[Senate Hearing 106-741]
[From the U.S. Government Publishing Office]
S. Hrg. 106-741
MEDICARE FRAUD, WASTE,
AND ABUSE
=======================================================================
HEARING
before a
SUBCOMMITTEE OF THE
COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
SPECIAL HEARING
__________
Printed for the use of the Committee on Appropriations
Available via the World Wide Web: http://www.access.gpo.gov/congress/
senate
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COMMITTEE ON APPROPRIATIONS
TED STEVENS, Alaska, Chairman
THAD COCHRAN, Mississippi ROBERT C. BYRD, West Virginia
ARLEN SPECTER, Pennsylvania DANIEL K. INOUYE, Hawaii
PETE V. DOMENICI, New Mexico ERNEST F. HOLLINGS, South Carolina
CHRISTOPHER S. BOND, Missouri PATRICK J. LEAHY, Vermont
SLADE GORTON, Washington FRANK R. LAUTENBERG, New Jersey
MITCH McCONNELL, Kentucky TOM HARKIN, Iowa
CONRAD BURNS, Montana BARBARA A. MIKULSKI, Maryland
RICHARD C. SHELBY, Alabama HARRY REID, Nevada
JUDD GREGG, New Hampshire HERB KOHL, Wisconsin
ROBERT F. BENNETT, Utah PATTY MURRAY, Washington
BEN NIGHTHORSE CAMPBELL, Colorado BYRON L. DORGAN, North Dakota
LARRY CRAIG, Idaho DIANNE FEINSTEIN, California
KAY BAILEY HUTCHISON, Texas RICHARD J. DURBIN, Illinois
JON KYL, Arizona
Steven J. Cortese, Staff Director
Lisa Sutherland, Deputy Staff Director
James H. English, Minority Staff Director
------
Subcommittee on Departments of Labor, Health and Human Services, and
Education, and Related Agencies
ARLEN SPECTER, Pennsylvania, Chairman
THAD COCHRAN, Mississippi TOM HARKIN, Iowa
SLADE GORTON, Washington ERNEST F. HOLLINGS, South Carolina
JUDD GREGG, New Hampshire DANIEL K. INOUYE, Hawaii
LARRY CRAIG, Idaho HARRY REID, Nevada
KAY BAILEY HUTCHISON, Texas HERB KOHL, Wisconsin
TED STEVENS, Alaska PATTY MURRAY, Washington
JON KYL, Arizona DIANNE FEINSTEIN, California
ROBERT C. BYRD, West Virginia
(Ex officio)
Professional Staff
Bettilou Taylor
Mary Dietrich
Jim Sourwine
Ellen Murray (Minority)
Administrative Support
Kevin Johnson
Carole Geagley (Minority)
C O N T E N T S
----------
Page
Opening statement of Senator Arlen Specter....................... 1
Opening statement of Senator Tom Harkin.......................... 2
Opening statement of Senator Larry Craig......................... 5
Prepared statement........................................... 6
Statement of Hon. Nancy-Ann Min DeParle, Administrator, Health
Care Financing Administration, Department of Health and Human
Services....................................................... 7
Prepared statement........................................... 9
Questions submitted by Senator:
Arlen Specter................................................ 13
Jon Kyl...................................................... 14
Statement of Hon. June Gibbs Brown, Inspector General, Department
of Health and Human Services................................... 15
Prepared statement........................................... 18
Statement of Hon. Leslie G. Aronovitz, Associate Director, Health
Financing and Public Health Issues, General Accounting Office.. 23
Prepared statement........................................... 25
MEDICARE FRAUD, WASTE, AND ABUSE
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THURSDAY, MARCH 9, 2000
U.S. Senate,
Subcommittee on Labor, Health and Human
Services, and Education, and Related Agencies,
Committee on Appropriations,
Washington, DC.
The subcommittee met at 9:30 a.m., in room 216, Hart Senate
Office Building, Hon. Arlen Specter (chairman) presiding.
Present: Senators Specter, Craig, and Harkin
OPENING STATEMENT OF SENATOR ARLEN SPECTER
Senator Specter. Ladies and gentlemen, the Appropriations
Subcommittee on Labor, Health, Human Services, and Education
will now proceed.
Today, we will have a hearing on the annual audit of the
Medicare Program, where we continue to show enormous losses. We
have a distinguished panel this morning. And we will proceed
very promptly.
We have on the floor confirmation hearings on two Ninth
Circuit judges. And it is my intention to move this hearing
right along and to conclude it in less than an hour. I am going
to have to excuse myself shortly before 10:30, in any event.
This is a very important hearing. As we focus on the losses
to Medicare, which is a program of enormous importance, needs
every last dollar it can muster, very important considerations
on prescription drugs pending, very important considerations on
Medicare reform.
The President's Commission has worked on this matter. There
is a lot of attention in the Congress, and to have billions of
dollars in losses is totally unacceptable.
The first Medicare audit was conducted in 1997 and found
that approximately $23 billion or 13 percent of Medicare
payments should not have been made. In 1998, that number was
reduced significantly, at least according to the audit, to
$12.6 billion, or 7.1 percent.
And the audit in 1999, which we will hear about in some
detail, is--shows a loss of $13.5 billion, with the mis-
payments, an error rate of 7.97 percent.
This may not be significantly significant in terms of
decrease, according to the Inspector General's report, but it
is highly significant when you talk about $13.5 billion being
lost. The critical issue is how to stop these losses.
And one of the issues that I am going to want our
distinguished witnesses to address today is the issue of a
pattern of conduct on individuals who are making these
erroneous billings and collecting this money. If it is fraud,
it may be insufficient to act simply to collect the money or to
settle the civil cases.
If it is criminal fraud and if there is a repetitive
pattern, then serious consideration ought to be given to
criminal prosecutions. There is nothing like a criminal
prosecution in the white-collar area to get results.
It is one thing to reimburse the Government, to pay
damages, coming out of the corporate treasury, not too painful.
Going to jail is very, very painful. And white-collar crime
sometimes requires that kind of action.
Criminal fraud has a higher standard of proof than civil
fraud. But where certain individuals or companies are
responsible on a pattern of conduct over a period of time, and
the intent can be shown, we are going to be exploring the issue
as to whether some of the criminal prosecutions might not be
the appropriate--appropriate therapy.
I may have a little predisposition to that from my own
background as a prosecuting attorney, but I have seen how
prosecutions of white-collar crime can be highly, highly
effective. Jail compared to dollars is a very, very different
deterrent.
Well, I have attempted to filibuster here until my
distinguished colleague arrived.
Actually, I had planned to limit my opening statement to
4\1/2\ minutes. And I am now up to 4\1/2\ minutes.
Senator Harkin. Well, I like what I have been hearing so
far.
Senator Specter. I yield to my partner in this matter.
I would like to say that when the Democrats controlled the
Senate, he was chairman and I was ranking. I like this
arrangement better.
But it is pretty close to a 50/50 partnership no matter
which party controls the Senate, which I think is the way that
we ought to be conducting our business generally, but
especially on this subcommittee.
Senator Harkin.
OPENING STATEMENT OF SENATOR TOM HARKIN
Senator Harkin. I appreciate that, Mr. Chairman. You are
absolutely right. It has been a great working relationship. I
appreciate your leadership and your--your working relationship
with--with me and with our side of the aisle over here. It has
just been a--it has been a great team effort. I really
appreciate it, and especially on this issue.
I just really want to commend you for--for really pressing
ahead on this issue. I remember the first hearing we had on
this that I remember--that I had on it was 1990. That has been
10 years ago, on this issue when we first started having
hearings on this subcommittee and we continued it, and then the
Chairman has continued it when--when his party took over the
Senate.
So, again, I thank you for--for continuing this, because,
you know, taxpayers and the people I have talked to out there
just cannot understand how we could have had $23 billion in
waste and abuse in Medicare in--in a given year, and how could
that possibly happen?
And I think for too long all of us--and I am not pointing
fingers--but I think all of us here, we, you, just sort of just
kind of let it go and never really paid much attention to it.
But we have in the past few years identified and stopped
abuses that would have cost taxpayers billions of dollars, and
I personally want to thank Ms. DeParle for her great leadership
in this area and taking this on.
And I also want to thank June Gibbs Brown, our--our really
tough and really good Inspector General who has really done a
great job in ferreting this out and getting the information in
that we needed and that Medicare needed, that HCFA needed, to
start cutting back on this tremendous outflow of money and
waste and abuse and fraud.
Well, today's hearing provides an important opportunity to
take stock of where we are and where we ought to be going in
our efforts.
Today, the findings of the 1999 Independent Audit is being
released and I have to say there is good news and there is bad
news, and maybe more bad news than good news.
Being an optimist, I will start with the good news.
Medicare mispayments are about half the rate of several years
ago, good news. And as the I.G. will point out, over 90 percent
of all claims paid now contain no errors. In addition, the I.G.
has given its first unqualified or clean audit opinion on
HCFA's financial statement.
Well, I think that is a tribute to aggressive work by
Medicare, the I.G., the additional tools we gave them, and
commendable efforts by the medical community.
The bad news is we have made a little slip here. The steady
progress has stopped. Where is that chart we had here? Just put
it up here. I will have Peter hold it up here.
It is just to show that basically the estimated improper
payments by type of error--I will not go over all of them--but
as you can see in 1996, it was estimated at $23.2 billion. It
came down to $20 billion. It had a great drop in 1998, thanks
to the--to all the efforts, to $12.6 billion. And last year, it
has come back up a little bit.
So I am really concerned about that, and especially
concerned in this area here called ``Unsupported Services,''
where we had the biggest drop. And it has now come back up.
The others have kind of stayed kind of steady, especially
in the improper coding and in the non-covered services. But in
the ``Unsupported Services,'' that--that is the concern that I
have in how that has now come back up again.
The audit shows an increase of about $900 million, about $1
billion there. And $13.5 billion in losses, again, I think is
unacceptable. Again, that does not even include other losses
due to poor administration and lax rules.
And, again, bad news, good news: Yesterday's Washington
Post--I do not know if you saw this, Mr. Chairman, on the--the
article on Connecticut General Life Insurance Company has
agreed to pay about $9 million to settle allegations that it
overcharged Medicare for expenses.
The company allegedly billed for two pieces of paper when
it was printing on both sides of the same sheet. And they are
paying back about $9 million to--to HCFA. Now, again, the good
news is that they settled.
The bad is: I am wondering how much more of this is going
on out there. So we do need to get back on track. And we need
to do it now.
And I will be interested in hearing from Ms. DeParle about
why that is going back up and what is going to be happening
this year to try to get it back on track. I think we need to
put some more focus on that and see what we can do.
Much can be done in a way that helps, not hinders, our
health professionals, the honest ones out there that are hard-
working. Provider education, I believe, is going to be
necessary; simplifying paperwork.
And one of the items I will cover with you, Ms. DeParle, is
competitive bidding. We gave you some money to do some trials.
Of course, I personally wanted to move to competitive bidding
right away, but that was not possible. So we have some trials
out there.
I would like to know what is happening with competitive
bidding, because, Mr. Chairman, I--excuse me for doing this,
but I, again, this is a little syringe that I held up here 2
years ago. The VA was paying a $1.89 for each one of them, 2
years ago. Medicare was paying $2.93. It is still doing the
same thing. Two years later, Medicare is still paying the same
for that syringe. And I got to ask, again, why?
Here is a saline solution. These are two items I held up 2
years ago, and I keep track of them because I want to find out
when we are going to get it--get it right. Medicare is paying
$7.90 a bottle. VA is paying $2.38. Medicare is paying 223
percent more 2 years ago. It is the same thing today. They have
not done a thing about stopping it.
And I am, again, wondering why. I mean--and I will continue
to look at these and to find out when we are going to start
paying as much for them as VA, because obviously if they are
selling them to VA, they are making money. They are not losing
money on this, by the way.
So as I said, we got to continue our efforts. We cannot
back down.
I am looking forward to the testimony from our Inspector
General and Ms. DeParle on how we can keep that slide from
going down, and turn it around and get it going in the right
direction.
Thank you very much, Mr. Chairman.
Senator Specter. Thank you very much, Senator Harkin.
Just a comment or two about the release from Dr. Nancy
Hickey, immediate past president of the American Medical
Association, dated today, saying, the audit is ``irresponsible
grandstanding,'' her characterization, saying, ``The Government
must stop its punitive approach to accurate Medicare billing
and must afford physicians the due process protections that are
the right of all Americans,'' complains about complexity of
regulations. I think the regulations are complex, and
simplification is in order.
And I know that the Congress and Senate would be very
interested to hear from the American Medical Association on
anything specific in this respect, but to have a bland
assertion that the Government must stop its punitive approach--
collecting money in civil settlements is not a punitive
approach.
Companies do not pay millions of dollars in settlement of
cases that are not well-founded. And HCFA may be doing a lot of
things and may have a lot of excessive regulations, but HCFA
does not deny due process protections of the right of all
Americans.
We still have a court system. And it is a little surprising
to see the American Medical Association make an accusation
about due process protections.
And if identifying this kind of fraud is grandstanding, we
need a little more of it. But it is pleasant for a change to
find the Executive Branch accused of grandstanding, instead of
the Congress.
We will now proceed to our witnesses, Ms. DeParle, Ms.
Brown, Ms. Aronovitz. Please step forward.
Our first witness--and the protocol always sort of amazes
me, but the protocol has the Administrator of the Health Care
Financing Administration, number one.
Ms. DeParle has had this very difficult job since November
10, 1997. Before joining HHS, Ms. DeParle was Associate
Director for Health and Personnel at the White House Office of
Management and Budget; from 1987 to 1989, served as
Commissioner of Human Services in Tennessee; has a bachelor's
degree from the University of Tennessee; and a law degree from
Harvard.
Welcome, Ms. DeParle. We are going to use our customary
timing of 5 minutes. And all statements will be made a part of
the record in full. And that will leave the maximum amount of
time for----
Senator Craig. Mr. Chairman, I do not need to make an
opening statement. Let me thank you for the hearing and ask
unanimous consent that my statement become a part of the
record.
Senator Specter. Very good. We will----
Senator Craig. I may have to leave before this panel is----
Senator Specter. We would be glad to hear from you, Senator
Craig, on an opening statement if you care to make one.
OPENING STATEMENT OF SENATOR LARRY CRAIG
Senator Craig. Well, it is important for us to deal with
this issue, because we have had substantial problems in our
State; and I have practitioners who are just simply saying:
``If we are going to be put at this kind of risk, we are
walking away from providing Medicare recipients the kind of
services they need.''
It is time that this has got to get corrected. The
liability risk here for people who might make a clerical error
is something that is unacceptable to me and to a lot of our
folks in Idaho.
We have had meetings out there with the Idaho Medical
Association. We have even brought them back here. And we have
met with Health Care Finance Administration, trying to work
these things out. And headway is being made.
PREPARED STATEMENT
So this is a timely hearing. I appreciate it. Enough said.
Please proceed. Thank you.
Senator Specter. Thank you very much, Senator Craig.
[The statement follows:]
Prepared Statement of Senator Larry Craig
I would like to thank the Chairman for holding this hearing today.
I would also like to thank the witnesses for taking the time to appear
before the Committee to testify.
Last fall, I hosted a meeting between the Idaho Medical Association
and Penny Thompson of the Health Care Finance Administration (HCFA).
During this meeting various items were discussed, including many issues
concerning the anti-fraud, waste and abuse programs that HCFA has
implemented. I appreciate the good faith effort that HCFA has made to
address the problems raised in that meeting. However, these issues are
of major concern to the medical community in Idaho and I believe they
need to be examined again--specifically, the establishing of a 800
telephone number to CIGNA for physician billing questions and, reducing
the potential of HCFA's audit process to drive providers out of
Medicare, thereby impeding rural Medicare patients' access to health
care.
Idaho's Medicare Carrier, CIGNA, has moved its service center to
Nashville, Tennessee. This service center is where physicians or their
representatives call when they have a Medicare billing question. Idaho
physicians and their staff need to have immediate and direct access to
the carrier in an effort to clarify billing questions and minimize
errors. The CIGNA automated response unit (ARU--a series of ``press one
for * * *'') is time consuming and complicated. Long-distance phone
costs may well be a deterrent to physicians asking legitimate questions
and thus reducing billing errors.
I received a letter from A. Michelle Snyder, Director of HCFA's
Office of Financial Management on February 17 in response to questions
raised during the meeting between the IMA and HCFA about the
establishment of a Carrier 800 number. The response indicated that HCFA
is reviewing this proposal and working to establish toll free numbers
for physicians, suppliers, and other providers.
