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55–465 PDF 2010

S. HRG. 111–322 

CRIMINAL PROSECUTION AS A DETERRENT TO 

HEALTH CARE FRAUD 

HEARING 

BEFORE THE

SUBCOMMITTEE ON CRIME AND DRUGS 

OF THE

COMMITTEE ON THE JUDICIARY 

UNITED STATES SENATE 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

MAY 20, 2009 

Serial No. J–111–26 

Printed for the use of the Committee on the Judiciary 

( 

(II) 

PATRICK J. LEAHY, Vermont, Chairman 

HERB KOHL, Wisconsin 

DIANNE FEINSTEIN, California 

RUSSELL D. FEINGOLD, Wisconsin 

CHARLES E. SCHUMER, New York 

RICHARD J. DURBIN, Illinois 

BENJAMIN L. CARDIN, Maryland 

SHELDON WHITEHOUSE, Rhode Island 

RON WYDEN, Oregon 

AMY KLOBUCHAR, Minnesota 

EDWARD E. KAUFMAN, Delaware 

ARLEN SPECTER, Pennsylvania 

JEFF SESSIONS, Alabama 

ORRIN G. HATCH, Utah 

CHARLES E. GRASSLEY, Iowa 

JON KYL, Arizona 

LINDSEY O. GRAHAM, South Carolina 

JOHN CORNYN, Texas 

TOM COBURN, Oklahoma 

BRUCE A. COHEN, Chief Counsel and Staff Director 

MATT MINER, Republican Chief Counsel 

SUBCOMMITTEE ON CRIME AND DRUGS

ARLEN SPECTER, Pennsylvania, Chairman 

HERB KOHL, Wisconsin 

DIANNE FEINSTEIN, California 

RUSSELL D. FEINGOLD, Wisconsin 

CHARLES E. SCHUMER, New York 

RICHARD J. DURBIN, Illinois 

BENJAMIN L. CARDIN, Maryland 

AMY KLOBUCHAR, Minnesota 

EDWARD E. KAUFMAN, Delaware 

LINDSEY O. GRAHAM, South Carolina 

ORRIN G. HATCH, Utah 

CHARLES E. GRASSLEY, Iowa 

JEFF SESSIONS, Alabama 

TOM COBURN, Oklahoma 

HANIBAL KEMERER, Democratic Chief Counsel 

WALT KUHN, Republican Chief Counsel 

(III) 

C O N T E N T S 

STATEMENTS OF COMMITTEE MEMBERS 

Page 

Kaufman, Hon. Edward E., a U.S. Senator from the State of Pennsylvania ..... 2 

Klobuchar, Hon. Amy, a U.S. Senator from the State of Minnesota ................... 5 

Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont, prepared 

statement .............................................................................................................. 62 

Specter, Hon. Arlen, a U.S. Senator from the State of Pennsylvania ................. 1 

WITNESSES 

Breuer, Lanny A., Assistant Attorney General, Criminal Division, U.S. Department of Justice, Washington, D.C. .............................................................. 3 

Dilweg, Sean, Commissioner of Insurance, State of Wisconsin, Madison, Wisconsin .................................................................................................................... 18 

Farrar, Sheri, Executive Director, Special Investigations Department, Health 

Care Service Corporation, Chicago, Illinois ....................................................... 15 

Sparrow, Malcolm, Professor of Practice of Public Management, Malcolm Wiener Center for Social Policy, John F. Kennedy School of Government, Harvard University, Cambridge, Massachusetts ..................................................... 12 

QUESTIONS AND ANSWERS 

Responses of Sheri Farrar to questions submitted by Senator Wyden ............... 22 

Responses of Malcom Sparrow to questions submitted by Senator Wyden ........ 24 

Question submitted by Senator Wyden to Sean Dilweg (Note: Responses to 

questions were not received as of the time of printing, March 30, 2010.) ....... 25 

SUBMISSIONS FOR THE RECORD 

Breuer, Lanny A., Assistant Attorney General, Criminal Division, U.S. Department of Justice, Washington, D.C., statement ........................................... 26 

Dilweg, Sean, Commissioner of Insurance, State of Wisconsin, Madison, Wisconsin, statement and attachment ..................................................................... 40 

Farrar, Sheri, Executive Director, Special Investigations Department, Health 

Care Service Corporation, Chicago, Illinois, statement .................................... 48 

Sparrow, Malcolm, Professor of Practice of Public Management, Malcolm Wiener Center for Social Policy, John F. Kennedy School of Government, Harvard University, Cambridge, Massachusetts: 

Statement .......................................................................................................... 64 

Fraud in the U.S. Health-Care System: Exposing the Vulnerabilities of 

Automated Payments Systems, report ........................................................ 73 

(1) 

CRIMINAL PROSECUTION AS A DETERRENT 

TO HEALTH CARE FRAUD 

WEDNESDAY, MAY 20, 2009 

U.S. SENATE, SUBCOMMITTEE ON CRIME AND DRUGS, COMMITTEE ON THE JUDICIARY, Washington, D.C. 

The Subcommittee met, pursuant to notice, at 2:30 p.m., in room 

SD–226, Dirksen Senate Office Building, Hon. Arlen Specter, 

Chairman of the Subcommittee, presiding. 

Present: Senators Specter, Klobuchar, Kaufman, and Sessions. 

OPENING STATEMENT OF HON. ARLEN SPECTER, A U.S. 

SENATOR FROM THE STATE OF PENNSYLVANIA 

Chairman SPECTER. The hour of 2:30 having arrived, we will proceed with this hearing of the Subcommittee on Crime and Drugs 

of the Committee on the Judiciary of the U.S. Senate. 

The subject today focuses on the use of tough sanctions, criminal 

penalties instead of fines, to hold down costs on Medicare and Medicaid fraud as a key part of the effort to have health care reform 

this year. President Obama has identified health care reform as the 

No. 1 item on his agenda for the year 2009. There is no doubt of 

the need for reform, with some 47 million-plus Americans either 

uninsured or underinsured. One of the big issues is going to be how 

we are going to pay for it. 

In an extended floor statement earlier this week, I outlined a 

number of lines to accomplish that. One is increased funding for 

the National Institutes of Health. What better way to hold down 

the costs than to prevent illness? The increase from $12 to $30 billion through the leadership of Senator Harkin and myself has provided, I think, a causal relationship on reducing fatalities in 

strokes and various forms of cancer and heart disease. The issue 

of exercise and diet offers the prospect for holding down health care 

costs. Early intervention, with coverage for all Americans, offers 

the prospect for holding down costs of chronic illness by interceding 

at an early date. The use of advance directives is an item which 

will be very, very helpful with very substantial Medicare costs in 

the last few hours, few days, few weeks of a person’s life. And today’s focus, as I said, is on the use of jail sentences, tough criminal 

sanctions to reduce the incidence of Medicaid fraud and Medicare 

fraud. 

From my own experience as District Attorney of Philadelphia, I 

saw firsthand the assistance of jail sentences holding down whitecollar crime. If you deal with a domestic dispute or you deal with 

2 

a barroom knifing, that kind of an emotional matter, spur of the 

moment, unaffected really by sentencing. But white-collar criminals are thoughtful, and that has real potential. 

Let me thank Senator Kaufman for coming and yield to him for 

an opening statement. 

