U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

38–015 PDF 2008

MEDICARE PROGRAM EFFICIENCY AND INTEGRITY

HEARING

BEFORE THE

SUBCOMMITTEE ON HEALTH

OF THE

COMMITTEE ON ENERGY AND

COMMERCE

HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

APRIL 18, 2007

Serial No. 110–30

(

Printed for the use of the Committee on Energy and Commerce

energycommerce.house.gov
COMMITTEE ON ENERGY AND COMMERCE

JOHN D. DINGELL, Michigan, Chairman

HENRY A. WAXMAN, California

EDWARD J. MARKEY, Massachusetts

RICK BOUCHER, Virginia

EDOLPHUS TOWNS, New York

FRANK PALLONE, JR., New Jersey

BART GORDON, Tennessee

BOBBY L. RUSH, Illinois

ANNA G. ESHOO, California

BART STUPAK, Michigan

ELIOT L. ENGEL, New York

ALBERT R. WYNN, Maryland

GENE GREEN, Texas

DIANA DEGETTE, Colorado

Vice Chairman

LOIS CAPPS, California

MIKE DOYLE, Pennsylvania

JANE HARMAN, California

TOM ALLEN, Maine

JAN SCHAKOWSKY, Illinois

HILDA L. SOLIS, California

CHARLES A. GONZALEZ, Texas

JAY INSLEE, Washington

TAMMY BALDWIN, Wisconsin

MIKE ROSS, Arkansas

DARLENE HOOLEY, Oregon

ANTHONY D. WEINER, New York

JIM MATHESON, Utah

G.K. BUTTERFIELD, North Carolina

CHARLIE MELANCON, Louisiana

JOHN BARROW, Georgia

BARON P. HILL, Indiana

JOE BARTON, Texas

Ranking Member

RALPH M. HALL, Texas

J. DENNIS HASTERT, Illinois

FRED UPTON, Michigan

CLIFF STEARNS, Florida

NATHAN DEAL, Georgia

ED WHITFIELD, Kentucky

BARBARA CUBIN, Wyoming

JOHN SHIMKUS, Illinois

HEATHER WILSON, New Mexico

JOHN B. SHADEGG, Arizona

CHARLES W. ‘‘CHIP’’ PICKERING,

Mississippi

VITO FOSSELLA, New York

STEVE BUYER, Indiana

GEORGE RADANOVICH, California

JOSEPH R. PITTS, Pennsylvania

MARY BONO, California

GREG WALDEN, Oregon

LEE TERRY, Nebraska

MIKE FERGUSON, New Jersey

MIKE ROGERS, Michigan

SUE WILKINS MYRICK, North Carolina

JOHN SULLIVAN, Oklahoma

TIM MURPHY, Pennsylvania

MICHAEL C. BURGESS, Texas

MARSHA BLACKBURN, Tennessee

DENNIS B. FITZGIBBONS, Chief of Staff

GREGG A. ROTHSCHILD, Chief Counsel

SHARON E. DAVIS, Chief Clerk

BUD ALBRIGHT, Minority Staff Director

(II)
(III)

SUBCOMMITTEE ON HEALTH

FRANK PALLONE, JR., New Jersey, Chairman

HENRY A. WAXMAN, California

EDOLPHUS TOWNS, New York

BART GORDON, Tennessee

ANNA G. ESHOO, California

GENE GREEN, Texas

Vice Chairman

DIANA DEGETTE, Colorado

LOIS CAPPS, California

TOM ALLEN, Maine

TAMMY BALDWIN, Wisconsin

ELIOT L. ENGEL, New York

JAN SCHAKOWSKY, Illinois

HILDA L. SOLIS, California

MIKE ROSS, Arkansas

DARLENE HOOLEY, Oregon

ANTHONY D. WEINER, New York

JIM MATHESON, Utah

JOHN D. DINGELL, Michigan (ex officio)

NATHAN DEAL, Georgia,

Ranking Member

RALPH M. HALL, Texas

BARBARA CUBIN, Wyoming

HEATHER WILSON, New Mexico

JOHN B. SHADEGG, Arizona

STEVE BUYER, Indiana

JOSEPH R. PITTS, Pennsylvania

MIKE FERGUSON, New Jersey

MIKE ROGERS, Michigan

SUE WILKINS MYRICK, North Carolina

JOHN SULLIVAN, Oklahoma

TIM MURPHY, Pennsylvania

MICHAEL C. BURGESS, Texas

MARSHA BLACKBURN, Tennessee

JOE BARTON, Texas (ex officio)

(V)

C O N T E N T S

Page

Hon. Frank Pallone, Jr., a Representative in Congress from the State of

New Jersey, opening statement .......................................................................... 1

Hon. Nathan Deal, a Representative in Congress from the State of Georgia,

opening statement ................................................................................................ 3

Hon. Gene Green, a Representative in Congress from the State of Texas,

opening statement ................................................................................................ 4

Hon. Joe Barton, a Representative in Congress from the State of Texas,

opening statement ................................................................................................ 5

Hon. Lois Capps, a Representative in Congress from the State of California,

opening statement ................................................................................................ 7

Hon. Tim Murphy, a Representative in Congress from the Commonwealth

of Pennsylvania, opening statement ................................................................... 8

Hon. Tom Allen, a Representative in Congress from the State of Maine,

opening statement ................................................................................................ 9

Hon. Hilda L. Solis, a Representative in Congress from the State of California, opening statement ........................................................................................ 10

Hon. Jim Matheson, a Representative in Congress from the State of Utah,

prepared statement .............................................................................................. 11

Hon. Darlene Hooley, a Representative in Congress from the State of Oregon,

opening statement ................................................................................................ 11

Hon. Jan Schakowsky, a Representative in Congress from the State of Illinois, opening statement ....................................................................................... 12

Hon. Barbara Cubin, a Representative in Congress from the State of Wyoming, opening statement ..................................................................................... 13

Hon. John D. Dingell, a Representative in Congress from the State of Michigan, prepared statement ...................................................................................... 14

WITNESSES

Leslie V. Norwalk, Acting Administrator, Centers for Medicare and Medicaid

Services ................................................................................................................. 15

Prepared statement .......................................................................................... 19

Answers to submitted questions ...................................................................... 111

Mark E. Miller, executive director, Medicare Payment Advisory Commission .. 30

Prepared statement .......................................................................................... 32

Answers to submitted questions ...................................................................... 115

Stuart E. Wright, Deputy Inspector General for Evaluation and Inspections,

Office of Inspector General, Department of Health and Human Services ...... 66

Prepared statement .......................................................................................... 69

Answers to submitted questions ...................................................................... 123

Daniel S. Fridman, Senior Counsel to the Deputy Attorney General and

Special Counsel for Health Care Fraud, Department of Justice ...................... 80

Prepared statement .......................................................................................... 82

Answers to submitted questions ...................................................................... 118

SUBMITTED MATERIAL

Eric Sokol, director, and Stephen Azia, counsel, Power Mobility Corporation,

statement .............................................................................................................. 158
(1)

MEDICARE PROGRAM EFFICIENCY AND

INTEGRITY

WEDNESDAY, APRIL 18, 2007

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON HEALTH, COMMITTEE ON ENERGY AND COMMERCE, Washington, DC.

The subcommittee met, pursuant to call, at 2:35 p.m., in room

2123 of the Rayburn House Office Building, Hon. Frank Pallone,

Jr. (chairman) presiding.

Members present: Representatives Green, DeGette, Capps, Allen,

Schakowsky, Solis, Hooley, Matheson, Deal, Cubin, Pitts, Murphy,

Burgess, Blackburn and Barton.

Staff present: Erin Bzymek, Yvette Fontenot, Brin Frazier, Amy

Hall, Christie Houlihan, Bridgett Taylor, Robert Clark, and Kristine Blackwood.

OPENING STATEMENT OF HON. FRANK PALLONE, JR, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW JERSEY

Mr. PALLONE. I want to call this meeting to order.

Today we are having a hearing on ‘‘Medicare Program Efficiency

and Integrity.’’ I will recognize myself for an opening statement initially.

Since it was enacted, the Medicare Program has been a reliable

source of health care for our Nation’s seniors and disabled and it

goes without saying that if it were not for the Medicare Program,

some of our most vulnerable populations would have little, if any,

way to access important medical care. Accordingly, we must make

every effort to ensure that the Medicare Program remains intact

and available for future generations who will undoubtedly come to

rely upon its services, and part of our efforts must focus on ensuring that all of Medicare’s payment policies are both fair and efficient. Currently, I don’t believe that is the case. It should come as

no surprise to anyone that many of us in Congress have strong concerns about payments to Medicare Advantage plans.

I have to admit, I am perplexed by the disparity in payments between these private plans and traditional Medicare. It makes little

sense to me why Medicare payments for Medicare Advantage enrollees are on average 12 percent higher than what Medicare pays

for beneficiaries enrolled in traditional Medicare. It flies in the face

of the intent behind the program as I believe MedPAC, which has

done substantial work in this area, will attest to later today. These

excessive payments are wasteful and result in unnecessary costs
2

for the program as well as for its beneficiaries and the American

taxpayers, and some of my good friends I assume on the other side

of the aisle are going to argue that the Medicare Advantage Program provides value to the Medicare Program in the form of greater savings and enhanced benefits for enrollees but it seems to me

that no matter how you try to sell it, it is just lipstick on a pig.

The evidence just isn’t there to back up these assertions.

The Medicare Advantage program is not the only area in which

we would likely achieve greater value out of Medicare dollars we

spend. I am looking forward to hearing from our witnesses today

on what other areas we should focus our attention on improving

payment efficiency within the Medicare Program.

But I do believe that eliminating overpayments and improper

payments will only go so far. There is another side to this coin that

involves ensuring the integrity of the Medicare Program. I admit

my concern about ensuring Medicare Program integrity is somewhat parochial. This past year there were a couple of instances in

my home State of New Jersey where providers were accused of improper billing which may have cost the Medicare and Medicaid programs hundreds of millions of dollars. In the first instance, the

University of Medicine and Dentistry of New Jersey, UMDNJ,

which is the Nation’s largest health science university, overcharged

Medicare and Medicaid to the tune of at least $4.9 million. Millions

more could be owed. It was revealed by a Federal probe that the

university was improperly billing for services at its outpatient clinics. As a result, the university could have been prosecuted, which

would have made it ineligible for Federal funding and would have

effectively shut down one of the largest health care providers in the

State. Now, fortunately, this did not happen. In another instance

last year, it was revealed that St. Barnabas Health Systems, which

is the largest health care provider in the State of New Jersey, settled allegations that it inflated charges under the Medicare outlier

payment system, which reimburses providers for patients whose

costs are unusually high due to serious illnesses. Under this agreement, St. Barnabas has agreed to pay back $265 million.

It is important to note that the improper behavior is not all

about the monetary cost to Medicare, it is about access as well. I

think it is clear that when the integrity of the Medicare Program

or participating providers are called into question, beneficiaries’ access to care in jeopardized. In New Jersey, for example, if UMDNJ

were forced to close, many low-income and elderly who rely upon

the university for treatment services would have had nowhere else

to turn.

That is why I think it is so important that we take the issue of

Medicare Program integrity seriously. I will be interested to hear

from our witnesses from both the Department of Health and

Human Services Office of the Inspector General and the Department of Justice as to what steps they are taking to prevent similar

circumstances from happening again. Needless to say, today’s hearing is very critical. We have a responsibility to ensure the preservation of the Medicare Program for our Nation’s seniors and disabled.

I would like to thank all of our witnesses for being here today.

I look forward to your testimony. Obviously what you say is going
3

to be very important to what we do in the next few weeks, and

thank you again for being here.

I now recognize our ranking member, Mr. Deal.

Mr. DEAL. Thank you.

OPENING STATEMENT OF HON. NATHAN DEAL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF GEORGIA

I think we all know that Medicare is a program that services about 44 million beneficiaries and costs about $450 billion. In a

program of this size and importance, it is obviously vital that this

committee maintain vigilant oversight to ensure that beneficiaries

are being provided with high-quality health services and that the

taxpayers are protected from funding fraud or abuse. During my

tenure in Congress, we have certainly found areas in the program

in need of reform and also tried to make changes to the program

to help contain the exponential cost growth. Without reform, the

projected growth of the program threatens Medicare solvency into

the future absent a significant cost increase to the taxpayers. The

efficiency of Medicare is important to ensure beneficiaries receive

appropriate high-quality health care and that taxpayers and beneficiaries receive the maximum benefit from their dollars.

One area of inefficiency which has always been a concern for me

is the area of imaging. MedPAC’s March payment policy report

summarized the problem well by stating, and I quote, ‘‘We have observed rapid and sustained growth in the volume of imaging services for Medicare beneficiaries which has led to concerns about

quality and patient safety and potential overuse of imaging services.’’ The volume of imaging services per Medicare beneficiary experienced a dramatic 9 percent growth in 2005. In a 2006 survey,

19 percent of physicians reported that their practice expanded imaging services in the last year. Additionally, MedPAC reports that

the average annual growth and the volume of imaging services per

beneficiary between 2000 and 2004 was 10.3 percent with the most

dramatic growth occurring in MRI services. This kind of growth

has been coupled with mounting concern about overutilization of

imaging services and self-referrals.

A case being prosecuted by the Illinois attorney general highlights this very well. The attorney general contends that more than

20 Chicago-area radiology centers engaged in a widespread scheme

to win referrals for MRIs by paying illegal kickbacks to doctors.

Cases like this highlight the need for close scrutiny into the area

of imaging to ensure fraud and abuse are not one of the contributing factors to volume growth.

It is my belief that the payment reductions made in the Deficit

Reduction Act were a blunt instrument to address the imaging

issue, and I hope the committee will take a more thorough look at

this area to craft an imaging policy that prevents both overutilization and protects patients from receiving needless and potentially

harmful scans.

I am sure today’s witnesses will call attention to other areas

within the Medicare Program in need of reform to ensure the program’s effectiveness into the future. It is important that we continue to reform the Medicare Programs and ways to focus on providing beneficiaries with continued high-quality health services.
4

Hearings like this also highlight that despite our best efforts,

there are some inherent weaknesses in Government-provided

health care. Recognizing this, I hope the committee will look beyond Government provision of health care to broad-based patientfocused reforms which would improve health care delivery in both

the public and he private markets.

I thank our witnesses for appearing today and I look forward to

your testimony.

I yield back the balance of my time.

Mr. PALLONE. Thank you.

Next I would recognize our vice chair, Mr. Green, for 5 minutes.

OPENNIG STATEMENT OF HON. GENE GREEN, A

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS

Mr. GREEN. Thank you, Mr. Chairman, for holding this hearing

on efficiency and integrity of the Medicare Program. I know the

subcommittee is working hard to determine the best way to reform

the physician payment under Medicare, and this hearing will provide us with important information on how we seek to accomplish

that goal. The harsh budget realities dictate that any effort to reform this would have to be accompanied by increased efficiency

within the Medicare Program and continued commitment to ensuring the integrity of the program.

I am pleased to see that MedPAC continues to press for care coordination and increased efficiency within Medicare. There is no

question that care coordination would facilitate better health care

outcomes for Medicare beneficiaries. A study published last year by

Health Affairs concluded that nearly 20 million Medicare beneficiaries, or 50 percent of the beneficiary population, have five or

more required medical treatments. We also know that 20 percent

of the Medicare population has five or more chronic conditions and

these beneficiaries account for two-thirds of all Medicare spending.

Care coordination for these beneficiaries with multiple chronic conditions would improve efficiency within the Medicare Program and

improve health outcomes for those beneficiaries who too often receive conflicting information and duplicative services from providers addressing different health care needs.

To address this issue, we are putting finishing touches on legislation that would provide a geriatric assessment and chronic care coordination benefit under Medicare part B. Under the bill, the high

cost Medicare beneficiaries with multiple chronic conditions will be

eligible to participate in a new voluntary care coordination benefit.

A chronic care manager of the beneficiary’s choosing would implement a care coordination plan with the beneficiary’s other providers who would utilize clinical decision support, health information

technology, medication management techniques and beneficiary

education to ensure that the most appropriate health care is delivered with consideration given to the full range of the beneficiary’s

health condition. This legislation offers us a good start to begin addressing the structural problems of the current Medicare payment

system and that has kept the Medicare Program from adapting to

the chronic needs of our seniors.

To increase efficiency, we also have to take a look at the Medicare Advantage program. MedPAC’s most recent report confirmed
5

that Medicare Advantage are paid on average 12 percent more

than traditional Medicare with private fee-for-service plans under

Medicare part C receiving 19 percent more than traditional Medicare payments. To be sure, MA plans are quick to point out that

they offer additional benefits to their enrollees and that is true, but

I remember vividly the deal we struck with the Medicare Advantage plans. All along Medicare Advantage plans claimed that they

would provide additional benefits and increase efficiency at the

same or lower cost than traditional Medicare. It was never meant

to be part of the deal to pay them more for these services. All Medicare beneficiaries end up paying for these overpayments due to

ever-increasing part B premiums. On behalf of all Medicare beneficiaries and the American taxpayer, I think it is high time we hold

Medicare Advantage to the deal they made with us back years ago.

I thank our witnesses for being here, and I will yield back my

time, Mr. Chairman.

