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40–308 2008

MEDICARE PROGRAM INTEGRITY 

JOINT HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH 

AND

SUBCOMMITTEE ON OVERSIGHT 

OF THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

FIRST SESSION 

MARCH 8, 2007 

Serial No. 110–20 

Printed for the use of the Committee on Ways and Means 

( 


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COMMITTEE ON WAYS AND MEANS 

CHARLES B. RANGEL, New York, Chairman 

FORTNEY PETE STARK, California 

SANDER M. LEVIN, Michigan 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

MICHAEL R. MCNULTY, New York 

JOHN S. TANNER, Tennessee 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

EARL POMEROY, North Dakota 

STEPHANIE TUBBS JONES, Ohio 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

RAHM EMANUEL, Illinois 

EARL BLUMENAUER, Oregon 

RON KIND, Wisconsin 

BILL PASCRELL JR., New Jersey 

SHELLEY BERKLEY, Nevada 

JOSEPH CROWLEY, New York 

CHRIS VAN HOLLEN, Maryland 

KENDRICK MEEK, Florida 

ALLYSON Y. SCHWARTZ, Pennsylvania 

ARTUR DAVIS, Alabama 

JIM MCCRERY, Louisiana 

WALLY HERGER, California 

DAVE CAMP, Michigan 

JIM RAMSTAD, Minnesota 

SAM JOHNSON, Texas 

PHIL ENGLISH, Pennsylvania 

JERRY WELLER, Illinois 

KENNY HULSHOF, Missouri 

RON LEWIS, Kentucky 

KEVIN BRADY, Texas 

THOMAS M. REYNOLDS, New York 

PAUL RYAN, Wisconsin 

ERIC CANTOR, Virginia 

JOHN LINDER, Georgia 

DEVIN NUNES, California 

PAT TIBERI, Ohio 

JON PORTER, Nevada 

JANICE MAYS, Chief Counsel and Staff Director 

BRETT LOPER, Minority Staff Director 

SUBCOMMITTEE ON HEALTH 

FORTNEY PETE STARK, California, Chairman 

LLOYD DOGGETT, Texas 

MIKE THOMPSON, California 

RAHM EMANUEL, Illinois 

XAVIER BECERRA, California 

EARL POMEROY, North Dakota 

STEPHANIE TUBBS JONES, Ohio 

RON KIND, Wisconsin 

DAVE CAMP, Michigan 

SAM JOHNSON, Texas 

JIM RAMSTAD, Minnesota 

PHIL ENGLISH, Pennsylvania 

KENNY HULSHOF, Missouri 

SUBCOMMITTEE ON OVERSIGHT 

JOHN LEWIS, Georgia, Chairman 

JOHN S. TANNER, Tennessee 

RICHARD E. NEAL, Massachusetts 

XAVIER BECERRA, California 

STEPHANIE TUBBS JONES, Ohio 

RON KIND, Wisconsin 

BILL PASCRELL JR., New Jersey 

JOSEPH CROWLEY, New York 

JIM RAMSTAD, Minnesota 

ERIC CANTOR, Virginia 

JOHN LINDER, Georgia 

DEVIN NUNES, California 

PAT TIBERI, Ohio 

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records 

of the Committee on Ways and Means are also published in electronic form. The printed 

hearing record remains the official version. Because electronic submissions are used to 

prepare both printed and electronic versions of the hearing record, the process of converting 

between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process 

is further refined. 


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C O N T E N T S 

Page 

Advisory of February 28, 2007, announcing the hearing ..................................... 2 

WITNESSES 

The Honorable Daniel R. Levinson, Inspector General, U.S. Department of 

Health and Human Services ............................................................................... 6 

Tim Hill, Director, Office of Financial Management, Centers for Medicare 

and Medicaid Services ......................................................................................... 22 

R. Alexander Acosta, United States Attorney for the Southern District of 

Florida, Miami, Florida ....................................................................................... 29 

SUBMISSIONS FOR THE RECORD 

Power Mobility Coalition, statement ...................................................................... 62 

The Honorable Fortney Pete Stark, statement ..................................................... 63 


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(1) 

MEDICARE PROGRAM INTEGRITY 

THURSDAY, MARCH 8, 2007 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON WAYS AND MEANS, 

SUBCOMMITTEE ON HEALTH, 

SUBCOMMITTEE ON OVERSIGHT, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 10:00 a.m., in 

room 1100, Longworth House Office Building, Hon. Fortney Pete 

Stark (Chairman of the Subcommittee), presiding. 

[The advisory announcing the hearing follows:] 


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ADVISORY 

FROM THE COMMITTEE ON WAYS AND MEANS 

SUBCOMMITTEE ON HEALTH 

FOR IMMEDIATE RELEASE CONTACT: (202) 225–3943 

February 28, 2007 

HL–4 

Chairmen Stark and Lewis Announce a 

Hearing on Medicare Program Integrity 

House Ways and Means Health Subcommittee Chairman Pete Stark (D–CA) and 

Oversight Subcommittee Chairman John Lewis (D–GA) announced today that the 

Subcommittees will hold a joint hearing on Medicare program integrity, specifically 

focusing on Administration efforts to identify and eliminate fraud, waste and abuse. 

The hearing will take place at 10:00 a.m. on Thursday, March 8, 2007, in 

Room 1100, Longworth House Office Building. 

In view of the limited time available to hear witnesses, oral testimony at this 

hearing will be from invited witnesses only. However, any individual or organization 

not scheduled for an oral appearance may submit a written statement for consideration by the Committee and for inclusion in the printed record of the hearing. A 

list of invited witnesses will follow. 

BACKGROUND: 

The Medicare program will spend over $425 billion providing health care services 

to over 44 million seniors and people with disabilities in 2007. Fraud, waste and 

abuse in a program of this size can cost beneficiaries and taxpayers billions of dollars. Medicare has faced problems with overpayments, underpayments, unnecessary 

services and even criminal fraud. Multiple governmental agencies are charged with 

identifying, investigating and prosecuting incidents of fraud, waste and abuse in 

Medicare. 

In announcing the hearing, Health Subcommittee Chairman Stark said, ‘‘We owe 

it to beneficiaries and taxpayers to be good stewards of Medicare dollars. 

The Congress needs a better understanding of how agencies are working 

to minimize waste, fraud and abuse in the program.’’ 

‘‘When people abuse the Medicare program, they take advantage of senior 

citizens and people with disabilities who need medical services and care,’’ 

said Oversight Subcommittee Chairman Lewis. ‘‘We must find ways to detect 

and eliminate fraud to protect Medicare beneficiaries. Our Subcommittees 

will continue to work with governmental agencies to preserve the integrity 

of the Medicare program.’’ 

FOCUS OF THE HEARING: 

The hearing will focus on prevention, detection, investigation and prosecution of 

Medicare fraud, waste and abuse at the Centers for Medicare and Medicaid Services, the Health and Human Services Office of Inspector General, and the Department of Justice. 

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

Please Note: Any person(s) and/or organization(s) wishing to submit for the hearing record must follow the appropriate link on the hearing page of the Committee 

website and complete the informational forms. From the Committee homepage, 


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http://waysandmeans.house.gov, select ‘‘110th Congress’’ from the menu entitled, ‘‘Committee Hearings’’ (http://waysandmeans.house.gov/Hearings.asp?congress=18). 

Select the hearing for which you would like to submit, and click on the link entitled, 

‘‘Click here to provide a submission for the record.’’ Once you have followed the online instructions, completing all informational forms and clicking ‘‘submit’’ on the 

final page, an email will be sent to the address which you supply confirming your 

interest in providing a submission for the record. You MUST REPLY to the email 

and ATTACH your submission as a Word or WordPerfect document, in compliance 

with the formatting requirements listed below, by close of business Thursday, 

March 22, 2007. Finally, please note that due to the change in House mail policy, 

the U.S. Capitol Police will refuse sealed-package deliveries to all House Office 

Buildings. For questions, or if you encounter technical problems, please call (202) 

225–1721. 

FORMATTING REQUIREMENTS: 

The Committee relies on electronic submissions for printing the official hearing record. As always, submissions will be included in the record according to the discretion of the Committee. 

The Committee will not alter the content of your submission, but we reserve the right to format 

it according to our guidelines. Any submission provided to the Committee by a witness, any supplementary materials submitted for the printed record, and any written comments in response 

to a request for written comments must conform to the guidelines listed below. Any submission 

or supplementary item not in compliance with these guidelines will not be printed, but will be 

maintained in the Committee files for review and use by the Committee. 

1. All submissions and supplementary materials must be provided in Word or WordPerfect 

format and MUST NOT exceed a total of 10 pages, including attachments. Witnesses and submitters are advised that the Committee relies on electronic submissions for printing the official 

hearing record. 

2. Copies of whole documents submitted as exhibit material will not be accepted for printing. 

Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material 

not meeting these specifications will be maintained in the Committee files for review and use 

by the Committee. 

3. All submissions must include a list of all clients, persons, and/or organizations on whose 

behalf the witness appears. A supplemental sheet must accompany each submission listing the 

name, company, address, telephone and fax numbers of each witness. 

Note: All Committee advisories and news releases are available on the World 

Wide Web at http://waysandmeans.house.gov. 

The Committee seeks to make its facilities accessible to persons with disabilities. 

If you are in need of special accommodations, please call 202–225–1721 or 202–226– 

3411 TTD/TTY in advance of the event (four business days notice is requested). 

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above. 

f 

Chairman STARK. With the consent of the Chairman of the 

Oversight Committee and the Ranking Member of the Oversight 

Committee, the joint hearing can proceed. I want to welcome everyone to the first Medicare Oversight hearing. Mr. Lewis and I felt 

that it was necessary to hold this as a joint meeting and I welcome 

that opportunity. The topic, of course, is protecting Medicare beneficiaries from abuse and protecting the taxpayers from waste and 

fraud. 

We are dealing with this in a program that is going to spend 400 

billion dollars this calendar year and providing services for 44 million people. 

We will hear from three agencies, Inspector General Dan 

Levinson is in charge of the audits, inspections, investigations of 

fraud, waste and abuse. The Office of the Inspector General (OIG) 

has provided Centers for Medicare and Medicaid Services (CMS) 


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and Congress with a lot of valuable information on everything from 

part B drugs to nursing home quality to the fraud in some durable 

medical equipment. It is interesting to note that the OIG Red Book 

which among other savings options suggests that Medicare Advantage Plans are overpaid. He picks the number 2.5 billion. In 2006 

CMS reported improper Medicare payments of over 10 billion. 

I believe and I will ask General Levinson to correct me if I am 

wrong, but improper payments in our system do not imply that 

every improper payment is a fraud or is a violation. 

For those of you who balance your own checkbooks or do your 

own tax statements, if you could imagine something like 80 million 

transactions, there are bound to be mistakes. I believe it is correct 

that the mistakes, the unintentional errors, the arithmetic errors, 

the transpositions show up in that 10 billion and I would despair 

of ever getting that to zero just because of the human factor in the 

huge volume of relatively small transactions that must be processed by intermediaries and then surveyed by CMS. I just want 

to—I think I am correct to tell my colleagues that my guess would 

be that somewhere around half of the figures that come out from 

year to year are actually fraudulent or intentional mistakes and 

the other half is just what engineers would call the entropy in the 

system. 

The final witnesses responsible for investigating and prosecuting 

Medicare’s bad actors and as a U.S. Attorney for the Southern District of Florida, who I gather has been fired, you are still with us 

so you are not on that list. Nobody has called you right? Okay, we 

have got a good one here. 

Mr. Acosta has identified numerous schemes to defraud Medicare 

in the durable medical equipment. For those of you who want some 

trivia, actually, the impetus for what are now called the Stark laws 

started because of a lot of good work done by the State legislature 

in Florida, by some investigative reporters from I think ‘‘The Sun 

Journal,’’ and in finding a lot of abuse in providing Medicare systems I think in those days in diagnostic—either diagnostic labs or 

imaging, but at any rate, several good reforms have come out of the 

State of Florida. 

I look forward to hearing from all the witnesses and I would recognize my colleague and friend, John Lewis, the Chairman of the 

Oversight Committee. 

Chairman LEWIS OF GEORGIA. Thank you, Chairman Stark. 

My colleague and Ranking Member Ramstad and I would like to 

thank you and Ranking Member Camp for holding this joint hearing today with the Subcommittee on Oversight. 

It is the responsibility of both Subcommittees to guard the integrity of the Medicare Program and protect its beneficiaries who 

many times are the most vulnerable people in our society. They are 

our parents and grandparents who have given their youth to this 

Nation and they deserve our protection and the finest public service. 

I want to thank the witnesses, each of the witnesses for being 

here today and for all their efforts to protect the Medicare Program. Your work has returned over 8.5 billion dollars to the program. You have done an excellent job. You have helped to move us 


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down the road to reform that we are seeking in this Congress and 

we thank you. 

There is still so much more that we can do. I am very concerned 

that there has been almost no oversight of the new prescription 

drug benefit under Part D. This is not responsible leadership. I 

hope today I will hear each agency plan to reduce fraud in Medicare Part D. 

The fraud and abuse in the Medicare system, the shame and a 

disgrace, a view of the suspicion of people who question Government’s social service. We must find a way to eliminate the fraud 

in the Medicare system so that it works for the people it was intended to serve. 

Your offices have uncovered some disturbing almost unreal and 

unbelievable cases. In some instances Federal money is used to 

support unethical, immoral and illegal behavior. 

In one unbelievable case a hospital performed painful medically 

unnecessary procedures on elderly resident of assisted living facilities simply because those procedures have a high rate of government reimbursement. 

In another case, a physician was providing a large amount of 

controlled substances to his patients not to treat their medical condition but to get the government reimbursement on those medications. Those patients were either abusing the drugs or selling them 

to other people. One person died as a result of this improper treatment and others were seriously injured. 

This violation of the public trust will not be tolerated by this 

Congress and we must hold these people accountable and do all we 

can to prevent this kind of abuse. 

This Congress is committed to finding ways to work even closer 

with our witnesses to ensure that Medicare beneficiaries are offered the best medical care we can deliver. The wrongdoers are 

held accountable and that the Medicare Program remains strong 

for the next generation of Americans. 

I look forward to learning more about each agency plan to oversee this important and necessary program that will benefit our citizens. 

Thank you very much for being here today. 

Thank you, Mr. Chairman. Mr. Chairman, it is my pleasure to 

recognize my friend and we have been friends since we have both 

been in the Congress, the Ranking Member of the Oversight Committee, Mr. Ramstad. 

Mr. RAMSTAD. Thank you very much, Chairman Lewis, and 

thank you for your kind words. Thank you, Chairman Stark, both 

of you for holding this important joint hearing on Medicare Program integrity. 

I join my colleagues in welcoming our witnesses who play such 

a key role in rooting out waste, fraud and abuse in the Medicare 

Program. I also would like to mention for the record that Ranking 

Member Camp is unable to be here today because he was called 

home yesterday by a family medical emergency. 

Medicare fraud, as we know, not only cheats taxpayers but it 

cheats millions of seniors and people with disability who rely on 

Medicare. Improper payments raise the already enormous costs of 


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the program and they force vulnerable beneficiaries to pay cost 

sharing they should not have to pay. 

With an estimated 10 billion dollars, that is billion with a B, in 

Medicare overpayments last year alone, that adds up to real money. 

With its multiple parts, players, providers and payment systems, 

it is no surprise the Medicare Program is at high risk for abuse by 

unscrupulous types out there. It is also ripe for misunderstanding 

and unintentional mistakes just because of its shear complexity. 

In fact, one of my colleagues said not long ago, the Medicare Program makes the Tax Code look simple and straightforward. I think 

there is a little bit of hyperbole in that statement, but you get the 

point. 

I look forward to hearing about efforts that are underway to 

identify vulnerable areas as well as the investigation and prosecution of intentional fraud and abuse. I will also be interested to hear 

whether additional tools are needed in your arsenal, our arsenal to 

go after waste, fraud and abuse. 

Thank you again, Mr. Chairman. I yield back. 

Chairman STARK. We will start with the Inspector General Dan 

Levinson’s testimony. You may proceed General Levinson in any 

manner you are comfortable. 

If you are going to proceed, you have got to push that funny button on your mike so we can hear you. 

Mr. LEVINSON. I think it is on now; thank you. 

Chairman STARK. Thank you. 

STATEMENT OF INSPECTOR GENERAL DANIEL R. LEVINSON, 

OFFICE OF INSPECTOR GENERAL, U.S. DEPARTMENT OF 

HEALTH AND HUMAN SERVICES 

Mr. LEVINSON. Good morning, Chairman Stark, Chairman 

Lewis, Ranking Member Ramstad and distinguished Members of 

the Committee. 

I appreciate the opportunity to appear before you today to discuss the important oversight role of the Office of Inspector General 

and the efforts we undertake to protect the integrity of the Department’s programs including Medicare. 

My testimony today will briefly discuss OIG’s statutory role within the Department, how we are organized to accomplish our mission to protect the integrity of the Department’s programs and 

highlight some of the vulnerabilities within the Medicare Program 

as well as highlight recent and ongoing OIG work in these areas. 

I want to emphasize the importance of protecting the integrity of 

Medicare. It is a vitally important program that serves more than 

43 million people and in fiscal year 2006, the program spent $382 

billion dollars. 

To fulfill our mission, we rely heavily on working closely with, 

and leveraging the resources, of our law enforcement and Department partners. I am pleased that the Committee will be hearing 

from two of our colleagues today, the Department of Justice and 

CMS. Other key partners include the State Medicaid Fraud Control 

Units. 

Since Congress established our office in 1976, we have developed 

the necessary expertise to accomplish a wide range of oversight activities. We employ a comprehensive approach to our oversight 


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work by conducting national reviews of programs to identify systemic vulnerabilities and to make recommendations to improve 

their efficiency and effectiveness; auditing specific payments, providers and programs to identify and recover overpayments; investigating specific instances of fraud or abuse; and pursuing appropriate enforcement actions as well as promoting voluntary compliance by issuing guidance to the healthcare industry and providers. 

Our work in this area and the resulting recommendations are described in our semiannual reports as well as a compendium of 

unimplemented OIG recommendations, all of which are provided to 

Congress. The OIG has produced a significant body of work. 

I will highlight three areas where we have had impact and where 

we think vulnerabilities in the Medicare Program merit our continued attention. They are (1) the integrity of Medicare payments, (2) 

the quality of long term care services, and (3) the new Medicare 

Part D. 

With respect to integrity of Medicare payments, OIG is particularly focused on payments for durable medical equipment and supplies, home health agencies, hospital operations, and part B prescription drugs, as described in my written statement. 

In the interest of time my oral testimony will focus on part B 

prescription drugs. The OIG has produced a large body of work recommending actions that would result in savings and payments for 

prescription drugs under Medicare part B. Consistent with the recommendations in our body of work, the MMA included provisions 

that instituted a new drug reimbursement methodology for part B. 

In addition to our substantial audit and evaluation work on part 

B drug pricing issues, we have pursued a number of enforcement 

cases involving pharmaceutical manufacturers. For example, one 

drug manufacturer paid more than 875 million dollars to resolve 

criminal and civil liability resulting from the sales and marketing 

of a prostate cancer drug. The company pleaded guilty to conspiring to violate the Prescription Drug Marketing Act by causing 

the sale of free samples and entered into a civil settlement and corporate integrity agreement related to the company’s pricing, sales 

and marketing practices for the drug. 

Another area of continued focus has been the quality of care in 

nursing facilities, due to the increasing number of beneficiaries in 

these settings and the vulnerability of this population. As a result 

of OIG’s work in this area, a number of programmatic and legislative changes have occurred to improve quality of care. 

For example, CMS has issued instructions to nursing facilities on 

the appropriate use of psychotropic drugs, promulgated regulations 

that required training standards for nurse aides, and required 

nursing homes to establish processes for handling abuse complaints. 

These are improvements, but more work must be done. The 

OIG’s most recent reviews revealed weaknesses in the nursing 

home survey and certification process. We found that for the majority of cases requiring mandatory termination of nursing homes, 

CMS did not apply the remedy because case referrals from States 

were not timely and CMS’s staff were reluctant to impose this severe remedy. 

In addition, we found that CMS did not investigate some of the 

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frame and that CMS’s oversight of nursing home complaint investigations is limited. Our report made a number of recommendations 

to CMS to resolve these issues. 

Some nursing home care problems are so serious that they constitute failure of care and thereby implicate the Civil False Claims 

Act. A recent example of an egregious case of a failure of care involved a nursing home that settled its liability with the Government for $750,000 for allegedly providing skilled nursing services 

that were not rendered in accordance with applicable laws and 

rules and were so inadequate that they were not reimbursable 

under Medicare or Medicaid. The Government alleged that poor 

oversight and management of the facility’s operations led to serious 

deficiencies in beneficiary care. 

