... 8 

Hon. Michael C. Burgess, a Representative in Congress from the State of 

Texas, opening statement .................................................................................... 13 

Hon. Janice D. Schakowsky, a Representative in Congress from the State 

of Illinois, opening statement .............................................................................. 14 

Hon. John Sullivan, a Representative in Congress from the State of Oklahoma, prepared statement ................................................................................... 97 

WITNESSES

Robert A. Vito, Regional Inspector General for Evaluations and Inspections, 

Office of Inspector General, Department of Health and Human Services ...... 16 

Prepared statement .......................................................................................... 18 

Kathleen M. King, Director, Health Care, Government Accountability Office .. 27 

Prepared statement .......................................................................................... 29 

Ted Doolittle, Deputy Director for Policy, Center for Program Integrity, Center for Medicare and Medicaid Services, Department of Health and Human 

Services ................................................................................................................. 52 

Prepared statement .......................................................................................... 55 

Answers to questions from Mr. Dingell .......................................................... 85 

Answers to submitted questions ...................................................................... 98 

SUBMITTED MATERIAL

Statement, dated June 8, 2012, of the American Medical Association, submitted by Ms. DeGette ......................................................................................... 88 

Statement, dated June 8, 2012, of the American Federation of State, County 

and Municipal Employees, submitted by Ms. DeGette ..................................... 91 

(1) 

MEDICARE CONTRACTORS’ EFFORTS TO 

FIGHT FRAUD—MOVING BEYOND ‘‘PAY AND 

CHASE’’ 

FRIDAY, JUNE 8, 2012 

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS, 

COMMITTEE ON ENERGY AND COMMERCE, 

Washington, DC. 

The subcommittee met, pursuant to call, at 9:35 a.m., in room 

2123, Rayburn House Office Building, Hon. Cliff Stearns (chairman 

of the subcommittee) presiding. 

Present: Representatives Stearns, Terry, Burgess, Blackburn, 

Griffith, DeGette, Schakowsky, Castor, and Dingell. 

Staff present: Nick Abraham, Legislative Clerk; Andy 

Duberstein, Deputy Press Secretary; Todd Harrison, Chief Counsel, 

Oversight and Investigations; Dave Mehring, Detailee, Oversight 

(OIG/HHS); Alan Slobodin, Deputy Chief Counsel, Oversight; John 

Stone, Counsel, Oversight; Alvin Banks, Democratic Investigator; 

Phil Barnett, Democratic Staff Director; Brian Cohen, Democratic 

Investigations Staff Director and Senior Policy Adviser; Kiren 

Gopal, Democratic Counsel; and Elizabeth Letter, Democratic Assistant Press Secretary. 

OPENING STATEMENT OF HON. CLIFF STEARNS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF FLORIDA 

Mr. STEARNS. Good morning, everybody, and we start the Subcommittee on Oversight and Investigations with this hearing. 

We convene this hearing of the Subcommittee on Oversight and 

Investigations to examine the efforts of the Centers for Medicare 

and Medicaid Services, CMS, oversight of its Medicare contractors 

and to identify ways to improve the contractors’ effectiveness at 

preventing and combating fraud. 

Medicare fraud is a growing plague on our health care system. 

I have personally seen how fraud impacts seniors in my congressional district and throughout the State of Florida. CMS, the very 

agency tasked with administering Medicare and conducting and 

overseeing anti-fraud efforts, incredibly simply cannot define the 

scope of the problem. However, we have heard the estimates that 

10 percent of all health care billings are potentially fraudulent, a 

60 to 80 billion drain on the Federal dollars. Regardless of the ultimate numbers cited, every dollar lost to fraud is a dollar that 

should have gone towards the care and well-being of a Medicare 

beneficiary. 

2 

I applaud the recent efforts of Federal, State and local officials 

across six States in busting over 100 fraudsters, more than half of 

whom were operating in south Florida, in scams that total over 

$450 million. 

I look forward to hearing from our witnesses today about how we 

can keep these criminals out of Medicare in the first place. 

Since 1999, CMS has contracted with Program Safeguard Contractors, or PSCs, to prevent, identify and investigate potential 

fraud. They are now in the process of transitioning these responsibilities to Zone Program Integrity Contractors, or ZPICs, though 

the contract recipients are primarily the same entities and with the 

same capabilities. 

Unfortunately, information obtained from the committee’s investigation indicates that these ‘‘benefit integrity contractors’’ are simply not getting the job done and CMS is asleep at the wheel. 

Last December I sent a letter along with Chairman Upton and 

other members of the committee to CMS Acting Administrator 

Marilyn Tavenner requesting documents related to the performance of the CMS benefit integrity contractors since 2007; 3 months 

ago she responded to our request with systemic performance data 

that includes some concerning trends. One, the benefit integrity 

contractors identify less than 1 percent of the estimated fraud out 

there. They recover only 10 percent of the improper payments they 

identify. They rarely employ their authority to suspend payments 

to suspected fraudsters. They initiated fewer investigations in 2011 

than in 2007. And finally, fewer of these investigations were based 

on proactive analysis of claim data. 

The figures CMS provided to the committee are astonishing in 

terms of the declining contractor effectiveness they display. However, according to CMS, while the trends are correct, the numbers 

provided were inaccurate. Not only were they inaccurate but knowing that they were a key element of our hearing, CMS failed to inform committee staff about this fact until less than 48 hours ago 

on a phone call initiated by committee staff on another matter. 

Since they did not feel confident in the accuracy of the data they 

had on-hand, CMS was forced to reach out to the contractors and 

have them resubmit as much of the data that was requested as 

possible. 

More accurate numbers were provided last evening confirming 

the trends. Nevertheless, this error only confirms CMS’s utter incompetence in conducting any meaningful oversight of these contractors, the point that is echoed loud and clear in the IG’s prepared testimony. 

The complacency shown by CMS towards this committee’s oversight efforts, their repeated indifference to GAO’s recommendations 

since and their total disregard for OIG’s extensive body of work in 

this area must end today. While these issues are not new, they are 

getting worse while the fraudsters are getting better and better. 

As the OIG’s office testified before this subcommittee in June 

2001, ‘‘Medicare contractors are the heart of the Medicare program. 

When they don’t function properly, the entire program is jeopardized. Those who benefit from it, those who provide care and those 

who pay for it all suffer the consequences.’’ 

3 

This hearing proves the importance of congressional oversight. 

Without the committee asking the questions we would never know 

about the serious data integrity and management issues concerning 

CMS oversight of their contractors. 

Without the committee insisting that CMS and its contractors be 

accountable for meaningful performance metrics, we cannot achieve 

the significant improvements and results in reducing Medicare 

fraud. 

So I look forward to working in a bipartisan fashion to make this 

hearing the start of a turning point for CMS and contractor performance. With that, I yield to the ranking member, Ms. DeGette. 

[The prepared statement of Mr. Stearns follows:] 

4 


80217.001

Opening Statement of the Honorable Cliff Stearns 

Chairman, Subcommittee on Oversight and Investigations 

Committee on Energy and Commerce 

"Medicare Contractors' Efforts to Fight Fraud - Moving Beyond 

'Pay and Chase'" 

June 8, 2012 

(As Preparedfor Delivery) 

We convene this hearing of the Subcommittee on Oversight and Investigations to 

examine the efforts of the Centers for Medicare and Medicaid Services' (CMS) oversight of its 

Medicare contractors and to identify ways to improve the contractors' effectiveness at preventing 

and combating fraud. Medicare fraud is a growing plague on our health care system. And I have 

personally seen how fraud impacts seniors in my district and throughout Florida. 

CMS, the very agency tasked with administering Medicare and conducting and 

overseeing anti-fraud efforts, incredibly cannot define the scope of the problem. However, we 

have heard the estimates: 10% of all health care billings are potentially fraudulcnt-a 560 to 580 

billion drain on federal coffers. Regardless of the ultimate number cited, every dollar lost to 

fraud is a dollar that should have gone towards the care and well-being of a Medicare 

beneficiary. 

I applaud the recent efforts of federal, state, and local officials across six states in busting 

over 100 fraudsters-more than balf of whom were operating in South Florida-in scams that 

totaled over S450 million. I look forward to hearing from our witnesses today about how we can 

keep these criminals out of Medicare in the first place. 

Since 1999, CMS has contracted with Program Safeguard Contractors, or PSCs, to 

prevent, identify, and investigate potential fraud. They are now in tbe process oftransitioning 

these responsibilities to Zone Program Integrity Contractors, or ZPICs, though the contract 

recipients are primarily the same entities with the same capabilities. Unfortunately, information 

obtained through the Committee's investigation indicates these "benefit integrity" contractors are 

not getting the job done and CMS is asleep at the wheeL 

Last December, I sent a letter, along with Chairman Upton and other members of the 

Committee, to CMS Acting Administrator Marilyn Tavenner requesting documents related to the 

pcrfoDnance of the CMS benefit integrity contractors since 2007. Three months ago, Ms. 

Tavenner responded to our request with systemic performance data that included some 

concerning trcnds: 

The benefit integrity contractors identify less tban I percent of tbe estimated 

fraud out there; 

They recover only 10% of the improper payments they identify; 

They rarely employ their authority to suspend payments to suspected 

fraudsters; 

Page I 0[2 
5 


80217.002

They initiated fewer investigations in 20J J than in 2007; and; 

Fewer of these investigations were based on proactive analysis of claims data 

The ligures CMS provided to the Committee are astonishing in terms of the declining 

contractor effectiveness they display, However, according to CMS, while the trends are correct, 

the numhers provided were inaccurate, Not only were they inaccurate but-knowing that they 

were a key element of our hearing-CMS failed to inform Committee staff about this fact until 

less than 48 hours ago on a phone call initiated by Committee staff on another matter. Since they 

did not feel confident in the accuracy of the data they had on hand, CMS was forced to reach out 

to the contractors and have them resubmit as much of the data that was requested as possible. 

More accurate numbers were provided last evening confirming the trends, Nonetheless, this 

error only confirms CMS' utter incompetence in conducting any meaningful oversight of these 

contractors a point that is echoed loud and clear in the IG's prepared testimony, 

The complacency shown by CMS towards this Committee's oversight efforts, their 

rcpeated indifference to GAO's recommendations since, and their disregard for OIG's extensive 

body of work in this area must end today. 

While these issllcs arc not new, thcy arc getting worse while thc fraudsters are getting 

better. As the OIG's office testilied before this Subcommittee in June 2001: "Medicare 

contractors arc the heart of the Medicare program". When they don't function properly, the 

entire program is jeopardized-those who benefit from it, those who provide care, and those who 

pay for it all suffer the consequences," 

This hearing proves the importance of Congressional oversight. Without the Committee 

asking the questions, we would never know about the serious data integrity and management 

issues concerning CMS oversight of its contractors, Without the Committee insisting that CMS 

and its contractors be accountable for meaningful performance metrics, we cannot achieve the 

significant improvements and results in reducing Medicare fraud, llook forward to working in a 

bipartisan fashion to make this hearing the start of a turning point for CMS and contractor 

performance. 

Page 2 0[2 
6 

OPENING STATEMENT OF HON. DIANA DEGETTE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF COLORADO 

Ms. DEGETTE. Thank you very much, Mr. Chairman. I am glad 

there is bipartisan consensus on aggressively fighting Medicare 

fraud because it costs the government billions of dollars, and you 

are exactly right, it harms our most vulnerable citizens. 

I am confident that we can work together to build on the provisions to strengthen the Medicare program integrity that were included in the Affordable Care Act, and I am looking forward to 

hearing how the CMS is implementing this new law to help fight 

fraud. 

I appreciate all of our witnesses coming today to offer their expertise. The Affordable Care Act provided about $350 million in increased funding to fight fraud, money that will return billions of 

dollars to the taxpayers. It contains over 30 new provisions to help 

CMS and the law enforcement authorities fight Medicare fraud. 

This expanded toolbox in conjunction with the leadership of the 

Obama administration has helped lay the groundwork for a new 

era in the Federal Government’s response to fraud. 

In the past, CMS operated under a ‘‘pay and chase’’ approach 

which made it harder to recover losses. Now, CMS is taking new 

important steps to prevent fraud before it occurs, and I am looking 

forward to hearing about that today. What CMS does is carefully 

screen health care providers when they sign up for the Medicare 

program, keeping out these criminals that the chairman talked 

about who prey on vulnerable seniors. 

The agency’s new Fraud Prevention System employs predictive 

modeling technology in order to screen claims before payment is 

made. Using this system, CMS can identify patterns of fraud and 

deny claims, suspend payment or revoke Medicare billing privileges 

for suspicious actors. 

During the first 10 months of operation, this new Fraud Prevention System has resulted in 591 new investigations and 550 direct 

interviews with providers suspected of participating in fraudulent 

activity. 

CMS investigators now watch billing patterns in real time. If a 

provider submits a claim that seems inconsistent, for example a bill 

from San Francisco for a patient who lives in Maine, then it triggers a flag in the system. Medicare contractors then investigate the 

suspicious leads that this new system produces. The Fraud Prevention System now monitors 4.5 million claims every day. It is a big 

step forward to prevent Medicare fraud, and I am eager to see how 

well it is working and what improvements can be made to make 

it work even better. 

One of the questions I have for our witnesses today is how, with 

a shift from pay and chase to fraud prevention we should evaluate 

CMS successes. Our typical measures, like the dollar value of fraud 

recoveries, might not be the right measures of success if you are 

actually preventing the fraud, because if CMS is successful at preventing the fraud in the first place, we would expect the dollar 

value of the recoveries to go down, not up, but we would still have 

to figure out how much fraud we were preventing. 

7 

This hearing today will primarily focus on CMS’s use of contractors to monitor claims, investigate suspicious activity and refer 

cases to law enforcement authorities. 

Congress mandates that CMS use these contractors and the alphabet soup of Medicare integrity organizations—we were talking 

about this at our office—ZPIC, MEDIC, PSCs, RACs, MACs, have 

become a part of the efforts to fight fraud. The HHS Inspector General has identified problems with the contractors and CMS oversight of their work going back for at least a decade. And having 

been on this committee for the past 16 years, I know that we have 

investigated some of these contractors. 

These are longstanding problems, but the IG’s work has raised 

important questions that we need to learn more about today. Are 

Medicare anti-fraud contractors using uniform standards to identify and investigate cases of fraud and refer them to law enforcement authorities? Is CMS doing all it can to respond to concerns 

raised by contractors and reduce the fraud vulnerabilities they 

have identified? Are contractors and CMS taking appropriate action to ensure mistakes are fixed and overpayments reclaimed for 

the taxpayer? 

Mr. Chairman, I want to make a suggestion as we look further 

into this issue. At our next hearing I suggest we bring the contractors in directly and get their perspective on these issues. Thank 

you. 

Mr. Chairman, if there is more we can do to reduce Medicare 

fraud, I am happy to work with you and our colleagues on both 

sides of the aisle to address this important issue. Nobody wants to 

see taxpayer money wasted and we should be doing everything possible to protect the integrity of the Medicare program. 

And Mr. Chairman if I may, Mr. Waxman is unable to be with 

us this morning, so I would ask unanimous consent to put his 

opening statement into the record. 

Mr. STEARNS. By unanimous consent, so ordered. 

[The prepared statement of Mr. Waxman follows:] 

8 


80217.003

Opening Statement of Rep. Henry A. Waxman 

Ranking Member, Committee on Energy and Commerce 

Hearing on "Medicare Contractors' Efforts to Fight Fraud -

Moving Beyond 'Pay and Chase'" 

Subcommittee on Oversight and Investigations 

June 8, 2012 

Mr. Chairman, Medicare fraud wastes taxpayer dollars. It 

affects the quality of care provided to program enrollees and it 

saps public confidence in Medicare. That's why I see fighting 

Medicare fraud as a critical need and an issue where we should 

be able to achieve bipartisan consensus. 

The Obama Administration has an excellent record on 

preventing Medicare fraud, making it a priority from day one. 

Since 2009, the Administration has recovered almost $8 billion 

in fraudulent payments. In fiscal year 2011, the 

Administration's Health Care Fraud Enforcement Team's efforts 

resulted in 132 indictments against defendants who collectively 

billed the Medicare program more than $1 billion. 
9 


80217.004

And since April 2010, the Administration has been busy 

implementing the new anti-fraud provisions in the landmark 

health care reform law. The law provides hundreds of millions 

of dollars in new funding to fight fraud. It imposes new 

penalties on fraudsters. And most important, it shifts the 

prevailing Medicare fraud prevention philosophy from pay and 

chase to inspect and prevent. 

Thanks to the Affordable Care Act, Medicare fraud 

prevention now starts with the provider enrollment process. The 

health reform law added new screening requirements for 

Medicare providers, keeping bad actors out of Medicare before 

they can event attempt to commit fraud. CMS has now 

implemented these provisions, strengthening the enrollment 

process and verifying that providers are properly licensed and 

qualified to provide care before they are allowed into the 
10 


80217.005

Medicare program. This, Mr. Chairman, is the Affordable Care 

Act at work. 

The health reform law also gave CMS enhanced authority 

to suspend Medicare payments to providers while they 

investigate an allegation of fraud stopping fraudulent 

payments before they go out the door. Last year alone, CMS 

payment suspensions led to over $27 million in recoveries 

against suspect providers. 

The Affordable Care Act also provides hundreds of 

millions of dollars in new funding to help CMS, the Inspector 

General and the Department of Justice fight Medicare fraud. 

Those tunds are being put to good use. They help fund the 

Medicare Strike Force operations, which last month filed 

charges against 107 individuals who participated in Medicare 

fraud schemes. 
11 


80217.006

The funds help implement the new CMS Fraud Prevention 

System (FPS), which monitors 4.5 million claims each day and 

uses predictive analytics to identify and prevent fraud, 

We're going to hear today from CMS, from GAO and from 

the HHS Inspector General. I appreciate these witnesses 

coming, and I thank them for their hard work to protect taxpayer 

dollars and prevent Medicare fraud. 

The Medicare Integrity Contractors that we will hear about 

at this hearing conduct critical work and are key fraud-fighting 

partners of CMS. But the Inspector General has identified 

problems with the contractors and with CMS oversight of their 

activities. I hope to hear more from our witnesses today about 

the role that these contractors play and how we can improve this 

system to fight Medicare fraud. 
12 


80217.007

Mr. Chairman, thank you for holding this hearing. I hope it 

results in a bipartisan approach to reducing Medicare fraud and 

abuse. 
13 

Mr. STEARNS. I appreciate the gentlelady’s willingness to cooperate, and I think her idea of bringing the contractors in is very good. 

With that I recognize for 3 minutes the gentleman from Texas, 

Dr. Burgess. 

OPENING STATEMENT OF HON. MICHAEL C. BURGESS, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS 

Mr. BURGESS. Thank you, Mr. Chairman, for the recognition and 

maybe acknowledging the ranking member’s comments on a metric 

that we could employ in the future is how many years the CMS or 

Medicare payment system is not on the high risk list at GAO. It 

seems like it spent the last 25 years there. That might be a good 

metric where we could concentrate and all understand that perhaps we are finally doing a good job with this because apparently 

we are not and we all know that not enough has been done to address fraud. Our Nation’s health care systems needlessly waste billions of dollars every year. 

It seems like this embarrassing hemorrhage for the program 

really should have been a priority to fix before these programs 

were expanded under the Affordable Care Act. Analysts estimate 

that up to 10 percent of the total health care expenditures are lost 

yearly to fraud. That is a pretty big number, probably over $1 billion a week. 

Now Members of the United States Congress rightly were out- raged when a private industry, JPMorgan Chase lost $2 billion of 

investor money. We lose $2 billion of taxpayer money twice a 

month and yet there are no headlines on that. Perhaps if we had 

the appropriate focus, we would do our job. 

If we are serious about bringing down the cost of health care, we 

have to eliminate, not just reduce, but eliminate these inappropriate payments. 

Medicare spending currently represents 15 percent of Federal 

spending and almost a fifth of national health care spending. Yet 

we pay providers in practically an automatic fashion without review or scrutiny, actually inviting the type of behavior that we are 

getting. 

I support prompt pay. As a physician that is critically important 

to our providers across the country. But the size, the scope, the 

complexity of the Medicare program makes this highly susceptible 

to fraud, highly susceptible to mismanagement and highly susceptible to improper payments. 

The U.S. Government Accountability Office and others have said 

these characteristics are unsustainable, and the GAO has placed 

Medicare on its high risk list since 1990. That was after the program had been in effect for 25 years. We are rapidly approaching 

the 50-year anniversary, and once again I would suggest that it 

would be a great 50-year anniversary goal to remove Medicare off 

of the high risk list that the GAO maintains. 

Our office has been briefed on the Center for Medicare & Medicaid Services’s efforts to move away from a ‘‘pay and chase’’ 

mindset into one that is builds on predictive modeling. That is a 

great step and I welcome it. I have long suspected these programs 

are already proving to be an innovative way to build upon each 

other in nine original algorithms in just a few months have grown 

14 

to over 30; however, backend investigations will remain a part of 

what the Centers for Medicare and Medicaid Services does for some 

time. Currently they oversee a network of private contractors that 

conduct various program integrity activities but as Ranking Member DeGette points out, it may be necessary to have these individuals in to the committee to understand their steps to solve this 

problem. 

Mr. Chairman, I thank you for calling the hearing, and I will 

yield back the balance of my time. 

Mr. STEARNS. I recognize the gentlelady for however many minutes that she consumes. You can have the 5 minutes. Ms. 

Schakowsky. 

OPENING STATEMENT OF HON. JANICE D. SCHAKOWSKY, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS 

Ms. SCHAKOWSKY. I don’t know that I will take that. Thank you 

very much, Mr. Chairman. I just want to make sure that everybody 

understands that everyone on both sides of the aisle in this committee as well as the Obama administration makes fraud prevention absolutely a priority. So I hope there is no misunderstanding 

about that, that we are all working together to do that. 

In May of 2009, Health and Human Services and the DOJ announced the creation of the health care fraud prevention and enforcement team, HEAT, designed to coordinate Cabinet level agency activities to reduce fraud. 

In January 2010, HHS and DOJ held the first national summit 

on health care fraud to bring together public and private sector experts to identify and discuss ways to investigate and eliminate 

health care fraud. 

In fiscal year 2011, HEAT’s efforts resulted in 132 indictments 

against defendants who collectively billed the Medicare program 

more than $1 billion as well as 17 jury trials and the imprisonment 

of 175 defendants. 

And in April 2010 CMS established the Center for Program Integrity, consolidating the agency’s Medicare and Medicaid antifraud activities in an effort to improve coordination between the 

two programs with other agencies at the State and local level. 

Since 2009 CMS, with law enforcement partners, has recovered $7.87 billion in fraudulent Medicare payments, $2.51 billion in 

2009, $2.86 billion in 2010 and $2.5 billion in 2011. 

And since the passage of the Affordable Care Act, which I affectionately call ‘‘Obamacare,’’ the Obama administration has implemented key anti-fraud provisions in the law. The ACA contains 

over 30 provisions to help CMS, HHS, OIG and DOJ to reduce 

Medicare and Medicaid fraud. The most important provisions involve a shift from the traditional ‘‘pay and chase’’ approach to a 

strategy based on prevention, keeping fraudulent suppliers out of 

the program before they can commit fraud. 

The nonpartisan Congressional Budget Office estimates that 

these provisions will save taxpayers over $7 billion over the next 

decade. 

Clearly, we want to do as much as we can, and if there is more 

to be saved, which we all think there is, we should do it. 

15 

So today what I want to do is talk to the witnesses and find out 

just what those tools are, how they are being implemented and how 

we can all work together to make sure that these all work to the 

benefit of the consumer and the taxpayer. We want to look at that 

OIG report on vulnerabilities reported by the Medicare benefit integrity contractors. Certainly we want to make sure that they are 

doing their job and all of us will pursue this together to make the 

Medicare program even more efficient and to root out every dollar 

of fraud. 

And I will yield back. 

Mr. STEARNS. And the gentlelady yields back. And does anyone 

else seek an opening statement? We have a couple of minutes left. 

If not, we will move to our witnesses. 

We have three witnesses. Mr. Robert A. Vito is Regional Inspector General, Office of Evaluations and Inspections, Office of Inspector General, the United States Department of Health and Human 

Services. We welcome you. 

Ms. Kathleen M. King, Director, Health Care, U.S. Government 

Accountability Office, and Mr. Ted Doolittle, Deputy Director, Center for Program Integrity, Center for Medicare and Medicaid Services, U.S. Department of Health and Human Services. Welcome. 

As you know, the testimony you are about to give is subject to 

title 18, section 1001 United States Code. When holding an investigative hearing, this committee has the practice of taking testimony under oath. Do you have any objection to taking testimony 

under oath? 

Mr. VITO. No. 

Ms. KING. No. 

Mr. DOOLITTLE. No. 

Mr. STEARNS. The chair then advises you that under the rules of 

the House and the rules of the committee you are entitled to be advised by counsel. Do you desire to be advised by counsel at this 

time? 

Mr. VITO. No. 

Ms. KING. No. 

Mr. DOOLITTLE. No. 

Mr. STEARNS. In that case, will you please rise and raise your 

right hand? I will swear you in. 

Do you swear that the testimony that you are about to give is 

the whole truth and nothing but the truth, so help you God? 

Mr. VITO. Yes. 

Ms. KING. Yes. 

Mr. DOOLITTLE. Yes. 

Mr. STEARNS. Welcome again and Mr. Vito, we welcome your 5- 

minute summary of your written statement. Just make sure your 

speaker is on. 

16 

STATEMENTS OF ROBERT A. VITO, REGIONAL INSPECTOR 

GENERAL FOR EVALUATIONS AND INSPECTIONS, OFFICE OF 

INSPECTOR GENERAL, DEPARTMENT OF HEALTH AND 

HUMAN SERVICES; KATHLEEN M. KING, DIRECTOR, HEALTH 

CARE, GOVERNMENT ACCOUNTABILITY OFFICE; AND TED 

DOOLITTLE, DEPUTY DIRECTOR FOR POLICY, CENTER FOR 

PROGRAM INTEGRITY, CENTER FOR MEDICARE AND MEDICAID SERVICES, DEPARTMENT OF HEALTH AND HUMAN 

SERVICES 

STATEMENT OF ROBERT A. VITO 

Mr. VITO. Good morning, Mr. Chairman and members of the subcommittee. I am Robert Vito, Regional Inspector General for the 

Office of Evaluation and Inspections at the U.S. Department of 

Health and Human Services’ Office of Inspector General. Thank 

you for your continued interest in this important topic. 

For more than a decade, the OIG has been conducting work on 

Medicare benefit integrity contractors. OIG has reviewed the fraud 

units at the Medicare claims processors, then the Program Safeguard Contractors, or PSCs, and now the Zone Program Integrity 

Contractors and the Medicare Drug Integrity Contractors, known 

as ZPICs and MEDICs. 

Time after time, regardless of the type of contractor under review, the OIG work has uncovered similar problems. These problems include limited results from proactive data analysis, difficulties in obtaining data needed to prevent and detect fraud, a lack 

of program vulnerability identification and resolution, inaccurate 

and inconsistent data reported by contractors, and limited use by 

the CMS of quantitative data in evaluating contractor performance 

and investigating variability across contractors. 

Finally, the OIG has found that very few of the overpayments 

identified by the benefit integrity contractors are collected and returned to the Medicare program. 

CMS expects its benefit contractors to do more than just investigate complaints. They wanted their contractors to conduct 

proactive data analysis to identify fraud. As early as 1998, OIG 

raised concerns about the lack of results from proactive methods, 

and these concerns still remain. 

The lack of proactive and early identification of fraud results in 

the Medicare program relying on familiar ‘‘pay and chase’’ models 

rather than the risk reduction model that includes early detection 

and prevention of inappropriate payments. We all recognize that 

without data there can be no proactive data analysis. However, 

OIG repeatedly found that contractors have difficulty accessing 

data, especially in the early years of their contracts. The Congress 

can help correct this problem by authorizing the MEDICs to obtain 

information like prescriptions directly from pharmacies and physicians. 