I also am concerned about HCFA's billing audits. There is no doubt
that the intent of Congress is, and continues to be, the elimination of
proven fraud and abuse of the Medicare system. But it appears that
HCFA's punitive approach in attacking physicians on unintended billing
errors or mistakes can be counter productive, since it does not prevent
future errors and can drive physicians away from the program.
At this point, Congress needs to assist HCFA in redirecting it's
focus--from one of a punitive nature against physicians, to one of
educating those who make unintentional billing mistakes. HCFA has
twisted the intent of Congress into a justification for harassing and
intimidating a valuable sector of our economy.
I have discussed with HCFA staff your method of statistical
sampling of patient charts and the extrapolation of errors found in
those charts over the entire patient population to determine fines
levied against physicians. I have very serious concerns that your
extrapolation assumes guilt of a physician across their entire
population.
Let me relay one example for the benefit of the committee:
In this case a physician has a total Medicare patient population of
525. CIGNA audited a sample of FIFTEEN charts, and through their
statistical extrapolation, projected that the doctor had been overpaid
to the tune of $23,000. BUT the interesting part of this is that the
TOTAL reimbursement across his entire Medicare population for that year
was $58,500. In effect, nearly HALF of the Medicare payments to this
physician were deemed, retrospectively, to have been improperly paid *
* * all through a statistical extrapolation from fifteen charts! I have
to admit, this would greatly reduce my incentive to deal with HCFA if I
were that physician.
Another example of this administration's overreaching approach to
fraud and abuse is the (short lived) ``Fraud Buster's Program'' HCFA
instituted. HCFA partnered with the AARP and essentially recruited
their members as bounty hunters.
HCFA spent a good bit of time and money traveling the country
conducting ``Fraud Busters'' seminars last year. Using the local AARP
organizations to generate crowds, HCFA conducted half-day seminars
geared toward convincing this vulnerable population that their doctors
were committing Medicare fraud. HCFA distributed ``freebies'' to
attendees of these meetings that included a T-shirt and a hat with an
eye-catching ``Fraud Busters'' logo--and to make it easier for these
poor victims to peruse fraudulent bills, a magnifying glass was
provided by HCFA!
I bring up these examples to illustrate a point: Clearly, by these
actions, HCFA has created a climate in which the physician is
distrustful of this agency at best, and fearful at worst.
The state of Idaho is still largely rural in nature. Forty of
Idaho's 44 counties are consistently classified as Health Professional
Shortage Areas; practically every Idaho physician carries as many
patients as he or she can possibly handle, and more are desperately
needed. Many physicians employ one or two full-time office staff
strictly to deal with Medicare and its complex and constantly-changing
16,000 pages of rules and regulations. As a direct result of the
harassment they are enduring at the hands of HCFA, many physicians in
my state are seriously analyzing whether they want to continue to see
Medicare patients.
What shall I tell my Idaho constituents when they tell me they can
no longer find a doctor that will see them? What do I say to the
seniors who have grown to know and trust their local doctor, but must
now find a new health care provider? And let me point out that in rural
Idaho, the next doctor is not likely to be around the corner; patients
may have to travel literally hours to the next community.
This has gone far beyond a fraud and abuse issue. It is now to the
point that it is contributing to a worsening health care access problem
for rural Americans. Doctors would rather NOT see Medicare patient at
all than to endure the combination of administrative hassles, slow and
low reimbursement for services, and the constant threat of IRS-like
``gotcha'' tactics from HCFA.
Again, I thank the Chairman and the panel of witnesses. I look
forward to the benefit of the insight of today's witnesses. I will be
asking questions today on these two issues and hope to gain a better
understanding of what solutions HCFA will be implementing.
STATEMENT OF HON. NANCY-ANN MIN DE PARLE,
ADMINISTRATOR, HEALTH CARE FINANCING
ADMINISTRATION, DEPARTMENT OF HEALTH AND
HUMAN SERVICES
Senator Specter. As I had said at the outset, we are going
to try to conclude this hearing with slightly less than an
hour. I am going to have to excuse myself shortly before 10:30.
We have matters on the Senate floor.
Ms. DeParle, the floor is yours. Thank you for joining us.
Ms. DeParle. Thank you. Thank you, Mr. Chairman, Senator
Harkin, and Senator Craig. Thank you for inviting me to be here
today to address one of my highest priorities, which is our
effort to get Medicare's financial house in order, and fight
waste, fraud and abuse.
I also want to thank my colleagues, Inspector General June
Gibb Brown--June Gibbs Brown, and Leslie Aronovitz from the
General Accounting Office, for their highly constructive
assistance in these efforts.
Senator Harkin, you said that you and Senator Specter have
had a partnership when it comes to this issue. And I want you
to know that the Inspector General and I have also had a
partnership. And I think that is why we have made some of the
progress that we have made.
I am pleased that, as the Inspector General's report points
out, HCFA was able to obtain an unqualified audit opinion this
year. That represents a lot of progress. As Senator Specter
noted in fiscal year 1997 when the first audit was done, the
auditors found the books to be in such a mess that they were
unable to express an opinion.
They could not say whether Medicare's books reliably
presented to the Congress and the taxpayers our assets and our
liabilities.
We spent 3 years of very hard work confronting some
unpleasant facts and difficult issues. We worked last year with
independent CPA firms and the I.G. to clean up our books, so
that we could delete bad debt and aggressively pursue other
money that is owed to Medicare and to the Government.
We looked under every rock. We found things like a $50
check to one of our contractors that was recorded as a $70
million account receivable and things like that that had to be
adjusted, some sloppy bookkeeping. And, of course, that meant
that we need to do a lot more in overseeing our contractors.
And that is something that you alluded to, Senator Specter.
We are continuing a wide range of additional efforts to
strengthen financial management and accounting systems. And
importantly, we are developing an integrated general accounting
system that we all agree is needed.
The audit also talks about system weaknesses and human
errors that had to be addressed. I mentioned one of them.
Another one was that this summer we found that monies that
should have gone into one of our trust funds, through a human
error, was posted to the other one.
And we found this ourselves. And while no taxpayer money
was lost, clearly we have something there that has to be
corrected, and we are in the process of doing that.
Meanwhile, Senator Harkin as you noted, our payment error
rate is holding steady. And as you said, I agree that that is
both good and bad news.
The rate is a lot better than it was when it was measured
first 4 years ago. It is proof, I think, that last year's
dramatic reduction is not a one-time phenomenon, but as I was
talking to June about it earlier today, I said it is--I think
last year we both thought we had turned a corner.
And what we now see is around that corner is a long, dark
hallway. And we have got to really focus on what is in that
hallway. And I think this year's sample gives us a blueprint,
and you held it up.
We have to focus on the red. Forty-one percent of the
problem that we have in this year's audit is what we call
documentation errors, and the Inspector General can explain at
more length what that is.
It is a little different than it was in the beginning. In
the beginning, as you will recall we had a lot of claims where
we would go back to say, ``OK. Where is the documentation for
this?'' And the Inspector General would go back time after
time, and nothing would be produced.
Now, it is not so much that nothing is produced, but they
produce something that does not support the expenditure that
they made of Medicare's money. And it is in three areas. It is
in home health. It is in durable medical equipment. It is in
physicians.
So we are going to have an aggressive effort there. And I
am going to tell you it is going to start with me personally
contacting all 700,000 physicians who participate in the
Medicare Program, all 9,000 home health agencies and 126,000
medical equipment providers to address this and explain to them
how to avoid common errors that they are making.
We are also going to test new documentation guidelines that
will be simpler and easier, Mr. Chairman, for physicians to
use. And we are increasing the level of claims review and
especially pre-payment medical review, which is the most
effective thing in dealing with this problem.
Last year, Senator Harkin, you told me that we should not
take a victory lap yet. And I agree with you. And let me assure
you that we are not taking a victory lap.
I personally will not be satisfied until our books are a
model of good accounting and our error rate is zero, but we
have made significant progress. And I want to sustain it. And
with your continued support and the support of the other
members of this Committee, I think we will be able to do so.
Thank you.
Senator Specter. Very good. Thank you very much, Ms.
DeParle.
[The statement and questions with answers follow:]
Prepared Statement of Hon. Nancy-Ann DeParle
Chairman Specter, Senator Harkin, distinguished Subcommittee
members, thank you for inviting me to discuss our progress in getting
Medicare's financial house in order. I would also like to thank the HHS
Inspector General (IG) and General Accounting Office (GAO) for their
valuable assistance to us in this effort.
The Clinton Administration has a zero tolerance policy for health
care fraud, waste, and abuse. In 1995, we launched Operation Restore
Trust, a ground-breaking anti-fraud project aimed at coordinating
federal, state, local and private resources in targeted areas. The
result is a record series of investigations and convictions, as well as
new management tools to fight improper payments.
Since 1996, we have built on these efforts with findings from the
Chief Financial Officer's audits through a series of aggressive actions
to prevent improper payments and strengthen our financial integrity.
The audit findings and GAO reviews serve as roadmaps directing us to
needed improvements. We are attacking financial management problems
with the same focus and energy that we used to meet our Year 2000
computer challenge, and we intend to be as successful in this as we
were in Y2K.
We have seen tangible results from our efforts to address audit
findings each year. This year, for the first time, the auditors are
able to give us a clean opinion. And the claims payment error rate is
holding steady at about half of what it was in 1996, even though this
year's sample includes more claims for problem areas such as home
health and medical equipment. These results show that our progress is
not a one-time phenomenon but something sustainable on which we can
build.
We are taking several new steps to further protect Medicare's
financial integrity and bring the claims payment error rate down. Key
among these are efforts to determine an error rate for every contractor
that pays these claims. This will help us focus on specific problems in
a far more targeted way than we can with the national error rate, which
is extrapolated from claims for just 600 beneficiaries.
Another critical area includes efforts to help providers document
and file claims correctly. We will test new documentation guidelines
that should be easier for physicians to use. We will expand outreach
and education programs, such as computer-based learning modules, that
have proven effective in helping providers file claims correctly. And
we will contact all physicians, home health providers, and durable
medical equipment suppliers in the Medicare program to address
documentation problems and explain how to avoid common errors.
We also can expect to see more impact from the many program
integrity efforts that we initiated this past year through our
comprehensive program integrity plan and other steps.
--We hired special contractors to focus solely on preventing improper
payments.
--We greatly strengthened contractor oversight through tighter
performance evaluation standards, national evaluation teams,
and mandatory corrective action plans.
--And we continue to seek contracting reform legislation so we can
use the same contracting rules as other government agencies and
expand the range of firms capable of serving Medicare and
protecting taxpayer dollars.
We are aggressively addressing financial management issues
identified by us, the IG, GAO, and independent accounting firms with
which we have contracted. Most of these issues have their roots in the
system established in the 1965 Medicare law, whereby Medicare must
contract with private health insurance companies to process and pay
claims. We have made significant progress, and we have an ambitious
array of actions already planned or underway that are consistent with
the GAO report's recommendations. I am determined that Medicare and its
contractors meet the same high standards of accounting required of
major private sector corporations.
BACKGROUND
Medicare pays more than $200 billion to one million health care
providers for services provided to nearly 40 million seniors and
disabled Americans annually. The Government Management Reform Act has
required annual audits each year since fiscal 1996, including review of
a statistical sample of Medicare claims. That year a 14 percent claims
payment error rate and several weaknesses in financial management were
identified. We have been working diligently to address these issues
ever since.
In response to the fiscal 1996 audit, we took several actions to
address the most serious problems first. We contracted with Ernst &
Young to help us clean up our accounts payable. We funded an audit to
address concerns about the Social Security Administration process for
withholding Supplemental Medical Insurance Premiums.
We also initiated several other actions to address the error rate
that included:
--increasing the level of claims review and the number of physician
medical directors who lead claims review activities for
contractors;
--expanding the number and scope of computer ``edits'' that identify
improper claims before they are paid;
--developing stricter enrollment safeguards to keep illegitimate
providers from billing Medicare; and
--organizing a national fraud, waste, and abuse conference and using
lessons learned to begin developing a comprehensive program
integrity plan.
The fiscal 1997 audit verified our success in addressing issues
with our accounts payable and the Social Security Administration. Also
that year, the payment error rate dropped to 11 percent.
Following the fiscal 1997 audit, we took action to clarify our
handling of cost reports and the Medicaid payables and receivables to
the auditors' satisfaction, and made progress in the remaining areas of
concern raised by the auditors.
We also:
--made further increases in the level of claims reviews;
--began conducting site visits nationwide to ensure that durable
medical equipment providers were in fact, legitimate
businesses; and
--set stricter enrollment criteria to keep unscrupulous medical
equipment providers and home health agencies out of the
program.
Strengthening contractor oversight
Among the most important actions we took following the fiscal 1997
audit were steps to substantially strengthen oversight of the private
insurance companies that, by law, process Medicare claims and thus
carry out critical financial management functions. We consolidated
responsibility for contractor management by establishing the new
position of Deputy Director for Medicare Contractor Management. And we
created a Medicare Contractor Oversight Board to set policy regarding
contractor-related activities. These steps are proving to be critical
as we move forward to address remaining issues.
The fiscal 1998 audit revealed more substantial results from our
actions. The payment error rate was down to 7.1 percent, and only one
area--accounts receivable--kept us from receiving a clean opinion.
In response to the fiscal 1998 audit, we hired independent
Certified Public Accounting firms to assist us in an extensive analysis
of accounts receivables that validated more than 80 percent of the
outstanding debt. As a result, we identified $2.6 billion in
outstanding receivables, some as much as 10 years old, most of which
should have been paid by other insurers.
As required by the Debt Collection Improvement Act, we will
aggressively pursue this debt and, when appropriate, refer cases to the
Treasury Department for further collection activity and litigation. In
accordance with policy of the federal Chief Financial Officers'
Council, we are removing these receivables from our financial
statements so the statements reflect accurate economic value.
We also removed about $300 million in debt that is as much as 10
years old with no potential for collection from our financial
statements. Some of these debts exceed the statute of limitations for
collection.
Our accountants also identified $1.3 billion in adjustments from
the books of our claims processing contractors, and these also were
removed from our financial statements. We are requiring these
contractors to implement corrective actions so they comply with
generally accepted accounting principles and prevent these types of
errors from recurring.
Also in the past year we:
--implemented our comprehensive program integrity plan, which details
our overall strategy to reduce waste, fraud and abuse;
--hired independent Certified Public Accounting firms to analyze
internal control systems at 25 of the largest and highest-risk
Medicare contractors, representing 80 percent of Medicare fee-
for-service payments;
--created standardized reporting and evaluation protocols and used
national review teams to evaluate contractors' fraud and abuse
efforts and other key functions;
--directed each contractor to implement corrective action plans to
ensure that they can track funds more accurately;
--notified the contractors of our intent to amend our contracts with
them to require details and time frames for correction of each
deficiency identified;
--hired our first-ever national contractor to ensure Medicare does
not pay claims that private insurance companies should pay;
--initiated steps to develop an integrated general ledger system to
standardize the accounting systems used by all contractors; and
--created and filled a new high-level management position to
coordinate the agency's business plans to further strengthen
financial controls.
FISCAL 1999 RESULTS
Our Government Performance and Results Act goal for 1999 was an
error rate of 9 percent. The new fiscal 1999 payment error rate
estimate is 7.9 percent, which is not a statistically significant
change from the fiscal 1998 error rate. Due to the limited size and
variance of the sample, the true error rate could range from 5.4 to
10.6 percent. We are committed to achieving our goal for 2002 of 5
percent.
The error rate plateau shows that our actions have achieved
sustainable improvement. And it is noteworthy that the rate remained
stable even though the fiscal 1999 sample included more home health and
durable medical equipment claims--areas where problems have been more
common.
The clean audit opinion reflects our success in improving
Medicare's financial systems to increase the efficiency and accuracy of
our financial statements in accordance with standard accounting
practices. This is an essential step in assuring that Medicare's
financial status is accurately portrayed so that the most effective
subsequent steps can be taken toward sounder day-to-day financial
management. Several of these on-going reforms directly address
contractor issues.
Contractor-specific error rates
While the national error rate has helped us focus our efforts on
preventing improper payments, we need stronger tools to uncover the
real problem areas. Key to this effort is our proposal to develop
contractor-specific error rates. For each contractor, we will conduct
reviews for a statistically valid sample of claims and determine
whether the contractor paid the claim accurately. The review will
determine whether health-care providers were underpaid or overpaid for
the sampled claims. The results will reflect not only the contractor's
performance, but also the billing practices of the health-care
providers in their region. Contractors will then develop targeted
corrective action plans to reduce payment errors through provider
education, claims review and other activities.