A third priority for OIG is Medicare Part D. As Chairman Lewis 

has noted, with a new program, with so much money at stake, especially one as structurally and operationally complex as this is, we 

believe that oversight is necessary. To address this we are implementing a strategic plan to protect the integrity of Part D and its 

beneficiaries by focusing on (1) enforcement and compliance, (2) 

payment accuracy, (3) beneficiary access, (4) drug pricing and reimbursement and (5) the integrity of information systems. 

We have ongoing investigations of Medicare Part D cases along 

with audits and evaluations underway, as outlined in our Fiscal 

Year 2007 Work Plan, and we will share our findings and recommendations with CMS and Congress as the work is completed. 

In addition to enforcement efforts, we also promote voluntary industry compliance. Our approach in promoting industry compliance 

is twofold. First, we issue a variety of guidance, including advisory 

opinions, fraud alerts and special advisory bulletins, as well as 

compliance program guidance, which is designed to assist 

healthcare providers and suppliers to develop systems and structures to guard against fraud and abuse, to ensure appropriate billing, and to be responsible corporate citizens. 

Second, our approach to compliance addresses healthcare providers that the Government alleges have defrauded Medicare, Medicaid, or other Federal healthcare programs. In such cases, the Department of Justice may seek dollar recoveries through the Civil 

False Claims Act and we may seek to exclude the provider from future participation in Federal healthcare programs. 

The OIG will often agree not to pursue exclusion in exchange for 

the provider entering into an integrity agreement with us. Such integrity agreements require providers to establish or continue a 

compliance infrastructure, policies and procedures, training programs, internal controls and reporting mechanisms, review procedures and reporting to us. The OIG integrity agreements have been 

a catalyst for change in corporate culture and result in comprehensive internal control systems. 

In conclusion, we remain committed to a comprehensive approach to protect the integrity of the Medicare Program and to ensure that its beneficiaries receive high quality care. I appreciate 

the opportunity to share with the Committee our efforts and I 

would be happy to answer any questions you have. 

[The prepared statement of Mr. Levinson follows:] 


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Chairman STARK. Thank you, Mr. Levinson. I think with your 

forbearance and the Committees’ to move us along, we would ask 

Mr. Hill and Mr. Acosta to testify now and then we can inquire of 

all three of you if that is satisfactory with you, Mr. General. Thank 

you. 

Mr. Hill, would you like to proceed? 

STATEMENT OF TIMOTHY B. HILL, DIRECTOR, OFFICE OF FINANCIAL MANAGEMENT, CENTERS FOR MEDICARE AND 

MEDICAID 

Mr. HILL. Thank you. Good morning, Chairman Stark, Chairman Lewis, Ranking Member Ramstad, other distinguished Members of the Committee. I am pleased to be here to discuss the Centers for Medicare and Medicaid Services’ efforts to ensure the integrity of the Medicare Program. 

I would like to use my time today to briefly describe for you our 

approach to protecting the integrity of Medicare, give you an overview of some of our recent successes and describe to you some of 

our most pressing challenges. 

The CMS is accountable for ensuring the accuracy and appro- priateness of more than $400 billion in trust fund payments each 

year to health plans, providers and beneficiaries. Our approach to 

fulfilling this obligation rests on a foundation of innovation, private 

sector partnership and State, local and Federal cooperation. Our first line of defense rests in the more than $700 million dollars worth of performance based contracts with private sector entities whose job it is to investigate complaints of fraud, perform data 

analysis to identify potential vulnerabilities, measure the extent of 

misspent program funds and work with law enforcement to further 

investigate and prosecute fraud. These contracts allow CMS to utilize cutting edge technology, the most advanced analytic tools and 

expert investigative resources to address program vulnerabilities. 

We leverage this investment by driving cooperation between our 

contractors and our regional offices and State and local governments. The CMS now has field offices in high vulnerability areas 

around the country and they work directly with local contractors, 

local law enforcement, State Medicaid agencies and local provider 

communities to magnify the individual efforts of each of these 

groups to achieve better results. 

The last link in our efforts rests with our law enforcement partners, the Health and Human Services (HHS) Office of the Inspector 

General in the Department of Justice who investigate and prosecute Medicare fraud. Working cooperatively with agents in the 

field and staff at main Justice and the HHS OIG we make referrals, support ongoing investigations and assist in the eventual 

prosecution of nefarious providers. 

This intense level of collaboration with our contractors, partners, 

customers and stakeholders is critical to the success of our efforts. 

I am proud to say that in broad measure our approach has been 

successful. Since 2004 we have reduced the rate of improper payments in Medicare by 56 percent saving taxpayers nearly $11 billion. This is not to say that our job is complete. There is much 

more that needs to be done. Nonetheless, our aggressive pursuit of 

wrongdoers is paying off. 


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Let me give you just a few examples. A CMS fraud fighting contractor in Ohio, Advance MED, received the prestigious 2006 National Healthcare Anti-Fraud Association Investigation of the Year 

Award for their work on the case against Dr. Jorge Martinez, an 

Ohio physician. This case involved the death of two patients and 

Advance MED’s efforts helped secure the doctor’s conviction and 

sentence to life in prison, the first life sentence given in a 

healthcare fraud case. 

On a different front, CMS has been matching data between 

Medicare and Medicaid in 10 States to identify providers who 

might be defrauding both programs. Using this collaborative approach, we can detect fraudulent patterns that we cannot see looking at these two programs separately. So, far, over 50 cases have 

been referred to law enforcement, $15 million in overpayments 

have been identified and $25 million have been saved through 

claims denials. 

We are using new legislative authority to contract with contingency-fee-based contractors, recovery audit contractors (RACs) to 

root out improper payments. These types of arrangements are 

widely used in the private sector but have not been available in 

Medicare until 2004. Last year the RACs collected nearly 70 million in overpayments and identified an additional 300 million in 

overpayments that are awaiting recoupment. 

We have put feet on the street in high fraud risk areas. We 

opened an office in Los Angeles, California to coordinate fraud and 

abuse efforts at the local level. In 2005 and 2006 the LA office 

identified over $2 billion in improper payments. We have been 

working with the local DA in LA to identify Medicare fraud 

through those who have not paid their taxes. So, far this Al Capone 

approach has resulted in three convictions of tax fraud, all including prison sentences, and in another 300 or so cases that are currently being developed. 

Similarly, in Miami, Florida, we have worked with the State and 

local law enforcement to address a Medicare infusion scam that involves clinics recruiting HIV AIDS patients, paying them kickbacks 

and then billing Medicare for astronomical amounts of infusion 

services. Our administrative efforts alone to clamp down on this 

scam have resulted in more than $1.8 billion in savings. 

We are also very active pursuing Part D fraud. Early in the program we identified an identity theft scam called the 299 Scam 

where unsuspecting Medicare beneficiaries were contacted by supposed agents of non-existent Medicare prescription drug plans and 

tried to sell them those plans for $299. Working with our partners 

in law enforcement, we informed the beneficiaries of the scam and 

recovered stolen funds. 

Additionally through our data analysis of Part D drugs, we identified and stopped payments that were being made to an abandoned pharmacy in Miami, an effort that prevented approximately 

$3 million worth of improper payments from Part D plans. 

As I said, while we are continuing to make strides more needs 

to be done. This year’s President’s budget proposed several initiatives to leverage our existing resources, to reduce improper payments and expand our initiatives. Key among these is a requested 

increase in our discretionary Health Care Fraud and Abuse Control 


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1With the implementation of Medicare Contracting Reform (MCR) enacted by the Medicare 

Prescription Drug, Improvement and Modernization Act of 2003, Medicare contractor functions 

are being consolidated, and all contractors processing Medicare claims are called ‘‘Medicare Administrative Contractors’’ or ‘‘MACs.’’ Although the durable medical equipment regional carriers 

(DMERCs) have been fully replaced by the DME MACs, while MCR implementation is underway, the original contractor terms—Carrier and FI—remain commonly used. 

(HCFAC) appropriation of $183 million that would be allocated between Medicare, Medicaid, the OIG and the Department of Justice. 

Since the Medicare Integrity Program budget was capped in 

2003, CMS has sustained an approximate $90 million inflationary 

loss that has greatly diminished our purchasing power to undergo 

these activities. We believe that additional resources are needed to 

keep pace with inflation and allow us to devote needed antifraud 

efforts to an ever expanding program. With a return on investment 

of over 13-to-1, we believe the enactment of the President’s proposal is a worthy investment. 

We have made great strides and we continue to look forward to 

working with you and other Members of Congress to enhance our 

efforts. I look forward to answering any questions that you might 

have. 

[The prepared statement of Mr. Hill follows:] 

Prepared Statement of Tim Hill, Director, Office of Financial Management, 

Centers for Medicare and Medicaid Services 

Good afternoon Chairman Stark, Chairman Lewis and distinguished Members of 

the Subcommittees. I am pleased to be here today to discuss the Centers for Medicare and Medicaid Services’ (CMS) efforts to improve the accuracy and integrity of 

payments under the Medicare program. 

Responsible and efficient stewardship of taxpayer dollars are critical goals of this 

Administration, as evidenced by the government-wide effort to improve financial 

management under the President’s Management Agenda (PMA). Under the PMA, 

federal agencies are mobilizing people, resources, and technology to identify improper payments in high risk programs, establishing aggressive improvement targets, and implementing corrective actions to meet those targets expeditiously. Consistent with these efforts, CMS is firmly committed to ensuring the highest measure 

of accountability within the Medicare program. As part of that commitment, the 

President’s FY 2008 budget requests $183 million in discretionary HCFAC funding 

to build upon programs with a proven record for maintaining the integrity of the 

Medicare Trust Fund. 

Background on Medicare 

Medicare is a Federal health insurance program that provides comprehensive 

health insurance to about 43 million people. About 36 million individuals are entitled to Medicare because they are over the age of 65 and about 7 million beneficiaries under age 65 are entitled because of disability; those under age 65 generally begin to get Medicare after they have been entitled to Social Security disability cash benefits for 24 months. Net Medicare spending for 2007 is projected to 

be about $372 billion. 

The majority of Medicare spending is in fee-for-service (FFS), with hospital and 

physician services currently representing the largest shares of this spending. The 

FFS component of Medicare also covers a wide range of other items and services, 

including home health care, ambulance services, medical equipment, and preventive 

services. CMS processes claims and makes payments for FFS Medicare benefits 

through contracts with private companies: Carriers, Fiscal Intermediaries (FIs), and 

Durable Medical Equipment Medicare Administrative Contractors (DME MACs), 

and Quality Improvement Organizations (QIOs).1 During 2007, CMS estimates that 

Medicare contractors will process well over one billion claims from providers, physicians, and suppliers for items and services that Medicare covers. Medicare contractors review claims submitted by providers to ensure payment is made only for Medicare-covered medical services that are reasonable and necessary, for eligible individuals. In addition, CMS contracts with Program Safeguard Contractors (PSCs) to detect and deter Medicare fraud and abuse. Quality Improvement Organizations 


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(QIOs) are contractors that ensure that payment is made only for medically necessary services and investigate beneficiary complaints about quality of care. 

In addition to FFS, Medicare also pays private plans. The Medicare Advantage 

plans, which include coordinated care plans, regional preferred provider organizations and private FFS plans, generally provide more benefits at a lower cost to beneficiaries. Both local and regional plans must provide all original Medicare benefits. 

In 2006, about 17 percent of beneficiaries were enrolled in Medicare Advantage local 

plans. 

The Improper Payments Information Act of 2002 

Given the staggering size of Medicare program expenditures, even small payment 

errors can represent a significant impact to the Federal treasury and taxpayers. For 

this reason, CMS, as part of a sound financial management strategy, has a relatively long history of using improper payment calculations as a tool to preserve the 

fiscal integrity of Medicare. CMS uses improper payment calculations to identify the 

amount of money that has been inappropriately paid, identify and study the causes 

of the inappropriate payments, and focus on strengthening internal controls to stop 

the improper payments from continuing. 

In 1996, the Department of Health and Human Services’ (DHHS) Office of Inspector General (OIG) began estimating improper payments in the Medicare FFS program as part of the Chief Financial Officer’s Audit. The OIG produced FFS error 

rates from FY 1996 to FY 2002. Beginning in FY 2003, CMS, working with the OIG, 

implemented a much more robust process—the Comprehensive Error Rate Testing 

(CERT) program—to assess and measure improper payments in the Medicare FFS 

program. The CERT program not only produces a national paid claims error rate, 

but also very specific improper payment rates. These include: 

• contractor-specific improper payment rates—which measure the accuracy of our 

claims processors; 

• provider-type specific improper payment rates—which measure how well the 

providers who care for our beneficiaries are preparing and submitting claims to 

the program; and 

• other management related information—which provides insight into payment 

errors by region and reason. 

Thus, in 2002 when the IPIA was enacted, CMS needed to make only minor 

changes to our ongoing processes for FFS Medicare to come into compliance with 

the Office of Management and Budget (OMB) guidance on the IPIA. In fact, CMS 

has gone beyond the scope of the IPIA requirements and OMB guidelines to calculate additional improper payment rates for FFS Medicare, as discussed earlier. 

This enhanced scrutiny reflects the Agency’s increased commitment to use more detailed data and analysis to identify and eliminate improper payments. 

Calculating improper payment rates is only one step in the process. Remediation 

is the key part of CMS IPIA compliance activities. CMS, through its contractors, including the Carriers, FIs, DME MACs and QIOs use the error rates to identify 

where problems exist and target improvement efforts. The cornerstone of these efforts is our annual Error Rate Reduction Plan (ERRP), which includes agency level 

strategies to clarify CMS policies and implement new initiatives to reduce FFS 

Medicare improper payments. In the past, ERRPs have included plans to conduct 

special pilot studies (i.e. electronic medical record submission pilot) and specific education-related initiatives. CMS also directs Carriers, DME MACs, and FIs to develop 

local efforts to lower the FFS Medicare error rate by targeting provider education 

and claim review efforts to those services with the highest improper payments. The 

type and nature of the errors we see in the program all lend themselves to different 

types of corrective actions to mediate them. 

For example, a primary cause of Medicare payment errors in the past has been 

providers not submitting the medical record documentation needed to verify the appropriateness of payment in response to our requests for documentation. Many providers were concerned that submitting medical records to a CMS contractor would 

be in violation of the Health Insurance Portability and Accountability Act (HIPAA) 

regulations. However, the HIPAA Privacy Rule permits disclosure of protected 

health information to carry out treatment, payment or health care operations. Thus, 

we expanded our education efforts to ensure that providers understand that responding to our requests does not violate HIPAA. 

Another significant cause of errors has been providers not submitting the appropriate types of medical record documentation to support the types of services billed 

to the Medicare program. CMS implemented a number of corrective actions to reduce these types of errors, including education and more intensive efforts to locate 


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and contact providers. These corrective actions have resulted in an 83 percent decrease in documentation errors since 2004. 

CMS also uses contractor-specific error rates to evaluate the performance of the 

contractors that process Medicare claims. While our previous contracting authority, 

limited CMS’s ability to take action against contractors with high error rates, implementation of Medicare Contracting Reform (MCR) enacted by the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA) is changing the contracting process and the contractor incentive structure. One key outcome of this initiative is the ability to use incentives to get our contractors to eliminate improper 

payments. In 2004, CMS conducted a study to evaluate whether the Agency could 

reduce improper payments by using award fees as incentives for contractors to lower 

their paid claims and provider compliance error rates. The outcome of that pilot was 

positive and CMS plans to use award fees as incentives in the future to reduce improper payments as part of MCR. 

We believe our efforts in Medicare have been a success. In November 2006, HHS 

reported a Medicare FFS paid claims error rate of 4.4 percent, a significant decrease 

from the 5.2 percent reported in 2005, and significantly lower than the 10.1 percent 

rate reported in FY 2004. We have far exceeded our expectations, having reduced 

the error rate beyond the 2006 goal of 5.1 percent. With continued monitoring and 

error reducing efforts we aim to achieve our future targets of 4.3 percent in 2007, 

4.2 percent in 2008, and 4.1 percent in 2009. 

Figure 1: 

We also are looking carefully at IPIA compliance for the new prescription drug 

benefit (Part D) and the expanded Medicare Advantage. CMS recruited staff during 

FY 2006 to oversee the development of payment error rates for Part C, Part D, and 

Retiree Drug Subsidy programs. CMS also awarded a contract to assist with the 

error rate development for these programs. During FY 2007, the contractor is performing a risk assessment and developing a pilot methodology to evaluate a selected 

risk element in each program. 

Finally, CMS, along with the States, have a strong interest in strengthening financial oversight and ensuring payment accuracy in the Medicaid program. The 

States provide a crucial first line of defense in safeguarding Medicaid program dollars. At the Federal level, our primary roles are to exercise proper oversight and 

review of State financial practices and to provide guidance and support for the 

States’ program integrity efforts. To comply with the IPIA of 2002 and implementing guidance by OMB, CMS began measuring improper payments in Medicaid 

and the State Children’s Health Insurance Program (SCHIP). In an effort to nationally implement IPIA for the Medicaid program, CMS published a proposed rule in 

August, 2004 which required states to measure improper payments in their MedVerDate Aug 31 2005 23:51 Mar 05, 2008 Jkt 040308 PO 00000 Frm 00030 Fmt 6602 Sfmt 6621 E:\HR\OC\40308.XXX 40308

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icaid programs. Subsequently, CMS published an interim final rule in August 2006, 

lessening the burden of this process on the states. We hope to publish a final rule 

in the Fall. A component Medicaid FFS error rate will be reported in the FY 2007 

PAR and full Medicaid and SCHIP rates will be reported in the FY 2008 PAR. The 

goals of the Payment Error Rate Measurement (PERM) project are: 

• to report a national program error rate in the PAR for each fiscal year measured; 

• to reduce improper payments in Medicaid and SCHIP through States’ corrective 

actions; and 

• to have States initiate recovery of erroneously paid Federal funds in these programs as identified through the PERM program. 

Fraud, Waste and Abuse 

As previously mentioned, CMS’ actions to safeguard Federal funds are not just 

limited to the error rate programs described in this testimony. Program and fiscal 

integrity oversight is an integral part of CMS’ financial management strategy, and 

a high priority is placed on detecting and preventing fraud, waste and abuse. To 

that end, CMS has made significant changes to its program integrity activities in 

recent years. 

The Program Safeguard Contractors (PSCs) are CMS’ fraud, waste and abuse detection contractors. As of 2006, PSC’s were established nationwide across all provider and supplier types in the Medicare fee-for-service program. The PSCs perform 

data analysis to identify potential problem areas, investigate potential fraud, develop fraud cases for referral to law enforcement and coordinate Medicare fraud, 

waste and abuse efforts with CMS’ internal and external partners (e.g., law enforcement, affiliated contractors (intermediaries, carriers, and Medicare Administrative 

Contractors). 

To further supplement the PSCs fraud identification efforts, CMS is making improvements to its own data analysis efforts. To achieve this, we are collecting vulnerability data from many of our partners, including Medicare contractors, and 

using a variety of data analysis tools to review Medicare claims data. Much of our 

work will focus on addressing vulnerabilities early in their lifecycle, and those that 

have high estimated dollar impact to the Medicare program. Our program integrity 

efforts will focus on the Top 10 vulnerabilities identified through our data analysis 

and developing corrective actions to address these identified vulnerabilities. 

CMS has taken several specific actions to ensure that Federal dollars are being 

properly spent and fraudulent billings are stopped when they are detected. In particular, we created a new satellite office in Los Angeles (LA), California to work in 

conjunction with an existing satellite office in Miami, Florida to help curtail fraudulent spending in those high risk areas. Through the combined efforts of the CMS 

LA satellite office, the PSC and the claims processing contractors operating in California, CMS has collectively identified over $2.1 billion in improper payments in 

Calendar Years 2005 thru 2006. This includes the prepayment denial of claims 

based upon fraud indicators and the postpayment identification of overpayments for 

claims identified as potentially fraudulent or highly suspect. The LA office has also 

conducted a special project that addressed improper billing and potentially fraudulent claims submitted by Independent Diagnostic Testing Facilities (IDTFs) operating in California. This Special Project resulted in approximately $163 million in 

denied charges and the termination of Medicare billing privileges for 83 IDTF providers.. 