STATEMENT OF HON. EDWARD E. KAUFMAN, A U.S. SENATOR 

FROM THE STATE OF DELAWARE 

Senator KAUFMAN. Thank you, Mr. Chairman. I am finding this 

job—you know, change is always hard in dealing with it, and I am 

still getting used to being a Senator, and I am getting very used 

to and very, very happy about having our Chairman be our Chairman. And talk about hit the ground running in terms of getting 

right on to the business of the people, and I think this is a great 

hearing, Mr. Chairman, and I want to thank you for holding it. 

Chairman SPECTER. Thank you, Senator Kaufman, and my 

thanks to Senator Durbin, who generously yielded his gavel for me 

to chair this Subcommittee, and my thanks to Senator Reid, the 

Majority Leader, for the approval and Senator Leahy, the Chairman, for his acquiescence in my taking on the chairmanship. 

Mr. Breuer, if you would stand to be sworn. Do you solemnly 

swear that the testimony you will give before this Subcommittee 

will be the truth, the whole truth, and nothing but the truth, so 

help you God? 

Mr. BREUER. I do. 

Senator SPECTER. I begin by thanking you for rearranging your 

schedule to come here on short notice. We know you have a signing 

ceremony in the White House, and we will get you to the White 

House, also known as the ‘‘church,’’ on time. 

Mr. Breuer comes to this position after undergoing rigorous confirmation hearings in that chair, questioning by the probing members of this Judiciary Committee. He began his career as an assistant district attorney in Manhattan, where he prosecuted a wide variety of cases. My own personal view is that is the best experience 

of all. People ask me what the best job I ever had was—Senator 

or district attorney. I say assistant district attorney. That is where 

you get to question witnesses and really dig into the tough trial 

work, which is great to experience. 

In 1989, he joined Covington & Burling, becoming a partner in 

1995, co-chair of the white-collar defense and investigations practice group, specialized in white-collar crime, complex civil litigation, 

internal corporate investigations, congressional investigations, and 

antitrust cartel proceedings. From 1997 to 1999, he served as special counsel to President Clinton. He has been recognized by numerous publications as a leading litigator and a fellow of the American College of Trial Lawyers. Excellent academic background with 

a bachelor’s degree from Columbia and a law degree from Columbia. 

Thank you for coming, Mr. Breuer, and the floor is yours. 

3 

STATEMENT OF LANNY A. BREUER, ASSISTANT ATTORNEY 

GENERAL, CRIMINAL DIVISION, U.S. DEPARTMENT OF JUSTICE, WASHINGTON, D.C. 

Mr. BREUER. Thank you so much, Mr. Chairman, for having me, 

and Senator Kaufman. Thank you for giving the Department of 

Justice the opportunity to appear before you today to discuss the 

Department’s efforts to fight and deter health care fraud. 

Health care fraud is one of the Department’s top enforcement 

priorities, as the Chairman just noted. We firmly believe that 

greater investment in enforcement will pay significant dividends in 

our efforts to deter fraud and safeguard the billions of dollars in 

Federal health care spending each year. 

As you know, health care fraud is an enormous problem. Federal 

and State spending on Medicare and Medicaid exceeds $800 billion 

per year and is expected to double in the next 10 years. According 

to various estimates, somewhere between 3 and 10 percent of this 

spending is lost to waste, fraud, and abuse. Even at the low end, 

that amounts to $25 billion lost in 2008 alone. We must—must— 

staunch the bleeding, and we are committed to doing so. 

Indeed, the Department has been vigorously fighting health care 

fraud for years. Since 1997, working with our enforcement partners 

in the Department of Health and Human Services, the Department’s civil and criminal enforcement efforts have returned more 

than $14 billion to the Federal Government, and resulted in more 

than 5,000 criminal convictions and exclusions from Federal health 

care programs. 

In just the first 8 months of the fiscal year, we have recovered 

almost $1 billion under the civil False Claims Act. In addition, in 

2008 alone, Department prosecutors obtained over 500 convictions 

in health care fraud cases, an all-time high for the Department. 

In part, this success in our criminal enforcement efforts is due 

to a new strategic approach to health care fraud prosecutions: our 

Medicare Fraud Strike Forces. In May of 2007, the Departments of 

Justice and Health and Human Services announced an interagency 

effort to prosecute durable medical equipment suppliers, infusion 

clinics, pharmacies, and other individuals and entities who blatantly steal from Medicare by billing unnecessary or non-existent 

services. 

The Medicare Fraud Strike Forces represent an innovative approach to health care fraud prosecutions. They are data-driven, 

community-based, real-time prosecutions. Coordinated teams of investigators and prosecutors analyze Medicare claims data to target 

specific geographic areas showing unusually high levels of Medicare billing, all in an effort to combat ongoing crime by the worst 

offenders. 

This approach to health care fraud prosecutions has proven to be 

a powerful weapon in the fight against fraud in our Federal health 

care programs. To date, Medicare Fraud Strike Forces in Miami 

and Los Angeles have obtained 129 guilty pleas and 18 trial convictions, resulting in 113 sentences with an average length of 45 

months in jail, approximately 1 year longer than the national average for health care fraud prosecutions. Seven of those sentences 

were 10 years or more, including one sentence of 30 years for a docVerDate Nov 24 2008 10:21 Mar 30, 2010 Jkt 055465 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\55465.TXT SJUD1 PsN: CMORC
4 

tor in Miami who fraudulently billed Medicare for $11 million in 

unnecessary HIV/AIDS infusion therapy. 

We are seeing tangible results from these efforts. The work of the 

Medicare Strike Force in Miami alone contributed in the task 

force’s very first year of operation to a $1.75 billion drop in claims 

submitted and a $334 million decrease in claims paid by Medicare. 

These results were achieved in a single county in South Florida, 

proving that targeted enforcement works and that investment in 

health care fraud enforcement is worth every penny. 

Indeed, our combined civil and criminal enforcement efforts have 

returned almost $4 to the Medicare Trust Fund for every dollar of 

funding that Congress has provided to Federal law enforcement 

agencies. 

Of course, despite these accomplishments, there is always much 

more to be done, and just today, the Departments of Justice and 

Health and Human Services took some additional significant steps 

to ramp up our prevention and enforcement efforts even further. 

Approximately an hour ago, the Attorney General and Secretary 

Sebelius announced the formation of a senior-level task force designed to bring together the leadership of their Departments to 

tackle health care fraud across the country. This task force, to be 

named the Health Care Fraud Prevention and Enforcement Action 

Team, or HEAT, will increase coordination, intelligence sharing, 

and training among our investigators, agents, and prosecutors. 

As a top priority, the task force will look at how we can better 

share real-time intelligence data on suspected fraud by closely 

monitoring claims payment data, identifying problematic billing 

patterns immediately, and investigating those suspected of stealing. This enhanced coordination between the two agencies will provide a vital link in our ongoing efforts. The Attorney General also 

announced today that we have expanded our strike force operations 

into Detroit and Houston. 

As we saw in the example from Miami that I described a few 

minutes ago, targeted enforcement, now also aimed at Detroit and 

Houston, offers immediate and sustained benefits. We urge Congress to support the administration’s request for additional funding 

to support these efforts. With additional funding, we can deploy additional strike forces to target emerging and migrating fraud 

schemes in other areas across the country. 

In closing, let me assure you that the Department of Justice will 

remain steadfast in its pursuit of health care fraudsters. We look 

forward in the months and years ahead to working with Congress 

to identify and pursue legislative and regulatory reforms focused on 

the prevention, deterrence, and prosecution of health care fraud. 

Mr. Chairman, thank you for allowing me to share the Department’s views today on this important issue, and I welcome any 

questions. 

[The prepared statement of Mr. Breuer appears as a submission 

for the record.] 

Chairman SPECTER. Thank you very much, Mr. Breuer. 