Mr. PALLONE. Thank you.

I recognize our ranking member of the full committee, Mr. Barton.

OPENING STATEMENT OF HON. JOE BARTON, A

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS

Mr. BARTON. Thank you, Mr. Chairman. I sincerely want to compliment you on holding this hearing. This is the type of work that

is not sexy, it is not seeking publicity, it is just doing the nitty-gritty nuts-and-bolts oversight and review of the ongoing programs of

our Government and I want to honestly and sincerely commend

you and Ranking Member Deal for doing this. It is very, very important.

As we go through today’s hearing, I am going to be especially interested in hearing what the witnesses have to say about something that I have been promoting in Medicare for a number of

years, that is, competitive bidding of durable medical equipment,

prosthetics, orthotics and supplies. Price competition is almost always a good thing. There are some times that decisions have to be

made in a crisis and once in a while there is something that is only

by a single vendor but those times are rare. That is why I was the

author of the competitive bidding proposal during consideration of

the Medicare Modernization Act several years ago. I am pleased

that the Centers for Medicare and Medicaid Services have just implemented this provision in a final rule. With the new rules come

important accreditation and quality standards for suppliers, something that I think has been long overdue.

The Office of Inspector General will testify later this afternoon

of its recent work reviewing suppliers in south Florida. According

to the OIG, 45 percent of suppliers in three counties in south Florida did not meet one or more of five Medicare enrollment requirements. The accreditation and quality standards of the competitive

bidding program will hopefully reduce such potential fraud and

abuse, making suppliers more accountable and saving money for all

our taxpayers.

The competitive bidding program that is being implemented will

help sure that Medicare is paying the appropriate market-based

price for these products. When fully implemented in 2010, competi-
6

tive bidding is projected to save Medicare over $1 billion a year.

There will be savings to beneficiaries as well and it will improve

people’s access to quality suppliers, reduce out-of-pocket costs.

Since beneficiaries pay a 20 percent co-pay, it is only fair to ensure

that the beneficiary can realize the best price that is available that

the market can offer.

I am also eager to hear the panel’s testimony on improvements

to the Medicare Program overall. I am concerned about a discussion around cutting the Medicare Advantage plans. Medicare managed care is not new to the Medicare Program. It has been offered

a beneficiary choice in coverage since the inception of the Medicare

Program. Over the past few decades we have tinkered with the

managed-care option, adjusting the manner in which we reimburse

plans in a number of major bills over the years. Plan participation

has fluctuated. At time participation has been low, then it has been

higher, then low again in the 1990’s despite high enrollment numbers.

I remember what we experienced in the late 1990’s and early

part of this decade. I remember when our constituents were

disenrolled and their extreme unhappiness at losing that particular

option. You see, most of, if not all, beneficiaries like Medicare Advantage and they are willing to show it, so I am somewhat concerned with discussions of cutting over $60 billion out of this part

of Medicare, which has such a high degree of universal satisfaction

among the beneficiaries. There are currently over 8.3 million beneficiaries enrolled in Medicare Advantage plans and the number of

beneficiaries choosing this option has increased by almost 54 percent in the last 2 years. So I have to ask, if it is working, why

break it. And I understand that most of the discussion around cutting the rates is driven by the need to find a magic-bullet offset for

spending on other health care programs, but if it is good policy, I

don’t see why we have to disrupt a benefit that is working well to

great satisfaction of those that are enrolled in that particular option so that if we do that, we won’t have to find an offset because

we are going to keep spending the money where the people want

it to be spent. It seems to me that we should do our jobs so that

they can keep their benefits, not the other way around. If you don’t

believe the program is working, just ask the folks that have better

access to enrolling in a plan today than ever before. These plans

are an important option for low-income and minority beneficiaries.

Fifty-seven percent of the enrolled beneficiaries have income of less

than $30,000. These plans can reduce cost-sharing relative to traditional Medicare. It shows in the satisfaction numbers. Eighty-six

percent of the enrollees have access to a plan that does not charge

them a premium at all—86 percent. And it is not just the savings.

It is about access to care afforded by these plans and beneficiary

choice.

I could go on and on but my basic point is, that these Medicare

Advantage plans are offering better access to care. More than 80

percent of them provide coverage for hospital stays beyond the traditional Medicare benefit. More than 75 percent cover routine eye

and hearing tests. Over 98 percent of the beneficiaries can even enroll in a plan that offers preventive dental benefits.
7

Mr. Chairman, I share with you and Chairman Dingell and

Ranking Member Deal a commitment to address the physician payment issue, which is a very costly item in Medicare. We need to

work together, roll up our sleeves and look at that particular part

of Medicare to see if there is not something that we can do to help

our health care providers, all the various physician groups so that

they will stay in the Medicare plan and give the benefits to our

beneficiaries.

With that, Mr. Chairman, I yield back and look forward to the

hearing and working with you and others as we try to come to solutions to some of the problems that we are going to hear about

today.

Mr. PALLONE. Thank you.

I recognize the gentlewoman from California, Mrs. Capps.

OPENING STATEMENT OF HON. LOIS CAPPS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

Mrs. CAPPS. Thank you, Mr. Pallone, and I want to thank you

as well for holding this hearing, a hearing which is long overdue.

Medicare is one of the most important benefits we provide to the

elderly and the disabled. As a society, we have a responsibility; indeed, I would call it a privilege, to provide care for those who are

most vulnerable. But what level of care can we provide when the

program itself is fraught with wasteful spending and structural

problems? It is my observation that we are looking for waste, fraud

and abuse in all the wrong places. It is so obvious that priorities

are being misplaced. We have a system that provides disincentives

for preventive care, a system that picks and chooses treatments to

cover, often at reimbursement rates with no clear connection to the

actual cost of providing that care. What am I to say to a constituent who asks why her Medicare summary notices reflect a reimbursement to her provider for $2,000 more than the provider

charged her for treatment, or to my constituent who asks why

Medicare continues to pay maintenance fees on rented equipment

that has never required maintenance, and when those fees have already total to several times more than the cost of purchasing the

equipment outright? I will discuss those situations in more depth

later but they are just two examples of wasteful spending in the

same system that is underlying for primary care services in my district by as much as 5 percent, or why are certain private insurance

plans receiving up to 12 percent more for the same services provided at a lower cost by other providers when there is no clear evidence of increased benefits to the beneficiaries? Why is Medicare

reimbursing providers who perform certain diagnostic tests in their

offices and ambulatory service centers at rates so low that it is

driving their patients back to hospitals where the costs of providing

these services are so much greater? Cost-saving services from diagnostic tests provide earlier screening and earlier intervention and

treatment, saving both lives and Medicare dollars. Why is Medicare

paying private contracts per audit they perform regardless of what

the outcome is with no incentive to target bad actors over law-abiding ones?

As a health professional myself, it is so disturbing to see a health

care program that thinks efficiency means immediately cost-cutting
8

instead of preventing disease and improving health. I am very anxious to hear what our witnesses today have to say about this, Mr.

Chairman, and I am eager to work with our committee to address

these pressing problems.

I yield back the balance of my time.

Mr. PALLONE. Thank you.

I know Mr. Murphy is just walking in, but you would be next if

you like. I recognize the gentleman.

OPENING STATEMENT OF HON. TIM MURPHY, A REPRESENTATIVE IN CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA

Mr. MURPHY. Thank you, Mr. Chairman. I appreciate it.

Our health care system is broken and must be reformed, and fixing the system is not about who is paying, it is about what we are

paying for. A broken system is not fixed by just shifting additional

payments to seniors, families, employers or taxpayers, but I believe

affordability must begin with some fundamental reforms to quality,

accessibility and safety for patients. Medicare spends about $372

billion annually and it is estimated that it will be bankrupt by

2019, 7 years earlier than previously expected, and 23 years earlier

than Social Security, and I believe we need to transform our system to protect our seniors.

The Medicare Payment Advisory Commission recommends a

number of suggestions from reducing payments to providers and

Medicare managed-care plans to implementing pay for performance

and care coordination programs. I believe care coordination can significantly reduce health care costs. For example, the University of

Pittsburgh initiated a patient care management program for diabetes and reduced re-hospitalizations by 75 percent. Washington Hospital in Pennsylvania reduced re-hospitalizations for patients with

heart disease by 50 percent, all from having folks monitor appointments, medications, diet, lab tests and treatment. These are real

savings.

Recently we passed legislation providing a case manager to every

wounded warrior in our military but we still don’t have incentives

for patient care management programs to reduce health care costs

for out patients. I believe we can’t continue to finance a broken

health care system and expect different results, and I believe we

need to transform our health care system and invest patient care

management dollars to save billions of lives and thousands of dollars.

Any time we are faced with talking to folks from the Medicare

Program and talking about efficiency and integrity. I believe these

are the kind of things we need to be doing. After all, the sad truth

of this is, is Medicare will reimburse doctors for sadly amputating

the leg of someone with diabetes and severe problems but we

haven’t yet adjusted to the system of paying a few bucks each time

to have a nurse call the patient and saying have you gotten your

lab tests done, you haven’t filled your prescription for insulin, how

are you feeling today. We really need to make some major changes

on that and I am so pleased that this committee is going to review

these issues. I hope that we can review these and make some

changes not only to such things as what I just mentioned but also
9

providing more allowance for doctors to volunteer at community

health centers and by actively working to also eliminate infections

from hospitals, because one of the sad truths too is, we also spend

an awful lot of money reimbursing doctors and hospitals for an infection the patient picked up while they were there. As a matter

of fact, some 2 million people a year contract an infection while in

a hospital or health care center. It claims 90,000 lives and $50 billion a year. As we look at Medicare efficiency and integrity, I hope

we are looking at these things too so we can look at fixing the system and not just financing it.

Thank you, Mr. Chairman.

Mr. PALLONE. Thank you.

The gentleman from Maine.

OPENING STATEMENT OF HON. TOM ALLEN, A

REPRESENTATIVE IN CONGRESS FROM THE STATE OF MAINE

Mr. ALLEN. Mr. Chairman, thank you for calling this important

hearing to examine efforts to improve the Medicare Program. Increasing efficiency and eliminating waste, fraud and abuse will

keep the Medicare Program strong. Every dollar that we recover

can provide additional services to beneficiaries. This committee

needs to consider the improper payments recently reported by CMS

in the fee-for-service program including $9.8 billion in overpayments and $1 billion in underpayments. We also need to examine

the overpayments to private Medicare Advantage plans. They receive 12 percent more on average than traditional Medicare for

treating comparable beneficiaries. While some Medicare advantage

plans provide more services than traditional Medicare, their administrative costs are estimated to be 20 percent, much higher

than traditional Medicare’s 3 percent. If Medicare Advantage payment plans were brought in line with traditional Medicare, CBO

estimates it would save $65 billion over 5 years.

I want to suggest a third issue to consider today: improving the

evidence base for health care decision-making. Mr. Miller, I know

you address this matter in your testimony. There is broad-based bipartisan agreement that we need to get better value for our Medicare dollar. Comparative effectiveness research involves evaluation

of the relative safety and effectiveness of different pharmaceuticals,

medical devices or medical procedures used to treat the same or

similar illnesses or conditions. Comparative effectiveness research

has great potential to improve health care quality and patient outcomes while ensuring that consumers receive the best care at the

best value. The Effective Health Care program at the Agency for

Healthcare Research and Quality, authorized under MMA, conducts systematic reviews of existing literature to identify what

treatments work best, for whom, when and at what cost. AHRQ

and its research partners synthesize the science and have built a

meaningful evidence base. Working with a meager budget of $15

million, originally authorized at $50, AHRQ has completed seven

reports on the treatment options for cancer-related anemia, low

bone density, depression and gastroesophageal reflux disorder disease, among others. Seven additional studies are underway. The

promise of comparative effectiveness research to improve care, patient outcomes and save Federal funds is significant. I will soon be
10

introducing legislation to bolster comparative effectiveness research, and I will be inviting my colleagues to join me as a cosponsor of the bill.

With that, Mr. Chairman, I thank the witnesses for being here

and yield back the balance of my time.

Mr. BARTON. Mr. Chairman, could I just compliment the gentleman on his pronunciation. He did that very well.

Mr. PALLONE. I was listening to that also. I didn’t know whether

it was correct or not though.

Mr. BARTON. He said it like it is correct.

Mr. PALLONE. Gastro—what was it?

Mr. ALLEN. Gastroesophageal. I do not know if it is right either.

Mr. PALLONE. Very good. I will compliment you too.

I recognize Ms. Solis.

OPENING STATEMENT OF HON. HILDA L. SOLIS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

Ms. SOLIS. Thank you, Mr. Chairman, and thank you for holding

the hearing today.

In 1965, Congress created Medicare because seniors had difficulty obtaining affordable health care insurance. Seniors were

promised that after a lifetime of working and paying into Medicare,

they would have access to health care coverage during their retirement years regardless of their geographic location, their age and

their income. Today more than 44 million seniors and people with

permanent disabilities depend on Medicare to meet their health

needs. In the coming decades, even more people will become beneficiaries of the program. I represent about 70,000 Medicare beneficiaries in my current district. They have entrusted the Government with their tax dollars and depend on us to oversee Medicare

and to ensure that it runs efficiently.

In 2006, Medicare comprised 13 percent of the Federal budget

and 19 percent of total health expenditures. Health care costs, as

you know have skyrocketed and part B premiums are quickly becoming unaffordable. This is particularly troublesome, given the

importance of access to quality affordable health care in minority

communities, which often encounter greater burdens of disease.

Unfortunately, low-income Medicare beneficiaries tend to be disproportionately Latino. Although Latinos make up only 6 percent

of the Medicare beneficiaries, more than 14 percent are low-income

seniors. Sixteen percent of Medicare beneficiaries in California

alone are Latino. In 2006, a MedPAC report stated that 7.1 percent

of Latino Medicare beneficiaries delayed getting care due to cost,

proof that people with access to health insurance are not always

able to receive services.

I have heard from my constituents that some California physicians have stopped taking new Medicare patients because of inadequate reimbursement. Given this existing reality, I am concerned

about proposed cuts to Medicare providers. Less access to care will

result in a disastrous increase in health disparities in our community. I am interested to hear MedPAC’s view about payments to

Medicare Advantage plans, especially since the private fee-for-service plans are paid 19 percent more than traditional Medicare.
11

I thank the witnesses for coming today and I look forward to

hearing your response.

Mr. PALLONE. Thank you.

I recognize the gentleman from Utah.

Mr. MATHESON. Mr. Chairman, I have a written statement I will

just submit for the record, and I will yield back.

[The prepared statement of Mr. Matheson follows:]

PREPARED STATEMENT OF HON. JIM MATHESON, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF UTAH

Thank you, Chairman Pallone and Ranking Member Deal.

I want to thank you for holding this hearing today on the Medicare Program efficiency and integrity. This discussion today is a significant step in examining Medicare policy and one that requires a thorough review and consideration by Congress.

I am happy that this hearing is being held at a time where we have the opportunity

to improve health care reform for all Americans.

I also want to thank our distinguished guests. In my review of the testimony, I

am looking forward to learning and identifying areas from our panel where the

Medicare program is meeting the needs of the beneficiaries and investigating areas

where reform needs to be made.

I am pleased to be a part of this committee and I am confident that due diligence

will be given to the many health policy issues that continue to have long-term implications for the Medicare Program, including an issue that I am concerned with—

the Medicare reimbursement for physician services. Having met with so many

Utahns about the inadequacies of the current formula for determining physician reimbursement, it is my hope that we can make some progress on this issue during

this session of Congress.

In addition, I am aware that we are looking to programs in Medicare to help supplement the State Children’s Health Insurance Program. I hope to learn more regarding the options available to us to fully fund this significant, bipartisan partnership for children without negatively impacting services or access to programs that

are successfully working for our Nation’s seniors, especially those in rural or underserved areas. In 2007, 8.3 million beneficiaries chose to receive their health care

benefits through a Medicare Advantage plan. Across the Nation, 85 percent of these

chose a Medicare Advantage plan with prescription drug coverage. In my district,

we have 19 percent of Medicare beneficiaries who have chosen a Medicare Advantage plan for their health insurance coverage and who rely on these programs for—

vision, hearing, dental, fitness, mental health, and alternative health benefits.

I look forward to hearing the panel’s views and expertise on a number of these

issues within the Medicare program.

Thank you, Mr. Chairman.

Mr. PALLONE. Thank you.

The gentlewoman from Oregon.

OPENING STATEMENT OF HON. DARLENE HOOLEY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OREGON

Ms. HOOLEY. Thank you, Mr. Chairman, for holding this hearing.

I have always firmly believed in the importance of building voters’ faith in Government. Ensuring that Government programs provide services efficiently without waste, fraud and abuse is critical

to that effort. We have a responsibility to provide quality health

care for our citizens and seniors and an obligation to be good stewards of taxpayers’ money.

As I have said before, Oregon physicians provide services more

efficiently than those in many other parts of the country. They are

so under-reimbursed to the point that many of them will not take

new Medicare patients. As a consequence, I believe the physicians

in Oregon welcome initiatives to improve efficiency in Medicare be-
12

cause the current system provides the most benefit to those providers who are least efficient.