Another important program integrity initiative is the Medicare-Medicaid (MediMedi) data matching program. Data mining health care claims for fraudulent activity has been commonplace for several years now. However, by jointly mining Medicare and Medicaid claims, new patterns are being detected that were not evident 

when viewed separately. The knowledge gleaned from our Medi-Medi activities 

helps both programs identify and address vulnerabilities. CMS has ten Medi-Medi 

projects in place in key states and, as mandated by the Deficit Reduction Act of 

2005, will expand the program nationwide. To date, over fifty Medi-Medi cases have 

been referred to law enforcement, $15 million in overpayments have been referred 

for collection, and $25 million in improper payments have been denied before payment was made. This project is contributing to overall reductions in payment errors. 

Section 306 of the Medicare Prescription Drug, Improvement, and Modernization 

Act of 2003 (MMA) gave CMS additional authority to pilot a new contracting authority designed to detect improper payments. This MMA provision directs the Secretary to demonstrate the use of Recovery Audit Contractors (RACs) in identifying 

Medicare underpayments and overpayments, and collecting Medicare overpayments. 

CMS implemented RACs in three states—Florida, New York and California and in 


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FY 2006, the RACs collected $68.6 million in overpayments and identified more 

than $300 million in improper payments. 

The RAC program is consistent with the President’s Management Agenda objective to prevent improper payments in federal programs. CMS designed the demonstration to accomplish two specific goals: to demonstrate whether RACs can identify past improper payments in the Medicare FFS program; and to determine whether the RACs can provide information to CMS that could help prevent future improper payments. It is clear that the RAC demonstration program accomplishes both 

of these goals. Given the success of this effort, Congress mandated the expansion 

of the RAC effort nationally in the Tax Relief and Health Care Act of 2006. CMS 

is now in the process of developing its expansion and implementation plans. 

Provider Enrollment 

CMS has seen a marked increase in fraud and abuse activities over the past few 

years that can be directly tied to provider enrollment issues. These activities are 

primarily focused in high vulnerability areas of the country such as Los Angeles, 

Miami and Houston where there are a large number of beneficiaries and providers/ 

suppliers. CMS has undertaken numerous aggressive actions to tighten the provider 

enrollment process, provide more rigorous oversight and monitoring once a provider/ 

supplier enrolls in the program, and strengthen the provider revocation process. 

The fraudulent business practices of unscrupulous durable medical equipment, 

orthotics, prosthetics, and supplies (DMEPOS) suppliers continue to cost the Medicare program billions of dollars. CMS is implementing new DMEPOS Accreditation 

Standards which will ensure DMEPOS suppliers meet CMS’ supplier certification 

standards. All suppliers of DMEPOS must comply with the CMS quality standards 

in order to receive Medicare Part B payments and to retain a supplier billing number. The National Supplier Clearinghouse will not be able to issue a supplier billing 

number to any non accredited supplier, thus any nonaccredited supplier attempting 

to bill Medicare, will be automatically ?kicked-out’ of the system. 

To accommodate suppliers that wish to participate in the Medicare DMEPOS program, CMS will phase-in the accreditation process and require accreditation organizations to prioritize their surveys to accredit suppliers in the selected Metropolitan 

Statistical Areas and competitive bidding areas. All suppliers who require accreditation to bid in any CMS conducted DMEPOS competitive bidding need to be given 

priority by the approved accrediting bodies. Those suppliers in a non-competitive 

bidding area will be given a certain time frame in which to become accredited. 

CMS is taking the following steps to better monitor a provider or supplier once 

it has entered the program: 

• Implement claims specialty editing to ensure suppliers are only paid for items 

they are properly licensed to provide; 

• Increase the number of random site visits to suppliers; 

• Require greater claims scrutiny for high fraud risk suppliers; 

• Deactivate providers with inactive provider numbers; and 

• Provide additional resources for investigative staff to increase proactive initiatives by the NSC and the PSCs. 

CMS is also implementing new strategies to remove fraudulent providers from the 

Medicare program. Our LA Office has recently identified situations in which some 

physicians are submitting claims for services that have not been furnished to a specific individual on the date of service. These instances include but are not limited 

to situations where the beneficiary is deceased, the directing physician or beneficiary was not in the state or country when the services were furnished, or when 

the equipment necessary for testing is not present where the testing is said to have 

occurred. We proposed through regulation that CMS have the authority to remove 

these fraudulent providers from the Medicare program. 

Medicare Advantage and Prescription Drug Oversight 

CMS has reduced the number of unsettled managed care cost reports. In FY 2006, 

CMS reduced the backlog of unsettled managed care cost reports by 16. Disallowances resulting from FY 2006 settlement activity amounted to about $33.5 million. 

For FY 2006, CMS had a rate of return of 36 to 1. The remaining backlog still represents a challenge to CMS because these cost reports have critical issues that must 

be resolved with Managed Care Organizations. These reports may eventually need 

audit adjustments. Many of the more recent cost reports sent to audit have fewer 

issues. 

In 2006, CMS developed a suite of tools to oversee the Medicare Prescription Drug 

Benefit (Part D). This included development of a Part D audit guide; audit checklists and worksheets; a Part D audit discussion guide; and a Part D audit standard 


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operating procedure. These tools assist CMS in ensuring the accuracy of Part D payments. 

Finally, CMS is using Medicare Drug Integrity Contractors (MEDICs) in the new 

Part D program to monitor and analyze information to help identify potential fraud; 

work with law enforcement, prescription drug plans, consumer groups and other key 

partners to protect consumers and enforce Medicare’s rules; and provide basic tips 

for consumers so that they can protect themselves from potential scams. Since November 2005, Delmarva Foundation, the first MEDIC which has an Enrollment & 

Eligibility Task Order, has addressed over 6758 complaints and conducted over 2000 

investigations. The MEDICs were expanded in September 2006 with two new contracts: Electronic Data Systems (EDS), which operates in the Northern region of the 

country, and Science Applications International Corporation (SAIC) operating in the 

South. In addition, the Delmarva MEDIC was regionalized to serve the Southeast. 

Collaboration with Law Enforcement Partners 

When instances of fraud or abuse are detected through any of these oversight 

mechanisms, CMS refers the cases to law enforcement. CMS has actively partnered 

with its law enforcement partners at the Department of Justice and HHS Office of 

Inspector General to aggressively pursue enforcement actions against those providers and suppliers that are found to be deliberately defrauding the Federal health 

care programs. 

For example, in 2006 the Delmarva Foundation, a MEDIC, identified a pattern 

of so-called ‘‘$299 scams.’’ Unsuspecting Medicare beneficiaries were being contacted 

by ‘‘agents’’ attempting to sell non-existent Medicare prescription drug plans for 

$299. CMS, in collaboration with Delmarva, responded by warning beneficiaries and 

their support groups about the scam pattern with a press release and a National 

Fraud Alert. Numerous referrals were made to federal law enforcement. To date, we 

have assisted beneficiaries in recovering more than $20,000 in funds stolen under 

these scams. 

Conclusion 

For eight fiscal years running, auditors have issued an unqualified opinion on 

CMS’ financial statements. This accomplishment reflects the Agency’s accountability 

for the public resources entrusted to us, and the dedication and commitment of our 

program and financial managers to achieve even stronger financial management. 

We will continue to work to fully meet our fiduciary and operating responsibilities 

to our beneficiaries in years ahead. 

f 

Chairman STARK. Thank you, Mr. Hill. 

Mr. Acosta is the United States Attorney for the Southern District of Florida, headquartered in Miami. 

Mr. ACOSTA. Correct. 

Chairman STARK. Why do you not proceed with your testimony 

in any manner in which you are comfortable. 

STATEMENT OF R. ALEXANDER ACOSTA, UNITED STATES ATTORNEY FOR THE SOUTHERN DISTRICT OF FLORIDA, MIAMI, 

FLORIDA 

Mr. ACOSTA. Thank you, Mr. Chairman. 

Chairman Stark, Chairman Lewis, Ranking Member Ramstad, 

Members of the Committee, good morning. 

I appreciate the opportunity to appear before you to discuss our 

efforts to combat and to prosecute healthcare fraud. I’m the United 

States Attorney for the Southern District of Florida. Medicare and 

Medicaid spending in my district is quite substantial. As a result 

in my district we are extremely aggressive at engaging in investigating and prosecuting Medicare and Medicaid fraud. 

My submitted testimony already describes the efforts of the Department nationwide in the healthcare fraud area. I would thereVerDate Aug 31 2005 23:51 Mar 05, 2008 Jkt 040308 PO 00000 Frm 00033 Fmt 6602 Sfmt 6602 E:\HR\OC\40308.XXX 40308

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fore like to use my time this morning to talk a little bit about our 

efforts in South Florida. 

Since becoming United States Attorney I have made healthcare 

fraud a top priority. On the civil front, we in Miami are litigating 

a number of hospital and pharmaceutical healthcare fraud claims. 

This past December, for example, the University of Miami paid 

$2.2 million to resolve a claim related to billing by its teaching hospital, Jackson Memorial. The previous month, Larkin Hospital paid 

$15.4 million to resolve allegations of unnecessary medical treatments at that hospital. Earlier this year we entered into a whistle 

blower lawsuit against Abbott Labs that concerned fraudulent and 

inflated prices for pharmaceutical products causing excess reimbursements of over $175 million. 

Our most significant challenge, however, is on the criminal front. 

To address this challenge, in late 2005 I formed a South Florida 

Healthcare Fraud Initiative to bring together the healthcare fraud 

prosecution resources of the United States Attorney’s Office, the 

OIG, the Federal Bureau of Investigation (FBI) and the Florida Attorney General’s Office. Although still in its early phase, this 

healthcare fraud initiative has begun to pay dividends. 

Last fiscal year, the United States Attorneys across the Nation 

brought 355 criminal healthcare fraud claims, 355 claims nationwide. In South Florida, we filed 68 of these 355 claims, a 30-percent increase over the prior year’s filings. Our conviction rate was 

97 percent. 

I am particularly excited about our South Florida initiative because our prosecutors are doing much more than merely coordinating resources. We are developing and we are testing new law 

enforcement methods to add to our litigation arsenal, the arsenal 

that we use to combat and to prosecute healthcare fraud. 

I would like to describe two of these methods for you this morning. The first concerns the use of civil complaints to freeze or seize 

moneys paid because of healthcare fraud. A recent operation, ‘‘Equity Excise’’, is one example. In Operation Equity Excise, we identified clinics and durable medical equipment companies that engaged 

in healthcare fraud. We identified approximately 60 of these clinics. 

Often these companies closed abruptly to avoid detection by law enforcement and in the process, they abandoned accounts often with 

substantial sums of money. They walked away from these accounts. 

The FBI and OIG agents interviewed the signatories on these 

bank accounts. Many of the signatories denied that the companies 

existed. They had no knowledge of the companies. They denied any 

knowledge of the funds and they handed the funds right over to us. 

In this way, we located 34 individuals, the voluntarily surrendered 

$10.5 million. 

Twenty-three accounts, in 23 cases we could not locate the signatories on those accounts. Those accounts have $30 million in 

them. So we have filed claims against those accounts. We intend 

to provide notice by publication, proceed through default judgments, seize the money and return those 30 million in addition to 

the United States Treasury. That is $40 million returned the 

United States Treasury. 

I think it is important to emphasize we also intend to pursue 

criminal action where appropriate. Civil complaints are not our 


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only option but for now at the very least by seizing these bank accounts through this Operation Equity Excise, we can return these 

$40 million of taxpayer money to the Federal treasury. 

I would like to talk about a second method that we are also refining through a recently implemented short term pro-active search 

operation, actually an operation that has been underway for less 

than 1 month. Working jointly with the Criminal Division of the 

FBI, HHS, OIG and local law enforcement in Miami, we implemented this operation on February 14th. The operation uses proactive law enforcement methods adapted from our experience fighting illicit drug trafficking in South Florida, along with our experience in credit card fraud, our experience looking at real time data 

review that is often used to fight credit card fraud. 

Here our Federal agents are reviewing near real time billing patterns. We are looking in particular for instances of unusual spikes 

in billing. When those unusual spikes are identified, we then look 

behind that information to identify high levels of billing of particular items that make no medical sense. 

Once targets are identified, our FBI and OIG agents visit those 

offices an interview the providers where the fraud is taking place. 

In the short weeks that this operation has been underway, our 

agents have already executed arrests and have several investigations pending. In about a month. Such caught-in-the-act cases are 

often easier to prosecute than the more typical healthcare fraud 

case that is based on historical evidence primarily. 

Finally, to augment the cooperation between our prosecutors and 

agents, we have co-located the prosecutors and the agents in a fusion center modeled after similar arrangements more traditionally 

used in drug and organized crime prosecutions. We hope that the 

proximity of the investigators and prosecutors working together 

under the same roof in the same center will foster strong working 

relationships and a more proactive investigatory method. 

Chairman Stark and Lewis, Mr. Ramstad, Members of the Committee, I would like to close with a few words about the men and 

women who do this work. My office receives approximately 

$981,000 from the HCFAC account. To make these initiatives a 

success, I have matched this $981,000 with about 200 percent, with 

about an additional $2 million from general funds. With this we 

fund about a dozen attorneys and their staff who focus on 

healthcare fraud. These public servants work hard typically litigating against attorneys that are much better paid. They are often 

outnumbered. There are some meetings where there are a dozen 

attorneys against one individual; but because they are experts in 

their field, they are not outgunned. The Southern District is proud 

of their accomplishments, our results, our civil matters, our moneys 

seized and collected and our criminal prosecutions cover our outlays many times over. 

I thank the Committee for its time and I welcome your questions. 

Thank you. 

[The prepared statement of Mr. Acosta follows:] 

Prepared Statement of R. Alexander Acosta, 

United States Attorney for the Southern District of Florida, Miami, Florida 

Chairman Stark and Chairman Lewis, and distinguished members of the subcommittees, I appreciate the opportunity to appear before you to discuss some of the 


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issues that are the focus of today’s hearing. We are grateful for the leadership of 

your subcommittees on this important topic and to you, Chairmen Stark and Lewis, 

for allowing us this opportunity to discuss the Department of Justice’s enforcement 

efforts to combat Medicare fraud. 

I am the United States Attorney for the Southern District of Florida, which includes three of Florida’s largest metropolitan areas, Miami, Ft. Lauderdale, and 

West Palm Beach. These areas have a substantial population of senior citizens who 

are enrolled in the Medicare program. As a result, my district is extremely engaged 

in investigating and prosecuting those who take advantage of seniors, endanger the 

health and lives of seniors, and defraud the Medicare program. 

In my written testimony I will describe the role the Department of Justice plays 

in Medicare program integrity, including the role of the Criminal and Civil Divisions 

of the Department of Justice, the Federal Bureau of Investigation, and the 93 U.S. 

Attorney’s Offices across the country. I will address our sources of funding, our cooperative relationship with the Department of Health and Human Services, and our 

accomplishments. I will conclude by describing some of the particular initiatives we 

are launching in my district to fight fraud. 

OVER $11 BILLION IN RECOVERIES RETURNED TO THE MEDICARE 

AND MEDICAID PROGRAMS SINCE 1997 

The Department of Justice is committed to rooting out and punishing individuals 

and corporations who commit health care fraud, including providers and practitioners, equipment suppliers, and corporate wrongdoers. Medicare is the Federal 

Government’s second largest social insurance program, behind only Social Security, 

with 42.5 million beneficiaries and estimated total expenditures of nearly $418 billion in 2006. 

The Department of Justice is not, and cannot be, alone in the fight to combat 

fraud and preserve the integrity of the country’s health care system. We work closely with the Inspector General of the Department of Health and Human Services as 

well as our colleagues at the Centers for Medicare and Medicaid Services (CMS). 

We also work closely with the Food and Drug Administration, including its Office 

of Criminal Investigations (FDA–OCI), the Federal Employees Health Benefits Program (FEHBP) at the Office of Personnel Management and its Office of Inspector 

General, and with our State law enforcement partners in their Offices of Attorneys 

General and Medicaid Fraud Control Units. 

Working with our colleagues, since the inception of the Health Care Fraud and 

Abuse Control (HCFAC) program in 1997, the Department has obtained, according 

to our preliminary estimates, $11.87 billion in total recoveries, which include criminal fines and Federal and State civil settlements in health care fraud matters, predominantly involving losses to the Medicare program. Of this total, $10.4 billion has 

been transferred or deposited back into the Medicare Trust Fund and $604 million, 

representing the federal share of Medicaid fraud recoveries, has been transferred to 

CMS. The monetary recoveries we achieve go right back into the Medicare and Medicaid programs to help fund the health care costs of the Americans who are enrolled. 

These recoveries were made possible by the dedicated funding stream provided by 

the ‘‘HCFAC Program,’’ which was established by the Health Insurance Portability 

and Accountability Act of 1996. This program provides the principal source of funding for Department of Justice efforts to combat Medicare fraud. 

STATUTORY BACKGROUND AND FUNDING 

Social Security Act Section 1128C(a), as established by the Health Insurance Portability and Accountability Act of 1996 (P.L. 104–191, HIPAA or the Act), created the 

Health Care Fraud and Abuse Control Program, a comprehensive program to combat fraud and abuse in health care, including both public and private health plans. 

Under the joint direction of the Attorney General and the HHS Secretary, the 

HCFAC Program’s goals are: 

(1) to coordinate federal, state and local law enforcement efforts relating to health 

care fraud and abuse with respect to health plans; 

(2) to conduct investigations, audits, inspections, and evaluations relating to the 

delivery of and payment for health care in the United States; 

(3) to facilitate enforcement of all applicable remedies for such fraud; 

(4) to provide guidance to the health care industry regarding fraudulent practices; 

and 

(5) to establish a national data bank to receive and report final adverse actions 

against health care providers, and suppliers. 

The Act requires the Attorney General and the Secretary to submit a joint annual 

report to the Congress which identifies both: 


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1 Also known as the Hospital Insurance (HI) Trust Fund. All further references to the Medicare Trust Fund refer to the HI Trust Fund. 2 Actual collections, transfers and deposits that ultimately result from healthcare fraud judgments and settlements may not equal the total ‘‘won or negotiated’’ during FY 2006. 

(1) the amounts appropriated to the Trust Fund for the previous fiscal year under 

various categories and the source of such amounts; and 

(2) the amounts appropriated from the Trust Fund for such year for use by the 

Attorney General and the Secretary and the justification for the expenditure 

of such amounts. 

The Act requires that an amount equaling recoveries from health care investigations—including criminal fines, forfeitures, civil settlements and judgments, and administrative penalties, but excluding restitution, compensation to the victim agency, 

and relators’ shares—be deposited in the Medicare Trust Fund.1 All funds deposited 

in the Trust Fund as a result of the Act are available for the operations of the Medicare programs funded by the Trust Fund. 

The Act appropriates monies from the Medicare Trust Fund to an expenditure account, called the Health Care Fraud and Abuse Control Account (the Account), in 

amounts that the Secretary and Attorney General jointly certify as necessary to finance anti-fraud activities. The maximum amounts available for certification are 

specified in the Act. Congress established the dedicated HCFAC resources to supplement the direct appropriations that HHS and DOJ otherwise devoted to health care 

fraud investigation and prosecution. The Act specifies the annual maximum 

amounts available to HHS and DOJ for their health care fraud enforcement work, 

assigns specific authorities to the HHS Office of Inspector General (HHS–OIG), and 

stipulates the range of funding OIG must receive each year. In fiscal year (FY) 

1997, HIPAA authorized HHS and DOJ to appropriate from the Account up to $104 

million, and allowed the Departments to increase that appropriated amount by up 

to 15% annually until FY 2003. HIPAA also provided $47 million in dedicated funding for the FBI’s health care fraud investigations beginning in 1997 which also increased annually until 2003. 

Since FY 2003, the maximum available for HHS and the Department of Justice 

(DOJ) collectively was fixed by statute at $240.558 million annually. Of this total, 

the HHS–OIG received the statutory maximum amount of $160 million annually. 

The DOJ litigating components and other (non-OIG) HHS components split the remaining $80.558 million, which we refer to as the ‘‘wedge.’’ Thus, of the $240.558 

million maximum amount, the DOJ litigating components have received $49.415 

million annually from FY 2003 through FY 2006. Separately, HIPAA appropriated 

$114 million annually to the Federal Bureau of Investigation (FBI) over this same 

time period to support the Bureau’s health care fraud investigative activities. 