We have been joined by Senator Klobuchar. Would you care to 

make an opening statement? 

5 

STATEMENT OF HON. AMY KLOBUCHAR, A U.S. SENATOR 

FROM THE STATE OF MINNESOTA 

Senator KLOBUCHAR. Well, Mr. Chairman, I want to welcome you 

as our new Chair. 

Chairman SPECTER. Thank you. 

Senator KLOBUCHAR. And thank you for having your first hearing on this very important topic. As a former prosecutor that also 

in my civil role as a county attorney represented the biggest emergency care hospital in our State, I have always been especially interested in this issue of waste and abuse in our health care system. 

I think we all know the figures about our rising health care costs, 

and we know it is not all attributable to fraud and abuse. But if 

we can do anything to weed out the fraud and abuse with some estimates being that it is at least 3 to 10 percent of the total amount 

of money that we spend on health care, I think we should do it. 

So I want to thank Mr. Breuer and Attorney General Holder and 

the HHS Secretary for setting up this new group that is going to 

pursue these fraud cases. I think it is a very important endeavor, 

and I look forward to talking with you more about it. 

Chairman SPECTER. Thank you very much, Senator Klobuchar. 

Mr. Breuer, later this afternoon, as I mentioned earlier, you are 

going to a legislation signing ceremony at the White House on the 

Fraud Enforcement and Recovery Act of 2009. That legislation provides for an additional $165 million for fiscal years 2010 and 2011 

for the FBI, U.S. Attorneys, and the Criminal Division of the Department of Justice. What do you expect to do with that money focused specifically on the subject of today’s hearing, and that is, to 

get tough on health care fraud with jail sentences? 

Mr. BREUER. Mr. Chairman, the FERA legislation—and I want 

to thank you and your colleagues for passing that legislation—will 

enable us in the Criminal Division and the United States Attorneys 

to have more prosecutors. What our goal is, specifically with respect to the topic of today, that we will have, we hope, more strike 

forces throughout the country, and we are going to dedicate our 

lawyers from the Criminal Division in greater numbers—— 

Chairman SPECTER. Well, where you say ‘‘hope,’’ what do you expect to do specifically? 

Mr. BREUER. Well, today what we have said is in Houston and 

Detroit, we are expanding already into Houston and Detroit, Mr. 

Chairman, and there specifically what we are going to do is, working with the data that we receive from CMS, our goal is very quickly to identify aberrant billing patterns and to go after providers 

very quickly and bring cases very quickly. And the goal here is not 

to have long investigations, but to identify those who are abusing 

the system, to shut them down immediately, to take their past conduct for sentencing purposes and increased enhancements; and 

then after Houston and Detroit, to continue as much as we can to 

go into other cities in the way that we have already done it in 

Miami and Los Angeles. 

Chairman SPECTER. What are the practices of your Division with 

respect to making recommendations to the court on sentencing? 

Mr. BREUER. Well, what we will do is we are going to take all 

of the conduct that is involved in these cases and make that available to the court. So, for instance, what we will do is we will bring 

6 

the case, and then we will look at the past conduct of the person 

and make that available to the court. 

In a situation, for instance, where there was a significant sentence that I mentioned before, where there was unnecessary HIV 

infusions, if we think that risks—if there are health risks involved, 

we are going to make sure the court knows that, and we are going 

to bring that so that the sentences will be—— 

Chairman SPECTER. Aside from information, do you make it a 

practice to make recommendations on sentencing? 

Mr. BREUER. We do. We do, Mr. Chairman. 

Chairman SPECTER. Do you meet with any resistance as a generalization from judges thinking it is their sole province as opposed 

to standing for a prosecutor to make a recommendation? 

Mr. BREUER. Mr. Chairman, I have not, in all candor, in my first 

month taken a national poll. I think candidly from my 1 month, the 

judiciary runs the gamut, and there are some courts that are more 

receptive to our recommendations, and there are some that are 

probably less. On the whole, though, I do not think that has been 

a significant issue, and we—— 

Chairman SPECTER. May I make a suggestion to you? When I became District Attorney of Philadelphia, the standard procedure was 

leaving it to the discretion of the court. That is what was said by 

the assistant. And I changed the policy to specific recommendations. And for a while, the judges were very unreceptive. 

There has been a very different view of victims’ rights in the intervening years, and when the victim is the U.S. Government, and 

when we know the cost of health care fraud, I think we have real 

standing. 

I would urge you to give consideration to a policy in the Department of Justice. You are the man. The Attorney General is going 

to have to sign off on a policy of this sort. But it would be your 

recommendation as to what would be done. And I would urge you 

to adopt a policy of recommending sentences. And after a while, the 

judges became used to it, but it was tough for a time. 

I would petition for reconsideration of sentences. I was once held 

in contempt of court when a dealer in a case called Commonwealth 

of Pennsylvania v. Arnold Marks, 6 ounces of pure uncut heroin 

worth several hundred thousand dollars—this is a long time ago— 

got 6 months in jail. And I petitioned for reconsideration of sentencing and pressed very hard. But I think if it is a uniform policy, 

if it comes out of Main Justice, has the sanction of the Attorney 

General, implemented by the Assistant Attorney General in the 

Criminal Division, it would carry a lot of weight. 

There are a lot of sentences that I could reference here, but picking out just one case, there was a prosecution against Lutz and 

Health Visions, defrauded TRICARE of over $100 million. The sentence was 5 years in jail. How do you respond to that kind of a sentence with that kind of money involved? 

Mr. BREUER. Well, Senator, I absolutely agree that it is essential 

that those who are defrauding the Medicare or Medicaid systems 

and defrauding the taxpayers need to have harsh sentences, and 

we are going to seek harsh sentences. 

I agree that viscerally sometimes some of these sentences appear, 

without knowing more, to seem somewhat low, and I do not know 

7 

the specific facts of that case so I cannot comment. But I am in 

complete agreement that we need to have prison sentences for 

those who are responsible. They need to be substantial because it 

goes to the very foundation of deterrence, and we are committed to 

doing that. 

Chairman SPECTER. Well, I request that you report back to the 

Subcommittee within 3 months as to what you intend to do about 

a policy of recommending sentences and some indication as to 

guidelines that you are going to instruct your Assistant United 

States Attorneys and to what extent the amount of the dollar figure is calculated in the sentencing recommendation so that the 

Subcommittee and the full Committee will have an idea as to how 

you are treating this subject, and let us see it on health care fraud. 

But this is something we are going to be taking a look at on other 

lines. It is a common practice, which I have seen in the past, where 

the fines, while they appear to be substantial, are not really substantial compared to what dollar figure is involved, and they really 

amount to a license to do business; whereas, if you put people in 

jail, that is a big, big difference. So we will look forward to your 

report there, and we will have oversight not only on health care 

fraud but on other cases as well. But we will ask you, as I say, in 

the next 3 months just to look to health care. 

We have been joined by the distinguished Ranking Member of 

the full Committee. That has always been an important position, 

and our practice is to alternate. You just sat down. Would you care 

to exercise your time now? 

Senator SESSIONS. Thank you, Mr. Chairman. 

Chairman SPECTER. I take it this is an election to exercise your 

time now. 

Senator SESSIONS. All things considered, Chairman is better than 

Ranking Member. It is great to be with you—— 

Chairman SPECTER. It depends on whether it is the full Committee or the Subcommittee where you are. 

[Laughter.] 

Chairman SPECTER. But we will work seniority out. 

Senator SESSIONS. I appreciate your questions, Senator Specter, 

because you understand these issues very well as a proven prosecutor. 