Another way to help prevent fraud, waste, and abuse is to identify program vulnerabilities. OIG’s early review of fraud units 

found that more than one-third had not identified any program 

vulnerabilities. During a 2011 review, OIG found that not all benefit contractors identified vulnerabilities. And even when 

vulnerabilities were identified, CMS had not taken significant acVerDate Aug 31 2005 10:03 Apr 05, 2013 Jkt 037690 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 F:\11357A~1\112-14~1 WAYNE
17 

tion to resolve three-quarters of them. The reported impact of the 

vulnerability was estimated at over $1 billion. 

OIG also found that CMS has not taken full advantage of the 

contractor-reported data to evaluate performance or investigate 

variability among contractors. The OIG has found extreme variation in the number of fraud cases being investigated and referred 

by the benefit integrity contractors. These variations could not be 

explained by the size of the contractor’s budget or the oversight responsibility. 

In addition, OIG work has repeatedly found that CMS performance evaluations provide very few quantitative data about the contractors’ achievement in detecting fraud. OIG’s most recent ZPIC 

review also found that data use by CMS to oversee the contractors 

may not be uniform or accurate. Some of the inaccurate data may 

be due in part to the contractors’ different interpretations of fraud 

terms and definitions. OIG has recommended that CMS determine 

the cause of these variations in the contractors’ activity levels; however, CMS has yet to perform these types of review. 

Benefit integrity contractors are also required to refer overpayments that they identify to the Medicare claims processors for collection. In the report done in response to a request from this committee, OIG found that PSCs referred $835 million in overpayments to the claims processor for collection in 2007. However, as 

of June, 2008, only $55 million of the $835 million was collected. 

CMS is implementing new anti-fraud tools as part of its twin pillar strategy. As the OIG did in the past, we will continue to review 

CMS’s strategy to determine its impact on the Medicare program, 

and, if warranted, make recommendations for improving the strategy. 

OIG also plans to continue its body of work on the Medicare benefit integrity contractors, including an update of our previous work 

on the MEDICs. We also have work underway on Medicare overpayments and debt collection. 

Thank you again for your interest in this important topic and for 

the opportunity to testify before the subcommittee today. 

[The prepared statement of Mr. Vito follows:] 

18 


80217.008

Testimony of Robert A. Vito 

Regional Inspector General for Evaluation and Inspections 

Office of Inspector General 

U.S. of Health and Human Services 

"Medicare Contractors' Efforts to Fight Fraud - Moving Beyond 'Pay and 

Chase'" 

Before the 

House and Commerce Committee: 

Subcommittee on and Investigations 

June 8, 2012 

Rayburn House Office Building 

Room 2123 
19 


80217.009

Testimony of: 

Robert A. Vito 

Regional Inspector General for Evaluation and Inspections 

Office of Inspector General 

U.S. Department ofllealth and Human Services 

Good morning Chairman Steams, Ranking Member DeGette, and other distinguished Members 

of the Subcommittee. I am Robert Vito, Regional Inspector General for Evaluation and 

Inspections at the U.S. Department of Health and Human Services (HHS), Office oflnspector 

General (OIG). Thank you for the opportunity to testify about OIG's work on the fraud 

detection efforts of the Medicare benefit integrity contractors. 

On June 28, 2001, 010 testified before this Subcommittee on perfonnance problems that we had 

found in the fraud detection units at Medicare claims processing contractors. These problems 

included a lack of proactive case development, limited identification ofprol,'fam vulnerabilities, 

significant variation in the level of benefit intel,'1ity results across contractors, and a lack of 

unifonnity and understanding of key fraud tenns and definitions across contractors. A decade 

later, many of these same vulnerabilities regarding fraud detection and preventions persist among 

the current benefit integrity contractors. 

TilE TYPES OF MEDICARE BENEFIT INTEGRITY CONTRACTORS HAVE CHANGED BUT SIMILAR 

PROBLEMS PERSIST 

Types oj Benefit Integrity Contractors 

For more than a decade, OIG has been conducting reviews ofthe benefit integrity contractors 

that the Centers for Medicare & Medicaid Services (CMS) employs to reduce Medicare fraud, 

waste, and abuse. OIG began more than 15 years ago reviewing the anti-fraud and abuse 

activities conducted by the fraud units housed in the Medicare fiscal intennediaries and carriers. 

In 1999, CMS began contracting with new entities called Program Safeguard Contactors (PSC) 

to detect and deter fraud in Medicare Parts A and B. J As a result of Medicare contracting refonn 

required by the Medicare Prescription Dmg, Improvement, and Modernization Act 0[2003, 

CMS is currently replacing PSCs with Zone Program Intcgrity Contractors (ZPIC).2 

1 Through the years, some PSCs were given responsibility for both Parts A and B while others only Part A or Part B. 

, With ZPICs, CMS intended to align all benefits in the Part A and B programs (including home health, hospice, and 

durable medical equipment) under a single ZPIC in each of seven geographic zones. 

1 House Committee on Energy <lnd Commerce 

Subcommittee on Oversight and Investigations 

JUJle 8, 2012 
20 


80217.010

With the inception of the Part D program, CMS contracted with Medicare Drug Integrity 

Contactors (MEDIC) to address potential fraud and abuse related to the Part D prescription drug 

benefit. In fiscal year 2007, CMS awarded contracts to three regional MEDICs. Since that time, 

all Part D benefit integrity activities have been assigned to a single MEDIC. This MEDIC also 

now has responsibility for detecting fraud in the entire Part C (i.e., Medicare Advantage) 

program. 

Activities Performed by Benefit Integrity Contractors 

CMS's benefit integrity contractors are generally tasked with: 

• Proactively pursuing different sources and techniques for analyzing data to detect fraud. 

• Conducting investigations to determine the facts and magnitude of alleged fraud and 

abuse cases. 

• Referring cases of potential fraud to OIG or other law enforcement agencies. 

• Assisting law enforcement by responding to requests for information. 

• Idcntifying and reporting to CMS any systemic program vulnerabilities. 

• Referring for collection any Medicare improper payments (i.e., overpayments) identified 

while conducting benefit integrity activities. 

Problems Persist Regarding Benefit Integrity Contractors' Performance 

Over the last 10 years there have been significant changes in both the number and types of 

contractors that CMS employs to protect Medicare from fraud, waste, and abuse. OIG reviews 

of these contractors have uncovered the following recurring issues that hinder the successful 

performance and oversight of the contractors, including: 

Limited results from proactive data analysis. 

Ditliculties in obtaining the data needed to detect fraud. 

• Inaccurate and inconsistent data reported by benefit integrity contractors. 

Limited use by CMS of contractor-reported fraud and abuse activity data in evaluating 

contractor performance and investigating variability across contractors. 

Lack of program vulnerability identification and resolution. 

In addition, there is significant variance in the identification of overpayments among PSCs and 

only a small percentage of the overpayments referred by PSCs have been collected and returned 

to the Medicare program. 

BENEFIT INTEGRlTY CONTRACTORS HAVE IIAD LIMITED FRAUD DETECTION RESULTS FROM 

PROACTIVE METHODS 

Proactive data analysis has not represented a significant portion of benefit integrity contractors' 

activities. Instead, much of the benefit integrity contractors' fraud identification relies on 
21 


80217.011

reactive methods, such as complaints from external sources, The lack of proactive and early 

identification of fraud results in the Medicare program relying on the familiar "pay and chase" 

model rather than a risk reduction model that includes early detection and prevention of 

inappropriate payments, 

As early as 1996, OIG began highlighting the limited nature of benefit integrity contractors' 

proactive approaches, In our first evaluations of the fIscal intermediary and carrier rraud units, 

OrG raised concerns about the lack of results from proactive methods,) In the case of fiscal 

intennediaries, half of the rraud units did not open any cases proactively, 

PSCs were supposed to use innovative, proactive data analysis more than their predecessors, the 

claims processing fraud units, Yet, in OlG's review ofPSCs in 2007, OlG found minimal results 

from proactive data analysis, 4 Thirteen of the 17 PSCs had less than 19 percent of their new 

investigations result rrom proactive data analysis, Two of these had no new investigations rrom 

proactive analysis, 

As CMS has transitioned from PSCs to ZPICs, OIG has found that data provided to CMS by 

ZPICs about their fraud and abuse activities were not always accurate or uniform across 

contractors, 5 However, the two ZPICs reported an average of only 7 percent of new 

investigations corning from proactive methods, 

Similarly in Medicare Part D, OIG has found that most incidents of potential rraud identified by 

the MEDlCs came rrom external sources rather than proactive methods, OIG found that only 

13 percent of Part D potential rraud incidents were identified through proactive methods,6 

DIFFICULTIES 1:>1 ACCESSlNG DATA HAVE HINDERED BENEFIT INTEGRITY CONTRACTORS' 

ACTIVITIES 

The current ZPICs and MEDlCs' lack of access to Medicare claims data and, in the case of the 

MEDlCs, medical records and prescriptions, has hindered or delayed their ability to fight fraud, 

ZPICs reported that the lack of data access hindered their ability to identify potential fraud and 

abuse, respond to law enforcement requests for information, and track overpayment collections, 

At the sta11 of their contracts, ZPICs had difficulties obtaining data, One ZPIC described 

difliculties obtaining claims data from a previous PSC and, therefore, decided to purchase the 

claims data on its own from another CMS contractor, Another ZPIC stated that the data 

1 OIG, Carrier Fraud Units (OEI-05-94-00470), November 1996 and Fiscal Intermediary Fraud Units 

(OEI-03-97-00350), November 1998, 

4010, Medicare's Prugram Safeguard Contractors: Activities to Detect and Defer Fraud and Abuse 

(OEI-03-06-00010), July 2007, 

, OIG, Zone Program Integrity Contractors' Data Issues Hinder Effective Oversight (OEI-03-09-00520), 

November 201 L 

(, OIG, Medicare Drug Integrity Conlraclors' Identification of Potential Pari D Fraud and Abuse 

(OEI-03-08-00420), October 2009 

3 House Committee on Energy and Commerce 

SUbC())l1t11ittee on Ovel);ighr and Illvt%ti~<ltio!ls 

June 8, 2012 
22 


80217.012

necessary to fulfill requests for infOlmation were not available to them or had to be generated 

from multiple sources. 

ZPICs reported that improved data access would assist them in identifYing potential fraud and 

abuse. Specifically, ZPICs indicated that having access to daily downloads of Medicare claims 

data would enable them to perform ncar-real-time analysis of provider and supplier billing 

activity. 

Early problems with accessing and using data also hindered MEDICs' ability to identify and 

investigate potential fraud and abuse. MEDICs reported that they need both Part D prescription 

drug event (PDE) data and Medicare Part B data to effectively identify and investigate instances 

of potential Parl D fraud and abuse. However, CMS did not provide MEDICs with access to 

PDE data until August 2007, nearly a year after their contracts began. In addition, two MEDICs 

were not given access to Part B data until Fall 2008-2 years after their contracts began. Once 

they received access to PDE data, MEDICs reported that important variables were missing from 

the datasets or entered into incorrect data fields, making effective data analysis difficult. 

Further, MEDICs' lack of authority to obtain information directly from pharmacies, pharmacy 

benefit managers, and physicians hindered their ability to investigate potential fraud and abuse 

incidents. MEDICs reported that because CMS contracts with plan sponsors, MEDICs have the 

authority to request information only from plan sponsors. Providing MEDICs with the authority 

to request information directly from providers and pharmacy benefit managers that provide Part 

D Rervices could improve the efficiency and effectiveness of their fraud detection efforts. 

OVERSIGHT OF CONTRACTOR PERFORMANCE IS LIMITED BY INACCURATE AND INCONSISTENT 

DATA AND BECAUSE CMS DOES NOT EVALUATE THE CAUSES OF v AruA nON ACROSS 

CONTRACTORS 

Inaccuracies and Inconsistencies in COl/tractor Performance Data Limit the Data's 

Useflllness 

Benefit integtity contractors are required to report workload statistics related to their program 

integrity activitics, including invcstigations and case referrals, periodically to CMS. However, 

OIG found that workload data used by CMS to ovcrsee ZPICs were not accurate or uniform. 

This prevented OIG from making a conclusive assessment of their activities.' 

The inaccuracies and the lack of uniformity in ZPIC data resulted from data system issues, ZPIC 

reporting errors, and ZPICs' differing interpretations of fraud terms and definitions. For 

example, the ZPICs counted and reported new investigations differently from each other in the 

7 The lack of uniformity in ZPICs' reporting of data is similar to problems that OIG identified 15 years ago in its 

review of tiscal intennediary fraud units. In that review. OIG found that definitions of key fraud and abuse terms 

varied among CMS and its contractors, which hindered eMS's ability to interpret data and measure fraud unit 

perfomlance. 
23 


80217.013

workload statistics provided to CMS. Specifically, one ZPIC explained that it included all fraud 

complaints in its number of new investigations reported to CMS, regardless of whether those 

complaints were merged into one provider investigation. However, another ZP[C explained that 

ifit received a complaint on a particular provider and started an investigation and then received 

another complaint on that provider, the snbsequent complaint would not be counted as a new 

investigation in the workload statistics. This inconsistency could explain why one ZPIC reported 

seven times more investigations originating from external sources (e.g., complaints) than the 

other. 

OIG has offered a number ofrecommendations to CMS about collecting a greater volume of 

benefit integrity results data, clarifying definitions of fraud terms and data definitions, and 

ensuring the validity and uniformity of this data. While CMS now requires benefit integrity 

contractors to report additional quantitative statistics, CMS still has not developed methods to 

ensure that all data provided by benefit integrity contractors is accurate and uniform. 

G'vlS has not Assessed Differences in Performance Across Integrity Contractors 

While one would expect that contractors would differ somewhat from one another in activity 

levels, 010 found significant differences in fraud detection activities across ZPICs (and in earlier 

work, across PSCs and fraud units). This variation could not always be explained by the size of 

the contractors' budget or oversight responsibility. 

CMS has not systematically assessed the wide variation across contractors' activity data. In fact, 

CMS's contractor performance evaluations provide very few quantitative details about the 

contractors' achievements in detecting and deterring fi·aud and abuse8 

010 has recommended that CMS perform more global assessments of performance across 

contractors; however, CMS has not performed these types of reviews. OIG continues to 

recommend that CMS review quantitative statistics across contractors to ensure that outlier data 

arc investigated and to address the causes behind the variation in contractors' fraud detection 

levels. 

Ill<:NEFIT INTEGRITY CONTRACTORS ARE REQUIRED TO REPORT MEIlICARE PROGRAM 

VULNERABILITIKS TO CMS BUT MANY REMAIN UNRKSOLVKD 

Medicare benefit integrity contractors are required to help prevent fraud, waste, and abuse by 

identifying systemic vulnerabilities in the Medicare program. However, 010 has found that 

some contractors are not reporting any program vulnerabilities to CMS. CMS defines program 

vulnerabilities as fraud, waste, or abuse identified through tbe analysis of Medicare data. Our 

early review offraud units found that more than one-third of them had not identified any 

'OIG, Medicare's Program Safeguard Contractors: Pe/formanee Evaluation Reports (OEI-03-04-00050), March 

2006. 
24 


80217.014

program vulnerabilities. In 2009, almost half of the benefit integrity contractors reviewed did 

not report any program vulnerabilities to CMS. The remaining PSCs, ZPICs, and MEDICs 

reported a total of62 program vulnerabilities to CMS in 2009. 9 Further, although PSCs and 

ZPICs are required to report the monetary impact of vulnerabilities, these contractors reported 

impact for only 21 of the vulnerabilities. For the 21 vulnerabilities alonc, the estimated 

monetary impact was $1.2 billion. 

As of January 2011, CMS had not resolved or taken significant action on three-fourths of the 62 

vulnerabilities reported in 2009. CMS took significant action to resolve 14 of the vulnerabilities, 

but only 2 of these had been fully resolved. OIG found that CMS lacked procedures to 

adequately track vulnerabilities and ensure that corrective actions arc taken to resolve reported 

vulnerabilities. 

OVERPAYMENTS THAT BENEFIT INTEGRITY CONTRACTORS IDENTIFIED FOR COLLECTION DID 

NOT RESULT IN SIGNIFICANT MEDICARE RECOVERIES 

Benefit integrity contractors that are responsible for Medicare Parts A and B, i.e., the PSCs and 

ZPICs, are required to refer overpayments that they identify to the Medicare claims processors 

for collection. In response to a request from this Subcommittee, OIG issued a series of reports in 

2010 concerning the identification and collection of Medicare overpayments referred by the 

PSCs for collection. 10 OIG found that only a vcry small percentage of overpayments that PSCs 

referred for collection was actually collected and returned to the Medicare program. 

PSCs referred $835 million in overpayments to claim processors for collection in 2007. Similar 

to the variation found among benefit integrity contractors' fraud detection efforts, we found 

PSCs differed substantially in the amount of overpayments they referred for collection. Only 

two PSCs were responsible for 62 percent of the $835 million referred for collection by all PSCs. 

Of the $835 million referred, only 7 percent, or $55 million, was collected by June 2008. The 

collection status for another 8 percent, or $64 million, could not be determined. For one out of 

every four overpayments referred by the PSCs, the claims processors reported that they did not 

receive the referrals or did not have any collection infonnation. 

ADDITIONAL CORRECTIVE ACTIONS ARE :'>If:EIlIW TO ADDRESS I'ROBLEMS 

OIG has recommended a number of corrective actions to address issues identified during our 

benefit integrity program reviews. CMS has implemented a number of these actions, but OIG 

9 OIG, Addressing Vulnerabilities Reported by Medicare Benejit Integrity Contractors (OEI-03-10-00500), 

December 201 1 , 

10 OIG, Medicare Overpayments Identified by Program Sqfeguard Contractors (OEI-03-08-00031) and Collection 

Status of Medicare Overpayments Identified by Program Safeguard Contractors (OEI-03-08-0003) and Collection 

Rarefor Ove/payments Made to Medicare Suppliers in South Florida (OEI-03-09 00570), May 20 t 0, 

6 House COlTuniHee on Enl!rgy and Commerce 

Suhcommittee on Oversight and investigations 

JuneS,2012 
25 


80217.015

continues to recommend the following additional actions to improve benefit integrity 

contractors' performance. 

Oversee Proactive Identification of Fraud. IfCMS expects ZPICs and MEDICs to continue 

to use proactive methods, CMS must ensure that this is being done effectively at each contactor. 

Provide Timely Data Access. CMS must ensure that all contractors receive timely access to 

data especially during times of contractor transition. With regard to MEDICs' ability to directly 

acccss medical rccords and prescriptions, CMS should scck the authority to request medical 

records and infolmation directly from the providers and pharmacy benefit managers that provide 

services for Part C Medicare Advantage and Part D prescription drug plans. 

Improve Accuracy of Contractor-Reported Fraud Activity Data. CMS must develop 

methods to ensure that all data provided by benefit integrity contractors is accurate and unifonn. 

CMS also needs to clearly define fraud and abuse tenns that all contractor should use when 

reporting data. 

Assess Variability in Performance Across Contractors. CMS should include more 

quantitative results in benefit integrity contractors' performance evaluations. Using both 

quantitative and qualitative data to describe achievements would provide a more comprehensive 

picture of contractor performance and provide CMS with valuable data for making contract 

renewal decisions. It would also allow CMS to conduct a more global assessment of 

perfonnance across contractors. If unifbnn, quantitative results were included a(;ross 

contractors, CMS could investigate the causes of the significant variability of activity across 

contractors and the especially low volume of activity among certain contractors. 

Ensure Program Vulnerability Identification and Resolution. To gain sufficient oversight of 

program vulnerabilities and reduce the risks to Medicare, CMS must have effective policies and 

procedures to (1) track vulnerabilities identified by all benefit integrity contractors, (2) ensure 

that all contractors are identi tying and reporting vulnerabilities, and (3) ensure the prompt 

resolution of vulnerabilities. 

Improve Overpayment Identification and Collection. CMS should develop effective 

procedures to ensure that PSCs, ZPICs, and claims processors arc able to identify and track the 

collection status of all cun-ent and future overpayment referrals by benefit integrity contractors. 

CMS is responsible for ensuring that PSCs and ZPICs perform their overpayment identification 

effectively. To accomplish this, CMS must have complete and accurate infonnation about 

overpayment referrals and the collection status of these referrals_ 

7 House Committee on Energy and Commerce 

Suocommittce on Oversight and Investigations 

luneR,2012 
26 


80217.016

OIG WILL CONTINUE REVIEWING MEDICARE BENEFIT INTEGRITY ISSUES 

With over $500 billion in Medicare benefit payments at risk each year, it is essential that all 

Medicare fraud-fighting partners do their utmost to ensure that fraud risks are minimized and 

program vulnerabilities are identified early and resolved quickly. 

CMS is just beginning to employ its new twin pillars strategy tor program integrity. The first 

pillar is the Fraud Prevention System (FPS). The FPS will utilize new contractors to perform 

predictive analytics that identify suspicious or inappropriate claims prior to payment. The 

second pillar is the Automated Provider Screening (APS) system, which identifies ineligible 

providers or suppliers prior to their ern-ollment or reern-ollment. 

As OIG did with prior strategies, we will review CMS's new strategy to determine its impact on 

reducing fraud and abuse in the Medicare program. OIG will begin reviews of the new 

enrollment procedures and the prepayment identification of inappropriate Medicare claims. 

OIG is also updating our previous work on MEDICs and will review how the current MEDIC 

has undertaken its new Part C fraud detection responsibilities. OIG is continuing to conduct 

evaluations regarding overpayments and Medicare debt collection. We are also conducting 

reviews to examine the activities of the Medicare Administrative Contractors and Recovery 

Audit Contractors. 

Thank you for your support ofOIG's mission and the opportunity to testify about benefit 

integrity contractors' fraud detection activities. 

8 ~~):~~1~~~7[1::1~~e ~~c;~~~Ya~~d!~y°C:::~~ns June 8, 2012 
27 

Mr. STEARNS. Thank you, Mr. Vito. 

Ms. King, we welcome your opening statement. 

STATEMENT OF KATHLEEN M. KING 

Ms. KING. Mr. Chairman, Ranking Member DeGette, and members of the subcommittee, I am pleased to be here today to discuss 

our work regarding fraud in the Medicare program as well as recent laws and agency actions that may help reduce fraud. 

Multimillion-dollar fraud convictions demonstrate that fraud is a 

significant problem for Medicare. However, the full extent of the 

problem is not known. There are no reliable estimates of fraud for 

the Medicare program or for the health care industry as a whole. 

By its very nature, fraud can be difficult to detect as those involved 

are engaged in intentional deception. 

My testimony today focuses on the steps CMS has taken to reduce fraud and on additional steps we have recommended to them 

as well as work that we have underway. 

Congress provided CMS with new tools to reduce fraud in the Patient Protection and Affordable Care Act and the Small Business 

Jobs Act. I want to focus on three key strategies. First, strengthening provider enrollment standards and procedures; second, improving pre- and post-payment claims review; and, third, developing a robust process for addressing identified vulnerabilities, 

which are weaknesses that can lead to payment resource. 

With respect to provider enrollment, CMS has taken important 

steps to ensure that only legitimate providers and suppliers are enrolled to bill Medicare. Specifically, in accordance with PPACA, 

CMS designated three levels of risk. Those at the highest risk levels are subject to the most rigorous screening. In addition, CMS recently contracted with two contractors to automate enrollment 

processes and to conduct site visits for new providers in the 

moderate- and high-risk categories to ensure that they are legitimate providers. 

We urge CMS to fully implement other key PPACA provisions, 

such as requiring surety bonds for providers designated as high 

risk, conducting fingerprint-based criminal background checks, and 

requiring key disclosures from providers and suppliers before enrollment, such as whether they have ever been suspended from a 

Federal health program. 

Our work has also shown that prepayment reviews are essential 

to help ensure that Medicare pays correctly the first time. CMS’s 

contractors use automated prepayment controls called edits, which 

are instructions programmed into IT systems to check to see if providers are eligible for payment and if claims comply with Medicare’s coverage and payment policies. We have previously found 

weaknesses in some of these prepayment edits and are currently 

evaluating prepayment edits regarding coverage and payment policies. 

We are also currently reviewing CMS’s newest effort, the Fraud 

Prevention System, which uses predictive analytic technologies to 

analyze fee-for-service claims on a prepayment basis. These technologies are used to review claims for potential fraud by identifying 

unusual or suspicious patterns or abnormalities in Medicare provider networks, claims billing patterns and beneficiary utilization. 

28 

We have also found that CMS could take additional steps in improving its post-payment review of claims which are critical to 

identifying payment errors. In particular, the agency could make 

better use of two information technology tools designed to provide 

them with more data and analytical tools for finding fraud: the Integrated Data Repository and the One Program Integrity tool. 

We have also found that CMS needs a more robust process for 

identifying vulnerabilities that can lead to fraud. In our work on 

the Medicare Recovery Audit Contract Program, we recommended 

CMS improve its process for implementing corrective actions regarding vulnerabilities. 

We have also recently been asked to evaluate the ZPICs, the 

Zone Program Integrity Contractors, and we expect to start that 

work soon. 

In conclusion, CMS has several tools at its disposal and has 

taken important steps toward preventing fraud; however, more 

work is ahead. Those intent on committing fraud will continue to 

find ways to do so, so continuing vigilance is critical. We will continue to assess efforts to fight fraud and provide recommendations 

to CMS as we see appropriate. 

We urge CMS to continue its efforts as well. 

Mr. Chairman, that concludes my prepared remarks. I would be 

happy to answer questions. 

[The prepared statement of Ms. King follows:] 

29 


80217.017

GAO 

For Helease on Delivery 

Expected at 9:30 a.m. EDT Friday, June 8, 2012 

To access this report 

electronically, scan this 

QR Code. 

UOll'i. lave a OR code 

lGiHlt:r? Several are 

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GAO-12-80H 

United States Government Acconntability Office 

Testimony 

Before the Subcommittee on Oversight 

and Investigations, Committee on Energy 

and Commerce, House of Representatives 

MEDICARE 

Progress Made to Deter 

Fraud, but More Could Be 

Done 

Statement of Kathleen M. King 

Director, Health Care 

GAO 

Accountability· Integrity • Reliability 
30 


80217.018

Highlights of GAO· 1,2-801 T, a testjmony 

bef9re the Subwmrnittee on Oversight and: 

Inve,stlgalions, Committee on E~rgy and 

Commerce. HQuse of Representatives 

Why GAO Did This Study 

GAO has designated Medicare as a 

high. risk program. Since 1990, every 

two years GAO has provided Congress 

with an update on this program, whiCh 

highlights gove(nmentoperalions that 

are at high risk for waste, fraud, abuse 

mismanagement 0[. in need of broad 

reform. Medicare has been included in 

this program in part because its 

comf'lexily {liakes it particulariy 

vulnerable to fraud. Fraud involves an 

intentiof!~f act or representati~m to deceive with Ihe knowledge that tbe 

action or representaUon could result in 

gain. The deceptive nalure of fraud 

makes its extentin the Medicare 

program difficult to measure in a 

raliableway, but it is clear that fraud 

contdbutes to Medicare's fiscal 

problems. Reducing fraud.cQuld help 

rein in the escalating costs of ihe 

program. 

This statement focuses on the 

progrossmadeanct important steps to be taken by eMS a~d its program 

integrity contractors. to reduce fraud in 

Medicare. These contractors perform 

functions such as SCreenins and 

enrolling providers, detecting and 

investigating potential fraud, and 

identifying improper payments ana 

vulnerabilities that could lead to 

payment errors. This statement is 

:::;~~~~~7:~~ ~:u~~~~~~c~bgt through 2012 using a variety of 

methodologies, such as an'llyses of 

Medicare claims, r~view of relevant 

policies and procedures, and 

interviews with officials. 

View GAO·12.~801T. F:Of fBore lnfonnaHon, contact Katttleen M~ King at (202) 512-7114 or 

kingk@gao.gov 

MEDICARE 

Progress Made to Deter Fraud, but More Could Be 

Done 

What GAO Found 

The Centers for Medicare & Medicaid Services (CMS)-the agency that 

administers Medicare-has made progress in implementing several key 

strategies GAO identified in prior work as helpful in protecting Medicare from 

fraud; however, important actions that could help CMS and its program integrity 

contractors combat fraud remain incomplete. 