Section 303 of Division B of the ‘‘Tax Relief and Health Care Act of 2006,’’ signed 

by President Bush last December, provides for annual inflation adjustments to the 

maximum amounts available from the HCFAC Account and for the FBI starting in 

FY 2007 for each year through FY 2010. In FY 2010, a fixed funding level or ‘‘cap’’ 

is reinstated at the 2010 level. With the increasing pressures on the Department’s 

discretionary funding and the resulting impact on resources for other critical Administration priorities and responsibilities, we are hopeful that the annual inflationary adjustments in the Tax Relief and Health Care Act of 2006 will help sustain 

the Department’s current level of criminal and civil health care fraud enforcement 

activities during the period of 2007–2010. We anticipate, however, that current 

funding levels alone will be insufficient to address the accumulated numbers of 

pending cases resulting from the cap on HIPAA funding since FY 2003, the growth 

in the Medicare program due largely to the prescription drug benefit program, and 

an anticipated increase in referrals associated with the increases in anti-fraud funding to HHS agencies from the Deficit Reduction and Reconciliation Act of 2005. The 

President’s FY 2008 budget includes an additional $17.5 million through a discretionary cap adjustment proposal for the Department to address these funding concerns. 

HCFAC PROGRAM ACCOMPLISHMENTS FY 2006 

During Fiscal Year 2006, the Department ‘‘won or negotiated’’ approximately $2.2 

billion in judgments and settlements, and it attained additional administrative impositions in health care fraud cases and proceedings.2 The Medicare Trust Fund received transfers of nearly $1.55 billion during this period as a result of these efforts, 

as well as those of preceding years, in addition to $117.1 million representing the 


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3 Note that some of the judgments, settlements, and administrative actions that occurred in 

FY 2005 will result in transfers in future years, just as some of the transfers in FY 2005 are 

attributable to actions from prior years. 

federal share of Medicaid money similarly transferred to CMS as a result of these 

efforts.3

In criminal enforcement actions during 2006, prosecutors for the Department and 

U.S. Attorneys’ Offices: 

• Opened 836 new criminal health care fraud investigations involving 1,448 potential defendants, and had 1,677 criminal health care fraud investigations involving 2,713 potential defendants pending at the end of the fiscal year; and 

• Filed criminal charges in 355 health care fraud cases involving charges against 

579 defendants and obtained 547 convictions for the year. 

In civil enforcement actions during 2006, attorneys for the Department and U.S. 

Attorneys’ Offices: 

• Opened 698 new civil health care fraud investigations, and had 1,268 civil 

health care fraud investigations pending at the end of the fiscal year; and 

• Filed complaints or intervened in 217 civil health care cases. 

Since the inception of the HCFAC program in 1997, the Department’s criminal 

and civil enforcement efforts funded through that program have returned nearly 

$11.87 billion total to the federal government, including more than $10.4 billion 

transferred to the Medicare Trust Fund and $604 million representing the federal 

share of Medicaid fraud recoveries transferred to CMS. We have secured more than 

4,500 criminal convictions for health care fraud related offenses, the vast majority 

involving Medicare fraud. 

INTERAGENCY DOJ-HHS COOPERATION 

Because the Department of Health and Human Services administers the Medicare 

Program and maintains all the payment records and data submitted by providers, 

successful prosecution of criminal cases and litigation of civil cases requires close 

cooperation between the Departments. Examples of this close cooperation include 

the following: 

• Under auspices of HCFAC Program, DOJ and HHS hold senior staff-level meetings on a quarterly basis that include representatives from the Office of the 

Deputy Attorney General, Office of the Associate Attorney General, HHS Counsel to the Inspector General and Office of General Counsel, and CMS Program 

Integrity Director. 

• Our agencies also hold quarterly CMS-law enforcement agency coordinating 

meetings among mid- and lower-level staff who work on specific collaborative 

initiatives, cases, and investigations. 

• We also hold monthly CMS–DOJ conference calls involving CMS Program Integrity and other staff with our USAO and FBI personnel nationwide. 

• Interagency health care fraud task forces and working groups exist in a majority of federal judicial districts that consist of Assistant U.S. Attorneys, HHS and 

FBI investigative agents, CMS program agency personnel and Medicare Program Safeguard Contractors, Medicaid Fraud Control Units, state Attorney 

General staff, and some include private insurer investigators. 

• The HHS–OIG shares summarized information about all Medicare contractor 

referrals for investigation with the FBI and DOJ, and the FBI exchanges copies 

of its health care fraud case opening memorandums with OIG. 

• DOJ participated in the planning and presentation of a Medicaid Fraud training conference sponsored by the Inspector General of the Department of Health 

and Human Services, and it conducted a nationwide closed circuit training session for federal and state law enforcement officials on the HIPAA privacy rule 

and other privacy laws and regulations. 

• Last year DOJ attorneys and support staff trained CMS regional and central 

office staff hired to administer the Medicare prescription drug benefit and monitor the prescription drug plans on federal health care fraud statutes and possible fraud schemes which may occur in the Medicare Prescription Drug (Part 

D) program. Department attorneys and staff also conducted two national training seminars for CMS Medicare Drug Integrity Contractor staff hired to conduct 

program integrity and anti-fraud work for the Part D program. 


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4 A portion of this $5.3 billion is included in the reported False Claims Act recoveries for this 

same period. 5When a USAO accepts a criminal referral for consideration, the office opens it as a matter 

pending in the district. A referral remains a matter until an indictment or information is filed 

or it is declined for prosecution. 

DEPARTMENT COMPONENTS INVOLVED IN MEDICARE ANTI-FRAUD 

ENFORCEMENT 

Health care fraud enforcement involves the work of several different components 

of the Department, each of which receives funding from the HCFAC Program. I will 

briefly summarize 

the roles that different parts of the Department play in pursuing health care 

fraud matters. 

Civil Division of the Department of Justice 

The Department’s Civil Division attorneys pursue civil remedies in health care 

fraud matters, using the False Claims Act, 31 U.S.C. §§ 3729–3733, as the primary 

statutory tool. The False Claims Act (FCA) prohibits knowingly submitting false or 

fraudulent claims for payment from the government, and knowingly making false 

records or statements to conceal or decrease an obligation to pay money to the government. The penalties under the FCA can be quite large because the law provides 

for treble damages plus additional penalties for each false claim filed. In addition, 

lawsuits are often brought by private plaintiffs, known as ‘‘relators’’ or ‘‘whistleblowers,’’ under the qui tam provisions of the FCA, and the government will intervene in appropriate cases to pursue the litigation and recovery against the provider 

or company. The Civil Division also pursues these cases as criminal violations of the 

Food, Drug, and Cosmetic Act. 

In FY 2006, the Civil Division opened or filed a total of 239 health care fraud 

cases or matters. In addition to any new cases that are filed, however, there remain 

a significant number of matters that the Division continues to move toward resolution. At the end of FY 2005, there remained 680 open cases. Many of these health 

care fraud cases, typically those involving corporate or institutional providers, involve millions of documents and hundreds of witnesses, require experienced litigation support personnel to amass and organize the evidence, and need knowledgeable 

consultants to provide their expertise about the fraudulent schemes. 

Since the False Claims Act was substantially amended in 1986, the Civil Division, 

working with United States Attorney’s Offices, has recovered $18.2 billion on behalf 

of the various victim federal agencies. Of that amount, $11.5 billion was the result 

of fraud against federal health care programs—primarily the Medicare program. 

Cases involving violations of the Food, Drug, and Cosmetic Act, or other types of 

fraud by pharmaceutical manufacturers in connection with federal health benefit 

programs, have resulted in total criminal and civil recoveries of over $5.2 billion 

since 1999.4 The Civil Division’s Office of Consumer Litigation works with many of 

the United States Attorney’s Office on these prosecutions. 

In addition to these accomplishments, the Department’s Nursing Home and Elder 

Justice Initiative, coordinated by the Civil Division, supports enhanced prosecution 

and coordination at federal, state and local levels to fight abuse, neglect, and financial exploitation of the nation’s senior and infirm population. Through this Initiative, the Department also makes grants to promote prevention, detection, intervention, investigation, and prosecution of elder abuse and neglect, and to improve the 

scarce forensic knowledge in the field. The Department additionally is pursuing a 

growing number of cases under the FCA involving providers’ egregious ‘‘failures of 

care.’’ 

United States Attorneys Offices 

The 93 United States Attorneys Offices (USAOs) are the nation’s principal prosecutors of federal crimes, including health care fraud. The USAOs pursue both civil 

and criminal cases and dedicate substantial resources to combating health care 

fraud. Each of the 93 districts has a designated Criminal Health Care Fraud Coordinator and Civil Health Care Fraud Coordinator. HCFAC funding supports about 100 

attorney and 81 support positions, and many USAOs supplement the HCFAC program funding they receive by providing for additional attorneys, paralegals, auditors, and investigators, as well as funds for litigation expenses for these resourceintensive cases. 

In FY 2006, USAOs received 836 new criminal matters involving 1,448 defendants, and had 1,677 health care fraud criminal matters pending,5 involving 2,713 

defendants. USAOs filed criminal charges in 355 cases involving 579 defendants, 

and obtained 547 federal health care related convictions. During the last fiscal year, 


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USAOs also opened 698 new civil health care fraud matters and had 1,268 civil 

health care fraud matters and cases pending. 

USAOs receive referrals of health care fraud cases from a wide variety of sources, 

including the FBI, the HHS/OIG, state Medicaid Fraud Control Units, other federal, 

state, and local law enforcement agencies, and private insurers of medical services. 

The health care fraud coordinators often work with these partners in fighting health 

care fraud in local and regional task forces and working groups, and these also can 

be the basis of case referrals. Cases are also obtained by USAOs by means of qui 

tam complaints. Under the False Claims Act, a qui tam plaintiff (a ‘‘relator’’) must 

file his or her complaint under seal in a United States District Court, and serve a 

copy of the complaint upon the USAO for that judicial district, as well as the Attorney General. The USAO must then decide whether the case warrants an intervention by the government to litigate the complaint. 

The Executive Office for the United States Attorneys’ (EOUSA) through the Office 

of Legal Education (OLE) provides training for AUSAs and other Department attorneys, as well as paralegals, investigators, and auditors in the investigation and 

prosecution of health care fraud. For instance, in FY 2006, EOUSA and the Civil 

Division participated in the planning and presentation of a Medicaid Fraud training 

conference sponsored by the Inspector General of the Department of Health and 

Human Services, and it joined with both the Civil and Criminal Divisions to conduct 

a nationwide closed circuit training for federal and state law enforcement officials 

on the HIPAA privacy rule and other privacy laws and regulations. EOUSA and the 

Office of Legal Education also sponsored the Health Care Fraud Coordinator’s Conference for Civil and Criminal AUSAs, and Health Care Fraud for new AUSAs and 

Affirmative Civil Enforcement for Auditors, Investigators and Paralegals at the National Advocacy Center, and, most recently, it sponsored a Health Care Fraud Trial 

Practice Seminar for over 120 Department lawyers. 

Criminal Division of the Department of Justice 

The Criminal Division’s Fraud Section develops and implements white collar 

crime policy, and supports the federal white collar crime enforcement community 

through litigation, coordination, policy, and legislative work. The Fraud Section is 

responsible for handling and coordinating complex health care fraud litigation nationwide. The Fraud Section also supports the USAOs with legal and investigative 

guidance, training, and, in certain instances, provides trial attorneys to prosecute 

criminal health care fraud cases. 

In FY 2006, the Fraud Section provided guidance to FBI agents, AUSAs and 

Criminal Division attorneys on criminal, civil, and administrative tools to combat 

health care fraud, and worked at an interagency level through the following activities: 

• coordinating large scale multi-district health care fraud investigations; 

• providing frequent advice and written materials on confidentiality and disclosure issues arising in the course of investigations and legal proceedings regarding patient medical records, including HIPAA health information privacy requirements, compliance with the Substance Abuse Patient Medical Records Privacy Act and regulations, and coordinating referrals from the HHS Office for 

Civil Rights of possible criminal violations of HIPAA privacy provisions providing training and training materials for AUSAs, investigative agents, support 

staff, program agency officials, and state and local law enforcement on health 

care fraud enforcement and medical records privacy issues; 

• providing training and training materials for AUSAs, investigative agents, support staff, program agency officials, and state and local law enforcement on 

health care fraud enforcement and medical records privacy issues; 

• monitoring and coordinating Departmental responses to legislative proposals, 

major regulatory initiatives, and enforcement policy matters related to prevention, deterrence and punishment of health care fraud and abuse; 

• reviewing and commenting on health care provider requests to the HHS/OIG for 

advisory opinions, and consulting with HHS/OIG on draft advisory opinions per 

HIPAA requirements; 

• working with USAOs and CMS to improve Medicare contractors’ fraud detection, referrals to law enforcement for investigation, and case development work; 

• preparing and distributing to all USAOs and FBI field offices periodic summaries of recent and significant health care fraud cases; and 

• organizing, overseeing and participating in interagency working groups formed 

to address specific cases and initiatives, often in conjunction with the Civil Division and Executive Office for United States Attorneys. 


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37 

In FY 2006, the Fraud Section handled or was involved in cases and investigations of a defunct health maintenance organization; a financial service holding company that serviced hospitals, nursing facilities, and other health care providers; and 

of durable medical equipment (DME) suppliers and pharmacies. Along with the 

USAO for the Northern District of Ohio, Fraud Section attorneys indicted seven individuals in a scheme involving a financial service holding company. Through its 

subsidiary corporations, the company bought accounts receivable from hospitals, 

nursing homes and other health care providers and medical concerns, and company 

executives illegally diverted the money for other unrelated purposes. In another 

case, Fraud Section attorneys and the USAO from the Eastern District of Louisiana 

filed a superseding indictment of four corporate executives in a case involving the 

collapse of Louisiana’s third largest HMO and its subsequent takeover and liquidation by the state Department of Insurance. 

My district is actively working with the Fraud Section. We recently indicted five 

defendants who were involved in a scheme to defraud Medicare by submitting prescriptions for groups of Medicare beneficiaries who were paid kickbacks by certain 

pharmacies to allow the fraudulent billing of aerosol medicines. All three of these 

cases are scheduled to go to trial in 2007. 

Civil Rights Division of the Department of Justice 

The Civil Rights Division vigorously pursues the Department’s goals of eliminating abuse and grossly substandard care in Medicare (and Medicaid) funded nursing homes and other long-term care facilities. The Division undertakes this work 

pursuant to the Civil Rights of Institutionalized Persons Act, 42 U.S.C. § 1997 

(CRIPA). CRIPA authorizes investigations of conditions of confinement at publicly 

operated nursing homes and other residential institutions and authorizes the initiation of civil action for injunctive relief from violations of federal rights. In performing this work, the Division often collaborates with United States Attorneys 

around the country and with the Department of Health and Human Services. 

Division staff conducted preliminary reviews of conditions and services at 29 

health care facilities in 12 states during Fiscal Year 2006. The task in preliminary 

inquiries is to determine whether there is sufficient information supporting allegations of unlawful conditions to warrant formal investigation under CRIPA. The Division reviews information pertaining to areas such as abuse and neglect, medical and 

mental health care, use of restraints, fire and environmental safety, and placement 

in the most integrated setting appropriate to individual needs. Separately, in Fiscal 

Year 2006, the Division opened or continued formal investigations, entered remedial 

agreements, or monitored existing remedial agreements regarding 45 health care facilities in 23 states, the District of Columbia, and the Commonwealth of Puerto Rico. 

For example, in Fiscal Year 2006, the Division: (1) opened an investigation of a 

nursing home in South Carolina; (2) made findings that conditions and practices at 

another nursing home, Fort Bayard Medical Center, in Fort Bayard, New Mexico, 

violate its residents’ federal constitutional and statutory rights; (3) entered a settlement agreement to remedy unlawful conditions at one of the largest public nursing 

homes in the country, A. Holly Patterson Extended Care Facility, in Uniondale, New 

York; and (4) monitored the implementation of remedial agreements for four nursing 

homes: Banks-Jackson-Commerce Medical Center and Nursing Home, in Commerce, 

Georgia; Nim Henson Geriatric Center, in Jackson, Kentucky; Reginald P. White 

Nursing Facility, in Meridian, Mississippi; and Mercer County Geriatric Center, in 

Trenton, New Jersey. More recently, in response to allegations of shocking mistreatment and neglect of elderly veterans, including an apparent homicide, the Division 

last month opened investigations of two veterans’ homes in Tennessee. 

The Division’s recent findings regarding one nursing home are unfortunately illustrative. The investigation revealed a wide range of dangerously deficient medical 

and nursing care practices that not only failed to comply with federal regulations 

or meet professional standards, but were in fact aiding and contributing to the needless suffering and untimely deaths of residents. The Division found numerous situations where residents’ last days of life were spent in misery, as they died from the 

effects of what appeared to be reckless and almost willful disregard to their health 

and safety. In fact, in virtually every record reviewed of deceased or current residents, the Division discovered life-threatening breakdowns of treatment that were 

substantial departures from the generally accepted standards in nursing home care. 

The Division is now negotiating an agreement to remedy these deficiencies. 

Federal Bureau of Investigation 

The FBI is the Department’s primary investigative agency involved in the fight 

against health care fraud. The FBI leverages its resources in both the private and 

public arenas through investigative partnerships with agencies such as the HHS/ 


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OIG, the FDA/OCI, the Drug Enforcement Administration (DEA), the Defense 

Criminal Investigative Service, the Office of Personnel Management, the Internal 

Revenue Service, and various state and local agencies. In FY 2006, the FBI was allocated $114 million in HCFAC funds for health care fraud enforcement. This yearly 

appropriation was used to support 775 positions (455 Agent, 320 Support) in FY 

2006. The number of pending investigations has shown steady increase from 591 

cases in 1992 to 2,423 cases through 2006. FBI-led investigations resulted in 535 

criminal health care fraud convictions and 588 indictments and informations being 

filed in FY 2006. 

The FBI initiates health care fraud cases from various sources of information. Information can come from such sources as Medicare contractors, private insurance 

company Special Investigations Units, the National Health Care Anti-Fraud Association, employees of businesses providing medical services (hospitals, doctor’s offices, clinics, medical equipment suppliers, nursing homes, etc.), confidential sources 

or cooperating witnesses with access to information and complaints from public citizens which are often beneficiaries of the health care services. 

FRAUD SCHEMES 

To give you a sense of the types of fraud schemes the Department has seen and 

the enforcement results the Department has achieved, I will outline below some of 

the significant Medicare fraud cases the Department pursued over the last year. 

This list is not meant to be exhaustive; it is meant to illustrate some of the fraud 

schemes we are seeing. 

Hospital Matters 

• Tenet Healthcare Corporation, the nation’s second largest hospital chain, 

agreed to pay $920 million to settle allegations of fraud against Medicare and 

other federally insured health care programs. The settlement included $806 million to resolve claims that Tenet billed Medicare for excessive ‘‘outlier’’ payments. Federal health insurance programs, including Medicare, typically reimburse hospitals a fixed amount for treating a patient with a specific condition 

or illness, but will reimburse extraordinary ‘‘outlier’’ costs when they are reasonably incurred. Congress enacted the supplemental outlier payment system to 

ensure that hospitals possess the incentive to treat inpatients whose care requires unusually high costs. The United States alleged that Tenet artificially inflated its charges to make it appear that many of its patients received extraordinary care when, in fact, the treatment that was given was fairly standard and 

far less costly. The settlement also included $49 million to resolve claims that 

Tenet paid kickbacks to physicians for patient referrals, $48 million to resolve 

claims that Tenet billed the Government at a higher rate than was justified by 

the services performed, and $20 million in pre-settlement interest. 

Government-initiated claims accounted for nearly $770 million of the settlement, 

with the remaining $150 million attributable to six qui tam suits. The relators who 

filed those suits will share $12 million of the settlement amount. 

• St. Barnabas Health Care System, the largest health care system in New 

Jersey, paid $265 million to resolve allegations that nine of its hospitals fraudulently increased charges to elderly patients to obtain enhanced Medicare reimbursement for outlier claims. The United States alleged that between October 

1995 and August 2003, Saint Barnabas and nine of its hospitals purposefully 

inflated charges for inpatient and outpatient care to make these cases appear 

more costly than they actually were, and thereby obtained outlier payments 

from Medicare that they were not entitled to receive. 

Saint Barnabas entered into a Corporate Integrity Agreement with the United 

States Department of Health and Human Services, Office of Inspector General. The 

Corporate Integrity Agreement contains measures to ensure compliance with Medicare regulations and policies in the future. 

• Following a three-week trial, the former owner and chief executive officer of the 

now defunct Edgewater Hospital in Chicago was found liable under the False 

Claims Act for engaging in an illegal kickback scheme at Edgewater. The court 

found that the defendant paid physicians for Medicare and Medicaid patient referrals in violation of federal law. The court held that the hospital’s cost reports 

and individual patient claims for patients referred in connection with the 

scheme were false claims and awarded treble damages and penalties on just 

over 1,800 claims. 

