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t&w y/. HEALTH CARE FRAUD HEARINGS BEFORE THE SUBCOMMITTEE ON CRIME AND CRIMINAL JUSTICE OF THE COMMITTEE ON THE JUDICIARY HOUSE OP REPRESENTATIVES ONE HUNDRED THIRD CONGRESS FIRST SESSION FEBRUARY 4 AND MAY 27, 1993 Serial No. 78 RECEIVED BOSTON PUBLIC LIBRARY •QV'ERNMENT DOCUMENTS DEPARTMENT Printed for the use of the Committee on the Judiciary U.S. GOVERNMENT PRINTING OFFICE 81-366 CC WASHINGTON : 1995 ForsalebytheU.S.GovernmentPrintingOffice Superint. UofDocuments,CongressionalSalesOffice,Washington,DC 20402 ISBN 0-16-047322-5 HEALTH CARE FRAUD HEARINGS BEFORE THE SUBCOMMITTEE ON CRIME AND CRIMINAL JUSTICE OF THE COMMITTEE ON THE JUDICIAKY HOUSE OF REPRESENTATIVES ONE HUNDRED THIRD CONGRESS FIRST SESSION FEBRUARY 4 AND MAY 27, 1993 Serial No. 78 RECEIVED APR 2003 1 BOSTON PUBLIC LIBRARY 5QVERNMENT DOCUMENTS DEPARTMENT Printed for the use of the Committee on the Judiciary U.S. GOVERNMENT PRINTING OFFICE 81-366 cc WASHINGTON : 1995 ForsalebytheU.S.GovernmentPrintingOffice Superint :tofDocuments,CongressionalSalesOffice,Washington,DC 20402 ISBN 0-16-047322-5 COMMITTEE ON THE JUDICIARY JACK BROOKS, Texas, Chairman DON EDWARDS, California HAMILTON FISH, Jr., New York JOHN CONYERS, JR., Michigan CARLOS J. MOORHEAD, California ROMANO L. MAZZOLI, Kentucky HENRY J. HYDE, Illinois WILLIAM J. HUGHES, New Jersey F. JAMES SENSENBRENNER, JR., MIKE SYNAR, Oklahoma Wisconsin PATRICIA SCHROEDER, Colorado BILL MCCOLLUM, Florida DAN GLICKMAN, Kansas GEORGE W. GEKAS, Pennsylvania BARNEY FRANK, Massachusetts HOWARD COBLE, North Carolina CHARLES E. SCHUMER, New York LAMAR S. SMITH, Texas HOWARD L. BERMAN, California STEVEN SCHIFF, New Mexico RICK BOUCHER, Virginia JIM RAMSTAD, Minnesota JOHN BRYANT, Texas ELTON GALLEGLY, California GEORGE E. SANGMEISTER, Illinois CHARLES T. CANADY, Florida CRAIG A. WASHINGTON, Texas BOB INGLIS, South Carolina JACK REED, Rhode Island BOB GOODLATTE, Virginia JERROLD NADLER, New York ROBERT C. SCOTT, Virginia DAVID MANN, Ohio MELV1N L. WATT, North Carolina XAVIER BECERRA, California Jonathan R. YarOWSKY, General Counsel ROBERT H. BRJNK, Deputy General Counsel ALAN F. COFFEY, Jr., Minority ChiefCounsel Subcommittee on Crime and Criminal Justice charles e SCHUMER, New York, Chairman DON EDWARDS, California F. JAMES SENSENBRENNER, JR., JOHN CONYERS, Jr., Michigan Wisconsin RAMANO L. MAZZOLI, Kentucky LAMAR S. SMITH, Texas DAN GLICKMAN, Kansas STEVEN SCHIFF, New Mexico GEORGE E. SANGMEISTER JIM RAMSTAD, Minnesota CRAIG A. WASHINGTON, Tex GEORGE W. GEKAS, Pennsylvania DAVID MANN, Ohio Andrbw Fois, Counsel DANIEL CUNNINGHAM, Assistant Counsel DAVID YasSCY, Assistant Counsel YLE NlRENBERG, Minority Counsel - (ID ' CONTENTS HEARINGS DATES Page FMeabyru2a7r,y149,931993 169J OPENING STATEMENT Schumer, Hon. Charles E., a Representative in Congress from the State ofNewYork, andchairman, Subcommittee on Crime and CriminalJustice . 1 WITNESSES Alderson, Susan, Carrollton, TX • •••••••• • 20 Hansen, Joyce L., director, claim support services, Northwestern National HKoeoLninkfteez,,IRnTsauhyromamonacnsedCGLo..,,Eesxqe.c,uHtievnekedi&recAtsosro,ciMaatnesh,atWteasnt HCoelnltyewroofdoV,r'JCLVAi*ving, New J1o8«0 York, NY 216 Looney,James, Los Angeles, CA •:••—.••" •;••: * Mahon, WilliamJ., executive director, National Health Care Anti-Fraud Asso- ciation 149 Marr, William L., M.D., vice president and senior medical director, claims, Mutual ofOmaha »••" •••••••• 10 Morey, Larry D., Deputy Inspector General for Investigations, Office ol In- spector General, U.S. DepartmentofHealth andHuman Services 48 Payne, Randy, Indianapolis, IN •»• •••••• • 214 Potts, Larry A., Assistant Director, Criminal Investigative Division, Federal ™ Bureau ofInvestigation ;•"••""••: Schenken, Jerald R., M.D., member, board of trustees, American Medical Association, accompanied by Hilary Lewis, J.D., division ofFederal legisla- 95 tion Schrader^ Richard, acting commissioner, New York City Department of ConsumerAffairs ••• •••— 258 Shikles, Janet L., Director, Health Financing and Policy Issues, Human Re- sources Division, U.S. GeneralAccounting Office 62 Stephens, Richard, acting U.S. attorney, Northern District of Texas, Dallas, TX, accompaniedby Candina Heath, assistant U.S. attorney 267 Wykoff, Randolph F., M.D., M.P.H., T.M., Director, Office ofAIDS Coordina- tion, U.S. Food and DrugAdministration, accompanied byTerryVermillion, Director, Office of Criminal Investigation; Michael Daniels, Director, Office of Enforcement; and Robert Spiller, Associate Chief Counsel for Enforce- ment 243 LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARINGS