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HOW HEALTHY ARE THE GOVERNMENT'S MEDICARE FRAUD HGHTERS? HEARINGS BEFORE THE SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS OFTHE COMMITTEE ON COMMERCE HOUSE OF REPRESENTATIVES ONE HUNDRED SDCTH CONGRESS FIRST SESSION JULY 14 AND SEPTEMBER 9, 1999 Serial No. 106-59 Printed for the use of the Committee on Commerce U.S. GOVERNMENT PRINTING OFFICE 58-495CC WASHINGTON : 1999 ForsalebytheU.S.GovernmentPrintingOffice SuperintendentofDocuments,CongressionalSalesOffice.Washington.DC 20402 ISBN 0-16-059704-8 COMMITTEE ON COMMERCE TOM BLILEY, Virginia, Chairman W.J. "BILLY" TAUZIN, Louisiana JOHN D. DINGELL, Michigan MICHAEL G. OXLEY, Ohio HENRY A. WAXMAN, CaUfomia MICHAEL BILIRAKIS, Florida EDWARD J. MARKEY, Massachusetts JOE BARTON, Texas RALPH M. HALL, Texas FRED UPTON, Michigan RICK BOUCHER, Virginia CLIFF STEARNS, Florida EDOLPHUS TOWNS, New York PAUL E. GILLMOR, Ohio FRANK PALLONE, Jr., New Jersey Vice Chairman SHERROD BROWN, Ohio JAMES C. GREENWOOD, Pennsylvania BART GORDON, Tennessee CHRISTOPHER COX, CaUfomia PETER DEUTSCH, Florida NATHAN DEAL, Georgia BOBBY L. RUSH, lUinois STEVE LARGENT, Oklahoma ANNA G. ESHOO, CaUfomia RICHARD BURR, North Carolina RON KLINK, Pennsylvania BRIAN P. BILBRAY, Cahfomia BART STUPAK, Michigan ED WHITFIELD, Kentucky ELIOT L. ENGEL, New York GREG GANSKE, Iowa THOMAS C. SAWYER, Ohio CHARLIE NORWOOD, Georgia ALBERT R. WYNN, Maryland TOM A. COBURN, Oklahoma GENE GREEN, Texas RICK LAZIO, New York KAREN MCCARTHY. Missouri BARBARA CUBIN, Wyoming TED STRICKLAND, Ohio JAMES E. ROGAN, California DIANA DeGETTE, Colorado JOHN SHIMKUS, IlHnois THOMAS M. BARRETT, Wisconsin HEATHER WILSON, New Mexico BILL LUTHER, Minnesota JOHN B. SHADEGG, Arizona LOIS CAPPS, CaUfomia CHARLES W. "CHIP' PICKERING, Mississippi VITO FOSSELLA, New York ROY BLUNT, Missouri ED BRYANT, Tennessee ROBERT L. EHRLICH, Jr., Maryland James E. Derderian, ChiefofStaff James D. Barnette, General Counsel Reid P.F. Stuntz, Minority StaffDirectorand ChiefCounsel Subcommittee on Oversight and Investigations FRED UPTON, Michigan, Chairman JOE BARTON, Texas RON KLINK, Pennsylvania CHRISTOPHER COX, CaUfomia HENRY A. WAXMAN, CaUfomia RICHARD BURR, North CaroUna BART STUPAK, Michigan Vice Chairman GENE GREEN, Texas BRIAN P. BILBRAY, CaUfomia KAREN McCarthy, Missouri ED WHITFIELD, Kentucky TED STRICKLAND, Ohio GREG GANSKE, Iowa DIANA DeGETTE, Colorado ROY BLUNT, Missouri JOHN D. DINGELL, Michigan, ED BRYANT, Tennessee (Ex Officio) TOM BLILEY, Virginia, (Ex Officio) (II) CMS library C2'07-13 7500 Security Blvd. CONTENTS Page Hearings held: July 14, 1999 1 September9, 1999 81 Testimonyof: Aronovitz, Leslie G., Manager, Chicago Field Office; accompanied by Rob- ert H. Hast, Acting Assistant Comptroller General, Office of Special Investigations, GeneralAccountingOffice: July 14, 1999 20 September9, 1999 87 Becker, Norman P., President and CEO, New Mexico Blue Cross and Blue Shield 128 Cain, Harry, Executive Vice President, Blue Cross and Blue Shield Asso- ciation, accompanied by Harvey Friedman, Vice President, Medicare, BlueCross and Blue ShieldAssociation 150 Flynn, Darcy 99 Grob, GeorgeF., DeputyInspector GeneralforEvaluation and Inspection, Office of Inspector General, accompanied by Jack Hartwig, Deputy Inspector General for Investigations, Office of Inspector General, De- partmentofHealthandHuman Services: July 14, 1999 14 September9, 1999 95 Hess, Steven C, Senior Vice President and General Counsel, Blue Cross andBlue Shield ofMichigan 135 Huotari, Michael E., ExecutiveVice President and General Counsel, Blue Cross and Blue Shield ofColorado 130 Jay, Dennis, Executive Director, CoalitionAgainstInsuranceFraud 66 Mahon, William J., Executive Director, National Health CareAnti Fraud Association 63 Osman, RonaldE., Osman &Associates, Ltd 102 Thompson, Penny, Director, Program Integrity Group, accompanied by Marjorie Kanof, Deputy Directorfor Medicare Contractor Management, CenterforBeneficiary Services, HealthCareFinancingAdministration 29 Verinder, Fred B., Vice President for CompHance Operations, Health CareService Corporation 138 Material submittedforthe recordby: Hast, Robert H., ActingAssistant ComptrollerGeneral for Investigations, General Accounting Office, letter dated July 22, 1999, enclosing re- sponseforthe record 78 Stark, Fortney Pete, a U.S. Senator from the State of California, pre- pared statementof 163 (III) HOW HEALTHY ARE THE GOVERNMENT'S MEDICARE FRAUD FIGHTERS? WEDNESDAY, JULY 14, 1999 House of