• Two owners of a former San Diego psychiatric hospital were found liable after 

trial for more than $15.7 million in damages and penalties for having included 


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false claims in the hospital’s cost report submitted to the Medicare program. 

Those cost reports sought reimbursement from the Medicare program for a variety of false costs, such as amounts for a fictitious lease, reimbursement for unused hospital space, and millions of dollars in costs that were actually attributable to the defendants’ business enterprises unrelated to that hospital. The 

court awarded the United States $15,688,585 for treble damages and $31,000 

in civil penalties. 

Pharmaceutical Matters 

• Schering-Plough Corporation, together with its subsidiary, Schering Sales Corporation, agreed to pay a total of $435 million to resolve criminal charges 

and civil liabilities in connection with illegal sales and marketing programs for 

its drugs Temodar, used in the treatment of brain tumors and metastasis, and 

Intron A, used in the treatment of superficial bladder cancer and hepatitis C. 

The resolution also pertained to Medicaid fraud involving Schering’s drugs 

Claritin RediTabs, a non-sedating antihistamine, and K–Dur, used in the treatment of stomach conditions. 

Schering Sales Corporation agreed to plead guilty to charges that it conspired 

with others to make false statements to the FDA in response to the FDA’s inquiry 

concerning certain illegal promotional activities by the company’s sales representatives at a national conference for oncologists. Schering Sales also agreed to plead 

guilty to charges that it conspired with others to give free Claritin Redi-Tabs to a 

major health maintenance organization (HMO) to disguise a new lower price being 

offered to the HMO to obtain its business. 

• Eli Lilly and Company agreed to plead guilty and to pay $36 million in connection with its illegal promotion of its pharmaceutical drug Evista. In pleading 

guilty to a criminal count of violating the Food, Drug, and Cosmetic Act by misbranding its drug Evista, the Indianapolis-based company agreed to pay a $6 

million criminal fine and forfeit to the United States an additional sum of $6 

million. In addition to the criminal plea, Lilly agreed to settle civil Food, Drug, 

and Cosmetic Act liabilities by entering into a consent decree of permanent injunction and paying the United States $24 million in equitable disgorgement. 

Evista is approved by the FDA for the prevention and treatment of osteoporosis 

in postmenopausal women. The government alleged that the first year’s sales of 

Evista in the U.S. were disappointing compared to Lilly’s original forecast; the company reduced the forecast of Evista’s first year’s sales in the U.S. from $401 million 

to $120 million. In order to expand sales of the drug, it was alleged, Lilly sought 

to broaden the market for Evista by promoting it for off-label uses, such as for the 

prevention and reduction in risk of breast cancer, and the reduction in the risk of 

cardiovascular disease. Lilly promoted Evista as effective for reducing the risk of 

breast cancer, even after Lilly’s proposed labeling for this use was specifically rejected by the FDA. 

• Serono, one of the world’s largest biotech manufacturers, paid $704 million to 

resolve criminal charges and civil liabilities in connection with several illegal 

schemes to promote and sell its drug, Serostim, that resulted in the submission 

of false claims to Medicaid and Medicare. The FDA had granted accelerated approval for Serostim in 1996 to treat AIDS wasting, a condition involving profound involuntary weight loss in AIDS patients, then a leading cause of death 

in AIDS patients. Following the advent of protease inhibitor drugs, the incidence of AIDS wasting markedly declined, and Serono launched a campaign to 

redefine AIDS wasting to create a market for Serostim. Serono pled guilty to 

conspiring with RJL Sciences, a medical device manufacturer, to introduce on 

the market bioelectrical impedance analysis (BIA) computer software packages 

for use in measuring body cell mass and diagnosing AIDS wasting. The BIA 

software devices were adulterated medical devices in that FDA had not approved the devices for these uses. RJL and its owner also pled guilty to their 

roles in the conspiracy. In addition, Serono pled guilty to conspiring to offer doctors kickbacks in the form of free trips to Cannes, France, to induce them to 

prescribe Serostim. 

Physicians 

• An Ohio physician was convicted by a jury of 56 counts of mail, wire, and health 

care fraud, as well as illegal drug distribution and sentenced to life for operating ‘‘pain management’’ clinics in which he treated all patients with weekly 

injections and Schedule II and III narcotic drug prescriptions during visits that 

lasted no more than a few minutes, and then claimed thousands of dollars in 


wwoods2 on PRODPC68 with REPORTS
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insurance reimbursements per visit. He saw upward of 100 patients per day 

and submitted $60 million in fraudulent bills to the victim health care benefit 

programs. The physician was also convicted of health care fraud resulting in 

death in this case which was recognized by the National Health Care AntiFraud Association as the Investigation of the Year for 2006. • A Tennessee oncologist was sentenced to over 15 years’ imprisonment for defrauding Medicare, TennCare and BlueCross BlueShield at the expense of cancer patients. The defendant mixed diluted versions of chemotherapy medications 

that were then given to patients, and instructed her nurses to draw up partial 

doses of one of medications to administer to patients. • From 1996 through 2003, a physician employed an individual to work at the 

physician’s medical practice in Connecticut. Although the individual was not licensed to practice medicine, he nonetheless treated patients in the physician’s 

medical practice. During this time, he was referred to as ‘‘Doctor’’ by the physician and he wrote prescriptions. The physician then billed insurance companies 

for services that were rendered by the individual, representing them as services 

rendered by a physician. They both pled guilty to conspiracy to commit health 

care fraud. The physician also entered into a civil settlement with the Government and paid $160,000. 

Hospice Care 

• Odyssey Healthcare, Inc., a Dallas, Texas-based hospice provider, agreed to pay the United States $12.9 million to settle allegations that the company billed 

the Medicare program for services provided to hospice patients who were not 

terminally ill and hence were ineligible for the Medicare hospice benefit. Odyssey Healthcare has also entered into a Corporate Integrity Agreement with the 

Office of Inspector General of the Department of Health and Human Services. 

The Corporate Integrity Agreement addresses the company’s practices regarding 

compliance with applicable Medicare regulations. • Faith Hospice, Inc., settled allegations that it submitted fraudulent claims to 

Medicare and Medicaid for ineligible hospice. The investigation was initiated 

when a review of a sample of its medical records showed that more than half 

of Faith Hospice’s patients were ineligible for hospice care. Under the agreement, the owner and Faith Hospice forfeited $599,165.29 to the United States, 

one half of the funds seized pursuant to the civil forfeiture action. The case occurred in Alabama. 

Skilled Nursing Facilities 

• USA Healthcare, Inc., (USAH) the owner of several skilled nursing facilities 

based in Cullman, Alabama, settled allegations of mischarging the Medicare 

Program by agreeing to pay the United States $1,217,808.00. The investigation 

arose out of an audit of cost reports filed by several of USAH’s skilled nursing 

facilities which revealed that the company violated Medicare rules by failing to 

disclose that certain vendors were related to USAH by common ownership or 

control and therefore should have been reimbursed by Medicare at a lower rate 

based on actual costs and without inclusion of profit. 

Medicare Devices 

• The owner and operator of V&A Services, a medical equipment supply company located in Stone Mountain, Georgia, was convicted by a federal jury of 11 

counts of Medicare fraud in a motorized wheelchair fraud scheme. He was sentenced to 2 years and 3 months in federal prison to be followed by 3 years’ supervised release. He was ordered to pay restitution of $164,590 in connection 

with the scheme. The judge entered an order of forfeiture at sentencing by 

which the defendant forfeited $36,416 from a seized bank account and durable 

medical equipment having a value of approximately $11,000. 

• The owner of a power wheelchair store was sentenced to 63 months in prison 

and ordered to pay over $4 million in restitution to the Medicare and Medicaid 

programs after he was convicted by a jury of paying recruiters to take beneficiaries to a medical clinic where a physician would perform medically unnecessary procedures and then sign false Certificates of Medical Necessity (CMN) 

forms authorizing the beneficiaries to receive motorized wheelchairs. The physician also was sentenced to 11 years and three months in prison for his participation in the scheme for receiving payment for signing the CMNs, and for submitting claims for services that either were not performed properly, or were not 

performed at all. 

• The owner of a power wheelchair store pled guilty in Lynchburg, Virginia to 

conspiracy to commit health care fraud for his involvement in an intricate 


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scheme involving power wheelchairs and ‘‘power chair scooters.’’ Among the allegations were that items not needed and not ordered by the physician, were 

simply added after the physician signed the Certificate of Medical Necessity. • In the Southern District of Texas, the owner of a Houston-based durable medical equipment company was sentenced to 63 months in prison for his role in 

a motorized wheelchair scam. His company fraudulently billed Medicare and 

Medicaid for almost $5 million and defrauded these health care programs of at 

least $1.6 million. 

SOUTH FLORIDA INITIATIVES 

The United States Attorney’s Office for the Southern District of Florida (‘‘SDFL’’) 

has made health care fraud matters a top priority. We are litigating a number of 

hospital and pharmaceutical civil health care claims. This past December, for example, the University of Miami paid $2.2 million to resolve claims relating to bills submitted to Medicare Part B by its teaching hospital, Jackson Memorial Hospital. In 

November, Larkin Hospital paid $15.4 million to resolve a health care fraud suit 

concerning kickbacks and unnecessary medial treatments. Earlier last year, we entered into a whistleblower suit charging Abbott Labs with reporting fraudulent and 

inflated prices for pharmaceutical products to Medicare and Medicaid, causing over 

$175 million in excess payments. 

Our most significant challenge, however, is on the criminal front. Because health 

care expenditures are so substantial in South Florida, we are particularly vulnerable to fraud. To address this challenge, in late 2005, we formed the South Florida 

Health Care Fraud Initiative to bring together the health care fraud prosecution resources of SDFL prosecutors, HHS–OIG and the FBI agents and Florida Attorney 

General’s Office attorneys, cross-designated as Special Assistant United States Attorneys. 

Although still in its early phase, our Health Care Fraud Initiative has begun to 

pay dividends. Last fiscal year, we filed criminal charges against 111 defendants in 

68 health care fraud cases, a 30% increase over the previous year. Our conviction 

rate was 97%. These cases typically involve at least one, and often several, million 

dollars in fraud. 

I am particularly excited about our Health Care Fraud Initiative because our 

prosecutors are doing much more than merely coordinating resources. We are developing and testing new law enforcement methods to add to our health care fraud litigation arsenal. I would like to describe two of these methods. The first concerns the 

use of civil complaints to freeze or seize money obtained through health care fraud 

as soon as our evidence will satisfy a civil standard. 

Our recent ‘‘Operation Equity Excise’’ is an example. Working with HHS–OIG and 

the FBI, Operation Equity Excise identified clinics and durable medical equipment 

(DME) companies that engaged in health care fraud. Often, these companies closed 

abruptly to avoid detection from law enforcement, in the process abandoning bank 

accounts, often with substantial balances. Through this Operation, federal agents 

attempted to locate the signatories on the bank accounts. Many of the signatories, 

who were also typically listed as the president of the company, denied knowledge 

of the operation of the company and denied having any claim or right to the funds 

in the accounts. Thirty-four individuals were located; they voluntarily surrendered 

the funds, resulting in approximately $10.5 million returned to the United States 

Treasury. The signatories on twenty-three accounts, with a total balance of over $30 

millions, have not been located. Last month, we filed civil health care fraud complaints against those individuals. We intend to provide notice through publication, 

proceed through default judgment, and return those funds to the Treasury as well. 

Importantly, our civil actions do not preclude a subsequent criminal prosecution. 

Where supported by facts, we continue to pursue criminal investigations of these 

companies. For now, at the very least, by seizing the bank accounts, we can recover 

some of the fraudulently paid moneys. 

A second method is being refined through a recently-implemented short-term, 

proactive, surge operation that we are undertaking jointly with the Criminal Division, the FBI, HHS–OIG, and local law enforcement in Miami-Dade County. The 

surge operation uses proactive law enforcement methods adapted from experience 

fighting illicit drug trafficking along with real-time data review often used to fight 

credit card fraud. A typical health care fraud prosecution relies heavily on billing 

records and other historical evidence. In this operation, however, HHS–OIG agents 

are reviewing real-time billing patterns. In the few weeks of operation, our agents 

have identified patterns that standing alone reveal medically impossible claims. Our 

agents are visiting the offices and interviewing providers as the fraud is taking 

place. Such ‘‘caught-in-the-act’’ cases are often easier to prosecute than ones based 

solely on historical evidence. 


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Finally, to augment the cooperation between the prosecutors and agents, we have 

co-located the prosecutors and investigative agents in a ‘‘fusion center.’’ Modeled 

after similar arrangements more traditionally used in drug and organized crime 

prosecutions, we hope that the proximity of the investigators and prosecutors, working closely together, helps foster strong working relationships and a more proactive 

investigative technique. 

CONCLUSION 

I hope my testimony has given you a comprehensive view of the Department’s essential role in defending and protecting the financial integrity of the Medicare program and protecting our citizens from those health care fraud schemes which have 

caused physical harm and loss of life. The Department is committed to the ongoing 

success of the HCFAC program and will continue to marshal its resources, including 

those provided by the HCFAC program and its own discretionary funds, to prosecute 

fraud and abuse in the Medicare program and restore the recovered proceeds of 

fraud to the Medicare trust fund. The HCFAC program pays for itself multifold and 

helps ensure the safety and availability of medical services to all beneficiaries. 

f 

Chairman STARK. Thank you, Mr. Acosta. I would like to recognize Chairman Lewis to inquire of our panel. 

Chairman LEWIS OF GEORGIA. Thank you very much, Chairman Stark. 

Let me thank each of you for your testimony. 

Mr. Inspector General, I am appalled by the level of abuse in the 

Medicare system. Could you tell Members of the Committee of 

what role do Medicare beneficiary play in detecting the abuse? 

Mr. LEVINSON. Medicare beneficiaries can play a very important part in uncovering abuse. Indeed, our Hotline is a very instrumental part of being able to detect patterns of abuse that occur in 

different parts of the country. Because of the nature of this national program and the fact that different forms of abuse can occur 

in different parts of the country, depending upon the demographics 

and the socioeconomic aspects of a particular part of the country, 

Hotline activity is a very key part of being able to uncover what 

is going on that might trigger the need for investigations either in 

southern California, in South Florida, as the United States Attorney has explained, and in other parts of the country. We certainly 

rely upon that as a very important vehicle, but that is only one of 

many tools. 

Chairman LEWIS OF GEORGIA. Do you have a system, any program to inform the people who benefit from Medicare about fraud? 

Is that something that Mr. Hill or other agencies get involved in? 

Do you send out a notice? How do you publicize? ‘‘Be on guard. Be 

alert.’’ 

Mr. HILL. There’s a couple of ways that we can talk about that, 

sir. First and foremost is the requirement under the statute that 

we inform beneficiaries every year through a handbook of the benefits that are available to them. Now in this world of Part D, the 

choices that are available to them. 

A part of that handbook, and a significant part of that handbook, 

is a discussion of how to report fraud, how to look at the bills that 

they are getting, what they should be looking for to be sure that 

they are not being defrauded. So, the handbook is one element. 

It is also the case that for every service that a beneficiary gets, 

they get what we call a Medicare Summary Notice, basically a bill 

like a credit card statement of the previous quarter listing all the 


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services that have been delivered on their behalf, what has been 

paid, what has not been paid, what the beneficiary owes. On that 

bill itself is the OIG hot line, the number to call the Medicare contractor if there are issues with the bill that they see. We encourage 

beneficiaries to review their bills because that, quite frankly, is one 

of the first places where we may see, or a beneficiary may see, that 

they did not get a service that we paid for. So, that is an ongoing 

exercise. 

Finally, the Department’s Administration on Aging has a fairly 

robust program that they have used through the Area of Councils 

on Aging in all fifty States where they give grants to groups of senior citizens in the Area Councils on Aging to train beneficiaries to 

sort of go out and give lectures and training for beneficiaries about 

how to look at their bills, what to spot for in terms of fraud. So 

clearly for us the beneficiary is the first link, the first place that 

we can look to where we may spot problems. 

Chairman LEWIS OF GEORGIA. Thank you, Mr. Hill. 

Mr. LEVINSON. Mr. Lewis, it will be especially important going 

forward that beneficiary education be a very critical part of the 

Part D continued roll-out because of the complexities of the program and the newness of the program, it is going to be very, very 

important that beneficiaries understand how this complex program 

works. We on the IG side will be watching closely and reporting on 

issues that arise over the course of the next few years as Part D 

fully matures as to where there are issues concerning a lack, or a 

potential lack, of information that beneficiaries need in order to 

make educated choices. 

Chairman LEWIS OF GEORGIA. Thank you, Mr. Levinson. 

Mr. Acosta, do you think you need additional tools for enforcement? Is there something that the Congress should do? 

Mr. ACOSTA. Mr. Lewis, through our initiative, we are testing 

additional law enforcement methods and I think it is important to 

always look for better ways of prosecuting cases, of being more 

proactive and moving cases along. I think it is important that we 

do that. 

That said, I would like to take that question back to the Department to see if there are some statutes or changes that the Department think are necessary. From my perspective in South Florida, 

my focus is on doing more with what we have. That said, I do think 

it is important to—and I know that resources have been referenced 

previously—the HCFAC account for a number of years was statutorily frozen at 240 million. 

Chairman LEWIS OF GEORGIA. You said the HCFAC? 

Mr. ACOSTA. The HCFAC account, correct, for a number of 

years was statutorily frozen at 240 million. Of that, the Department of Justice litigating components received 49 million. This past 

year Congress approved and the President signed a provision that 

permitted inflation adjustment to the account which is a good start. 

This year’s budget asked for an additional $17 million and particularly with Medicare Part D forthcoming, I think it is critical 

that those resources be provided. We have a very large healthcare 

fraud caseload. As I said, in South Florida I have 12 attorneys and 

I can afford that many because I supplement the HCFAC account 

with general funds. We have a very large caseload and that is beVerDate Aug 31 2005 23:51 Mar 05, 2008 Jkt 040308 PO 00000 Frm 00047 Fmt 6602 Sfmt 6602 E:\HR\OC\40308.XXX 40308

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fore the anticipated caseload from Medicare Part D referrals as 

that program develops and goes forward. So I would put emphasis 

on fully funding the additional resources requested. 

Chairman LEWIS OF GEORGIA. Mr. Acosta, before my time expires, I just want to ask you about a case that took place last year. 

Your office obtained $15.4 million from a hospital to settle a case 

alleging that it performed medically unnecessary procedures which 

were painful and uncomfortable for a resident of an assisted living 

facility. The hospital also allegedly paid kick-back to a physician to 

refer a Medicare patient to the hospital. 

Mr. ACOSTA. The Larkin Hospital matter. 

Chairman LEWIS OF GEORGIA. I think when I first came here, 

Chairman Stark, you were dealing with the whole question of referrals and kick-back. I cannot believe that it is still going on 20-some 

years later. 

Could you tell me what percentage of your cases involve fraud 

and abuse by hospitals? 

Mr. ACOSTA. I can tell you a number of our civil cases involve 

fraud and abuse by hospitals. For example, this past November— 

I’m sorry. This past December we settled $2.2 million claim against 

Jackson Memorial Hospital. The previous month in November, we 

settled the $15.4 million claim against Larkin Hospital. 

In terms of the percentage of cases, the percentage of cases is 

small. We prosecuted 68 criminal cases out of the 350 national 

cases, but I do not want to put too much emphasis on that percentage because I think it can be misleading because often the cases 

that concern hospitals are some of the most significant cases because they involved a number of individuals. So I think it is important to not just look at the number of cases but the size and the 

scope. The Larkin Hospital case, for example, involved a number 

of individuals who allegedly received unfair—I’m sorry—who allegedly received unnecessary medical treatment. In those types of 

cases where people or individuals are suffering I think, I think we 

have to give those a high priority. I think in addition to the size 

and the number of the cases, we need to look at harm to individuals and understand that just a handful that involve harm to individuals can sometimes be more significant than a number of cases 

that involve only money. 

If I could, I would like to add an additional point since you raised 

the Larkin Hospital case. I think it is also important to recognize 

that even where civil claims are made it is important to consider 

criminal matters. In cases like that, my office’s policy is where 

criminal action is appropriate, too, to proceed and investigate 

criminally even after a civil matter has been resolved. So I just 

wanted to mention that to the Committee. 

Chairman LEWIS OF GEORGIA. Thank you very much. 

I yield back, Mr. Chairman. 

Chairman STARK. Mr. Ramstad. 

Mr. RAMSTAD. Thank you, Mr. Chairman. 