Provider Enrollment: GAO's previous work found perSistent weaknesses in 

Medicare's enrollment standards and procedures that increased the risk of 

enrolling entities intent on defrauding the program. CMS has strengthened 

provider enrollment-for example, in February 2011, CMS deSignated three 

levels of risk-high, moderate, and limited-with different screening procedures 

for categories of providers at each level. However, CMS has not completed other 

actions, including implementation of some relevant provisions of the Patient 

Protection and Affordable Care Act (PPACA). Specifically, CMS has not 

(1) determined which providers will be required to post surety bonds to help 

ensure that payments made for fraudulent billing can be recovered, 

(2) contracted for fingerprint·based criminal background checks, (3) issued a final 

regulation to require additional provider disclosures of information, and 

(4) established core elements for provider compliance programs 

Pre- and Post·payment Claims Review: GAO had previously found that 

increased efforts to review claims on a prepayment basis can prevent payments 

from being made for potentially fraudulent claims, while improving systems used 

by CMS and its contractors to review claims on a post-payment basis could 

better identify patterns of potentially fraudulent billing for further investigation 

CMS has controls in Medicare's claims-processing systems to determine if 

claims should be paid, denied, or reviewed further. These controls require timely 

and accurate information about providers that GAO has previously recommended 

that CMS strengthen. GAO is currently examining CMS's new Fraud Prevenlion 

System, which uses analytic methods to examine claims before payment to 

develop investigative leads for Zone Program Integrity Contractors (ZPIC), the 

contractors responsible for detecting and investigating potentia! fraud 

Additionally, eMS could improve its post~payment claims review to identify 

patterns of fraud by incorporating prior GAO recommendations to develop plans 

and timelines for fully implementing and expanding two information technology 

systems it developed. 

Robust Process to Address Identified Vulnerabilities: Having mechanisms in 

place to resolve vulnerabildies that leed to erroneous payments is cfltical to 

effective program management and could help address fraud. Such 

vulnerabilities are service- or system-specific weaknesses that can lead to 

payment errors-for example, providers receiving multiple payments as a result 

of incorrect coding. GAO has previously identified weaknesses in eMS's process 

for addressing identified vulnerabilities and the Department of Health and Human 

Services' Office of Inspector General recently reported on CMS's inaction in 

addressing vulnerabilities identified by its contractors. including ZPICs. GAO IS 

evaluating the current status of the process for assessing and developing 

corrective actions to address vulnerabilities 

_____________ United States Government Accountability Office 
31 


80217.019

Mr. Chairman, Ranking Member, and Other Members of the Committee: 

I am pleased to be here today to discuss our work regarding fraud in the 

Medicare program, Medicare contractors' roles in detecting and 

preventing fraud, and provisions in recent laws and agency actions that 

may help address this problem. 1 Fraud involves 8n intentional act or 

representation to deceive with the knowledge that the action or 

representation could result in gain. Although there have been convictions 

for multi-million dollar schemes that defrauded the Medicare program, the 

extent of the problem is unknown. There are no reliable estimates of the 

extent of fraud in the Medicare program or for the health care industry as 

a whole. By its very nature, fraud is difficult to detect, as those involved 

are engaged in intentional deception. For example, fraud may involve 

providers submitting a claim with false documentation for services not 

provided, while the claim on its face may appear valid. Fraud also can 

involve efforts to hide ownership of companies or kickbacks to obtain 

beneficiary information. Although the full extent of the problem is 

unknown, it is clear that the Medicare program is vulnerable to fraud, 

which contributes to Medicare's fiscal problems. Reducing fraud could 

help rein in the escalating costs of the program. 

We have repeatedly designated Medicare as a high-risk program, as its 

complexity and susceptibility to payment errors from various causes, 

added to its size, have made it vulnerable to loss.2 As one example, the 

fee-for-service (FFS) portion of the Medicare program processes over a 

billion claims a year from about 1 .5-million providers and suppliers; 

working to ensure that those payments are accurate is a complex, 

ongoing task. Medicare has many individual vulnerabilities, which are 

'Medicare IS the federally financed health insurance program for persons age 65 or over, 

certain Individuals with disabilities, and individuals with end~stage renal disease. Medicare 

Parts A and B are known as Medicare fee-for-service (FFS) Medicare Part A covers 

hospital and other inpatient stays Medicare Part 8 is optlOnaL and covers hospital 

outpatient, physician. and other services Medicare beneflcianes have the option of 

obtaining coverage for Medicare services from private health plans that participate In 

Medicare Advantage-Medicare's managed care program~also known as Part C All 

Medicare beneflciaries may purchase coverage for outpatient prescription drugs under 

Part D, either as a stand~alone benefit or as part of a Medicare Advantage plan 

21n 1990, we began to report on government operations that we identified as »high risk" for 

serious weaknesses In areas that involve substantial resources and provide cntlcal 

services to the public. Medicare has been included among such programs since 1990 

See GAO, High-Risk Senese An Update. GAO-11·278 (Washington. D.C February 2011) 

http.llwww.gao.gov/highnsklriskshnsurance/medicare_program php 

Page 1 GAO·12·801T Medicare Fraud 
32 


80217.020

service- or system-specific weaknesses that can lead to payment errors, 

including those due to fraud.' If the Centers for Medicare & Medicaid 

Services (CMS), the agency within the Department of Health and Human 

Services (HHS) that administers the program, suspects that providers or 

suppliers are billing fraudulently, it can take action, including suspending 

claims payment, revoking billing privileges, or referring cases to law 

enforcement for investigation.4 Further, it can impose a moratorium on 

new enrollment of providers or suppliers" Since 1997, Congress has 

provided funds specifically for activities to address fraud, as well as waste 

and abuse,6 in Medicare and other federal health care programs. In 

addition, Congress created the Medicare Integrity Program to conduct 

activities to reduce fraud, waste, abuse, and improper payments. 7 In 

2010, Congress passed the Patient Protection and Affordable Care Act 

(PPACA), which provided additional funding for such efforts and set a 

number of new requirements specific to Medicare. 8 Furthermore, the 

defines vulnerabilities to the Medicare program as issues that can lead to fraud, 

waste, or abuse, which can either be specific, such as providers receiving multiple 

payments as a result of incorrect coding for a serVice, or general and programwlde, such 

as weaknesses In online application processes 

41n this testimony, the term proVIder includes entities such as hospitals or physicians, and 

supplier means an entity that supplies Medicare beneficlanes with durable medical 

equipment, prosthetics, orthotiCS. ana supplies (DMEPOS) such as walkers and 

wheelchairs 

5Enroliing as a provider or supplier in Medicare allows an entity to provide services or 

equipment to beneficiaries and bill for those services 

6Waste includes Inaccurate payments for services, such as unintentional duplicate 

payments. Abuse represents actions inconsistent with acceptable bUSiness or medical 

practices 

7 An improper payment is any payment that should not have been made or that was made 

in an Incorrect amount (including overpayments and underpayments) under statutory, 

contractual, administrative, Of other legally applicable requirements. This definition 

includes any payment to an ineligible recipient, any payment for an mellgible good or 

service, any duplicate payment. any payment for a good or service not received (except 

where authorized by law), and any payment that does not account for credit for applicable 

discounts. Improper Payments E!lmlnatlon and Recovery Act of 2010, Pub L No 111-

204, § 2(e). 124 Stat 2224.2227 (codified at 31 U.S C. § 3321 note) 

8pub_ l No. 111-148, 124 Stat 119 (2010), as amended by Health Care and Education 

Reconciliation Act of 2010 (HCERA), Pub L. No 111-152,124 Stat 1029, which we refer 

to collectively as PPACA. The provisions discussed in this statement are generally located 

In sections 6401 through 6411 and 10603 and 10605 of PPACA, as well as sections 1303 

and 1304 of HCERA 

Page 2 GAO·12-S0H Medicare Fraud 
33 


80217.021

Small Business Jobs Act of 20109 established new Medicare fee-forservice claims review requirements and provided funding to implement 

these requirements. 

My testimony today focuses on the progress made and steps that remain 

to be taken by eMS and its program integrity contractors to reduce fraud 

in Medicare. eMS contractors perform a number of key program integrity 

functions, such as screening and enrolling providers, detecting and 

investigating potential fraud, and identifying improper payments and 

vulnerabilities that could lead to payment errors. This testimony is 

informed by 8 years of our work on Medicare fraud, waste, abuse, and 

improper payments. I will focus on several key strategies eMS can 

undertake to help reduce fraud discussed in our prior work from 2004 to 

2012, specifically: 10 

strengthening provider enrollment standards and procedures, 

improving pre- and post-payment claims review, and 

developing a robust process for addressing identified vulnerabilities. 

The products on which this statement is based were developed by using 

a variety of methodologies, including analyses of Medicare claims, review 

of relevant policies and procedures, interviews with agency officials and 

other stakeholders, and site visits. '1 The work on which these products 

were based was conducted in accordance with generally accepted 

government auditing standards. Those standards require that we plan 

and perform the audit to obtain sufficient, appropriate evidence to provide 

a reasonable basis for our findings and conclusions based on our audit 

objectives. We believe that the evidence obtained provides a reasonable 

basis for our findings and conclusions based on our audit objectives. 

9pub. L. No. 111-240, §4241, 124 Stat. 2504, 2599. 

loThese strategies were among those identified in our June 2010 testlmony as critical to 

helping prevent fraud, waste, and abuse in Medicare See GAO, Medicare Fraud, Waste, 

and Abuse. Challenges and Strategies for Preventing Improper Payments, GAO-10-844T 

(Washington, D.C .. June 15, 2010). A list of reiated products appears at the end of this 

statement 

11 The products listed at the end of this statement contain detailed information on the 

methodologies used In our work 

Page 3 GAO·12·801T Medicare Fraud 
34 


80217.022

CMSHasMade 

Progress in 

Strengthening 

Provider Enrollment, 

but Further Actions 

Are Needed 

Past C;VIS Efforts to 

Strengthen Provider 

Enrollment 

eMS has made progress strengthening provider enrollment to try to better 

ensure that only legitimate providers and suppliers are allowed to bill 

Medicare. However, eMS has not completed other actions that could help 

prevent individuals intent on fraud from enrolling, including 

implementation of some relevant PPACA provisions. 

Our previous work found persistent weaknesses in Medicare's enrollment 

standards and procedures that increased the risk of enrolling entities 

intent on defrauding the Medicare program. 12 We, CMS, and the HHS 

Office of Inspector General (OIG) have previously identified two types of 

providers whose services and items are especially vulnerable to improper 

payments and fraud-home health agencies (HHA) and suppliers of 

durable medical equipment prosthetics, orthotics, and supplies 

(DMEPOS). We found weaknesses in oversight of these providers' and 

suppliers' enrollment For example, in 2008, we identified weaknesses 

when we created two fictitious DMEPOS companies, which were 

subsequently enrolled by CMS's contractor and given permission to begin 

billing Medicare. 13 In 2009, we found that eMS's contractors were not 

requiring HHAs to resubmit enrollment information for re-verification every 

5 years as required by eMS." 

To strengthen the Medicare enrollment process, in 2006 eMS began 

requiring all providers and suppliers-including those that order HHA 

services or DMEPOS for beneficiaries to be enrolled in Medicare. The 

agency also required all providers and suppliers to report their National 

Provider Identifiers (NPI) on enrollment applications, which can help 

GAO, Medicare: eMS's Program Safeguards Did Not Deter Growth If) Spendmg for 

GAO-05-43 {Washington, DC .. Nov. 17, 2004}; Medicare: More 

Effective Screening and Stronger Enrollment Standards Needed for Medical EqUipment 

Suppliers, GAO-05-656 (Washington, 0 C Sept 22, 2005); Medicare. Improvements 

Needed to Address Improper Payments for Medlcat Equipment and Supplies, GAO-O? -59 

(Washington, D.C.' Jan. 31, 2007): and Medicare Improvements Needed to Address 

Improper Payments in Home Health, GAO-09-185 (Washington, D. C Feb 27, 2009). 

13GAO, Medicare: Covert Testmg Exposes Weaknesses in the Durable Medical 

Equipment Supplier Screening Process, GAO-08~955 (Washington, D C July 3, 2008) 

14GAO-09-18S. 

Page 4 GAO-12~a01T Medicare Fraud 
35 


80217.023

CMS Has Taken Action on 

Certain PPACA Provider 

Enrollment Provisions 

address fraud because providers and suppliers must submit either their 

Social Security Number or their employer identification number and state 

licensing information to obtain an NPI. 15 In 2007, CMS initiated the first 

phase of a Medicare competitive-bidding program for DMEPOS. 16 This 

program requires suppliers' bids to include new financial documentation 

for the year prior to submitting the bids. Because CMS can now disqualify 

suppliers based in part on new scrutiny of their financial documents, 

competitive bidding can help reduce fraud. Finally, in 2010, CMS also 

required that all DMEPOS suppliers be accredited by a CMS-approved 

accrediting organization to ensure that they meet certain quality 

standards. Such accreditation also increased scrutiny of these 

businesses. 

PPACA authorized CMS to implement several actions to strengthen 

provider enrollment. As of April 2012, the agency has completed some of 

these actions. 

Screening Provider Enrollment Applications by Risk Level: CMS and OIG 

issued a final rule with comment period in February 2011 to implement 

some of the new screening procedures required by PPACA. 17 CMS 

designated three levels of risk-high, moderate, and limited-with 

different screening procedures for categories of Medicare providers at 

each level. Providers in the high-risk level are subject to the most rigorous 

Health Insurance Portability and Accountability Act of 1996 required that HHS adopt 

standards for unique health Identifiers. eMS adopted the NPI as the standard unique 

health identifier for its health care providers and suppliers In its final rule: HfPAA 

Administrative Simplification" Standard Unique Health Identifier for Health Care Providers, 

69 Fed. Reg. 3434 (Jan. 23, 2004). Consistent with the NPI flna! rule, beginning in 2006, 

the Medicare program required providers and suppliers to report their NPls on their 

enrollment applications 

16Competltive bidding is a process In which suppliers of medical equipment and supplies 

compete for the right to provide their products on the basis of estab!ished Criteria, such as 

quality and price 

17Medlcare, Medicaid, and Children's Health Insurance Programs, Additional Screening 

ReqUirements, Application Fees, Temporary Enrollment Moratoria, Payment Suspensions 

and Compfiance Plans for Providers and Suppliers, 76 Fed. Reg. 5862 (Feb 2, 2011). !n 

discussing the final rule, CMS noted that Medicare had already employed a number of the 

screening practices descnbed In PPACA to determine if a provider is in compliance with 

federal and state requirements to enroll or to maintain enrollment in the Medicare 

program. 

Page 5 GAO-12·801T Medicare Fraud 
36 


80217.024

screening." To determine which providers to place in these risk levels, 

CMS considered issues such as past occurrences of improper payments 

and fraud among different categories of providers. Based in part on our 

work and that of the OIG, CMS designated newly enrolling HHAs and 

DMEPOS suppliers as high risk and deSignated other providers at lower 

levels. (See table 1.) Providers at all risk levels are screened to verify that 

they meet specific requirements established by Medicare such as having 

current licenses or accreditation and valid Social Security numbers. 19 

High- and moderate-risk providers are additionally subject to 

unannounced site visits. Further, depending on the risks presented, 

PPACA authorizes CMS to require fingerprint-based criminal history 

checks, and the posting of surety bonds for certain providers. 20 CMS may 

also provide enhanced oversight for specific periods for new providers 

and for initial claims of DMEPOS suppliers. 

18pPACA specified that the enhanced-screening procedures would apply to new providers 

and suppliers beginning 1 year after the date of enactment and to currently enrolled 

providers and suppliers 2 years after that date 

19Screenlng may Include verification of the following: Social Secuflty number, NP1, 

National Practitioner Databank licensure, whether the provider has been excluded from 

federal health care programs by the OIG; taxpayer identification number, and death of an 

individual practitioner, owner, authorized offiCial, delegated official, or supervising 

physician. 

20A surety bond is a three·party agreement in which a company, known as a surety, 

agrees to compensate the bondholder !f the bond purchaser falls to keep a specIfied 

promIse, 

Page 6 GAO·12·aOH Medicare Fraud 
37 


80217.025

Table 1: Categories of Medicare Providers and Suppliers Designated by Risk Level for Enrollment Screening 

Risk level 

limIted 

Categories of Medicare providers and suppliers 

Physician or nonphys!cian practitioners and medical groups or clinics, with the exception of physical therapists and 

physical therapy groups. Ambulatory surgical centers, competitive acquisition programs/Part 8 vendors, end~stage 

~:~I~ii~~,e~~~~~~;~;h~e~~:ea~!~i~~~:~~~r:~;~hs~~~t~~~1~i::~~O~~~~b~ili~::,~~~~~epsr~~8~~~~~~~~~ha~i~~:~~S, pharmacies newly enrolling or revalidating, radiation therapy centers, reHglous nonmedical health care InstitUtions, 

rural health clmlcs. skilled nursing facHities, and hospitals, including critical access hospitals 

Moderat-e---Ac-m-cb-u7Iance suppliers, community mental health centers, comprehensive outpatient rehabilitation facilities, hospice 

organizations, Independent diagnostic testing facilities, independent clinical laboratories, portable X-ray suppliers, 

currently enrolled (revalidating) home health agencies, and physical therapy, Including physical therapy groups 

Prospective (newly enrolling) home health agencies and prospective (newly enrolling) suppliers of durable medica! 

equipment, prosthetics, orthotICS, and supplies 

"Histocompatibility laboratories proVide evaluations of certain genetic data and pertinent patient 

immunologic risk factors to allow clinician and patient to make decisions about whether 

transplantation IS in the patlent"s best Interest 

°Mass Immunization roster billers are providers and suppliers that enroll in the Medicare program to 

offer Influenza (flu) vaccmations to a large number of indiViduals, and these entities must be properly 

licensed in the states In which they plan to operate Influenza clinics. 

CMS indicated that the agency will continue to review the criteria for its 

screening levels on an ongoing basis and would publish changes if the 

agency decided to update the assignment of screening levels for 

categories of Medicare providers. This may become necessary because 

fraud is not confined to HHAs and DMEPOS suppliers. We are currently 

examining the types of providers involved in fraud cases investigated by 

the OIG and the Department of Justice (DOJ), which may help illuminate 

risk to the Medicare program from different types of providers. Further. in 

their 2011 annual report on the Health Care Fraud and Abuse Control 

Program, DOJ and HHS reported convictions or other legal actions, such 

as exclusions or civil monetary penalties, against several types of 

Medicare providers other than DMEPOS suppliers and HHAs, including 

pharmacists, orthopedic surgeons, infusion and other types of medical 

clinics, and physical therapy services. 21 CMS also has established 

triggers for adjustments to an individual provider's risk level. For example. 

CMS regulations state that an individual provider or suppl'ler at the 

21 The Department of Health and Human Services and the Department of Justice Health 

Care Fraud and Abuse Control Program Annual Report for Fiscal Year 2011 (Washington. 

D C .. February 2012) 

Page 7 GAO-12-801T Medicare Fraud 
38 


80217.026

limited- or moderate-risk level that has had its billing privileges revoked by 

a Medicare contractor within the last 10 years and is attempting to reenroll, would move to the high-risk level for screening. 

New National Enrollment Screening and Site Visit Contractors: In a 

further effort to strengthen its enrollment processes, CMS contracted with 

two new entities at the end of 2011 to assume centralized responsibility 

for automated screening of provider and supplier enrollment and for 

conducting site visits of providers. 

Automated-screening contractor. In December 2011, the new 

contractor began to establish systems to conduct automated 

screening of providers and suppliers to ensure they meet Medicare 

eligibility criteria (such as valid licensure, accreditation, a valid NPI, 

and no presence on the OIG list of providers and suppliers excluded 

from participating in federal health care programs).22 Prior to the 

implementation of this new automated screening, such screening was 

done manually for the 30,000 enrollees each month by CMS's 

Medicare Administrative Contractors (MAC), which enroll Medicare 

providers, and the National Supplier Clearinghouse (NSC), which 

enrolls DMEPOS suppliers. According to CMS, the old screening 

process was neither efficient nor timely. CMS officials said that in 

2012, the automated-screening contractor began automated 

screening of the licensure status of all currently enrolled Medicare 

providers and suppliers. The agency said it expects the automatedscreening contractor to begin screening newly enrolling providers and 

suppliers later this year. CMS expects that the new, national 

contractor will enable better monitoring of providers and suppliers on 

a continuous basis to help ensure they continue to meet Medicare 

enrollment requirements. The new screening contractor will also help 

the MACs and the NSC maintain enrollment information in CMS's 

Provider Enrollment Chain and Ownership System (PECOS)-a 

database that contains details on enrolled providers and suppliers. In 

addition, CMS officials said the automated-screening contractor is 

developing an individual risk score for each provider or supplier, 

similar to a credit risk score. Although these individual scores are not 

currently used to determine an individual provider's placement in a 

22Ucensure is a mandatory process by which a state government grants permiSSion to an 

individual practitioner or health care organizatlOn to engage in an occupatlOn or 

profession 

Page 8 GAO·12·801T Medicare Fraud 
39 


80217.027

CMS Has Not Completely 

Implemented Some PPACA 

Enrollment Provisions 

risk level, CMS indicated that this risk score may be used eventually 

as additional risk criteria in the screening process. 

Site visits for a/l providers designated as moderate and high risk. 

Beginning in February 2012, a single national site-visit contractor 

began conducting site visits of moderate- and high-risk providers to 

determine if sites are legitimate and the providers meet certain 

Medicare standards. 23 The contractor collects the same information 

from each site visit, including photographic evidence that will be 

available electronically through a Web portal accessible to CMS and 

its other contractors. The national site-visit contractor is expected to 

validate the legitimacy of these sites. CMS officials told us that the 

contractor will provide consistency in site visits acroSs the country, in 

contrast to CMS relying on different MACs to conduct any required 

site visits. 

Implementation of other enrollment screening actions authorized by 

PPACA that could help CMS reduce the enrollment of providers and 

suppliers intent on defrauding the Medicare program remains incomplete, 

including: 

Surety bond-PPACA authorizes CMS to require a surety bond for 

certain types of at-risk providers, which can be helpful in recouping 

erroneous payments. CMS officials expect to issue a proposed rule to 

require surety bonds as conditions of enrollment for certain other 

types of providers. Extending the use of surety bonds to these new 

entities would augment a previous statutory requirement for DMEPOS 

suppliers to post a surety bond at the time of enrollment 24 CMS 

25, 2011, eMS required the MACs to conduct site visits for categones of 

suppliers deSignated as moderate and high risk. The national site~vlsit 

contactor assumed these responSibilities In 2012. The NSC wil! continue to conduct SIte 

viSits related to provider enrollment of DMEPOS suppliers In addition, eMS at times 

exercises its authority to conduct a site VISit or requests its contractors to conduct a site 

VISit for any Medicare provider or supplier 

2442 U.s.C. § 1395m(a)(16)(8). As of October 2009, DMEPOS suppliers were required to 

obtain and submit a surety bond In the amount of at least $50,000. A DMEPOS surety 

bond IS a bond issued by an entity guaranteeing that a DMEPOS supplier will fulfill its 

obligation to Medicare, If the obligation is not met. the surety bond is paid to Medicare 

Medicare Program, Surety Bond Requirement for Suppliers of Durable Medlcaf 

EqUipment, ProsthetICS. Orthotics, and Supplies (DMEPOS), 74 Fed Reg 166 (Jan 2. 2009) 

Page 9 GAO·12·801T Medicare Fraud 
40 


80217.028

issued final instructions to its MACs, effective February 2012, for 

recovering DMEPOS overpayments through surety bonds. CMS 

officials reported that as of April 19, 2012, they had issued notices to 

20 surety bond companies indicating intent to collect funds, but had 

not collected any funds as of that date. 

Fingerprint-based criminal background checks-CMS officials told 

us that they are working with the Federal Bureau of Investigation to 

arrange contracts to help conduct fingerprint-based criminal 

background checks of high-risk providers and suppliers. On April 13, 

2012, CMS issued a request for information regarding the potential 

solicitation of a single contract for Medicare provider and supplier 

fingerprint-based background checks. The agency expects to have 

the contract in place before the end of 2012. 

Providers and suppliers disclosure-CMS officials said the agency 

is reviewing options to include in regulations for increased disclosures 

of prior actions taken against providers and suppliers enrolling or 

revalidating enrollment in Medicare, such as whether the provider or 

supplier has been subject to a payment suspension from a federal 

health care program." In April 2012, agency officials indicated that 

they were not certain when the regulation would be published. CMS 

officials noted that the additional disclosure requirements are 

complicated by provider and supplier concerns about what types of 

information will be collected, what CMS will do with it, and how the 

privacy and security of this information will be maintained. 

Compliance and ethics program-CMS officials said that the 

agency was studying criteria found in OIG model plans as it worked to 

address the PPACA requirement that the agency establish the core 

enroUment or revahdatlon of enrollment, PPACA reqUires providers 

and suppliers to disclose any current or previous affiliation with another provider or 

supplier that has uncollected debt; has been or is subject to a payment suspension under 

a federal health care program; has been excluded from participation under Medicare, 

Medicaid, or the State Children's Health Insurance Program; or has had its billing 

privileges denied or revoked Pub L No 111-148. § 6401 (a)(4). 124 Stat 119. 740 

(2010). 

Page 10 GAO~12~S01T Medicare Fraud 
41 


80217.029

Additional Action May 

Help Better Identify 

Potential Fraud 

through Pre- and PostPayment Claims 

Review 

Additional Efforts to 

Improve Prepayment 

Claims Review May Help 

Reduce Fraud 

elements of compliance programs for providers and suppliers. 26 As of 

April 2012, eMS did not have a projected target date for 

implementation. 

Increased efforts to review claims on a prepayment basis can better 

prevent payments that should not be made, while improving systems 

used to review claims on a post-payment basis could better identify 

patterns of fraudulent billing for further investigation. 

Having robust controls in claims payment systems to prevent payment of 

problematic claims can help reduce loss. As claims go through 

Medicare's electronic claims payment systems, they are subjected to 

automated prepayment controls called "edits," instructions programmed in 

the systems to prevent payment of incomplete or incorrect claims. Some 

edits use provider enrollment information, while others use information on 

coverage or payment policies, to determine if claims should be paid. Most 

of these controls are fully automated; if a claim does not meet the criteria 

of the edit, it is automatically denied. Other prepayment edits are manual; 

they flag a claim for individual review by trained staff who determine if it 

should be paid. Due to the volume of claims, eMS has reported that less 

than 1 percent of Medicare claims are subject to manual medical record 

review by trained staff. 

Having effective pre-payment edits that deny claims for ineligible 

providers and suppliers depends on having timely and accurate 

information about them, such as whether the providers are currently 

enrolled and have the appropriate license or accreditation to provide 

specific services. We previously recommended that eMS take action to 

26A compliance program IS an Internal set of policies, processes, and procedures that a 

provider organization Implements to help It act ethically and lav.1ulfy. In thIS context. a 

compliance program IS intended to help provider and supplier organizations prevent and 

detect violations of Medicare laws and regulations. eMS has used the phrase "compliance 

and ethiCS program" and indicated It may base its program on the seven elements of 

effective compliance and ethics programs found in the U.S Federal Sentencing 

Guidelines Manual 

Page 11 GAO·12·801T Medicare Fraud 
42 


80217.030

ensure the timeliness and accuracy of PECOS-the database that 

maintains Medicare provider and supplier enrollment information. We 

noted that weaknesses in PECOS data may result in eMS making 

improper payments to ineligible providers and suppliers. 27 These 

weaknesses are related to the frequency with which eMS's contractors 

update enrollment information and the timeliness and accuracy of 

information obtained from outside entities, such as state licensing boards, 

the OIG, and the Social Security Administration's Death Master File, 

which contains information on deceased individuals that can be used to 

identify deceased providers in order to terminate those providers' 

Medicare billing privileges. These sources vary in the ease in which CMS 

contractors have been able to access their data and the frequency with 

which they are updated. CMS has indicated that its new national· 

screening contractor should improve the timeliness and accuracy of the 

provider and supplier information in PECOS by centralizing the process, 

increasing automation of the process, continuously checking databases, 

and incorporating new sources of data, such as financial, business, tax, 

and geospatial data. However, it is too soon to tell if these efforts will 

better prevent payments to ineligible providers and suppliers. 