The MedPAC recommendations to provide comparative research

utilization measures to physicians would be a step in the right direction. Letting physicians with high resource use know how they

compare to their fellow physicians would be a start in a positive

conversation that currently does not exist. Another MedPAC recommendation, pay for performance in Medicare, has the potential

to improve care and provide a better benefit for our seniors. However, just like with MedPAC’s comparative resource utilization

measures, it is critical to have appropriate risk adjustment measures in pay for performance. We do not want a pay-for-performance

system that punishes physicians who care for older and sicker patients or those with more complex conditions. With any pay-for-performance system, we must make sure that all measures are clinically valid and that physicians play an integral role in developing

and implementing appropriate standards. Physicians have the expertise in their area of specialty. We have to rely on that knowledge when creating a pay-for-performance system so that it works

for both seniors and the providers.

In the area of program integrity, I am glad to see that progress

has been made. A decline in payment error rates from over 10 percent in fiscal year 2004 to 4.4 percent in 2006 is a great accomplishment, and I congratulate you on that. The Department of Justice has similarly done an outstanding job of collecting $2.2 billion

in judgments and settlements in fraud and abuse cases in 2006.

However, the DOJ says in its testimony today that current funding

levels are not sufficient to eliminate the backlog of fraud and abuse

cases. The Office of the Inspector General, the Department of

Health and Human Services said it recovers an average of $13 for

every $1 spent on that office. We need to make sure that we are

investing sufficient funds to stay aggressive in bringing cases

against the small minority of providers that abuse the public’s

trust. We should also not punish those providers who are the most

efficient.

Again, thank you, Mr. Chairman, for holding this hearing, and

I am looking forward to our witnesses. Thank you.

Mr. PALLONE. Thank you.

The gentlewoman from Illinois, Ms. Schakowsky.

OPENING STATEMENT OF HON. JAN SCHAKOWSKY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS

Ms. SCHAKOWSKY. Thank you, Mr. Chairman.

I am so glad that we are holding this hearing on Medicare, which

passed in 1965 and our chairman, Chairman Dingell, was not only

a member of the House at that time, but as I understand it was

actually presiding in the chair when Medicare passed, and since

then it has been one of the most popular and effective and welladministered programs and most popular among our citizens, and

so today we are here about how we can make Medicare even better,

even more efficient.

I am very glad MedPAC, CMS, the DOJ and the Inspector General’s Office are represented here today and I look forward to hearing those ideas on the use of comparative effectiveness, ways to re-
13

duce medical errors and inappropriate utilization and expanded access to preventive services. I also hope that we can focus on the inefficiencies involved in providing enormous subsidies to private

plans in Medicare.

Marilyn Moon, a former public trustee of Social Security and

Medicare trust funds, states in her recent book, Medicare: A Policy

Primer, ‘‘Over the past 30 years Medicare has been more successful

on a per capita basis of holding down the costs of health spending

growth than has private insurance.’’ Medicare also spends less on

administrative costs. There are of course many ways to make Medicare even more efficient but moving more toward privatization of

Medicare is not one of them. I wasn’t here when Congress first created Medicare Plus Choice, the forerunner of today’s Medicare Advantage programs, but as the executive director at the time of the

Illinois State Council of Senior Citizens, I had many concerns about

allowing private plans to infiltrate Medicare. The argument then

was that Medicare private plans would cost less because of their

greater efficiency, saving Medicare and taxpayers money while providing better benefits. But today it is clear that the theoretical

promise has not been met. Medicare Advantage private plans on

average cost 12 percent more than traditional Medicare and some

plans are paying 40 percent more. When beneficiaries move from

traditional Medicare to private plans, it costs us more, not less. We

are paying billions of dollars each year to subsidize private plans

that serve less than one in five beneficiaries while other important

health needs are not being met. I find it hard to argue that that

is an efficient or proper use of limited resources.

I am particularly interested in looking at the role of private feefor-service plans, the fastest-growing sector of the Medicare Advantage market, which also happens to receive the highest level of excess payments. I believe there is little, if any, value added with

these plans. I hope we will look into them more closely. The argument simply no longer stands that private plans will bring efficiency to the Medicare Program, and I really welcome the chance

to investigate what has gone wrong here.

Thank you, Mr. Chairman.

Mr. PALLONE. Thank you.

The gentlewoman from Wyoming.

OPENING STATEMENT OF HON. BARBARA CUBIN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WYOMING

Mrs. CUBIN. Thank you, Mr. Chairman.

Things are just not the same in rural America as they are in

urban America, and our country has decided that there are certain

things that everyone in this country should be allowed to have access to, whether it is postal delivery or whether it is public transportation, and it costs different things. We don’t have public transportation in rural America like we do in urban America, and I

think this health care debate will turn out to demonstrate the differences in why we need to take a good look at what we are doing

here.

Our Nation’s Medicare Program is an investment in the health

of our Nation’s seniors and we have a responsibility to the Federal

taxpayer to ensure that it is a responsible investment. The 70,000
14

seniors in the State of Wyoming are best served knowing that Congress is doing what it can do to ensure the $425 billion spent in

fiscal year 2007 are dollars well spent. The shear size of the Medicare Program is mind-boggling. Though overpayments, fraud, waste

and abuse may seem inevitable in a program this large, we must

rise to the challenge and act to protect the solvency of Medicare.

I applaud the administration’s proposal to rein in the growth of the

Medicare Program and achieve a $65.6 billion in savings over 5

years. The Congressional Budget Office projects Medicare spending

already estimated at $454 billion in fiscal year 2008 to double over

the next 10 years. If we do not, we will face either a tax increase

or rollback in benefits.

As this committee looks to find savings in the Medicare Program,

I know there will be plenty of discussion surrounding the appropriateness of expenditures under Medicare Advantage program.

Medicare Advantage replaced its predecessor, Medicare Plus

Choice, in the Medicare Modernization Act of 2003. The program

supports private plans that give Medicare beneficiaries more

choices, additional benefits and coordinated care beyond traditional

Medicare coverage. Enrollment in these plans has increased by almost 54 percent since 2004 but this number does not tell the whole

story in rural areas like Wyoming. In every county in Wyoming,

there is now access to a plan with a maximum out-of-pocket of

$1,000 or less whereas prior to 2003 there was no access to these

plans at all. There are now over 3,000 Medicare Advantage enrollees in Wyoming. Hundreds have written or e-mailed my office

about how much they like their plans.

There is no doubt that we will need to make some difficult

choices to preserve the long-term fiscal soundness of the Medicare

Program. I am personally committed to addressing the negative

physician fee schedule which represents an unacceptable situation,

not just for Wyoming’s beneficiaries but for the physicians they rely

on. I would urge my colleagues, however, to consider the impact of

our decisions on access to quality and affordable health care in

rural areas like Wyoming and other places around the country.

Thank you, Mr. Chairman.

Mr. PALLONE. Thank you.

Any other statemets for the record will be accepted at this time.

[The prepared statement of Mr. Dingell follows:]

PREPARED STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF MICHIGAN

The Medicare Program is the most successful social program of our time. It has,

in the course of more than 40 years, reduced unmet health needs among seniors and

people with disabilities and has, together with Social Security, lifted tens of millions

of elderly out of poverty by virtue of helping with the cost of their medical care.

Without question, the Medicare program is essential to the fabric of our society and

must be protected and preserved.

Part of protecting and preserving Medicare involves ensuring accuracy and efficiency in its payments. As the Medicare Payment Advisory Commission notes, the

program should be neutral in its payments to providers—encouraging the right care

at the right time in the right setting. This means constant oversight on the part

of both Congress and the Centers for Medicare and Medicaid Services (CMS). And

that is part of our goal here today.

In this fiscal year alone, Medicare will spend more than $425 billion on health

care goods and services for its 44 million beneficiaries. Unfortunately, in a program

of this size overpayments are inevitable. At today’s hearing we will hear about fine
15

tuning Medicare’s payment systems to improve efficiency and modifications that can

be made to protect the integrity of the program as well.

Overpayments, or misaligned payments, can have a direct effect on beneficiary

out-of-pocket costs, as well. Whenever there is an increase in part B spending, it

automatically increases the part B premium beneficiaries pay. Misaligned payments

can also cause beneficiaries to pay more than necessary in coinsurance. And in the

overall context of the Federal budget, inappropriately spent funding reduces funds

available for other priorities.

Our goal should be to increase the efficiency of the Medicare program to ensure

the future stability of the program. For example, we now know MedPAC that private plans in Medicare are paid an average of 12 percent more for every Medicare

beneficiary that chooses to enroll in one of those plans rather than remaining in traditional Medicare. These excess payments are funded by taxpayers and all beneficiaries—whether or not they enroll in private plans—in the form of higher Medicare part B premiums. These plans should be required to be operating more efficiently and I look forward to the MedPAC recommendations on this issue.

Similarly, providers who knowingly defraud the program should be identified and

the Federal Government should work to recover overpayments from those providers

and seek criminal charges if the case warrants.

Ensuring the efficiency and integrity of all of our public programs is among the

top priorities of this Congress. That is the only way to ensure the continued existence and success of these programs. We in Congress want to work closely with those

who advocate for beneficiaries and with those who represent the provider community, to protect Medicare fee-for-service for generations to come. I look forward to

working with Chairman Pallone, as well as Ranking Members Barton and Deal, as

we proceed in our efforts to improve Medicare.

Mr. PALLONE. We will turn to our witnesses now, and first of all,

welcome. I understand that Ms. Norwalk can only stay until 3:45,

so——

Ms. NORWALK. Yes. We are kicking off a prevention tour that a

number of members of the committee have talked about. I have

asked them to push it back a little bit so I can stay a little bit

longer.

Mr. PALLONE. I thank you.

Ms. NORWALK. I will run and catch the bus.

Mr. PALLONE. All right. Well, let me quickly introduce you and

also Dr. Miller. Leslie Norwalk is the acting administrator for the

Centers for Medicare and Medicaid Services, and Dr. Mark Miller

is executive director of the Medicare Payment Advisory Commission, or MedPAC. Thank you both for being here today. I will just

mention that you can submit additional brief and pertinent statements in writing for inclusion in the record, and we will start with

Ms. Norwalk.

STATEMENT OF LESLIE V. NORWALK, ACTING ADMINISTRATOR, CENTERS FOR MEDICARE AND MEDICAID SERVICES

Ms. NORWALK. Good afternoon, Chairman Pallone, Representative Deal and distinguished members of the subcommittee. Thank

you for inviting me here today to address the Centers for Medicare

and Medicaid Services’ efforts to promote efficiency and integrity in

the Medicare Program.

The future of the Medicare Program depends in large part upon

our ability to ensure the most efficient use of Medicare resources

and that includes eradicating fraud at every possible opportunity.

As the largest purchaser of health care in the world, CMS provides

coverage to one in every three Americans. CMS covers 92 million

beneficiaries, and the numbers and costs are growing. Medicare
16

outlays are projected to exceed $464 billion in the coming fiscal

year with CMS accounting for nearly a fifth of the President’s

budget. National health spending is expected to average 6.9 percent annual growth over the next decade, and beginning this year

it is projected to grow an average of 2.1 percentage points faster

each year than gross domestic product. In the absence of fundamental reforms or unforeseen market changes, this trend will

yield a health care of GDP that tops nearly 20 percent by 2016,

going from $2 trillion in health care spending this year to $4 trillion in 2016.

Heeding the call of the Medicare trustees, the Federal Reserve

Chairman, MedPAC and scores of other health and fiscal policy experts, the administration has proposed a fiscal year 2008 budget

that tackles Medicare’s long-term financial challenges and aims to

transform it into a sustainable quality-based payment program.

Clearly, the efficient and effective management of Medicare and its

programs and operations is essential to that goal.

The Medicare trustees agree that prompt, effective and decisive

action is necessary to address the exhaustion of the part A trust

fund, which is currently projected to be depleted in a little more

than a decade. Similarly, the trustees have urged that we take action to address the anticipated rapid growth in Medicare expenditures. Specifically, the trustees warn of a serious mismatch between the benefits and payments the program currently provides

and the financial resources available for the future. Should these

factors remain unchanged, the trustees note that over time the program would require major new sources of financing for part A.

Medicare would also automatically require increased shares of general tax revenues for parts B and D, diverting resources from other

Federal priorities. Projected levels of spending could also impose a

significant financial liability on Medicare beneficiaries who pay

premiums and cost sharing.

The President’s budget proposes to build on past successes to further modernize Medicare, improve its quality and efficiency and secure its long-term future. On net, the Medicare proposals would reduce the rate of projected cost growth just shy of 1 percent over the

5-year window. The proposals aim to steer providers toward greater

efficiency through payment policies that increase the role of competition and incentivize the slowing of cost growth through greater

productivity and quality of care. In addition, payments would be

tied in part to medical error reporting and value-based purchasing

for hospitals would be expanded.

CMS recognizes the inherent potential of Medicare’s payment

system to encourage and reward quality in hospitals and other care

settings. The Medicare Modernization Act and other recent legislation directed Medicare to increase payments when hospitals and

other health practitioners report on quality measures that both empower providers and patients, arm them with raw materials necessary for informed decision-making and ultimately lead them to

identify and pursue better care protocols. CMS is working toward

greater transparency in physician and hospital pricing and quality

data, providing consumers with better information about the treatment options available to them. The budget would take steps to encourage more appropriate payment for the five most common condi-
17

tions treated in post-acute care settings. The prospective payment

system for hospital inpatient care implemented in 1983 slowed

growth in part A spending as intended but it also had the effect

of moving care to post-acute settings funded through a mix of part

A and B and outpatient settings that are funded solely part B.

Even with the criteria to direct patients to the most appropriate

place for care, numerous factors such ad revisions of patient conditions and diagnoses cause overlap in the types of patients treated

in these different post-acute settings. Exploring new evidencebased standards, more-accurate case mix measurements, improving

patient assessment, CMS is working to ensure that patients receive

the most appropriate care at the most appropriate time in most appropriate setting.

But regardless of the setting, CMS remains committed to improving the integrity of the Medicare Program and efficiency of its operations and expenditures. Central to our strategy for maintaining

sound financial management, CMS has long used calculations of

improper payments as a tool to preserve Medicare’s fiscal integrity.

Data collection and monitoring have enabled CMS to identify monies that have been inappropriately paid, to examine the causes of

the inappropriate payment and ultimately strengthen the internal

controls to minimize them as much as possible. Last year the paid

claims error rate for Medicare fee-for-service was 4.4 percent, a sizable drop from the 5.2 percent reported in 2005, and significantly

lower than the 10.1 percent in 2004. Next month CMS will announce the preliminary error rate for fiscal year 2007, and it appears that we will reduce the error beyond our expectation of 4.3

percent, so we continue to move in the right direction, but it will

require continued monitoring and error-reducing efforts in order to

continue this goal, and we are committed to do so.

CMS’s financial management strategy prioritizes the detection

and prevention of improper and fraudulent payments and to that

end we have identified such activities over the past year. Our satellite offices and program safeguard and claims processing contractors are testing innovative approaches to detecting, investigating

and prosecuting Medicare fraud. The Los Angeles Tax Project is a

recent and telling example. With the L.A. County district attorney,

our L.A. satellite office is conducting a unique pilot program to

more effectively deal with health care fraud due to prosecution of

providers for State income tax evasion, sort of the Al Capone approach. Relying on an elaborate communications network, the L.A.

project offers a new tool for cracking down on health care providers

suspected of committing insurance fraud in California. Over the

past year CMS has seen a marked increase in fraud and abuse activities tied directly to provider enrollment. These activities are——

Mr. PALLONE. Ms. Norwalk, you are about a minute over, plus

I know you want to get out of here, so——

Ms. NORWALK. Well, that is why I decided I will stay a little bit

longer. The point I was making there is simply with fraud and

abuse, we are seeing some specific targeted efforts, particularly

even in organized crime in Los Angeles, Miami and Houston, and

we are working diligently with both the OIG and DOJ, as I am

sure they will testify to later, to go after this fraud in particular.

And as Congressman Barton mentioned earlier, the DME accredi-
18

tation standards and the competitive bidding is yet another prong

to go after some of the specific fraud to save billions of dollars.

Thank you very much. I look forward to working with MedPAC,

the OIG and DOJ, and welcome any questions you may have.

[The prepared statement of Ms. Norwalk follows:]
19
20
21
22
23
24
25
26
27
28
29
30

Mr. PALLONE. Thank you.

Dr. Miller.

STATEMENT OF MARK E. MILLER EXECUTIVE DIRECTOR,

MEDICARE PAYMENT ADVISORY COMMISSION

Mr. MILLER. Chairman Pallone, Ranking Member Deal and subcommittee, distinguished subcommittee members, MedPAC is a

congressional support agency created to advice Congress on Medicare policy. MedPAC is uniquely structured. There are 17 commissioners that review the work that my staff does and shape the advice that we forward to the Congress. These commissioners include

physicians, nurses, individuals who run hospitals, post-acute care

facilities and managed-care plans. The commissioners include

former policy officials, individuals trained as health economists and

individuals trained as actuaries. Our work is largely directed towards improving efficiency and value of the traditional Medicare

Program as well as managed-care plans. As we consider the advice

that we give Congress, we keep certain principles in mind: assuring

that beneficiaries have access to high-quality care, paying providers

and plans fairly, assuring that each tax dollar is well spent.