Representatives, Committee on Commerce, Subcommittee on Oversight and Investigations, Washington, DC. The subcommittee met, pursuant to notice, at 10 a.m., in room 2322, Rayburn House Office Building, Hon. Fred Upton (chairman) presiding. Members present: Representatives Upton, Barton, Burr, Ganske, Bryant, BUley (ex officio), Klink, Stupak, Green, Strickland, DeGette, and Dingell (ex officio). Staff present: Chuck Clapton, majority counsel; Duncan Wood, majority professional staff member; and Christopher Knauer, minority investigator. Mr. Upton. Thank you, everyone, for coming this morning. Today the subcommittee will hold a hearing on HCFA's oversight ofMedicare contractors and their efforts to combat fraud and abuse in this program. We will hear the testimony of representatives from the HHS Office of Inspector General, along with the GAO and the Office of the Special Investigations, who have carefully ana- lyzed HCFA's oversight efforts relating to contractors to date and found them to be woefully inadequate. We will also hear from representatives from HCFA who will dis- cuss what they are doing to try and remedy these problems. HCFA relies upon contractors to process fee for service claims for both Medicare Part A and Part B services. These contractors, which include both fiscal intermediaries and carriers, handle the approxi- mately 900 million claims and were paid $1.6 billion in fiscal year 1998. In addition to paying claims, HCFA also relies on the contractors to safeguard the Medicare programs from fraud and abuse by iden- tifying inappropriate claims and payments. As we will hear in today's testimony, several fiscal intermediaries have failed to perform the very basic tasks necessary to reduce the opportunities for fraud and abuse which has led to the loss of scarce Medicare program dollars. Several providers even went so far as to criminally conceal their inadequate performance by destroying claims, falsifying documents and reports to HCFA and altering or hiding files involving claims that had been improp- erly paid. HCFA is certainly responsible for ensuring that fiscal intermediaries do their jobs accurately and efficiently, which includes (1) 2 overseeing contractor performance. However, in three of the most egregious cases of contractor fraud which have been uncovered, HCFA failed to uncover the fraudulent acts. Each of these cases were finally brought to the public's attention by qui tam suits, where whistleblowers identified the criminal practices of Blue Cross, Blue Shield of Illinois, California and Pennsylvania. The resolution of these cases resulted in over $190 million in criminal fines and civil settlements along with a conviction of several employees ofthe fiscal intermediaries. GAO has examined HCFA's contractor oversight efforts and identified several areas of systemic weakness that need to be addressed. These include the lack of review of performance data and contractor management controls, a lack of uniform perfonnance standards to evaluate program safeguards against fraud and incon- sistent reviews of similarly situated contractors due to inadequate coordination between HCFA's headquarters and their regional of- fices. Dr. Marjorie Kanof, who is the Deputy Director for Medicare Contractor Management within HCFA's Center for Beneficiary Services, and Penny Thompson, who is the Director ofHCFA's Pro- gram Integrity Group, will testify about HCFA's response to these allegations. Dr. Kanof and Ms. Thompson will tell us what new ini- tiatives HCFA is pursuing to improve its oversight ofMedicare contractors and hopefully what steps are being taken to address the serious problems that have been identified in the GAO, OSI and OIG reports. Only 2 years ago Medicare had to be rescued from the threat of imminent bankruptcy by the changes that Congress made in the Balanced Budget Act of 1997. It is inexcusable to waste these valuable program dollars, which further limits our ability to better as- sist such valuable services such as home health care and skilled nursing facilities. In light of these continuing needs, as well as the calls to further expand the scope of current Medicare benefits and services, it is unacceptable that HCFA is not doing a better job of protecting the Medicare program from fraud and abuse. I have yet to find some- one that's for it. However, by holding this hearing today, we can focus greater attention on the issue and encourage HCFA to implement sub- stantive changes to ensure Medicare program integrity. Finally, I would