Having effective edits to implement coverage and payment policies before 

payment is made can also help to deter fraud. The Medicare program has 

defined categories of items and services eligible for coverage and 

excludes from coverage items or services that are determined not to be 

"reasonable and necessary for the diagnosis and treatment of an illness 

or injury or to improve functioning of a malformed body part."" CMS and 

its contractors set policies regarding when and how items and services 

will be covered by Medicare, as well as coding and billing requirements 

for payment, which also can be implemented in the payment systems 

through edits. We have previously found Medicare's payment systems did 

not have edits for items and services unlikely to be provided in the normal 

course of medical care.29 eMS has since implemented edits to flag such 

claims-called Medically Unlikely Edits. We are currently assessing 

Medicare's prepayment edits based on coverage and payment policies, 

including the Medically Unlikely Edits. 

"42 usc. § 1395y(a)(1 )(A) 

"GAO·07 -59 

Page 12 GAO·12·80H Medicare Fraud 
43 


80217.031

Additionally, suspending payments to providers suspected of fraudulent 

billing can be an effective tool to prevent excess loss to the Medicare 

program while suspected fraud is being investigated. For example, in 

March 2011, the OIG testified that payment suspensions and prepayment edits on 18 providers and suppliers stopped the potential loss of 

more than $1.3 million submitted in claims by these individuals. 

Furthermore, HHS recently reported that it imposed payment suspensions 

on 78 home health agencies in conjunction with arrests related to a 

multimillion-dollar health care fraud scheme, While CMS had the authority 

to impose payment suspensions prior to PPACA, the law specifically 

authorized CMS to suspend payments to providers pending the 

investigation of credible allegations of fraud, 30 CMS officials reported that 

the agency had imposed 212 payment suspensions since the regulations 

implementing the PPACA provisions took effect. Agency officials 

indicated that almost half of these suspensions were imposed this 

calendar year, representing about $6 million in Medicare claims. 

We are currently evaluating a new CMS effort, the Fraud Prevention 

System (FPS), which uses predictive analytic technologies to analyze 

FFS claims on a prepayment basis to develop investigative leads for 

CMS's Zone Program Integrity Contractors (ZPIC), the contractors 

responsible for detecting and investigating potential fraud. 3' The Small 

Business Jobs Act of 2010 requires CMS to use predictive analytic 

technologies both to identify and to prevent improper payments under 

Medicare FFS. 32 The law requires these predictive analytic technologies 

to be used to review claims for potential fraud by identifying unusual or 

30CMS is required to consult with the HHS OIG in determining whether a credible 

allegation of fraud eXists. Based on how eMS used its prevIous payment suspension 

authority, in November 2010, the OIG found weaknesses In eMS's implementation of 

payment suspenSions that could lead to delays In the suspenSion process Such delays 

would allow payments to continue to providers suspected of fraud. Specifically, the OIG 

found that eMS's gUidance to Its contractors on procedures for Implementing payment 

suspenSions was Incomplete and InconsIstent Although the OIG made no 

recommendations, It suggested that these weaknesses could be addressed through eMS 

fulemaking pursuant to PPACA 

31CMS IS replacing Its legacy Program Safeguard Contractors (PSC) With seven ZPICs 

Wh!le the PSCs were respons!ble for program Integrity for specific parts of Medicare, such 

as Part A, the ZPICs are respons!ble for Medicare's fee~for¥serv!ce program Integnty In 

their geographic zones, For simpliCIty, we refer to these program integnty contractors as 

ZPICs throughout the testimony 

32pub. L No. 111-240, § 4241, 124 Stat 2504, 2599 

Page 13 GAO~12~801T Medicare Fraud 
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80217.032

suSpicious patterns or abnormalities in Medicare provider networks, 

claims billing patterns, and beneficiary utilization. According to CMS, FPS 

may enhance CMS's ability to identify potential fraud because it analyzes 

large numbers of claims from multiple data sources nationwide 

simultaneously before payment is made, thus allowing CMS to examine 

billing patterns across geographic regions for those that may indicate 

fraud. The results of FPS are used by the ZPICs to initiate investigations 

that could result in payment suspensions, implementation of automatic 

claim denials, identification of additional prepayment edits, or the 

revocation of Medicare billing privileges. CMS began using FPS to screen 

all FFS claims nationwide prior to payment as of June 30, 2011, and CMS 

has been directing the ZPICs to investigate high priority leads generated 

by the system. Because FPS is relatively new and we have not completed 

our work, it is too soon to determine whether FPS will improve CMS's 

ability to address fraud. Questions have also been raised about CMS's 

ability to adequately assess ZPICs' performance and we have been 

asked to examine CMS's management of the ZPICs, including criteria 

used by CMS to evaluate their effectiveness. 

"Bust-out" fraud schemes in which providers or suppliers suddenly bill 

very high volumes of claims to obtain large payments from Medicare 

could be addressed by adding a prepayment edit. Such an edit would set 

thresholds to stop payment for atypically rapid increases in billing thus 

helping them to stem losses from these schemes. In our prior work on 

DMEPOS, we recommended that CMS require its contractors to develop 

thresholds for unexplained increases in billing and use them to develop 

pre-payment controls that could suspend these claims for further review 

before payment. 33 CMS officials told us that they are currently considering 

developing analytiC models in FPS that could help CMS and ZPICs 

identify and address billing practices suggestive of bust outs. 

33See GAO, 2012 Annual Report· Opportunities to Reduce Duplication, Overlap and 

Fragmentation, Achieve Savings, and Enhance Revenue. GAO-12-342SP (Washington, 

DC. Feb 28,2012) and GAO-07-59 

Page 14 GAO-12-80H Medicare Fraud 
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80217.033

Actions Needed to 

Improve Use of Systems 

Intended for Post-payment 

Claims Review 

Further actions are needed to improve use of two CMS information 

technology systems that could help CMS and program integrity 

contractors identify fraud after claims have been paid. 34 

The Integrated Data Repository (lOR) became operational in 

September 2006 as a central data store of MAdicare and other data 

needed to help CMS's program integrity staff, ZPICs, and other 

contractors prevent and detect improper payments of claims. 

However, we found I DR did not include all the data that were planned 

to be incorporated by fiscal year 2010, because of technical obstacles 

and delays in funding. Further, as of December 2011 the agency had 

not finalized plans or developed reliable schedules for efforts to 

incorporate these data, which could lead to additional delays. 

One Program Integrity (One PI) is a Web portal intended to provide 

CMS staff, ZPICs, and other contractors with a single source of 

access to data contained in lOR, as well as tools for analyzing those 

data. While One PI is operational, we reported in December 2011 that 

CMS had trained few program integrity analysts and that the system 

was not being widely used. 

GAO recommended that CMS take steps to finalize plans and reliable 

schedules for fully implementing and expanding the use of both lOR and 

One PI. Although the agency told us in April 2012 that it had initiated 

activities to incorporate some additional data into lOR and expand the use 

of One PI, such as training more ZPIC and other staff, it has not fully 

addressed our recommendations. 

Page 15 

Fraud Detection Systems' Centers for Medicare and Medicaid SerVices Needs to 

Widespread Use, GAO-11-47S (Washington, D.C.: June 30, 2011) 

GAQ·12·80H Medicare Fraud 
46 


80217.034

A Robust Process to 

Address Identified 

Vulnerabilities Could 

Help Reduce Fraud 

Having mechanisms in place to resolve vulnerabilities that lead to 

improper payments is critical to effective program management and could 

help address fraud. 35 A number of different types of program integrity 

contractors are responsible for identifying and reporting vulnerabilities to 

CMS. However, our work and the work of OIG have shown weaknesses 

in CMS's processes to address vulnerabilities identified by these 

contractors. 

CMS's Recovery Audit Contractors (RAG) are specifically charged with 

identifying improper payments and vulnerabilities that could lead to such 

payment errors. However, in our March 2010 report on the RAC 

demonstration program, we found that eMS had not established an 

adequate process during the demonstration or in planning for the national 

program to ensure prompt resolution of such identified vulnerabilities in 

Medicare; further, the majority of the most significant vulnerabilities 

identified during the demonstration were not addressed. 36 We therefore 

recommended that CMS develop and implement a corrective action 

process that includes policies and procedures to ensure the agency 

promptly (1) evaluates findings of RAC audits, (2) decides on the 

appropriate response and a time frame for taking action based on 

established criteria, and (3) acts to correct the vulnerabilities identified. 37 

Our recommendations will not be fully addressed until eMS has put 

policies and procedures in place that will lead the agency to act promptly 

to correct identified vulnerabilities. In December 2011. the OIG similarly 

found that eMS lacked procedures to ensure that vulnerabilities identified 

35We have reported that an agency should have policies and procedures to ensure that 

(1) the findings of ail audits and reviews are promptly evaluated, (2) decisions are made 

about the appropnate response to these findings, and (3) actions are taken to correct or 

resotve the Issues promptly These are all aspects of Internal controL which is the 

component of an organization's management that provides reasonable assurance that the 

organization achieves effective and effiCient operations, reHable finanCial reporting, and 

compliance with applicable laws and regulatIOns Interna! control standards provIde a 

framework for IdentifYing and addressing major performance challenges and areas at 

greatest risk for mismanagement GAO, Internal Control Standards: Internal Control 

Management and Evaluation Tool, GAO"01-1008G (Washington, D.C August 2001) 

36GAO, Medrcare Recovery Audit Contracting: Weaknesses Remain in Addressing 

Vufnerabllitles to Improper Payments. Although fmprovements Made to Contractor 

Oversight, GAO-10-143 (Washington, 0 C. Mar. 31, 2010). 

37GAO-10_143 

Page 16 
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80217.035

Concluding 

Observations 

by other contractors were resolved. 38 CMS had not resolved or taken 

significant action to resolve 38 of 44 vulnerabilities (86 percent) reported 

in 2009 by ZPICs. Only 1 vulnerability had been fully resolved by January 

2011.39 The 01 G made several recommendations, including that CMS 

have written procedures and time frames to assure that vulnerabilities 

were resolved, CMS has indicated that it is now tracking vulnerabilities 

identified from several types of contractors through a single vulnerability 

tracking process. We are currently examining aspects of CMS's 

vulnerability tracking process and will be reporting on it soon. 

Although CMS has taken some important steps to identify and prevent 

fraud, including implementing provisions in PPACA and the Small 

Business Jobs Act, more remains to be done to prevent making 

erroneous Medicare payments due to fraud. In p;;rticular, we have found 

CMS could do more to strengthen provider enrollment screening to avoid 

enrolling those intent on committing fraud, improve pre- and postpayment claims review to identify and respond to patterns of suspicious 

billing activity more effectively, and identify and address vulnerabilities to 

reduce the ease with which fraudulent entities can obtain improper 

payments. It is critical that CMS implement and make full use of new 

authorities granted by recent legislation, as well as incorporate 

recommendations made by us, as well as the OIG in these areas. Moving 

from responding once fraud has already occurred to preventing it from 

occurring in the first place is key to ensuring that federal funds are used 

efficiently and for their intended purposes. 

As all of these new authorities and requirements become part of 

Medicare's operations, additional evaluation and oversight will be 

necessary to determine whether they are implemented as required and 

have the desired effect. We have several studies underway that assess 

efforts to fight fraud in Medicare and that should continue to help CMS 

refine and improve its fraud detection and prevention efforts. Notably, we 

are assessing the effectiveness of different types of pre-payment edits in 

38HHS·01G, Addressmg VufnerabfJities Reported by Medicare Benefit Integrity 

Contractors, OEI-03·10·00500 (December 2011) 

390lG also found that eMS had not resolved or taken significant action to resolve 10 of 18 

vulnerabilities (56 percent) reported In 2009 by Medicare Prescription Drug Integrity 

Contractors (MEDICs)-program integrity contractors for Medicare Parts C and D Only 1 

of those 18 vulnerabilities had been fully resolved by January 2011 

Page 17 GAO-12-80n Medicare Fraud 
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80217.036

Medicare and of CMS's oversight of its contractors in implementing those 

edits to help ensure that Medicare pays claims correctly the first time. We 

are also examining the use of predictive analytics by CMS and the ZPICs 

to improve fraud prevention and detection. ZPICs play an important role 

in detecting and investigating fraud and identifying vulnerabilities, and 

FPS will likely play an increasing role in how ZPICs conduct their work. 

Additionally, we have work under way to identify the types of providers 

and suppliers currently under investigation and those that have been 

found to have engaged in fraudulent activities. These studies may enable 

us to point out additional actions for CMS that could help the agency 

more systematically reduce fraud in the Medicare program. 

Due to the amount of program funding at risk, fraud will remain a 

continuing threat to Medicare, so continuing vigilance to reduce 

vulnerabilities will be necessary. Individuals who want to defraud 

Medicare will continue to develop new approaches to try to circumvent 

CMS's safeguards and investigative and enforcement efforts. Although 

targeting certain types of providers that the agency has identified as high 

risk may be useful, it may allow other types of providers committing fraud 

to go unnoticed. We will continue to assess efforts to fight fraud and 

provide recommendations to CMS, as appropriate, that we believe will 

assist the agency and its contractors in this important task. We urge CMS 

to continue its efforts as well. 

Mr. Chairman, this concludes my prepared statement. I would be happy 

to answer any questions you or other members of the committee may 

have. 

For further information about this statement, please contact Kathleen M. 

King at (202) 512-7114 or kingk@gao.gov. Contact pOints for our Offices 

of Congressional Relations and Public Affairs may be found on the last 

page of this statement. Thomas Walke, Assistant Director; Michael 

Erhardt; Eden Savino; and Jennifer Whitworth were key contributors to 

this statement. 

Page 18 GAO·12~801T Medicare Fraud 
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80217.037

Related GAO Products 

Medicare Program Integrity: CMS Continues Efforts to Strengthen the 

Screening of Providers and Suppliers. GAO-12-351. Washington, D.C .. 

April 24. 2012. 

Improper Payments: Remaining Challenges and Strategies for 

Governmentwide Reduction Efforts. GAO-12-573T. Washington, D.C.: 

March 28, 2012. 

2012 Annual Report: Opportunities to Reduce Duplication. Overlap 

and Fragmentation, Achieve Savings, and Enhance Revenue. 

GAO-12-342SP. Washington, D.C.: February 28,2012. 

Fraud Detection Systems: Centers for Medicare and Medicaid Services 

Needs to Expand Efforts to Support Program Integrity Initiatives. 

GAO-12-292T. Washington. D.C.: December 7.2011. 

Medicare Part D: Instances of Questionable Access to Prescription 

Drugs. GAO-12-1 04T. Washington, D.C.: October 4, 2011. 

Medicare Part D: Instances of Questionable Access to Prescription 

Drugs. GAO-11-699. Washington, D.C.: September 6, 2011. 

Medicare Integrity Program: CMS Used Increased Funding for New 

Activities but Could Improve Measurement of Program Effectiveness. 

GAO-11-592. Washington, D.C .. July 29.2011 

Improper Payments: Reported Medicare Estimates and Key Remediation 

Strategies. GAO-11-842T. Washington, D.C.: July 28,2011 

Fraud Detection Systems: Additional Actions Needed to Support 

Program Integrity Efforts at Centers for Medicare and Medicaid Services. 

GAO-11-822T. Washington, D.C.: July 12, 2011. 

Fraud Detection Systems: Centers for Medicare and Medicaid Services 

Needs to Ensure More Widespread Use. GAO-11-47S. Washington. D.C.: 

June 30. 2011. 

Medicare and Medicaid FraUd, Waste, and Abuse: Effective 

Implementation of Recent Laws and Agency Actions Could Help Reduce 

Improper Payments. GAO-11-409T. Washington, D.C.: March 9, 2011. 

Page 19 GAO-12-801T Medicare Fraud 
50 


80217.038

Related GAO Products 

Medicare: Program Remains at High Risk Because of Continuing 

Management Challenges. GAO-11-430T. Washington, D.C.: 

March 2, 2011. 

High-Risk Series: An Update. GAO-11-278. Washington, D.C.: 

February 2011. 

Medicare Part D' CMS Conducted Fraud and Abuse Compliance Plan 

Audits, but All Audit Findings Are Nol Yet Available. GAO-11-269R. 

Washington, D.C.: February 18, 2011. 

Medicare Fraud. Waste, and Abuse: Challenges and Strategies for 

Preventing Improper Payments. GAO-l0-844T. Washington, D.C .. 

June 15, 2010. 

Medicare Recovery Audit Contracting: Weaknesses Remain in 

Addressing Vulnerabilities to Improper Payments, Although 

Improvements Made to Contractor Oversight. GAO-10-143. 

Washington, D.c.: March 31, 2010. 

Medicare Part D: CMS Oversight of Part D Sponsors' Fraud and Abuse 

Programs Has Been Limited, but CMS Plans Oversight Expansion. 

GAO-10-481T. Washington, D.C.: March 3. 2010. 

Medicare: CMS Working to Address Problems from Round 1 of the 

Durable Medical Equipment Competitive Bidding Program. GAO-l0-27. 

Washington. D.C .. November 6. 2009. 

Improper Payments: Progress Made but Challenges Remain in 

Estimating and Reducing Improper Payments. GAO-09-628T. 

Washington. D.C.: April 22, 2009. 

Medicare: Improvements Needed to Address Improper Payments in 

Home Health. GAO-09-185. Washington, D.C.: February 27.2009. 

Medicare Part D: Some Plan Sponsors Have Not Completely 

Implemented Fraud and Abuse Programs. and CMS Oversight Has Been 

Limited. GAO-08-760. Washington. D.C.: July 21, 2008. 

Medicare: Covert Testing Exposes Weaknesses in the Durable Medical 

Equipment Supplier Screening Process. GAO-08-955. Washington. D.C.: 

July 3, 2008. 

Page 20 GAO·12·80n Medicare Fraud 
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80217.039

(291056) 

Related GAO Products 

Medicare: Thousands of Medicare Providers Abuse the Federal Tax 

System. GAO-OS-61S. Washington, D.C.: June 13, 2008. 

Medicare: Competitive Bidding for Medical Equipment and Supplies 

Could Reduce Program Payments, but Adequate Oversight Is Critical. 

GAO-08-767T. Washington, D.C.: May 6,2008. 

Improper Payments: Status of Agencies' Efforts to Address Improper 

Payment and Recovery Auditing Requirements. GAO-08-438T. 

Washington, D.C.: January 31,2008. 

Improper Payments: Federal Executive Branch Agencies' Fiscal 

Year 2007 Improper Payment Estimate Reporting. GAO-OB-377R. 

Washington, D.C.: January 23, 2008. 

Medicare: Improvements Needed to Address Improper Payments 

for Medical Equipment and Supplies. GAO-07-59. Washington, D.C.: 

January 31,2007. 

Medicare: More Effective Screening and Stronger Enrollment 

Standards Needed for Medical Equipment Suppliers. GAO-05-656. 

Washington, D.C.: September 22,2005. 

Medicare: CMS's Program Safeguards Did Not Deter Growth in Spending 

for Power Wheelchairs. GAO-05-43. Washington, D.C.: November 17, 

2004. 

Medicare: CMS Did Not Control Rising Power Wheelchair Spending. 

GAO-04-716T. Washington, D.C .. April 28, 2004. 

Page 21 GAO·12·801T Medicare Fraud 
52 

Mr. STEARNS. Thank you, Ms. King. 

Mr. Doolittle, welcome for your opening statement. 

STATEMENT OF TED DOOLITTLE 

Mr. DOOLITTLE. Thank you, sir. My name is Ted Doolittle. I am 

the Deputy Director of the Center for Program Integrity within 

CMS. 

Chairman Stearns, Ranking Member DeGette, before I give my 

statement, I wanted to personally apologize for the compilation 

mistakes in the information that CMS first provided in response to 

Chairman Upton’s recent oversight request. One of our greatest 

priorities is to always provide accurate information to Congress, 

and as a former Federal prosecutor I recognize the importance of 

having accurate data on which to base important public decisions. 

So I am very chagrined by that occurrence. I am sorry we didn’t 

live up to that standard in response to your recent data request. 

I want you to know that we do take this problem very seriously. 

I have already asked my staff to investigate what happened and to 

determine how we can prevent problems like this in the future. 

Chairman Stearns, I would like to, I hope that today I can show 

to you that we are indeed not complacent about oversight. We welcome it. And I also at least hope to convince you that I am awake. 

I am not just awake, I am excited about trying to discharge the responsibilities that Congress has given to us in this tough fight 

against health care fraud. 

So I want you to know that we welcome your oversight, we welcome the oversight also of the GAO and the OIG. And frankly, I 

hope that this exchange that we are going to have today is the first 

step in a renewed partnership and perhaps a series of oversight 

events. 

I wanted to make sure the data we gave you was clean so that 

you can perhaps be able to look at it in the future and be able to 

compare with a good baseline. So we are changing a lot of our operations and the way we compile data is one of the changes that we 

are making and I hope to improve. 

So I came here today to speak about CMS’s program integrity efforts and how they are moving away from pay and chase and toward fraud prevention through two new automatic systems: one 

called the Automated Provider Screening system, which I will be 

referring to as APS, and one called the Fraud Prevention System, 

which I will call FPS. 

The Automated Provider Screening system is a first line of defense in protecting us against fraudsters and ineligible providers 

who would do harm to the program if they got in. It enables us, 

for the first time, to very rapidly conduct routine and automated 

screen checks against thousands of private and public databases to 

more efficiently identify and remove ineligible providers and suppliers. 

The Fraud Prevention System, for its part, is a historic development and it is a way to apply advance analytics against Medicare 

fee-for-service claims on a streaming and national basis. We hope 

in the future to expand that to include Part C, D, and Medicaid. 

That is a very long-term goal, of course. 

53 

These new systems are key to our twin pillars strategy, which is 

a key to making real improvements to Medicare’s program integrity 

efforts as we try to focus on prevention and detection and move 

away from pay and chase. 

As OIG’s data has shown, our Medicare administrative contractors who screen and enroll providers and process 4–1/2 million 

claims each day are not able to always collect the overpayments 

that our anti-fraud contractors, the ZPICs, identify. The reason for 

that is simple. The mission of the ZPICs is to find fraudsters. 

When we find fraudsters, when they learn that we are on to them 

they can abscond with the money. That makes it very difficult to 

get the money back. 

The point of the ZPICs is while we don’t want to back away from 

the overpayments and we do recover up to 10 percent of that—and 

that is real money—if you are looking for cash back into the program, you have to look to other of our contractors such as the 

RACs. It is just difficult to get money out of a fraudster in any 

arena, be it public or private. 

So because of the challenges with the outdated ‘‘pay and chase’’ 

approach, we are moving towards focus on prevention, as I mentioned, to keep bad actors out of our program, to kick them out 

when we find them, and to use our array of administrative tools 

to stop payment when we suspect fraud. Overpayments are only 

part of the Medicare program integrity story, and we are moving 

toward a more comprehensive and sophisticated view of how we 

should view these improvements and the difficulties in our performance and in our contractors’ performance. 

I assure you, members of the panel, that we are currently developing metrics to measure not just the Fraud Prevention System but 

our entire operation, and with respect to the Fraud Prevention System you should be on the lookout for our report on the first year 

and that is due to Congress on September 30th, and you will find 

there I hope a really thought provoking first attempt, first cut at 

trying to move to a true metrics around prevention and detection. 

The Fraud Prevention System is providing, today, CMS with a 

national view. It gives us the opportunity to divide the work up 

amongst the ZPICs. They formerly didn’t know what the other 

might be working on; the right hand didn’t necessarily know and 

now we do because of this new system. It will be much more easy 

for us to see whether a ZPIC has referred an investigation to law 

enforcement or has requested a payment suspension. 

We are currently working around a lot of metrics, as I mentioned, but we are working specifically to develop weekly reports 

based on the information in the FPS that we can share with the 

ZPICs and our law enforcement partners so that we can summarize 

all the investigative activity around the country. 

CMS is now at a major and very exciting, in my view, transitional period for program integrity. It is not without its bumps 

along the way, and in terms of bumps I certainly apologize for the 

data errors in the oversight request and, again, I am working to 

make sure that doesn’t happen again. I want to stress that the 

changes that are being put into place now are going to modernize 

and simplify our current data systems so that problems like this 

54 

can be avoided and so our program integrity strategy overall will 

improve. 

Thank you so much for your attention and, again, I do hope that 

we can continue this dialogue. 

[The prepared statement of Mr. Doolittle follows:] 

55 


80217.040

CENTERS FOR MEIHCARE & 

ON 

JUNE 8, 2012 
56 


80217.041

U.S. House Committee on Energy & Commerce 

Subcommittee on Oversight & Investigations 

Medicare Contractors' Efforts to Fight Fraud: Moving Beyond "Pay and Chase" 

June 8, 2012 

Chairman Stearns, Ranking Member DeGette, and Members of the Subcommittee. thank you for 

the invitation to discuss the Centers for Medicare & Medicaid Services' (CMS) program 

integrity efforts and its management of its contractors for the Medicare program. The 

Administration has made important strides in reducing fraud, waste. and improper payments 

across the government. Over the last two years, CMS has implemented powerful new anti-fraud 

tools provided by Congress, as well as designed and implemented large-scale, innovative 

improvements to Ollr Medicare program integrity strategy to shift beyond a "pay and chase" 

approach to preventing fraud. CMS' antifraud contractors arc integral to our efforts to fight 

fmud and reduce improper payments. 

CMS Fec-for-Service Antifraud Contractors 

CMS' mission is to ensure health care security for all Medicare, Medicaid. and Children's Health 

Insmance Program (CHIP) beneficiaries. A major component in achieving this mission is the 

successful administration of Original Medicare, commonly known as fee-for-service (FFS) 

Medicare. The Medicare FrS program represents the majority of Medicare spending, with 

hospital and other institutional services representing the largest spending outlays. 

eMS uses a variety of different contractors to administer and oversee the Medicare fee-forservice program. Each of these contractors has different roles and responsibilities. Some 

contractors specifically assist CMS in combating fraud and identifying improper payments, while 

others assist CMS' fraud fighting efforts as part of their broader responsibilities as fee-forservice contractors who process claims and recover overpayments. The antifraud contractors do 

not perlaI'm any inherently governmental functions. Their actions arc performed consistent with 

detailed standards and guidance provided by the agency to perform an administrative function in 

support of the agency's mission. 
57 


80217.042

The CMS' Office of Acquisition and Grants Management (OAGM) procures these contracts and 

the contracts arc subject to federal contracting laws and regulations. Once any procurement is 

finalized. contractor management is handled by the CMS component with primary responsibility 

based on the contractor's core functions. CMS' program integrity strategy is moving away from 

pay and chase toward a more effective strategy that identifies fraud before payments are made, 

keeps bad providers and suppliers out of Medicare in the first place, quickly removes 

wrongdoers from the program once they are detected, and recovers improper payments as early 

and swiftly as possible. This approach builds upon CMS' use of Medicare Administrative 

Contractors, Zone Program Integrity Contractors, and Recovery Audit Contractors. A 

description of each of these contractors is below: 

Medicare Administrative Contractors (MAC~) 

MACs are the central point of contact for providers within the national fee-for-service program. 

CMS' Center for Medicare directly oversees MACs. MACs are the entities responsible tor 

provider and supplier screening and enrollment. and they process approximately 19,000 provider 

and supplier enrollment applications per month to determine whether these entities meet the 

requirements to receive billing privileges. MACs also audit the hospital cost reports upon which 

CMS bases Medicare reimbursements to hospitals. CMS directs the MACs to revoke provider 

and supplier billing privileges when CMS, the ZP1Cs, or MAC data shows it as appropriate. In 

CY 20 I I. as CMS took steps to reduce vulnerabilities in the Medicare program, CMS revoked 

the billing privileges of4.850 providers and suppliers, and deactivated 56.733 billing numbers. 

The MACs process, approve, and deny enrollment applications according to the enrollment 

standards established by CMS. MACs process 4.5 million claims each day, totaling 

approximately 1.2 billion claims in fiscal year (FY) 2011, and handle the first level of a 

provider's claim appeal. They implement all Medicare payment system changes, and conduct 

regular training and outreach to providers to educate them on proper claims coding and new 

Medicare payment policies. While MACs focus on claims processing and enrollment activities 

generally. they also play important roles in CMS' anti-fraud efforts. For instance, MACs put 

automated edits in place to identify and address claim coding errors, mutually exclusive claims, 

01' medically unlikely claims. MACs regularly analyze claims data received to identify providers 

2 
58 


80217.043

and suppliers with patterns of errors or unusually high volumes of particular claims types, and to 

develop additional prepayment edits. MACs coordinate the timing and implementation of these 

edits with other contractors. When MACs do identity potential fraud, they send the leads to the 

antiCraud contractors to investigate further. 