Mr. Breuer, I would just like to ask a few things, and I am going 

to look at this because when I was a United States Attorney, I 

tried to make sure we were earning the taxpayers money. 

Now, for the health care fraud abuse, the Department of Justice gets $50 million a year just for that, outside your normal DOJ 

budget. Is that correct? 

Mr. BREUER. Yes, the entire Department, that is correct, Senator. 

Senator SESSIONS. And I remember—it started in 1996, this official account, but I remember, gosh, around the early 1990’s that we 

were encouraged to form health care fraud task forces, and every 

time this has been done—I guess that was 7 or 8 years later—we 

had this $50 million. And everybody promises to do better. But just 

looking at the Administrative Office of the Court’s statistics, which 

I think are pretty accurate—a lot of times agencies put forward 

cases that they recommended prosecution, and if they do not get 

prosecuted, they count it as a case of something. So you have got 

8 

to watch data. But in 2003, the Department of Justice commenced 

238 health care fraud cases, and in 2007, it had edged up to 261. 

I do not know exactly what the funding levels are, what kind of increases you got. But that is not a whole lot of cases nationwide. 

Some of them may be very expensive and very prominent and timeconsuming, and some could be a guilty plea right off the bat. 

Have you looked at those numbers? Do you have any feel for 

what kind of cases are being brought and whether or not for your 

basic budget plus the $50 million this is sufficient production for 

the taxpayers? 

Mr. BREUER. Senator, I think that we have done well, but we 

need to do better. And by that, one of the examples I give is the 

strike forces, those that, for instance, have been already very successful in Miami and Los Angeles. There in a very limited time, 

Senator, we really have provided a good number of convictions. I 

think just since 2007, if you look at Miami and Los Angeles, there 

have been some 125 or so guilty pleas. There have been people 

going to jail, perhaps on average not as long as the Chairman 

thinks but, still, at least a year more than had traditionally been 

the case for health care fraud. 

And what we are doing in those, of course, is targeting in very 

real time with the data, while people are doing it, and we are 

bringing those cases. And if—— 

Senator SESSIONS. Well, wait a minute. I like that. Now, that 

should tell you something, which is a focused team approach in 

which you have interagency commitment, computer information for 

rapid sharing from the HCFC, whoever the Federal health department agency is, can help identify fraud early and move forward on 

it. 

Are you satisfied that you have that kind of sophisticated, coordinated effort in all your districts? And wouldn’t that be a good idea? 

Mr. BREUER. It would be a great idea. I do not want to represent 

to you that we have it yet. What I can tell you is just today the 

Attorney General and the Secretary of Health and Human Services 

together announced the formation of a new commitment. We understand that CMS will be sharing its data in very real time with 

our prosecutors, and so the commitment from the very top of the 

Cabinet and from the President suggests to me that, as we go forward, you will see a very dynamic approach. 

We are very committed to addressing and stopping the fraud that 

we think is obviously far too great. 

Senator SESSIONS. Well, that is what they have been saying for 

20 years, everyone that sat in that chair, wouldn’t you say, Senator 

Specter? We are going to step it up. But there are still pretty weak 

numbers, if you ask me, considering the hundreds of billions of dollars spent on health care in America. But I am not arguing. I am 

just warning you that everybody has said that. But with your kind 

of leadership, I believe you can produce a little more. 

Now, there is another thing that we have had, and I had a number of meetings with health care providers over the years, and I 

think for the most part they were too nervous, and I have told 

them that. But running a big hospital is a big thing, and every 

error in some billing code that occurred is not necessarily a crime. 

And while we want you to aggressively pursue those who are willVerDate Nov 24 2008 10:21 Mar 30, 2010 Jkt 055465 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\55465.TXT SJUD1 PsN: CMORC
9 

fully acting to violate the law and defraud the taxpayers, would 

you recognize that when you have on a yearly basis thousands and 

thousands of claims coming through, many by young clerks who 

may have miscoded this or that, it does not necessarily mean that 

the hospital lacks integrity. Maybe they need to tighten up. Maybe 

they are civilly liable. But do you see the concern there that some 

good physicians and hospitals and providers have when we talk 

about health care prosecutions? 

Mr. BREUER. Absolutely, Senator. I actually think that Secretary 

Sebelius today talked about simplifying some of these methods, and 

let me be clear here. We are not going to be targeting those who 

make mistakes. But if you look at, for instance, the Medicare Task 

Force, what it does is it looks for extraordinary aberrations in the 

numbers. So if in Miami we see certain providers who in certain 

areas are billing at astronomical numbers compared to what should 

be the norm around the country, those are the people we are going 

to go after. And we are not just going to go after them criminally; 

we are going to go after them civilly. And really, the Department 

of Justice has shown great success in that. Through our civil colleagues right now, I think it is fair to say that for every dollar that 

has been appropriated, we have returned $4, much of it through, 

of course, the False Claims Act, which has been an extraordinary 

civil hammer. But for those doctors out there who are doing their 

best, the 90 or 99 percent of the people involved, of course, who are 

acting in good faith, we want them to continue to provide their 

medical care. 

Senator SESSIONS. Well, thank you. I appreciate your approach. 

I believe you have the ability to make this happen and count me 

a supporter. 

Mr. BREUER. Thank you, Senator. 

Chairman SPECTER. Thank you, Senator Sessions. 

Mr. Breuer, you are surrounded by ex-prosecutors. 

Mr. BREUER. I know. 

Chairman SPECTER. Maybe I should not say ‘‘ex-prosecutors,’’ 

just surrounded by prosecutors. But you are one of the clan, so you 

know what we are looking for. Now I yield to a Senator, instead 

of an ex-prosecutor, Senator Klobuchar. 

Senator KLOBUCHAR. Thank you very much, Mr. Chairman. And 

good to see you again, Mr. Breuer. I was interested in your focus, 

the mention of Miami, and I was reading this article about the task 

force today about how estimates in Miami alone might have saved 

$334 million in fraudulent medical equipment claims and more 

than $1.7 billion in phony Medicare billings. And the reason I bring 

that up is I have often used the statistic about geographic disparity 

in Medicare spending that the studies have shown that the same 

Medicare services in Minnesota, in the Twin Cities, cost about 

$7,000 and they are $15,000 in Miami. And it is startling to me, 

and it is nothing—the cost of living is a very small fraction of that. 

And so perhaps some of it is this fraud, so I appreciate your efforts. 

The FBI’s Financial Crimes Report for fiscal year 2007 said that 

one of the most significant trends observed in recent health care 

fraud cases includes the willingness of medical professionals to risk 

patient harm in their schemes, and they focused on unnecessary 

10 

surgeries, prescribing dangerous drugs, and engaging in abusive 

care practices. 

I have to tell you, being from my State where we have one of the 

highest quality rankings for health care in the country, I know 

those 99 percent, 99.59 percent, whatever it could be, of doctors 

who would never do anything like this. But this trend that we are 

seeing, I have always thought about this as a rip-off of taxpayers 

when you have medical fraud, and if it goes unchecked, really you 

can create a culture where people are lying on billings and things 

like that. But I have never thought of it as much in terms of patient risk. Do you want to comment on this trend at all? 

Mr. BREUER. Absolutely. And, Senator, for that minority of 

fraudsters out there, first, it is completely unacceptable to defraud 

the taxpayers, and we are going to go after those people. But for 

those who are so greedy that they are actually willing to put people’s lives at risk by either providing them with medical care that 

they do not need or what is even more dastardly, knowing exactly 

what they do need but not giving it to them and convincing them 

to do something else, we are just going to have to prosecute them 

to the full extent of the law. It is completely unacceptable, and 

those people are going to face extraordinarily long sentences. 