There are other considerations that I know are on the minds of

commissioners when they consider Medicare policy. First, there is

a long-run sustainability problem facing Medicare. Medicare is

growing faster than the budget, faster than the economy and faster

than beneficiary incomes. This increase in spending, however, is

not consistently accompanied by improvements in coordination or

quality of care, and the commission believes that urgent attention

is needed to improve the payment and delivery system incentives

in Medicare. Second, Medicare policies must evolve to be more sensitive to the performance of providers. That is, Medicare needs to

pay more to providers who have efficient practice styles and higherquality care and less to those who do not.

The testimony I have submitted has a long list of ideas that the

commission has recommended over the last several years, and I

won’t go through them but just to highlight a few. Regarding feefor-service updates, each year we consider a range of factors such

as supply of services and access to care for beneficiaries when we

make recommendations on payment updates. If we determine that

providers are more than adequately paid, the commission can make

a recommendation to give the provider less than a full update. A

recommendation of less than a full update usually results in savings to the Medicare Program if it is adopted. For our March 2007

report, recommendations would yield savings in Medicare for payments for home health agencies, skilled nursing facilities, inpatient

rehab facilities and long-term care hospitals. Regarding Medicare

Advantage plans, the commission has long supported the Medicare

managed plans as an option for beneficiaries. The commission also

supports the principle that Medicare payments should be neutral.

That is, we should pay the same for a beneficiary regardless of

which choice they make, fee-for-service or managed care. The current managed care payment system is not neutral to beneficiary

choice and does not encourage efficiency. This is because it is based

on an inflated set of administratively determined benchmarks.

Under this system, we estimate that on average plans are paid 12
31

percent more than fee-for-service, and while it is true that most of

this payment goes for additional benefits for beneficiaries, it is also

important to bear in mind that these payments come from the trust

fund, from general revenue and from premiums paid by all beneficiaries regardless of whether they are in managed-care plans or

not.

Since 2002, the commission has recommended several changes to

make Medicare payments more equitable between fee-for-service

and managed-care plans as well as changes to make it more equitable among the managed-care plans because we think that certain

types of managed-care plans are competitively advantaged over

others. We believe that these recommendations will result in reduced Medicare expenditures, greater efficiency in care coordination for plans, and better information for beneficiaries in choosing

their care options.

Regarding physician payment, the commission has made several

recommendations to improve the value of physician services in

Medicare. Again, I cannot go through all of the ideas. However, a

couple to note, there is evidence that some physician services are

unnecessary. In our March 2005 report, we recommended measuring physician practice styles, comparing them to their peers so that

physicians could see how their practice styles differ significantly

from the norm. Since that report, we have provided the Congress

with detailed analysis on how to pursue this objective in a manner

that is fair to the physicians. In its March 2006 report, the commission made recommendations that would improve the methods of establishing Medicare fees to make them more accurate and in so

doing remove perverse incentives to over-provide certain services.

Regarding comparative clinical effectiveness, the commission believes that such information is critical to all health care in this

country including Medicare because it will help us determine what

works in health care and what does not work in health care. In its

meeting last week, the commission called for the establishment of

an independent entity to sponsor and disseminate such information

to beneficiaries, providers and insurers.

I look forward to your questions.

[The prepared statement of Mr. Miller follows:]
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55

Mr. PALLONE. Thank you, thank you both, and I will now start

with the questions and I will recognize myself for 5 minutes initially.

I wanted to ask Dr. Miller, if the recommendations made by

MedPAC regarding payments to Medicare private plans were enacted, do you believe that there are plans that can provide additional benefits to beneficiaries?

Mr. MILLER. Yes, and the 12 percent gets cited a lot but there

is other work that we have done that shows that there are differences among the plans and their efficiencies. So for example,

HMOs, which have more coordinated care and network types of approaches to care, actually can provide the traditional fee-for-service

benefit more efficiently than the traditional Medicare Program.

Those types of plans, the original intent of managed care was that

plans like that would take those savings, use the additional savings

to provide additional benefits and in turn attract beneficiaries to

those plans. So yes, we do believe that there are plans who can provide—who are efficient enough to provide additional benefits to

beneficiaries.

Mr. PALLONE. Obviously the private plans were introduced to

save money through efficiencies and your recommendations—well,

you can tell me. Do you think the current payment system for

Medicare Advantage plans reward efficiency and would your recommendations still allow the most efficient plans to compete for

Medicare beneficiaries by offering additional benefits and low premium? That is what I assume competition is all about.

Mr. MILLER. I think that is the intent of our recommendation is

that right now, and I think the chairman said this in another hearing, that he feels that we are sending a signal that invites inefficient plans to come into the program, and I think our recommendations are directed toward encouraging efficiency among plans and

encouraging those plans who can achieve those efficiencies to stay

in the program, provide the extra benefit. Right now the way the

payment system works is, it encourages plans that are not more efficient than the traditional Medicare Program and then when additional benefits are offered on top of that through the subsidies, obviously beneficiaries are attracted to those plans but not because

of the efficiencies and the additional benefits through those but because of the additional benefits that are paid through the subsidy.

Mr. PALLONE. OK. Thank you. I have been bombarded recently

with insurers who argue that low-income and minority beneficiaries disproportionately rely on Medicare Advantage plans for

supplemental coverage, and you recently testified, however, that

the best and most targeted approach for helping this population

would be to strengthen the Medicare savings program within Medicaid that helps low-income beneficiaries pay for their premiums

and cost sharing. Is that still your position?

Mr. MILLER. What we said in that hearing when we got this

question was, this is an inefficient way of providing subsidies for

low-income populations, and just think about it for a second. The

way this work is, it is only available to someone who enrolls in a

plan and whoever enrolls in that plan, whether they are low income or not, receives the benefit and so if we are spending dollars

and our intent is to subsidize low-income beneficiaries, it is kind
56

of a messy way of doing it. There are a couple other examples out

there of much more targeted ways to get at low-income beneficiaries and provide them subsidies. Inside the part D benefit, lowincome subsidies are paid to the plan on the basis of the beneficiary qualifying through their income and assets, and so the plan

doesn’t get additional payments for everybody, they get additional

payments for those beneficiaries that are low income. Additionally,

the point that you made is in the traditional fee-for-service program under Medicaid, again if you qualify income and assets, Medicaid will assist you on your premium and depending, on your copayment as well, and again, that is only available to people who

are qualified and again a more targeted approach to that.

Mr. PALLONE. Thank you.

Ms. Norwalk, there are advocates and constituents who have

complained of questionable marketing practices by prescription

drug plans, especially certain Medicare Advantage prescription

drug plans, and I would like to better understand what CMS is

doing to address this matter. How many Medicare Advantage or

Medicare Advantage prescription drug plans have been sanctioned

for inappropriate marketing last year or this year and how many

have been assessed a civil monetary penalty for violating marketing rules last year or this year, and then how many have been prohibited from enrolling new beneficiaries as a result of violations of

marketing requirements, again last year or this year?

Ms. NORWALK. I don’t have the numbers specifically at my fingertips but we will get them back to you for the committee for the

record. I would say this, that in terms of marketing violations, one

of the issues that we are dealing with is that marketing agents and

brokers are regulated by the State. We recently have been working

with the National Association of Insurance Commissioners and

have signed MOUs with 17 States and Puerto Rico to ensure that

when we see marketing violations, that we can report it to the

State and the State can sanction the agent and broker, often who

are independent. They may be an independent agent that is working on their own and actually marketing on behalf of a number of

different plans. We are working with the plans to ensure that they

are doing the appropriate training, and if they are employed by the

plan would be able to sanction the plan for having had that agent

or broker, but we think it is critical to work with the State insurance commissioners so that they can take the appropriate actions

at the State level against the individual at the same time that we

take action with the Medicare Advantage plan to ensure that the

marketing that they are doing is appropriate. We also want to be

careful of the beneficiary, ensuring that whatever happens that the

beneficiary can have an open enrollment period and that beneficiary can change plans so if they have been put in a plan where

they didn’t understand, where they were fooled, if you will, we will

let them change back with no financial penalty to them.

Mr. PALLONE. And if you can get back to me with the details. I

appreciate it.

Mr. Deal.

Mr. DEAL. Thank you.

Ms. Norwalk, I understand that CMS has just recently issued its

final rule on the competitive bidding provisions for durable medical
57

equipment. That provision had requirements for certification and

accreditation in it. My understanding though is that CMS has

granted a grace period for providers who are not accredited, a grace

period in which they can get accredited, but will allow them to go

ahead and participate in competitive bidding. My concern is that

since the cost of accreditation is a rather sizable cost in some instances, will those unaccredited providers who are allowed to bid

have an unfair advantage over accredited providers and what is

CMS doing to try to make sure that doesn’t happen?

Ms. NORWALK. You do have to be accredited in order to bid for

the first 10 competitive bidding areas under our rules, so what we

have done is, we have directed those who will be accrediting the

suppliers to ensure that they start with the suppliers that work in

these 10 areas to make sure that they have an ability or the time

in which they can become accredited. All competitive bidders must

be accredited by the end of the year and then all competitive bidders in the next 80 MSAs or the next 70 which need to be accredited by the end of next year so there should be no unfair advantage. Even physicians who don’t have to bid must be accredited in

order to provide DME supplies to Medicare beneficiaries. It is going

to be done across the board.

Mr. DEAL. But if they are pending accreditation, they are still allowed to bid. Is that not true?

Ms. NORWALK. Well, the way that it will work is that you need

to be accredited before the program is going to start. The program

won’t start until April 1, 2008, so we would actually not award

anyone the ability to be a provider until that time, there is a quarter lag, if you will, between the time they need to be accredited by

and the time we actually start competitive bidding so that we can

make sure that no one has an unfair advantage.

Mr. DEAL. As my opening statement indicated, I have an interest

in trying to monitor what we have done in the imaging area. Under

the rules we put in place under the Deficit Reduction Act, we of

course tried to equalize reimbursements for settings other than the

outpatient hospital setting with equalization on a portion of the

technical component of the reimbursement. Now, that has been in

place for about 3 months now. Can you tell us if you have determined any effects of that and if so what they might be?

Ms. NORWALK. We are just starting to get in the quarterly data

and I am happy to report back to you when we have a chance to

analyze it in greater detail since the first quarter just ended. I get

screen shots on my computer of what is happening with imaging.

I took a look at it on the way over here. It is inevitable that when

there are payment changes, it doesn’t matter what the change is,

it does impact utilization. The question is, is that impact in utilization appropriate, are we seeing a downturn simply because the

payments are less or are we seeing a downturn because the payments are less and the services weren’t necessary. So we will be

taking a very close look at the interaction between both the quality

and the utilization and I will be happy to brief you in greater detail.

Mr. DEAL. I think that would be critical for us to know what the

next step might be. One of the concerns that I heard expressed in

the imaging area is that overutilization of imaging might result in
58

some risk and harm to patients due to the iodizing radiation that

occurs. Is CMS looking at that question of maybe a health concern

for overutilization rather than just the purely economic overutilization? Is there a health risk and are you looking at that?

Ms. NORWALK. Well, I will certainly ensure that if we haven’t

been, I will ask my doctors to take a closer look. How is that?

Mr. DEAL. All right. That sounds good to me. I also made reference to the situation in Chicago about the sham lease arrangements and my understanding is that there were basically kickbacks

being done by the providers of the services, billing it to the doctors,

the doctors in turn seeking reimbursements. Have you all looked

at that from the CMS level and are you working with the attorney

generals in various States to look at that?

Ms. NORWALK. We spend a lot of time with our colleagues both

in the OIG who implement the kickback statute for the Department as well as DOJ generally. I think there are a couple of things

that I would point out here. A lot of what we are seeing are physicians buying this equipment and we may be well served in making

sure that if they purchase the equipment, that the beneficiaries

know that if they are getting a scan, part of the reason may be because they want to amortize the value of the equipment. Now, lots

of physicians do the right thing all the time. The point is, let us

get the right imaging service done whatever it happens to be without regard to the dollars in the provider’s pocket.

Mr. DEAL. Very quickly, Dr. Miller, has your office looked at

fraudulent or abusive behavior on these advanced imaging procedures as it relates to Medicare or Medicaid?

Mr. MILLER. Not so much at the fraud. We made a set of recommendations in trying to increase the standards for both the providers who are billing Medicare and the equipment to your point

on the radiation, making sure that the equipment and the technicians that are running the equipment are as good as they can be.

We did make some recommendations to reduce excessive billing

through some billing code recommendations that we made and also

made recommendations on some of the treatment of things under

the star clause, that there were some loopholes that we felt existed

in the star clause, and that is all detailed in our reports but we

haven’t done specific pursuit of fraud, that type of thing.

Mr. DEAL. Thank you, Mr. Chairman.

Mr. PALLONE. Thank you.

Mr. Green.

Mr. GREEN. Thank you, Mr. Chairman.

Ms. Norwalk, we just heard Mr. Miller testify that Medicare’s

payment system doesn’t necessarily encourage primary or preventive care even though we know that primary and preventive care

improves health outcomes and catches health care problems before

they become costly emergencies. When our committee marked up

the Medicare Modernization Act, our former colleague, Ernie

Fletcher, and I included in the bill a diabetes screening benefit

under part B. In our view, it didn’t make a whole lot of sense for

Medicare to pay for diabetes treatment but not pay for the beneficiaries to get screened for the disease. Since then we have heard

CMS has done very little to promote the benefit and that take-up

rates linger in the single digits. This is an alarming summation, es-
59

pecially since 60 percent of all Medicare beneficiaries have diabetes

or pre-diabetes and could greatly benefit from the early detection.

I know the American Diabetes Association has been unsuccessful

in obtaining official utilization numbers from CMS and you and

Secretary Leavitt will probably get a letter from me this coming

week asking for that information. But in this venue, can you explain what steps CMS has taken for providers and beneficiaries to

promote utilization of diabetes screening benefit and do you agree

that the screening benefit for a disease is so prevalent among

Medicare beneficiaries if implemented correctly could contribute increased efficiency in delivery of that health care under the Medicare Program?

Ms. NORWALK. You raise a terrific point. Without question, it is

critical that we do more in terms of prevention. In fact, I am going

to be missing the bus today but the reason I was going to leave

early was to start a nationwide bus tour to focus with our partners

including those in diabetes to go around the country, get people to

sit down at the table to promote just this type of benefit. All of our

prevention benefits but without question, the diabetes screening

prevention benefit, is included in that. We have been working with

all of our partners to make sure that we have the appropriate data

so we can determine, have we been successful. But the focus of this

bus tour—and the Secretary and I are doing a kickoff along with

Julie Gerberding and others at HHS on Friday. We would love you

to come down if you want to come and talk to us about prevention

and its importance. We would love to have you there. But the

whole point is to focus the attention on this benefit and how important it is, work with our partners but even people who aren’t traditional partners including employers and others so we can get the

prevention benefit out long before people ever get to the Medicare

Program. I appreciate your highlighting the issue and can assure

you that we are turning to it as soon as today to get this information out to make sure that we can increase those rates, and we will

be happy to share the utilization data. We are hoping to make it

better. I am a little concerned that what we have in-house is probably not sufficient. That is why we have been working with our

partners.

Mr. GREEN. And that is what we need to know, is there a better

way we can get that information out because it will save us Medicare dollars with that pre-screening. And again, that was one of the

things we did in the Medicare Modernization Act that was bipartisan in hindsight.

Mr. Miller, I would like to explore MedPAC’s recommendations

on care coordination and there are a number of care coordination

demonstration projects conducted by CMS in recent years. Last

month an interim report was issued by the Medicare Coordinated

Care Demonstration Project reporting limited benefits of the

project. I would like to point out, however, that two of the 15 program hosts included Alzheimer’s or dementia care in the benefit.

By and large, they also failed to include the small and solo practitioners who we know provide the bulk of the care for our Medicare

beneficiaries. We can imagine the importance of coordinating care

for beneficiaries with dementia but we have numbers to back up

that need. According to the Alzheimer’s Association, the average
60

Medicare cost per beneficiary with dementia is $13,207 compared

with $4,450 to the average annual cost in beneficiaries without dementia. Alzheimer’s ranks up there with congestive heart failure

and COPD in cost for the Medicare Program. Can you speak to

what we have learned about care coordination from the various

care coordination demos, specifically the importance of including

proper populations and providers in that care coordination in a

broader benefit?

Mr. MILLER. I can really speak to what MedPAC has talked

about and care coordination, not so much the demonstrations and

the findings there, although the commission has monitored and

does think that there are some good ideas that are going on

through the demonstrations. But to your point specifically, the two

models that we have discussed in the commission about care coordination are the notion that you could give payments to groups

of physicians who demonstrate a capacity to provide disease management and care coordination for chronic conditions, have some

risk arrangement for it, not on the benefit, just the fee for administering it, and encourage groups that have that capacity, the IT

the ability to make contact with patients and help them plan out

their care and encourage it that way. For the solo practice, which

you also raised, the other model that we talked about, they may

not have the capacity to do that. They may not have the IT, they

may not have the staff to contact the patients. The way you could

think about a situation like that is, have a contract with a larger

disease management entity with the solo practice so Medicare

would make payments to the larger entity and then some payment

to, say, perhaps on a per-month basis to the solo practice physician

to manage the care for that patient. Just two other questions. We

have also tried to look very hard at the prices and the fees that

are being paid in the fee schedule to make sure that we are not

discouraging primary care services and we have made some recommendations along those lines, and then finally we have been

most recently talking about clinical comparative effectiveness as

another way of trying to get information about what services help

chronic care beneficiaries.