Zone Program Integrity Contractors (ZPICs) 

eMS has nearly completed the process of transitioning II'om Program Safeguard Contractors 

(J'SCs) to Zone Program Integrity Contractors (ZP1Cs). eMS created seven program integrity 

zones to align with the MAC jurisdictions. The ZPICs focus exclusively on a wide range of 

program integrity issues and projects. Six of the seven ZPICs have been awarded. The ZPICs 

and remaining PSC perform program integrity functions in these zones. The Center for Program 

Integrity within CMS directly manages the ZPICs. The ZPICs' main responsibilities are to: 

Develop investigative leads generated by the new Fraud Prevention System (FPS) and a 

variety of other sources; 

• Perform data analysis to identify cases of suspected fraud, waste, and abuse; 

Make recommendations to CMS for appropriate administrative actions to protect 

Medicare Trust Fund dollars; 

Make referrals to law enforcement for potential prosecution; 

• Provide support for ongoing investigations; 

• Provide feedback and support to CMS to improve the FPS; and 

• Identify improper payments to be recovered. 

Unlike the MACs, the ZPICs' activities are dedicated exclusively to the prevention, detection, 

and recovery of potential fmud, waste, or abuse. The ZPICs coordinate with the MACs to 

implement administrative actions, including claim edits, payment suspensions, and revocations. 

ZPICs also refer overpayments to the MACs Il)r collection. During 20 II, eMS saved $208 

l11illion by denying claims through pre-payment edits that ZPICs recommended to automatically 

stop improper claims before they are paid. ZPIC-recoml11ended payment suspensions led to over 

$27 million in recoveries against providers with overpayment demands. 

3 
59 


80217.044

Recovery Audit Contractors (RACs) 

Ri\Cs' primary responsibilities are to identify a wide range of improper payments - including, 

but not limited to fraud - and to make recommendations to CMS about how to reduce improper 

payments in the Medicare program, In the fee-for-service Medicare program, RACs have 

identified several vulnerabilities where CMS has implemented corrective actions to prevent 

future improper payments. For example, CMS' contractors have implemented edits to stop the 

payment of claims provided after a beneticiary's date of death, stop the payment of durable 

medical equipment claims while the beneticiary is receiving care in an inpatient setting, and stop 

the payment for individual services that should have been bundled into another payment. If 

RACs identify or uncover potential fraud, they arc required to report it directly to CMS, and to 

refrain from reviewing claims that arc subject to an ongoing fraud investigation. In FY 2011, 

Medicare fee-for-scrvice RACs collected nearly $797 million in overpayments. and already in 

the first half of FY 2012. Medicare fee-for-service RACs collected nearly $1 billion in 

overpayments. 

Figure I below shows how CMS and its contractors communicate with each other during three 

key points within the Medicare fee-for-service process. 

eMS Fee-far-Service Antifraud Contractors 

4 
60 


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Moving Beyond Pay and Chase: The Twin Pillar Strategy 

CMS has recently implemented a twin pillar approach for advancing our fraud prevention 

strategy in Medicare. The first pillar is the new Fraud Prevention System (FPS) that applies 

pl'edictive analytic technology on claims prior to payment to identify aberrant and suspicious 

billing patterns. The second pillar is the Automated Provider Screening (APS) system that is 

identifying ineligible providers and suppliers prior to enrollment or revalidation. Together. these 

two innovative, comprehensive new systems (the FPS and APS) are growing in their capacity to 

protect patients and taxpayers from those intent on defrauding our programs. These pillars 

represent an integrated approach to program integrity - preventing fraud before payments are 

made, keeping bad providers and suppliers out of Medicare in the first place, and quickly 

removing wrongdoers from the program once they are detected. The twin pillar approach builds 

Oil CMS' usc of the MACs, ZPICs, and RACs. and over time will leverage these contractor 

resources to more efficiently and effectively combat fraud, waste, and abuse and reduce 

improper payments. 

Tlte First Pillar: The Fraud Prevention System 

CMS is committed to the goal of detecting potential fraud before suspect claims are paid. The 

FPS is the predictive analytic technology required under the Small Business Jobs Act. Since 

June 30, 20 II. the FPS has been running predictive algorithms and other sophisticated analytics 

nationwide against all Medicare fec-for-service and Durable Medical Equipment, Prosthetics, 

Orthotics, and Supplies (DMEPOS) claims prior to payment and identifying automated claims 

edits that the MACs have then implemented. eMS is well ahead of the statutory implementation 

schedule. which called for phasing in the technology in the 10 highest fraud States in the 

Medicare fee-for-service program by July I, 201 I. Nationwide implementation of the 

technology maximizes the benefits of the FPS and permits CMS to efficiently integrate the 

technology into the Medicare fee-for-service program and train our anti-fraud contractors. 

For the first time in the history of the program. CMS is using a system to apply advanced 

analytics against Medicare fee-for-service claims on a streaming. national basis. This system has 

enabled CMS to identify schemes operating across Medicare Parts A and B claims and across the 

country. The FPS aggregates Parts A and B claims in near-real time, and this comprehensive 
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view of claims is revolutionizing our program integrity work. For example, ZPIC investigators 

formerly had to check multiple systems to determine whether a beneficiary ever visited the 

doctor who billed Medicare for services and supplies. The FPS has consolidated the dispersed 

pieces of potentially-related claims data - beneficiary visits with a doctor or orders for DMEPOS 

billed under Part B. and hospital and other provider services billed under Part J\ enabling CMS 

and the ZPICs to automatically see the full picture. Equally important, the FPS organizes the 

data to quickly show when two providers or suppliers on opposite ends of the country are billing 

Medicare on behalf of the same beneficiary. rooting out potential compromised beneficiary 

numbers and other fraudulent activity. 

Importantly, the FPS is a resource management tool; the system automatically sets priorities for 

our program integrity contractors' workload to target investigative resources to suspect claims 

and providers. and swiftly impose administrative action when warranted. The system generates 

alerts in order of priority, allowing program integrity analysts to further investigate the most 

egregious, suspect, or aberrant activity. CMS and our antifraud contractors use the FPS to stop, 

prevent, and identify improper payments using a variety of administrative tools and actions, 

including claim denials, payment suspensions. revocation of Medicare billing privileges, and 

referrals to law enforcement. The FPS is also strengthening CMS' ability to manage the ZPICs, 

for instance by permitting CMS to better observe and understand differences in how various 

ZPICs are managing similar issues. 

In the first ten months of implementation of the FPS, the new preventive system resulted in: 

Leads for 591 new investigations 

• Supporting information for 419 pre-existing investigations 

• Leads for 550 direct interviews with providers and suppliers suspected of participating in 

fraudulent activity 

Leads for over 1,541 interviews with beneficiaries to confirm whether they received 

services 1'01' ",hich the Medicare program had been billed. 

The FPS may be compared to similar. more well-known predictive modeling technologies, such 

as the algorithms employed in the credit card industry to generate interviews of cardholders 

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when suspcct items arc charged. Indeed the FI'S mctrics related to provider. supplier. and 

beneficiary interviews are particularly encouraging and exciting because they show that CMS 

has turned Congress' vision of bringing this proactive strategy to bear on a large scale in the 

Medicare arena into reality. 

The Second Pillar: Enhanced Provider Enrollment and Automated Provider Screening 

CMS must go beyond pay and chase to stop criminals whose intent is to enroll in Medicare. 

quickly submit a high dollar valuc of claims, and then close up shop once they have been paid. 

To prevent this from occurring, CMS has been working to strengthen upfront protections to keep 

bad actors out, as provider enrollment is the gateway to the Medicare program. This approach is 

more effective than one based solely on recovering overpayments because it is extremely 

difficult to recover overpayments from fraudulent providers and suppliers, whose goal is not to 

provide quality care to our beneficiaries. but ruther to defraud taxpayers and CMS. Strengthened 

provider enrollment standards also protect beneficiaries from fraudulent providers who may 

provide inappropriate or low-quality care. 

In September 2011. CMS began an ambitious project to revalidate the enrollment of all existing 

1.5 million Medicare suppliers and providers by 2015 under the new Affordable Care Act 

screening requirements. The new requiremcnts directed thc Secretary to establish different 

levels of screening for categories of providers and suppliers based on risk. The three risk levels 

that have been established limited, moderate, and high - correspond to increasing levels of 

scrutiny. Providers and suppliers in the moderate and high screening levels are subject to 

announced or unannounced site visits prior to either initial enrollment or revalidation. CMS has 

estimated that approximately 50,000 additional site visits will be conducted between March 2011 

and March 2015 to ensure providers and suppliers are operational and meet certain enrollment 

requirements. Providers and suppliers in the high level of screening will be subject to new 

fingerprint-based criminal history checks ailer CMS awards a contract with an FBI-approved 

company in early 2013. 

To complement the new screening requirements, CMS launched the Automated Provider 

Screening (APS) system on December 31. 2011. The MACs have historically relied on paper 

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applications and crosschecking information manually against various databases to verify 

enrollment requirements such as licensure status. The APS conducts routine and automated 

screening checks of providers and suppliers against thousands of private and public databases to 

more eCficiently identify and remove ineligible providers and suppliers from Medicare. CMS 

anticipates that the new process will decrease the application processing time for providers and 

suppliers. while enabling CMS to continuously monitor changes that may affect the accuracy of 

its enrollment data even after providers and suppliers are enrolled or revalidated, and to assess 

applicants' risk to the program using standard analyses of pmvider and supplier data. 

Since March 25, 20 II, CMS has enmlled or revalidated enrollment information for 

approximately 275,439 Medicare pmviders and suppliers under the enhanced screening 

requirements of the Affordable Care Act. The first phase or revalidation led to 13,066 

deactivations of provider and supplier practice locations for non-response to the revalidation 

requcst. as of March I, 2012. The second phase of revalidation has resulted in the deactivation 

of 6.278 provider and supplier enrollment records for non-rcsponse and 4,319 revocations after it 

was determined the providers and suppliers were not properly licensed in the State in which they 

were enrolled, as of May 1,2012. I 

Provider enrollment safeguards, recently improved by the new APS, are CMS's first line of 

defense against paying fraudulent or improper claims. These improvements are vitally important 

because they enable legitimate providers and suppliers to enroll easily and quickly in the 

Medicare program, while clamping down on bad actors to keep them out of the program. 

Post-Payment Review anil Recovery of Improper Payments 

CMS has an additional opportunity to administratively recover improper payments after payment 

is made, through analysis and investigation conducted by Medicare contractors. 

A ftcr payment is made, CMS and its contractors continue to analyze FPS results and historical 

claims data to identify suspected overpayments and potential fraud. ZPICs may make fraud 

I We note that the first and second phase revalidation results are preliminary results as deactivated providers could 

reactivate over time with updated practice information or after showing evidence ofpropcr licensing. 

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referrals to law enforcement for further investigation, or identify and send potential fraudulent or 

improper payments to MACs to collect, or in some situations, do both. 

In cases of fraud, CMS vigorously pursues post-payment remedies, including overpayment 

recoveries, in close collaboration with our law enforcement colleagues. In conjunction with 

CMS' antifraud efforts, our law enforcement pal1ners have recovered $4.1 billion in FY 2011. 

including $2.5 billion to the Medicare Trust Fund. Our recovery efforts have been strengthened 

by collaboration between Department of Health and Human Services (HrIS) and the Department 

of Justice (00.1) on the joint Health Care Fraud Prevention & Enforcement Team (HEAr) which 

combines the agencies' analytic. investigative. and prosecutorial resources in fraud hot spots to 

form Strike Forces. Since 200S. the number of defendants charged with criminal health care 

fraud has increased by more than 75 percent, from 797 in 200S to 1.430 in 20 II. 

For potential overpayment referrals to a MAC. the MAC makes a final determination as to the 

dollar amount to demand for recovery and sends the demand letter to the provider. 

MACs validate ZPIC-recommended potential overpayments against a variety of sources, 

including contractual and regulatory requirements, as well as their review of the claims 

information. The MAC reviews the claims history to determine if there have been other 

adjustments or recovery actions. which could atTect the demanded amount, and if the amounts 

identified were for claims paid within the past Ibur years, the period that is open for collection of 

overpayment unless there is "fraud or similar fault." If there have been other adjustments or 

recovery actions on a claim, then the overpayment amount could be affected because portions of 

the ZPIC-identi tied overpayment may have already been recovered by the other Medicare 

contractors. While providers and suppliers may repay the overpaid amounts directly to a MAC. 

it is more typical for MACs to collect overpayments by adjusting future claims payments, 

making it operationally simple and effective to recoup payment from providers and suppliers that 

are still actively billing. It'a provider or supplier appeals the determination, collection must be 

stayed until completion of the administrative appeals process. The provider or supplier has 120 

days to appeal the overpayment determination. If providers or suppliers are delinquent on the 

repayment of determined overpayments after 6 months, the debt is referred to the Department of 

Treasury Ibr collection. 

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While post-payment reviews may suffice to recover overpayments from legitimate, established 

providers and suppliers, there are significant challenges to recovering overpayments from those 

that are attempting to defraud the Medicare program, ZPICs target their analysis and 

investigative resources exclusively towards identifying possible illegitimate providers and fraud, 

However, MACs sometimes have difficulty recovering the ZPIC-identified overpayments since 

such illegitimate providers tend to close their businesses, liquidate their assets, or leave the 

country as soon as Medicare payments stop or when they receive an overpayment demand letter 

from the MACs, In these situations, the MACs' typical way of collecting overpayments by 

adjusting future claims may not be as effective. since there will be no future claims. Because of 

the nature of fraud and the fact that bad actors often are not operating legitimate. ongoing 

healthcare businesses, CMS' fraud prevention strategy is the key to protecting the Trust Funds 

t"O\11 would-be bad actors. New tools available to CMS. like our twin pillar strategy, prevent 

payment to fraudsters in the first place and provide new ways to keep them from re-enrolling in 

some other guise, while working in conjunction with the aggressive pursuit of overpayment 

recoveries and support of our law enforcement partners in criminal investigations and 

prosecutions. 

RACs conduct post-payment reviews and make recommendations to CMS by identifying 

opportunities for reducing improper payments. Overpayments identified by the Medicare FFS 

RACs are also sent to the MACs for collection. In the past. RAC reviews in Medicare have 

focused on incorrect coding, erroneous billing practices. and billing for the wrong setting of care. 

Unlike other Medicare program integrity contractors, RACs' reviews are more likely to identify 

overpayments from providers who are still enrolled and billing in Medicare. 

The Medicare FFS RAC program has had increasing success since its national implementation in 

October 2009, which has resulted in the recovery of over $1.86 billion in overpayments. Already 

in the first halfofFY 2012. the RACs have collected more overpayments than during all ofFY 

2011. 

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CMS MA and Part D Contractors 

The Medicare Advantage (MA) managed care benefit (Part C) and the prescription drug benefit 

(Part 0) differ significantly from Medicare fee-for-service and, as a result, require different 

approaches and internal controls to measure and address improper payments, Unlike Medicare 

fee-for-service, CMS prospectively pays Medicare Part C and Part D plans a monthly capitated 

payment. Each per-person payment is based on a bid amount, approved by CMS, that renects 

the plan's estimate of average costs to provide benetit coverage to enrollees, CMS adjusts these 

payments to take into account the cost associated with treating individual beneficiaries based on 

health status. This process is called "risk adjustment." CMS is using the Risk Adjustment Data 

Validation (RADV) program to reduce the payment error rate in the MA program and save 

taxpayer money. In addition, Part D payments are also reconciled against expected costs, and 

risk-sharing rules authorized in law are applied to further mitigate plan risk, All MA and Part C 

plans are required to have a compliance program in place, which includes a program to prevent. 

detect, and refer fraud, waste, and abuse. As part of these compliance program efforts, MA and 

Part D plans are also required to apply these policies and procedures to their downstream entities, 

such as their Pharmacy Benefit Manager, network pharmacies, and contracted providers, 

CMS contracts with two private organizations, called Medicare Drug Integrity Contractors 

(MEDICs) for all MA and Part D program integrity work. The national benefit integrity MEDIC 

has the following responsibilities: 

• Managing all incoming complaints about Part C and Part D fraud, waste, and abuse; 

• Using new and innovative techniques to monitor and analyze information to help identify 

potential fraud; 

Working with law enforcement, MA and prescription drug plans, consumer groups, and 

other key partners to protect consumers and enforce MedicUt-e's rules; and Identifying 

program vulnerabilities. 

The outreach and education MEDIC has the following responsibilities: 

Facilitating a quarterly workgroup with key partners; and 

• Providing basic tips for consumers on how to protect themselves from potential scams. 

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The national benefit integrity MEDIC also conducts proactive analyses that result in case 

referrals to law enforcement. For example, the national benefit integrity MEDIC conducts a 

proactive analysis called Miles Too Great. Miles Too Great identifies instances when it is 

unlikely that a beneficiary could fill a prescription in two or more locations that are too far apart. 

This relatively simple calculation may identify drug-seeking beneficiaries, over-prescribers, or 

services not rendered. Another method is to look at pharmacy change of ownership and 

determine if there is a sudden change in billing behavior after the change of ownership. From 

April 20 10 to May 2012, the national benefit integrity MEDIC referred cases associated with 

$169 million in Part 0 payments to law enforcement because of proactive data analysis. 

In FY 20 II, the national benefit integrity MEDIC received approximately 342 actionable 

complaints (within the MEDIC's scope) per month, processed 34 requests for information fl'om 

law enforcement per month, and referred an average of 36 cases per month. The national benefit 

integrity MEDIC was responsible for assisting the HHS Office of Inspector General and DOJ 

(through data analysis and investigative case development) in achieving 4 guilty pleas, 7 arrests, 

and 8 indictments. One case produced a 34-count indictment and included a group of25 

individuals and 26 pharmacies owned by one individual in the Detroit area involving 

approximately $38 million in Medicare funds. 

The outreach and education MEDIC hosts quarterly Part C and Part 0 fraud workgroup meetings 

where attendees share information and data on identified or suspected fraudulent schemes. 

CMS, pharmacy benefit managers, sponsoring organizations, MA plans, as well as local, State, 

and Federal law enforcement ot1lcials attended the workgroups. The Part 0 workgroup recently 

provided a useful forum for discussion of inventory shortages involving Part D claims (for 

example, drugs billed, but not dispensed). 

Looking Forward 

Medicare provides essential health benefits to millions of Americans who depend on the program 

to receive the health care they need. Protecting these benefits relies on coordination and 

communication hetween CMS and the contractors described today, as well as Medicare 

providc('s, beneficiaries, and law enforcement. CMS has demonstrated success in the collection 

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of overpayments using the RACs, and I believe the new innovative, preventive antifraud tools 

will likewise provide increasingly greater program integrity protections to Medicare for a long 

time to come. CMS continues to implement a wide range of improvements aimed at preventing 

payments to bad actors that may not continue in business once their fraudulent activities are 

uncovered. Today, I am happy to say, CMS and our contractors have more tools than ever to 

implement strategic changes in pursuing and detecting fraud, waste, and abuse. I look forward to 

continuing to work with you as we make improvements in protecting the integrity of Federal 

health care programs and safeguarding taxpayer resources. 

13 
69 

Mr. STEARNS. All right, I will start my questions. Mr. Doolittle, 

thank you for your apology. It was a little startling to the staff to 

get information from you folks and then, when we called recently, 

to find out the information we asked for was totally incorrect. Is 

that correct? 

Mr. DOOLITTLE. Yes, sir. 

Mr. STEARNS. OK. And this is a, I would think this is a little embarrassing to you considering you have the necessary people to provide the information, don’t you? 

Mr. DOOLITTLE. Yes, we do, sir. 

Mr. STEARNS. And do you have the necessary equipment, computers and things that you can accurately provide the committee 

the information in the future? 

Mr. DOOLITTLE. Yes, sir. 

Mr. STEARNS. When do you think we can actually get the latest 

and greatest information that is accurate that you feel comfortable 

sending us? 

Mr. DOOLITTLE. We are working, of course, as hard as possible. 

I can’t tell you exactly the date, it’s going to be as soon as possible 

where we update all the detailed sheets behind the summary. 

Mr. STEARNS. Well, since fraud is a major issue for the American 

people and this committee and to find that you don’t have a handle 

on this and that the information you provided, by your own admission, is incorrect, don’t you think that creates a disturbing sense 

of confidence in the committee and the American people to think 

that you in your position cannot even provide information on a consistent basis and yet you are the Deputy Director, Center for Program Integrity, as I understand it, Center for Medicare and Medicaid Services? 

So don’t you think that that leaves us with a sense of incredulity 

and a lack of credibility and integrity on your department? 

Mr. DOOLITTLE. I can’t tell you what sense you are left with, sir, 

but I can tell you that in this instance there was a human error. 

The underlying data was accurate, but two fields that were added 

together shouldn’t have been added together. 

Mr. STEARNS. This is across the board on the data you gave us. 

It’s not just two fields. And it’s also this is not the first time, 

wouldn’t you agree on that? 

Mr. DOOLITTLE. Not the first time for what, sir? 

Mr. STEARNS. Getting information to us that was incorrect. 

Mr. DOOLITTLE. This is the—I am aware of this, we’re working 

to—— 

Mr. STEARNS. You submitted data to us in March of this year 

that were initially inaccurate, isn’t that true? 

Mr. DOOLITTLE. Well, they were actually based on accurate data, 

and they were correct in that sense. The integrity of the data is 

sound. It was a human error—— 

Mr. STEARNS. Back in March. 

Mr. DOOLITTLE. Yes. We have never compiled—— 

Mr. STEARNS. I am just trying to confirm that back in March you 

gave us information that was incorrect. 

Mr. DOOLITTLE. Right. 

Mr. STEARNS. That’s all we need to know. 

Mr. DOOLITTLE. OK. 

70 

Mr. STEARNS. And so you are saying information we recently got 

is incorrect and you are saying that you will get this new information to us, you are not clear when. Yes or no, do you have the correct numbers in front of you? 

Mr. DOOLITTLE. I have what was given to your staff last night. 

Mr. STEARNS. So you haven’t got anything corrected in front of 

you yet. OK. Yes or no, since 2007 has the total number of investigations initiated, have they steadily declined? 

Mr. DOOLITTLE. I wouldn’t say that they have steadily declined. 

I think it has been up and down. 

Mr. STEARNS. So you are saying they have not declined? 

Mr. DOOLITTLE. I would say that if you look across that there has 

been—— 

Mr. STEARNS. Our figures show that they declined. 

Mr. DOOLITTLE. Excuse me? 

Mr. STEARNS. Our figures show that they declined. Is that true? 

Can any one of the panelists confirm that the total number of investigations initiated has steadily declined? Ms. King? 

Ms. KING. Are you speaking about investigations done by the 

ZPICs? 

Mr. STEARNS. Yes. 

Ms. KING. No, I don’t know the answer to that. But I can tell you 

that we are doing work that tracks the number of investigations 

and convictions, both civil and criminal, in 2005 and 2010. 

Mr. STEARNS. Mr. Doolittle, I have something that you have in 

front of you in which you show that the ZPICs workload, 2007, the 

total number of investigations were 8,300, in 2008 it went down to 

7,700; 2009, 6,800; 2010, 5,800; and 2011 about 5,800. So it looks 

to me from the data that you’ve provided in the data you have in 

front of you it declined. Is the data that you provided here incorrect 

too? 

Mr. DOOLITTLE. No. You were right, sir, and if you would like a 

further explanation—— 

Mr. STEARNS. No, that’s all right because you had indicated they 

had not declined but I want to make it clear to you that you are 

incorrect again. 

CMS purports to be shifting its emphasis to prevention based 

upon pro active data analysis. Yes or no, is the total number of investigations initiated as a result of proactive data analysis lower 

than each of the previous 4 years? Yes or no? 

Mr. DOOLITTLE. For the 2011? No—excuse me—let me—— 

Mr. STEARNS. Because when I am looking at the figure that you 

also have—— 

Mr. DOOLITTLE. For ZPICs, yes. For ZPICs, yes. 

Mr. STEARNS. So the answer is yes, they have declined. We have 

established that. 

Mr. Vito, does it surprise you that CMS was unable to provide 

basic contractor performance data to this committee? 

Mr. VITO. I think it’s very difficult—— 

Mr. STEARNS. Just yes or no. Can you pull the mic a little closer? 

We’re not asking how to get to the Moon here. We’re just asking 

a yes or no question here. 

Mr. VITO. Could you repeat the question? 

71 

Mr. STEARNS. Mmh hmm. Does it surprise you that CMS is unable to provide basic contractor performance data to this committee? They are responsible, they are the integrity office, they’ve 

admitted that they have not provided information that’s accurate. 

Does that surprise you? Yes or no? Or is this typical what you expect from CMS? 

Mr. VITO. No. I think it’s—we have been—— 

Mr. STEARNS. We think it is deplorable. What do you feel? 

Mr. VITO. Well, we think that there’s been problems with the 

data, and we have presented that information to you as part of—— 

Mr. STEARNS. But isn’t the fact is that your office has had the 

same issues with CMS providing accurate or uniform data that’s 

hindered your ability in conduct critical oversight? Isn’t that true? 

Mr. VITO. We have identified problems for over 12 years. 

Mr. STEARNS. Sometimes you just have to say yes or no. Just yes 

or no. Isn’t that true? 

Mr. VITO. Yes. 

Mr. STEARNS. Yes. Has CMS adequately addressed these data 

concerns that OIG raised in its November 2011 report titled ‘‘Zone 

Program Integrity Contractors?’’ 

Mr. VITO. I think it would be better to ask them if they’ve resolved them. I am not sure that they—— 

Mr. STEARNS. You don’t know. 

Mr. VITO. Well, we believe that some of them might and some 

of them might not be, so it would be better for you to ask them. 

I think they would have a better answer. 

Mr. STEARNS. All right, my time has expired. The gentlelady 

from Colorado. 

Ms. DEGETTE. Thank you, Mr. Chairman. Well, we’re obviously 

all concerned that we get accurate data. 

And I just want to ask you, Mr. Doolittle, the error in the data 

was a human error in your agency, is that correct? 

Mr. DOOLITTLE. Yes, absolutely, the underlying data were correct. 

Ms. DEGETTE. You discovered that on your own as an agency, is 

that correct? 

Mr. DOOLITTLE. Yes, on Wednesday. 

Ms. DEGETTE. You discovered it on Wednesday when preparing 

for this hearing? 

Mr. DOOLITTLE. Yes, ma’am. 

Ms. DEGETTE. And when you discovered it you informed the staff 

and yesterday you provided the correct information to the committee at 5 o’clock? 

Mr. DOOLITTLE. Yes, ma’am. 

Ms. DEGETTE. Are you aware of any other situations since you’ve 

been there when incorrect data has been provided to this committee or to any other congressional committee? 

Mr. DOOLITTLE. I am not aware of it. 

Ms. DEGETTE. And was this incorrect information provided willfully to try to avoid a thorough investigation to your knowledge? 

Mr. DOOLITTLE. Quite to the contrary. It was a human error. 

Ms. DEGETTE. It was just an accident? 

Mr. DOOLITTLE. It was a human error, yes. 

72 

Ms. DEGETTE. OK. And what steps are you taking to make sure 

these—let’s see. My staff says this accident happened when a 

former employee—so they’re not there any more, right? 

Mr. DOOLITTLE. Yes. 

Ms. DEGETTE. Accidentally added up one wrong cell of the 

spreadsheet while summarizing data. So they added it up wrong, 

right? 

Mr. DOOLITTLE. Right. They added in field B6 instead of field B7. 

Ms. DEGETTE. People need to show up at this committee with accurate information. I understand that you are going to get us even 

more accurate information, right? 

Mr. DOOLITTLE. Yes, ma’am. 

Ms. DEGETTE. And when is that going to happen? 

Mr. DOOLITTLE. As soon as possible. A lot of this information 

does go back to 2007. So it goes to previous contractors. 

Ms. DEGETTE. OK. Well, get it to us as quickly as you can, and 

let’s try not to have this happen again. But what I really want to 

talk about is the fight against Medicare fraud. So let’s talk a little 

bit about that. 

Briefly, Mr. Doolittle, can you tell me what the administration is 

doing that’s different to try to fight Medicare and Medicaid fraud? 