Senator KLOBUCHAR. You mentioned to Senator Sessions using 

civil remedies sometimes instead of criminal. How do you make 

those determinations? As you and I both know, there is a different 

burden of proof in proving these things. 

Mr. BREUER. Sure. Well, in some cases, I do not think we have 

to make the choice. I have talked a lot with my counterpart, the 

Assistant Attorney General in the Civil Division, Tony West, and 

I know the Deputy and the Attorney General agree that what we 

are going to do is we are going to have a comprehensive approach, 

and we are going to use the full force of the Department of Justice. 

So for entities or for those who do this, we are going to pursue it 

criminally. But given that there is a different standard of proof 

and, of course, in False Claims Act cases, there are treble damages, 

we will do whatever we need. I do not think we are going to have 

to decide, necessarily. Instead, I think we may use both remedies. 

Senator KLOBUCHAR. Okay. Another trend that we are seeing is 

more technological issues and tools of technology that are meant to 

be very good, used for ill-begotten gain. And certainly we actually— 

I remember when I was a prosecutor, we saw identity theft going 

on in hospitals, things like that. And, obviously, one of our big 

pushes right now is to computerize medical records. But one of the 

thing that comes with that is that sometimes the crooks are able 

to use more sophisticated systems than those of us who are trying 

to catch them. 

Could you comment on the role technology will play in the work 

that you are going to be doing in the health care area? 

Mr. BREUER. Well, clearly, obviously, to the degree we can have 

more and more state-of-the-art technology, it will help our ability. 

I think our friends at HHS are, I am hopeful, at the cutting edge 

and understand it well. With our own Medicare Task Force and the 

leadership of one of the people in the Division, Kirk Ogrosky, we 

have been able to look at data, and sometimes it frankly has not 

11 

required the most sophisticated of means. We have just looked at 

the data and gone with it. 

And so I want to be clear, even with what we have, we can do 

more, and we will. But you are absolutely right that fraudsters out 

there are more and more using more sophisticated means, and one 

of our goals is going to be to keep up with them. And to do that, 

I think we just need to have dedicated prosecutors and dedicated 

investigators and those at CMS following this as closely as we can. 

Senator KLOBUCHAR. Have you thought about, as you go ahead 

here and try to prevent this as well as prosecute it, developing 

some best practices? And maybe the American Hospital Association 

does that, or others. But I just remember some cases where no one 

would have waned this to happen, but, you know, patient’s Social 

Security numbers, while locked in a computer appropriately, someone had written them on a card and put them in a filing cabinet 

that someone who went to work there then just simply got these 

cards and used them to apply for credit cards. This is very different 

from what you are talking about, the Medicare billing, necessarily. 

But it just made me think at that time if there must be some best 

practices that could be developed across the board for health care 

providers. 

Mr. BREUER. Senator, I agree, and I think that is really why 

today having the Attorney General and the Secretary of Health and 

Human Services together is so special: one, it shows their commitment from the top, but, second, it really shows that partnership, 

because HHS are the real experts in the best practices, and I think 

they can really provide that kind of education. I think they are 

doing that and will continue to do that. 

And then, of course, by providing us the data, we can take care 

of that law enforcement piece by pursuing it both civilly and criminally. So I think you are absolutely right. With our renewed law 

enforcement commitment has to be a renewed effort in teaching 

and ensuring that best practices go forward. 

Senator KLOBUCHAR. Finally, the FBI report said that the FBI 

provides assistance to various regulatory and State agencies that 

may seek exclusion of convicted medical providers from further participation in the Medicare and Medicaid health system. This seems 

incredibly important to me that we do not let these same providers 

abuse the system again. Has there been a problem of this in the 

past of not keeping the bad apples out after they have been prosecuted the first time? 

Mr. BREUER. I think there have been challenges in keeping the 

data, and, of course, anytime you have a Federal-State-local partnership, there are going to be gaps. 

I think one of the goals for us is to ensure that that does not 

happen, that there is swift and certainty of punishment, and that 

exclusion is much more likely to occur. I think it has occurred a 

lot, but I think probably we can always improve it, and we are 

going to have to. 

Senator KLOBUCHAR. Thank you very much. 

Mr. BREUER. Thank you, Senator. 

Chairman SPECTER. Thank you very much, Senator Klobuchar. 

And thank you, Mr. Breuer. We got you out on time to make your 

12 

bill signing. Thank you for taking on this very important public job, 

and thank you for your testimony. 

Mr. BREUER. Thank you for the hearing, Mr. Chairman. 

Chairman SPECTER. We will now call Professor Sparrow, Ms. 

Farrar, and Commissioner Dilweg. Would the three of you take 

your positions and raise your right hands, please. Do you solemnly 

swear that the testimony you will give before this Committee will 

be the truth, the whole truth, and nothing but the truth, so help 

you God? 

Mr. SPARROW. I do. 

Ms. FARRAR. I do. 

Mr. DILWEG. I do. 

Chairman SPECTER. Thank you. You may be seated. 

We will start with you, Professor Sparrow, Professor of the Practice of Public Management at Harvard’s Kennedy School, 10 years 

with the British Police Service, a master’s degree in mathematics 

from Cambridge, a Ph.D. in applied mathematics from Kent University at Canterbury. Thank you very much for joining us, and the 

floor is yours. 

STATEMENT OF MALCOLM SPARROW, PH.D., PROFESSOR OF 

PRACTICE OF PUBLIC MANAGEMENT, MALCOLM WIENER 

CENTER FOR SOCIAL POLICY, JOHN F. KENNEDY SCHOOL 

OF GOVERNMENT, HARVARD UNIVERSITY, CAMBRIDGE, 

MASSACHUSETTS 

Mr. SPARROW. Good afternoon, Chairman Specter, Senator Sessions, and distinguished members of the Committee. My name is 

Malcolm Sparrow, and I teach regulatory and enforcement policy at 

Harvard’s John F. Kennedy School of Government. I have worked 

on the practical challenges of fraud control in a number of different 

industries. With your permission, my prepared written testimony, 

which I would like introduced—— 

Chairman SPECTER. Without objection, that will be made a part 

of the record. 

Mr. SPARROW. If I could just highlight a few key points from that 

testimony. 

Chairman SPECTER. Thank you. 

Mr. SPARROW. In 1993, I was working with the IRS on a tax 

fraud problem, and the Commissioner introduced me to Attorney 

General Janet Reno. It was about the time that the Attorney General had named health care fraud the No. 2 crime problem in 

America, which is an extraordinary status for a white-collar crime. 

There was little academic research on the subject at the time, and 

after my conversation with her, I took a research grant from the 

National Institute of Justice, and my job was to assess the stateof-the-art in health care fraud controls and try to explain why this 

was such a persistent and pernicious problem. 

My first book on the subject, which is now out of print, I can 

summarize it for you in a sentence or two. It said that the controls 

in the health care industry are weakest with respect to the most 

outrageous crimes. Outright criminal fraud requires a verification, 

not just processing accuracy. And the systems in place did relatively well on the grayer, middle-ground issues such as policy coverage and pricing and processing accuracy. But criminals who are 

13 

prepared to lie need only to learn how to bill their lies correctly, 

and they will on the whole be paid automatically, without any 

human involvement, by computers, and without a hiccup. 