We will establish baselines and then track each contractor's rate
of improvement. The results will guide contractor's plans to reduce
errors much as the overall Medicare error rate has guided our national
improvement efforts. We will begin this summer by determining error
rates for the companies that process nearly 50 million claims each year
for medical equipment and supplies for beneficiaries nationally, and we
plan to perform similar evaluations for all claims-processing
contractors.
Additional efforts focused on contractors include:
--Strengthening contractor oversight.--The President's fiscal year
2001 budget requests $48 million for new positions at the
contractors and HCFA to tighten financial controls and ensure a
swift, coordinated response to waste, fraud, and abuse. The
budget also includes a provision for HCFA to competitively
contract with a qualified entity to audit and evaluate
financial management systems.
--Issuing contractor report cards.--We are working with the IG to
create report cards on each contractor's performance against
specific goals and criteria. Contractors that perform poorly
and fail to improve risk losing their Medicare business.
--Requiring corrective action plans.--We have already requested
corrective action plans from contractors for problems
identified in the fiscal 1999 audit. We have developed written
procedures for requesting, tracing, and disseminating such
corrective action plans, including time frames for evaluating
them. Each contractor must include a detailed description of
each problem, specify details of actions and time frames to
resolve them, and submit quarterly reports on their progress.
We plan to hire a Certified Public Accounting firm to evaluate
how effective these corrective actions are. And, we will
include review of corrective action plan effectiveness in our
standardized Contractor Performance Evaluation process.
--Strengthening Regional Office coordination.--We are consolidating
responsibility for contractor management among our 10 regional
offices by establishing four Consortium Contractor Management
Officers. They will be accountable for management of specific
contractors and oversee staff with primary responsibility for
contractor management.
--Seeking contracting reform.--We continue to seek contracting reform
legislation to allow Medicare to use all firms capable of
processing claims and protecting program integrity. Existing
law requires Medicare to use only health insurance companies to
process claims, and allows some providers to choose their
claims processor. This has hampered our program integrity
efforts, as the commitment to these efforts has varied widely
among these contractors. And some of these insurance companies
themselves have been convicted of violating Medicare program
integrity. The IG and GAO have agreed that we need to create an
open marketplace so we do not have to rely on a steadily
shrinking pool of insurance companies and can bring Medicare
contracting in line with standard contracting procedures used
throughout the Federal government.
Financial management
We are also taking several steps to address financial management
issues. These include:
--Developing an integrated financial management system.--We continue
to work towards an integrated financial management system to
standardize the accounting systems used by all contractors. The
project, which will make it easier to coordinate and reconcile
data, is scheduled for completion by 2004, pending the results
of the assessment phase currently underway. The President's
fiscal year 2001 budget requests $7 million to support this
essential project.
--Consolidating accounting functions.--We are consolidating all
accounting and CFO Act reporting functions in one organization.
And we are establishing a new division to concentrate on
internal controls and risk adjustment, and ensure that
procedure guidelines and accounting policies are written,
designated, and implemented.
--Assessing staff needs.--We are engaged in an agency-wide planning
effort to assess staffing needs, including those for financial
management. We also will consult with outside experts to help
us develop staff skills in financial analysis and other pattern
analysis techniques that can help identify potential problems.
In the meantime, we have initiated a short-term project to
organize regional office staff currently involved with
contractor oversight in order to facilitate better national
coordination of efforts. And we are assessing other resource
needs for optimal contractor oversight.
--Improving guidance to contractors.--We are developing a financial
management internal control manual with standards for
evaluating contractors' financial management performance. We
are working with an outside consultant who plans to seek
further input from contractors, and then create a database that
we can post on the Internet with all our financial management
guidance and instructions for contractors. We expect this to be
completed by September. In the meantime, we will clarify for
contractors our instructions for allocating cash receipts
between the two Medicare trust funds. We also will update our
manual of instructions for contractors on a yearly basis to
incorporate results from oversight and evaluation efforts by
us, the IG, and GAO.
--Developing comprehensive financial management plan.--We are
developing a comprehensive financial management business plan
to identify the strategies that will achieve our objectives.
This is being led by our newly created position of Associate
Director for CFO Audits and Internal Controls, and should be
completed this summer.
Error rate reduction
To bring the payment error rate down further, we are:
--Ensuring proper payment.--We will continue to aggressively work to
reduce the payment error rate to below 5 percent by fiscal 2002
through our comprehensive program integrity plan and other
efforts. Although Medicare pays virtually all claims correctly
based on the information submitted, improper payments occur for
reasons such as insufficient documentation, lack of medical
necessity, and improper coding by providers. The error rate
does not measure fraud, but can include improper payments
related to fraudulent conduct.
--Focusing on inpatient care.--Medicare's physician-led Peer Review
Organizations are working with hospitals to investigate,
correct, and prevent claims that are improperly coded,
insufficiently documented, or for unnecessary or uncovered
services. Our new contracts with them include strong financial
incentives for them to reduce improper payment rates for
inpatient care.
--Hiring special program integrity contractors.--Using specific
contracting authority provided by HIPAA, we last year chose 13
companies, including financial management and technology
companies, as our first-ever contractors devoted to protecting
the Medicare Trust Fund. These contractors, who have health
care expertise, will help us tackle key tasks, including
audits, medical reviews, data analysis, site visits, and
provider education.
--Expanding the correct coding initiative.--We will continue to
expand the correct coding initiative, which uses roughly
100,000 computer edits to identify improper claims before
Medicare pays them. Begun in 1994, the initiative prevents more
than $250 million in improper payments each year.
Working with providers
We also are continuing efforts to help providers file and document
claims correctly. This is particularly important, as the current audit
shows that the error rate plateaued largely due to a sharp increase in
documentation problems since last year. Missing or inadequate
documentation accounted for 41 percent of errors in the current audit,
which is more than double the rate of such problems found last year.
To help providers file claims properly, we are:
--Testing new documentation guidelines.--We will this year begin
testing new guidelines for physicians on how to document
evaluation and management services, which constitute the
majority of Medicare claims. The guidelines will help ensure
Medicare pays claims correctly while minimizing the paperwork
burden for doctors.
--Expanding provider education.--We will expand efforts to help
doctors, hospitals, and other providers learn how to properly
file and document claims. This includes innovative computer
courses on our web site on the proper filing and documentation
of claims, as well as satellite broadcasts and other efforts.
--Contacting key providers.--We will directly contact all physicians,
home health providers, and durable medical equipment suppliers
in the Medicare program to address documentation problems and
explain how to avoid common errors.
--Initiating Progressive Corrective Action.--We are undertaking a new
initiative in which we will share more feedback with providers,
both on an individual and community level, about how to correct
and prevent the types of errors identified in medical review of
claims. We believe this can have a substantial impact in
reducing improper claims among the vast majority of providers
who make only honest errors.
CONCLUSION
Protecting program integrity and strengthening financial management
and contractor oversight are our top priorities now that we have met
our Year 2000 obligation. The findings of this year's audit and the GAO
report on financial management will once again serve as a roadmap
guiding us to further improvements.
We look forward to working with Congress, our IG and GAO
colleagues, and our contractor and provider partners to ensure that we
meet our obligation to pay claims properly, fight fraud, waste, and
abuse, and responsibly manage Medicare finances.
______
Questions Submitted by Senator Arlen Specter
HHS INSPECTOR GENERAL STUDY
Last year, the Committee urged the Office of the Inspector General,
in cooperation with HCFA, to study the use of private recovery
specialists with respect to Medicare overpayments, and to inform the
Committee on its findings.
Question. Is this study underway? When would you expect to report
to the Committee with the findings?
Answer. We understand that the Office of the Inspector General
(OIG) is in the process of conducting this study, and would defer to
the OIG regarding their expected completion date.
RECOVERY SPECIALISTS: HCFA AND VA APPROACH
Question. Last year, the Committee encouraged HCFA to ``explore the
use of companies to recover mispayments that have significant
experience providing this service to major commercial insurers.'' (Copy
of language previously sent via facsimile).
What progress has HCFA made in contracting directly with
overpayment recovery firms? Do you require any legislative language?
Have you looked at the VA program to see if some of their processes and
contractors may be of assistance to HCFA in recovering overpayments?
What is your position on the VA manner of contracting with such firms
(i.e., contingent payments)?
Answer. According to our Office of the General Counsel, we do not
have the authority, under current law, to pay Medicare Integrity
Program (MIP) recovery contractors on a contingent fee basis. To do so
would require a legislative change. Although we are familiar with the
VA manner of contracting with overpayment recovery firms, we have not
thoroughly examined their processes in light of the fact that we do not
have the legal authority to institute such a system under current law.
______
Questions Submitted by Senator Jon Kyl
Background: In 1987, Congress authorized the Medicare Community
Nursing Organization (CNO) demonstration project to test the ability of
nursing organizations to provide quality health care services in home
and community-based settings, without requiring beneficiaries to join
HMOs. Currently, demonstration projects operate in Arizona, Minnesota,
New York and Illinois.
In the Balanced Budget Reconciliation Act of 1999 (BBRA), Congress
authorized a two-year extension of the CNO project with the caveat that
payments to the program be ``budget neutral.''
The BBRA passed in November 1999 and to date, HCFA has not informed
the CNOs of the new payment methodology. Moreover, HCFA has stated that
any new payment system will be retroactive to January 1, 2000. Lastly,
as a result of the delay, the CNOs have not yet received reimbursement
in 2000. According to the Tucson CNO site, their last payment was in
December.
QUESTIONS FOR HCFA
Question. What progress has HCFA made in developing a budget
neutral payment methodology, and when do they expect to inform the CNO
sites of the new methodology? Question: When can the CNO sites expect
to begin receiving their payments?
Answer. On May 3, 2000 HCFA advised the CNO sites of their budget
neutral rates. The CNOs have been paid since January 2000 based on the
method used before the BBRA's requirement that rates must be budget
neutral. They will continue to be paid those rates through June 2000.
Beginning in July 2000 we will implement a revised rate schedule that
meets the BBRA's budget neutrality requirement. The new rates
incorporate a relatively small reduction for the period of July--
September 2000. Further reductions will be applied in each additional
calendar quarter to attain budget neutrality for the 2-year extension
period. Rates must be significantly lower in the later months of the
extension period in order to meet the BBRA's required budget neutrality
reduction over the entire extension period, as well as recapture any
overpayments that result from delaying the application of the full
reduction.
We believe this schedule is the best approach to meeting the
requirements of the BBRA's budget neutrality requirement because it
provides a 5month time period with either no rate reductions or minimal
rate reductions, May--September, for sites to assess the situation and
make decisions about their continued participation.
This is the seventh year of operation for the CNO demonstration,
which began in 1994. Originally designed as a 3-year demonstration, it
was extended twice prior to the BBRA extension. Two interim
evaluations, in 1996 and 1998, reported that the CNO model, as
structured under this demonstration, resulted in higher Medicare costs
but could not demonstrate a positive impact on health outcomes or
behaviors. The recently completed final report, which is based on data
from 36 months of CNO operation, confirmed this finding. The BBRA
provided for an additional 2-year extension subject to a requirement
that the demonstration be budget neutral over the 2-year extension
period, encompassing years 2000-2001.
STATEMENT OF HON. JUNE GIBBS BROWN, INSPECTOR GENERAL,
DEPARTMENT OF HEALTH AND HUMAN SERVICES
ACCOMPANIED BY JOSEPH E. VENGRIN, ASSISTANT INSPECTOR GENERAL FOR AUDIT
OPERATIONS AND FINANCIAL STATEMENT ACTIVITIES
Senator Specter. We now turn to Ms. June Gibbs Brown, the
Inspector General of the Department of HHS, who has a
phenomenal record of being the Inspector General of the Navy's
Pacific Fleet, Interior Department; 1979 to 1981 NASA; and the
Department of Defense from 1987 to 1989.
Ms. Brown received her bachelor's and master's in business
administration from Cleveland State University, and her law
degree from the University of Denver.
In addition, she is a graduate of Harvard's Advanced
Management program and a CPA.
You bring a lot of credentials to the table, Ms. Brown.
Thank you for joining us. And the floor is yours.
Ms. Brown. Thank you, Mr. Chairman, Senator Harkin, and
Senator Craig.
I have with me today, Joseph E. Vengrin. He is Assistant
Inspector General for Audit Operations and Financial Statement
Activities.
I am pleased to report to you that HCFA's progress in
reducing Medicare payment errors and presenting reliable
financial information has been pretty consistent, even though
we have a plateau this year as far as the error rate is
concerned.
I would like to begin by acknowledging the cooperation and
support we received by both the Department and HCFA and the
General Accounting Office in cleaning up a lot of--of the
errors that had been occurring.
HCFA's assistance in making available the medical review
staff and--at the Medicare contractors and peer review
organizations was invaluable.
We also worked closely with GAO in carrying out its
responsibility for auditing the consolidated financial
statements of the Federal Government.
My statement today will focus first on our review of
Medicare payment errors, which we conducted at HCFA's request
and then on fiscal year 1999 financial statements.
Our review included a statistical selection of 5,223
Medicare claims from a population of $169.5 billion in fiscal
year 1999 fee-for-service claim expenditures.
Payments to providers for 1,034 of those claims did not
comply with Medicare laws and regulations. By projecting those
sample results, we estimated that fiscal year 1999 net payment
errors totaled about $13.5 billion nationwide, or about 7.97
percent of the total Medicare fee-for-service payments. This is
the mid-point of the estimated range at the 95 percent
confidence level of $9.1 billion to $17.9 billion or about 5.4
to 10.6 percent.
I go into that detail, only because I want to assure that
everybody understands this is a sampling technique, and that is
the reason why I do not say there is a statistical difference
between last year and this year. It falls within the same
range.
In past years, the improper payments could range from
inadvertent mistakes to outright fraud and abuse. And that is
true of this year.
It should be noted that medical personnel detected almost
all of the improper payments in our sample. When these claims
were submitted for payment to Medicare contractors, they
contained no visible errors.
Now, the 4-year analysis substantiates HCFA's continued--
continued vigilance in monitoring and reducing payment errors.
This year's $13.5 billion estimate is, in fact, $9.7 billion
less than that for 1996, which you have pointed out.
In addition, our audit results clearly show that the
majority of health-care providers submit claims to Medicare for
services that are medically necessary, billed correctly, and
sufficiently supported.
Both in fiscal years 1998 and 1999, we estimated that over
90 percent of the fee-for-service payments met Medicare
reimbursement requirements. However, our analysis demonstrates
that unsupported or medically unnecessary services remain
pervasive problems. These type of errors accounted for more
than 70 percent of the total improper payments over the 4
years.
Our chart, which is also attached to the written testimony,
demonstrates the trends in improper payments by the major type
of errors that we found.
The red area indicates unsupported services, where we saw a
substantial increase. I would like to just comment on
unsupported services, because that is made up of two things.
Where the documentation does not support the service: The
documentation is the medical record. So when we are saying that
there should be documentation, we are not saying somebody did
not cross a ``t'' or--or use correct grammar or something else.
We are saying that there is nothing in the medical record that
would support the service that was being billed.
And the other percentage is where no medical record was
provided. Now, we have gone out at least three times and at
HCFA's request, went four and five times, even made site visits
in some cases, to get the medical record. So when I say there--
no medical record was provided, it is very likely that there
was no medical record to support the payment. It is not just a
payment error of some kind that did not agree.
The blue area on the chart that Senator Harkin held up was
medically unnecessary services. That is a continuing problem.
The green was incorrect coding; and finally, the yellow, non-
covered service and other miscellaneous errors.
The Medicare specifically requires providers to maintain
records that contain sufficient support to justify the
diagnosis, the admission, and other services provided.
As the second largest error category this year, medically
unnecessary services totaled $4.4 billion. For these errors,
medical reviewers found enough documentation in the medical
records to make an informed decision that the services were not
medically necessary.
These type of errors in inpatient prospective payment
systems, or PPS, hospital claims were significant in all 4
years.
Incorrect coding was the third largest error category.
Physician and inpatient PPS claims accounted for 90 percent of
the coding errors over the 4 years. For most of these errors,
medical reviewers determined that the documentation submitted
by providers supported a lower reimbursement code.
Turning now to the audit of the financial statements for
fiscal year 1999, we are pleased to issue the first unqualified
or clean opinion, both for HHS and for HCFA. In achieving this
important milestone, HCFA has successfully resolved billions of
dollars in problems that affected our previous audit opinions;
in particular, problems in Medicare accounts receivables, which
are debts that providers owed to HCFA.