Mr. DOOLITTLE. Yes, ma’am. We’re moving away from pay and 

chase, we’re starting, we have almost a year into our first major 

data analytics program. And we also have instituted Automated 

Provider Screening that allows us to catch the bad guys on the 

front end before they get into the program and monitor them if 

they turn bad while they’re in the program. 

Ms. DEGETTE. So the administration is shifting to try to preventing fraud rather than to catch the evil-doers right? 

Mr. DOOLITTLE. That’s right. 

Ms. DEGETTE. And there is this HEAT program, the health care 

fraud prevention and enforcement team. As I understand it, this 

initiative aims to coordinate strategies to fight fraud among the 

Department of Justice, U.S. Attorney’s Office, CMS and the HHS 

Office of Inspector General, is that right? 

Mr. DOOLITTLE. Yes. I would add FBI. 

Ms. DEGETTE. And FBI. And there’s anti-fraud strike forces in 

seven regions of the country, right? 

Mr. DOOLITTLE. Yes. 

Ms. DEGETTE. So what’s the purpose of the strike forces, and 

have they achieved any results yet? 

Mr. DOOLITTLE. The purpose of the strike force is to try to be 

able to accelerate and compress the time that it takes for criminal 

investigations and to get more throughput through the criminal 

justice system for health care fraud. 

Ms. DEGETTE. OK. Mr. Vito, are you familiar with this HEAT 

program? 

Mr. VITO. Yes, ma’am. 

Ms. DEGETTE. And what’s your opinion of it? 

Mr. VITO. Well, I think they’re doing great things. It’s in nine locations. They have charged more than 1,300 defendants, and with 

over $4 billion—that had billed over $4 billion. It’s a way that the 

OIG uses data to identify the hotspots and then put the resources 

in the hotspot to make things happen. 

73 

Ms. DEGETTE. And the prosecutions are way up too from 797 in 

fiscal year 2008 to almost double, 1,430 in 2011, is that right? 

Mr. VITO. [Nodding.] 

Ms. DEGETTE. So that seems to be a pretty good avenue that we 

could go to try to catch, to catch criminals, right? 

Mr. VITO. Yes. 

Ms. DEGETTE. Now, Ms. King, can you just briefly talk to me 

about some of the Affordable Care Act provisions that are targeted 

to reduce fraud and have they begun to be implemented? 

Ms. KING. Some of the most important provisions I think in the 

Affordable Care Act have to do with enrollment processes because 

it’s important to try and keep out people that you think might be 

wanting to cheat you from entering the program. So there are new 

screening processes at the front end to take a closer look at providers and they are stratified by risk and there’s increased scrutiny 

on providers deemed to be at high risk. And at the moment, those 

providers are home health providers and durable medical equipment providers. 

Ms. DEGETTE. And have those provisions gone into effect? 

Ms. KING. They have gone into effect. 

Ms. DEGETTE. When did they go into effect? 

Ms. KING. Earlier this year, I believe. 

Ms. DEGETTE. Earlier in 2012? 

Ms. KING. Yes. 

Ms. DEGETTE. Have you seen any results from them? 

Ms. KING. We have not. I think it’s too soon to really gauge the 

full effect of this. 

Ms. DEGETTE. When do you think you’ll see results? 

Ms. KING. I would say in about a year we ought to be able to 

tell whether they’re having any effect. 

Ms. DEGETTE. I have just one more question for Mr. Vito. So, 

this is an issue I raised in my opening statement, is if—and Mr. 

Doolittle says they’re trying to prevent fraud rather than catch the 

bad guys after they defraud Medicare. So the question is what kind 

of metrics can we use to see if our efforts at prevention are actually 

working, if we’re spending our money wisely? Because what you 

are going to do is have the number of people who are caught go 

down if you are preventing fraud. 

Mr. VITO. I think there are a number of ways. I think you are 

bringing a very good point. For example, in the program 

vulnerabilities, what you are able to do is you have identified a 

program vulnerability and then you put an edit in place, that edit 

will give you the dollars that they’re saving. So that actually will 

work in one way of making you know exactly how well it’s going. 

In addition to that, there’s other metrics like in south Florida 

they took a lot of action down there, the strike force in the DME 

area, we were told that the dollars that are now being billed in 

DME have dropped substantially. So there are all these good things 

that you can see, and they are difficult to make that comparison. 

The other thing is you’ll never be able to determine the sentinel 

effect, and I think that’s what you are asking about, is what, when 

we go out and we make people realize that we’re doing the job and 

that there’s a chance that they’re going to get caught and if they 

get caught they’re going to have to pay. Those are the things that 

74 

it’s hard to keep an eye, you know, to really determine that level 

of detail. Those are the, I think that’s your point that you are 

bringing forth. 

Ms. DEGETTE. Yes. Thank you. Thank you, Mr. Chairman. 

Mr. STEARNS. I thank the gentlelady. 

I recognize Dr. Burgess for 5 minutes. 

Mr. BURGESS. Mr. Vito, let’s just pick up on that sentinel effect 

for just a moment because that is an extremely important point 

and part of the effectiveness of the sentinel effect is that people 

truly believe that you have a way to watch and are, in fact, watching, there is someone actually at the terminal watching. Because 

I can recall in the late 1990s there was, in the Clinton administration there was a great hue and cry, Janet Reno was really goes to 

clamp down on Medicare fraud and they went all around the country talking about this. But as a provider, I got the sense that it was 

all for show, that these were photo ops and there wasn’t anything 

really different happening. And I don’t know whether that was an 

accurate opinion that I had but certainly it wasn’t unique to me. 

Other people talked about it as well. 

There was a program, and it was a crop insurance program. 

Charlie Stenholm, a Democrat from Texas, had worked with a Dr. 

Bert Little at I think it was Tarleton State University, a small college in west Texas, because Charlie was concerned about the 

amount of crop insurance fraud that he saw. And they worked out 

a computer algorithm, essentially predictive modeling, and they 

talked about it in the community about how this was going to be 

applied. And one of the first things they noticed was the requests 

for crop insurance claims fell. And it was the sentinel effect that 

they were observing. 

So if you guys know that and you know there’s been other experiences in the crop insurance program right next door to your agency, why has it been so difficult for this thought to permeate in to 

the bureaucracy? I appreciate the stuff that’s happening in the Affordable Care Act, I appreciate the enrollment process improvement. I’ve got to tell you I’ve got my doubts there. But why not do 

this years ago if you knew that it worked? 

Mr. VITO. A very good question. I would like to point out to you 

that the work of the OIG has recognized it’s better to prevent fraud 

than actually pay and chase. And if you look at the work that we 

have talked about today, largely it focuses on preventing. 

In addition to that, once it occurs, you have to have swift, you 

know, law enforcement action, and you have to make the prosecutions. And our Office of Investigation is one of the best groups that 

investigate health care fraud. And the people that prosecute it, I 

think we are doing our best now to move where people are starting 

to believe that they are at risk when they take advantage of this 

program. 

We have to do a better job up front. We have to make sure the 

people we’re doing business with are the people that we want to 

do business with, and that’s very important that that happens. And 

then once things are starting, overpayments occur, we have to stay 

on top of that. We can’t allow the overpayments to be billions of 

dollars which we can’t collect. 

75 

Mr. BURGESS. Let me just point out to you what I think is a 

problem, and I hear this all the time. People who make a legitimate coding error, and it is just a error, that is the little low hanging fruit in your system. You can go after those folks and clobber 

them. But that ain’t your problem. Your problem is down in 

McAllen, Texas. I was there 2 years ago after Atul Gawande’s article was published and the doctors down there were feeling significantly put upon and would you come down and hear our story, hear 

our side of the story. And someone just offered to me, and I don’t 

remember exactly the number, but they said we have grown from 

40 home health agencies to 150 in about a year and a half’s time. 

Well, that ought to be a red flag. There’s something going on there. 

Were there all these people that needed home health services that 

were just being ignored previously? Or has somebody found a business model that works for them, and this business model may be 

actually outside the parameters of the law or what is lawfully allowed? And you know rather than going after an individual who 

may have made a coding error and calling them to task, why don’t 

we go after the big stuff? 

Mr. VITO. Again, that is when you, if you are doing proactive 

data analysis, you are going to be able to see that there’s all of a 

sudden this many more home health agencies, there’s this many 

more people getting these services and there’s this many more people billing for it. So then if you were doing that then you could investigate that very—— 

Mr. BURGESS. Why didn’t we? 

Mr. VITO. I don’t know that answer, but I can tell you that we 

have focused, the OIG has focused on the importance of doing 

proactive data analysis to make sure that all this type of action is 

identified. 

Mr. BURGESS. I appreciate what you are doing and I don’t mean 

to be critical, but it just seems to me sometimes we leave, we ignore the biggest problem and go after what’s easy to correct. 

Mr. Doolittle, I just have to ask you, you’d have to be stone deaf 

in this town to not recognize the Supreme Court is considering a 

mighty big case. In a week or 2 or 3 we’re all going to get the result 

of that case and as a result of their opinions, the Affordable Care 

Act possibly could be struck from the books. 

Now, are your efforts at eliminating or reducing fraud and inappropriate payments, are they going to end when the Affordable 

Care Act ends? 

Mr. DOOLITTLE. No, they’re not going to end. We have several 

other bills that we operate under such as the Hicks Act bill. 

Mr. BURGESS. Correct, and it’s not like you weren’t doing anything before the Affordable Care Act was enacted to crack down on 

fraud. After all, Janet Reno came to Dallas, Texas in 1998 or 1999 

and outlined all the things that she was doing to eliminate Medicare fraud. So you’ve been doing stuff all along. It may not have 

been effective but you’ve been doing stuff. 

Mr. DOOLITTLE. That’s right, and we will implement any new 

tools—— 

Mr. BURGESS. Are you making any contingency plans for what 

might happen from an adverse ruling from the Court? 

76 

Mr. DOOLITTLE. Many of our activities, for instance, the FPS, the 

Fraud Prevention System, that is funded under the Small Business 

Jobs Act and authorized under the Small Business Jobs Act, that 

won’t be affected. Many of our activities won’t be affected. 

Mr. BURGESS. Are you making any plans for a contingency if the 

Supreme Court were to remove the Affordable Care Act? 

Mr. DOOLITTLE. We’re confident that the ACA is going to be 

upheld by the Supreme Court and we’re going to move forward—— 

Mr. BURGESS. You are taking the Fifth on this, too. I can’t get 

anybody from your agency. Are you looking at what’s going to happen to you after sequestration kicks in in January? Sequestration 

after all is a law that was signed by the President. You are going 

to be cut 7 to 8 percent across the board in discretionary funding 

at HHS. Are you preparing for that? 

Mr. DOOLITTLE. I have—I am not sure if the agency has been 

preparing for that. I haven’t been party to those conversations. 

Mr. BURGESS. Thank you, Mr. Chairman. 

Ms. DEGETTE. Mr. Chairman, I’d just like just the record to reflect I know that Mr. Burgess was using the phrase ‘‘taking the 

Fifth’’ in a colloquial way, but however the witnesses today are 

under oath, and I just want the record to reflect that none of the 

witnesses has actually exercised their Fifth Amendment right 

against self-incrimination. 

Mr. STEARNS. I thank the gentlelady. 

The gentlelady from Illinois is recognized for 5 minutes. 

Ms. SCHAKOWSKY. Thank you, Mr. Chairman. 

Mr. Chairman, I would like to note that, though you certainly 

we’re all disappointed that there was an error in the data, the 

data—the error was reported by Mr. Doolittle and his office. It’s 

not like there was any effort to cover up that there was a mistake, 

either now or I understand in March that’s true as well, that there 

is concern, maybe more so than we are, that a mistake is made. 

We all look forward to the corrections. 

I just for one want to say, Mr. Doolittle, that I appreciate that 

you did inform the committee and obviously want you to do a quick 

a job to get us the information. But this isn’t something that was 

another example of some sort of deliberate fraud on the part of 

CMS. 

Did you want to comment on that? 

Mr. DOOLITTLE. Certainly it was not, madam. 

Again, let me apologize and let me just state for the record we 

did give you corrected summary information last night. We are 

working to get you the backup for that. 

Ms. SCHAKOWSKY. Thank you. 

Ms. King, let me just apologize to you, in my opening remarks 

I didn’t mention the importance of GAO and the information that 

you provide. 

And I also appreciate the comments that you’ve made about the 

improvements that have been made in our fraud prevention 

through Obamacare, the Affordable Care Act. And it is interesting 

to me that, on the Republican side, concerns seem to be raised on, 

oh, what’s going to happen if Obamacare disappears, since almost 

every week that we’re in session there are efforts to get rid of 

Obamacare. 

77 

Clearly, we would want fraud mechanisms and prevention to go 

forward. This isn’t the first time that Dr. Burgess has raised this. 

He also seemed concerned of what’s going to happen to doctor 

fees if Obamacare goes away. These are things that perhaps before 

asking for its repeal that my Republican colleagues might have 

thought about in addition to the millions of people who have already benefited from the provisions in that legislation. 

I also just wanted to point out that we don’t have to look any 

further than recent headlines to see the priority that the Obama 

administration has placed on fighting fraud and the enhanced tools 

provided to CMS by Obamacare to fight fraud. 

Just yesterday, the Justice Department announced that Orthofix, Inc., a medical device company, agreed to pay $34.2 million to resolve civil claims that the company defrauded the Medicare program when selling bone growth simulator devices. 

Last month was the biggest crackdown on Medicare fraud in his- tory. The Medicare Fraud Strike Force uncovered $452 million 

worth of false billings to Medicare by more than 100 people in 

seven cities, including Chicago, which is my hometown, across the 

country. 

So let me ask you, Mr. Doolittle. Why do we rely on these private 

entities to engage in this and exactly what we’re going to do to 

make sure they are performing? 

And before you do, let me just say that it has also been sort of 

religion on the other side of the aisle that always the private sector 

does better than the public sector. Now they want to move Medicare itself into the private sector through a voucher program and 

the Medicare Advantage program, where I know we’ve found many 

examples of fraud, even though the companies haven’t always 

found the fraud. 

So let me just ask you about these private contractors and how 

we are going to keep them in line. 

Mr. DOOLITTLE. So, first, why we rely on the contractors? This 

was the system that was set up by Congress, and we’re vigorously 

implementing it. 

In terms of oversight of our contractors, we have a vigorous system of oversight for the Zone Program Integrity Contractors. We 

have training rotations every other week where they come into our 

headquarters. Each one of the contractors has at least one full-time 

employee that’s assigned to oversight. We do site visits. We do random pulls of files. We also at the end of the year go through an 

award fee process, go carefully through their performance, and they 

can qualify for some—there’s mostly a cost—fixed-cost contract, but 

there are some awards that they can qualify for. 

So those are some of our oversight tools. 

Ms. SCHAKOWSKY. Thank you very much. 

Mr. STEARNS. The gentlelady yields back. 

The gentleman from Nebraska is recognized for 5 minutes. 

Mr. TERRY. Thank you, Mr. Chairman. 

And, Mr. Doolittle, I don’t think anyone on our side of the aisle 

has accused you of purposefully deceiving us, so I’m a little—I want 

to make sure you didn’t feel that way. We’re being accused of that, 

but I just want to make sure that we knew it was a mistake. There 

was no malfeasance, but it does just show that there’s a level of 

78 

inability to really keep track of the numbers there, and that’s what 

we are trying to fix here. 

Also, one other point goes to my question to you, Mr. Doolittle, 

is perhaps if we had a Medicare fraud reform bill it would have 

been very bipartisan, and truly I think the way that every business 

model is working is to the money ball predictive prevention model. 

If baseball can develop it, CMS can develop it, predictive preventive fraud analysis. 

And the beauty of what makes it best business practice now with 

as predictive as we can make it is that when those anomalies 

occur, like Mr. Burgess brought up where there is a spike in increase of home health care, those things tend to stand out like a 

sore thumb. You then can go back and say, OK, something in our 

predictive analysis is showing an anomaly that we need to investigate here. So in baseball and money ball if that pitcher that you 

thought was going to have so many strikeouts per year and isn’t 

performing, that sounds out in your predictive analysis. 

So I like that you’re going in that direction. 

So let me ask you, you mention that you’ll have kind of the rough 

draft by December 31st or you hope that—is that an accurate statement or regurgitation of your testimony, December 31st? 

Mr. DOOLITTLE. So what I was speaking of on September 30th, 

under the provisions of the Small Business Jobs Act of 2011, we’re 

required to provide Congress with a report on the first year of our 

modeling system. 

Mr. TERRY. So the predictive modeling is already in place now. 

Mr. DOOLITTLE. Right. It started on June 30th of last year. 

Mr. TERRY. OK. 

Mr. DOOLITTLE. We were assigned to start it in 10 States by July 

of last year. Instead, we started it in 50 States, 1 day early. 

Mr. TERRY. So by December 31st we’ll have the first year rough 

analysis of it’s working or not working. 

Mr. DOOLITTLE. Right. And we hope to have some—— 

Mr. TERRY. Who is in charge of developing that model? Is that 

you or some other—I would think there’s probably multiple mathematicians doing this. 

Mr. DOOLITTLE. That facility is contained within my unit, the 

Center for Program Integrity, and contractors that we’re using as 

well. We are working closely with OIG through the whole process 

as well. 

Mr. TERRY. What are some of the—I guess if it is predictive, 

what are you looking at—what area of statistics are you looking at 

from your contractors to be able to determine if there’s anomalies 

that are occurring? 

Mr. DOOLITTLE. So there’s a variety of different types of predictive modeling, and I would be happy to go into this at great 

depth. But the most sophisticated types of predictive modeling 

which we’re starting to do is rare even in private industry, but in 

government we are starting to do it, is where you take attributes 

of known bad guys, you develop what characteristics they might 

have in common, and then you apply it to the raw data set and see 

who fits that model. 

Mr. TERRY. All right. Well, I appreciate that. 

79 

Ms. King, I want to ask a question. Maybe, Mr. Vito, if you can 

help us here. But Mr. Doolittle made a statement that I think is 

fairly correct and may answer why many of us feel like the private 

sector can do things more nimbly, not necessarily better, but 

they’ve adopted more of the predictive analysis, fraud prevention in 

the private sector. So do we have any comparison of the ability of 

government CMS to detect and prevent fraud as compared to the 

private-sector insurance companies? 

Ms. KING. We’re also looking at the Fraud Prevention System 

and the predictive analytics, and we’ll have a report out later this 

fall. And as part of that, we are looking at how does what CMS 

does compare to what’s going on in the private sector. 

Mr. TERRY. Thank you. 

Mr. Vito, do you want add quickly on to—— 

Mr. VITO. I think in general we don’t have the oversight of private. But we do see some of our cases identify problems that are 

occurring in the private sector, and we share with them. 

In addition to that, we have other work where we are going out 

to all the managed care companies and asking if they had identified incidents of fraud, waste, and abuse; and they had. 

In addition to that, we have some new work that will be coming 

out on the MEDICs, and the MEDICs have responsibility for Part 

C, which is the Medicare Advantage, and we will be able to give 

you details on that. 

Mr. STEARNS. Thank the gentleman. 

The gentlelady from Florida, Ms. Castor, is recognized for 5 minutes. 

Ms. CASTOR. Well, thank you, Mr. Chairman, and good morning. 

Mr. Chairman, I would like to thank you for calling this hearing 

on the Obama administration’s efforts to fight fraud in Medicare. 

I think it is very important, and I would like to thank our expert 

panel for being here today. 

From where I sit, I believe the Obama administration has a very 

strong record on rooting out fraud and waste in Medicare. I represent the Tampa Bay area in Florida, and we are one of the seven 

communities across the country—I guess Florida has been a hot 

spot and south Florida but also in the Tampa Bay area. So we have 

one of those strike forces that brings together the United States Attorneys Office, HHS, the Florida Department of Law Enforcement, 

other law enforcement agencies, the Department of Justice. 

And my colleague, Ranking Member DeGette, asked you all have 

you achieved results yet. Well, from what I have seen, you all have 

been very aggressive. We had a major bust last month, arrested a 

pharmacist that has been a real fraudster. You’ve also arrested a 

lot of folks all across the State. That followed on last year another 

huge roundup of people who are bilking Medicare and really putting the trust fund at risk. So my hat’s off to the aggressive stance 

the Obama administration has taken to root out fraud and waste 

in Medicare. 

And I’m very gratified that you all are putting the tools provided 

in the Affordable Care Act to good use. We gave you some additional tools under the Affordable Care Act to be more aggressive, 

and it feels like you’re just getting started, but I think we’re seeing 

significant progress already. 

80 

I think there is one problem area that I think deserves attention 

and should be improved when it comes to the ZPIC and these audits. I’m hearing from a lot of folks all across the State they kind 

of feel like this is the Wild West. Because these auditors come in, 

and there is no real due process, there are no real checks and balances. And I don’t think it’s fair for an auditor to come in, to upset 

their business, to take documents and not have some time frame 

for or even a dialogue. It’s kind of a one-way dialogue, and I think 

these businesses deserve to have some due process. 

Tell me, Mr. Doolittle, who trains the ZPIC staff on Medicare policy? What is their experience auditing claims? Who insures that 

that training is adequate? And what rules govern the ZPIC audit 

procedures? 

Mr. DOOLITTLE. So we within CMS train the ZPICs on a regular 

ongoing basis. As I mentioned before, every other week one of the 

ZPICs is at our headquarters for training. We are constantly going 

out to them to train them on various aspects. 

I believe that the problem that you’re referring to—and I agree 

it is a problem—is probably stemming from what we call prepayment edits, prepayment medical review. That is a tough system. 

Obviously, fraud is a tough problem. It is a tough system. I will say 

that I have started to review our processes on that. We have to 

stay tough, but we have to be fair as well. So we’re trying to take 

a fresh look at that. 

Ms. CASTOR. Are there rules that govern time frames that the 

auditors—so that it is not completely open ended, what are the due 

process rights for some of these visits? 

Mr. DOOLITTLE. So the way the due process works is they are 

able to, after the claim is examined and determined whether it is 

denied or paid, they can appeal a denial. Now they still stay on 

prepay, and that’s the frustrating part for the providers. 

Ms. CASTOR. That is very frustrating. 

Mr. DOOLITTLE. Right. 

Ms. CASTOR. Because it is so open ended. 

Mr. DOOLITTLE. Yes. 

Ms. CASTOR. And I just—and then they are also hiring subcontractors. Do the same rules apply to the subcontractors? Are 

these subcontractors approved by CMS? We’ve had cases where 

they’ve had to give files to the subcontractors, and it is months and 

months and months and months before they hear anything from an 

auditor or CMS. 

Mr. DOOLITTLE. If the ZPICs were to use subcontractors, they 

would have to be approved by our office, yes. 

Ms. CASTOR. OK. I’m going to submit some other questions for 

the record from CMS on the ZPICs. Because when people are calling it the Wild West and you’re subjecting—I know you’re going to 

catch some fraudsters, but you’re subjecting good businesses to a 

process that doesn’t appear to have any end and appears to be unreasonable, I think there is a lot of room for improvement here. 

Mr. DOOLITTLE. I agree with that. 

Can I just say that as we try to be more aggressive we feel that 

one of the down payments we have to put on the table is we have 

to be fair to the vast majority of good and honest providers, and 

we’re trying to work from several angles, including, for instance, 

81 

we recently implemented a new process—totally new process by 

which a provider whose number has been scammed—the provider 

number has been scammed—and they found out that, when they 

received a bill from the IRS for the $2 million of income they never 

received, it is an innocent provider, before they had been left to 

their own devices to try to find a way out of that jam. If we are 

convinced that it is an innocent provider, we now have a systematized process where we are able to go out to help that provider and 

even help them work through their issues with the Department of 

Treasury. 

Ms. CASTOR. Good. I will look forward to the answers to these additional questions. 

I yield back. 

Mr. STEARNS. I thank the gentlelady. 

The gentlelady from Tennessee is recognized. 

Mrs. BLACKBURN. Thank you, Mr. Chairman. 

The bell has rung, and we’re going to have votes, and I know 

that Mr. Griffith has some questions. 

I do have a couple of things I want to ask you. Because being 

from Tennessee and having had TennCare, which I know all three 

of you are familiar with the TennCare program, which is our Medicaid delivery, we have been on the fraud issue for a long time. I 

did the first field hearing on fraud dealing with TennCare and 

Medicaid delivery systems in 2004 and then another one in 2005 

in our district in Tennessee. So I have got a couple of things I want 

to quickly go into, and then Mr. Griffith will be able to get his 

questions in. 

Let’s look first—and, Mr. Doolittle, I guess this probably would 

best come to you. Let me just direct it to you, and then if either 

of you want to add something that would be great. 

DME claims. The DMEPOS claim, the average, is estimated at 

$75 per month, with the low being only a couple of dollars per 

month to a high range of several hundred dollars per month or a 

one-time sale. Yet we are hearing that the ZPIC and the other 

audit process is very paper-intensive. The auditors may send one 

letter per patient claim audited, and it is all in separate envelopes, 

takes a lot of work. So you’ve got thousands of separate mailings, 

et cetera. Private insurers are sending one spreadsheet, and they 

are working from that or they are getting one email. 

So we’ve heard that some of the auditors are asking for the same 

paperwork for the same patients month after month, even though 

the patient is chronically ill. So I would like to know what you 

have in place to look at that high administrative burden and the 

cost of auditing that this is for our providers? And what is the return on investment on what is a very expensive and labor-intensive 

process for these providers? And what can you learn from them and 

incorporate into these Medicare audits? 

Mr. DOOLITTLE. So I certainly appreciate the comment about the 

labor-intensiveness. We are always looking for ways to streamline, 

aggregate. Of course, it is frustrating and aggravating to get 500 

letters. We need to get one letter describing the same—similar situations for 500. 

82 

In terms of DME, we’ve taken a variety of special approaches. As 

you know, it is an area that is of extremely high risk, and we have 

to be as careful as possible. 

There were several provisions in the ACA that have dramatically 

reduced the DME costs, including the face-to-face requirement, a 

requirement that a doctor meet face to face before a DME prescription, as well as a surety bond requirement. So we feel that we have 

opened a dialogue as well with the providers. We feel that we are 

on track to try to rationalize the system while still clamping down 

very hard in what is a very fraud-prevalent area. 

Mrs. BLACKBURN. Well, it is important to us because one of the 

things that we have found through our experience with TennCare 

was that if you’ve got someone that is more prone to fraud you’re 

going to have unnecessary care that is in there, and then it’s going 

to be more difficult on the other end that you’re able to process 

these claims. 

If you simplify your system, if you make it easier for people to 

read through, if you’re getting one email in one spreadsheet instead 

of separate mailings, cleaning the system up, we will have a better 

outcome and a better quality of care. It is all related. We want to 

work with you on this and would love to see a timeline for moving 

some of these forward. 

I am going to yield back my time. 

Mr. STEARNS. The gentleman from West Virginia is recognized. 

Ms. DEGETTE. No, Mr. Dingell is recognized. 

Mr. STEARNS. There is still time. 

Mr. GRIFFITH. If I could take Mrs. Blackburn’s 23 seconds. 

Mr. STEARNS. Yes, go ahead. 

Mr. GRIFFITH. I will just make a quick statement. 

It appears that we are failing in tracking down the fraud we 

should be tracking down. I know everybody’s trying. It is not a 

Democrat problem. It is not a Republican problem. It is the government is failing the people. And this is extremely important to all 

of us on both sides of the aisle. 

And I will tell you quickly that last night at a town hall meeting 

a lady was wondering why her home health was being cut back because she has MS and her mother has diabetes. These are real-life 

problems for folks out there. 

So all I can say to you is get us better numbers and track down 

the bad guys. Because as a team working for the American people 

we have got to stop this fraud. 

Thank you. 

Mr. STEARNS. I thank the gentleman, and the gentleman from 

Michigan is recognized for 5 minutes. 

Mr. DINGELL. Thank you, Mr. Chairman. 

These will be yes-or-no questions to the witnesses. 

As we all know, Medicare fraud is a serious issue, costing us billions of dollars, an unacceptable situation. Because of the deplorable nature of Medicare fraud and abuse, this committee and I 

worked hard to make sure that the Affordable Care Act gave the 

Centers for Medicare & Medicaid Services new tools to fight the 

swindlers who perpetrate these frauds. 

