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Testimony of June Gibbs Brown, Inspector General Department of Health and Human Services
Good Morning, Mr. Chairman. I am June Gibbs Brown, Inspector General of the Department of Health and Human Services. I am here today to discuss the most significant issues that confront our Department. These are complex problems that defy quick fixes and simplistic solutions. But failing to address them undermines the effectiveness of our programs, costs taxpayers billions in lost and wasted dollars, and deprives vulnerable beneficiaries, of the care and support they need. I will describe these problems, give you a flavor of some of their tangible consequences, and tell you what is being done about them. Finally, I will give you my own sense of the broader strategies and commitments that I think are needed to fully respond to them. SIGNIFICANT ISSUES CONFRONTING THE DEPARTMENT
The following is a very brief description of what I believe are the most significant issues now confronting the Department of Health and Human Services.
Payment Controls and Financial Statements
Because of the increasing complexity, scope, and reach of programs, especially Medicare, the controls needed to insure the integrity Of payments have not been reliable enough. We estimated that in FY 1996 improper Medicare fee-for-service payments totaled about $23.2 billion, or about 14 percent of payments made. In FY 1997, the error was $20 billion, or 11 percent of payments made. The improper payments reflect billings for services that were insufficiently documented, medically unnecessary, incorrectly coded, or not covered. Examples include:
-- $3,000 for rental of an electric hospital bed submitted with inadequate justification by a company whose offices had been vacated at the time of our review;
-- $1,967 for a 19-day stay in a skilled nursing facility for which there was no evidence that the service was provided;
-- $2,915 paid to a home health agency for skilled nursing services which were not needed and which were provided to a beneficiary who left home daily and therefore did not meet the definition of "homebound;"
-- $7,844 for transporting a beneficiary from a nursing home to a dialysis center when the beneficiary could have traveled safely by far less expensive means;
-- $535 paid for a gel pressure pad for a mattress when in fact the supplier had provided a wheelchair pad for which the allowable Medicare payment is only $123; and
-- $22,229 for a hospital bill for which the secondary diagnosis code was not supported, resulting in approval of only $10,151 and an overpayment of $12,078.Some of these improper payments are due to inadvertent mistakes. Some are deliberate false billings. In either case, the outcome is costly and is wasteful of tax dollars.
Another indicator of the depth and fundamental nature of these control weaknesses is that, based on our audits, we could not attest in 1996 nor 1997 to the reliability of the Department's financial statements for those years.
I am happy to report that we are beginning to see signs of real progress in these areas. Yesterday, I announced that the error in FY 1998 had dropped to $12.6 billion, or 7.1 percent of payments, approximately half of what it was in FY 1996. The Department can be pleased with this accomplishment, but it still has a long way to go. With more than $210 billion spent on Medicare in FY 1998, and increases expected indefinitely into the future, we must continue to make improvements in control and accounting systems until the errors are insignificant.
Computing Crises
Of necessity, the management of our modem programs is increasingly reliant on sophisticated computer systems. This is not only true of Medicare, but also of numerous public health, child support enforcement, welfare, and foster care programs. The risk that something could go wrong or that system developments could fall behind growing management needs is compounded by the fact that these programs rely on the information processing capabilities of organizations outside the Department. For example, progress in increasing child support enforcement collections has in the past suffered from delays by States in upgrading their automatic data processing systems; and exciting new developments in this field mandated by recent legislation are dependent on simultaneous development of mutually compatible and interlinked local, State, and Federal government information systems.
No clearer dramatization of these risks is needed other than the well known Year 2000 computing crisis. Again, Medicare can be singled out as especially vulnerable. In order to properly and efficiently pay Medicare bills, it will be necessary not only for the Health Care Financing Administration (HCFA) to correct millions of lines of its own computer programs to make them ready to compute eight digit dates (the so called "Year 2000 compliance" criteria), but the 75 private insurance companies that, as Medicare intermediaries and carriers, process Medicare payments must also have their programs fixed as well. Not only that; ultimately all physicians, hospitals, nursing homes, medical supply companies, home health agencies, clinical laboratories, rehabilitation service agencies, and other health care providers who take care of Medicare beneficiaries will need to make their systems compliant. Given the 900 million claims that Medicare pays each year and the more than one million providers involved, this is an extraordinarily complicated and critical undertaking.
The Office of Inspector General is reviewing the Department's level of readiness to become Year 2000 compliant. This includes an assessment of the Department's plans, time frames, and schedules for internal systems testing and for monitoring the conversion efforts of external entities named above. We are closely evaluating the systems' compliance and periodically reporting on progress. In addition, we have surveyed a sample of health care providers and are now analyzing their responses to assess their readiness and technical assistance needs. We havebeen working closely with HCFA on this effort, and will be sharing our results with them as soon as they are available.
Mental Health Services
Through our audits, evaluations, and investigations we are becoming increasingly aware of serious shortcomings in our nation's mental health service system. A good illustration of this is in the so-called "partial hospitalization" program.

This term refers to non-residential mental health services that are provided in hospitals and community mental health centers to serious mentally ill patients who, without these day services, need to be institutionalized.