There have been systemic and longstanding problems in this
area. This year, HCFA embarked on an extensive effort to
validate and document receivables with the assistance of both
my office and two public accounting firms.
The validation effort, together with HCFA's aggressive
action to require that contractors maintain support for this
debt, enabled us to conclude that the receivables balance was
fairly presented and sufficiently documented for the first time
in 4 years.
However, the underlying internal control environment and
accounting systems at the Medicare contractors still needs
substantial improvement, such as even a basic double-entry
accounting system, a bookkeeping system that you would find at
any gas station, was not available at the Medicare contractors.
Adequate checks and balances to promptly detect errors and
irregularity--as my colleague stated, where a check number was
picked up in the millions of dollars rather than a $50 claim.
There is no double entry system to identify this error when it
happens, so that can be carried on the books for years.
These control weaknesses impair HCFA's ability to reliably
report activity related to Medicare debt, and they increase the
risk that future debt may not be collected timely.
Our report also discusses our concern that HCFA has not yet
established adequate financial controls, such as routine
accounting analyses to detect accounting aberrations, or
sufficient controls over Medicare electronic data processing
systems.
To briefly summarize, Mr. Chairman, we are greatly
encouraged at HCFA's sustained success in reducing Medicare
payment errors and by the important progress made in resolving
the prior year's financial reporting problems.
We remain concerned, however, that inadequate internal
controls over accounts receivable leaves the Medicare Program
very vulnerable to potential loss or misstatement.
As HCFA begins a lengthy process to integrate its
accounting system with the Medicare contractor systems,
internal controls must be strengthened to ensure that the debt
is accurately recorded, and adequate debt collection is in
place.
With the year 2000 remediation challenge successfully
completed, we urge HCFA to focus on these critical internal
controls, while continuing its efforts to reduce the payment
errors and ensure provider integrity.
I appreciate the opportunity to appear and will be glad to
answer any questions.
Senator Specter. Thank you very much, Ms. Brown.
[The statement follows:]
Prepared Statement of Hon. June Gibbs Brown
Good morning, Mr. Chairman. I am June Gibbs Brown, Inspector
General of the Department of Health and Human Services. With me today
is Joseph E. Vengrin, Assistant Inspector General for Audit Operations
and Financial Statement Activities. I am pleased to report to you on
the Health Care Financing Administration's (HCFA) progress in reducing
Medicare payment errors and in presenting reliable financial
information.
My statement today will focus first on our audit of fiscal year
(FY) 1999 Medicare fee-for-service payments. This was our fourth annual
estimate of the extent of fee-for-service payments that did not comply
with laws and regulations. As part of our analysis, we profiled all 4
years' results and identified specific trends, where appropriate, by
the major types of errors found and the types of health care providers
whose claims were erroneous. Then I will briefly describe the
significant findings of our audit of HCFA's fiscal year 1999 financial
statements, which is required by the Government Management Reform Act
of 1994. The purpose of financial statements is to accurately portray
agencies' financial operations, including what they own (assets), what
they owe (liabilities), and how they spend taxpayer dollars. The
purpose of our audit was to independently evaluate the statements.
Before I begin, I would like to acknowledge the cooperation and
support we received from the Department, HCFA, and the General
Accounting Office (GAO). The HCFA's assistance in making available
medical review staff at the Medicare contractors and the peer review
organizations (PRO) was invaluable in reviewing benefit payments. Also,
I want to point out that we worked closely with GAO, which is
responsible for auditing the consolidated financial statements of the
Federal Government. The Department is one of the most significant
agencies included in these Governmentwide statements.
MEDICARE PAYMENT ERRORS
Overview
With expenditures of approximately $316 billion, assets of $212
billion, and liabilities of $39 billion, HCFA is the largest component
of the Department. The HCFA is also the largest single purchaser of
health care in the world. In 1999, Medicare and Medicaid outlays
represented 33.7 cents of every dollar of health care spent in the
United States. In view of Medicare's 39.5 million beneficiaries, 870
million claims processed and paid annually, complex reimbursement
rules, and decentralized operations, the program is inherently at high
risk for payment errors.
Like other insurers, Medicare makes payments based on a standard
claim form. Providers typically bill Medicare using standard procedure
codes without submitting detailed supporting medical records. However,
regulations specifically require providers to retain supporting
documentation and to make it available upon request.
As part of our first audit of the HCFA financial statements for
fiscal year 1996, we began reviewing claim expenditures and supporting
medical records. At HCFA's request, we have continued these reviews
because of the high risk of Medicare payment errors and the huge dollar
impact on the financial statements ($169.5 billion in fiscal year 1999
fee-for-service claims).
Our primary objective each year has been to determine whether
Medicare benefit payments were made in accordance with Title XVIII of
the Social Security Act (Medicare) and implementing regulations.
Specifically, we examined whether services were (1) furnished by
certified Medicare providers to eligible beneficiaries; (2) reimbursed
by HCFA's Medicare contractors in accordance with Medicare laws and
regulations; and (3) medically necessary, accurately coded, and
sufficiently supported in the beneficiaries' medical records.
Sampling methodology
To accomplish our objective, we used a multistage, stratified
sample design. The first stage consisted of a selection of 12
contractor quarters for fiscal year 1999. The selection of the
contractor quarters was based on probabilities proportional to the
fiscal year 1998 fee-for-service benefit payments. The second stage
consisted of a stratified, random sample of 50 beneficiaries from each
contractor quarter. The resulting sample of 600 beneficiaries produced
5,223 claims valued at $5.4 million for review.
For each selected beneficiary during the 3-month period, we
reviewed all claims processed for payment. We first contacted each
provider in our sample by letter requesting copies of all medical
records supporting services billed. In the event that we did not
receive a response, we made numerous follow-up contacts by letter,
telephone calls, and/or onsite visits. Then medical review staff from
the Medicare contractors (fiscal intermediaries and carriers) and PROs
assessed the medical records to determine whether the services billed
were reasonable, adequately supported, medically necessary, and coded
in accordance with Medicare reimbursement rules and regulations.
Concurrent with the medical reviews, we made additional detailed
claim reviews to determine whether (1) the contractor paid, recorded,
and reported the claim correctly; (2) the beneficiary and the provider
met all Medicare eligibility requirements; (3) the contractor did not
make duplicate payments or payments for which another primary insurer
should have been responsible under Medicare secondary payer
requirements; and (4) all services were subjected to applicable
deductible and co-insurance amounts and were priced in accordance with
payment regulations.
Sample results
Through detailed medical and audit review of a statistical
selection of 600 beneficiaries nationwide with 5,223 fee-for-service
claims processed for payment during fiscal year 1999, we found that
1,034 claims did not comply with Medicare laws and regulations. By
projecting these sample results, we estimated that fiscal year 1999 net
payment errors totaled about $13.5 billion nationwide, or about 7.97
percent of total Medicare fee-for-service benefit payments. This is the
mid-point of the estimated range, at the 95 percent confidence level,
of $9.1 billion to $17.9 billion, or 5.4 percent to 10.6 percent,
respectively. As in past years, the payment errors could range from
inadvertent mistakes to outright fraud and abuse, such as phony records
or kickbacks. We cannot quantify what portion of the error rate is
attributable to fraud.
Medical professionals detected 92 percent of the improper payments.
When these claims were submitted for payment to Medicare contractors,
they contained no visible errors. It should be noted that the HCFA
contractors' claim processing controls were generally adequate for (1)
ensuring beneficiary and provider Medicare eligibility, (2) pricing
claims based on information submitted, and (3) ensuring that the
services as billed were allowable under Medicare rules and regulations.
However, their controls were not effective in detecting the types of
errors we found.
Historical analysis of error rates
Our analysis of payment errors from fiscal year 1996 through fiscal
year 1999 demonstrates HCFA's continued vigilance in monitoring and
reducing payment errors. This year's $13.5 billion estimate is, in
fact, $9.7 billion less than the fiscal year 1996 estimate. In
addition, our audit results clearly show that the majority of health
care providers submit claims to Medicare for services that are
medically necessary, billed correctly, and sufficiently supported. For
both fiscal years 1998 and 1999, we estimated that over 90 percent of
fee-for-service payments contained no errors. This is a very positive
reflection on the diligence of the health care provider community to
comply with Medicare reimbursement requirements. However, our analysis
shows that unsupported and medically unnecessary services continue to
be pervasive problems. These two error categories accounted for more
than 70 percent of the total improper payments over the 4 years.
The attached chart presents an historical analysis of improper
payments by major error categories: (1) unsupported services, (2)
medically unnecessary services, (3) incorrect coding, and (4)
noncovered services and miscellaneous errors.
Unsupported services
Unsupported services represented the largest error category every
year except fiscal year 1998, when they dropped dramatically. This year
we saw a $3.4 billion increase over last year's estimate; however,
these errors remained below the levels found in FYs 1996 and 1997.
Medicare regulation, 42 CFR 482.24(c) specifically requires
providers to maintain records that contain sufficient support to
justify diagnoses, admissions, treatments performed, and continued
care. When the records were insufficient or missing, medical reviewers
could not determine whether services billed were actually provided to
Medicare beneficiaries, the extent of the services, or their medical
necessity. It should be noted that HCFA upheld 99 percent of the
overpayments identified in the fiscal year 1998 sample and recovered
about 87 percent; the remaining 13 percent has not been collected due
to an ongoing investigation.
This year's estimated $5.5 billion in unsupported services
consisted of $4.5 billion in claims for which medical review staff
found that the documentation was insufficient to support the billed
services and $1 billion in claims for which no documentation was
provided. These errors were largely attributable to three provider
groups: home health agencies ($1.7 billion), durable medical equipment
(DME) suppliers ($1.6 billion), and physicians ($1.1 billion).
Some examples of unsupported services follow:
--A home health agency was paid $84 for a psychiatric nurse visit to
a patient. While documentation evidenced that the visit had
been made, neither the patient's plan of care nor the doctor's
orders authorized the home health agency to provide the
psychiatric nursing care. As a result, medical reviewers denied
the payment.
--A DME supplier was paid $815 for an enteral feeding supply kit, a
gastrostomy tube, and 380 units of enteral formula. Medical
review staff concluded that the supplier's documentation was
not sufficient to support the claim because the records did not
include physician progress notes, laboratory values,
radiological studies ordered, or weight charts. In addition,
because the delivery ticket did not provide individual
beneficiary information, medical reviewers were unable to
determine what products were delivered and to whom. As a
result, the total payment was denied.
--A physician was paid $28 for a hospital visit. However, medical
reviewers found a note in the medical records which stated,
``Pt [patient] not in room.'' Because a patient encounter could
not be verified and no other documentation substantiated the
visit, the payment was denied.
Medically unnecessary services
Medically unnecessary services constituted a significant part of
the historical error rate: 37 percent of the improper payments in both
fiscal years 1996 and 1997, 56 percent in fiscal year 1998, and 32
percent in fiscal year 1999. For these errors, medical reviewers found
enough documentation in the medical records to make an informed
decision that the medical services or products received were not
medically necessary. As in past years, Medicare contractor or PRO
medical staff made decisions on medical necessity using Medicare
reimbursement rules and regulations. They followed their normal claim
review procedures to determine whether the medical records supported
the claims.
These types of errors in inpatient prospective payment system (PPS)
claims were significant in all 4 years (fiscal year 1996--39 percent of
the total $8.5 billion; fiscal year 1997--31 percent of the total $7.5
billion; fiscal year 1998--40 percent of the total $7 billion; and
fiscal year 1999--45 percent of the total $4.4 billion). For example:
--A PPS hospital was paid $3,883 to treat an inpatient with an
episode of hypoglycemia. According to medical reviewers, the
patient's condition and the treatment given did not require
admission to the acute level of care, and the patient could
have been safely evaluated and treated at a less acute level.
Therefore, the entire payment was denied as medically
unnecessary.
--Another PPS hospital was paid $7,642 to treat an inpatient for
dehydration. The beneficiary, who was initially treated in the
emergency room, was eventually admitted to the hospital's acute
care unit. The beneficiary received x-rays, blood tests, IV
fluids, Tylenol, and a fever work-up but was discharged the
same day. Medical reviewers concluded that the patient's
condition did not require acute hospital inpatient care and
that the services could have been rendered in an outpatient
setting. Therefore, the entire payment was denied.
Incorrect coding
The medical industry uses a standard coding system to bill Medicare
for services provided. For most of the coding errors found, medical
reviewers determined that the documentation submitted by providers
supported a lower reimbursement code. However, we did find a few
instances of downcoding which we offset against identified upcoding
situations.
Incorrect coding was the third highest error category this year,
with $2.1 billion in improper payments. Physician and inpatient PPS
claims accounted for 90 percent of the coding errors over the 4 years
reviewed.
Examples of incorrect coding follow:
--A PPS hospital was paid $9,387 for an inpatient respiratory system
surgical procedure. The medical records, however, supported a
nonsurgical procedure. Medical reviewers' correction of the
procedure code produced a lesser valued diagnosis-related group
of $2,481, resulting in denial of $6,905 of the payment.
--A physician was paid $50 for a psychotherapy session which requires
medical evaluation and management. According to medical review
staff, the physician's records evidenced neither the time spent
nor the psychotherapy services performed. However, the records
supported psychiatric medication management services in an
office setting, for which a lower level of service would have
been appropriate. Therefore, $31 of the payment was denied.
Noncovered services
Errors due to noncovered services consistently constituted the
smallest error category. Noncovered services are defined as those that
Medicare will not reimburse because the services do not meet Medicare
reimbursement rules and regulations. For example:
--A physician was paid $30 for nail debridement. Medicare covers this
procedure if there is evidence of diabetes in the beneficiary's
medical history. However, there was no indication of diabetes
in this beneficiary's history. Therefore, the service was
considered routine foot care, which Medicare does not cover,
and payment was denied.
--A hospital was paid $21 for medications to an outpatient that
medical reviewers determined could have been self-administered.
Medications furnished in an outpatient setting are covered only
if they are of a type that cannot be self-administered. As a
result, medical reviewers denied the payment.
FINANCIAL STATEMENT AUDIT
Audit opinion
For fiscal year 1999, we are very pleased to issue the first
unqualified, or ``clean,'' audit opinion on HCFA's financial
statements. In achieving this important milestone in financial
accountability, HCFA has successfully resolved billions of dollars in
past problems that formed the basis of our audit opinion for 3 years.
Deficiencies in reporting and supporting Medicare accounts receivable,
in particular, have been systemic and longstanding.
Medicare accounts receivable are debts that providers and other
entities owe to HCFA. More than 50 Medicare contractors are responsible
for tracking and collecting most of this debt through their claim
processing systems. However, as we previously reported, their claim
processing systems lacked general ledger capabilities and traditional
accounting system features, such as a dual-entry process. In addition,
the contractors used ad hoc spreadsheet applications to tabulate,
summarize, and report information to HCFA. This reporting process was
labor intensive, requiring significant manual input and reconciliations
between various systems and spreadsheets. Previous audits found
millions of dollars in discrepancies as a result; that is, the Medicare
contractors were unable to support beginning balances, reported
incorrect activity, and could not reconcile ending with subsidiary
records.
This year HCFA embarked on an extensive effort to validate and
document receivables. The project, which was jointly conducted by HCFA,
my office, and two independent accounting firms, covered accounts
receivable at 15 Medicare contractors (accounting for over 80 percent
of the contractor receivable balance) and at the HCFA central and
regional offices. The validation team identified over $2 billion in
overstated and understated receivables:
--$1.3 billion lacked supporting documentation,
--$1 billion concerned cash advances to providers for which claims
had already been submitted, and
--$191 million in misstatements resulted from clerical errors, e.g.,
a contractor erroneously recorded a $50 receivable as $70
million.
This validation effort, together with HCFA's aggressive action to
require that contractors maintain support for this debt, enabled us to
conclude that the receivables balance was fairly presented and
sufficiently documented for the first time in 4 years.
Internal control weaknesses
While the receivables balance was supported at the end of fiscal
year 1999, the underlying internal control environment and accounting
systems still need substantial improvements, such as a basic double-
entry bookkeeping system and adequate checks and balances to promptly
detect errors and irregularities. These control weaknesses impair
HCFA's ability to accumulate and analyze accounts receivable activity
and to ensure that future receivables will be properly reflected in
financial reports. These weaknesses also increase the risk that future
debt may not be collected timely and that receivables may not be
properly safeguarded. Compounding these problems, the HCFA central
office does not routinely analyze receivable balances other than on a
very aggregate level. Therefore, the fiscal year 1999 report on
internal controls again includes Medicare accounts receivable as a
material weakness. Material weaknesses are defined as serious
deficiencies in internal controls that can lead to material
misstatements of amounts reported in subsequent financial statements
unless corrective actions are taken. To ensure that future accounts
receivable activity and balances are fairly stated, HCFA will need to
continue a very aggressive validation effort.