Mr. PALLONE. We are going to have to move on because we have

six votes. There is only 10 minutes left and Ms. Norwalk is going

to leave so I am going to recognize Mr. Barton and then we will

see if we can get in Mrs. Capps.

Mr. BARTON. I will ask one question and then submit the rest for

the record, Mr. Chairman.

Ms. Norwalk, can you talk, in the competitive bidding rule that

just was announced, the protections are in place for small suppliers, the set-aside program to make sure that some of the competition goes to the mom-and-pop suppliers?

Ms. NORWALK. Absolutely. One of the concerns that was raised

in doing this rule was that we might be putting a lot of small businesses out of business. Consequently, in each of the 10 competitive

bidding areas, we set aside 30 percent of them to take into account

small suppliers. Now, we define small suppliers as having $3.5 million in revenue, which is a smaller amount of revenue than the

Small Business Administration, but wanting to be really focused on

this area. Moreover, we heard a lot from the retail drugstores
61

about the ability of providing diabetic supplies so we focused initially on mail order. We have 60 percent of the diabetic supplies

provided to Medicare beneficiaries through mail order so we still

think we will get a pretty significant savings in that particular

area.

Mr. BARTON. Thank you, Mr. Chairman. I will submit the rest

of my questions for the record.

Mr. PALLONE. Thank you.

Mrs. Capps.

Mrs. CAPPS. Thank you, Mr. Chairman, Ranking Member, and

thank you both for your testimony today.

Ms. Norwalk, in my district, I want to get out some issues that

really important to some of my constituents and to me. In my district, we are fortunate to have an excellent facility called the Rehabilitation Institute of Santa Barbara and they have brought to my

attention the burdensome auditing process being carried on by

Medicare. Just for some historical context, briefly this is nonprofit

institution, the only freestanding rehabilitation institution between

Los Angeles and the Bay area. Speaking to the integrity of the institute, you should know that as a result of a probe audit, eight out

of nine appeals by the Rehabilitation Institute were ruled in the institute’s favor and several more are waiting final decisions. Meanwhile, Medicare is expanding the RAC process which rewards private contractors for identifying incorrect payments. When I heard

about the way it is designed, I am sorry but I couldn’t help but

think of bounty hunters. I learned that yesterday alone, this nonprofit institution received 15 RAC requests. In fact, they have been

asked for 116 claims for fiscal year 2003, 2004 and 2005. This institute has filed appeals on many of these but no decisions have yet

been made. Each of these appeals though is required to be filed

separately, which takes valuable time away from patients and costs

extra money. This is not what they tell me, they would not be so

bold—but I would say that this process is driving them to the brink

of collapse.

This is my question. Will you tell me, please, what will happen

if those appeals, all of these 116 claims and the appeals on them,

are ruled in the institute’s favor? Will Medicare recover the fees

paid to the private auditors for each claim that they have incorrectly identified?

Ms. NORWALK. I don’t expect the program works that way but I

am more than happy to get the details from staff and sit down with

your staff and talk about how the RAC program is constructed.

Currently, what it is intended to do, and perhaps talk to the contractor more specifically about how they are paying for—what is

going on with the rehab payments and I think the concern that ensuring that the—this is something that we mentioned earlier in

terms of post-acute care services, making sure that the patient is

provided right place, right time——

Mrs. CAPPS. But they have asked for all kind of guidance and information. There is a lot of integrity, and they wouldn’t survive if

it weren’t for tremendous generosity of our local community in supporting them.

Mr. Chairman, I think we have identified what should be one of

our first targets for eliminating wasteful spending, and let me fol-
62

low up with you. I want to ask if providers are able to recover the

costs of filing these appeals. After all, it seems like the fees associated with filing appeals are deterrents from recovering payment for

legitimate expenses. It is going to keep them from making appeals,

finding out what is wrong. It is going to end up costing Medicare

more money because they are going to avoid this whole process. It

is so costly to them in time and energy, and in the meantime patients and their health providers suffer from these consequences

while the private auditors are awarded in every case, even when

they haven’t found anything wrong at all.

Ms. NORWALK. My understanding in terms of how the RAC

works is that they actually get a small portion of what recoveries

they make and so the appeal would have to be denied by the provider in order for them to get increased payments. So in a sense,

you are right in terms of how that works so if they are going after

claims that are valid claims, then RAC itself would be penalized.

So the intention is to sync those up.

Mrs. CAPPS. I know, but I can’t tell you how demoralizing this

process is to the providers in my district. I picked out one institution because I know it well. My husband was a patient there and

they have done remarkable work in a multi-disciplinary way. But

nursing homes have told me this, all kinds of facilities that receive

Federal reimbursement, that they are going through this process,

it is taking away from quality care to patients and they see it as

the people coming in as very cynical, being not well versed in the

nuances of the institution. I would just call them bounty hunters.

We have got to find a better way to do this.

Ms. NORWALK. Well, I will take a look at it for you and we will

report back.

Mrs. CAPPS. Thank you very much. Sorry for the diatribe, but I

wanted to get that out on the record, because frankly, I know that

you desire to do it to save money but in the end, I think it has really got some downsides that we should explore. Thank you.

Mr. PALLONE. Thank you. Thank you, Ms. Norwalk, for being

with us here.

Now, Mr. Miller, we are going to come back. You are able to stay,

right?

Mr. MILLER. Yes.

Mr. PALLONE. All right. We probably will be 45 minutes to an

hour because there are six votes, so thank you.

[Recess]

Mr. PALLONE. I am not sure if other Members are going to come

back so I am going to go back and ask Mr. Miller a couple of questions myself and then if we get other members, we will recognize

them as well.

I am just going back to some of the questions I asked you before,

some additional follow-up. Some of the private plans have disputed

MedPAC estimates that Medicare Advantage plans cost 12 percent

more on average than fee-for-service in 2006 and have claimed that

their own estimates show little or no overpayments. I just wanted

you to tell me what you think of these alternative estimates, if you

would.

Mr. MILLER. And with all respect on that, I don’t know exactly

what you have seen but I have seen a piece of paper put together
63

by Blue Cross/Blue Shield and it has a little chart at the bottom

that kind of goes six, one, three, two, that type of thing, and I have

got to tell you, very little of that do we think is correct, and just

to kind of walk you through it for just a second, they have 6 percent at the top and they are saying half of it accounts for this

phase-out of the hold harmless. First of all, I think that number

is wrong. I think it is smaller than that. And two, what they are

conceptually saying is, what we are saying is, you are getting that

money, and if you ask them pointblank, that is true, but they are

saying it is going to go down in the future and so you shouldn’t

count it now, OK? So that is the first problem with their reasoning.

The second problem is, if that is all that was going on, it might go

down in the future but actually because enrollment has been moving so aggressively into the high benchmark counties, actually the

12, we are not clear whether it will go down or up in the future,

so for that first piece, we just think it is wrong, and conceptually

we are measuring what money they get and they are getting that

money now. They are arguing it will go down in the future. We are

not so sure. The second piece of it is a 1 percent that they say it

should be—we didn’t take into account the increased payments on

the fee-for-service side for the physician fix that the Congress put

in, and on that one it is almost but not quite. It is true that when

we did the estimate, Congress had not acted, but when you do that

you actually go back and you revisit the entire baseline, not just

that component of it, and actually parts of the baseline went up

and down. In the end, that is a wash, so the 1 percent we would

also say is not correct. Then underneath that is 3 percent for IME,

if I am not mistaken. We have been over this time and time again

with the analysts who put this together. They know our methodology for doing this and I just don’t know how to say it any differently. We do it correctly. We count it the same way on both

sides. They are asserting that we are taking it out of one side and

leaving it in the other and therefore creating a ratio that isn’t true,

and that is just not true. Then the very last thing at the bottom

is, is they say OK, but the Congress wants these floors in place and

these floors account for 2 percent. Here again there is a real dispute over the number. We think the floors probably account for 6

percent or so like half of this figure and of course, what we are recommending to the Congress is that we ought to be taking these

benchmarks down and so they are saying but Congress has this

payment system in place and we are saying right, we think that

that payment system should change. So the last part of it is a philosophical difference.

Mr. PALLONE. All right. Well, thanks a lot. I have one more question and that is about the overpayments again to private plans. It

is fair to say that overpayments to Medicare private plans advance

the date when the Medicare part A trust fund becomes insolvent,

and that curbing these overpayments would move back the date of

insolvency?

Mr. MILLER. Yes, it does. Any time you are overpaying whether

it is managed-care plans or anywhere else, and to the extent it

comes out of part A it is going to affect the trust fund date. We

believe it does affect the date. A very rough estimate is that if you

implemented CBO’s proposal where they estimated savings of $65
64

billion and then a different number over 10 which I can’t remember

off the top of my head, it would move the trust fund date back a

couple of years.

Mr. PALLONE. OK. And do you think that these overpayments actually threaten the fiscal sustainability of the program?

Mr. MILLER. CBO is projecting very aggressive enrollment into

managed-care plans over time and to the extent that every one of

those enrollees means that Medicare pays more than it otherwise

would have, it affects the long-run sustainability of the program.

Mr. PALLONE. Is there any way you can quantify the impact that

overpayments would have on every Medicare beneficiary like every

month or maybe get back to us?

Mr. MILLER. Actually I think I can quantify it for every month.

Again, this is back the envelope, the actuaries are much more precise about it but we estimated about $2 per month in extra premium payments for all beneficiaries for the 12 percent overpayment.

Mr. PALLONE. OK. Thanks a lot. I appreciate it.

Dr. Burgess, do you want to ask questions of Mr. Miller?

Mr. BURGESS. Actually, I would prefer——

Mr. PALLONE. Oh, here comes Jan.

Ms. SCHAKOWSKY. I was mostly interested in how do we justify

that we are paying the Medicare Advantage programs this higher

price? How can that be sensible at all if we are talking about how

we are going to save money?

Mr. MILLER. There is not a lot of disagreement here between you

and the commission. The commission has looked at this problem

and we have looked at it from a payer perspective and the dollars

that leave the Treasury and arrive at the plans. We have calculated that they are more than 12 percent above average and we

have noted that this comes out of the trust fund, general revenues

and premiums for all beneficiaries whether they are in the plans

or not.

Ms. SCHAKOWSKY. Right. And only one out of five is actually in

one of these plans.

Mr. MILLER. Yes I think the enrollment is up to 18 percent,

around there, but that is about right, one in five. So our posture

is, if you are looking at this purely as a payer and an efficiency

issue, efficiency and dollars leaving the treasury, there is not a lot

of argument for doing this. Now, the counterargument by the industry is, but I give additional benefits to beneficiaries with this

extra money, and I would just point out a couple things about that.

They do get additional benefits but also in that extra money is administrative costs, marketing costs and profits to the plan and then

I would just come back to the original argument. They are getting

additional benefits with that money but those are benefits that are

subsidized by all beneficiaries and going only to some beneficiaries

who happen to be in those plans.

Ms. SCHAKOWSKY. And what about the private fee-for-service?

That is even more.

Mr. MILLER. Yes, and that is actually a good question, and a clarification that I want to make for people because this gets misunderstood sometimes. It is not that private fee-for-service plans are paid

more, it is that private fee-for-service plans locate in counties
65

where the payment rates are higher so that when you look at them,

they are being paid more. Do you see what I mean?

Ms. SCHAKOWSKY. Yes.

Mr. MILLER. It is not that we pay private fee-for-service more, it

is that where they are drawing their enrollment, the Medicare Program pays more. We pay about 19 percent more there. And the interesting thing about private fee-for-service plans is, it actually

costs them 9 percent more to offer the standard benefit, the standard A-B benefit.

Ms. SCHAKOWSKY. Meaning if it were the Medicare fee-for-service?

Mr. MILLER. You got it, 9 percent more. Then the additional 10

percent is given to the beneficiaries in benefits. So there are two

things to take away from private fee-for-service plans. As a group,

and I am not saying every plan but as a group, they are much less

efficient than standard Medicare fee-for-service and all of the extra

benefits on average that go to beneficiaries are from extra money,

are from subsidized dollars. No efficiency gains. Because remember, the basic argument, and you may have even said this, is, if

they have efficiencies, they use that money to offer extra benefits.

These private fee-for-service plans again as a group, not every private fee-for-service plan but as a group are not more efficient than

fee-for-service and the extra benefits——

Ms. SCHAKOWSKY. So what is the justification for even allowing

those to exist?

Mr. MILLER. Well, I am not sure I can tell you that. Let me try

and answer the question this way. The private fee-for-service plans

were actually conceived of in their original state—what was going

on is, there was a big move in the country towards managed care

and lots of increases in enrollment Medicare managed care and

there was a concern on the part of Congress that some people

might not want to be in managed-care plans and have potentially

their care dictated by a coordinated care entity, so the thought behind private fee-for-service plans was, let us create plans where if

they have an additional cost because they don’t coordinate care, it

is born entirely by the beneficiary. That was the thought behind

them so that I have an uncoordinated plan, it is more extensive but

the bennie pays the difference, but it hasn’t worked out that way.

Under the new payment system, the Federal—well, the Medicare

Program and all bennies whether they are in the plan or not are

paying that difference.

Ms. SCHAKOWSKY. And what is the rationale for allowing a Medicare Plus plan if we are paying those 12 percent more than Medicare fee-for-service and most beneficiaries end up subsidizing those

plans?

Mr. MILLER. It just hit me again, what is the——

Ms. SCHAKOWSKY. I asked what is the justification for having the

private fee-for-service? What is the justification for the Medicare

Plus plans if they are being paid more and that money is coming

out of beneficiaries and taxpayers?

Mr. MILLER. At the commission, we don’t see a lot of justification.

The counterarguments that people will ring to the table are, people

are getting extra benefits from it, and then you have heard some

of the other counterarguments that—and we have already had this
66

exchange, I think you were in the room for it, where it is well, lowincome beneficiaries tend to be in these plans but of course our response to that is, there are more-efficient ways to help low-income

beneficiaries.

Ms. SCHAKOWSKY. Right.

Mr. MILLER. I can’t offer you a justification here. We are sort of

raising that question ourselves.

Ms. SCHAKOWSKY. OK. Thank you. I appreciate it.

Mr. MILLER. No problem.

Mr. PALLONE. Thank you, and thanks, Mr. Miller, for staying

here an extra hour, but we do appreciate it because we did want

to ask you some additional questions. Thanks a lot.

Mr. MILLER. No problem.

Mr. PALLONE. And I am going to ask the second panel to come

forward.

Thank you both for being here. Let me introduce you. First we

have Stuart Wright, who is Deputy Inspector General for Evaluation and Inspections from the U.S. Department of Health and

Human Services, and next to him is Daniel Fridman, who is Senior

Counsel to the Deputy Attorney General and Special Counsel for

Health Care Fraud within the Department of Justice. Thank you

both for being here and we will start with Mr. Wright.

STATEMENT OF STUART E. WRIGHT, DEPUTY INSPECTOR GENERAL, EVALUATION AND INSPECTIONS, OFFICE OF INSPECTOR GENERAL, DEPARTMENT OF HEALTH AND HUMAN

SERVICES

Mr. WRIGHT. Thank you. Chairman Pallone, Ranking Member

Deal and members of the subcommittee, I am Stuart Wright, Deputy Inspector General for Evaluation and Inspections at the Department of Health and Human Services. I appreciate the opportunity to appear before you today to discuss our efforts to protect

the integrity of the Medicare Program. My written statement provides an overview of our efforts to assess the appropriateness of

Medicare payments and prices and our efforts to address quality of

care and access issues for beneficiaries. In the interest of time, I

will focus my remarks on our recent work related to durable medical equipment as a specific illustration of some of the program

vulnerabilities we have identified and our recommendations to

strengthen Medicare safeguards.

We have consistently found that the Medicare DME benefit is

vulnerable to fraud and abuse. We have conducted numerous studies reviewing the appropriateness of payments and the prices Medicare pays. With respect to the pricing of medical equipment and

supplies, we issued a report in September 2006 on the cost and

servicing of oxygen equipment used in the home. In this review, we

found that Medicare will allow $7,215 for a concentrator that costs

about $600 to purchase new. Additionally, beneficiaries will incur

$1,443 in coinsurance over a 36-month rental period. We noted that

if Medicare payments were capped at 13 months as certain other

DME items are capped, Medicare and its beneficiaries would save

$3.2 billion over 5 years.

With respect to our investigative activities, from 2002 through

2006 we excluded 121 suppliers and 457 individuals associated
67

with suppliers, obtained 289 successful criminal convictions and

achieved 76 civil settlements or judgments. Together, these criminal convictions and civil adjudications resulted in more than $796

million in restitution, fines and penalties. To help combat medical

equipment fraud, OIG in conjunction with the U.S. Attorney’s Office for the Southern District of Florida, the FBI and the Department of Justice launched an initiative designed to identify suspicious suppliers and review questionable financial activities. Since

its inception, the initiative has recovered more than $10 million

from entities which closed abruptly and abandoned their bank accounts.