Mr. Hill, as I’m sure you know, the Medicare Modernization Act 

transitioned the part A and part B payment carriers into larger 

Medicare administrative contractors to streamline the contracting 

process. 


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I have two questions. Is the new contracting process working? 

Secondly, when the number of administrative contractors was reduced, did the number of improper payments to Medicare fee-forservice providers also go down? 

Mr. HILL. I think those are good questions. I think in terms of 

the transition to the Medicare Administrative Contractors (MAC), 

we are in the first phase of that so right now I believe four are up 

and running. So, we have 38 of the old contracts, 4 of the new ones 

and the 4 that we transitioned to first were durable medical equipment contractors who are the ones who process the durable medical 

equipment (DME) contracts. So, it is a little early to tell how much 

of an impact that they are going to have one way or another. I can 

tell you as a contracting matter that because we have the new authority, I can now hold the four contractors accountable for improper payments. The contracts are structured such that the payments or the incentives that the contractors get can be tied to, and 

in fact are tied to, their success at reducing the improper payments 

for the areas that they are processing claims for. 

They also now have more of an incentive to be innovative and cooperative with folks like in law enforcement and otherwise to sort 

of seek out folks who are improperly billing the program. So, the 

overall construct of having a competitive process under Federal 

Procurement Rules we believe is going to give us a much better tool 

to reduce improper payments. 

We are probably 6 months to a year away from having real results and having them on the contractors over time to see how well 

they are performing. 

Mr. RAMSTAD. Thank you for that response and I look forward 

to following that up when there is enough data to make a judgment. 

Mr. HILL. Absolutely. 

Mr. RAMSTAD. I would like to ask you a question, Inspector 

General Levinson if I could, please. I never cease to be amazed by 

the vernacular that is used around here in the Federal Government, but I saw a new one in the President’s recent budget. He 

proposes in that budget to eliminate payments for never events in 

hospitals. 

Can you explain what in the world is a never event in Medicare 

and why is Medicare paying for events that never happened? 

Mr. LEVINSON. The reduction of accidents and mistakes, those 

things that occur in hospitals that should, ‘‘never have occurred.’’ 

Unfortunately, the expression used I do not think is especially revealing as to what the underlying issue is, but it is designed to presumably reduce the number of events—mistakes, accidents—the 

kinds of things that one would expect never to occur in a hospital. 

Mr. RAMSTAD. I just wonder which creative mind down at the 

Office of Management and Budget (OMB) came up with that terminology. I appreciate the explanation. Also I want to ask you, Mr. 

Levinson, you mentioned in your testimony that for the 3-year period between fiscal year 2004 and 2006 the average return on investment was nearly $13 for every dollar spent. I do not think you 

articulated this today, but it is in your written testimony. 

Mr. LEVINSON. Yes. 


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Mr. RAMSTAD. On enforcement that is. What areas of fraud investigation by the IG produced a significant return on investment? 

Which areas were the most fruitful? 

Mr. LEVINSON. A very large part of those dollars in investigative receivables has to do with very large pharmaceutical cases concerning pricing and marketing. These are cases that by and large 

come out of the District of Massachusetts in Boston and the Eastern District of Pennsylvania in Philadelphia. These are very extensive national investigations that oftentimes can result in very significant multi, multi-million dollar settlements. 

Mr. RAMSTAD. If we could get that return on investment across 

the board, that is the Federal Government, for every dollar invested $13 return, we would be a lot better off. I appreciate your 

responses and your testimony. Thank you. 

I yield back. 

Chairman STARK. Thank you. I guess I would inquire—I want 

to thank the panel for taking the time to be with us and to enlighten us and in particular Inspector General Levinson who has 

been in touch with us from time to time on many issues. I appreciate his willingness to inform us and keep us up to speed on the 

activities of his office. 

In your testimony and prior to the introduction of the Thomas 

Memorial Stark Bill dealing with the end stage renal disease 

(ESRD) and dialysis payments, 10 years ago your predecessor recommended that reducing erythropoietin (EPO) reimbursements to 

more closely to resemble cost would save us $100 million a year, 

but since then Government Accountability Office (GAO) and the 

Medicare Payment Advisory Commission (MEDPAC) have both 

urged us to bundle in the drugs that are now separately billed. 

We think that would have two effects. It would probably cut 

down on over-prescribing which we have found causes some health 

problems, but it also would save us a good bit of money. Have you 

had a chance, Mr. Levinson, to study this and would you recommend to us that the bundling the separately billed drugs would 

be a better way or not as good a way as cost reimbursement? 

Mr. LEVINSON. Chairman Stark, we support the concept of developing a new comprehensive composite rate for ESRD services. 

The rate needs to be based on accurate cost information and medically justifiable usage of present separately billable services such 

as lab tests and drugs like EPO. 

With such a new rate, we would hope that greater savings to the 

Medicare Program would be realized, but at this point we have not 

made a specific recommendation on a composite rate. 

Chairman STARK. Thank you. 

Mr. Hill, you have mentioned in your testimony provider-specific 

investigations. I also just parenthetically and very quickly how 

soon can we expect your plan for Part C error rates? Will we see 

that in the next few months or will it be longer? 

Mr. HILL. For the Part C error rate, we are as part of the President’s management agenda and our compliance with the IPIA 

clearly we are required under—the Improper Payments Information Act of 2003 which requires us to do—— 

Chairman STARK. When do you think we will see that? I only 

think of that. Will it be a year or six months? 


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Mr. HILL. Oh, no, no. I think this fall we will be able to sort of 

come up and talk to you about—— 

Chairman STARK. That is something that we will have some interest on other matters, but I just wondered. 

Mr. HILL. Right. 

Chairman STARK. In the provider-specific areas, you do not 

question the medical judgment of the providers. Do you? I mean do 

you make judgments to say, ‘‘Gee, they should have removed his 

lung instead of his heart.’’ 

Or do you just look at the action taken and make a determination as to whether it is fairly paid? 

Mr. HILL. There are three levels of the review I think. First, you 

have got to make sure that the service is actually covered by Medicare. We do not pay for eye glasses and various other things. 

Chairman STARK. Right. 

Mr. HILL. Then the payment, is it the right payment amount, 

but finally there is a reasonable and necessary determination. We 

do make a determination in a gross sense as to whether or not that 

beneficiary needed that care. 

Chairman STARK. With medical advice? 

Mr. HILL. Correct. 

Chairman STARK. Okay. 

Mr. HILL. The physicians make these judgments of the carriers 

and we try very hard not to get into sort of gray areas in terms 

of where a physician’s judgment should not be impinged upon, but 

there are certain instances where you can make a real clear cut 

case. Chairman Lewis was talking about patient issues. You can 

look at therapy services that are provided by a facility where you 

have got 10 hours—— 

Chairman STARK. Do you think that you now have the data and 

the personnel to make quality judgments for providers? 

Mr. HILL. I think the quality issue is a challenge that we are 

going to need to face. As you know, the tax bill, recently enacted 

tax bill, has provided us some movement forward in terms of—— 

Chairman STARK, but my question is do you think there is 

enough data there now to do that or would we—will we need to see 

that you are provided with a broader database and more information? 

Mr. HILL. I think the data that we would need to do real quality 

determinations comes from a patient health record more than just 

the claims data that we have and we are not quite there yet. 

Chairman STARK. Mr. Acosta, you mentioned $175 million that 

an institution owes us. I would remind you that this has been 

going on. I can remember and I do not mean to prejudice anybody, 

but Stanford overbilled us some five or 10 years back, the hospital 

in Pennsylvania I remember was on the hook for 9 million. These 

were teaching institutions. You would call them centers of excellence. 

I do not know whether Hopkins ever did it, but I mean there 

have been some prestigious public institutions that have helped 

themselves to perhaps more Medicare reimbursement than they 

were entitled to. 

So, you have an institution or a provider, your are talking hundreds of millions. I again without being facetious, we have seen colVerDate Aug 31 2005 23:51 Mar 05, 2008 Jkt 040308 PO 00000 Frm 00051 Fmt 6602 Sfmt 6602 E:\HR\OC\40308.XXX 40308

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leagues of ours go to jail on the Abscam traps and for a couple of 

hundred bucks worth of postage and for some big gifts or a golf 

trip. They will go and do 9 months hard time. 

Do you think that there are areas in which we should by legislation change the penalties? I have always felt that the chief executive—I look at the Abu Ghraib cases. We put away a lot of sergeants and second lieutenants, but the colonels and the generals 

never got touched. 

If, in fact, you were to prosecute on a criminal basis some of the 

CEOs of the institutions who walked away whether they are private, for profit or non-profit, that might have a very meritorious effect throughout the industry. 

My sense is they pay the fine and it is insignificant to the individuals who are responsible for the bad behavior. I guess my bottom line is would you consider suggesting to us areas in which we 

might stiffen the penalty as it were that would aid you in your 

work? 

Mr. ACOSTA. Chairman Stark, I think you raise a very important issue and one that needs a fair amount of consideration. Before this hearing I was speaking with one of my colleagues concerning an ongoing operation, actually the operation I mentioned 

earlier where we seized the funds in these bank accounts. We identified these 60 bank accounts for—— 

Chairman STARK. Thirty million or so you said, yes. 

Mr. ACOSTA. Forty million total is what we are seeking. We 

have already collected ten million of those. What I was telling one 

of my colleagues is we have done this civilly. the next step we need 

to do is we need to pursue these individuals criminally because far 

too often individuals will look at that, at a civil fine, as the cost 

of doing business. I was actually mentioning it to one of my colleagues on this panel right before the hearing and that is exactly 

what we are doing in those civil cases. I mentioned when I rolled 

it out at the press conference it was important to pursue a criminal 

action where appropriate as well so that it is not the cost of doing 

business. 

That said, I think one of the challenges that needs to be recognized—there are two parts, two challenges that I think need to be 

recognized. One is in terms of case law and I do not agree and the 

Department does not necessarily agree with some of the case law, 

but there is case law out there that especially in areas that are as 

complex as Medicare or Medicaid where we are prosecuting something criminally the Government bears the burden of proving beyond a reasonable doubt that a defendant’s statement is not true 

under a reasonable interpretation of law. In other words, it is not 

only that the defendant made a false statement from a civil perspective, but that it went beyond—we have this complex scheme 

and that under a reasonable view of that scheme they were still 

acting criminally. So that, that is one challenge that we face. 

The second point—— 

Chairman STARK. We need somebody to replace Fitzgerald so I 

figure you can put somebody away for those statements. 

Mr. ACOSTA. As I said, we have some case law. We do not agree 

with the case law. That is not the Department’s position, but it 


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does require that we find levels of proof sufficient to bring criminal 

charges. 

The second comment that I would make in answer to your question is I think and I will change this into, if I could with your permission, into the banking area where we have been very aggressive 

in bank fraud. We recently obtained a 30-year sentence on a bank 

fraud case. 

In part the reason that we had a 30-year sentence is in the postEnron world, the penalties that we are obtaining in the bank fraud 

area are quite substantial. I can tell you that in my district putting 

someone away for 30 years for making inaccurate statements on a 

balance sheet has certainly sent quite a signal. 

Chairman STARK. I would just repeat. I am sure that my colleagues would appreciate any suggestions that you would make to 

us as to areas in which that it would include historic laws, we 

should change the penalties or the standards for establishing 

what—the bright line I guess as you would call it—to help in your 

work because we are not the Judiciary Committee, but I suspect we 

do have the legislative authority to change penalties and would appreciate any suggestions that you could make to us along that line. 

Mr. ACOSTA. I will confirm it with my colleagues. I think you 

raise a very important point in which you are correct. 

Chairman STARK. Thank you. 

Mr. Hulshof. 

Mr. HULSHOF. Thank you, Mr. Chairman. 

Chairman STARK. You were a prosecutor, were you not? 

Mr. HULSHOF. Yes, sir, I was. 

Chairman STARK. We will let him write it. 

Mr. HULSHOF. In fact, as Mr. Acosta was talking about, being 

in a courtroom and being the sole white hat wearer and looking 

across the courtroom at ten attorneys, I had a flashback. 

Let me follow up on this then, Mr. Chairman. I appreciate that. 

As far as criminal penalties, is that an area that you say—because that is not what I heard you say, but perhaps you are suggesting. Do we need to beef up the criminal Mr. Acosta? 

Mr. ACOSTA. Congressman, the general criminal penalties that 

we use in the healthcare fraud area are the fraud penalties. I 

would take the question back to the Department to get the input 

from my colleagues before making a specific proposal. 

I do think and I will say that in the banking area, we have been 

very aggressive pursuing CEOs and executives. When you get a 30- 

year conviction that does get other CEOs’ attention. 

Mr. HULSHOF. Along that, I would say let’s just follow line for 

a bit. In those banking cases and again I was never good enough 

to be a Federal prosecutor. I was just toiling in the courtrooms in 

the State of Missouri. You are not talking about changing the burden of proof on the Government. The Government would always 

continue to have the burden of proof. I presume you are not suggesting anything about the standard of guilt being beyond a reasonable doubt. You are shaking your head no. 

As we all know, getting a civil judgment where the standard of 

proof is less as opposed to a criminal judgment is also—I mean 

there is a reason to have that dichotomy. I am not conversant with 

the case law you say specifically but—and I know you are speaking 


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for yourself and not for those above you necessarily, but are you 

saying that this reasonable person standard on statements? Like if 

a statement were made that that is something that we might be 

able to change legislatively? 

Mr. ACOSTA. Congressman, what I am referring to is in the 

large civil cases where you have a lot—where you have many individuals involved in setting pricing, where you have a number of 

participants, it is exceedingly difficult to find a particular individual—because it is not a false statement’s case. 

Mr. HULSHOF. Right. 

Mr. ACOSTA. It has to do with to find an individual whose intent to defraud went beyond a reasonable interpretation of an administrative scheme to a criminal level. You have as one of your 

colleagues referenced, a scheme that some say is more complex 

than the Tax Code and so it is not just enough to show that a mistake was made. 

Mr. HULSHOF. Right. 

Mr. ACOSTA. You have to show much more than that. What I 

am suggesting is that that level and some of the judicial interpretations—not the underlying burdens of proof, but some of the judicial 

interpretations do raise a challenge. 

Mr. HULSHOF. Okay. I will let you get off the hot seat so you 

are not criticizing those Federal judges. Just a couple of more generic comments. Here is a curiosity. You all have been great to talk 

about where providers had overcharged. Has the reverse ever happened? That actually you have seen under charging by providers? 

Mr. Hill, you are nodding. 

Mr. HILL. This is a question we get a lot and I think it is a fair 

question because providers fairly can ask, ‘‘Well, if I make a mistake, will you give me the money back?‘‘ In all the activities, at 

least on the administrative side, that we undergo we do an improper payment measurement. That is where we get the error 

rates. That error rate is a net rate. Underpayments and overpayments. Where we have underpaid, providers are given that. 

I also talked about the recovery audit contractors. The Congressional intent there was very clear. It is for overpayments and underpayments. 

Mr. HULSHOF. Okay. 

Mr. HILL. While it is a small percentage, there are those cases 

where folks have been underpaid. 

Mr. HULSHOF. My time is very short and I want to be respectful of the Chairman and the time limits. I will do this very quickly. 

I hear a lot about complexity. So I presented myself to a local 

hospital. They gave me a medical chart that I was a 70-year-old 

man with a certain medical condition and we went through triage 

and I was to report. The point of the exercise was because I failed 

to mention one detail during my admission that they were wrong. 

The hospital was wrong. The whole point being that sometimes 

they act in the best interests and yet through no fault of their own, 

there is this, this error. 

Is the complexity something, Mr. Hill, that you can do this if you 

need in writing, but I mean is this something that we should focus 

on? Or is this more your purview and your bailiwick to try to help 

eliminate some of that complexity? 


wwoods2 on PRODPC68 with REPORTS
51 

Mr. HILL. I think the answer to the question is sort of both. 

Right? I mean we have an obligation, providers are serving our 

beneficiaries. It is a complex program. At the same time, as we are 

carrying out our duties, we have an obligation to the trust funds. 

At the same time, we look at a record. We need to apply some level 

of clinical judgment as to whether it was just, ‘‘Oh, gee, I made a 

mistake. I forgot to check off that box.’’ There is a reasonable basis 

to make that judgment versus where it is just clear out-and-out 

‘‘You were over-billing us.’’ We try very hard to make those distinctions. 

I am not going to sit here and tell you we always get it right, 

but it is clearly something we try and get right on an ongoing 

basis. 

As to the complexity of the statute and the underlying, we can 

always make it less complex I suppose but we do have an obligation on an ongoing basis to make it easier for the physicians caring 

for beneficiaries. 

Mr. HULSHOF. I thank the panel. I thank the Chair. 

Chairman STARK. Ms. Tubbs Jones is not here. Mr. Pascrell. 

Mr. PASCRELL. Thank you, Mr. Chairman. 

Inspector General, I had a question for you. There is approximately 1500 employees that you have right now as I understand 

your testimony. Is that correct? 

Mr. LEVINSON. That is correct. 

Mr. PASCRELL. How many did you have 4 years ago? 

Mr. LEVINSON. Well, I was not in the office 4 years ago, but 

I would estimate that it would have been around 1400 to 1450 over 

the last 3 years. 

Mr. PASCRELL. 1400. 

Mr. LEVINSON. There was a reduction. Historically, there had 

been close to 1500. I think for several years we dipped below that. 

For the last couple of years, through the great help in large part 

of this Committee, there has been a restoration to numbers that I 

think historically have been around 1500. 

Mr. PASCRELL. When you are investigating a $413 billion program which it was in 2006, I do not know how you do with your 

auditors and your inspectors, if that is adequate particularly in 

terms of what the return is of that investigation. It would seem to 

me that we are not doing enough, not nearly enough to reduce 

fraud. 

My second question is to the gentleman from Florida, the U.S. 

Attorney Mr. Acosta. Who have you found to be the biggest culprits 

in your investigations? Would you define it as specifically as possible? 

Mr. ACOSTA. Congressman, the most—South Florida has a particular problem with what I will call fly-by-night operations. They 

are operations that open up, often using false identification under 

assumed names, operate for three to 6 months. The billings spike. 

They then shut down and move on. 

Mr. PASCRELL. Who are these people that open up these facilities? 

Mr. ACOSTA. Individual—I am sorry. I do not understand the 

Congressman’s question. 


wwoods2 on PRODPC68 with REPORTS
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Mr. PASCRELL. What is the source? In other words, the biggest 

source is not the patient. The biggest source—or the recipient—the 

biggest source is somebody who is doing the business at hand. 

Mr. ACOSTA. Absolutely. 

Mr. PASCRELL. Tell me about them. Who are they? 

Mr. ACOSTA. I would not call them providers. Criminals. An individual who is a downright fraudster who will decide ‘‘I want to 

make a little bit of money criminally and so I will go out there. I 

will use a false ID to open up and get a provider number and open 

up what I call to be a durable medical equipment company.’’ 

For example, one case that we had where an individual started 

throwing wheelchair parties, inviting people—— 

Mr. PASCRELL. Wheelchair parties? 

Mr. ACOSTA. Wheelchair parties. Inviting people over to get 

their identifying information so that he could then bill the same 

wheelchair over and over and over again to the tune of several million dollars when in fact he never provided these individuals a 

wheelchair. 

He would literally invite people over to show them the wheelchair. In the process he would get their Social Security Number, 

their information. He would then bill out. They start, they operate, 

they shut down. 

One of the reasons that we started the fusion operation that I 

referenced in my opening is because these operations are fly bynight fraudsters who shut down, it is exceedingly difficult to use 

the traditional law enforcement model of a historical case, because 

a year from now they are long gone. The money is long gone. That 

is why the fusion center that started this past month that focuses 

on catches them in the act, a critical part of which is obtaining the 

near real time billing information is so important, because that 

way we can find them before they shut down and move on. 

Mr. PASCRELL. But is it not true that DME providers need 

nothing more as I understand it than a provider number and an 

address to bill Medicare? 

Mr. ACOSTA. Congressman, the frustration and the reason they 

are able to do this is because they do need an ID provider number 

and an address. That is exactly right. 

Mr. PASCRELL. Well, what are we doing about that? 

Mr. ACOSTA. Well, in the Southern District we prosecuted 68 

cases last year. 

Mr. PASCRELL. Sixty-eight? 

Mr. ACOSTA. Sixty-eight cases which compared to a national 

level is actually quite high. We have $981,000. We have a dozen 

individuals that used that money to pursue these. They do a very 

good job at going after these, but I will tell you, sir, it is a problem. 

It is a substantial problem and anything that we can do to further 

fight it I would welcome. 