The other material weaknesses noted last year also carried over:
--Financial systems and reporting.--Controls over financial systems
and reporting remain serious concerns. The HCFA did not perform
adequate analyses of accounts receivable, revenues, and
expenditures to understand why fluctuations took place and to
ensure that balances were correct. For example:
The HCFA did not independently verify the Medicare
Supplementary Medical Insurance (SMI) and Hospital
Insurance (HI) trust fund balances, did not reconcile
these accounts at a sufficiently detailed level, and
used ineffective methodologies to calculate SMI and HI
transfers. As a result, the SMI fund was underfunded by
$18 billion and HI was overfunded by $14 billion. The
SMI fund lost interest earnings of $237 million and the
HI fund realized excess interest earnings of $154
million as a consequence. Although aggregate fund
balances with Treasury and investment balances for the
trust funds were properly stated in the fiscal year
1999 financial statements, cash transfers related to
the principal to make the individual trust funds whole
did not occur until October 1999.
The HCFA did not periodically validate the National
Claims History File to ensure the existence and
completeness of the data. Due to a breakdown in
internal quality controls, the file was missing 100
million Medicare claims amounting to over $13 billion
from June until December 1999. This file, which has
since been corrected, is critical to accurately
estimate Medicare benefits payable, to prepare the
Medicare trustees report, to determine the SMI monthly
premiums, to establish managed care rates, to update
the groups for inpatient hospitals, and to develop
annual budget projections.
The HCFA had to make billions of dollars in manual adjustments to
payables and receivables before producing final, auditable
financial statements in late January 2000--4 months after the
fiscal year ended. In addition, we noted that five of eight
sampled Medicare contractors did not formally reconcile paid
claims activity to monthly expenditures reported to HCFA.
Without these reconciliations, the risk of material
misstatement in the financial statements increases.
--Medicare electronic data processing (EDP).--Because HCFA's fiscal
year 1999 resources were largely devoted to Year 2000 readiness
issues, not all prior-year EDP control problems were resolved.
Weaknesses remained in access controls at the HCFA central
office and in application change controls at a ``shared''
system used by certain Medicare contractors to process and pay
claims. Internal controls over Medicare systems are essential
to ensure the integrity, confidentiality, and reliability of
critical data while reducing the risk of errors, fraud, and
other illegal acts.
Controls over cash management
In a matter related to our financial statement audit, we recently
reviewed certain controls over cash management. The HCFA and the
Medicare contractors have agreements with several banks to maintain
Medicare accounts to cover payments to providers. The HCFA
expressed concerns about the way one bank handled Medicare funds
related to eight fiscal intermediaries and one carrier. At HCFA's
request, we reviewed the financial activities of the bank and the
Medicare contractors. We noted that during an 11-day period, the bank
withdrew funds from the Federal Reserve in excess of Medicare
contractor expenditures. The excess ranged from $104 million to over
$420 million per day and earned more than $700,000 in interest.
In addition, since 1993, the bank has routinely withdrawn funds a
day earlier than needed to cover Medicare expenses and has earned
interest on those funds by investing them overnight. The bank estimated
that the interest earned through these overnight investments totaled
$12.5 million. In 1999, HCFA advised the bank to stop this practice
because it was contrary to the provisions of the agreement with HCFA
and the Medicare contractors. Bank officials believed that withdrawing
funds a day early was a ``perk'' of maintaining Medicare accounts and
that bank charges alone were not sufficient to cover administrative
expenses for the accounts.
Each of the Medicare contractors has a monthly limit on the total
amount of Medicare funds that can be drawn down by the bank, and HCFA
and its contractors have various reconciliation procedures to compare
bank cash draws to expenditures and to Federal Reserve Bank reports.
However, these controls were ineffective in preventing both types of
improper withdrawals made by the bank.
CONCLUSIONS AND RECOMMENDATIONS
We are encouraged by HCFA's sustained success in reducing Medicare
payment errors and by the important progress made in resolving prior
years' financial reporting problems. We remain concerned, however, that
inadequate internal controls over accounts receivable leave the
Medicare program vulnerable to potential loss or misstatement. As HCFA
begins a lengthy process to integrate its accounting system with the
Medicare contractor systems, internal controls must be strengthened to
ensure that debt is accurately recorded, an adequate debt collection
process is in place, and information is properly reflected on the
financial statements.
We offered a number of recommendations which, if implemented, will
strengthen controls over receivables and financial reporting. With the
Year 2000 remediation challenge successfully completed, we urge HCFA to
focus on these critical internal controls while continuing its efforts
to reduce improper payments and ensure provider integrity.
Specifically, we recommended that HCFA:
--Establish an integrated financial management system at the
contractors to promote consistency and reliability in recording
and reporting accounts receivable information.
--Establish a formal review process over accounts receivable to
detect unusual fluctuations, anomalies, and unexpected
variances.
--Ensure that contractors develop control procedures to provide
independent checks of the validity, accuracy, and completeness
of receivable amounts reported to HCFA.
--Develop an independent internal oversight group or internal audit
function to monitor the contractors' compliance with HCFA
reporting requirements for accounts receivable and verify the
accuracy and completeness of information reported to the HCFA
central office.
--Establish procedures for contractors to periodically reconcile
accounts receivable balances to supporting documentation.
--Periodically review contractors' control procedures over the
accounts receivable reconciliation process.
--Consider establishing a weekly limit on the total amount of
Medicare funds that can be drawn by contractor banks.
--Require the HCFA regional offices to periodically test bank
withdrawals to ensure there are no early withdrawals.
I appreciate the opportunity to appear before you today and to
share our reports with you, and I will be happy to answer any questions
you may have.
STATEMENT OF HON. LESLIE G. ARONOVITZ, ASSOCIATE
DIRECTOR, HEALTH FINANCING AND PUBLIC
HEALTH ISSUES, GENERAL ACCOUNTING OFFICE
Senator Specter. Representing the General Accounting Office
is Ms. Leslie Aronovitz, who has been at GAO since 1974.
She is Associate Director there for Health Financing and
Public Health, and her responsibilities include the Department
of Justice's use of false claims in health care matters and
oversight of Medicare claims; an MBA from Boston University; a
CPA.
Thank you for joining us, and we look forward to your
testimony.
Ms. Aronovitz. You are very welcome. Thank you, Mr.
Chairman, Senator Harkin, and Senator Craig. I am very pleased
to be here today as you discuss Medicare Program integrity
issues.
You have heard from the Inspector General Gibbs Brown and
the HCFA Administrator, Ms. DeParle, about their efforts to
quantify improper payments in the Medicare Program. We believe
these efforts are very worthwhile. However, the Medicare error
rate only provides a partial picture of Medicare Program
vulnerabilities.
My remarks today will focus on the major challenges that
HCFA still faces in safeguarding Medicare payments.
We believe that major information gaps exist in the
Medicare Program. For example, in traditional fee-for-service
Medicare, HCFA does not have a clear picture of the individual
or relative performance of the private companies that it
contracts with to review and pay providers' claims.
Although these companies are responsible for administering
the lion's share of the program, that's the fee-for-service
program, which is over $170 billion in fiscal year 1999, HCFA
does not have a good enough handle on how well these
contractors are performing their payment safeguard activities.
Agency evaluations of contractor performance have fallen
short of the necessary rigor to provide meaningful management
information. At the same time, until very recently, the
agency's field and central offices had not been structured in a
way that provided adequate program accountability.
HCFA, to its credit, has taken a number of promising steps
to address these weaknesses. And we will be very interested in
the agency's activities in the coming months.
Another information gap has to do with having the right
data to monitor prospective payment systems effectively. The
move from retrospective to prospective payments occurred after
rapid--years of rapid spending growth for post-acute care
services.
Prospective rates based on units of services--units of
service, rather than cost, are expected to reduce a provider's
incentive to deliver excessive services or incur unnecessary
costs. However, no payment system or methodology is perfect or
impervious to gaming.
Under the new approach, providers can inappropriately boost
revenues by skimping on services. The secret to making
prospective payment systems work as intended is to determine
what level of service is appropriate for a beneficiary and to
carefully monitor what level of services patients actually
receive.
This is no easy task. It requires data on utilization and
information systems that make the data readily available for
analysis. To date, HCFA's information on patients' utilization
of services is not sufficient.
The very same information gaps beset HCFA's efforts to
monitor Medicare+Choice program payments, which are also made
prospectively.
In fiscal year 1999, Medicare's payments to these plans
totaled more than 17 percent of all program spending. And this
share is expected to grow over time.
In recent years, we have reported on several problems.
First, plans could purposefully seek to attract and retain only
those beneficiaries who are relatively healthy and, therefore,
low-cost.
Second, plans could fail to deliver required services to
beneficiaries. Third, since payment rates are based in part on
plan provided information, erroneous or misrepresented data--
misreported data could lead to inappropriate payments.
Previous work by us and the Inspector General has uncovered
instances in which plans received inappropriate payments or did
not deliver services that they were paid to deliver.
Reliable information about plan enrollees will become even
more critical in the future, as Medicare phases in a new method
to adjust for patients' health status.
HCFA's information needs cannot be met with its existing
automated systems. Owing to a failed attempt at modernization
in the 1990s, HCFA's current systems remain seriously outmoded.
At the same time, HCFA has been left with fewer and fewer
administrative dollars to handle increasingly complex tasks. In
1998, HCFA's administrative expenses represented less than two
percent of its outlays.
Even after accounting for marketing costs and profit, no
private health insurer would attempt to manage such a large and
complex program with so small an administrative budget.
Nevertheless, providing more money alone would be imprudent
without an effective strategic plan. Such a plan would specify
how to transform the data collected into useful management
information.
And we are aware that HCFA has started down this path,
developing an IT architecture and--information technology
architecture, and we will be interested in its evolving
planning efforts.
This concludes my statement. And I will be more than glad
to answer any questions you may have.
Senator Specter. I thank you very much, Ms. Aronovitz.
[The statement follows:]
Prepared Statement of Hon. Leslie G. Aronovitz
Mr. Chairman and Members of the Subcommittee: I am pleased to be
here today as you discuss Medicare program integrity issues. You have
heard from the Department of Health and Human Services Office of the
Inspector General (HHS OIG) and the Health Care Financing
Administration (HCFA) about their efforts to quantify improper payments
in the Medicare program. Specifically, the OIG has reported a fee-for-
service claims error rate for the past several years and HCFA is
planning to estimate an error rate for each claims administration
contractor, which could help guide efforts to reduce inappropriate
payments. Although we believe these efforts are worthwhile, Medicare
error rates provide only a partial picture of program vulnerabilities.
My remarks today will focus on areas of vulnerability, highlighting the
ongoing and emerging challenges HCFA faces in safeguarding Medicare
payments.
In summary, major information gaps exist in the Medicare program--
in both traditional Medicare and Medicare+Choice--that impede HCFA's
ability to minimize program losses attributable to improper payments.
In traditional Medicare, HCFA does not have a clear picture of the
individual or relative performance of Medicare's claims administration
contractors, which are responsible for safeguarding the program's fee-
for-service payments that totaled $171 billion in fiscal year 1999.
HCFA also lacks sufficient information on newly designed payment
systems to determine whether providers have delivered excessive
services or stinted on patient care to inappropriately maximize
payments. As for Medicare+Choice, HCFA similarly lacks the data needed
to monitor the appropriateness of payments made to health plans and the
services Medicare enrollees receive. Owing to a failed attempt in the
1990s to modernize Medicare's multiple information systems, HCFA's
current systems remain seriously outmoded. Without effective systems,
the agency is not well-positioned collect and analyze data regarding
beneficiaries' use of services--information that is essential to
managing the program effectively and safeguarding program payments.
in traditional medicare, claims oversight problems remain and improved
PAYMENT METHODS CAN STILL BE GAMED
In traditional Medicare, HCFA contracts with private companies,
mostly insurance companies, to review and pay providers' claims for
health care delivered to program beneficiaries. How well these
companies have monitored Medicare's payments and have themselves been
monitored by HCFA are the subjects of recent GAO reports. We have also
reported on new prospective payment methods designed to replace
outmoded cost-based reimbursement methods. Both contractors' payment
safeguard activities and new prospective payment systems contain
existing or new opportunities for unscrupulous providers to exploit
Medicare.
Better vigilance needed over medicare contractors
In recent years, incidents have occurred in which Medicare's
contract bill-payers themselves--the front-line of defense against
provider fraud and abuse and erroneous Medicare payments--had engaged
in fraudulent or otherwise improper activities. However, HCFA rarely
uncovered these cases through its own oversight efforts. The reason, in
part, is that the agency relied on contractors' self-certifications of
management controls and contractors' self-reported data on performance
and seldom made independent validations of contractor-provided
information. In a number of the contractor integrity cases, poor
management controls and falsified data were recurring themes.
Not surprisingly, our report last year on HCFA's efforts to monitor
the Medicare claims administration contractors identified many
weaknesses.\1\ For years, HCFA's contractor evaluation process lacked
the consistency that agency reviewers needed to make comparable
assessments of contractor performance. HCFA reviewers had few
measurable performance standards and little agency wide direction on
monitoring contractor's payment safeguard activities. Under these
circumstances, the reviewers in HCFA's 10 regional offices, who were
responsible for conducting contractor evaluations, had broad discretion
to decide what and how much to review as well as what disciplinary
actions to take against contractors with performance problems. This
highly discretionary evaluation process allowed key program safeguards
to go unchecked and led to an inconsistent treatment of contractors
with similar performance problems.
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\1\ See Medicare Contractors: Despite Its Efforts, HCFA Cannot
Ensure Their Effectiveness or Integrity (GAO/HEHS-99-115, July 14,
1999).
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In addition to having a weak evaluation process, HCFA had not made
its multiple units that were responsible for contractor oversight
adequately accountable. Responsibility for various aspects of
contractor activities was splintered across many central office
components, while regional staff who conducted day-to-day oversight
were not directly accountable to any particular central office unit.
HCFA has taken a number of promising steps to address these weaknesses
and to achieve the following goals:
--Greater consistency.--HCFA has begun using national review teams to
conduct contractor evaluations. The teams combine the expertise
and dual perspective of central and regional office staff.
--Improved accountability.--HCFA established an executive-level
position at its central office with ultimate responsibility for
contractor oversight and recently announced plans for four
positions in the field, reflecting the four groupings of
regional offices known as consortia. The four consortium
representatives responsible for contractor oversight will
report both to the central office executive and to their
respective consortium administrators.
--Independent verification.--To address the need for independent
verification of internal controls and contractor-reported data,
HCFA hired a public accounting firm to develop standard review
procedures and evaluation methodologies.
--More meaningful error rates.--HCFA has an initiative, as you have
heard today, to develop a separate error rate for each
contractor. It plans to hire a ``validation'' contractor to
randomly sample processed claims and recheck the processing and
payment decisions made. From the results, HCFA could not only
develop an objective measure of contractor performance but also
identify which categories of services or provider types are the
source of improper billing practices, thus targeting areas that
need improvement.
Because these steps were taken recently, we have not evaluated
their success in addressing the agency's long-standing, fundamental
problems in overseeing its contractors.
Opportunities to game new payment methods difficult to control without
adequate management information
To constrain Medicare spending on unnecessary services, the
Balanced Budget Act of 1997 (BBA) introduced several payment reforms.
The BBA called for HCFA to develop and implement new methods to pay for
post-acute care--that is, the care Medicare beneficiaries receive
principally from skilled nursing facilities, home health agencies, and
rehabilitation facilities. Under cost-based reimbursement methods used
to pay post-acute care providers, Medicare experienced rapid growth in
post-acute care spending during the 1990s. At the same time, program
funding decreased for such safeguard activities as auditing providers'
cost reports.
Under the old payment methods, post-acute care providers were
reimbursed their costs (within certain limits) for all the services
delivered. Under the new methods, known as prospective payment, these
providers are, or soon will be, paid a prospective rate per unit of
care. The expectation is that prospective payment systems will
encourage the efficient delivery of care by reducing a provider's
incentive to deliver excessive services or incur unnecessary costs.