Alderson, Susan, Carrollton, TX: Prepared statement • 23 Conyers, Hon. John, Jr., a Representative in Congress from the State of HaMniscehni,gaJno:ycPerepL.a,reddirsetctaotre,mecnltaim support services, Northwestern xNVa"tVi"onali HeLnikfee,InRsauyramnocnedCoL..:,PErseqp.a,reHdenskteate&meAnstsociates, West Hollywoodr,"^C.A"i:""P^rle"-" Koopnatrze,d sTthaotmeamesntG., executive director, Manhattan Center for L•iving, •N••e••w— 182 York, NY: Prepared statement 219 Looney,James, Los Angeles, CA: Prepared statement 1' (HI) IV Page Mahon, WilliamJ., executive director, National Health Care Anti-Fraud Asso- ciation: Prepared statement ••••• • 154 Marr, William L., M.D., vice president and senior medical director, claims, Mutual ofOmaha: Prepared statement »..» 13 Morey, Larry D., Deputy Inspector General for Investigations, Office of In- spectorGeneral, U.S. Department ofHealth and Human Services: Letterdated February 5, 1993, to Chairman Schumer 79 Preparedstatement •••• ••—• • 50 Potts, Larry A., Assistant Director, Criminal Investigative Division, Federal Bureau ofInvestigation: Prepared statement 39 Ramstad, Hon. Jim, a Representative in Congress from the State of Min- Scnheesnoktean:,PrJeepraarleddRs.,tatMe.mDe.n,tmember, board of trustees, American M••e••d••i•cal• 92 Association: Prepared statement -• 9? Schrader, Richard, acting commissioner, New York City Department of ShCiokiness,umJearneAtffLa.i,rsD:irPercetpoar,reHdesatlatthemFeinntancing and Policy Issues, •H••uman •R••e••-• 261 sources Division, U.S. General Accounting Office: Letterdated March 8, 1993, to Chairman Schumer 82 Prepared statement ["'"a ; 65 Stark, Hon. Pete Fortney, a Representative in Congress from the State of California: Prepared statement ...» •»•••• 136 Stephens, Richard, acting U.S. attorney, Northern District of Texas, Dallas, TX: Prepared statement •»•»•- ••• 269 Wykoff, Randolph F., M.D., M.P.H., T.M., Director, Office ofAIDS Coordina- tion, U.S. Food and DrugAdministration: Prepared statement 246 HEALTH CARE FRAUD THURSDAY, FEBRUARY 4, 1993 House of Representatives, Subcommittee on Crime and Criminal Justice, Committee on the Judiciary, Washington, DC. The subcommittee met, pursuant to notice, at 10 a.m., in room 2226, Rayburn House Office Building, Hon. Charles E. Schumer (chairman ofthe subcommittee) presiding. Present: Representatives Charles E. Schumer, Don Edwards, David Mann, F. James Sensenbrenner, Jr., George W. Gekas, Lamar S. Smith, Steven Schiff, and Jim Ramstad. Also present: Andrew Fois, counsel; Dan Cunningham, assistant counsel; Marie McGlone, assistant counsel; Lisa Lawler, secretary; Lyle Nirenberg, minority counsel; Ray Smietanka, minority counsel; and Mark Curtis, congressional fellow. OPENING STATEMENT OF CHAIRMAN SCHUMER Mr. Schumer. We will call this hearing to order. First, the Chair has received a request to cover this hearing in whole or in part by television broadcast, radio broadcast, still pho- tography or other similar methods. In accordance with committee rule 5 tne permission will be granted unless there is objection. Without objection. First, I would like to welcome everybody here. I apologize for being a little late and for some of my Democratic colleagues who are not here. The President was supposed to address the Demo- cratic whip organization at 9 o'clock. I waited on the edge of my seat. When he wasn't there at 5 of 10, I left. Some ofmy colleagues are still over there sitting on the edge oftheir seats. We will begin this morning not only an investigation ofthe issue that is of vital importance to the health and well-being of the citizens of our country, health care fraud, but today we also launch the subcommittee's official business of the subcommittee in this, the new 103d Congress. First, I would like to welcome my colleagues, some of whom are familiar faces around here and some of whom are new, to what I hope will be a very productive session for the subcommittee. Be- cause if you look at our areas ofjurisdiction we have a heck of a lot ofwork to do. In bringing the hearing to order, I am reminded of an experience that befell Congressman Hancock of upstate New York. He was scheduled to speak at a political rally that opened with band music, and after the band played a couple of numbers the chairman (1) turned to the Congressman and said, do you want to speak now or shall we let them enjoy themselves a while more? There is no band here, so I guess we will have to start. Few issues affect people quite so profoundly as the issue of health care. But health care in America is in critical condition. Our commitment to provide every