Mr. PASCRELL. What is the punishment on the books if you get 

one of these DME providers who obtained a provider number and 

an address to bill Medicare. This seems to be widespread. This is 

not something isolated in Florida, that’s for sure, but what do you 

do? What happens? How do you prosecute them? 

You said you prosecuted over 60 cases. Let’s say people are found 

guilty of doing these things. Does the punishment fit the crime? Is 


wwoods2 on PRODPC68 with REPORTS
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this enough to be a detriment to those who want to get into this 

shady business and taking advantage of Medicare dollars? 

Mr. ACOSTA. Congressman, first, with respect to the punishment, the punishment would be a function of the amount of the 

fraud. So it would be referenced in the Federal Sentencing Guidelines. In the wheelchair case, for example, under the Federal Sentencing Guidelines, the punishment would range between three 

and I believe seven years. I am basing this on memory and so that 

is an approximate, but that is the punishment under the Federal 

Sentencing Guidelines. Those are the guidelines that are given to 

us that judges abide by. 

So when we prosecute a case, that is realistically the upside in 

terms or the top in terms of what we can obtain as a punishment. 

That references Mr. Stark’s question I believe earlier where I alluded to, for example, the banking fraud area. 

Let me, if I could, also throw out an idea and a suggestion. This 

is one that we have been in talks with HHS about, because I do 

believe that prosecution is an important tool, but as in the case 

with credit card fraud prosecution has to come only after prevention. 

Credit card companies learned long ago that it is much better to 

have a strong prevention program that reviews billing statements. 

We have all gotten those calls from credit card companies. 

One discussion that we had with HHS is a bonding requirement 

in areas of particularly high levels of fraud. The advantage that 

that would have is it would in essence duplicate, triplicate our resources because the bonding company would become an additional 

investigative agent. They would be on the hook. Particularly where 

you have small fly by-night operations that are operating in the 

one to five million dollar range having a high bond level is something that I think is worth considering. 

We have been in discussions with HHS about that and I just propose that to the Committee as something that might merit further 

conversations. 

Mr. PASCRELL. If you want to go into business and let’s say 

many HMOs in many States I sure as in Florida, we have increased the bonding, not the Federal Government, there is an increase in the bonding so that there is a risk here if you want to 

try to shaft people out there. 

There does not seem to be a risk involved and I am not so sure— 

maybe you can—I have overstayed my welcome here, but I am not 

so sure we have a sense of urgency about how much money is involved in fraud that your auditors and investigators are looking. 

I would tend to think that this is very vast. It is a shock to find 

out the kinds of practices and the amount of dollars that are being 

lost into the system. Medicare faces a greater danger than the Social Security in the trust fund. If we do not do something materially and have a sense of urgency I do not know how we are going 

to really catch up. 

Thank you, Mr. Chairman, I appreciate it. 

Chairman STARK. Okay. Mr. Tiberi has waited patiently and I 

am happy to recognize him at this point. 

Mr. TIBERI. Thank you, Mr. Chairman. 


wwoods2 on PRODPC68 with REPORTS
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Kind of following up on Mr. Pascrell’s questioning on the durable 

medical goods, Mr. Acosta, you have mentioned it already regarding what you have done in Miami, Florida. 

Clearly reports have shown that the entities that you have prosecuted were not legitimate DME providers and they did not have 

legitimate provider numbers under current law. 

The question is how in the world were they able to receive numbers and how can we prevent that from happening in the future? 

Mr. ACOSTA. I will answer briefly and then with your permission I will defer to my colleagues. First, let me do say that there 

is a great sense of urgency on this. I think it is critical. Our prosecution numbers in Miami are up 30 percent. We receive from the 

HCFAC $981,000 and with that our prosecutions last year accounted for I believe $137 million give or take in fraud. So I do 

want the Committee to be aware of that because the resources are 

an important matter. 

With respect to provider numbers I will say that this is often 

closely tied to identity theft where both the individual seeking provider numbers as well as physician numbers that are used belong 

to actual individuals but identities are sometimes stolen. Beyond 

that I would defer to CMS. The CMS is the one that provides the 

numbers and so they are in a better position to answer. 

Mr. HILL. On the DME number—I mean clearly the sense of urgency is acute. There are two issues for us here. The first is that 

in fact, and this is a sort of mark on our process if you will, in 

many cases suppliers do have a legitimate supplier number. They 

have got in the system and they have got a number. 

The fact of the matter is they are able and are more nimble to 

stay one step ahead of us. When we do the site visit, they have got 

a building and they have got a plaque on the wall that says they 

are there and there is inventory and we do all the things and they 

have filled out the paperwork and they look like a legitimate business. Then when they begin to bill, it is clear that they are not. 

At one level the resources that we can make available to do the review and to do the on-sites sometimes just cannot keep up. 

Having said that, we are moving forward through the Medicare 

Modernization Act to require now this year sort of along the lines 

of the surety bonds a requirement for accreditation which is another level of review for the suppliers. So, not just CMS but an outside entity will come in, do unannounced site visits, there will be 

requirements for the DME suppliers that they will have to meet to 

be able to get accredited and then get numbers. So, again, it is 

more eyes looking at the entity to be sure that in fact they are 

meeting the requirements that are set out in the statute. 

Mr. TIBERI. Thank you. 

Mr. Levinson, do you have a comment on that? 

Mr. LEVINSON. Yes. We are also looking at DME providers’ 

compliance with CMS standards so that CMS has a more comprehensive picture of providers who are not paying attention to the 

minimum standards that CMS does impose upon them such as 

properly obtaining the provider number and being eligible to participate in the program. We are involved in that work as we speak. 

Mr. TIBERI. Thank you. 


wwoods2 on PRODPC68 with REPORTS
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Mr. Hill, one other question that I would categorize under the 

term ‘‘waste’’ and not fraud. My aunt a couple of weeks ago had 

knee replacement surgery in a Columbus, Ohio, hospital. After she 

was recovering in the hospital, she was given a choice to either go 

home and have a shot at home that would cost $50 a day out of 

pocket and she is a Medicare Part D recipient as well or she could 

go to a nursing home and have that shot and she didn’t have to 

pay anything. 

Now, obviously somebody is paying something and a lot more at 

a nursing home for 14 days than her being home for 14 days. I 

have heard this is a problem that is not just my aunt that this is 

pretty widespread. Can you comment on that? 

Mr. HILL. The issue here gets somewhat to Chairman Stark’s 

question in terms of judgment, clinical judgment as to what should 

happen. Not knowing your aunt, not knowing the situation, typically to be discharged to a nursing home—I am not a physician, so 

I will get this wrong—you have got to be sick enough to be in a 

nursing home. You cannot go to a nursing home just to get a shot. 

So clearly there are incentives to get somebody into a nursing home 

because you are going to get reimbursed more in the nursing home. 

As we look at payment errors and as we look at areas where we 

need to refine our policies, one is the policy area of what we characterize as the site of service differential, the fact that you get paid 

more to do the same thing more in one site than another site, is 

an issue that we need to deal with. 

There is a proposal in the President’s budget that does not quite 

get to the issue you are describe here but it is clearly one that we 

have to get to where there are incentives for delivering care in 

more expensive places just for the purposes of getting the expense 

not because the patient may not have necessarily needed it. 

Mr. TIBERI. I hope you look at that because there is a lot of 

money to be saved there. 

Mr. HILL. Absolutely. 

Mr. TIBERI. Thank you. Thank you, Mr. Chairman. 

Chairman STARK. Thank you. 

Mr. Becerra. 

Mr. BECERRA. Thank you, Mr. Chairman. May I say from the 

outset, Mr. Chairman, that I hope that we will do more of these 

hearings because as we talk about how we take care of things like 

the SGR and other issues that we have to come up with in terms 

of savings, I think probably the best way to go is to try to figure 

out where the abuse is so we do not have to go after those good 

providers who are paying the price for our need to have savings. 

I hope will continue to do more of these hearings so that we are 

able to target our efforts to try to make appropriate savings where 

possible within the healthcare field and certainly within Medicare. 

I want to thank the three of you for your testimony. If I can just 

try to clarify something. Mr. Levinson, I think there is general 

agreement—and please tell me if there is not—but there is general 

agreement that every dollar that you have been able to use to investigate any waste, fraud or abuse has translated into more than 

a dollar’s worth of savings to the Medicare or certainly our 

healthcare programs to date. 


wwoods2 on PRODPC68 with REPORTS
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Mr. LEVINSON. That is correct. It has varied over the last few 

years from $11 to as much as $18 in terms of the return on investment (ROI). 

Mr. BECERRA. That type of return anyone on Wall Street would 

die to have. Let me ask you this. How much more money, how 

much more in resources could you efficiently handle before you say, 

‘‘Wait a minute. There is enough room to do the work, but I cannot 

staff up quick enough and I cannot given my limitations in size and 

space deal with more than x-amount.’’ 

What could you use without us coming back and having a hearing and saying we hear that we gave you money for 100 new investigators but you only got 50 and you still spent the money for 100? 

Mr. LEVINSON. Well, first let me again thank the Committee 

for the support it has given OIG over these last several years in 

getting us—— 

Mr. BECERRA. Do me a favor. Cut to chase because we want to 

support you. Give me a sense of—the 5 minutes that I have, I want 

to ask other questions. Give us something that we can work with 

that is on the record. How can we help you realistically? We are 

not going to give you as much as you in the future can use, but 

maybe we can give you something now that you know you can 

make use of today? 

Mr. LEVINSON. I very much appreciate that. One of the great 

benefits of having the three organizations here represented at the 

table is that it underscores for the full Committee, for the full two 

Subcommittees, the understanding that this is a process in which 

every one of us has an important but related part. 

I run no program. Mr. Hill is involved in running the program. 

Mr. BECERRA. What could your shop use? 

Mr. LEVINSON. No matter how much money I might have if Mr. 

Acosta does not have resources—— 

Mr. BECERRA. I will ask Mr. Acosta and Mr. Hill in a second. 

You tell me what your shop can use. 

Mr. LEVINSON. We are quite, I think, effectively integrating the 

new money that was most recently provided for our office. For better or for worse, I cannot give you a specific dollar figure this morning about how much more money we can ingest and state with assurance any particular result that we could accomplish without detailed analysis. 

Mr. BECERRA. That is fair. Let’s do this. Let’s stay in communication. I think, Mr. Chairman, we are going to continue to do 

that. 

I hope what you will do is you will look discretely at your various 

programs and you will tell us earnestly and to the degree that you 

can realistically how we could make a great investment of the taxpayer dollar in your shop and know that we are going to get that 

11 or 18fold return on that investment. Again, you are not going 

to double the size of your operation. We know that, but there are 

things that you know and if we knew that you could do that we 

would try to help you do because it just helps us. 

We are going to be talking about how we cut programs within 

Medicare to save money. We are going to do it with a meat axe. 

We are going to try to be more surgical, but some of it is going to 

hit good providers and what you do is you go after those providers 


wwoods2 on PRODPC68 with REPORTS
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that are not doing that good. So, I would rather see us put a dollar 

in getting you more to return more than us going after providers 

simply because we could not find a better approach to tailor our 

need for savings. 

Mr. HILL. I understand. 

Mr. BECERRA. Let me ask a question that relates to the quality—— 

Chairman STARK. Before you do, could the record just show at 

this that the staff behind Mr. Levinson have been holding up five 

fingers, eight fingers suggesting that that would be the percentage 

of raises that they feel they are entitled to. I thought that ought 

to just be part of the record. 

Mr. LEVINSON. As I said previously, I think the fact that you 

are holding this hearing has given all 1500 of us a little bit more 

power, a little bit more effectiveness in being able to accomplish 

the job. So, the hearing itself accomplishes a great deal on our behalf. 

Mr. BECERRA. I do not think any one of us here is looking to 

go after—this is not a witch hunt to try to go after a particular provider or go after particular government agencies saying, ‘‘You are 

not doing enough.’’ 

We know that if we do this work right, the good providers will 

be able to take care of themselves and there may be some who are 

innocently doing things that they should not. If we just have someone just overseeing them saying, ‘‘You know you are stepping out 

of bounds a bit.’’ They would get right back in there, but there are 

some that are not. So, let’s figure out where we go. 

Mr. Chairman, if I could just ask one last question. 

Chairman STARK. Go ahead. I stepped on your time. 

Mr. BECERRA. Thank you. 

Quality improvement organizations. The CMS, Mr. Hill, contracts with these quality improvement organizations to conduct 

these in-patient utilization reviews at hospitals and to try to determine if care is being provided appropriately. 

You are aware I am assuming of this Institute of Medicine (IOM) 

Report that said that we have to wonder if we are actually getting 

the best out of these organizations because they end up developing 

a very strong relationship, cozy relationship with the providers. 

It is not unlike the situation you see in cities when the building 

inspectors become very familiar with a lot of the developers in the 

area and the developers become friends of these building inspectors 

and it sometimes occurs that the building inspectors do not do 

right by the people because they have developed a friendship with 

the developers and the developers get away with some things. 

Tell me how you are responding to the IOM’s recommendations 

with regard to the quality improvement organizations to make sure 

that we really are getting quality and appropriate care. 

Mr. HILL. Absolutely. I think—I do not think, I know that the 

quality improvement, not necessarily through the Quality Improvement Office (QIO), but quality improvement is a key priority for 

the Administration for Secretary Levinson—pardon me, Secretary 

Levitt. 

I did not mean to promote you there. 


wwoods2 on PRODPC68 with REPORTS
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The IOM report really gives us a good view into what is going 

on with the QIOs. Some of it is stuff that we were sort of aware 

of and sort of understanding. As you may or may not know, the 

way that they are funded and the way that we contract is on a 3- 

year cycle. We are at the end of the previous 3-year cycle and so 

we are going through a process now of looking at the recommendations and looking at what changes we can make to the structure 

of the QIOs, to the relationships that they have with the providers 

and the things that we ask them to do. Sort of what are the right 

things for them to be doing in the way our contracts are structured 

with them. 

So hopefully as we work our way through the fall we will be 

ready to sort of come up and talk in a very robust way about exactly how it is we are going to proceed with what we characterize—— 

Chairman STARK. Would you yield at this point? 

Mr. BECERRA. Yes, Mr. Chairman. 

Chairman STARK. I thank the gentleman for yielding. 

A further point, Mr. Hill, though. You cannot do that with the 

Joint Commission on Accreditation of Healthcare Organizations 

(JCAHO) now can you because you do not contract with them? 

Mr. HILL. Correct. 

Chairman STARK. Would there be any reason that you shouldn’t 

contract with JCAHO which would then give you the authority to 

say, ‘‘Look. Let us review what you are doing.’’ We have had several examples of their overlooking tragic errors. 

Mr. HILL. Right. 

Chairman STARK. I am going to meet in a little while with Senator Grassley and he and I both have felt that—and I would ask 

Mr. Levinson and Mr. Hill, is there any good reason that you can 

think of that you ought not to contract with JCAHO as you do the 

other quality agencies? 

Mr. HILL. I think that the JCAHO is, they are an organization 

that sort of attests that they meet our standards, so I am not quite 

sure it is a contract issue. There is a lot to discuss there. 

I think I am beginning to get out of the bounds of my—— 

Chairman STARK. I am just wondering, to Mr. Levinson, there 

is no real reason that if you had a contract with them other than 

you allow them to deem hospitals, but you really—and we do not 

therefore really have any oversight. They just operate out there 

with absolutely no one reviewing their results and there have been 

instances where they have overlooked some things that are pretty 

serious. 

Mr. BECERRA. Mr. Chairman, if we could—I am sorry, Mr. 

Levinson. Go right ahead. 

Mr. LEVINSON. I just wanted to add, Chairman Stark, that we 

do not have any—we have not done any recent work with JCAHO 

but we do have QIO work in progress which we hope to share with 

you relatively soon. 

Chairman STARK. Thank you. 

Mr. BECERRA. Mr. Chairman, could I suggest in that regard? 

Mr. Hill, when are these QIO contracts going to be out again? Is 

it this fall? 


wwoods2 on PRODPC68 with REPORTS
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Mr. HILL. The fiscal year 2008, during the fiscal year 2008 process. 

Mr. BECERRA. So, Mr. Chairman, it sees appropriate for us to 

be in touch right now with CMS before you go forward and start 

to let out these new contracts that we talk to you about what revisions you are making to the process to ensure that quality will be 

part of that requirement. 

Mr. HILL. Absolutely. 

Mr. BECERRA. Mr. Chairman, I know that we have votes in, but 

I see no more Members. Could I be indulged? 

Chairman STARK. Go right ahead. 

Mr. BECERRA. Thank you. 

Mr. Acosta, a question for you. We know that you get thousands 

of cases referred to you of reported Medicare fraud and abuse. I 

know that you do not have the capacity to deal with each and every 

one of those cases and many of those cases probably do not pan out 

to be more than just some complaint that is not legitimate, but obviously there are many of those that are. 

Give me a sense of the numbers. How many come to your office? 

How many do you investigate? How many do you prosecute? How 

many do you get a verdict or conviction or if it is a civil action some 

type of award or damage? 

Mr. ACOSTA. Thank you. Thank you for the question, Congressman Becerra. If I could, I am going to tie that into the question 

you brought to Mr. Levinson earlier about resources. We receive $981,000 from the HCFAC account as I said previously. I match that with my own general funds to the tune of approximately $2 million. That allows me to fund about 12 attorney 

positions within my office. With that, last year, our criminal filings 

were up 30 percent to 68 cases, up from about 50 the year before. 

The conviction ate is about 97 percent. 

Mr. BECERRA. Wow. 

Mr. ACOSTA. In addition to that we brought a number of civil cases. This fiscal year alone, our civil recoveries included the $15 

million recovery from Larkin Hospital that Chairman Lewis referenced earlier. 

Mr. BECERRA. That is just one recovery. 

Mr. ACOSTA. That is just one recovery. The $2.2 million from 

Jackson Memorial Hospital, a teaching hospital, as Mr. Lewis referenced earlier. The $10 million that has been returned to the Federal treasury—— 

Mr. BECERRA. Stop. Stop. You have already told me with one 

case you paid for your 12 attorneys that you have. 

Mr. ACOSTA. That is correct, Congressman. 

Mr. BECERRA. Stop. Stop. Stop. 

So, what could you efficiently ingest? 

Mr. ACOSTA. Well, this past year we requested and did not receive $11 million overall budget increase. The budget increase requested for this year is $17 million, part of which my office would 

receive. 

In addition, I have several—I have special Assistant United 

States Attorneys that are on loan to me from the State Attorney 

General’s Office to prosecute more cases. We are willing to work 

with you to suggest a number. I am not in a position to suggest 


wwoods2 on PRODPC68 with REPORTS
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a number nationwide, but I think our point that our folks work 

very hard and more than pay for themselves is quite obvious. 

Mr. BECERRA. You have been gracious in providing us the information because everyone has constraints on the type of information 

and how it can be used that we can discuss. I appreciate that. 

Mr. Chairman, I think it is obvious that if you have a 97 percent 

conviction rate, if you have got awards that single-handedly pay for 

the 12 attorneys for the next 5 years, you are doing something that 

we should be trying to concentrate on more. 

Again, you are not convicting—the 97 percent conviction rate is 

not of those providers that are doing what we ask them to do under 

Medicare, it is folks that are not. Mr. Chairman, I hope that we 

take this and, as I said, I hope we continue to have follow-up conversations both publicly, formally and informally so we could figure 

out how we could concentrate some of our moneys because I know 

we are going to come here in about 4 months and we are going to 

be agonized by what we have to do in Medicare to providers, many 

of whom are not in that percentage of those who you are trying to 

convict. 

I think you, Mr. Chairman, for yielding and I think the gentlemen for all their information and good testimony. 

Chairman STARK. Thank you, Mr. Becerra. 

I would just emphasize that the making public all of the tools 

which would come under at least the observation of Inspector General Levinson I think would have a meritorious effect on all providers. 

In other words, this is not like over-deducting your meals and 

figure you will never get audited by the IRS. These guys are looking and saying, ‘‘Wait a minute. You know 97 out of 100 people are 

getting caught.’’ That is a whole different issue and I think is 

worth publicizing to some extent. It could very well be that you 

issue a report beyond The Red Book that might be a little be more 

oriented toward the average public and I think it would help. 

I think it would help Mr. Acosta and Mr. Hill’s efforts. I want 

to thank Chairman Lewis for urging us to proceed on this matter 

today and to thank all of you for your help and your continued 

work for, principally for the beneficiaries but also for the taxpayers 

and all of the people involved in the Medicare system. 