Deterrence theory says that the magnitude of a deterrent effect 

will depend on three things in the mind of a would-be perpetrator: 

first of all, their perception of the likelihood of being caught; second, their perception of the probability of being convicted if their 

activities are once detected; and, third, the severity of the punishment if they are eventually convicted. 

I appreciate that this Committee is very much interested in the 

effects of the third, severe punishment. I would urge you to consider the situation with respect to the first two as well, because I 

think the most visible weaknesses in health care fraud control may 

lie in these areas. 

To emphasize two points about the current situation, I believe 

that resources available for fraud detection and control in the 

health care industry are not only inadequate, they are of the wrong 

scale. We do not know how much we are losing in these programs, 

and in the absence of clear knowledge about loss rates, investments 

in control remain pitifully small. 

Spending on program integrity functions across the industry as 

a whole runs on the order of one-tenth of 1 percent of funds paid 

out. Medicare is slightly ahead of that at the moment. But with estimates of the loss rate of 3 percent, 10 percent, 20 percent, 40 percent in some segments, one-tenth of 1 percent seems like a drop in 

the ocean. Meanwhile, the small investments that are made pay off 

handsomely. The Inspector General has just reported a return ratio 

of $17 for every $1 spent. That can be interpreted as evidence of 

an efficient investigative system. But an economist would say that 

is also an indication that investments are nowhere near optimal, 

and that a system should continue adding marginal dollars until 

the marginal return comes much closer to 1:1. If investment resources are terribly small and the problem is huge, it is a little bit 

like standing in a lake. It is a very easy thing to scoop up a bucket 

of water and show everybody what you found. 

I believe it is possible that 10 percent or even 20 percent could 

be saved from the Medicare and Medicaid budgets, but it would 

take spending of a different order to do that, maybe 1 percent of 

the funds paid out, not one-tenth of 1 percent. 

I realize that it is politically inconceivable that you would have 

a tenfold increase in the level of attention to this problem, at least 

politically inconceivable while the loss rate remains uncertain. And 

that is why I put a lot of emphasis in my writings and today in 

my testimony on the importance of adequate and reliable measurement of the loss rate. 

Chairman SPECTER. Professor Sparrow, your time is up so let me 

interrupt you with a question or two. 

Mr. SPARROW. Yes, please do. 

[The prepared statement of Mr. Sparrow appears as a submission 

for the record.] 

Chairman SPECTER. Where would you direct that additional 

spending? 

Mr. SPARROW. The additional spending would be spread all 

across the board: first in improved detection technology; second, in 

14 

a much greater willingness to take cases to court. The reviews of 

control operations that I have conducted reveal, for instance, postpayment utilization review units—— 

Chairman SPECTER. Well, I agree with you—I agree with you 

that certainty of apprehension is a big factor in sentencing because 

if you do not think you are going to get caught, you do not worry 

as much about the sentence. I did not quite follow all your statistics. How do you make your computation of what the return is on 

expenditures? Would you repeat that? 

Mr. SPARROW. The Office of Inspector General in their annual report has reported that they—— 

Chairman SPECTER. The Inspector General of HHS? 

Mr. SPARROW. Yes, sir. 

Chairman SPECTER. OK. 

Mr. SPARROW. Returned $17 for every $1 spent. They report the 

trend over time that that ratio has been increasing, even while— 

and they also report that the number of cases and the number of 

complaints at the same time is increasing. 

Chairman SPECTER. $17 returned for every $1 which is spent. 

Mr. SPARROW. Yes. Yes, sir. One of the areas that I feel is of 

great concern at the moment is we have fake billing scams all 

around the country, in some regions concentrated. I believe that 

the response that CMS and the OIG are recommending when these 

fake billing scams are discovered does not end up in criminal prosecution. In fact, I believe that the response recommended at the 

moment actually makes life easier for those that would just bill 

these programs. I can give you some examples of that. 

Chairman SPECTER. How do they make life easier? 

Mr. SPARROW. Well, I have a big pile in my office of reports talking about categories of patients that ought not to show up in Medicare claims data, paid Medicare claims data. I have a few of them 

here: Medicare payments for patients that were already dead at the 

time when the services were delivered, and it is not just rentals 

that ran on past death but new diagnoses and entirely new—— 

Chairman SPECTER. And there is knowledge that there were 

charges for those who had already died? 

Mr. SPARROW. Yes, and the Office of Inspector—— 

Chairman SPECTER. And nothing was done? 

Mr. SPARROW. No, something is done. The Office of Inspector 

General, through analysis, is able to identify by cross-matching 

with Social Security records Medicare claims paid—— 

Chairman SPECTER. Was there any enforcement action taken? 

Mr. SPARROW. No. The approach that they recommend, not only 

with respect to dead patients but deported patients who ought not 

be in the country, imprisoned patients who should be covered by 

different health care insurance. And the final insult which came to 

light last year through the work of—— 

Chairman SPECTER. So what was done, Professor Sparrow? 

Mr. SPARROW. They recommend that CMS—— 

Chairman SPECTER. What was done by way of enforcement? 

Mr. SPARROW. Very little in most cases. 

Chairman SPECTER. Anything? 

Mr. SPARROW. I am sure something was done in a few cases, 

but—— 

15 

Chairman SPECTER. Well, it sounds like Philadelphia voting the 

graveyard. 

Mr. SPARROW. So the general strategy is to treat it as a processing error. In other words, get the information about dead patients and deportations into CMS’ processing systems and bounce 

those claims back to the people that submit it, auto-rejection—— 

Chairman SPECTER. Well, we will pursue that. Do you have anything else that juicy? 

Mr. SPARROW. Well, the only thing that would make that a little 

more juicy is what it might indicate. If you ask the question what 

kind of business practices could produce bills that are completely 

implausible—dead patients, dead doctors, people not in the country—the most obvious answer is that these are fake billing scams 

and that somebody is billing off a Medicare list without providing 

any medical treatment at all. And in that case, what is happening 

is that there are just a few patients on the list who might be dead, 

very small numbers compared with—— 

Chairman SPECTER. Well, we have covered the dead patients. 

How do you make the determination that they did not treat those 

patients if they are alive? If they are dead, it is pretty conclusive. 

Mr. SPARROW. And my view is that if you submit 100 claims and 

one of your patients happens to be dead and the other 99 are alive, 

the chances are your claims for the 99 are no better. 

Chairman SPECTER. Okay. You fulfilled the requirement. We are 

going to pursue that further, and we will take it up with the agency. 

Mr. SPARROW. Thank you, Senator. 

Chairman SPECTER. We will now turn to you, Ms. Farrar. Born 

in McCook, Nebraska—was Senator Nelson born in McCook? You 

do not know all the people who were born in McCook. You probably 

do not even know all the people who died in McCook, even those 

who have Medicare payments. Well, you have had a very distinguished career, Ms. Farrar: a special agent with the FBI, February 

1992, Assistant Special Agent in Charge of the Detroit office; in 

1994, lots of crime in Detroit; and since June of 2004, working for 

the Health Care Service Corporation in Chicago. 

Thank you for coming in to testify, and we look forward to your 

testimony. Your full statement will be made a part of the record. 

STATEMENT OF SHERI FARRAR, EXECUTIVE DIRECTOR, SPECIAL INVESTIGATIONS DEPARTMENT, HEALTH CARE SERVICE CORPORATION, CHICAGO, ILLINOIS 

Ms. FARRAR. Thank you. Mr. Chairman, on behalf of the National 

Health Care Anti-Fraud Association and Health Care Service Corporation, thank you for providing this opportunity to share our 

views on the important role of criminal prosecution as a deterrent 

to health care fraud and specifically the role that information sharing plays in fraud investigations. 