Over the past decade OIG has also identified and reported on

weaknesses in Medicare’s enrollment process for suppliers. In our

most recent work, we found that 45 percent of the suppliers in

three south Florida counties did not meet one or more of the selected Medicare standards we reviewed. Working in collaboration

with CMS and the National Supplier Clearinghouse, we conducted

unannounced site visits to 1,581 suppliers in Miami-Dade, Broward

and Palm Beach counties in late 2006. We focused on three supplier standards that could be verified quickly through direct observation and desk review. These three standards include five specific

requirements which state that a supplier must maintain a physical

facility, be open and staffed during business hours, have a visible

sign, post hours of operation and maintain listed telephone numbers. During the site visits, we found that 31 percent of suppliers

did not comply with the first two requirements of maintaining a facility at the business address that they had provided to Medicare.

Specifically, 6 percent of the suppliers did not maintain physical facilities. In some cases, instead of finding operational facilities, we

found vacant buildings or facilities in which another type of business was operating including a florist, a rental car company, a real

estate office and an accountant’s office. Twenty-five percent of suppliers were not accessible during reasonable business hours. We

identified an additional 14 percent of suppliers that were open and

staffed but failed to meet at least one of the three remaining requirements that we reviewed. For the period January through November 2006, Medicare allowed payments of over $97 million to the

491 suppliers who we identified as not maintaining a physical facility or were not open and staffed. We referred these suppliers to

CMS for potential revocation of their Medicare billing numbers.

Our south Florida report and my written statement contained

the recommendations we have made to strengthen Medicare enrollment standards including conducting more unannounced site visits

and out-of-cycle inspections, requiring all suppliers to post a surety

bond, and performing more-rigorous background checks of applicants. In response, CMS described several actions it has taken to

implement our recommendations including revisiting contract requirements to increase the number of unannounced supplier site

visits, drafting a proposed regulation requiring suppliers to post

surety bonds, and considering targeted background checks of supplier applicants. In addition, CMS is also in the process of implementing accreditation standards and competitive bidding in selected parts of the country.
68

In conclusion, the OIG remains committed to protecting the integrity of the Medicare Program and ensuring that beneficiaries receive high-quality care. Within the DME benefit alone, we have

identified numerous integrity problems and program inefficiencies.

And in our most current work, we have also found that the Medicare supplier enrollment process is inadequate to prevent abuses

such as those we found in south Florida.

I appreciate the opportunity to share with the subcommittee our

efforts and would be happy to answer any questions.

[The prepared statement of Mr. Wright follows:]
69
70
71
72
73
74
75
76
77
78
79
80

Mr. PALLONE. Thank you, Mr. Wright.

Mr. Fridman.

STATEMENT OF DANIEL S. FRIDMAN, SENIOR COUNSEL TO

THE DEPUTY ATTORNEY GENERAL AND SPECIAL COUNSEL

FOR HEALTH CARE FRAUD, DEPARTMENT OF JUSTICE

Mr. FRIDMAN. Thank you. Mr. Chairman, Congressman Deal,

members of the subcommittee, thank you for inviting the Department of Justice to discuss its work in an area of law enforcement

that is of vital importance to our Nation’s seniors and disabled persons, fraud in the Medicare Program. I am Assistant United States

Attorney for Miami, a district which has made fighting health care

fraud one of its top priorities. Presently I am on detail to main Justice, where I advise the Deputy Attorney General on health care

fraud enforcement policy. In that capacity, I have a bird’s eye view

of what the Department’s different components are doing to recover

monies wrongfully taken from the Medicare Program and to prosecute those who defraud it. Within DOJ, health care fraud enforcement involves each of our 93 U.S. Attorneys Offices, the criminal

division fraud section, the civil division, the civil rights division

and the FBI.

Since the start of the Health Care Fraud and Abuse Control Program in 1997, the Department of Justice has recovered and returned a total of $10.4 billion to the Medicare trust fund with additional amounts going to other programs such as Medicaid and TriCare. We can conservatively say that for every $1 the Government

spends on health care fraud enforcement in the HCFAC program,

the Medicare trust fund gets at least $4 back in recoveries from

civil litigation and criminal fines and forfeitures. This figure does

not even capture the deterrent effect of our criminal prosecutions,

which are harder to quantify but nevertheless save taxpayer

money.

Mr. Chairman, this is good, basic good Government work, and as

our record demonstrates, the department is committed to doing it.

Over the last 10 years since the HCFAC program was created, we

have significantly increased the number of civil cases we file and

criminal convictions we obtain. In the last fiscal year 2006, we had

547 defendants convicted of health care fraud expenses, the highest

number to date. Last year we filed or intervened in 217 new civil

health care fraud cases, which represents an increase of 144 percent since the program started. Last year was also a record year

for civil recoveries. Our civil division working with the U.S. Attorneys Offices obtained judgments and settlements totaling over $3.2

billion in fraud recoveries. Of that amount, $2.2 billion came from

health care fraud cases.

Let me give you a couple of concrete real-world examples of the

kinds of fraud schemes we are seeing today in our cases. Let met

tell you about infusion fraud. In my home district, we have found

that clinics pay recruiters to bring HIV or AIDS patients to the

clinics to receive this infusion therapy. They pay each patient kickbacks of $100 to $200 per visit and the patients are given diluted

drugs or simply no medication at all but Medicare is billed for the

full price of the drugs. These schemes can harm patients because

they are not getting proper treatments. In a recent case in my
81

home district, an individual was convicted of this scam with estimated Medicare losses of $5 million.

Let me tell you about power wheelchairs. We found a DME supply company that billed Medicare for expensive motorized wheelchairs that were not needed and not delivered. Medicare reimburses wheelchairs at about $7,000 each but the company actually

delivered a less-expensive scooter that cost $1,000. Total loss to

Medicare was about $1 million. We convicted the company’s owner

and also obtained convictions in separate cases of the physicians

who signed the prescriptions for these motorized wheelchairs, people that did not actually need them.

Let us turn to pharmaceuticals. Serono was involved in off-label

marketing violations. As the market for Serono’s drug Serostim

shrank, Serono resorted to trying to market its drug for unapproved purposes and paying doctors kickbacks in the forms of trips

to France in exchange for the physicians writing up to 30 new prescriptions at about $21,000 a treatment. As a result of the Department’s efforts, Serono paid $704 million to resolve criminal and

civil liabilities.

The Department is committed to fighting fraud and abuse in the

Medicare Program and devotes the necessary resources for this

purpose. One of the most important sources of funding for the Department are the funds provided by the HCFAC program. Since

1997, these funds have helped the Department maintain dedicated

prosecutors, litigators and FBI investigators who focus on health

care fraud cases. In 2003, the Department received $49.5 million

from the HCFAC program to support its litigators and prosecutors

and the FBI received $114 million. However, those funds remained

constant and without inflationary adjustment until this year when

Congress passed and the President signed an inflationary cap adjustment to these funds each until 2010. The President’s fiscal year

2008 budget requests $17.5 million to supplement DOJ’s HCFAC

funding allocation. We would appreciate this committee’s support

for full funding of the President’s request so that we can continue

pursuing these important cases.

In conclusion, I want to say a little something about the prosecutors and litigators who pursue these cases. Our attorneys are very

dedicated to the work they do. They believe in it. They put in long

hours to achieve justice for the beneficiaries and the taxpayers. I

hope this testimony helps the subcommittee understand the kinds

of fraud schemes the Department is seeing across the country and

the role that the Department plays in fighting them. Working

closely with our colleagues at HHS OIG and CMS, we will continue

to build on our accomplishments and our resources and adjust our

strategies as new fraud schemes develop.

Thank you, and I would be happy to answer any questions.

[The prepared statement of Mr. Fridman follows:]
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99

Mr. PALLONE. Thank you, thank you both, and let me yield myself 5 minutes or recognize myself for 5 minutes for questions, and

I will start with Mr. Fridman. Let me say first of all that I certainly would support the full funding of what the President has

proposed and I guess I can’t speak for the others, I will just speak

for myself.

I am concerned about oversight with some of the marketing with

these Medicare private plans. We have been informed of a number

of scams by agents working for Medicare private plans that they

have recently victimized Medicare beneficiaries through false marketing practice. These agents provide misleading information to

beneficiaries and have them sign false documents in order to get

them enrolled in private plans. For example, I have a copy here,

and I could show it to you, if you like, a recent press release from

the Mississippi Insurance Department noting a number of scams in

that State along these lines. We are told by the State that their

ability to enforce the marketing guidelines that CMS has released

does not exist because of the Federal nature of those guidelines. I

would like to know, does the DOJ have any knowledge of these

kinds of marketing abuses? Have you been involved in investigating any cases of wrongdoing by private insurance plans in Medicare and how many cases and what is the nature of the complaint?

Mr. FRIDMAN. Well, thank you for the question. Your staff was

kind enough to share that press release with us and we are reaching out to the Mississippi Department of Insurance to find out

more information about their allegations of fraud. I will say generally we have seen similar schemes such as the ones you have described in other contexts. For example, in part D enforcement, we

have started to receive cases that show a scheme we call the 299

scam. Basically telemarketers are calling up senior citizens and offering to enroll them in a part D plan. They say it only costs $299,

the typical scheme. They get their bank account information, their

credit card information and then they just steal their money and

they don’t get enrolled in any plan. So we have seen things like

this. We are keeping a close eye on these and we will pursue appropriate cases where there is Federal jurisdiction to pursue them.

Mr. PALLONE. It says in the Mississippi release, now that I know

you have it, I am glad. It says companies offering Medicare plans

are subject under Federal regulations to strict marketing guidelines for such plans which include prior approval of marketing material. So does that literally mean that if somebody takes out an

ad on a radio or a newspaper that it has to be approved? Do you

know?

Mr. FRIDMAN. Well, as Ms. Norwalk observed in her testimony,

some of this is the purview of State insurance commissioners, there

is no Federal jurisdiction there. I would defer to my colleagues at

HHS OIG and CMS. They are more familiar with these kinds of

regulations.

Mr. PALLONE. If you would, I know this sounds absurd but I always use an example when the HMOs started out that I would see

these ads in my local newspapers where you go get a free lobster

dinner if you came one night and they had these huge ads in the

local papers in my district offering free lobster dinners. I don’t
100

know, maybe that sounds absurd but I am just wondering what

kind of things can they do?

Mr. WRIGHT. CMS does have marketing guidelines that apply to

Medicare Advantage plans and we actually issued a report in August of 2006 in which we reviewed 36 plans’ marketing material for

calendar year 2005. For those 36 plans, we collected all advertisements, summary of benefit forms, enrollment forms and reviewed

them to determine whether or not they met the requirements that

CMS has imposed, and we did find some small problems associated

with those marketing materials. I don’t know that CMS reviews

every single marketing piece issued by a Medicare Advantage plan,

but there are guidelines and there is some review of those materials.

Mr. PALLONE. Now, I will go back to you because I only have 15

seconds. If DOJ, Mr. Fridman, were to find a large-scale organized

attempt to defraud Medicare and Medicare beneficiaries by these

private insurance plans, what type of remedies do we have against

such actions and are they being used by CMS?

Mr. FRIDMAN. Well, we would evaluate each case for Federal jurisdiction and violations of Federal law and if we see those violations, we would certainly pursue them. I have an example of a case

where we pursued a private insurer. It was called Employers Mutual. It was a recent case. They had established a similar kind of

scheme in all 50 States where they fraudulently induced people to

enroll in their insurance plan, called it an ERISA plan so they

wouldn’t be subject to regulation by State insurance commissioners

and people wound up paying for premiums and getting stuck with

the medical bills because the insurance company didn’t actually

cover anything. We prosecuted them and the owner of the company

was convicted and sentenced to 25 years in prison. So we are serious about these kinds of fraud schemes and we will pursue them.

Mr. PALLONE. OK. Thank you.

Mr. Deal.

Mr. DEAL. Out of curiosity, in the south Florida examples that

both of you have alluded to, what percentage of those were traditional Medicare plans as opposed to managed-care plans? Do you

have any idea?

Mr. WRIGHT. With regard specifically to the suppliers and the

site visits that we undertook, these were durable medical equipment suppliers on the fee-for-service side of Medicare so they didn’t

have anything to do with the Medicare Advantage.

Mr. DEAL. What about, Mr. Fridman, the examples other than

the one that you have already alluded to? Were they traditional

fee-for-service traditional Medicare situations?

Mr. FRIDMAN. Yes, I believe the durable medical equipment ones

would be part B traditional fee-for-service.

Mr. DEAL. Here again, I guess the question becomes on the durable medical equipment, if these are basically nonexistent and 31

percent of them didn’t meet the basic criteria, you said, how are

people getting to these folks? There has got to be some linkage between a doctor saying you need a wheelchair or you need some

other form of durable medical equipment. What was the linkage of

a patient to get to those nonexistence folks?
101

Mr. WRIGHT. Well, that is the concern that we have, that there

weren’t patients getting to those entities because when we showed

up on multiple site visits, they did not appear to be open for business as required.

Mr. DEAL. Well, was the fraud the fact that they weren’t supplying anything and billing for it or that they were actually supplying

something to folks but didn’t meet the other criteria?

Mr. WRIGHT. The failure to comply with the supplier standards

can result in the revocation of the billing number for those suppliers. As I mentioned in my oral statement, these entities billed $97

million. It is of concern to us whether or not the $97 million was

for legitimate services to legitimate beneficiaries. We did not pull

a sample of those claims so I cannot tell you that those claims were

fraudulent, but given that the entities when we visited did not appear to be open and doing business, we are concerned.

Mr. DEAL. Mr. Fridman, you mentioned one case in which in the

power wheelchairs that you say you convicted a physician who was

part of this scheme, it appears.

Mr. FRIDMAN. Correct.

Mr. DEAL. How cooperative is the medical community in going

after the doctors or those who are leading people in these directions

who are complicit in it? How cooperative are they in working with

you?

Mr. FRIDMAN. You mean in terms of giving us tips or leads?

Mr. DEAL. Yes.

Mr. FRIDMAN. I think that the medical community is a source of

tips or leads for the Department. No profession wants bad apples

ruining their reputations, and we expected them to be cooperative

and give us information when they have it.

Mr. DEAL. But in the illustration that we have all heard about

in Chicago with the State attorney general who I guess is under

a Medicaid investigation he is conducting——

Mr. PALLONE. She.

Mr. DEAL. Beg your pardon?

Mr. PALLONE. She.

Mr. DEAL. She. I am sorry. Yes let us get it right. She. There the

doctors were the ones who were all involved in the schemes. To

what extent is the Department of Justice working with other attorney generals in looking at similar things, because if they do it in

the Medicaid, they are bound to be doing it in Medicare, I would

think as well.

Mr. FRIDMAN. The Department works very closely with the Medicare fraud control units in the different States to identify fraud.

Many times there is overlap between the fraud committed in Medicare and it is also being committed in Medicaid in the same case

so we often work very closely with them on the same cases, recover

some share for the Medicare Program and recover some share for

the Medicaid program as well.

Mr. DEAL. The imaging issue is one that has been of concern to

me. Are you aware of any further investigations that are going on

with regard to imaging overbillings, misbillings, fraudulent activities with regard to any investigations you can maybe tell us about?

Mr. WRIGHT. Not that I know of off the top of my head but I am

happy to check with staff and report back to you in terms of the
102

investigative activities. We do have a couple of ongoing studies related to imaging services. I would be happy to tell you about them

if that would be useful.

Mr. DEAL. Will these studies hopefully have recommendations as

to any corrective action that we might need to take here?

Mr. WRIGHT. Yes, I hope that they do. I don’t know that they will

actually uncover inappropriate payments but they will look at some

of the billing arrangements that exist with the provision of CAT

scans, MRI and PET scans and they will present the data in terms

of the trends. We have seen a dramatic increase in payments in

that area in the recent past.

Mr. DEAL. Thank you both.

Mr. PALLONE. Thank you.

The gentlewoman from Illinois.

Ms. SCHAKOWSKY. Thank you, Mr. Chairman. I wanted to connect something I asked earlier of Mr. Miller and something then

that Mr. Pallone was asking about in terms of the marketing of

these Medicare Advantage plans. Mr. Miller responded that one of

the rationales for keeping these Medicare Advantage programs

even though they are more expensive is because low-income beneficiaries use them despite the fact that they may not be the most

efficient way to serve low-income people. So I am wondering if

there is not a connection to marketing schemes that actually target

low-income people who themselves might do better, because they

are dual-eligible or whatever, to get more coverage, and if there

has been a systematic review of who might be targeted by these

kinds of advertising programs that aren’t good for taxpayers or

even the beneficiaries. Either one. I don’t know where that would

fall.

Mr. WRIGHT. It is my understanding that Medicare Advantage

plans can’t target on a specific population. I can’t tell you anything

in terms of the marketing material that we collected in terms of

whether or not we saw anything geared towards specific cohorts of

beneficiaries but in general plans are not supposed to market

themselves to certain segments of beneficiaries. There are some

things called special-need plans which are allowed to market and

focus on discrete populations such as the disabled, low income, and

that isn’t something that we specifically looked at but we are

thinking in terms of work planning on doing a study specifically on

the special-need plans.