You are to be commended and thank you for your assistance to 

us. We will be back to you because you are going to need more help 

as Mr. Becerra pointed out. I know that beyond just the fraud and 

abuse that Inspector General Levinson has indicated and his office 

has some areas and Mr. Hill as well where we might find savings 

beyond fraud and abuse. We are looking for that all the time. 

Chairman LEWIS OF GEORGIA. I do not have anything to add, 

Mr. Chairman, but thank you for conducting this hearing. I thank 

all of the witnesses for being here. I think this has been most helpful. 

Thank you so much for the job that you are doing. 

Chairman STARK. I would ask, I know Mr. Kind and perhaps 

others on the minority side will have questions and they could not 

remain, we will keep the record open and I would ask the witnesses if they would mind responding to any letters that the Committee Members send to them in the form of inquiry. 


wwoods2 on PRODPC68 with REPORTS
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With that, this hearing is ended. 

[Whereupon, at 11:46 a.m. the Subcommittees adjourned.] 

[Questions submitted by the Members to the Witnesses follow:] 

Question Submitted by Mr. Kind to Mr. Hill 

Question: Mr. Hill, in your testimony, you stated that ‘‘responsible and efficient stewardship of taxpayer dollars are critical goals’’ of the Administration. You also stated that ‘‘[t]he States provide a crucial first line of defense in safeguarding Medicare Program dollars.’’ Given these stated goals 

of CMS, I would like the agency to explain its resistance to renewal of Wisconsin’s SeniorCare program waiver. 

Extension of this 1115 Pharmacy Plus waiver is expected to save the Federal Government, and Medicare in particular, an estimated $404 million 

through 2010. Wouldn’t rejection of a SeniorCare extension be contrary to 

the Administration’s own stated Medicare fiscal goals? 

Answer: Established in 2002, SeniorCare is the prescription drug assistance program for most lower income seniors in Wisconsin not qualified for full Medicaid benefits—specifically, Medicare beneficiaries and others with family incomes up to 200 

percent of the Federal Poverty Level (FPL). SeniorCare was devised as a model 

‘Pharmacy Plus’ demonstration, authorized under the Social Security Act’s Medicaid 

section 1115 waiver authority. 

The goal of this demonstration was to test how the provision of a pharmacy benefit to a non-Medicaid-covered low-income population would affect Medicaid costs, 

utilization, and future eligibility trends. As with other section 1115 demonstrations, 

CMS approval for Pharmacy Plus required the State to establish budget neutrality, 

meaning that the services provided under the demonstration would need to be offset 

by other savings in the Medicaid program. The overall theory behind Pharmacy Plus 

was that prescription drug programs for seniors would target scarce resources more 

effectively because participants would remain healthier, thereby reducing future 

health care costs that may result in their becoming eligible for Medicaid. 

The enactment of Medicare Part D has altered the landscape in which States provide prescription drug coverage to the age 65 and over population. Before January 

1, 2006, SeniorCare was the only affordable prescription drug coverage option for 

most lower income seniors in Wisconsin not qualified for full Medicaid benefits. 

Today, seniors in Wisconsin and across the country have access to comprehensive 

prescription drug coverage through Medicare. Individuals eligible for full benefits 

under both Medicare and Medicaid now receive their prescription drug coverage 

through Medicare as well. At last count, more than 571,000 Wisconsin seniors, including dual eligibles, are receiving drug coverage through Medicare Part D or another creditable source. 

In addition to the standard Part D benefit, many beneficiaries with limited incomes qualify for the Low-Income Subsidy (LIS). Indeed, certain beneficiaries enrolled in Wisconsin’s SeniorCare would be eligible for the LIS. The LIS provides substantial help to Medicare beneficiaries with limited incomes, including a generous 

Federal premium subsidy and minimal cost-sharing for covered drugs. Most LISqualified beneficiaries receive the 100 percent subsidy, and therefore have no premium for Part D coverage. 

However, the establishment of a Federal Medicare prescription drug benefit had 

significant impact on the ability of Pharmacy Plus demonstrations to be budget neutral. Specifically, the advent of Part D and the low-income subsidy altered the circumstances under which CMS originally approved SeniorCare because now Medicare Part D, and not the Pharmacy Plus demonstration, is the main source for Medicaid savings by diverting individuals from full Medicaid eligibility. As a result, we 

believe it would be very difficult for Pharmacy Plus waivers, as they were originally 

structured, to meet the budget neutrality requirements in light of Part D. 

We greatly appreciate the leadership Wisconsin has demonstrated in providing 

prescription drug coverage to Wisconsin’s most vulnerable citizens at a time when 

they had no other options for drug coverage. CMS does not want current SeniorCare 

beneficiaries to suffer any interruptions in drug coverage, and we are committed to 

partnering with Wisconsin officials to establish a transition and outreach plan in 

which we can all take confidence. That being said, we believe the transition must 

be made as quickly as possible. Wisconsin has deemed SeniorCare as creditable coverage relative to Part D, so individuals transitioning to Part D will not face a late 

enrollment penalty. 

f 


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[Submissions for the Record follow:] 

Statement of the Power Mobility Coalition 

The Power Mobility Coalition (PMC), a nationwide association of suppliers and 

manufacturers of motorized wheelchairs and power operated vehicles, applauds the 

House Ways and Means Subcommittee on Health and the Subcommittee on Oversight for holding a joint hearing examining ways to identify and eradicate fraud 

within the Medicare program. 

The PMC has long supported efforts aimed at removing unscrupulous actors from 

the Medicare program. In fact, it was several PMC members who first identified 

pockets of suspicious activity in the delivery of power mobility devices (PMDs) in 

Harris, Country Texas and then brought these concerns to the attention of the Centers for Medicare and Medicaid Services (CMS) as early as April, 2003. The PMC, 

along with other leaders of the durable medical equipment (DME) industry, then 

partnered with CMS in the implementation of the ‘‘Wheeler Dealer’’ program that 

sought to root out fraudulent activity in the Medicare PMD benefit. 

The PMC was very supportive of anti-fraud initiatives contained in the Medicare 

Modernization Act (MMA), including the requirement that a Medicare beneficiary 

see a health care practitioner for a face-to-face examination prior to the submission 

of a PMD claim, increased quality standards for PMD suppliers, and the provision 

that requires all DME supplies to be accredited by a nationally recognized accreditation body. While these are all positive steps in efforts to clean up the Medicare program, the PMC feels that more could be done and, as a result, offers the following 

recommendations to the Subcommittees: 

1. All New DME Suppliers or DME Suppliers Who Are Renewing Their Supplier Number Must be Accredited 

CMS has released the new quality standards for all DME suppliers and has 

named the nationally recognized accreditation bodies that have ‘‘deemed status’’ to 

ensure Medicare quality standards are being met. Since all the pieces of the accreditation puzzle are now in place, CMS must insist that all new DME suppliers become 

accredited before they can be awarded a Medicare supplier number. Further, DME 

suppliers who have to recertify for a supplier number should also be immediately 

subject to the accreditation requirement. 

2. Accreditation Must Happen Prior to Implementation of Competitive Bidding 

Program integrity is paramount to ensure Medicare beneficiaries receive the highest quality of products and services from lawful suppliers. Stringent quality standards coupled with mandated accreditation of suppliers will rid the Medicare program of unscrupulous actors and reinforce the integrity of those suppliers who play 

by the rules. 

Implementing competitive bidding and allowing non-accredited suppliers to participate in the bidding process is contrary to CMS’ priority to safeguard Medicare 

resources and beneficiaries. Allowing non-accredited suppliers to bid and be awarded contracts will cause major disruption if the contracted supplier cannot obtain accreditation and the contract must then be terminated and subject to a ‘‘rebid.’’ In 

addition, non-accredited suppliers would have lower overhead and, as a result, 

would be able to submit lower bids which could artificially lower the single payment 

amount for accredited contracted suppliers. 

3. Establish a DME Program Integrity Advisory Group 

DME manufacturers and suppliers know their business better than anyone and 

are constantly monitoring the marketplace. Lawful DME suppliers and manufacturers are anxious to share intelligence about potential fraudulent actors with CMS. 

The PMC recommends that CMS establish an advisory group comprised of DME 

suppliers, manufacturers and beneficiaries to work with CMS officials on developing 

proactive solutions to help detect and eliminate fraud. 

4. Require Physician Certification on Documentation Supporting a PMD 

Claim 

As part of recent administrative changes to the Medicare PMD benefit, while a 

physician must provide a prescription for PMDs, CMS no longer requires that the 

physician certify the need. The PMC recommends that the algorithmic formula contained in the PMD National Coverage Determination be codified in a form that will 

then need to be certified, under penalty of law, by the physician. Such certification 


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will strengthen the role of the physician as gatekeeper of the Medicare PMD benefit 

and put the physician in a position to ensure that the beneficiary meets the requirements necessary under the Medicare program to qualify for PMDs. A physician-certified document will also provide some much needed objectivity to the PMD claims 

process. 

The PMC appreciates the opportunity to comment on efforts to strengthen Medicare program integrity and provide recommendations for additional tools to help 

identify and prevent fraud. Moreover, the PMC agrees with many members of the 

Subcommittees who took pains to differentiate between innocent mistakes and omissions as a result of the complexities of the Medicare program and real fraud that 

harms beneficiaries, rips-off the taxpayers and taints the reputation of thousands 

of lawful PMDs suppliers nationwide. We must raise caution that overly restrictive 

anti-fraud measures that fail to distinguish between lawful suppliers and unscrupulous actors will only serve to further restrict access to PMDs, drive up program costs 

and deny needy beneficiaries high-quality PMDs. 

The Medicare PMD benefit provides thousands of beneficiaries with freedom, independence and the ability to live more healthier and active lives. PMDs save the 

Medicare program money by keeping beneficiaries with compromised or limited mobility out of more costly institutional settings and decreasing the need for hospitalizations. We look forward to working with the Committee to ensure that appropriate program safeguards are in place to protect both the Medicare trust fund as 

well as Medicare beneficiaries. 

f 

Dear Mr. Chairman: 

The House Ways and Means Committee held a hearing last week on Medicare 

program integrity. As requested by Chad Shearer, First Coast Service Options 

(FCSO), the primary Medicare administrator in Florida, is submitting the enclosed 

document for inclusion in the hearing record. The document is a progress report for 

a pilot program approved by CMS to combat Medicare fraud in Dade and Broward 

Counties. 

We appreciate the Committee’s consideration of this material. 

Sincerely, 

Curtis W. Lord 

Report for South Florida Pilot 

(Through February 28, 2007) 

I. Executive Summary 

This report updates progress on First Coast Service Option’s South Florida Pilot 

(SFP) through February 2007. Section II of this report continues to be framed in 

terms of the components of the statement of work for the SFP. 

First and foremost, prepayment safeguards designed to detect and prevent fraudulent infusion drug claims prior to payment, continue to be highly effective. In February 2007, only $8M was paid for these services in Dade and Broward Counties. 

At that level of payment, we believe the remaining degree of fraud in infusion drug 

payments is quite minimal. But as reported in previous monthly reports, unscrupulous providers in Dade and Broward Counties continue to bill significant volumes 

of infusion drug claims. Over $80M was billed in February 2007. A significant portion of that total, we think, was associated with fraudulent activity. 

Also as previously reported, efforts to steal from Medicare have moved beyond 

drug claims to claims for other services, mainly billed from Dade County. We believe 

unscrupulous providers have gravitated toward expensive diagnostic tests and procedures in an effort to replace income lost to the infusion scheme clean up. The prepayment intervention installed by the SFP in January, an edit that suspends claims 

with allowed amounts above $500 billed by general and family practice physicians 

in Dade and Broward Counties, has been highly effective in combating this shift, 

stopping $4.9M in billed charges in February 2007. 

To date, over 250 unique procedure codes have been billed with claims stopped 

by this new prepayment edit. The common denominator for these codes is that they 

describe expensive diagnostic tests or procedures not generally provided in an office 

setting by a general or family practice physician. Given the wide range of procedure 


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codes involved in this scheme, the widespread (rather than provider or procedure 

specific) edit that has been installed to develop for medical records is ideal. 

Since the edit was turned on in very early January, providers have responded to 

only 40% of our requests for medical records. While this response rate has created 

a great deal of claim review, two things are clear: 

(1) The 60% of claims for which we never get medical records suggests a high degree of fraud is present in these suspended claims, and 

(2) The 40% of claims for which we do get medical records often contain medically 

unbelievable quantities of diagnostic tests or procedures; for example, one beneficiary allegedly received 59 nerve blocks over a six month period. 

In an effort to make this edit more efficient, we are evaluating three new potential medically unbelievable edits for pulmonary tests, vestibular tests and injections 

of nerve agents (nerve blocks). Medically unbelievable edits are designed to automatically deny services once they exceed the ‘‘unbelievable’’ threshold, avoiding the 

process of requesting medical records for those services. That would allow us to request medical records only in situations where suspended claims have a relatively 

greater chance of being legitimate. 

Provider enrollment results follow trends from prior months as the volume of new 

provider applications from Dade and Broward Counties continue to be lower than 

originally expected. As reported last month, however, the screening process has been 

tightened resulting in a considerable increase in the number of pre-enrollment site 

visits. Since the launch of the pilot only 33% of the provider enrollment applications 

in Dade and Broward Counties have been unconditionally approved. 

The objective of the SFP is to reduce CERT error rates in Dade and Broward 

Counties to levels seen elsewhere in Florida and ultimately below CMS’ national 

target. To better track our progress, we have revised our charts that compare payments in South Florida against payments outside the SFP area. Specifically, these 

charts now show payment on a per beneficiary per month (PBPM) basis for Dade 

County, Broward County and the rest of the state. Separate charts have been prepared for drug and non-drug services. 

In terms of the Pilot Metrics, results for February 2007 reflect the following: 

• CERT Scores: Please note this metric has been modified to track quarterly, not 

monthly, results increasing the sample size and reducing error rate variability. 

—CERT scores continue to trend down in the SFP counties. 

—For the Q3 2006 sample period, the Dade County CERT score currently 

stands at 11.7%; this compares to a previous quarter rate of 57.8%. 

—For the Q3 2006 sample period, the Broward County CERT score currently 

stands at 5.3%; this is up slightly from the previous quarter but compares 

very favorably to the last full year (November 2006) rate of 20.2%. 

• Drug Payments: Per Beneficiary Per Month (PBPM): As noted previously, the 

Target Drug metrics have been replaced with new per beneficiary per month 

measures. 

—The drug PBPM for Dade County peaked at $2,641 in May 2006 compared 

to a PBPM of $352 that month for Florida with Dade and Broward Counties 

excluded. The Broward County PBPM peaked in June 2006 at $1,183 compared to a PBPM of $338 that month for Florida with Dade and Broward 

Counties excluded. 

—The drug PBPM for Dade County was $283 in February 2007, an 89% decrease from the peak in May 2006. 

—Similarly, the drug PBPM for Broward County was $310 in February 2007, 

a 74% reduction from the peak in June 2006 

—Based on the level of billed charges, the risk level of infusion drug fraud in 

and outside the SFP area remains high. 

• Non-Drug Payments: Per Beneficiary Per Month (PBPM): The non-drug target 

metrics have also been replaced with PBPM measures. Separate PBPM measures are also included for services provided by general and family practice physicians. 

—The non-drug PBPM for Dade County peaked in October 2006 at $279. The 

non-drug PBPM for Dade County for February 2007 was $129, a 54% reduction from peak. This reflects the positive impact of the new general/family 

practice edit. 

—The statewide non-drug PBPM, excluding Dade and Broward Counties, however, is only $71 suggesting there is still considerable work to be done in the 

SFP area. 


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—The non-drug PBPM for February 2007 in Dade is 82% higher than the statewide PBPM excluding Dade and Broward Counties. The Broward non-drug 

PBPM is 24% higher than the statewide number. 

In summary, the threat of infusion drug fraud remains high but is largely contained in Dade and Broward Counties. The focus of the SFP has shifted to fraud 

involving non-drug services where there is still plenty of work to do. 

II. Progress Against Statement of Work 

A. Provider Enrollment 

1. Site Visit Process 

• In February, 22 sites were added to the list of providers to be visited prior to 

enrollment. • Of the ten site visits completed during the month, three applications were denied because the providers were not operational. Of the seven applications approved, three were considered high-risk and will be placed on pre-payment 

claim review for all services billed. • A total of 20 site visits to existing providers were made this month. Of that 

total, seven resulted in the revocation of the provider’s billing number. Five site 

visits were inconclusive and will require follow-up work in March. • Since the beginning of SFP site visits, 56 applications have been denied or approved with 100% claim monitoring, while 41 billing numbers have been revoked. • The site visit process has been modified to cease appointment scheduling for 

new provider visits. The revised process instead simply notifies the provider 

that a site visit will occur during the reported normal hours of operation. This 

will make extensive staging and preparation work that is observed on some visits more difficult. 

2. Five or More Reassignment Process 

• A total of 29 providers have been identified since inception that meet the five 

or more reassignment criteria. Of that total, 22 applications have completed 

processing, resulting in the deactivation of 118 provider numbers. The remaining seven responses are pending. 

B. Data Analysis 

1. Spike Billing/Monitoring Report Development 

• An early detection report is being developed to track movement of physicians 

from Dade and Broward Counties to other areas of Florida using provider enrollment information. The goal is to run a weekly report of newly enrolled providers that are, or have been, enrolled in Dade and Broward Counties and assign a risk level. High-risk providers will be immediately placed on pre-payment 

review even before we receive their initial claims. This report will be ready by 

the end of March. • As mentioned in the Executive Summary, analysis of claims suspended by the 

non-drug $500 edit for general and family practitioners shows that development 

of certain medically unbelievable edits is needed. The evaluation and edit criteria will be ready by the end of March. 

• A statistical tool is being developed to assist with the analytical work needed 

to implement medically unbelievable edits that span a period of time. This new 

statistical tool, which will be modified to analyze data over time to help insure 

legitimate providers are not affected, will be ready by the end of March. 

• An evaluation of the expansion of the infusion ‘‘specialty edits’’ statewide for 

general and family practitioners was completed. Movement of some infusion 

clinics outside South Florida prompted the evaluation. The results show that 

over 150 legitimate providers would have had their claims hit the existing edit 

structure. These providers typically are designated as family practice, but have 

had additional training in cardiology, rheumatology and other specialties. We 

will work with the PSC on alternative solutions to statewide editing. 

2. Predictive Modeling 

• The scoring of high-risk providers in South Florida has been completed. The results of the scoring will be used to prioritize providers for enrollment revalidation. 

3. Pending Claims Analysis 

• A new pending claim data report is being developed that will compare a provider’s pending billed amounts to billed and paid amounts for the previous 


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month. A statistical evaluation of the results will also be developed. This report, 

which will assist in identifying aberrancies in pending claim data, will be ready 

in early April. 

C. Claims Editing 

1. Provider-Specific Edits 

• Total savings from edits for new providers and providers previously cleared by 

the PSC in February are approximately $900K. 

2. Widespread Edits 

• The non-drug edit designed to suspend claims for medical record development 

for amounts over $500 billed by general and family practitioners in Dade and 

Broward Counties saved $4.9 million in February. 

• The widespread edit for internal medicine physicians implemented by the SFP 

in November saved $2.2 million in February. This edit was not expected to generate large savings like the general and family practitioner specialty edits illustrating that unscrupulous providers continue to bill for drug services. 

3. Medically Unbelievable Edits 

• As noted in the Executive Summary of this report, work on designing medically 

unbelievable edits for three groups of services: vestibular testing, pulmonary 

testing and injection of nerve agents (nerve blocks). 

D. Payment Suspensions 

• No payment suspensions have been necessary to date given the effectiveness of 

other corrective actions. 

E. Infusion Reporting 

• The February monthly reports were produced and forwarded to the PSC on 

March 12. 

• A new request for two additional (100% pre-payment review) edits was submitted by the PSC. The criteria are currently being developed. 

III. Reporting 

A. SFP Claims Editing Savings 

February Cumulative 

• Provider Specific Edits: $ .9M $ 2.2M 

• Widespread Edits: $7.1M $10.3M 

B. Provider Enrollment Activity 

• The ‘‘Site Visit of Existing Providers July 2006 through February 2007’’ chart 

includes three follow-up visits of providers from last month which resulted in 

one additional provider going operational without monitoring; results from the 

other two are still being evaluated. 

C. Pilot Metrics 

• A summary of each metric being used to measure the success of the SFP is included in the Executive Summary. 

—CERT Scores 

—Drug Reimbursement: PBPM 

—Non-Drug Reimbursement: PBPM 

—General and Family Practices: PBPM 

Æ 


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