American with decent health care has been shaken in recent years by exploding costs that have already priced 35 million people in this country out of basic health insurance. More are added to their ranks each day. At nearly $700 billion, health care spending consumed more than 12 percent of our GNP in 1991. By 1995, expenditures will exceed $1 trillion, rep- resenting 15 percent ofnational output. The diagnosis is in. Our national health care system is rife with waste and abuse, and it is time to put the patient in intensive care. First and foremost, we must take a surgeon's scalpel to the most wasteful, inexcusable, and unconscionable cost of all, fraud. The cancer offraud is depleting our already anemic health care system, and by all indications it is spreading into virtually every organ of the health care delivery system at a staggering rate. The GAO estimates, for instance, that 10 percent of our total health care expenditures, public and private, are lost to fraud and abuse. That means we will lose a staggering $80 billion to fraud this year alone. To put this hemorrhaging in perspective, our total Medicare outlays in 1991 amounted to $110 billion. What we lose to fraud and abuse could pay for well more than half of the entire Medicare program which is one of the Federal Government's big- gest expenditures. Ifwe stop payment on $80 billion in fraud we could provide more than $2,000 in health insurance for every American who currently has no coverage. But, of course, more than dollars are at stake here. Health care fraud crimes are threatening the lives of millions of Americans, subjecting them to unnecessary treatment, false diagnosis, adulter- ated drugs, and causing them to forgo the treatments they might desperately need. In an incalculable number of cases, patients are placed in real danger so some con artist can make a fast buck. That is the true cost ofhealth care fraud. The scams these thieves use to victimize patients and their insurers are multiplying like bacteria on a July afternoon: Drug di- version schemes, kickback arrangements, telemarketing operations, rolling lab schemes, copayment waivers, prescription billing fraud. Each of these represents a huge category of health care fraud. In future weeks and months this subcommittee intends to explore as many ofthem as we can. Against this avalanche of fraud the Federal Government stands ill-equipped, undermanned and overwhelmed. It is as ifwe sent out Barney Fife to meet the terminator. To illustrate, the number of investigators in the Office of the In- spector General at HHS has stagnated in the past 5 years while the responsibilities of that Office, as well as the size and complex- ity of the Federal programs it oversees, have increased consider- ably. This means, for example, the IG has fewer than two full-time investigators devoted to health care fraud for all of southern Cali- fornia, one ofthe Nation's most populous regions. Even though they have evidence of massive fraud being commit- ted in our health care system, the lack of resources is forcing our law enforcement agents to subject cases to triage, whereby only the largest and most clear-cut cases are ever pursued. Hundreds, per- haps thousands of other cases that they already know about are not even investigated, let alone prosecuted. The real casualty here, of course, is the health of our people. They are left virtually defenseless against latter day charlatans and snake oil salesmen that are out to profit from the illness, mis- fortune and insecurity ofothers. The American people are clearly demanding change in our Na- tion's health care. We in Congress must not only work with our President to develop innovative, efficient ways to deliver health care, but we also must ferret out and terminate the fraud that is undermining the health and well-being ofour citizens. We will consider many ideas to accomplish this goal, including a national health care fraud data base to let Federal, State, and local agencies exchange information on fraud and abuse, intergovern- mental task forces to allow law enforcement agencies to pool resources and jointly attack fraud, prohibition of kickbacks against private insurers, and ensuring integrity of electronic media by building fraud detection mechanisms into the processing system. I plan to hold as many hearings as necessary to adequately consider the causes of this fraud and find responsible solutions to it. Today we begin our examination ofhealth care fraud. The doctor is in. When we are through with our diagnosis, it is our intent to fashion a legislative treatment to rid this wasteful malignancy from