Ms. SCHAKOWSKY. Though they can’t target special populations,

are they allowed to target particular geographic areas or—I am

just wondering how is it that—it sounded as if a disproportionate

number of people who have these might be low-income people and

so I am just wondering if there some way—they are often targeted

in terms of predatory loans and all kinds of things. Well, I am glad

that there is going to be some kind of investigation. I am wondering to what extent whistleblowers play a role in this at all and if

there is a way that we could encourage that more, Mr. Fridman?

Mr. FRIDMAN. Well, I think the False Claims Act which Congress

passed is one of the ways that we get case referrals. They are encouraged to file their cases and we pursue them. That is one of the

ways, especially in the civil context, that we get our large dollar

recoveries. We have whistleblowers inside the different companies
103

that file a complaint under seal. The Department of Justice then

engages in a process to review the complaint, investigate it, see if

there is evidence of a violation of Federal law and then we resolve—we decide whether or not to intervene.

Ms. SCHAKOWSKY. Are there protections for those whistleblowers?

Mr. FRIDMAN. Like retaliation kinds of things?

Ms. SCHAKOWSKY. Yes.

Mr. FRIDMAN. I believe there are. Yes, there are.

Ms. SCHAKOWSKY. OK. Good. You looked at the Florida—this is

pretty amazing what you found in Florida, and they are the No. 1

supplier of durable medical equipment, I understand, right? They

have the most number of outlets or whatever. But there is a No.

2 and a No. 3 and a No. 4. Have you followed up with some of

these other places? It seems like a pretty lucrative thing to look at.

Mr. WRIGHT. Yes. The three counties that we reviewed in south

Florida bill for 5 percent of the durable medical equipment nationally. Miami-Dade, one of the counties, has the highest concentration of suppliers of any county in the Nation. So we are now very

much looking at other geographic areas to determine whether or

not there might be similarly inappropriate businesses operating.

Ms. SCHAKOWSKY. And finally, you said you have adequate resources to do this job. It seems, if I could be so crude as to say profit centers in a way for the Government because we are doing well

by doing good, and so are there enough resources? You are asking

for more.

Mr. FRIDMAN. Correct.

Ms. SCHAKOWSKY. And is there enough staff to do this, Mr.

Wright?

Mr. WRIGHT. I think there is. I think the additional resources

will be very welcome. The President’s budget, as previously mentioned, requests $183 million in a discretionary cap adjustment. We

have had our HCFAC account frozen for 3 years and for the next

couple of years it will be increased by inflation. In addition to that,

the Congress did provide to our office $25 million a year until 2010

to specifically do Medicaid fraud work so we do have those added

resources. But clearly we can use the additional resources and we

similarly expect to continue the return on investment that, as I

mentioned in my testimony, is about 13 to 1 over the last 3 years.

Ms. SCHAKOWSKY. And I am assuming you go after the big-ticket

items here primarily in prioritizing where you do your investigations?

Mr. FRIDMAN. For the Department, I would like to address the

resource issue as well, if I may?

Ms. SCHAKOWSKY. Sure.

Mr. FRIDMAN. Our HCFAC account has been frozen as well since

2003 at $49.5 million, the FBI at $114 million, and we have had

some inflationary erosion as a result of that being frozen for the

last 3 years. We are asking the committee to support the President’s 2008 budget request of $17.5 million because that will allow

us to make up for that inflationary erosion, and also plan for the

influx of cases that we expect to see from anti-fraud funding that

HHS has gotten in the area of part D and so forth. So that will

help us build our resources for the future. In terms of—I am

sorry——
104

Ms. SCHAKOWSKY. That you prioritize——

Mr. FRIDMAN. When we are looking at cases to take, when they

come in we kind of triage them. We look at a variety of factors. We

don’t just take cases where there is going to be large monetary outcomes for us. We also look at factors like patient harm, where physicians are performing unnecessary surgeries. The dollar loss may

be very small but we are going to pursue those cases because it

benefits the public health. We have got to get those people off the

streets so that is another factor that comes into our analysis.

Ms. SCHAKOWSKY. I am out of time so——

Mr. PALLONE. Yes, but I do intend to come back again with another round, so if you want to stay. And I know Dr. Burgess—I let

my colleague go over 2 minutes so I am sure you will pay attention

to that.

Mr. BURGESS. I will.

Mr. PALLONE. You are recognized.

Mr. BURGESS. I will make certain that there is equal distribution

of extra minutes.

Mr. Wright, you alluded to a 13 to 1 return on investment for

Medicare fraud. Can you estimate how much, what is the total dollar value of fraud within the Medicare system? The Federal program spends—what—$270 billion a year. Is there a percentage or

a figure that you have in your mind as to what of that is spent inappropriately?

Mr. WRIGHT. There is no reliable estimate on the amount of

fraud and abuse in the program. It just doesn’t exist. We have no

way of systematically measuring it. The Medicare fee-for-service

does have an error rate but that is a payment error rate and we

certainly have seen a dramatic decrease in that since it started in

1996, but in terms of fraud estimates, we don’t have any reliable

mechanism to measure it. So it is just sort of anecdotal.

Mr. BURGESS. The fee-for-service part, was that—I was a physician in private practice prior to coming to Congress so was that

what we used to see as the compliance plan that we all to come

up with sometime in 2000 or 2001?

Mr. WRIGHT. It is a random sample of claims and then a medical

review of those claims to determine whether or not they in fact

should have been paid.

Mr. BURGESS. And that is applied to——

Mr. WRIGHT. The total fee-for-service universe.

Mr. BURGESS. For physicians, for hospitals, for everyone?

Mr. WRIGHT. Yes.

Mr. BURGESS. A, B, C and D?

Mr. WRIGHT. Correct.

Mr. BURGESS. Are there certain segments of the Medicare Program that are more prone to fraud and abuse?

Mr. WRIGHT. Certainly. I think as we have seen with durable

medical equipment, there are areas that are more problematic than

other areas. That is correct.

Mr. BURGESS. And certainly the list you gave which was—or I

guess Mr. Fridman gave that was pretty incredible. Is there—does

this affect every part of Medicare A, B, C and D equally or is it

a bigger problem in the Medicare Advantage plans or is it a bigger
105

problem in the physician’s world or the hospital’s world or the part

B drug program?

Mr. WRIGHT. I think we have seen more problems with the durable medical equipment benefit, with independent diagnostic testing

facilities, and some other ancillary services where there just aren’t

as many programmatic controls over provider entry. We certainly

have fraud associated with hospitals but those are more secure entities and don’t set up shop, bilk the Government for millions of

dollars and shut down. So certainly on some of the ancillary services in part B, I think we have seen more problems.

Mr. BURGESS. And again, could you quantify that for part B?

Mr. WRIGHT. No. All we can do is refer to individual cases where

we have done reviews. We did a specific medical necessary review

of wheelchairs and isolated parts of the program we can tell you

how much Medicare is paying inappropriately.

Mr. BURGESS. To what extent is the stage set for fraud by the

way that Medicare is in fact administered, the fact that it is more

lucrative for someone who provides wheelchairs to handicapped patients, it is more lucrative for that person to lease rather than just

to sell the chair where the chair would be in the patient’s realm

for the rest of their life whereas a lease is something that is going

to deliver dollars back to the business repetitively. Do we set ourselves up for this?

Mr. WRIGHT. I would say especially in the area of durable medical equipment that we have seen historically two problems. One is,

we are overpaying for the equipment. Medicare should be an efficient purchaser of health care services.

Mr. BURGESS. And let me just stop you there. Whose fault is

that? As legislators, if we want to get our arms around that part

of the problem, where is the beef, where is the bank? How do we

do that?

Mr. WRIGHT. You have to a certain degree—in the MMA a provision called for competitive bidding associated with durable medical

equipment. The competitive bidding prices that suppliers submit in

the geographic areas where there is competitive bidding will ultimately be used to set reimbursement rates nationally. The problem

that we have seen historically in the area of DME is the fee schedules were based on 1986 charges to the program. Whatever claims

suppliers submitted back in 1986 basically became the fee schedule. There wasn’t a market-based price for the individual pieces of

equipment. The competitive bidding provisions that you have enacted should in large part provide some kind of market check so

that Medicare can be an efficient purchaser of the equipment.

Mr. BURGESS. And when will that begin to kick in?

Mr. WRIGHT. It begins to start next year.

Mr. BURGESS. Next year?

Mr. WRIGHT. Yes, in 2008.

Mr. BURGESS. Man, we are slow.

You are going to do a second round?

Mr. PALLONE. Yes.

Mr. BURGESS. I will yield back.

Mr. PALLONE. Thank you.

I was going to ask Mr. Wright a couple of questions here. Your

testimony highlights vulnerabilities in Medicare oversight of dura-
106

ble medical equipment, prosthetics, orthotics and suppliers. Durable medical equipment coverage is very important for millions of

Medicare beneficiaries. However, in order to protect the benefit and

protect beneficiaries from excess out-of-pocket costs as a result of

improper payments, obviously it is an important area. But why is

it that this is a continuing area of vulnerability, Mr. Wright, when

the Office of the Inspector General, CMS, DOJ have all been working on it for years? Are there changes we can make to the payment

system to reduce the incentives for fraud and abuse in these various providers?

Mr. WRIGHT. I think again there are two primary reasons why

we have seen the level of abuses that we have seen. As I mentioned

earlier, one is the prices that we are paying for the equipment. The

second area is the ease of enrollment. Prior to 1994, there were no

DME supplier standards. At that time 11 standards were created.

There are now 21 standards. There are soon to be 25 when accreditation comes in with the competitive bidding. Back when I started

working for HHS, in order to get a provider number, all you needed

to do was submit a claim and if you didn’t have a provider number,

the Government assigned you one. So we have come a long way,

but given the findings that we have in south Florida, clearly there

is still ease of entry and we are seeing suppliers come into the program, set up businesses and then, at least when we visited them

appear, not to be operating as normal businesses. So I think some

of the recommendations that are both in my testimony and in the

report need to be visited in terms of tightening up supplier standards.

Mr. PALLONE. OK. Thanks. And the second thing I was going to

ask you is, you gave us this testimony on the Office of the Inspector General’s valued work on drugs that are paid for under part B

and with the help of those reports were able to change the part B

reimbursement system from a system where the drug costs set the

price to a much more reasonable system based on the average sales

price. These changes have been difficult for some providers to adjust to but the new system is saving both beneficiaries and taxpayers. But can you remind us of your findings regarding the adequacy of payments under the new average sales price plus the 6

percent reimbursement methodology, and why does the office believe we need to further refine the average sales price calculation?

Do you have any estimate of how much these changes would save?

Mr. WRIGHT. I would certainly be happy to answer. We produced

a large body of work over the years that showed that the prior reimbursement system used for Medicare part B drugs was systematically flawed. It was a system called average wholesale price and

we found that the prices that Medicare paid based on average

wholesale prices did not resemble prices available to physicians

and suppliers in the marketplace. There was a large body of work

produced by our office. In one report in 2001, we found that for 24

drugs Medicare would have saved $761 million. The Congress then

subsequently in the MMA changed to average sales price methodology, which is an auditable number as reported by the manufacturers. We have taken issue with the way CMS calculates the ASP

numbers. In a report that we issued last year, we said that the

methodology that CMS uses to calculate volume-weighted ASPs
107

was mathematically flawed and we actually said in that report that

the calculation difference resulted in a Medicare overpayment of

$115 million. So we have taken that as sort of an issue with the

way ASP is calculated, clearly a marked improvement over the

prior system, but a little bit of a disagreement with CMS over the

way it is calculated.

And then additionally, the MMA requires us to do comparisons

between ASP and AMP, average manufacturer price, and ASP and

widely available prices. We have done reports in both of those

areas that have suggested some further savings could be obtained

by implementing the authority Congress gave CMS to lower these

prices when there becomes a big discrepancy between those two

amounts.

Mr. PALLONE. OK. Thanks a lot.

Dr. Burgess.

Mr. BURGESS. Do you think that then gives any incentive when

someone’s reimbursement is based upon the average sales price

plus six, if they have got a drug that has been around forever like

5-fluorouracil that costs pennies to administer or a newer drug that

is still under patent that may be very expensive to administer. Is

there any sort of bias in selection as to which drug might be better

for that patient based upon the reimbursement value?

Mr. WRIGHT. I don’t think that there is. The dispensing fee

should be uniform and the ASP should be the average price that

the manufacturers pay with some exceptions to calculate an average, and that is what we say that the Government will reimburse.

Mr. BURGESS. Some pharmacies will tell us that ASP plus six for

medicines that are extremely low cost just simply are not worth

their time to administer. Now we are not talking about infusion

therapy, just something that might be sold off the shelves in the

pharmacy as a prescription. Has that been a concern at all that

there will be some medicines that are just simply no longer available to Medicare beneficiaries because the cost of carrying those

medicines on the shelves is not fact made up by ASP plus six?

Mr. WRIGHT. I think that we want to continue to monitor the situation and to the extent issues are brought to our attention that

there are access problems associated with ASP, we will want to go

in and study that and provide CMS with information regarding

how to structure the program so that in fact beneficiaries are able

to get the prescription drugs needed.

Mr. BURGESS. OK. I have got to ask you this. I don’t want to.

What about the issue of upcoding? Has that been an issue in your

investigations? I am briefly talking about physician practices.

Mr. WRIGHT. Certainly, upcoding is one of the fraud schemes

that we see.

Mr. BURGESS. Well, wait a minute. It is sometimes in the eye of

the beholder.

Mr. WRIGHT. Yes, that is where I was just about to go and——

Mr. BURGESS. Because we always feel like you guys downcode.

Mr. WRIGHT. Yes, and to the extent we have done the fee-forservice error rate, we have both reported—when we used to do that

error report—we have reported both on upcoding and downcoding

and netted the two out in terms of reporting any overpayments

that the Government has made, and I believe that that is the way
108

that CMS continues to do that. So in terms of upcoding, it is more

of an issue that we have seen when we have done medical necessity

reviews and we have just said that certain procedures or services

didn’t meet the code that was billed and suggested that the Government overpaid the difference between the lesser code. But that

is different from fraud where you have to demonstrate a pattern

andmeet a different standard.

Mr. BURGESS. Well, an office, for example, that bought coding

software, would that be evidence that they intended to defraud

Medicare?

Mr. WRIGHT. Only if it is set in a way where they know that.

Mr. BURGESS. I knew I didn’t want to ask that question. Is Medicare any more prone to this type of activity than, say, Medicaid,

the Federal prison system, the VA, the Indian Health Service, all

of the other ways that the Federal Government dispenses health

care? Or is the same vulnerability present within other areas?

Mr. WRIGHT. Yes, I think it is probably the same vulnerability.

To the extent the VA provides health care more directly, it is a different system, but certainly in terms of OPM and other Government programs, you see the same kinds of vulnerabilities. It is the

shear size of Medicare that gets it the attention that it gets. We

are talking billions of dollars, and even if fraud stays constant, as

the dollars increase, you are talking about a large magnitude of a

problem.

Mr. BURGESS. Mr. Fridman, let me just ask you in the limited

time we have left, typically how will a case get initiated? Does

someone bring it to your attention? Do you figure it out from billing

records? Do you have computer flags? Do you have your own software that you employ?

Mr. FRIDMAN. We don’t. We rely on HHS, specifically CMS, to

provide us with data to back up our cases when it involves Medicare Program data, but to answer your question about where we

get our cases from, basically there is three, maybe four main

sources. One source is the FBI. The HCFAC program spends $114

million on dedicated FBI agents that are deployed across the country in task forces to look at health care fraud in different regions

of the country so the FBI is a large source for case referrals for us.

Another source is the HHS Office of the Inspector General. We get

a lot of case referrals from them as well. Another source is whistleblower cases. Those provide another source of referrals. And then

we also get referrals working other cases. We could be working a

drug case and someone has information on a Medicare scam and

so forth. So we work all our possible leads to take in cases.

Mr. BURGESS. That also worked for electronic media from Los Alamos as it turns out.

Before we close, can I just ask one question about the oxygen?

Because you brought it up, Mr. Wright. We attempted to put some

parameters, some boundaries around oxygen therapy, the length of

time in the Deficit Reduction Act a couple of years ago and that

was probably one of the most contentious parts of the conference

committee and eventually we came up with a limit. Previously it

was unlimited and we limited it to 36 months, and I get the impression from your testimony that 36 months is not going to do the
109

job, that that type of limitation is not going to provide the protections that the taxpayer needs in this regard.

Mr. WRIGHT. Yes. Clearly, based on the data in our report, we

suggested that more than $7,000 over the span of 36 months for

a piece of equipment that costs less than $600 and requires very

minimal servicing is excessive. So we do think that there is room

for the Congress to take further payments reductions associated

with oxygen equipment, and that is what the report recommended,

that CMS work with the Congress to consider further reducing the

payment rate. The other capped rental categories have a payment

rental of 13 months and then the Medicare payments stop.

Mr. BURGESS. Are there other areas that have this type of return

available to them? Are there other areas that you have looked into

besides just the home oxygen therapy?