Providers face the risk of loss if their costs exceed their payments,
while those that can furnish care for less than the prospective payment
rate will retain the difference. However, a new opportunity for
providers to inappropriately boost revenues exists under this approach:
providers could skimp on services and compromise the patient's quality
of care. Because HCFA does not have the analytic tools available to
identify and document under service, any resulting improper payments
would not be captured by error rates as currently constructed. In
fiscal year 1999, Medicare's payments for skilled nursing facility and
home health care together totaled $28 billion.
Not all patients require the same amount of care, so the rate paid
for each patient is ``case-mix'' adjusted to take into account the
nature of the patient's condition and expected care needs.
These adjustments are required to ensure that providers serving
patients with more intensive care needs receive adequate payments and,
conversely, that providers are not overcompensated for patients with
lower care needs. Used in conjunction with a prospective per-unit
payment, case-mix adjustment is intended to reduce the incentive to
inappropriately increase profits by furnishing more or fewer services
than are needed. However, several analytical problems make ensuring the
appropriate payment for each patient a thorny issue, as illustrated by
the following types of post-acute care services.
--Skilled nursing facility care.--Under the skilled nursing facility
prospective payment system, facilities receive a payment for
each day of a patient's care, adjusted for case mix. This
approach was intended to control the rapid growth in certain
skilled nursing facility care costs. As we reported last
year,\2\ however, the case-mix adjustment methodology is
flawed. The case-mix groups that influence payment amounts for
each patient are defined largely by service use rather than by
actual patient need. Thus, a facility could increase a
patient's reported service use merely to increase payments.
---------------------------------------------------------------------------
\2\Medicare Post-Acute Care: Better Information Needed Before
Modifying BBA Reforms (GAO/T-HEHS-99-192.
---------------------------------------------------------------------------
--Home health care.--Under the home health prospective payment system
to be implemented in October, Medicare will pay agencies a per-
episode rate for up to 60 days of services for a patient.
Payment will be the same regardless of the number of days of
care or visits actually provided, and there are no limits on
the number of episodes a beneficiary could have. This approach
is intended to reward home health agencies for constraining
service use within an episode by encouraging efficient service
delivery. However, with no limits on the number of episodes
provided, providers continue to have the opportunity to
increase aggregate payments. In addition, defining an adequate
level of services within an episode is a problem, given a lack
of agreed-upon standards for the appropriate use of home health
care. Further, HCFA does not have the monitoring capability to
determine--in time to make a difference to the beneficiary--
whether the services provided within an episode are too few to
be considered adequate care.
--Inpatient rehabilitation therapy.--The prospective payment system
for rehabilitation facilities to be phased in beginning October
2000 is expected to be based on a single payment for all
services provided during a stay, like the payment for acute-
care hospitals. This approach is intended to reward providers
that deliver care efficiently. However, it will be difficult to
devise controls to keep facilities from merely discharging
patients earlier. The shorter stays would reduce the
facilities' costs but may not achieve the appropriate level of
rehabilitation for the patient. Such an outcome could not only
jeopardize the quality of a beneficiary's care but also raise
costs for Medicare if more post-acute care is needed after
discharge.
medicare+choice has its own set of integrity issues
The claims error rate is also an incomplete measure of payment
problems because it does not apply to dollars paid to health care plans
that participate in the Medicare+Choice program. In fiscal year 1999,
Medicare's payments to these plans totaled $37 billion, or more than 17
percent of all program spending, and this percentage is expected to
grow over time. Because a Medicare+Choice plan receives a fixed monthly
payment for each beneficiary it enrolls, instead of being paid
separately for each service delivered, this program raises a new set of
program integrity challenges.
Broadly speaking, the following three situations illustrate the
program integrity issues that potentially exist in Medicare+Choice.
First, plans could purposely seek to attract and retain only those
beneficiaries who are relatively healthy and low-cost. Second, plans
could fail to deliver required services to beneficiaries. Finally,
since payment rates are based in part on plan-provided information,
erroneous or misreported data could lead to inappropriate payments.
Previous work by us and the HHS OIG has uncovered instances in which
plans received inappropriate payments or did not deliver services that
they were paid to deliver. Although the full extent of these problems
is not known, the available information suggests that HCFA needs to
improve its capacity to monitor plan performance and ensure that
payments are appropriate and that plans fulfill their obligations. The
following elaborates on the program integrity challenges in
Medicare+Choice.
--Favorable selection of healthier beneficiaries.--Plans gain
financially when their enrolled Medicare beneficiaries are, as
a group, healthier than beneficiaries in traditional Medicare--
a phenomenon known as favorable selection. This gain occurs
because healthy beneficiaries cost less to serve than
chronically or acutely sick beneficiaries and Medicare's
payment is not adequately ``risk adjusted'' to reflect that
fact. Our recent work examining those who join Medicare+Choice
plans confirms varying degrees of favorable selection among the
health plans. This enrollment pattern could have a benign
explanation: healthy beneficiaries may be more willing to
enroll than sick beneficiaries, who could have attachments to
providers that might not belong to the selected plan's provider
network. However, it is also possible that some plans--through
their marketing practices or provider incentive arrangements--
attract healthier beneficiaries and have more of their sick
members disenroll. Regardless of the cause, the consequences of
favorable selection in the presence of an inadequate risk
adjuster are huge--resulting in billions of dollars in excess
payments.\3\
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\3\Medicare HMOs: HCFA Can Promptly Eliminate Hundreds of Millions
in Excess Payments (GAO/HEHS-97-16, Apr. 25, 1997).
---------------------------------------------------------------------------
--Failure to deliver required services.--Plans could also profit by
not providing services that they are paid to deliver. Last year
we reported that a large Medicare+Choice plan provided a
prescription drug benefit with less coverage than it agreed to
in its contract with HCFA.\4\ This case was discovered in our
review of plan marketing materials, which found that several
plans distributed misleading, inaccurate, or incomplete
information about covered benefits. Until recently, when plans
started submitting data on hospital admissions, HCFA had no
systematic information regarding the services managed care
enrollees received. Instead, the agency relied, and to a great
extent continues to rely, on beneficiaries being aware of the
services to which they are entitled and complaining when those
services are not provided. This weak oversight mechanism cannot
ensure program integrity. Medicare is a complex program, and
many beneficiaries do not understand what benefits the program
covers. Flawed plan marketing materials contribute to the
misunderstandings. In addition, beneficiaries may not know
where or how to complain. We reported last year that several
plans failed to adequately inform beneficiaries that they could
appeal a plan's decision to deny services or payment for
services.\5\
---------------------------------------------------------------------------
\4\ Medicare+Choice: New Standards Could Improve Accuracy and
Usefulness of Plan Literature (GAO/HEHS-99-92, Apr. 12, 1999).
\5\ Medicare Manage Care: Greater Oversight Needed to Protect
Beneficiary Rights (GAO/HHEHS-99-68, Apr. 12, 1999).
---------------------------------------------------------------------------
--Misreported or erroneous data that increase payments.--A final area
of potential concern relates to the data used for payment
purposes. For example, in 1998 we reported that some plans took
advantage of an overly broad Medicare definition to classify
healthy beneficiaries living in retirement communities as
living in ``institutions'' and thereby substantially increase
their Medicare payments.\6\ HCFA has since adopted our
recommendation to tighten the definition of an institution for
payment purposes, but the extent to which the new definition is
being enforced is uncertain. The OIG has reported numerous
instances in which erroneous data resulted in inappropriate
plan payments. For example, the OIG found cases in which
Medicare paid plans for deceased beneficiaries and for
beneficiaries receiving services in traditional Medicare. The
OIG also found plans that inappropriately collected enhanced
payments by misreporting their beneficiaries' institutional
status. Reliable information about plan enrollees will become
even more critical in the future as Medicare phases in a new
risk adjustment methodology. Under this new methodology,
payment rates will be determined largely by provider encounter
data submitted by plans. Any errors in the encounter data will
thus result in inaccurate plan payments.
---------------------------------------------------------------------------
\6\ Medicare HMO Institutional Payments: Improved HCFA Oversight,
More Recent Cost Data could Reduce Overpayments (GAO/HEHS-98-153, Sept.
9, 1998).
---------------------------------------------------------------------------
outmoded information systems limit hcfa's ability to manage medicare
A major structural issue underlies HCFA's efforts to safeguard
Medicare payments: the need for reliable management information. This
is true whether the information pertains to payment of claims, new
post-acute care payment methods, or Medicare+Choice payments. To
protect taxpayer dollars from unnecessary program spending, HCFA needs
the information to ensure that claims payments are accurate and that
payment rates are set at the appropriate level. To protect
beneficiaries from providers' withholding needed services, HCFA needs
information on beneficiaries' health status and use of services. The
following are among HCFA's major information challenges:
--Traditional Medicare.--In addition to a long-standing need to
upgrade its claims analysis capabilities, HCFA requires
information on patient health needs. As discussed earlier,
major gaps in information make prospective payment systems
vulnerable to manipulation, thus undermining the potential for
the prospective payment approach to constrain Medicare costs.
For example, payments for skilled nursing facility and home
health care would be more accurate if linked to patient need
rather than to service use, but HCFA has only begun collecting
the data necessary to develop standards of appropriate care.
--Medicare+Choice.--As with the case-mix adjuster for post-acute care
payment methods, Medicare needs an improved risk adjustment
system to ensure that payments better reflect the expected
health care costs of managed care enrollees. Recently, HCFA
launched several initiatives, including a beneficiary
satisfaction survey, the collection of selected self-reported
plan performance measures, and the collection of hospital
admissions data to improve Medicare's risk adjustment
methodology. Collection of more comprehensive encounter data is
planned for the future. However, HCFA lacks a coordinated
strategy to analyze these data and use the results to improve
its oversight responsibilities.
HCFA's information needs are not being met with Medicare's existing
fragmented and aged set of computerized information systems. Seriously
affected are the systems that support traditional Medicare,
Medicare+Choice, and HCFA's financial management efforts.
In the early 1990s, HCFA launched a systems acquisition initiative
to replace Medicare's multiple, contractor-operated claims processing
systems with a single and more technologically advanced system, called
the Medicare Transaction System (MTS). HCFA envisioned that a
modernized, single system would (1) save administrative dollars and
simplify making system changes, (2) enhance HCFA's ability to manage
the Medicare contractors by obtaining uniformly formatted, comparable
data, and (3) greatly improve the ability to spot, both on-line and
after payment, improper billing practices. Although MTS was based on
the sound notion that a comprehensive, integrated system was needed, it
failed operationally, through a series of planning and implementation
missteps. HCFA's failure to acquire an integrated system left the
program with numerous aging information systems that needed year 2000
renovation.
Similarly, HCFA's managed care information systems, developed a
decade ago, may have reached their capacity to accommodate
modifications associated with an increasingly complex and demanding
program. An outside firm's assessment of HCFA's managed care
information capacity found, among other problems, that the current
system makes it difficult to extract information for policy decisions
and program management; is labor-intensive to modify and validate; and,
because of its batch processing structure, does not provide timely
information on beneficiary enrollment or other plan transactions.
Finally, with regard to financial management, HCFA cannot ensure
that key financial data are reliable and available or that sensitive
beneficiary data are kept confidential. In repeated annual audits, the
OIG found that HCFA's and the contractors' systems can be penetrated,
leaving sensitive claims and medical record information inadequately
protected. The focus on year 2000 system renovations has, in part,
delayed HCFA's efforts to address the security weaknesses identified.
HFCA also lacks an integrated accounting system to examine Medicare
expenditures at the contractor level, depending instead on labor-
intensive processes to prepare financial statements. HCFA has an
initiative under way to develop an integrated accounting system, but it
will not be fully operational until 2004 at the earliest.
While it is clear from the problems outlined that investment in
HCFA's information systems is warranted, such an investment must be
coupled with a clear strategy to ensure that investment is made wisely.
In efforts to run the program economically, HCFA has been left with
fewer and fewer administrative dollars to handle increasingly complex
tasks. In 1998, HCFA's administrative expenses represented about 1
percent of its outlays from the Hospital Insurance Trust Fund and about
2 percent of outlays from the Supplementary Medical Insurance fund.
Even after accounting for marketing costs and profit, no private health
insurer would attempt to manage such a large and complex program with
so small an administrative budget. HCFA's ability to provide assistance
to beneficiaries, monitor the quality of provider services, and protect
against fraud and abuse is dependent on adequate administrative
funding. Nevertheless, providing increased funds for upgrading systems
would be imprudent without an effective strategic plan. Such a plan
would, among other things, envision how to transform the data collected
into useful management information. We are aware that HCFA has started
down this path, and we will be interested in its evolving planning
efforts.
CONCLUSIONS
Despite BBA reforms and HCFA's many important initiatives, Medicare
remains a high-risk program. Its coverage policies and payment systems,
affecting almost 40 million beneficiaries and hundreds of thousands of
providers, are highly complex and susceptible to exploitation. HCFA's
most significant tools for combating the problem of improper payments
are the systems that produce information about beneficiaries' use of
services. Over the last 2 years, HCFA's information technology efforts
focused largely on preparing Medicare's systems to meet year 2000
readiness requirements. The time lost while HCFA was focused on other
priorities makes modernizing Medicare's multiple information systems
now all the more compelling.
Mr. Chairman, this concludes my prepared statement. I would be
happy to answer any questions you or other Subcommittee Members may
have.
Senator Specter. Taking up the issue, first, of the
regulatory system and some of the complaints of the American
Medical Association, Ms. DeParle, I think they do raise an
issue, which requires some consideration when they complain
about the failure of HCFA or the absence of an 800 number for
physicians to call in with complaints. Have--has HCFA
considered having an 800 number?
Ms. DeParle. Not only has HCFA considered it, but we are
doing it.
Senator Specter. Oh, you are going to do it?
Ms. DeParle. We are going to do it. It costs money, but we
are going to take, the estimate is around $4 million to supply
an 800 number that providers, especially physicians who have
raised this, can call in and get their questions answered.
Senator Specter. When do you expect to have that operative?
Ms. DeParle. I need to get back to you, Senator. I would
hope by this summer, but I do not want to give you a date
unless I am sure of it.
Senator Specter. With respect to the complications of the
regulatory system generally, Ms. Brown, as you state some of
the critical failings, like not having any backup materials to
identify or justify the procedure, to what extent is AMA
justified in complaining about the complex regulations when you
come to matters of overbilling and matters which are
fraudulent, Ms. Brown?
Ms. Brown. Well, I think they are very nervous and probably
very sincere, but I am sure that you could look through our
records and find that there have been no prosecutions of people
who have made inadvertent errors or misjudgment of one or two
levels in a coding or----
Senator Specter. Well, aside from the prosecution issue,
what justification do they have, if any, for complaining that
the regulations are too complicated, to be able to give
guidance on the items that you have reported as erroneous or
fraudulent?
Ms. Brown. Certainly, there is no doubt that the Medicare
regulations are complicated. And I think that HCFA has made
great strides and is continuing to try and simplify those
regulations, also providing educational opportunities through
the contractors to contact the various provider groups and give
them explanations. We are doing a lot of that work, too. We
give advisory opinions, and we provide voluntary----
Senator Specter. Are the regulations too complicated for
them to understand on the items you have identified in your
audits?
Ms. Brown. I do not believe they are. I think they----
Senator Specter. Ms. DeParle, how about the broader
question of simplification of regulations? Congress has stepped
in in a pretty firm manner on IRS. Should we be doing that with
HCFA?
Ms. DeParle. Well, I have done so, sir. I have established
a physician regulatory----
Senator Specter. To what extent have you simplified your
regulations?
Ms. DeParle. We have done as much as we can. We stopped
something that the AMA said they did not like, which was a
documentation guideline system that--before I got there, HCFA
had worked for several years with the AMA to establish this new
documentation system. They decided they did not like it, that
it was too complicated, or a number of their members did.
So we stopped it. We went back to the drawing board. We
have been working with them on another system. We intend to
test it this year.
We have gone all over the country meeting with physicians,
asking them to let us know about things that we can make
simpler. But I have to tell you, you know, we have a common
interest with the physician community, as I know you do, in
making sure that Medicare is fiscally sound.
And a lot of the things that the Inspector General has
identified in these audits are not things where regulation had
anything to do with it.
It is: ``Did you see the patient, or did you not? Did you
perform the service, or did you not?'' Those are not things
that you need a regulation----
Senator Specter. Regulations do not affect that, do they?
Ms. DeParle. Right.
Senator Specter. Ms. Aronovitz, your work with GAO
comprehends the Department of Justice's use of false claims. To
what extent are there criminal prosecutions for these matters?
You cannot be convicted of fraud for a complex regulation.