Health Care Service Corporation is the largest customer-owned 

health insurance company in the Nation, serving more than 12.4 

million members through our Blue Cross/Blue Shield plans in Illinois, New Mexico, Oklahoma, and Texas. As a non-investor-owned 

company, we view anti-fraud efforts as vital to protecting our members and the communities we serve. 

16 

In my role as the Executive Director in the Special Investigations 

Department, I oversee the anti-fraud program for all four of our 

Blue Cross/Blue Shield plans. In addition to that position, I serve 

on the Board of Directors of the National Health Care Anti-Fraud 

Association, the only national association devoted exclusively to the 

fight against health care fraud. 

The highest priorities of our Investigative Division are to identify 

and investigate high-impact health care fraud schemes and refer 

for criminal prosecution individuals and companies who defraud or 

attempt to defraud our company and its customers. Our primary 

means of identifying the most costly health care fraud cases are 

through effective data analysis and liaison with law enforcement 

and other health plans. 

Our staff participate in all of the federally sponsored health care 

fraud task forces and working groups in our respective States. 

Through these associations, we routinely discuss new and emerging 

health care fraud schemes and share information concerning 

known perpetrators of health care fraud. 

By sharing information, the losses attributed to the activities of 

one subject can be aggregated to enhance the prosecutorial potential of the case. On average, we refer approximately 40 percent of 

our cases to law enforcement, to include Federal, State, and local 

agencies. Three of these cases are detailed in my written testimony. 

Health care fraud cases are some of the most complex white-collar crime cases handled by prosecutors, necessitating dedicated 

staff who develop an expertise in understanding how health claims 

are processed and understanding the intricacies of proving the necessary criminal intent. In many jurisdictions, limited prosecutorial 

resources impact the ability to dedicate staff accordingly. Additionally, health care fraud cases compete with other investigative programs that are deemed higher priority. 

Staying one step ahead of those who are intent on committing 

health care fraud requires continual information sharing and collaboration among the various law enforcement and prosecutorial 

agencies, regulatory agencies, and private health insurers. As a result, in addition to our ongoing liaison with law enforcement in our 

respective States, we maintain effective information-sharing relationships with law enforcement in other States and with other private insurance plans through our corporate membership in the National Health Care Anti-Fraud Association. 

The NHCAA, which has 81 corporate members representing 200 

health plans and 70 Federal, State, and local law enforcement and 

regulatory agencies, routinely and voluntarily shares information 

through a variety of methods. Those perpetrating fraud against the 

health care system do so indiscriminately across the range of Government health care programs and private health plans. 

Too often, however, information sharing in health care fraud 

cases is a one-way street with the private sector regularly sharing 

vital information with the public sector—either voluntarily or 

through mandate—without reciprocal information sharing to bolster our fraud-fighting efforts. 

In many circumstances, the Government representatives believe 

that they do not have the authority to share information about 

17 

fraud investigations with private insurers. However, guidelines developed for the operation of the Coordinated Health Care Fraud 

Program established by HIPAA provide a strong basis for information sharing. Those principles outlined in the program recognize 

the importance of a coordinated program, and we believe that they 

should be reemphasized or reincorporated and clarified in new legislation to ensure that the goal of an effective and coordinated 

health care fraud program can be developed. 

We also encourage the Government to incorporate the losses of 

private insurers into integrated settlement agreements involving 

health care providers who have defrauded both public and private 

programs. 

My written testimony expands on our recommendations to enhance the collaboration between Government and private insurers 

that I hope you will consider. The NHCAA and the Health Care 

Service Corporation are committed to working with Congress to address health care fraud, and we hope that you will consider us resources and partners in this fight. 

Thank you for the opportunity to appear before you today, and 

I look forward to answering your questions. 

[The prepared statement of Ms. Farrar appears as a submission 

for the record.] 

Chairman SPECTER. Well, Ms. Farrar, after you have gotten all 

that information, what prosecutions have worked out? 

Ms. FARRAR. Well, I did describe three of them in my testimony. 

As I said, we refer about 40 percent of our cases for prosecution. 

Not all of them get prosecuted due to—— 

Chairman SPECTER. Do many of them get prosecuted? How 

many? 

Ms. FARRAR. It is very difficult to give you an exact answer on 

that because we just really started in our company to focus on prosecution—— 

Chairman SPECTER. Well, I am not interested in an exact answer. I would just like an answer. What I am looking for here is 

what response you are getting when you go to the district attorney 

or the U.S. Attorney and say there is fraud here. And what I am 

looking for are instances where nothing happens, because we could 

exert a little pressure. 

Ms. FARRAR. Well, we do have a problem with delayed prosecutions. We get excellent response from the law enforcement agencies. 

Chairman SPECTER. Well, can you give us some specific cases so 

we could take a look at it and press somebody? Those generalizations do not do a whole lot of good. We knew that before you said 

it. 

Ms. FARRAR. Well, I will tell you that of the cases we have referred in 2005 and 2006, only a handful have yet been prosecuted. 

Chairman SPECTER. That does not tell much. How big is your 

hand? See if you can provide the Subcommittee with more specific 

information. When you talk about information sharing, sure, we 

are all for information sharing. But what are we going to do with 

it? 

In some jurisdictions, I hear that the insurance companies get together and subsidize assistant DAs. I do not think that is particuVerDate Nov 24 2008 10:21 Mar 30, 2010 Jkt 055465 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\55465.TXT SJUD1 PsN: CMORC
18 

larly, necessarily a good idea because a DA is quasi-judicial. But 

they ought to do their job without the subsidy. 

Ms. FARRAR. We do not do any of those subsidizing arrangements 

in our State. 

Chairman SPECTER. Well, what do you do by pressing the public 

prosecutors to act? 

Ms. FARRAR. Well, we meet with them on a regular basis to review the cases and offer to do whatever additional investigation we 

can do. The difficulty is in the lack of prosecutors who get the cases 

before the grand jury. They seem to stall out. 

To give you exact numbers, we have had three cases prosecuted 

in Chicago this year. Those were cases that were referred about 18 

months ago to law enforcement, and that is relatively quick. 

We just finished a case in Chicago involving ten defendants that 

had been on the docket for 6 years. 

Chairman SPECTER. Well, when you talk about Chicago, you are 

talking about a lot of competition for prosecutions. 

Ms. FARRAR. That is exactly right. You are right, sir. 

Chairman SPECTER. They did not even put your cases ahead of 

the Governor’s prosecution? 

Ms. FARRAR. Probably not. 

Chairman SPECTER. Thank you very much, Ms. Farrar. 

We turn now to Commissioner Sean Dilweg, State of Wisconsin; 

he has been in that position since January 1st of 2007, holds a 

Master’s in Public Administration from Lafollette Institute of Public Affairs at the University of Wisconsin and a B.A. in English 

from Lawrence University in Appleton. 

Thank you for coming in, Commissioner Dilweg, and we look forward to your testimony. 

STATEMENT OF SEAN DILWEG, COMMISSIONER OF 

INSURANCE, STATE OF WISCONSIN, MADISON, WISCONSIN 

Mr. DILWEG. Thank you for the opportunity, Chairman Specter. 

I commend you and the Committee for taking the lead in examining fraudulent activity in the health care marketplace. 

Health care consumers have in the past and continue today to be 

harmed by health care fraud and regulatory gaming. State insurance regulators have fought a decades-long battle against fraudulent and near-fraudulent health care plan schemes. Such Ponzi-like 

schemes range from bogus health care plans that leave millions in 

unpaid claims to more sophisticated schemes designed to circumvent rating and other restrictions to protect less healthy, less 

fortunate consumers. 