like to take this opportunity to welcome all of our witnesses and also to acknowledge the fine work on these issues which was done by the Senate Permanent Subcommittee on Investigation. While the Commerce Committee has been reviewing Medicare's anti-fraud efforts for several months in conjunction with the GAO, I would note that Senator Collins from Maine has also worked extensively with GAO on a variety of cost-cutting issues, and as an example of bicameral cooperation I am pleased that she has allowed GAO to release these reports at this hearing. I look forward to further cooperation with all members. House and the Senate, as we continue our investigation of this critical area of Medicare, and I yield to the ranking member of this subcommittee, Mr. Klink. 3 Mr. Klink. Thank you, Mr. Chairman, and we're pleased in the minority to join you in this hearing today. This is an important matter and one we've been looking forward to, as you mentioned, for well over a year. As you know, over many years, this subcommittee has spent considerable time and effort examining how HCFA's Medicare contractors oversee the Medicare program. In ad- HFCA ministering Medicare, currently uses the services the private sector insurance carriers, often called fiscal intermediaries, to process the claims, to conduct the audit, to provide medical reviews and to perform a host of other activities that are designed to pre- vent waste, fraud and abuse. The government has essentially privatized many of the functions of safeguarding the program by allowing these intermediaries to process and pay out claims and conduct related audits. Ideally these intermediaries are supposed to conduct such functions by ap- plying their own private sector expertise to the program; in theory the taxpayer should be getting state-of-the-art private sector tech- niques applied to the Medicare program. Nevertheless, as has been demonstrated over the years through a number of investigations, the effectiveness of some of the fiscal intermediaries in safeguarding this fund is open to very serious debate, in fact, serious doubt. What we will learn today is in fact some of the very contractors the government hires to protect the program are the very entities that are ripping it off. As is revealed in GAO's report, no fewer than 1 in 4 contractors have been alleged generally by whistleblowers within the company to have integrity problems. In fact, GAO has identified at least 7 of HCFA's 58 current contractors as being actively investigated by HHS, GIG or by the Justice Depart- ment. Mr. Chairman, more than a year ago, the ranking member ofthe full committee, Mr. Dingell, and I asked the GAO to examine a host of questions regarding the effectiveness of these fiscal intermediaries in safeguarding the Medicare program, and whether HCFA was doing an adequatejob in overseeing their activities. Specifically we asked GAO to look at the following: One, who were HCFA's fiscal intermediaries, and how were they being evalu- ated as to their ability to safeguard the Medicare program; what criteria or methodology was HCFA using to evaluate their activities and was it appropriate; two, did HCFA have reports, studies or lists ranking the caliber of safeguarding programs of the fiscal intermediaries then serving the program; three, were any ofthe fiscal intermediaries' safeguarding efforts substandard, and if so, why; for example, was it a reason of incompetence or was it a lack of resources? Was it a combination of many factors? We also asked what would ensure that any new contractors that were added to the program would not be exposed to the same problems. Fourth, and finally, we asked whether the addition or replacement of any fiscal intermediary would result in any efficiencies or any ineffi- ciencies. Soon after we sent this request to GAO, a fiscal intermediary known as Health Care Services Association, also known as Blue Cross-Blue Shield ofIllinois, pleaded guilty to defrauding the Medi- care program and other related charges. They agreed to pay nearly $4 million in criminal fines to the government and $140 million in 4 a civil settlement to resolve its liability under the Federal False Claims Act. The activities ofthis Medicare contractor included in the submis- sion of false claims the falsification of its own performance record and substandard claims and evaluations. In fact, the $144 million settlement against this fiscal intermediary was the largest ever issued against a Medicare contractor. Again, this case illustrates