83 

Mr. Doolittle, I want to thank you for being here today, and I 

want you to know we appreciate your hard work in fighting Medicare fraud. 

Now, yes or no, we all agree that CMS must move away from the 

pay-and-chase models to more proactively of mechanisms to catch 

wrongdoers. Since the Affordable Care Act has passed, CMS has 

begun screening providers and suppliers on three risk levels: limited, moderate and high. Will screening based on risk levels help 

CMS to better target their resources to high-risk suppliers and providers? Yes or no. 

Mr. DOOLITTLE. Yes, sir. 

Mr. DINGELL. Now does CMS have the ability to adjust the level 

of risk for screening as needed? For example, if you have a low-risk 

provider and supplier whose billing privileges have been revoked, 

would they be subject to high-level screening? Yes or no. 

Mr. DOOLITTLE. Yes, sir. 

Mr. DINGLE. CMS has begun conducting announced and unannounced site visits of moderate and high-risk providers prior to initial enrollment or revalidation since the Affordable Care Act. How 

many site visits does CMS intend to conduct? 

Mr. DOOLITTLE. Over 50,000 additional site visits over what we 

were doing before. 

Mr. DINGELL. Is that number sufficient? 

Mr. DOOLITTLE. It’s a start. We’ll see how we are at this time 

next year. 

Mr. DINGELL. Do you believe the site visits will better help CMS 

to identify if providers and suppliers are legitimate and meet Medicare standards? Yes or no. 

Mr. DOOLITTLE. Yes, sir. 

Mr. DINGELL. As a part of your screening process, do you now 

have the ability to terminate from Medicare providers that have already been terminated from any Medicaid programs? Yes or no. 

Mr. DOOLITTLE. Yes, sir. 

Mr. DINGELL. The Affordable Care Act provided nearly $500 million in increased funding to help fund efforts like those to fight 

fraud. Does CMS have the resources it needs, financial and personal, to fight fraud in Medicare and Medicaid? Yes or no. 

Mr. DOOLITTLE. Yes, sir. 

Mr. DINGELL. At the beginning of May, the Medicare Fraud 

Strike Force took down 107 individuals for $452 million in false 

Medicare billing. In Detroit alone, 22 defendants were arrested for 

$58 million in Medicare fraud. This involved the highest amount of 

false Medicare billings in a single takedown in your strike force 

history. As a member who has participated in one of these ridealongs of the strike force I know they are working hard to recover 

taxpayers’ dollars. Do you know the Affordable Care Act requires 

CMS to share data with the States, the Department of Justice, and 

the Inspector General, amongst others, to help fraud and abuse? 

Will this authority help the strike force continue their good work? 

Mr. DOOLITTLE. Yes, sir. 

Mr. DINGELL. Would you submit to us any additional authorities 

that you might need in that particular for the record, please? 

Mr. DOOLITTLE. Uh—— 

84 

Mr. DINGELL. Is it fair to say that the Affordable Care Act significantly increases the ability to suspend payments until an investigation is complete so that Medicare does not make overpayments 

or payments for false services? Yes or no. 

Mr. DOOLITTLE. Yes, it is fair. 

Mr. DINGELL. Is this sufficient? Is this authority sufficient? 

Mr. DOOLITTLE. Yes. 

Mr. DINGELL. Now would you agree that because of the Affordable Care Act CMS now has the most tools it has ever had to detect 

and prevent waste, fraud, and abuse? Yes or no. 

Mr. DOOLITTLE. Yes. 

Mr. DINGELL. Would you submit to us, if you please, sir, whether 

additional authority is needed and how your authorities are working and whether new authorities are needed and what they might 

be for the record? 

Mr. DOOLITTLE. Yes, sir. 

[The information follows:] 

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80217.054

ENERGY & COMMERCE COMITTEE 

SUBCOMMITTEE ON OVERSIGHT & INVESTIGATIONS 

HEARING ON 

"Medicare's Contractors' Efforts to Fight Fraud-Moving Beyond Pay & Chase" 

June 8, 2012 

This is the answer for the record to be inserted into the transcript for this hearing: 

Lead-Tn: 

MR.DTNGELL: Do you know the Affordable Care Act requires CMS to share data with the State", the 

Department of Justice, and the Inspector General, amongst others, to help fraud and abuse? Will this 

authority help the strikeforce continue their good work? 

MR. DOOLITTLE: Yes, sir. 

MR.DINGELL: Is itfair to say that the Affordable Care Act significantly increases the ability to 

suspend payments until all investigation is complete so thilt Medicare does not make overpayments or 

paylltelltsfor false services? Yes or 110. 

MR. DOOLITTLE: Yes, ilisfoir. 

MR. DINGELL:Is tltis sufficiel/t? Is this authori~v sufficient? 

,1IIR. DOOLITTLE: Yes, it isfair. 

MR. DINGELL: Now, would YOIl agree thilt beCillise of the Affordable Care Act CMS 1I0W has the most 

tools it fillS ever flad to detect IIl1d preveJtt wilste,frllud, ill/dl/bllse? Yes or 110. 

/lJR. DOOLITTLE: Yes. 

MR. m;-;GELL: Would you submit to us, if you please, sir, whether additional authority is needed 

and how your authorities are working and whether new authorities are needed and what they might 

be for the record? 

INSERT: Page 65 

MHo DOOLITTLE: Yes. sir. Over the last two years, CMS has implemented powerful new anti-fraud 

tools provided by Congress in the Affordable Care Act, as well as designed and implemented large-scale, 

innovative improvements to our Medicare and Medicaid program integrity strategy to shift he yond a "pay 

and chase" approach by focusing new attention on preventing fraud, Simultaneously, CMS is using the 

same innovative tools to further enhance our collaboration with our law enforcement partners in detecting 

and preventing fraud, 

For FY 2013, the President submitted a package oflegislative proposals to build on the Affordable Care 

Act's unprecedented Iraud-Ilghting authorities, These 161cgislative proposals enhance pre-payment 

scrutiny, increase penalties for improper actions. strengthen CMS's ability to implement eoneetive 

actions. and promote integrity in Federal-State financing while saving Medicare, Medicaid, and CHIP 
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$3.6 billion over 10 years. In addition, the President's FY 2013 budgct rcquest includes $1.9 billion for 

the Health Care Fraud and Abuse Control Program (llCFAC) through both mandatory and discretionary 

funding streams. We urge Congrcss to lully fund the HCFAC program. which plays a critical role in the 

traud-tighting efforts ofCMS and our law ent()rcclllcnt partners. 

2 
87 

Mr. DINGELL. Please. 

Mr. Chairman, I thank you, 

Mr. STEARNS. I thank the gentlemen. And he makes a very good 

point. You have all the tools you need as you pointed out. 

By unanimous consent, the documents Ms. DeGette has requested is part of the record. 

Ms. DEGETTE. Mr. Chairman, I didn’t yet request them. 

Statements from the American Medical Association and the 

American Federation of State, County and Municipal Employees. 

Mr. STEARNS. By unanimous consent, so ordered. 

[The information follows:] 

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80217.056

Statement of the 

American Medical Association 

before the 

House Energy & Commerce Committee 

Oversight and Investigations Subcommittee 

RE: Medicare Contractors' Efforts to Fight Fraud: 

Moving Beyond 'Pay and Chase' 

June 8, 2012 

The American Medical Association (AMA) is pleased to provide the Oversight and Investigations 

Subcommittee of the House Energy & Commerce Committee with information regarding 

Medicare fraud prevention and the role of Medicare contractors. 

Physicians are firmly committed to eradicating fraud and abuse from the federal health care 

programs. Monies that inappropriately flow from the federal health care programs divert vital 

resources that should be devoted to patient carc. The AMA has long believed that the most 

efficient way to combat fraud is to employ targeted, streamlined methods offraud identification 

and enforcement, rather than overly burdensome requirel11ents for all physicians, the l11ajority of 

whom strive to comply with the rules and regulations governing participation in the Medicare 

program. 

Physicians are also concerned about efforts to recoup improper payments, which often occur in 

the absence of fraud. Many physicians are unaware when they are incorrectly documenting or 

billing. Others are confused about frequent changes to Medicare payment policy and are 

ovel'Whelmcd by divergent billing requirements and guidance. The AMA believes that 

burdensome audits and paYl11ent reviews are not the most efficient way to reduce the health care 

programs improper payment rate. Rather, education regarding payment and documentation 

policies, with an eye toward statistical outlier billing patterns, is the most efficient way to 

effectively reduce the impropcr paymcnt ratc. 

Combating Fraud 

Predictive modeling and data analytics, ifempJoyed properly, can result in more efficient health 

care fraud identification. Seamless fraud detection methods that move from "pay and chase" to 

idcnti fy aberrant billing patterns and activity can be the way forward from onerous post-payment 

activities, which can be expensive for the federal government and physicians. However, because 

claims coding and documentation implicates complicated clinical issues, such efforts must be 

coupled with physician input and ongoing review. 

Coordination among law enforcement agencies is also an effective tool to prevent fraud. The 

AMA has recently engaged in regional health care fraud summits convened by the Departl11ent of 

Health and Human Services (I-illS) OfJice of Inspector General, the Department of Justice (DOJ), 

CM S. and local law enforcement to collaborate on new methods for fighting fraud. Integral to 
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80217.057

this inter-agency etTof1 is the use of Health Care Fraud Prevention and Fraud Enforcement 

(HEA T) Teams, which have contributed to record recoveries in the past several years. These 

efforts are consistent with AMA objectives to employ focused fraud investigations that are less 

likely to waste taxpayer or physician resources. 

Physician identity theft also poses a threat to the federal health care programs. Earlier this week a 

member of a crime ring that stole physicians' identities to perpetrate a $18.9 million Medicare 

fraud scheme was found guilty. (United States v. Shagoyan, C.D. Cal., No. CR 08-

01084, verdict 6/1112). Physician identities arc vulnerable because physician identifiers are 

publicaJly available, and something as simple as a prescription pad may be enough to engage in 

fraudulent activity. Physician victims ofidenlity theft can face devastating financial liabilities, 

among other problems. In recognition of this issue, CMS recently launched a new program to aid 

physician victims of identity theft in resolving erroneous tlnancial liabilities, an effort that the 

AMA supports. 

Reducing Improper Payments 

Greater physician education and outreach is the tlrst step in reducing the improper payment rate. 

Overall, improper payments are not the result offraud or willful abuse. Instead, 

misunderstanding regarding payment policy or documentation requirements is often at the root of 

improper payments, as these guidelines are ever-changing. While the AMA often serves as an 

educator of the physician community, the partnership of federal regulators is required. To 

effectively reduce the improper payment rate, increased physician education and outreach from 

CMS concerning correct coding and billing requirements is a necessity. 

Part of this education is the employment of physician Contractor Medical Directors (CMDs) to 

facilitate clinical-based discussions and serve as a bridge between physicians and federal 

programs 011 coverage and coding matters. Physician CMDs are a valuable resource for 

physicians to obtain education about Medicare's payment and coverage policies, and a venue for 

physician-to-physician discussion of Medicare policies that impact patient care. However, the 

interaction between physicians and CMDs has been inhibited by the overall reduction ofCMDs. 

Sincc the transition from carriers and fiscal intermediaries to the MACs, and the subsequent 

reduction of the number ofMACs nationwide, the nUlllbcr ofCMDs at the MAC-level has also 

decreased, leading to confusion in the medical community. Unless a state medical society 

decides that a regional, multi-state CMD is appropriate, there should be a minimum of one 

physician CM D per state who is devoted to Medicare Part B issues. 

The sheer number of audit contractors is also a serious concern for physicians. Currently, CMS 

contracts with Zone Program Integrity Contractors (ZPICs), Comprehensive Error Rate Testing 

(CERT) contractors, Medicare Recovery Auditors (Medicare RACs), Medicaid Recovery Audit 

Contractors (Medicaid RACs), Program Safeguard Contractors (PSCs), Payment Error 

Measurement Rate (PERM) Contractors, Medicaid Integrity Contractors (MICs), Medicare 

Administrative Contractors (MACs), Medicare Advantage (MA) audits, and others. I While some 

of these programs do have unique functions, there is considerable overlap and duplication among 

them. These auditors largely employ divergent operational guidelines and standards: demand 

letters, appeals processes, documentation limits, and look back periods are inconsistent. 

I eMS, COl1lractor Entities AI A Glance: Who May Contact You About Specific CentersJor A.fedicare & 

tledicaid .'iervices (CAIS) Activilies, at httP;·:W\VW.ClllS.goviOutrcach-and-Education:rvlcdicarc-Lcarlling-

'\let\\()rl<,:.\:!lJ:::::"dLI"J>.f()clucts!Q,~Yllill'Cds:C:llnJ.i:ill'lorElllitvG!JL(lUf'i\90698.ll'i1f. 

2 
90 


80217.058

Physicians spend a great deal of time determining which contractor is auditing them, under what 

authority, and what the guidelines are for response. This confusion and misspent time unduly 

burdens physicians and contravenes the swift recoupment of improper payments to the federal 

government. In recognition of this inefficiency, CMS has committed to undertake an "Audit of 

Audits" to review the myriad federal audit contractors and identify areas of duplication. The 

AMA strongly supports this effort, and believes that the ullimate goal of this effort should be a 

reduction in conflicting and overlapping audits and audit policies. 

Lastly. the AMA continues to have serious concerns with the Medicare & Medicaid RAC 

programs. The programs' contingency fee structure inappropriately incentivizes the RACs to 

conduct "fishing expeditions" that are exceedingly burdensome for physician practices. The 

RACs are also often inaccurate: CMS' FY20 10 Recovery Auditor Report to Congress reported 

that 46.2 percent of the claims appealed were decided in the provider's favor. This number is far 

too high; these errors result in needless expense for Medicare appeals tribunals and physicians. 

To promote efficiency and the best use of federal funds to identify improper payments, greater 

oversight of RAC contractors and safeguards for physicians are needed. 

Conclusion 

Thank you for the opportunity to provide a statement for today's hearing. We look forward to a 

continued dialogue with the Oversight and Investigations Subcommittee on these important 

issues. 

J 
91 


80217.059

Statement for the Record 

by the 

American Federation of State, County and 

Municipal Employees (AFSCME) 

for the Hearing 

on 

Medicare Contractors' Efforts to Fight Fraud 

- Moving Beyond "Pay and Chase" 

Before the 

Subcommittee on Oversight and Investigations 

Committee on Energy and Commerce 

U.S. House of Representatives 

June 8, 2012 
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80217.060

Statement for the Record 

by the 

American Federation of State, Connty and Municipal Employees (AFSCM£) 

For the Hearing on 

Medicare CODtraetors' Efforts to Fight Fraud - Moving BeyoDd "Pay and Chase" 

Before the 

SUbeommittee on Oversight and Investigations 

Committee on Energy aDd Commerce 

U.S. House of Representatives 

JUDe8,2011 

This statement is submitted on behalf of the 1.6 million workers and retiree members of 

the American Federation of State, COWlty and Municipal Employees (AFSCME) for the hearing 

held JWle 8, 2012 on Medicare fraud. 

AFSCME is proud of labor's historic role in the creation of Medicare. It is an 

indispensable federal social insurance program. Medicare provides what commercial health 

insurance companies did not, would not, and could not: affordable, adequate health coverage for 

America's elderly population regardless of income or health status. Before the enactment of 

Medicare, only half the population age 65 and older had health insurance and those who did have 

coverage paid close to triple what yOWlger people paid for premiums and other out-of-pocket 

costs. 

As a social insurance plan. Medicare's purpose is to spread risk in order to make 

coverage affordable for everyone. Medicare unites the resources of the entire nation to shield one 

generation after another of older Americans and individuals with disabilities from financial ruin 

in the event of illness, injury or expensive chronic conditions. All American workers contribute 

to fund the program and reap its benefits once they are eligible. No one is shut out because of 

health status or income. Medicare by design pays for all necessary medical care for beneficiaries. 

Medicare will pay claims without discriminating against an individual because of where they 

live, their history, their diagnoses or preferences. 

Medicare waste, fraud and abuse takes critical resources out of our health care system, 

injuring all Americans. Waste, fraud and abuse in Medicare comes in many shapes and sizes. It 

can be the tiny clinic that bills Medicare for non-existent services. Or it can be one of the nation's 

largest for-profit hospital chains such as HCA Inc. (formerly known as ColumbiaIHCA and 

HCA- The Healthcare Company), whose CEO at the time of the fraud was now Florida Governor 

Rick Scott, that bilked Medicare and Medicaid through fraudulent billing, pled guilty to multiple 

felonies and ultimately paid $1.7 billion in criminaJ and civil pena1ties. 
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The Affordable Care Act Combats Medieare Fraud, Waste and Abuse 

Fortunately, the Affordable Care Act (ACA) protects taxpayer and Medieare dollars 

against fraud. waste and abuse by beefing up enforcement tools, ramping up detection and 

pursuing those who steal, waste or abuse Medieare dollars. Below are some highlights of the 

many provisions in the health eare reform law that help to make Medieare more secure and safe 

from waste, fraud and abuse. 

Investing Resollrces to Fight FrtlluL 

The ACA provides $350 million in new funds to hire new officials and agents who CaD 

help prevent, identify, investigate and fight fraud. 

Getting TOllgher on Crlmbtals Jnro Steal From Medicare. 

If you commit Medieare fraud, you will see more time in prison. The law requires the 

U.S. Sentencing Commission to increase the federal sentencing guidelines for health eare fraud 

offenses by 20·50% for crimes that involve more than $1,000,000 in losses. The ACA makes 

obstructing a fraud investigation a crime. Thanks to the ACA, it will be easier for the federal 

government to recapture monies acquired through fraudulent practices. It also makes 

investigating potential fraud or wrongdoing at nursing homes easier for the Department of 

Justice (DOJ). 

The law gives the Office of the Inspector General (010) at the Department of Health and 

Human Services (HHS) the authority to impose stronger civil and monetary penalties on those 

found to have committed fraud. 

HHS also bas new authority to prevent providers from participating in Medieare or 

Medicaid, where appropriate. For example, the Secretary may reject providers and suppliers who 

provide false information on an application to enroll or participate in a federal health eare 

program. Individuals who order or prescribe an item or service while being excluded from a 

federal health eare program, make false statements on applications or contracts to participate in a 

federal health eare program, or providers who identify a Medicare overpayment and do not 

return it are also subject to strict new fines and penalties under the new law. The law also helps 

states to terminate a provider under Medicaid if that provider is terminated under Medieare or 

another state's Medicaid program. 

Fraud Prevention- Foilbtg Crlmbtals Before They Get a Chance to Steal From Taxpayers. 

Preventing fraud protects Medieare and beneficiaries. The ACA bas new authority for 

stepped-up oversight of providers and suppliers participating or enrolling in Medieare, such as 

mandatory licensure checks. Based on the level of risk of fraud, waste and abuse, providers could 

be subject to fmgerprinting, site visits and criminal background checks before they begin billing 

1 
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80217.062

Medicare or Medicaid. The law also allows the Secretary to withhold payment to any Medicare 

or Medicaid providers if a credible allegation of fraud has been made and an investigation is 

pending. 

The ACA enhances data matching and integration to make it easier for our law 

enforcement agencies to identify criminals and prevent fraud among federal agencies that pay for 

health care. The DOJ and 010 both have clearer rights to access Medicare and Medicaid claims 

and payment databases. 

The law beefs up surety bond requirements as a condition of doing business with 

Medicare. To crack down on fraud in orders and referrals from providers and suppliers who 

order items or services for Medicare beneficiaries, these providers and suppliers will be required 

to enroll in Medicare and maintain better documentation. 

Recovering Medicare Ove1'JHlYments, Stopping I1fSlUlUfce Abuse IUfd Improving Medicare's 

Solvency. 

The law expands Recovery Audit Contractors (RACs) in order to recover overpayments 

made by Medicaid, Medicare Advantage and Part D (the Medicare drug benefit). Providers, 

suppliers, Medicare Advantage plans, and Part D plans must self-report and return Medicare and 

Medicaid overpayments within 60 days of identification. 

In addition to preventing fraud, the ACA will reduce waste by promoting cost-efficient 

delivery of quality care under Medicare in two important ways. The law taps into Medicare's 

purchasing power to prompt providers to do more to control their costs. These payment reforms 

will reduce waste but, importantly, do not affect Medicare's traditional benefits or shift costs 

onto beneficiaries. In fact, the law spells out loud and clear that the guaranteed benefits in 

Medicare Part A and Part B will not be reduced or eliminated as a result of payment reforms to 

the Medicare program. Secondly, the law cuts taxpayer handouts to insurance companies under 

the Medicare Advantage program. 

By cutting waste and taxpayer handouts to insurance companies, the ACA helps reduce 

seniors' costs for preventative care and prescription drugs. 

Conclusion 

Medicare is an amazing success story - providing health and financial security to 

millions of Americans, even during the worst economic crisis since the Great Depression. The 

new health care law does much to combat waste, fraud and abuse in Medicare, but the greater 

threat to Medicare is not fraud - it is the House-passed budget. This Republican-championed 

budget will lead to the end of traditional Medicare, replacing its guaranteed benefits with a 

privatized system where seniors will pay more and get less. It will leave seniors at the mercy of 

insurance companies. It will make it harder for seniors to choose their own doctors and it will 

2 
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80217.063

raise seniors' costs for preventative care and prescription drugs. The House-passed budget would 

expose Medicare to more waste, fraud and abuse and leave beneficiaries to be preyed upon by 

unscrupulous criminals and insurance companies because it would abolish the new enforcement 

tools in the recent health care reform law that help enforcement agencies fight and detect waste, 

fraud and abuse in Medicare. 

3 
96 

Mr. STEARNS. I want to thank the witnesses for coming today for 

the testimony and members for their devotion to this hearing 

today. 

The committee rules provide that members have 10 days to submit additional questions for the record to the witnesses. 

With that, the committee is adjourned. 

[Whereupon, at 11:05 a.m., the subcommittee was adjourned.] 

[Material submitted for inclusion in the record follows:] 

97 


80217.064

House Energy & Commerce Subcommittee on Oversight & Investigations Hearing on 

"Medicare Contractors' Efforts to Fight Fraud - Moving Beyond "Pay and Chase" 

June 8,2012 

Background Statement 

Thank you Mr. Chairman for holding this important hearing today to address the growing 

problem of inadequate oversight in the Medicare program. I am disturbed that CMS engages 

Medicare Administrative Contractors, commonly known as MACs, to carry out Medicare 

payments and reviews, using taxpayer dollars, without the proper oversight. 

Some months ago it was brought to my attention that a local hospital in my district had been 

receiving an inordinate number of claim denials, without explanation, for common procedural 

codes that had been previously reimbursed without issue or concern raised. Despite every 

effort on the part of this hospital to comply with the unclear and redundant claims review 

process set forth by the resident MAC for Oklahoma, Trailblazer Enterprises, the hospital 

continues to face claim denial rates in the range of 30 percent under the guise of improper 

payments and fraud Investigations. 

The denials stemming from the review process, and subsequent appeals by the hospital, have 

resulted in a net loss of over $565,000 to the hospital, impacting significantly the hospital's 

overall operations, and the problem is only getting worse. Over the last three months alone, 

over $1 million in revenue to the hospital for legitimate procedures have been delayed due to 

this high volume of payment reviews initiated by Trailblazer Enterprises, where reviews have 

been taking nearly 90 days rather than the usual 14-21 days. 

Repeated efforts have been made on the part of our hospital and my staff to address this 

problem with CM5 and Trailblazer Enterprises, in the hope of gaining clarity and guidance on 

the required documentation needed to approve these claims; we're still waiting. The rationale 

for Trailblazer's individual denials have been wholly inconsistent, and appears as if arbitrary 

decisions have been made to reduce the number of paid claims for specific procedures. 

I commend CMS' for vocalizing their commitment to Medicare program integrity, and reducing 

and recovering fraudulent payments, but actions speak louder than words, and my praise stops 

there. Because of CMS' sub-par oversight, the hospital in my district has been placed in 

jeopardy of not being able to offer the high-quality care to its' patients and the Tulsa 

community. I have serious concerns over CMS' ability to implement effective and targeted 

program integrity operations to reduce waste, fraud and abuse in the Medicare program; it 

appears that your efforts have become misguided and lack the oversight necessary to protect 

those providers and facilities that enhance the Medicare provider community. I look forward to 

hearing your response on how you plan to address MAC oversight to improve the efficacy of 

these operations and protect taxpayer dollars. 
98 


80217.065

Mr, Doolittle's 

Additional Written Questions for the Record 

"Medicare Contractors' Efforts to Fight Fraud-Moving Beyond Pay and Chase" 

Committee on Energy & Commerce 

Subcommittee on Oversight and Investigations 

Junc 8, 2012 

The Honorable John Sullivan 

1. In its Spring 2012 report to Congress, the Health and Human Services Offiee of the 

Inspector General recommended that CMS educate hospitals on how to submit and 

document a complete appeal to reduce the likelihood of an unwarranted denial. What 

steps is CMS taking to help hospitals avoid denials in the first place? 

Answer: The Centers 1'01' Medicare & Medicaid Services (CMS) education and outreach strategy 

ensures that Medicare fee-for-service (FFS) providers and suppliers are properly informed abollt 

the program, ongoing changes and new requirements under the program in a consistent and 

timely manner. CMS facilitates easy access to information through web tools, contact centers, 

training calls, education products, electronic messaging, and partnerships with national. state and 

local associations to ensure proper billing. 

A key education component is the extensive inventory of Medicare Learning Network (MLN) 

national educational products which are available for FFS providers and their staff, which can be 

viewed at: hllp:! Iw\\ w .cms.gov/OLItreach-and-Cdllcation/Medicarc-Learning-Networkrvll1\:!iVI LNProducts/index.html?redirect=IMLNProductsl. These products assure a coordinated 

and consistent approach to educating Medicare FFS providers and their billing and practice 

administration stalTon Medicare-related topics sllch as enrollment, preventive services, claims 

processing, provider compliance, and payment policies. CMS uses MLN products in oLir 

provider outreach efforts to fUliher ensLire consistency as content and messaging originates from 

one central source. 

In addition, CMS issues, on a quarterly basis, a newsletter called the Medicare Quarterly 

Compliance newsletter. This newsletter, which is distributed as a Medicare Learning Network 

docllment, describes those issues recently identificd by the Comprehensive Error Rate Testing 

program, the FFS Recovery Auditors, the Office of Inspector General where there have been 

improper payments identified. The newsletters provide information on the errors, the Medicare 

policy and what providers can do to assure compliance with Medicare rules. The newsletter can 

be viewed at: http://www.cms.goy/Outreach-and-Education/Medicarc-Lcarninl!-1\:ctworkMI,N!MI,NProdlicts/downloads/MedOtriyComp Newsletter ICN904943.pdf 

Ongoing maintenance and timely dissemination of educational information is designed to 

1~lcilitatc the FFS provider community understanding of Medicare policy/operations and 

requirements, and ongoing changes to program requirements, thereby promoting proper billing 

of the Medicare program. 
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80217.066

2. What is CMS doing to ensure that Recovery Audit Contractors (RACs) are completing 

their audits within the allotted time frame, providing notification of hospitals' appeal 

rights and deadlines, and not asking hospitals for charts that go unaudited? 

Answer: CMS continues to work closely with the provider communities to minimize provider 

burden. address issues and refine the Medicare FFS Recovery Audit program. CMS oversees the 

Recovery Auditors to ensure they are complying with the Recovery Audit Program process and 

timeframc for completing a review. For example a Recovery Auditor is required to issue a 

written notification of the review decision within 60 calendar days of receiving the medical 

records from the provider. If a Recovery Auditor is not timely with their reviews CMS can limit 

the number of claims that they will be allowed to review until they can consistently achieve 

timeliness. Failure of a Recovery Auditor to consistently complete reviews timely and 

accurately can and will be used as a measure of past performance for future contracts. 

In addition, CMS ensures that throughout the Recovery Auditor process thc providers are given 

information related to medical record requests and appropriate next steps. Providers receive 

review results letters on the status of their medical record requests. When the Recovery Auditor 

makes an overpayment determination the provider is sent a demand letter that includes the 

amount of the overpayment. due dates, and applicable appeals rights for the provider. 

3. Why arc the I)re-Payment ORG's Audits being reported as Fraud and subsequent 

statistics being publicized that indicates unnecessary procedures arc being performed? 