Mr. WRIGHT. Over the years we have looked at wheelchairs in

terms of the pricing and we did find in a report we issued in 2004

that Medicare was overpaying $284 million based on prices that

were available on the Internet. You just go on the Internet and get

a better price than Medicare. And going back further in time, we

have looked at hospital beds. So we have sort of gone piece of

equipment by piece of equipment and suggested that Medicare is

paying too much. And hopefully, again, the competitive bidding will

be a fix to get a market-based price.

Mr. BURGESS. What about in the case of nursing homes with providing services like physical therapy? Is there overutilization that

is occurring there that is costing the taxpayers money?

Mr. WRIGHT. We have done reviews of physical therapy in nursing homes. It is a little dated at this point but we have specifically

done random samples of physical therapy, occupational therapy,

speech therapy in nursing homes.

Mr. BURGESS. And what type of conclusion did you draw?

Mr. WRIGHT. There were payment errors. I can’t tell you off the

top of my head what the numbers were but we were finding inappropriate physical therapy payments.

Mr. BURGESS. Just the last thing, is Medicare Advantage any

more prone to any of these issues of fraud than the other traditional parts of Medicare, the fee-for-service, part A, part B, part D?

Mr. WRIGHT. You have different things to be concerned about because the program is fundamentally different. You don’t have to

worry as much about the payment side of things because in general

Medicare is paying a capitated payment rate but you do have to

worry about other abuses such as marketing and enrollment and

underutilization because there is an incentive to underutilize.

Mr. BURGESS. I see. And you also talked about quality assurance.

Is your office involved in the implementation of the quality assurance measures, the PVRP or whatever the heck we are going to call

it when it comes out in June? Do you keep an eye on that as well?

Mr. WRIGHT. We do lots of work associated with the quality of

care both in nursing homes, hospital quality oversight, ESRD quality oversight. We have looked into a number of areas looking at

whether or not the oversight mechanisms are in place to ensure

that beneficiaries get the care that we all want them to get.

Mr. BURGESS. And have you come to any conclusions about that?
110

Mr. WRIGHT. On the various systems that we have looked at, we

have reported certain weaknesses.

Mr. BURGESS. Thank you, Mr. Chairman.

Mr. PALLONE. Thank you. We are having such a good time here,

we will just keep going.

Let me mention too, the members know that you can submit additional questions for the record and so you may get additional

questions from us, and they will be submitted to the clerk within

the next 10 days so you may get those additional questions.

Let me thank both of you again. Really, I think what you do is

so important, and as you said, Mr. Wright, particularly when you

are talking about Medicare, there is just so much money involved

here that it not only gets the media attention but obviously it gets

our attention because that money could be used for other purposes.

So I really appreciate your being here today and taking our questions. Thanks a lot.

Without objection, the meeting of the subcommittee is adjourned.

Thank you.

[Whereupon, at 6:20 p.m., the subcommittee was adjourned.]

[Material submitted for inclusion in the record follows:]
111
112
113

LESLIE V. NORWALK ANSWERS TO SUBMITTED QUESTIONS

THE HONORABLE HILDA SOLIS

The Private Fee-For-Service (PFFS) plans are paid the most even though

they do not coordinate care for their beneficiaries. Most of these plans are

found in rural areas. In your testimony, you state that racial and ethnic minorities represent 27 percent of total Medicare Advantage enrollment.

What added benefit do these PFFS plans bring to patients? How many minorities are actually enrolled in these plans?

Rural beneficiaries traditionally have not had access to additional benefits offered

via other MA products. On average, PFFS plans are providing beneficiaries with an

added $63 each month in additional value. For example, PFFS plans use rebate dollars to offer additional benefits such as vision and dental care and cost sharing savings. The chart below illustrates some of the cost sharing savings that are offered

to PFFS enrollees.

Percent of PFFS Beneficiaries Enrolled in PFFS Plans with Specific

Attributes

Benefit Structure/Percent of PFFS Beneficiaries Enrolled in a PFFS Plan of this

TypeCatastrophic cap between $1,001 and $5,000: 28 percent

$1,000 or less for a 90-day hospital stay: 81 percent

No premium beyond the Part B premium: 62 percent

Unlimited coverage for inpatient hospital days: 88 percent

No prior hospitalization requirement before a SNF admission: 89 percent

Primary care physician copayments of $20 or less: 94 percent

Prostate and cervical and cancer screening with no coinsurance: 99 percent

While the number of minorities enrolled in PFFS plans is not currently available,

we do have data available on the percent of PFFS enrollees that live in rural areas.

Approximately 31 percent of PFFS service enrollees live in rural areas. Whereas,

only about 4.4 percent of MA enrollees in coordinated care plans live in rural areas.

This difference highlights the important role that PFFS plans play in providing

rural beneficiaries with choices in their health coverage.

In your testimony, you state that the President’s proposed budget will

save money. While I agree that Medicare needs to be efficient in its use of

dollars, program efficiency should not result in less access to care for our

seniors. I’m concerned about the effect of reduced Medicare payments to

our hospitals, especially since many of our safety-net hospitals are already

struggling to make ends meet. Even worse, many of the same hospitals are

facing reductions in Medicaid payments. What will be the impact of reduced Medicare payments on our safety-net hospitals’especially the proposed rule that is supposed to take place in September will also result in

fewer Medicaid dollars?

The Medicare Payment Advisory Commission (MedPAC) has noted that hospitals

have been able to reduce costs under tighter price pressures. A modest reduction

in the update of 0.65 percentage points would encourage efficiency, while maintaining access to care. It is vital that we do everything we can to maintain the solvency

of the Medicare program and pay as efficiently as possible.

Since the implementation of the inpatient prospective payment system for acute

care hospitals, the average actual increase in the market basket has been approximately 1.3 percentage points less than the average projected market basket increase

(or only 66 percent of the average projected market basket increase). In light of

these historical findings, and given hospitals’ ability to adjust to market conditions,

an on-going adjustment for productivity would likely not affect the ability of hospitals to furnish high quality inpatient services to Medicare beneficiaries.

We have great faith in the market’s ability to adapt without reducing access.

Since 2002, more hospitals have opened then closed each year, suggesting that while

margins may be low, access to care is still improving.

THE HONORABLE BARBARA CUBIN

The Medicare Modernization Act of 2003 authorized a two percent Medicare home payment for ambulance trips in rural areas, as well as a five

percent add-on payment for home health services in rural areas. Both programs were authorized to preserve access to care in rural areas, where
114

providers face unique geographic difficulties in providing these services.

In Wyoming, roughly half a million people are spread out over almost

100,000 square miles. Both of these provisions have expired, and were not

extended in the President’s fiscal year 2008 budget. What is the Center for

Medicare and Medicaid Services’ justification for not proposing to extend

these provisions, and do you have concerns about how it will affect access

to care in rural areas?

The Centers for Medicare & Medicaid Services (CMS) has made a strong commitment to rural health issues and has made many significant regulatory and departmental reforms to address the needs of rural America.

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003

(MMA) included a number of provisions to enhance beneficiary access to quality

health care services and improve provider payment in rural areas. The provisions

in the MMA included the continuation of two payment policy trends that have increased rural provider payment rates in recent years: (1) an expansion of opportunities for rural hospitals to receive cost-based payments from Medicare and (2) a number of PPS payment rate adjustments that benefit rural providers . As you mentioned in your question, these provisions included a two percent payment increase

for ground ambulance trips that originate in rural areas and a five percent add-on

payment for home health services furnished in rural areas.

A number of the provisions in the MMA were time limited but have been extended in later legislation, including the Deficit Reduction Act of 2005 (DRA) and

the Tax Relief and Health Care Act of 2006 (TRHCA). CMS has worked expeditiously to implement all of the provisions in recent legislation, recognizing their importance to rural communities. Although the President’s fiscal year 2008 Budget did

not include proposals to extend the expiring rural provisions you mentioned in your

question, CMS will continue to work with Congress to address disparities in rural

reimbursement and to improve the quality and value of care delivered to all Medicare beneficiaries.

As always, I welcome your comments and suggestions to improve the quality of

America’s health care programs. I remain committed to ensuring equal access to

high-quality, up-to-date care for Medicare beneficiaries residing in rural areas. You

can be assured that this Administration will continue its efforts to help address the

concerns of rural Americans.
115
116
117

MARK MILLER ANSWERS TO SUBMITTED QUESTIONS

REPLIES TO QUESTIONS FROM CONGRESSWOMAN HILDA SOLIS

MedPAC is an independent Federal body, and I thank you for coming

today. In your testimony, you stated that Medicare Advantage plans are

overpaid and that not all of these plans provide better care to their patients. I understand many low-income, minority populations are actually

served by Medicaid. However, States such as California and Florida tend

to have higher Medicare Advantage plan penetration rates and more minority populations. I am extremely concerned about any potential adverse

consequences on minority populations. Will cuts to Medicare Advantage

plans harm minority populations in States with high Medicare Advantage

penetration rates?

Even before the 2003 Medicare Prescription Drug Improvement and Modernization Act introduced the Medicare Advantage (MA) program, private plans in many

markets offered rich benefit packages. Plans often offered these extra benefits because they achieved efficiencies in delivering the basic Part A & B benefit. If payments to MA plans are reduced, we believe that beneficiaries in many market areas

will continue to have MA plans available that provide coordinated care and extra

benefits to enrollees. However, their benefit packages may be less generous than

they are currently.

As we have pointed out in several of our reports, the Medicare program pays on

average 12 percent more to MA plans than for FFS and this payment policy discourages efficiency. Using MA to provide low-income subsidies is unnecessarily costly.

For example, one MA plan option private fee-for-service plans require 9 percent

more in Medicare program payments than traditional FFS. The extra benefits PFFS

plans offer to beneficiaries are financed entirely through higher Medicare program

payments and beneficiary premiums (paid by all beneficiaries), rather than through

efficiency gains. Moreover, providing low-income subsidies through MA plans is

poorly targeted—reduced cost-sharing for example, is provided to everyone who enrolls in the plan, regardless of their income. In sum, Medicare Advantage plans are

not an efficient vehicle for delivering benefits to low-income Medicare beneficiaries.

Medicare savings programs, for example, may be a more effective way of targeting

assistance to low-income populations.

The Private Fee For Service (PFFS) plans are paid the most even though

they do not coordinate care for their beneficiaries. Most of these plans are

found in rural areas. In your testimony, you state that racial and ethnic minorities represent 27 percent of total Medicare Advantage enrollment.

What added benefit do these PFFS plans bring to patients? How many minorities are actually enrolled in these plans?

MedPAC does not currently have data on the number of minority enrollees in private fee-for-service (PFFS) Medicare Advantage (MA) plans. The most recent publicly available data on minority enrollment in MA overall are from 2004 and 2005—

before the large growth in PFFS enrollment. We do not know whether PFFS enrollment patterns for minorities are similar to the patterns of plans that had Medicare

contracts in 2004 and 2005.

PFFS plans are less efficient than traditional Medicare in terms of the cost of providing the Medicare Part A& B benefit package. PFFS plan bids show that on average their cost of providing Part A & B Medicare benefits is 109 percent of the cost

in traditional Medicare. However, PFFS plans have been drawing their enrollment

from counties with benchmarks well above Medicare fee-for-service (FFS) expenditure levels. This enables PFFS plans to generate ‘‘rebate’’ amounts (75 percent of

the difference between plan bids and the county benchmarks) that are used to provide extra benefits. For example, under the current payment system and given

PFFS plans bids, Medicare pays the plan 19 percent above FFS amount and 10 percent goes to the beneficiary in extra benefits. Bear in mind that these are ‘‘fully

loaded’’ benefits. That is, even though 10 percent is provided in extra benefits, some

percentage of this amount is consumed in administrative overhead (e.g., salaries);

marketing costs; and plan profits.

The most common extra benefit is the reduction of average beneficiary cost sharing to levels below the average amount in Medicare FFS. PFFS plans also provide

extra services (such as hearing aids, and dental and vision care), or reduced premiums. However, all of these extra benefits stem from plan overpayments (above

Medicare FFS levels), not from PFFS plan efficiencies. Unlike other MA plan types,

PFFS plans are not required to coordinate care for their enrollees, as noted in the
118

question, and they do not participate in the quality improvement activities required

of other plans.

REPLIES TO QUESTIONS FROM CONGRESSWOMAN BARBARA CUBIN

While 28 percent of Medicare beneficiaries live in rural areas, it is my understanding that just one of the seventeen Medicare Payment Advisory

Committee (MedPac) members has solid rural credentials. In fact, I am an

original cosponsor of legislation (H.R. 1730) to ensure that rural experts

are represented on MedPac as a percentage equal to their proportion of

Medicare beneficiaries that live in rural areas. Could you detail how

MedPac currently ensures that the unique needs of rural areas are taken

into consideration when formulating recommendations to Congress?

Many of our Commissioners have solid rural credentials. Commissioners with specific rural experience and/or that are from rural areas include: Dr. Nick Wolter, Dr.

Karen Borman, former Senator Dave Durenberger, and Dr. Thomas Dean (4 out of

17 Commissioners). In addition, there are other Commission members that have

raised rural concerns during the Commission work cycle.

MedPAC staff also have extensive knowledge in rural issues and have traveled

to many rural areas in recent years to study rural healthcare delivery and payment

issues, including visits to rural areas in Oklahoma, Montana, North Dakota, South

Dakota, Iowa, and Kansas. We have published three reports devoted to rural issues:

Report to the Congress: Rural Payment Provisions in the Medicare Prescription

Drug, Improvement, and Modernization Act of 2003, December 2006; Report to the

Congress: Issues in a Modernized Medicare Program, Chapter 7: Critical access hospitals, June 2005; and Report to the Congress: Medicare in Rural America, June

2001. In addition, we deal with rural issues regularly in our annual Congressional

reports.

MedPAC has carefully evaluated the concerns of rural providers over the years

and made a number of recommendations benefiting rural hospitals that Congress

or CMS have implemented. In the MMA, Congress enacted our recommendations to

increase the cap on rural disproportionate share (DSH) payments and to set the

base payment amount for rural hospitals equal to that of urban hospitals. Between

2001 and 2007, we made several recommendations to improve the hospital wage

index in ways that would help rural providers, and the Congress and CMS have implemented some of these. The resulting increase in payments to rural providers

helps explain why rural hospitals achieved higher Medicare and all-payer margins

than urban hospitals in 2005, and why rural hospital payments increased by $377

million, or 2.3 percent, in 2006 (MedPAC December 2006).

Given the breadth of our legislative mandate, you can be assured that rural issues

will continue to be a significant part of MedPAC’s agenda.

November 5, 2007

Mr. Daniel S. Fridman

Senior Counsel to the Deputy Attorney General and

Special Counsel for Health Care Fraud

Department of Justice

950 Pennsylvania Avenue

Washington, DC 20530

Dear Mr. Fridman:

Thank you for appearing before the Committee on Energy and Commerce on

Wednesday, April 18, 2007, at the hearing entitled ‘‘Medicare Program Efficiency

and Integrity.’’ We appreciate the time and effort you gave as a witness before the

subcommittee.

Under the Rules of the Committee on Energy and Commerce, the hearing remains

open to permit Members to submit additional questions to the witnesses. Attached

are questions directed to you from certain members of the committee. In preparing

your answers to these questions, please address your response to the Member who

has submitted the question, including showing the Member’s name, and include any

text of the Member’s question along with your response. The committee apologizes

for the delay to you in forwarding this request to you, however, we believe your responses to these questions are important and they will be included in the hearing

record. Your assistance is appreciated.

To facilitate the printing of the hearing record, we ask that we receive your responses to these questions by the close of business on Monday, November 19, 2007.
119

Please have your written responses delivered to 2125 Rayburn House Office Building and faxed to (202) 225-2525 to the attention of Christie Houlihan, Legislative

Clerk. Please send, as well, an electronic version of your responses to Ms. Houlihan

at christie.houlihan @mail.house.gov in a single Word formatted document.

Thank you for your prompt attention to this request. If you need additional information or have other questions, please have your staff contact Ms. Houlihan at the

Committee on Energy and Commerce at (202) 225-2927.

Sincerely,

John D. Dingell

Chairman
120
121
122
123
124
125
126
127
128
129
130
131
132
133
134
135
136
137
138
139
140
141
142
143
144
145
146
147
148
149
150
151
152
153
154
155
156
157
158

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 Energy and Commerce Subcommittee on Health for holding a 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:

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.

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.

While CMS has recently notified DME suppliers that they must be accredited by

August 31st in order to be considered in the initial round of competitive bidding,

there will still be many instances and many areas of the country where non-accredited suppliers could be serving Medicare beneficiaries. Even in competitive bidding

areas (CBAs), non-accredited suppliers who are ‘‘grandfathered’’ and allowed to

serve beneficiaries in CBAs are under no pressing mandate to become accredited.

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.

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
159

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

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. We, however, must raise caution when Medicare adopts

overly restrictive anti-fraud measures that fail to distinguish between lawful suppliers and unscrupulous actors. These measures 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.

Respectfully submitted,

Eric Sokol, Director, Power Mobility Coalition

Stephen Azia, Counsel, Power Mobility Coalition

Æ