As you examine and study the prevention of billing and provider 

and other fraud that increase the costs of health care delivery affecting Medicare and Medicaid, it is just as critical that Federal 

legislative proposals include measures to prevent schemes designed 

to directly harm consumers. I urge you to examine and look at 

what we see occurring in our marketplace. As we look at health 

care reform, we advocate for areas that allow confidential coordination of inquiries and investigations among State and Federal regulatory and law enforcement agencies, create a coordinating council 

in the U.S. Department of Justice, and give regulatory flexibility to 

19 

adapt to the changing face of fraudulent and regulatory gaming 

schemes. 

This congressional session may be a turning point in the history 

of our country’s health care financing system. Great care must be 

taken to ensure that these proposals do not inadvertently expose 

consumers, our families and friends, to fraud or leave them unprotected from unscrupulous schemes. Now is the time to enact measures that encourage communication and coordination among Federal and State regulatory and law enforcement jurisdictions, as 

well as set firm boundaries in the law to prevent schemes that 

abuse consumers. 

There have been other such turning points in our history. The 

enactment of the Federal Employee Retirement Income Security 

Act of 1974 is an example. ERISA was a major step toward protecting workers against fraud and abuse in the private pension system. It also was the unintended door opener to fraudulent health 

care insurance schemes. After enactment, unscrupulous and innovative operators set up multiple employer trusts to provide bogus 

health care coverage. These operators used the cover of ERISA’s 

preemption of State regulatory authority over insurance to set up 

such fraudulent health insurance plans. 

The history of this criminal health coverage fraud is documented 

extensively in congressional records and studies. A 2004 GAO 

study reported that in the period from 2000 to 2002, 144 unauthorized entities provided bogus health plan coverage to 15,000 employers—— 

Chairman SPECTER. Commissioner Dilweg, let me interrupt you. 

What was done with that information? Were there any prosecutions? 

Mr. DILWEG. There was, and you are dealing—what you are dealing with is quite a connection between the State regulator, the Federal Department of Justice, Health and Family Services, and what 

we have done since then to address these what I term kind of 

Ponzi-like schemes is to try and provide the information ahead of 

time, to try and educate consumers. I have some specific recommendations that I assume will be put into the record that would 

also enhance some of the criminal penalties on these activities. 

I know this gets—I was asked to respond to these issues. I know 

it gets outside of Medicaid provider billing issues, but it does get 

into a serious area as you look at national health care reform 

issues. 

Chairman SPECTER. Well, when you mention the criminal conduct, the question that comes to my mind—— 

Mr. DILWEG. It is forwarded on—from my perspective, as we see 

something like that, it is my role to forward it on to either my Attorney General or my U.S. Attorney. 

Chairman SPECTER. What has happened with it? 

Mr. DILWEG. We have had cases in the Wisconsin Western District that have been taken to court, and people have been put in 

jail because of it. In that GAO report, it shows a specific survey of 

the States, and reflects the activities where there was criminal 

prosecutions carried forth. 

Chairman SPECTER. Do you think it has had any deterrent effect? 

20 

Mr. DILWEG. It has. This tends to be a problem as you have increasing health care costs that we are seeing today and that you 

had in the late 1990’s and early 2000. 

Chairman SPECTER. Well, but has it dissuaded people from engaging in that kind of criminal conduct? 

Mr. DILWEG. It has in the past. We lay out seven areas that 

could help further coordinate the agencies and directly prosecute 

these criminal entities as we see them, to give the tools so that we 

can take the confidential information that we are seeing and convey it to the U.S. Attorneys or the—— 

Chairman SPECTER. Well, I interrupted your testimony when you 

had 2 minutes left. 

Mr. DILWEG. We are covering basically the issues that I would 

have touched upon. 

[The prepared statement of Mr. Dilweg appears as a submission 

for the record.] 

Chairman SPECTER. So often these hearings tend to be a little 

sterile with witnesses testifying and not a whole lot of interaction. 

It is like the old story of the lecture passing from the notes of the 

professor to the notes of the student without going through the 

minds of either. So that is why I interrupted you. 

Mr. DILWEG. I appreciate the questions. Senator Kohl is not always so inquisitive. So those were really—— 

Chairman SPECTER. How about Senator Feingold? 

Mr. DILWEG. Senator Feingold is very inquisitive. 

Chairman SPECTER. How about Senator Proxmire? 

Mr. DILWEG. I have a good Proxmire story, but I can—— 

Chairman SPECTER. Go ahead. 

[Laughter.] 

Mr. DILWEG. Well, Senator Proxmire, as you know, was a very 

active campaigner throughout Wisconsin, and the trick that he—— 

Chairman SPECTER. He spent $163 on one of his 6-year campaigns. 

Mr. DILWEG. The trick that he learned, he would go to every 

State fair, every summerfest, and he would stand at the gate. And 

then when he would run into somebody, they would say, ‘‘Oh, I remember seeing you last year at the State fair.’’ And he said, ‘‘Oh, 

yes, that is right. At the gate.’’ 

[Laughter.] 

Mr. DILWEG. So that was one of his tricks, Senator. 

Chairman SPECTER. Senator Proxmire made a speech every day 

on genocide. Every day. He had a seat at the rear row on the aisle, 

and every day he went over and made a speech. This is before television. And he repeatedly collected for going home to Wisconsin, 

saying his residence was Washington. Senator Stevens found out 

about that 1 day and just blew up that any Senator would stoop 

so low as to say Washington was his home so that he could collect 

for travel going back to his home State. 

So we have covered Kohl. You brought Senator Kohl up. I 

brought Senator Feingold up. I brought Senator Proxmire up. Now, 

let’s see, I guess that takes us to Senator Joe McCarthy. You have 

to have more than just a big smile. 

Mr. DILWEG. I was not a fan of Senator McCarthy’s, Senator. 

21 

Chairman SPECTER. Anybody in the room a fan of Senator Joe 

McCarthy? 

[Laughter.] 

Chairman SPECTER. I wonder if he operated out of this Judiciary 

Committee room. That brings to mind the Army-McCarthy hearings. He was against the Army, 1954. I listened to those hearings 

on the radio driving back and forth from law school. 

Do you have further testimony, Commissioner? 

Mr. DILWEG. I really had just three points on this area that I 

would like to conclude with. It is really recommendations that, as 

health care reform is looked at, you consider. 

Chairman SPECTER. The show has gotten dull. People are leaving. Go ahead. 

Mr. DILWEG. I know. Establish a privilege and statutory structure for the confidential coordination and exchange of information 

among Federal agencies and State insurance regulators; provisions 

reaffirming State insurance regulators’ authority to protect consumers under any Federal health care reform legislation; provisions establishing a coordinating body in the Federal Department 

of Justice to focus on health insurance fraud schemes and schemes 

to exploit regulatory gaps that will pull in all the various State and 

Federal entities; and then criminal and civil penalties for operators, and those who assist operators of a health plan that falsely 

represents itself as exempt from State insurance regulation. 

Thank you, Senator. 

Chairman SPECTER. Thank you very much. Without objection, we 

will put into the record Senator Leahy’s statement and the excellent opening statement prepared by my staff, which I did not read. 

Anybody have anything they would like to add? 

[No response.] 

Chairman SPECTER. Thank you all very much. 

[Whereupon, at 3:39 p.m., the Subcommittee was adjourned.] 

[Questions and answers and submissions for the record.] 

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