that the very entity designed to be protecting Medicare was under- mining it. This led us to expand our original request and to ask GAO to examine additional concerns; what were the facts surrounding the general performance and the illegal activities connected to Blue Cross-Blue Shield of Illinois; what regulatory measures did HCFA fail to have in place that may have prevented such an outcome? And finally in light of this case, what additional measures should HCFA immediately implement to gain better control over the Medi- care contractors? Mr. Chairman, I am happy to see the many excellent witnesses before us today that can provide answers to these questions and others. It's my understanding that many issues that were raised by Mr. Dingell and myself in earlier requests have been substantially addressed in that GAO report that you talked about that was re- leased by Senator Collins in the Senate Permanent Subcommittee on Investigations. I thank the members and the staff of that fine subcommittee for the excellent work that they have done. I also thank the IG's office and the GAO for their outstanding work. While I hope that next time we can give the witnesses more than 3 days to prepare for the hearing, I, nonetheless, appreciate all of the hard work that you have done and finally, while many of our questions were addressed in the Senate's report, it's my understanding that the GAO still has ongoing work for this committee and will soon provide us with additional information. For example, part of Mr. Dingell's and my original request involved an open criminal matter that I believe may still be pending. Some of this work had to be put on hold and in fact at the request of the De- partment ofJustice. Much of the in-depth analysis that we asked GAO to perform on the Illinois Blue Cross-Blue Shield matter has been suspended until after all matters relating to the case are formally closed. Once that occurs, GAO will rejoin that effort, and I look forward to learning even more about what went wrong with that fiscal intermediary and HCFA's oversight of its operation. I also look forward to hearing what GAO has learned from the Department of Justice regarding when this work can be continued. Mr. Chairman, I am attaching the original request addressing this subject with my opening remarks. And, again, I thank Chair- man Upton for holding this hearing. This is a great subject, and it's of great importance to the people of this Nation. I look forward to hearing from the outstanding witnesses before us today. And, Mr. Chairman, I yield back my time. — Mr. Upton. The gentleman from Tennessee Mr. Whitfield excuse me. Mr. Bryant. Close. — 5 Mr. Upton. Right. Mr. Bryant. Mr. Bryant. Mr. Chairman, I would be happy to defer my time ifyou want to recognize the ranking member. Mr. Upton. Mr. Dingell. Mr. Dingell. Mr. Chairman, I thank you, but the gentleman has been most kind. I'm willing to wait and think it's appropriate he should go next. Mr. Upton. Mr. Bryant. Mr. Bryant. Thank you, Mr. Chairman. Thank you, Mr. Chair- man. Mr. Chairman, as you know, this Congress and the White House are currently locked in a debate regarding how best to use the projected budget surplus. Congressional Republicans, myselfin- cluded, believe if the government has collected more money, it means the left over money ought to be returned to the taxpayer. This administration has proposed using this extra money to cre- ate new or expand government programs. Ofconcern—today to me and I think extremely relevant to today's hearing is the Presi- dent's proposal to expand the Medicare program at the cost of ap- proximately $20 billion. This is certainly not the forum for debating the details of this proposed prescription drug program, but I think it's important to point out that the President is proposing to dra- matically increase both HCFA's responsibility in its budget at a time when both the IG and the GAO are releasing reports indicat- ing that millions and potentially billions of dollars are being wast- ed by this very same agency. Mr. Chairman, due mainly to the cold war in the 1980's, the Na- tion's and the Congress' focus was on the defense industry, and the media and the government watchdog groups correctly attacked the Department of Defense for wasting millions of dollars on $600 hammers and $800 toilet seats. The 1990's will inarguably be recalled as the health care decade, and I wonder, Mr. Chairman, how long it will be before the head- lines read $1200 Band-Aid, and $1500 tongue