A fraud conviction requires intent, an intent to defraud, which
is an intent to cheat----
Ms. Aronovitz. Yes.
Senator Specter [continuing]. An intent to obtain money
where it is not justifiably due.
Ms. Aronovitz. Right.
Senator Specter. To what extent, does the Department of
Justice now use the criminal process, and to what extent in
your view should the criminal process be used as a deterrent?
Ms. Aronovitz. Well, I think the criminal process is a very
important part of the whole--the whole compliance process, but
it is only one part. It is way at the end. And there are very
few people who are actually subject to that part of the
process.
We need to make sure that, up front, people understand the
regulations. They follow them, and that there is immediate
information that HCFA has that could either stop a payment
before it gets paid, or immediately try to recover money.
Senator Specter. Come back to my question.
Ms. Aronovitz. Right. The----
Senator Specter. How frequently does the Department of
Justice----
Ms. Aronovitz. Yes.
Senator Specter [continuing]. Institute criminal
prosecutions in this area?
Ms. Aronovitz. Since the Health Insurance Affordability and
Accountability Act gave the Department of Justice and the I.G.
and HCFA more money to use the false claims, they are doing, I
think, a much better job in prosecuting health cases. But they
really do have a standard that they have to apply in the false
claim to----
Senator Specter. Give us an idea as to what extent they are
using the criminal process. Give us a number, a quantification.
To what extent do they bring criminal charges?
Ms. Aronovitz. I really would need to find out
specifically.
Senator Specter. Would you provide the subcommittee with
that?
Ms. Aronovitz. Sure. Sure.
Senator Specter. And the other part of the question, which
you have not addressed is: To what extent ought there to be
more criminal prosecutions?
Ms. Aronovitz. Well, I think that there should be criminal
prosecutions wherever it is warranted. And the question is how
you identify the cases that are worthy of prosecution. And that
is the challenge that the Department of Justice and the I.G.
and HCFA has, and that is one that is going to continue.
Senator Specter. I would appreciate it if you would focus
on the question a little more.
Ms. Aronovitz. I would be happy to.
Senator Specter. Give us a better response on the extent
that there are criminal prosecutions, an evaluation as to the
deterrent effect of the criminal prosecutions, and areas where
your judgment is there ought to be more or less criminal
prosecutions.
Ms. Aronovitz. OK. We will be happy to do that.
Senator Specter. Senator Harkin.
Senator Harkin. Thank you, Mr. Chairman. I am going to pick
up on that a little bit, because criminal prosecution is one
thing, but making sure that if people make a mistake once or
twice and they are not allowed back in the system for awhile,
may be even more of a deterrent than criminal prosecutions.
I just want to ask, first, Ms. Gibbs-Brown, why the two
previous audits again showed steady progress, then came back
up? And, again, for the record, to what do you attribute this?
Why do we have this little setback? To what do you attribute
this, the fact that we were coming down and now we have gone
back up again, especially in unsupported service?
Ms. Brown. Sir, I do not believe that it is statistically
significant, because as I mentioned there is a range in there,
and so it was so much within that range that it is probably a
plateau.
You know, in the first year where it came down to $21-plus
billion, we were concerned as to whether that was really the
start of a trend or whether or not that was a fluctuation
because of the statistical sampling technique.
Senator Harkin. OK.
Ms. Brown. We found that it not only was the start of a
trend, but a very quick incline. And I think that we have
really resolved a lot of the easier problems. And now we are at
the point where it is going to take some intensive work.
And I do think that HCFA has taken some very aggressive
action that should get this decline in erroneous payments down
even further.
Senator Harkin. You are just saying that we got the easy
stuff first. Now, it is getting harder?
Ms. Brown. That is right.
Senator Harkin. Does the figure of total mispayments, the
whole thing, $13.5 million, include all of the losses to the
program from fraud, waste and abuse, or are there additional
losses, such as those to excessive payments for medical
supplies, what I was just pointing out there? It does not
include this, does it?
Ms. Brown. No, not at all.
Senator Harkin. It does not. Do you have any idea of what
we are talking about here?
Ms. Brown. This is strictly overpayments in the fee-for-
service area.
Senator Harkin. All right.
Ms. Brown. A percentage is probably fraud. We have
forwarded some of these cases to our investigative unit to look
into further.
Senator Harkin. Yes.
Ms. Brown. But there is many types of fraud. It would not
even start to identify----
Senator Harkin. Well, I do not think this--this is not
fraud.
Ms. Brown. This waste--no, no.
Senator Harkin. That is not fraud.
Ms. Brown. Those are things allowed by the current system.
Senator Harkin. Yes.
Ms. Brown. And there needs to be changes, a lot of which
were made under the Balanced Budget Act and----
Senator Harkin. Do you----
Ms. Brown [continuing]. Improvements are being made, but
too slowly.
Senator Harkin. Well, and I just--you know, again, I want,
Mr. Chairman, for the record to show that this does not
include----
Ms. Brown. Yes.
Senator Harkin [continuing]. All of the overpayments that
are going out.
Ms. Brown. That is true.
Senator Harkin. And do you--can you extrapolate for us
what--or have you looked at how much more might be going out if
you extrapolate on medical devices, for example, and--or
supplies, medical supplies?
Ms. Brown. The sampling technique does not allow us to
actually do it with this technique.
If I could mention just a couple of other things that might
also have the chairman's question answered a little bit better:
For instance, in the last 2 years since more funding was
provided, a great deal of it through your efforts, sir, why,
the results in 1997 through 1999 include we won and negotiated
over $2.2 billion in judgment settlements and administrative
positions in fraud cases.
Senator Harkin. How much? $2.2 billion?
Ms. Brown. $2.2 billion in fraud cases. $1.6 billion of
that has been put back in the trust fund. Some----
Senator Harkin. OK. Can I interrupt you? That leads me to
my next question, and that was the--I have been arguing for
years that we need more in the--what is that account called?
Ms. DeParle. Medicare Integrity Program.
Senator Harkin. Thank you. So what is the return on that
now? Remember, we were always talking in the past about the
return per person we had. I think it was like 13 to 1 at one
time, if I am not mistaken.
Ms. Brown. Yes. OK. In the last 2 years, we have--from our
office's efforts, of course combined with other people such as
the Department of Justice that prosecutes, and HCFA who helps,
but we have--in 1998, we had a $99 to $1 return. In 1999, a $98
to $1 return. So----
Senator Harkin. So for every dollar that we put in the
Program Integrity account, and that includes the personnel
obviously----
Ms. Brown. Yes, absolutely.
Senator Harkin [continuing]. And the accountants and
whoever you have hired, for every dollar we put in that, we
returned $99 to the trust fund.
Ms. Brown. Most of it goes into the trust fund. There is
some awards for the KWETAM people and so on. Justice gets 3
percent. But the majority of it all goes back into the trust
fund now.
Senator Harkin. Would you supply for me again--maybe Peter
or someone has it, and I just have not asked them this. But
what has been the record in that account?
How many personnel--how many people do you have working
there, and show me for the last several years?
Ms. Brown. All right.
Senator Harkin. I think it was low; then it came up. We
hired some more in the last few years. But where are we now?
And how much more--well, let me handle, ``How much more?''
But, please, if you can get to me how many people, because
obviously if we are getting $99 return for every $1 that we
have invested, we have got a long way to go before we reach a
break-even point.
Ms. Brown. Yes. I should correct myself, in that some of
that money was through system improvements, such as the things
you held up, where it is legal to make certain charges but it
is not common sense to do it.
And some of those things do not come back, but they are
savings that will appear because of changes in regulations, in
some cases in laws and so on.
That money that is a result of criminal prosecutions or
settlements and other types of recoveries through audit and so
on does go back into the trust fund. So the whole $99 does not,
but regardless of that, there is a tremendous return on
investment.
Senator Harkin. Well----
Ms. Brown. And we can certainly use more money. We have not
reached the level of diminishing return.
Senator Harkin. Would you delineate that out for me a
little bit better----
Ms. Brown. Yes.
Senator Harkin [continuing]. Not now today, but get it to
me?
Ms. Brown. Yes. I would be glad to.
Senator Harkin. I mean, on how much really came back to the
trust fund. If it is not $99, it must be somewhere around----
Ms. Brown. OK.
Senator Harkin. I do not know what it is.
Ms. Brown. All right. Per dollar spent?
Senator Harkin. Yes. Exactly.
Ms. Brown. Yes. Okay. I will do that.
Senator Harkin. Thank you.
Senator Specter. Ms. Brown--thank you, Senator Harkin. On
the issue of not identifying or establishing that a service was
performed, that is a fairly clear-cut matter.
When you testify about unnecessary services, what is the
judgment call there by the auditors, contrasted with the
medical judgment as to what is a necessary service?
Ms. Brown. The auditors actually do not make the judgment.
We have medical people who do that review and if--Joe Vengrin,
who conducted these audits, can probably give you a little
better detail.
Mr. Vengrin. Yes. Senator, on----
Senator Specter. I am asking you that question because we
have that concern on the HMOs where there are disagreements as
to whether, on the recommendation of a general practitioner for
a specialist, the HMO declines really with the motivation to
keep down costs.
Ms. Brown. Yes.
Senator Specter. And the thrust of this question goes to
whether you are second guessing the physicians and how that
works out.
Mr. Vengrin. Senator----
Senator Specter. Could you identify yourself for the
record, please?
Mr. Vengrin. Yes, sir. I am Joe Vengrin, Assistant
Inspector General for audit.
In this case here, 92 percent of these errors were detected
by the medical review. The other 8 percent were pricing errors
and some duplicate payments that the auditors found, but the
preponderance of these errors were found by the medical review.
And typically we use the physicians, the pros, or the
contractors who process these claims, the medical review staff.
And it goes through a multitude of levels of additional
reviews. So in many cases, it is not just one medical
professional; it is more than two or three in some cases.
Senator Specter. How do you come to the point on the
judgment that it is an unnecessary service? Inspector General
Brown testified on unnecessary services. How is a determination
made disagreeing with the physician's judgment that it was
necessary where the auditors or HCFA say it is unnecessary?
Mr. Vengrin. It is the medical staff. And the medical staff
when they see the medical records, they are saying, for
example, that the inpatient services was not needed.
Either the beneficiary did not require the level of care,
or the service could have been provided on an out-patient
basis; or in the cases of durable medical goods that the
beneficiary did not need the particular service. It was
unneeded.
Senator Specter. And to what extent, again, are the claims
made on what you regard as unnecessary services?
Mr. Vengrin. I am sorry, sir. I did not understand----
Senator Specter. To what extent is that a problem,
arithmetically?
Mr. Vengrin. The medical necessity is $4.4 billion.
Senator Specter. What is your judgment, Ms. Brown, about
the issue of deterrents? Information and education is a big
factor. We were discussing that.
To what extent are these false claims deterrable, and how?
Ms. Brown. I think we have already seen a big change,
particularly in hospitals where they are billing correctly now
after some aggressive action in getting money back when there
was overbillings.
Even most experts who have analyzed the inflation rate of
the payments out of Medicare have attributed the fraud and
abuse efforts to a great degree for the diminishing amount of
inflation that has occurred in the Medicare area.
So I do think that we are having a tremendous deterrent
effect. And for the many, many--the vast majority of providers
who are honest and trying to do a good job, it--they are doing
a good job. But we have these outlying cases, which also have
to be addressed.
Senator Specter. Ms. Brown, one question if I may: On a
parochial subject, the fiscal year 2000 appropriation bill has
a provision for an I.G. field office in Pittsburgh.
Ms. Brown. Yes, sir.
Senator Specter. When may I visit there?
Ms. Brown. We are working with GSA currently to get space,
and I certainly expect it before the end of this fiscal year.
We currently have 95 people in Pennsylvania. And there are
three in Harrisburg.
Senator Specter. Well, that is more than I have in
Pennsylvania, aside----
Ms. Brown. Most of them are in Philadelphia.
Senator Specter [continuing]. Aside from my 12 million
constituents.
Ms. Brown. But we are opening the office in----
Senator Specter. So the end of the fiscal year, that is
September 30 on my calender.
Ms. Brown. It will be opened before that. And I will invite
you to the opening, sir.
Senator Specter. OK. Thank you very much.
As I said earlier, I am going to have to excuse myself, and
I yield and leave the gavel in good hands with Senator Harkin--
--
Senator Harkin. OK.
Senator Specter [continuing]. With the admonition that this
does not reflect a change in party control.
Senator Harkin [presiding]. All right. Thank you, Arlen.
Thank you, Mr. Chairman.
And I just have a few more, then I have an elementary and
secondary education markup that I have to go to also. But thank
you, Mr. Chairman.
I just want to ask, Ms. Brown, one thing. Do you believe
that taxpayers--it is just--I want to get this on record. Do
you believe that taxpayers would see a positive return if
Congress were to expand funding of the I.G. under the, I guess,
it is called the health-care fraud and abuse account, which is
the program integrity account?
I know you have already told me what the average return is.
My question is: Would taxpayers see a positive return if
Congress were to expand funding for the I.G. under this
account?
Ms. Brown. I can say absolutely, yes. I think that the
point of diminishing return has not been reached. There are
some large areas where we are not able to even provide
coverage. We talked about the contractors. We have had 14
contractors now where we have had large settlements.
And I think it was mentioned in the opening, Connecticut
General Life Insurance Company is paying back about $9 million
now for overcharging.
Senator Harkin. Yes.
Ms. Brown. The contractors also have as we have testified
here in our financial statement audit, they are not doing any
double entry accounting. They are not--they are being very
careless. There often is not backup, any subsidiary account at
all for accounts receivable.
Now, HCFA has cleaned this up. But there is really no
excuse for saying you have all these receivables and not having
anybody that is responsible for that. It is my belief that we
ought to have auditors at the contractor level to do ongoing
monitoring.
Senator Harkin. Yes.
Ms. Brown. I really got this idea when I was--or from my
experience at Department of Defense. We are paying almost $170
million--billion out at those contractors.
In Defense, they have DCAA, which is auditors who work at
the various defense contractors level, and they monitor what is
going on and keep things up to date.
Senator Harkin. Are they under the I.G.'s jurisdiction?
Ms. Brown. No. They are separate from the I.G., but, of
course, that has been longstanding, long before the I.G. even
appeared there.
Senator Harkin. I see.
Ms. Brown. I think there could be a separate division in
the I.G. who did this contractor work and that you would see
very, very impressive results as a result of that.
Senator Harkin. Do you have any idea how many personnel we
are talking about and how much it might cost?
Ms. Brown. I----
Senator Harkin. If you do not today, if you could send it--
--
Ms. Brown. What we worked up when we were trying to develop
this proposal, it would be about $15 million for the I.G.
Now, there is also responsibility at HCFA, and they are
putting substantial resources into that area in the near
future. They have already developed their plans, and they do
have some funding for it. But there is not funding that has
been provided for the I.G. Office.
Senator Harkin. Well, I am a little confused here. If you
are going to have the auditors, as I understand, at the
contractor level, would those contractors work for you, Ms.
DeParle, or for Ms. Brown? I am a little confused.
Ms. Brown. There--the contractors for HCFA----
Ms. DeParle. The contractors contract with Medicare, but
then we have a job to do in overseeing them to make sure they
are doing their basic responsibilities. We need to step up
those efforts, as I think you can tell from this report today.
Senator Harkin. Right.
Ms. DeParle. So that is what we are in the process of
doing. But the Inspector General has an additional plan on top
of that. And we are doing a lot of our work, frankly, sir,
through contractors.
We have hired an independent accounting firm, because we
have a very small staff, as you know, to go out to 25 of the 55
contractors and go through their books and go through their
internal controls and just, you know, go through line by line.
What June is talking about is an effort where there would
be an ongoing presence at the contractors----
Senator Harkin. Right. I understand that.
Ms. DeParle [continuing]. And from the Inspector General's
Office.
Senator Harkin. Well, that auditor would be under the
Inspector General's office----
Ms. DeParle. Yes, sir.
Senator Harkin [continuing]. Not under your purview.
Ms. DeParle. Yes, sir.
Senator Harkin. Again, so you are saying that to do that
adequately, you would need $15 million additional to hire----
Ms. Brown. Yes. I think we could cover 80 percent of the
contract dollars going out, with about that amount so--I had
worked up a proposal. And it would come to about $15 million,
and we would have a separate division who took care of that.
Senator Harkin. Did you submit that proposal to OMB and all
that kind of stuff?
Ms. Brown. It was not accepted by OPM--OMB.
Senator Harkin. Do we have a copy of that? Would you give a
copy of that to me, please?