This is truly a documentation issue, not an issue of fraud. 

Answer: Every year as part of the agency's financial report. CMS is required by the Improper 

Payments Information Act of2002 (lPIA), amended by the Improper Payments Elimination and 

Recovery Act of20 I 0 (lPERA) to produce an estimate of the improper paymcnts in the 

Medicare program. The estimate is calculated by the Comprehensive Error Rate Testing (CERT) 

program and reported in the CMS and llllS annual financial reports. This estimate of improper 

payments is not an estimate of the rate oftraud. The CERT program uses random samples to 

select claims. reviewers arc unable to see provider billing patterns that indicate potential fraud 

when making payment determinations. The CERT program does not, and cannot, label a claim 

fraudulent. 

eMS agrees that many of the improper payments arc related to non-fraudulent insufficient 

documentation errors that may be reversed when supporting documentation is received After 

the official improper payment rate is calculated and reported. providers and suppliers retain the 

right to submit additional documentation supporting claims found in error (within certain 

guidelines). In 20 II, the reported improper payment rate was adjusted to prospectively account 

for this latc activity. along with tile results of appeals that occurred aftcr the official repol1ing 

cutotTdate. Whilc it has been shown through experience that many of these errors can be 

reversed when supporting documentation is received, this does not negate the requirement that 

appropriatc docul11entation bc available when the claim determination is being made. The high 

incidence of insufficient documentation errors has prompted CMS to implement corrective 

actions to reverse sllch errors. For example, in FY 20 II, 91 % of OM EPOS improper payments 

were due to insufficient doclimentation errors. As a result of these findings, CMS began 

notifying ordering physicians when an DMEPOS item is selected for CERT review, reminding 
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them of their responsibilities to maintain documentation ofmedicalnccessity for thc DMEPOS 

items ordered. 

Additionally, CMS announced on November 15,20 II, three demonstration projects that aim to 

strengthen Medicare by reducing improper payments. Onc of those demonstrations, the 

Recovery Audit Prepayment Review Demonstration, will allow Medicare Fce-for-Service 

Recovery Auditors (RACs) to revicw claims before they are paid to ensure that the provider 

complied with all Medicare payment rules. The RACs will conduct prepayment reviews on 

certain types of claims that historically result in high rates of improper paymcnts - including 

some categories of short inpatient hospital stay DRGs. These revicws will focus on seven states 

with high populations of fraud- and error-prone providers (FL, CA, MI, TX, NY, LA, IL) and 

four states with high claims volumes of shOl1 inpatient hospital stays (PA, OH, NC, MO) for a 

total of II states. This demonstration will not replace the ongoing MAC prepayment review 

program and will serve as a separate process that aims to help lower the error rate. Providers 

will not be subject to review for the same topic or issue by two different contradors. If the 

RACs or MACs identify potential fraud related to these types of DRG claims. then the 

contractors will refer the claims to law enforcement for further investigation. 

;\n additional demonstration aims to reduce fraud for power mobility devices (PMD) claims, 

which will help ensure the sustainability of the Medicare Trust Funds and protect beneficiaries 

who depend upon the Medicare program. Under this demonstration, CMS will implement a 

Prior Authorization process for PMDs, such as scooters and power wheelchairs, for people with 

Fee-For-Service Medicare who reside in seven states with high incidences of fraud and improper 

payments(CA, IL, MI, NY, NC, FL and TXl.} The purpose of this demonstration is to test the 

effectiveness of using prior authorization to develop improved methods for the prevention of 

improper payments and fraud. Moreover. the program will assist in preserving a Medicare 

beneficiary'S ability to receive quality products from accredited suppliers. 

4. For some months now, a reputable hospital in my district has experienced an 

unncceptnble number of claim denials for a small group of common procedures, despite 

exhaustive efforts to gain clarity and guidance from the local MAC in Oklahoma, 

Trailblazer Enterprises. When a local MAC is unwilling to work with the providers 

struggling to comply with an audit program, does CMS have the authority to help 

mediate when a situation, such as my hospitals. is untenable? 

Answer: Any time there is a concern about Medicare claims administration contractor 

performance, CMS is immediately available to work through the issues and concerns, either 

through its regional otlices, which work directly with health care providers on a regular basis. or 

through agcncy otliccs in Baltimore or Washington. Over the past six months, CMS has been 

working with TrailBlazer and numerous health care providers in Oklahoma to clarify coverage 

policies and medical documentation requirements that have recently generated a higher volume 

of payment denials and adjustments upon claims and medical records review. CMS performs 

close oversight of Medicare Administrative Contractors to ensure that they are complying with 

performance requirements, and requires action plans in all instances where performance does not 

meet contract requirements. 

I iJ1LPs:J/www.cms.!w.v ... Research-Stati!.ltis:~::n5lta-alld-Svstcms/MonitQri!Jg,:Pxp£.xmns,'cElrrrPADemo.htrnl 
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The Honorable Marsha Blackburn 

l. Critical to fraud investigations is the ability to uniquely identify and track the activities 

of a healthcare practitioner over time. To what extent has the continued prevalence of 

multiple practitioner identifiers (e.g., National Provider Identifier, state Medicaid 

identifiers, DEA numher, Taxpayer Identification Number) adversely impacted the 

investigative process? 

Answer: Each of the multiple identifiers listed serves a unique purpose in the Federal, State 

medical licensure and regulatory field, the commercial insurance market, and in Medicare and 

Medicaid. While there is an interrelationship between these identifiers, each serves to uniquely 

ensure that services are provided to qualified individuals by qualified health care practitioners. 

For example, the National Provider Identifier (NPI) is a national standard under the Health 

Insurance Portability and Accountability Act (HIPAA) administrative simplification provisions 

and is a unique identification number for covered health care providers and health care providers 

that practice within covered organizations. All providers and suppliers who provide services and 

bill Medicare for services provided to Medicare beneficiaries must have an NP!. 

The presence of multiple identifiers alone does not adversely impact the investigative process. 

Further, the implementation of the Automated Provider Screening (AI'S) system, the Fraud 

Prevention System (FPS), and other enrollment related verification processes work --in concert--

across numerous authentication databases to ensure the integrity of all new and existing 

providers and suppliers. These databases include those that validate the accuracy and 

relationships between applicant NPls, DEAs, SSNs/EINs and other identifying information. The 

FPS and APS systems have improved CMS's ability to prevent program entry for those whose 

credentials are problematic upon application, and to continuously monitor the provider network 

and remove others from Medicare whose credentials do not meet the ongoing enrollment criteria. 

2. Would CMS be better off utilizing one unique identifier to keep tabs on a practitioner 

rather than numerous government identifiers that are not typically up to date? 

Answer: There is no compelling evidence that indicates utilizing one unique billing identifier 

would improve efficiency in claims processing or strengthen program integrity efforts. 

Currently, Medicare suppliers and providers are idcntilied by a unique combination of the 

National Provider Identifier (NPI) and a Provider Access Transaction Number (PTAN). 

The NPI is a national standard under the Health Insurance Portability and Accountability Act 

(lIIPAA) Administrative Simplification provisions and is a unique identification number for 

covered health care providers. A PTAN is a Medicare-only number issued to providers by 

Medicare contractors upon enrollment to Medicare. All providers and suppliers who provide 

services and bill Medicare for services provided to Medicare beneficiaries must have an NP!. 

When a Medicare contractor approves an enrollment and issues an approval letter, the Ictter will 

contain the PTA N assigned to the provider. 

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The NPI and the PTAN are related to each other for Medicare purposes. A provider must have 

one NPI and will have one, or more, PTAN(s) related to it in the Medicare system, representing 

the provider/supplier's enrollment. If the provider has relationships with one ormore medical 

groups or practices or with multiple Medicare contractors, separate PTANs are generally 

assigned. Together, the NPI and PTAN identify the provider, or supplier in the Medicare 

program. CMS maintains both the NPI and PTAN in the Provider Enrollment. Chain and 

Ownership System (PECOS), the master provider and supplier enrollment system. 

CMS recognizes the impOitance of keeping enrollment information accurate and is currently in 

the process of revalidating the enrollment information for providers and suppliers. Section 

6401 (d) of the Affordable Care Act established a requirement for all enrolled providers and 

suppliers to revalidate their enrollment information under new enrollment screening criteria. 

This revalidation effort applies to those providers and suppliers that were enrolled prior to 

March 25. 2011. CMS has structured the revalidation processes to reduce the burden on the 

providers by implementing innovative technologies and streamlining the enrollment and 

revalidation processes. The revalidation effort along with the Automated Provider Screening 

process will enable CMS to verify and continuously monitor the enrollment data tied to the NPIPTAN. 

3. It's just common sense that consumers/patients arc better off when we eliminate waste 

fraud and abuse in the healthcare system. Patients receive higher quality care and 

better health care services--not to mcntion value--when they aren't paying physicians 

who commit fraud. Do you agree? 

Answer: Yes, when Federal taxpayer dollars arc spent on fraudulent or wasteful activities, the 

integrity of the Medicare and Medicaid programs is severely damaged. Fraud and abuse directly 

deter from CMS' goals to provide better care for our beneficiaries while also lowering health 

care costs. CMS is committed to detecting and preventing healthcare fraud in the Medicare and 

Medicaid programs. Over the last two years, CMS has implemented powerful new anti-fraud 

tools provided by Congress, as well as designed and implemented large-scale. innovative 

improvements to our Medicare and Medicaid program integrity strategy to shift beyond a "pay 

and chase" approach by focLising new attention on preventing fraud. Simultaneously, CMS is 

using the same innovative tools to further enhance our collaboration with our law enforcement 

partners in detecting and preventing ji·aud. 

4. I'm not going to go through the list of examples of medical providers and others 

committing fraud, engaging in illegal activities, overcharging for services, or providing 

unneeded or unnecessary care. These sad stories and the harm they cause patients 

can be found in the GAO reports, the IG reports, and, unfortunately, found regularly 

in our daily news. The cost of fraud and abuse in terms of human lives and health is an 

unforgivable tragedy. And the cost in taxpayer dollars and the quality of our 

health care system is embarrassing. Do you believe that health eare providers who 

commit fraud, overcharge for services, or harm patients by providing unnecessary 

care negatively impact the quality of healthcare'? Do you see the two working hand-inhand? 
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Answer: Health care fraud undermines the integrity of Federal health care programs. I agree 

that taxpayer dollars lost to fraud, waste, and abuse harm multiple parties, particularly some of 

our most vulnerable seniors by putting them at risk for unnecessary care. Fraudstcrs use our 

limited Federal resources for personal gain, directly working against CMS' goal to lower health 

care costs while providing better, more coordinated care to our beneficiaries. Eliminating the 

problem oft'raud requires a long-term, sustainable approach that brings together beneficiaries. 

health care providers. the private sector, and Federal. State. and local governments and law 

entlJrcement agencies. in a collaborative partnership to develop and implement long-term 

solutions. The authorities in the Affordable Care Act offer additional front-end protections to 

keep those who intend to commit fraud out of Federal health care programs, as well as new tools 

for deterring wasteful and fiscally abusive practices, and promptly identifying and addressing 

fi'audulcnt payment issues, which will ensure the integrity of Medicare, Medicaid and CHIP. 

5, In 2010, I wrote a letter to Sec. Sebelius making these same arguments, and making the 

direct connection between fraud prevention and activities that deter fraud, abuse, and 

waste as critical to improving the quality of care that patients receive in our federal 

programs. I also suggested that these very same investments the private sectnr makes--

in predictive modeling and other screening technologies--and that CMS hopes to 

employ themselves, have a spillover effect on our public programs. Healthcare 

companies don't stop their fraud and abuse prevention activities just because a patient 

is in Medicare or Medicaid. These investments and efforts work across the system and 

hand-in-hand with the efforts of CMS. So I find it hard to understand why CMS would 

not include fraud prevention costs as a quality measure. I believe this is a missed 

opportunity for pUblic-private partnerships that could generate significant 

taxpayer savings--taxpayer savings that are far greater than those delivered under the 

traditional pay-and-chase methods. 

Answer: CMS is working to develop updated methodologies to better measure the fraud and 

waste prevented by these new Fraud Prevention System (FPS) and Affordable Care Act tools, 

and their sentinel effects. Under the old pay and chase approach, it was much easier to track how 

much money is recovered after the fact. Our new front-end approach will require CMS to 

develop new approaches to measuring prevention. CMS is currently identifying the range of 

performance me tries that will fully capture the success of the FPS and will report these metrics in 

the first implementation year report due to Congress this fall. 

Howevcr. mcasuring fi'aud prevention, similar to measuring how much fraud exists, is a difficult 

task because of the hidden nature of insurance fraud. Despite these difficulties. CMS continues 

tn attempt to create a more accurate picture of the state of Medicare and Medicaid fraud and our 

prevention et"f(wts. 

6. HHS has indicated significant efforts are undenvay to root out fraud, waste and abuse 

within the Medicare system. Including the Recovery Audits (RACs) and backend 

analytics. In a recently, CNBC expose, a task force headed by Health and Human 

Services Office of Inspector General and including US Secret Service, US Marshals and 

the Federal Bureau of Investigations were profiled tracking down and apprehending 

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criminals stealing millions from the Medicare program. 

(httr:llwww.cnbc.comlidI46824701) The agent in charge of the task force, Special Agent 

in Charge Tom O'Donnell tells CNBC there are lots of unscrupulous people getting 

Nationall)rovidcr Numbers and billing Medicare. 

A. What are the checks that go into acquiring a National Provider Number for any 

provider or supplier that wants to bill Medicare? What sort of check is done to 

verify providers are legitimate, credentialed or certified and eligible to he in the 

Medicare program before a National Provider Number is issued? 

Answer: All health care providers. as defined at 45 CFR 160.103. are eligible to obtain an NP!. 

This applies to all health care providers and not just those providers that are cnrolled or enrolling 

with Medicare. National Plan and Provider Enumeration System (NPPES) collects and stores 

information sufficient to uniquely identify a health care provider, communicate with that health 

care provider if necessary. and assign an NP!. Identifying and uniquely enumerating health care 

providers for purposes of the NPI is separate t!'om the process that CMS uses to enroll providers 

into Medicare. The assignment of the NPI does not eliminate the screening and credentialing 

pmcess that Medicare uses to enroll providers for enrollment. 

NPPCS verifies the name/SSNIDOB combination through SSA's Slale Online Query (SOLQ) 

system if the SSN is submitted for an Entity Type I -Individual provider's application (while the 

SSN is preferable, the Claim Account Number (CAN) and Beneficiary Identification Code (BIC) 

may be submitted instead). If the SSN or CAN is not submitted. the Entity Type I provider is 

required to submit two proofs of identity with the completed and signed paper application (CMS101 14). For all applicants, NPPCS also checks the data for consistency, checks the addresses 

utilizing address standardization software, and checks for duplicate submissions. When applying 

for the NPI, the applicant must certify (via signature on paper or by checking the certification 

statement checkbox online) that helshelit meets the definition ofa health care provider, as 

defined at 45 CFR 160.103. 

Obtaining an NPI does not: 

Ensure a provider is licensed or credentialed; 

• Guarantee payment by a health plan; 

Enroll a provider in a health plan; 

Turn a provider into a covered provider; 

• Require a provider to conduct HIPAA transactions; or 

• Change or replace the current Medicare enrollment or certification process. 

All providers and suppliers who pmvide services and bill Medicare for services provided to 

Medicare beneficiaries must have an NPI and furnish them on their enrollment application. An 

enrollment application submitted without an NPI wil! be rejected. The NPI alone does not grant a 

provider or supplier Medicare billing privileges. Upon application to a Medicare contractor, the 

provider or supplier's enrollment information wil! be verified to ensure the provider or supplier 

is eligible to enroll in the Medicare program using the Automated Provider Screening (APS) 

process and other data sources utilized by CMS. Verification includes: 
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Medicare exclusions for all entities and persons listed on the CMS-855 using the Medicare 

Exclusion Database and the GSA Excluded Parties List System, 

• Licenses, certifications, accreditation and education requirements via the State Licensing 

Board websites or documentation submitted by the provider or supplier, 

Adverse legal history of the provider and all entities and persons listed on the CMS-855, 

• All practice locations and phone numbers listed on the CMS-855 via telephone listings or 

site visits, 

• Legal business names and employer identification numbers of all entities listed on the 

CMS-855 via IRS submitted documentation, 

• Verify Name, DOB, and SSN or CAN/BIC via SSA 's State Online Query (SOLQ) system. 

• Date of Death via SSA's SOLQ system. 

If the provider or supplier's enrollment application is approved, a Provider Transaction Access 

Number (PTAN) is issued. A PTAN is a Medicare-only number issued to providers by Medicare 

contractors upon enrollment to Medicare. 

B. Once providers and suppliers have their numbers, how do they authenticate they 

are the rightful individual to bill Medicare under that number? Is there any 

authentication function before a transaction is pI'Dcessed? Are they using a token or 

smart card to verify tbey are legitimate? Our concern is a lack of fI'Dnt end 

authentication and verification of providers and suppliers in order to keep criminals 

out of the system. So if the provider number was stolen could a criminal bill 

Medicare as the legitimate provider'! 

Answer: CMS has embarked on an ambitious project to revalidate the enrollments of all 

ex isting 1.5 mi II ion Medicare suppliers and providers by 2015 under the new A ffordable Care 

Act screening requirements. Since March 25. 20 II, eMS has enrolled or revalidated enrollment 

information for approximately 217,340 providers and suppliers under the enhanced screening 

requirements of the Affordable Care Act. These efforts will ensure that only qualified and 

legitimate providers and suppliers can provide health care items and services to Medicare 

beneficiaries. 

eMS also recently launched the Automated Provider Screening (APS) system. The APS 

technology is a nwjor component of our approach to impicmenting the enhanced screening 

requirements enacted in the Affordable Care Act, and has strengthened the enrollment process 

and improved the controls that assist in the identification of providers and suppliers that do not 

meet enrollment requirements. When CMS identifies ineligible providers and suppliers, we 

initiate the denial of an enrollment application or revocation of billing privileges for those 

already enrolled. This new screening strategy is tailored to both categorical and individual 

provider risk, rather than a one-sizc-fits-all approach. 
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Categories of providers and suppliers in the moderate level of risk are now required to undergo a 

site visit prior to enrolling or upon revalidation of their Medicare billing privileges. This new 

requirement expanded site visits to many providers and suppliers that were previously not 

subject to such site visits as a requirement for enrolling in the Medicare program. In addition to 

announced and unannounced site visits, providers and suppliers who are designated in the highrisk level will be subject to fingerprint-based criminal background checks. CMS has estimated 

that approximately 50,000 additional site visits will be conducted between March 2011 and 

March 2015 as a result of the new Affordable Care Act screening requirements to ensure 

providers and suppliers are operational and meet certain enrollment requirements. CMS has 

completed the procurement of a national site visit contractor to increase efficiency and 

standardization of the site visits and the contractor has recently started performing these site 

visits. 

7. HHS has spent a lot of time talking about backend analytics and using predictive 

modeling technology to verify claims. In the financial services industry, they use both 

front end authentication througb a card and backend 3nalytics to keep fraud Ollt of the 

system. These two approaches arc complimentary. In fact, the US is the last G-20 

nation to finally transition to chip based "Chip & PIN" credit and debit cards - VISA 

and !\1asterCard both announced they will start this transition and will begin deploying 

chip-based cards in the US next year. Why isn't CMS using a similar front end, chipbased card for front end authentication of both provider and beneficiaries within 

Medicare in conjunction with the back end analytics? 

Answer: The United States has not yet deployed the technology necessary to support the chip 

based cards referenced. The requisite credit/debit card terminals necessary to read and transmit 

the information arc not yet widely deployed in the private sector. We continue to monitor 

technological developments in this industry and will evaluate options ror Medicare as they 

become available. 

8. The Department of Justice estimates fraud within !\1edicare to be $60 billion per year. 

CNBC estimated Medicare and Medicaid fraud to be $80 billion per year. Many other 

countries usc smart cards within their hcalthcare systems as a way to reduce 

administrative costs and lower fraud rates. According to the French Healthcare 

system, using smart cards has reduced the cost of processing a claim by 155% 

(originally costing €1.74 Euro to process one claim - after deploying smart cards the 

same claim cost only € .27 Euro cents to process). Equally interesting is that Taiwan, 

through their healthcare smart card program, was able to reduce fraud dramatically 

and bring their administrative costs down to only 2°/., of overall program cost. Is CMS 

looking at piloting or testing smart cards in !\1edicare and if not, why? 

Answel': CMS has begun investigating the potential application of smart card technology to the 

Medicare program, including the possible benefits in preventing fraud, and the costs of 

implementation. Additionally, the Affordable Care Act provided eMS with significant 

authorities to enhance its oversight of Medicare, helping shift the focus to fraud prevention by 

moving CMS beyond the pay-and-chase approach that had been the central focus of antifraud 

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efforts. These new activities are complemented by the passage of the Small Business Jobs Act of 

2010 (P.L. 111-240), which required CMS to implement predictive analytics technology. and 

provided the resources to do so. CMS is now deploying predictive analytics technology in its 

Fraud Prevention System (FPS) to review all Medicare fee-for-service claims prior to payment. 

For the first time. CMS has a near real-time view of fee-for-service claims across claim types 

and the geographic zones of its claims processing contractors. This allows CMS to more easily 

ilkntify fraudulent providers by detecting patterns and aberrancies. 

The Honorable Cathy Castor 

I believe we have made great strides in combating waste, fraud, and abuse, but we 

need to ensure there is due process in place so that businesses playing by the rules are not 

negatively impacted by these ZPIC audits. I would like for Mr. Doolittle and CMS to 

answer the following questions for the record: 

1. Who trains the ZPIC staff on Medicare policy and what is their experience auditing 

claims? Who ensures that the training is adequate'? 

Answer: CMS does not train. or use an outside entity to train the zone program integrity 

contractors (ZPICs) on Medicare policy. The ZPIC proclII'ements were designed to obtain the 

services of organizations with experience and expertise in Medicare fraud detection and 

prevention. The evaluation of the proposals received was predicated in large part on the extent to 

which the otferors had proven and demonstrable competency in Medicare and Medicare fraud 

detection and prevention-including review or claims. We provide guidance to ZPICs through a 

variety of mechanisms consistent with standard contract management practices. ZPICs are 

instructed on Medicare policy through statute. regulations and CMS guidance. c.g., the Program 

Integrity Manual (PIM) and the Statement of Work (SOW). The contractor Statement of Work 

specifics the statutory, regulatory and programmatic guidance that governs the contractor's work. 

The performance of each contractor is evaluated in the context of the statement of work. 

2. What rules govern ZPIC audit procedures? 

Answer: The authority for the ZP1C review activities includes Title 18 of the Social Security Act 

including sections 1812.1816,1832, 1833(e), 1842. I 842(a)(2)(B). 1861. 1 862(a), I 862(a)(I), 

1861, and 1874, and regulatory authority including 42 CFR 421.100 and 42 CFR 421.200, The 

PIM also, serves as guidance for performing ZPIC review for benefit integrity purposes. The 

ZPICs use a variety of sources when making a review determination: 

Code of Federal Regulations 

CMS Internet Only Manuals 

Local Covet'age Determinations (LCDs) 

National Coverage Determinations (NCDs) 

Internal review guidelines 

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3. Who is auditing the private contractor auditors? When files are requested, are there 

any controls on private contractors sub-contracting out the work? Are these 

subcontractors approved by CMS? 

Answer: All ZPIC contractors are managed according to agency policy and regulations that 

govern government contract management. As mentioned earlier, ZPICs are instructed on 

Medicare policy through statute. regulations and CMS guidance, e.g .. the Program Integrity 

Manuul (PIM) and Statement of Work (SOW). The contractor Statement of Work specifies the 

statutory, regulatory and programmatic guidance that governs the contractor's work, The 

performance of each contractor is evaluated in the context of the statement of work. If a ZPIC 

chooses to utilize a subcontractor or subcontractors to fulfill any of its contractual 

responsibilities, including any review of records submitted by an individual or entity under any 

type of review, that is permissible. However, all work performed by both the prime contractor 

and any subcontractor is evaluated by the CMS Contracting Officer Representative (COR), as a 

part of the ongoing contract monitoring and oversight. Subcontractors must fol:ow all Medicare 

requirements and arc approved by CMS. 

4. What is the standard for placing someone on 100% prepayment review? 

Answer: CMS docs not impose prepayment review lightly; indeed, we regard it as one of our 

most substantial administrative actions available. A number of factors are taken into account 

before placing a provider or supplicr on 100% prepayment review, 2 The decision is made on a 

case-by-casc basis, e.g. money at risk, losses to the Trust Fund, and number of claims 

subsequently denied as a result of the prepay review. 

5. Why can't the ZPIC be required to give written notice to the provider that they ha"e 

formally been put on prepayment review, including the basis for the review, and an 

opportunity for due process at that point, either to challenge or confront the ZPIC 

decision? 

Answer: ZPICs are not required to provide written notice to the providers or suppliers because 

sllch notice Illay interfere with an active fraud or abuse investigation or case. Additional 

Documentation Requests (ADRs) are automatically generated by the MAC when a provider is on 

prepayment review and the ADRs servc to provide written notice, Until a ZPIC makes a 

decision about any particular claim submitted by a provider or supplier, no final administrative 

action has been taken and therefore there is no ability to appeal. Once a decision has been made 

on a particular claim, the provider or supplier has appeal rights on the ZPIC decision. 

6. What protections are there for the provider to challenge prepayment review? 

Answer: The provider is afforded full claims appeal rightsJ A provider may appeal any claims 

processing decision that results in a claim denial. 

2 http://www,cms.gov/Regulations-and-Guidancc/Guidance/'v1anuals/downloads/pim83c03,pdf 

; http://w ww,cms,govIOutreach-and-Education/Medicarc-Learning-Network-

:\-ILN/MLNProducts/downloads/MedicareAppealsProcess,pdf 

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7. What is the process of getting off 100% prepayment review? 

Answer: Providers and suppliers are put on prepayment review because their claims do not 

meet Medicare requirements-either payment policy or basic claims preparation and submission 

requirements. AIJ providers and suppliers are educated about proper claims submission 

requirements when they first enroll in Medical'e and are given additional training and instruction 

if needed subsequently. CMS makes substantial information on compliance requirements 

available on www.cl11s.gov." Providers and suppliers who are subject to prepayment review are 

in violation of one or 1110re Medicare requirel11ents and are likely subl11itting c1ail11s that are not 

supported by the records and documentation supplied by the provider or supplier. Providers that 

arc seeking to be removed frol11 prepayment review must ensure the claims that are subject to the 

prepayment review process are supported by documentation. medical records, or other 

information that substantiates the billed services. Providers and suppliers that submit claims and 

the appropriate supporting documentation that meet Medicare requirements will be taken off of 

prepayment review. 

8. Is CMS looking to implement deadlines for the contractors to respond to the records 

provided by the business being audited? 

Answer: Because each instance of prepayment review may differ from all others. it is difficult 

to develop a single standard for processing times. Some cases of prepayment review may be 

complex and requ ire a longer assessment, and others may be much easier to resolve. However. 

each case is unique and response times vary on a case by case basis. As mentioned above. each 

ZPIC contract is managed via a Contracting Officer Representative (COR). The COR is 

responsible for assuring that the processes included in the contractor's Statement of Work are 

followed-including any instances when processing times are called into question. Due to the 

constraints specilied above we are exploring approaches to develop and include in ZPIC 

contracts some form of timeliness measures. 

9. Providers have informed me that it is difficult to talk with someone from the ZPIC. Is 

CMS working on communication standards for the auditors? 

Answer: CMS expects all contractors to achieve good customer service. The ZPICs have 

established phone lines for providers and suppliers to contact them. As set forth in the ZPIC 

Umbrella Statement of Work (USOW), the ZPICs shall be available on an ad hoc basis to 

respond to questions regarding ZPIC denials and shall respond to denial inquiries within two 

business days. Periodically. CMS receives comments directly from providers and suppliers and 

from their elected officials that ZPICs have not responded promptly as required in their contract. 

We review these concerns thoroughly and address them promptly when we receivc thcm. 

4 http://www.cms.gov!Outreach-and-Education!Medicare~Learning-'etworkML1\;MLNProducls/ProviderCompliance.hlml 

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