depressor. I'm con- stantly hearing from the doctors in my district who are frustrated by complicated and confusing forms, delayed reimbursements and unresponsive bureaucrats. This combined with a type of waste and fraud described by the OIG and the GAO cannot be tolerated. They threaten both the sol- vency and credibility of this crucial program, and in my mind at least need to be addressed before even considering expanding HCFA's responsibilities. I'm very anxious to hear from our distinguished witnesses, what steps need to be taken by both HCFA and this Congress to restore a sense ofintegrity to this program. And I thank the chair. Mr. Upton. Thank you. Mr. Dingell. Mr. Dingell. Mr. Chairman, I thank you. First ofall, I commend you for this hearing. You deserve great credit and I appreciate the work that you're doing to see to it that the GAO report in this matter is gone into. I've noted over the years, Mr. Chairman, that some of the most vociferous critics of waste, fraud and abuse in government programs seem to be blind to the role ofprivate contractors in wasting tax dollars, defrauding the taxpayer and abusing the public trust. They also tend in many instances to be unconcerned about the 6 need to have a proper and adequate auditing effort within the Fed- eral Government and massive cuts were made early in the administration of this Congress by the Republican members to GAO amounting to some 25 percent ofthat budget. Now, I won't excuse the watchdogs at government agencies who slumber blissfully while the Treasury is raided; if anything, this subcommittee has a long history of exposing and criticizing the be- havior of both the police and the thieves when we find improper expenditures of public moneys, and many of the matters referred to earlier in connection with defense, the hammers, the pliers, the toilet seats, and a large number of other things, were uncovered by the work ofthis committee. The General Accounting Office report on Medicare contractors goes directly to the points I'm mentioning, and I think it should be quoted at this point. They said, "Medicare contractors are HCFA's first line of defense against provider fraud, abuse and erroneous Medicare payments. However, several of them have committed fraud against the government. Since 1990, nearly 1 in 4 claims administration contractors have been alleged, generally by whistleblowers within the company, to have integrity problems. GAO identified at least 7 of HCFA's 58 contractors as being actively investigated by HHS, OIG or Justice. Since 1993 HCFA has received criminal and civil settlement decrees totaling over $235 million from 6 contractors after investigation of allegations that the contractor employees deleted claims from the processing systems, manufactured documentation to allow processing of claims that otherwise would be rejected because the services were not medi- cally necessary, and deactivated automatic checks that would have halted the processing ofquestionable claims.". These are especially troubling facts when there are efforts to further privatize Medicare and also when we have seen cuts in the General Accounting Office and in the auditing effort ofthis government. The justification for hiring private fiscal intermediaries in the first place was to provide state-of-the-art private sector tech- niques to safeguard public funds. The record suggests that we may have gotten state-of-the-art private sector efficiency in fleecing the taxpayer. Mr. Chairman, I hope we will go into these matters with all diligence and vigor. I look forward to the testimony of our fine witnesses, and I commend you again for holding this hearing. Thank you. Mr. Upton. Thank you. Mr. Burr. Mr. Burr. Thank you, Mr. Chairman. I will be brief Let me at the start commend the ranking member for his work on this in the past and the work of this committee, because certainly it has held people's feet to the fire. That's not enough. Clearly we asked GAO periodically to go out and tell us how bad it still is, not that it's gotten bad but it hasn't gotten any better. Having the opportunity to look over the report, there are a lot of people to blame, there are intermediaries, there is HCFA, the one that is noticeably absent is Congress, because I think to some degree we deserve some of the blame. We legislate many of the mandates that go in. We require the system to be confusing and that confusion leads honest people to cut corners or to make deci- sions because of short payments, and that certainly is not an ex-