Ms. Brown. Yes, sir, I will.
Senator Harkin. Let me rephrase that: Would you supply for
the record a copy of that to this subcommittee?
Ms. Brown. I will.
Senator Harkin. All right. Because I would like to take a
look at that.
Ms. Brown. All right.
Senator Harkin. I am glad you brought that up.
I was reading through your testimony last night, Ms.
DeParle, and I was--just a couple of things leaped out at me.
On page five of your written testimony, you said, ``We also
removed about $300 million in debt, as much as 10 years old,
with no potential for collection from our financial statements.
Some of these debts exceed the statute of limitations for
collection.''
Is there any way--do you have a system to cross-check or to
ensure that those that skipped out on those are not back in the
system, any cross-check of names?
Ms. DeParle. Yes, sir, I believe we do. And as you know,
one of the first things you and I talked about was developing a
comprehensive plan for program integrity, which we have now.
One of the items in it is provider enrollment to require
providers to go through a process of enrolling and re-enrolling
every so often. And I believe that system, which is underway
now would catch folks like that.
However, there are still some gaps. And I believe we have
talked to your staff about some of those that you might be able
to help us with legislatively. Sometimes, a provider can be in
business under one name and go out of business----
Senator Harkin. Change----
Ms. DeParle [continuing]. And then come back suddenly as
somebody else. And without an effort--without an ability to
require them to report social security numbers and tax I.D.'s
and things like that, it can be difficult.
But we do have a basic system, and I am sure there can be
improvements made to it.
Senator Harkin. Well, it just seems to me a simple
question, if they are--if a provider is trying to get into the
Medicare system, I am sure that in the paperwork that they have
to fill out--I mean, it is just a simple question, ``Have you
ever done business with Medicare before under any other names,
and please list those,'' or ``Have you ever been associated
with any concern under other names?'' And if they falsely
attest to that, then that--that is fraud.
But it just seems to me if you have written that off, that
there ought to be some way of checking to make sure that they
are not back in the system today if they have skipped out on
it.
I mean, I just have gone through a thing with student loan
programs; and if we can do that with student loans, we ought to
be able to do it here.
Ms. DeParle. I agree. In fact, they have called me about
some of the things we are doing, so we are going to work
together with them.
Senator Harkin. What, the student loan program?
Ms. DeParle. Yes, sir.
Senator Harkin. Oh, OK.
Ms. DeParle. There could be some analogies as you point out
in the way we do business. The question that you mention, by
the way, is on the application form for providers.
Senator Harkin. Oh, it is?
Ms. DeParle. Yes.
Senator Harkin. ``Have you ever done business in another
name,'' or something like that?
Ms. DeParle. Yes, sir.
Senator Harkin. OK.
Oh, yes, again, on page six, ``While the national error
rate has helped us focus our efforts on preventing improper
payments, we need stronger tools to uncover the real problem
areas. The key to this effort is our proposal to develop
contractor specific error rates.''
Could you just briefly explain to me what that means? I do
not----
Ms. DeParle. Yes. As the Inspector General noted, what we
have is a national error rate, so it tells you what is
happening across the entire country, with respect to
documentation for physicians or durable medical equipment
suppliers.
We need to be able to drill down and find out what the real
problem is. Is that just a phenomenon that is occurring in a
few areas of the country, or is it really all over the place?
And the kind of error rate that we have had, while it has
been very good in helping us to focus our efforts on the
biggest problems, it does not help us drill down as much as we
need to.
I need to know whether we have a problem in Iowa or whether
there is no problem in Iowa, and the fact is we need to be
focusing the funds that you get us on the Southwest or
whatever.
So we have now developed a program to do a contractor
specific error rate; so these contractors who process the
Medicare claims, we will be able to see how they are doing in
paying claims correctly.
That will enable us to come up with corrective action
plans. It will enable us to focus, if we need to, on providers
in a specific area.
Senator Harkin. Oh, OK.
Ms. DeParle. The Inspector General and I are working on a
system to take that information and do a report card for the
contractors. And that, in my view, is a way to more effectively
manage these contractors.
And if I can just put in a plug, I think you know that this
is the 8th year that the President has sent up to the Congress
contractor reform legislation to change the way that that
system is run.
I believe you have been supportive of that in the past, and
I hope we can work with you again on it. I would really like to
get that done. I think it is in the Government's best interest.
Senator Harkin. I hope we can, too.
When you are talking about developing this. I mean, is this
going to be something that you will have this year, or----
Ms. DeParle. Yes, sir.
Senator Harkin. This year.
Ms. DeParle. We are starting it this year. We pilot tested
it last year. And we are starting it with the durable medical
equipment suppliers this year. So with all of those carriers,
we will be doing this contractor specific error rate. And
since, as you noted, that is a big part of our problem, I think
that is an effective way to start out.
Senator Harkin. So later this year, or this time next year,
we will have some----
Ms. DeParle. Yes, sir, I believe we will.
Senator Harkin. OK. Well, we have talked about the report
cards, failure to improve, risk losing their Medicare business.
Well, again, you are talking about the report cards. I am
going through your testimony again here, ``Contractors who have
performed poorly and failed to improve risk losing their
Medicare business.''
Will they know what they will have to do or they will lose
it?
Ms. DeParle. Yes, sir, they will.
Senator Harkin. They will have a heads up on that.
Ms. DeParle. We are going to amend their contracts this
year to require them--when we identify financial management
problems or internal control problems--by we, I mean, we, our
independent auditors that are there and the Inspector General--
they will have to do a corrective action plan and fix the
problem. And if they do not, they will risk losing it.
But as you know, right now, under law, we are limited to a
certain group of contractors to perform this work. And what I
would like is to broaden that group.
Senator Harkin. Yes. That is----
Staff. That is in the bill.
Senator Harkin. That is in the bill, too. But I just want
to ask you about that. And, again, just making the point here,
``We continue to seek contracting reform legislation to allow
Medicare to use all firms capable of processing claims and
protecting program integrity. Existing law requires Medicare to
use only health insurance companies to process claims, and
allows some providers to choose their claims processor. This
has hampered our program integrity efforts.'' So that is what
you are getting at, is it not?
Ms. DeParle. Yes, sir. That is the contractor reform
legislation that the President has sent up.
Senator Harkin. Right. All right. ``The I.G. and the GAO
both have agreed we need to create an open marketplace in
this--in this system.''
Ms. DeParle. Yes.
Senator Harkin. Lastly, Ms. DeParle, where are we on
competitive bidding?
Ms. DeParle. Well, I wondered--you held up a syringe this
time, but I remember a hearing where you held up an oxygen
tank.
Senator Harkin. Oh, yes.
Ms. DeParle. I do want to tell you about that, because I am
very excited about it. As you know we had an experiment, a
demonstration, under the law that you helped us get to do
competitive bidding for durable medical equipment in Polk
County, FL.
Senator Harkin. Yes.
Ms. DeParle. You were right that we should be doing it
nationwide. So far the results of that demonstration have shown
we are saving on an average of 17 percent.
And by the way, that is not just savings to Medicare. That
is savings to the beneficiary as well because, as you know,
they pay 20 percent of the cost of durable medical equipment.
We did this, based not just on price. We had the suppliers bid
based on price and quality.
Senator Harkin. So you set up a quality standard?
Ms. DeParle. Yes, sir. And we have had an ombudsperson down
there who has been dealing with the beneficiaries. The average
savings are around 17 percent. On oxygen, we are saving 16
percent; on hospital beds, around 30 percent. So I believe it
has been very successful.
And, in fact, today we are announcing another
demonstration. As, you know, the law allowed us to do, I think,
up to five. We are announcing a second one in San Antonio, TX,
on durable medical equipment. So we are trying to move forward
there.
But as you know right now under the law, we have to pay
based on a fee schedule for durable medical equipment, and the
fee schedule information is very outdated. We are not getting
the best prices for Medicare. So this kind of thing needs to be
done nationwide and we appreciate your support in that.
Senator Harkin. OK. Peter just--Mr. Reneke just told me
that for oxygen that--you said it was 15 or 16 percent?
Ms. DeParle. In Polk County, yes, sir.
Senator Harkin. That is over and above the 30 percent that
we already made in the law.
Ms. DeParle. Yes. I should have made that point. You are
right.
Senator Harkin. Well, I guess I was only saying that
because I remember when we first started having hearings that
they could not make any cuts. So they then agreed on 30
percent. And 15 percent is over and above even that. That is 45
percent.
Ms. DeParle. That is right.
Senator Harkin. Yes.
Ms. DeParle. And you asked us to look at it, and the GAO
looked at it and so did the I.G.
Senator Harkin. And obviously if there is competitive
bidding, they can still make money doing it that way.
Ms. DeParle. Right. And the important thing is that we were
all concerned about access, but we have not found any problems
with access to oxygen services.
Senator Harkin. I see. I said that was going to be our last
question to you, but there was one other one that I just want
to cover. And that is the inherent reasonableness clause and
where we are on that.
I know there was something put in the legislation last year
that stopped you from going ahead for a few months, but I think
that is soon, is it not?
Ms. DeParle. It is soon, and, in fact, we had an exit
conference Monday with Ms. Aronovitz and her colleagues at the
GAO. What we are waiting for under the BBRA is for the GAO to
give us its analysis of what the durable medical equipment
suppliers carriers did in carrying out the inherent
reasonableness provision of the Balanced Budget Act, and
whether that was reasonable, the way they did it or not, to
make those reductions. And once we hear from them, we will
begin to move forward again.
Senator Harkin. Again, for GAO, Ms. Aronovitz, do you
believe that additional resources for program integrity
activities are warranted? I just want to make that, for the
record.
Ms. Aronovitz. Yes, absolutely. In terms of the budget that
HCFA works within, it really is a shoestring. We think it is
very important for HCFA to have additional funding, but it
should be focused specifically with strategic plans and a
detailed understanding of how to proceed. There have been
indications that, when this does not happen, the money does not
get used wisely.
I would like to back up a bit, if I could, and address a
question that Chairman Specter had earlier about the concern of
HMO disputes where people are uncertain about whether a service
should be provided or if a service was denied by a plan.
We think there is even a more fundamental problem. We think
that there is a possibility, and we actually have evidence to
show that plans do not always do as good a job as they should
in letting people know that they have the right to appeal some
of the denials.
So even the denials that get appealed, you worry about due
process; but a more fundamental problem is that the notices
that go out to beneficiaries do not always say in simple
language what their rights are.
And I know HCFA is doing a lot to try to fix that. But we
are very concerned about the oversight that HCFA still has in
assuring that plans are doing a good job in assuring that
people understand what their rights are in Medicare+Choice
plans. So that is something else we are going to be continuing
to look at.
Senator Harkin. Very good. Before I move on, I just want
to, again, thank the GAO for all your good work. You have just
been invaluable in getting us this information. And I just want
to thank you, and thank the GAO for that.
Ms. Aronovitz. You are very welcome.
Senator Harkin. Ms. Brown, this week, I released a new
report you did, which found that on over 27,000 occasions in
1996 and 1997, hospitals readmitted patients on the same day
they were discharged, often for the same DRG. In fact, a number
of examples found this occurred four and five times in a row.
Clearly, in these cases, seniors are being used as pawns to
rip-off Medicare. And not one of these cases was reported by
our peer-review organizations. Can you enlighten us on this and
what can be done to stop this type of abuse?
Ms. Brown. Well, this is--the first step was identifying
the problem. And I think that we now have met with HCFA on this
issue, and they are taking steps to remedy that problem as
well.
There is a lot of analysis that has to go on. We have
looked at some cases where we have found that there were
certainly reasons for readmission because they came back under
a different DRG.
But there are numerous cases, some of them where people
have come back six and seven times in a row and getting a new
payment every time, where they are readmitted the same day, and
it is the same DRG.
So it is certainly a problem area, and one that we are
working to provide the analytical information that will allow
HCFA to take action on this.
Did you have something to----
Mr. Vengrin. Yes, Senator. I would like to embellish that
answer a little bit more.
Senator Harkin. Yes.
Mr. Vengrin. And also going back to Senator Specter's
remark about: How do you react to AMA's press release that this
is too burdensome to really document this? We did this
nationwide study and, in effect, found a 30 percent error rate.
Let me just give you a flavor for the types of errors we
found. In 12 instances, the medical review said the beneficiary
was prematurely discharged. In one case, they were readmitted,
and the medical review said that the medical treatment was
totally inadequate and caused the second readmission.
In eight additional cases, Senator, they rebilled for a
readmission when, in fact, the beneficiary was still in the
hospital and they did not know.
So in many of these cases, I would just be outraged at the
type of response that we received from the medical community on
this. I mean, this information needs to be clearly documented.
And the hospital in this case did not even know that the
patient was there.
Senator Harkin. Well, I have got one here. One beneficiary
was admitted to the hospital on July 14, 1997, discharged July
21, 1997, readmitted July 21, 1997, discharged August 1, 1997,
readmitted August 1, 1997, discharged August 3, 1997,
readmitted August 3, 1997, discharged August 13, 1997,
readmitted August 13, 1997, discharged August 15, 1997,
readmitted August 15, 1997, and finally discharged September 2,
1997.
In this case, the patient was readmitted to the hospital
five times, and the hospital received six--six full DRG
payments. And what was it this person from the AMA said? That
this is irresponsible grandstanding----
Mr. Vengrin. Correct.
Senator Harkin [continuing]. That you are pointing this
out?
Mr. Vengrin. Correct.
Senator Harkin. How irresponsible of you to point this out.
Mr. Vengrin. Right.
Senator Harkin. ``It hassles, and overly aggressive billing
audits are souring the physicians on Medicare Programs.''
Well, you know, I had hoped that the--and I have said
before, most of the doctors out there are not gaming the
system.
Mr. Vengrin. Correct.
Senator Harkin. But doctors are human. And within every
human, there is a sense of some greed and if an extra buck is
to be made doing this or that, I mean--and that is why we had
these audits set up to catch that.
It does no service to us and to the taxpayers and to the
beneficiaries, for the AMA to take this kind of a head-in-the-
sand kind of an approach. If anything is irresponsible, it is
this letter from Nancy W. Dickey, AMA immediate past president.
That is what is irresponsible, that statement.
Do we have anything else we want to cover? Do you have
anything else you would like to add for the hearing at all, any
of you.
Ms. DeParle.
Ms. DeParle. I would just add one thing, Senator. The last
example that you had about the improper discharges, and cycling
in and out----
Senator Harkin. Readmissions, yes.
Ms. DeParle [continuing]. As your staff knows, we changed
the focus a year ago of our peer review organizations, which
you mentioned had not caught any of that for 1996 and 1997.
Senator Harkin. Right, had not caught that, yes.
Ms. DeParle. And in their new contracts, one of the things
they are required to do is something we are calling the payment
error prevention program. And they are reviewing inpatient
hospital claims for this kind of thing.
So I hope we will be able to have the same impact on that
that we have had on the upcoding of claims for pneumonia that
used to always be coded at the top level and now all of a
sudden, they are being coded more reasonably.
I hope it will have that kind of an impact, but you are
right. It is irresponsible and inexcusable for that to occur.
Mr. Vengrin. Senator, I would like to add one additional
comment. If our statistics are correct, and I believe they are,
92 percent of the physician community did manage to get the
regulations straight. So I think that speaks well of them. And
I do not think they are quite that complicated.
Senator Harkin. I appreciate that and I am glad you
mentioned that for the record.
Well, thank you very much. And I want to work--continue to
work with you especially on that contractor program and see
what we can do about that.
You are going to give me the data on what you submitted to
OMB, so I can take a look at it. And maybe we can correct that
here this year in our appropriations process.
Ms. Brown. Yes. I would be happy to, sir.
Senator Harkin. I thank all of you.
Ms. DeParle, I thank you for your great leadership in this
area. I know it has been tough and--but you have done a great
job, and I appreciate it. Obviously, we have some other things
we have got to do, but we got to keep on them.
Ms. Brown, thank you again for your great leadership.
And again to GAO and Mr. Vengrin, thank you very much for
being here.
Ms. Brown. Thank you.
Ms. Aronovitz. Thank you.
Ms. DeParle. Thank you.
Mr. Vengrin. Thank you.
CONCLUSION OF HEARING
Senator Harkin. Thank you all very much for being here,
that concludes our hearing. The subcommittee will stand in
recess subject to the call of the Chair.
[Whereupon, at 10:47 a.m., Thursday, March 9, the hearing
was concluded, and the subcommittee was recessed, to reconvene
subject to the call of the Chair.]
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