our Nation's health care system. I thank my colleagues for their indulgence. Now I call on Mr. Smith ifhe wishes to say something. Mr. Smith. Thank you, Mr. Chairman. I didn't know it was pos- sible to use so many medical metaphors. Mr. Schumer. It is easy. Mr. Smith. It paints a grim picture. Thank you for your leader- ship, and it is no surprise we are getting off to such a quick start this year. I look forward to the initiative you have shown, and I know that it will be very productive. Seriously, there is a real interest in this subject matter today. We are talking about a subject that probably has touched the lives of millions of people in the United States in an adverse way, and we certainly need to move to correct the problems that we have. And I know the first in—dividuals whom we will hear testify, Dr. Marr and Ms. Alderson I read their testimony last night, and clearly these are examples that they are going to give us of complete, unmitigated health care fraud of the kind that this committee needs to address. I am glad we are going to do so. I think we need to remind ourselves that the challe—nge to this committee is not just to hear how—bad the problem is I have a hunch we are going to prove that but to move to find out what we can do in the way of changing Federal laws or better enforcing laws so as to try to help correct the problem. Mr. Chairman, you mentioned something else earlier we are also familiar with and that is that health care fraud today totals something on the order of $80 billion. I see that as having more rami- / fications than just the need to make sure that health care fraud is brought to a stop. I see that as having implications when it comes to reducing the deficit. Because if we do our jobs and if we do eliminate the fraud and abuse that exists in government today, whether in the health care area, could be defense, social services, could be in any number of areas, clearly we will have also helped the American economy and helped reduce the need and maybe even eliminated the need to ever talk about raising taxes. First of all, we need to eliminate the fraud and abuse that exists in government. Mr. Chairman, I have a quick question for you that you may be able to answer for us. — During the campaign on the campaign trail, President Clinton, then Candidate Clinton, put out a campaign bible called Putting People First, and he made a number of promises to the American people on the general subject of crime and drugs. Among them, put 100,000 new police officers to work and expand community polic- ing, that first-time nonviolent offenders serve out sentences in community boot camps, enact tough penalties for assaults against women and children to deter domestic violence, increase Federal funding for school-based and community drug education programs and treatment clinics, and provide Federal matching funds for crime prevention in hard-hit communities. Mr. Chairman, have you heard from the President in regard to those specific subjects? And, if so, when can we expect proposed legislation from him in regard to those matters? Mr. SCHUMER. I thank, Mr. Smith, and before I answer his question, I want to welcome him to the committee. I have worked with Mr. Smith, the gentleman from Texas, on the subject of immigra- tion and many other issues. He is a conscientious, hard-working and decent-minded Member. I am glad he is now on the subcommittee. — Now, to answer your question I wasn't going to just say that. Mr. Smith. That sounded good for a start. Mr. SCHUMER. We have had some preliminary discussions with members of the transition team and the administration. I believe it is their intent to deal with every one of those issues that you mentioned. As to when we will have a complete package, we don,t have an answer for that yet. Obviously, the first focus of the administration is on the economy. However, they have assured me that crime and criminal justice is one oftheir highest priorities. They intend to de- vote a great deal of attention to it, and I expect we will be working closely with them to achieve those goals. Mr. Smith. Thank you, Mr. Chairman. Mr. SCHUMER. Any other opening statement? The gentleman from New Mexico who is just an outstanding member of this subcommittee, and I want to welcome him back since he was not in during the welcoming shift. Mr. Schifk. Thank you, Mr. Chairman. I can't resist adding to Mr. Smith's comments that in my State of New Mexico, a targeted State in the election—may not happen again with only five electoral votes, but it was by both sides—the Clinton campaign ran TV ads endorsing the death penalty. I hope