In a five-State review we found that over 90 percent of the Medicare payments to community mental health centers for partial hospitalization services ($229 million of $252 million) were unallowable or highly questionable. The individuals for whom these payments were made did not have the kind of severe or disabling psychiatric conditions envisioned by the authorizing statute, nor was there any indication that they would otherwise need inpatient hospitalization. Furthermore, the services they received were not the intensive type covered by Medicare in a true partial hospitalization situation. For example:
-- An 85-year-old woman, living independently, had been consulting a psychiatrist for several years due to depression after the death of her husband. The psychiatrist, a Medical director for a partial hospitalization program, arranged for program employees to transport her and the psychiatrist's other patients to an adult activities center to engage in arts and crafts and exercise classes. There was no indication that she was psychotic or demented; her memory and orientation to time, place, and person were intact; and she insisted that she was never in danger of hospitalization. Yet, Medicare had been billed for partial hospitalization services for 18 months at the time we reviewed her case.
-- In another case, a 99-year-old woman who resided in an assisted living facility was placed in what she believed to be an adult day- care program of social and recreational activities. She was extremely surprised and upset to learn that the program she had attended was described as being intended for the severely mentally ill.
Further, an enrollment initiative by HCFA in nine States, covering nearly 700 centers, found that a high percentage of the centers did not meet certification requirements to qualify for Medicare payments. In addition, reviews at selected mental health centers disclosed that the cost reports which were used to support their Medicare billings contained significant unallowable and non reimbursable items; and the centers experienced numerous other problems related to provider enrollment, patient recruitment, patient and staff certification, and the facilities' physical condition. We have also found improper billings and inappropriate treatment of mental health patients in nursing homes. In a 1996 study, we found that 32 percent of the records reviewed for such patients were for services that were not medically necessary or appropriate. These included such things as socialization activities that were not true mental health treatments and psychotherapy for individuals incapable of benefitting from it.We have begun focusing on services provided in hospital psychiatric facilities, and are following up on reports about abusive practices and negligence, including misuse of restraints. We plan to conduct follow-up studies as necessary on all of these issues.
Managed Care
Currently 6.6 million, or 16 percent of Medicare beneficiaries are enrolled in health maintenance organizations (HMOs) rather than the traditional fee-for-service medical plans. Similarly, Medicaid beneficiaries are being enrolled in a variety of managed care plans being offered by their State governments. As these types of care develop and new forms of and opportunities for them arise, we are beginning to experience a broad array of new issues connected with them. Some of these issues are similar to the traditional fraud and waste that we see in the fee-forservice environment, but some times the health maintenance organization or other managed care plan is being abused by unscrupulous providers. Other issues relate to quality of care, beneficiary protections, marketing practices, access, and cost. We have been following all of these matters closely and have conducted studies on related topics since the inception of new approaches to medical care. Following are summaries of some of our more recent or current studies in this area.
Administrative Costs. Risk-based HMOs receive substantial funds for administrative costs to operate their Medicare managed care programs. HCFA has very little information available on how the HMOs use these funds, which are provided as part of the Medicare capitation amount. We are analyzing the variances in administrative funds (as a percentage of total funds received from Medicare) among HMOs to determine whether Medicare is absorbing more than its fair share of these costs and how they are being used. For example, our assessment of the administrative costs included in HMOs' rate proposals showed that Medicare could save about $1 billion a year if administrative costs were determined in accordance with Medicare's longstanding principle of paying only its fair share of needed health care costs. Looking at specific HMOs, we identified administrative costs that would be considered inappropriate in other Medicare reimbursement situations. We are sharing our results with HCFA so that appropriate legislative change may be considered.
Enhanced Payments to HMOs. HMOs are entitled to higher than usual payments for their beneficiaries who have end stage renal disease (ESRD) or are dually eligible for Medicare and Medicaid. Our audits have shown that some HMOs have misrepresented the number of beneficiaries in these categories, resulting in substantial overpayments. For example, our 1996 work on enhanced payments for ESRD beneficiaries identified some $35 million in overpayments and our work in 1995 and 1996 identified another $85 million overpaid by Medicare for dually eligibles.
Fee-for-Service Payments to Disenrolled Beneficiaries. The HCFA analysis of how well an HMO performs does not include reviewing fee- for-service payments made for beneficiaries after they have disenrolled from the HMO. We will analyze the medical services received by these disenrolled individuals to determine if the HMO may have encouraged their disenrollment and/or provided poor care. As an interim step, HCFA could use our computer technique to help improve its evaluations of HMOs until better methods are developed.Dissatisfaction of Vulnerable Beneficiaries. Although beneficiaries, in responding to OIG surveys, reported generally positive experiences with HMOs, some indicated that they disenrolled because they received a lower standard of health care or because they felt their health had declined while in the HMO. This was particularly true of disabled beneficiaries and those with functional impairments and serious illnesses, who reported much less positively about their experiences. We also found some problems in communications between the HMOs and beneficiaries related to appeals and grievances. Our work in this area is ongoing.
Withdrawal of HMOs from Medicare. Recently, a number of Medicare HMOs have indicated that they will withdraw from participation in Medicare. We plan to study the impact of these withdrawals on beneficiaries, including adequacy of notification, availability of other health care options, and extent of costs to beneficiaries associated with these changes.
Home Health
Through our audits, investigations, and evaluations, we have found the home health benefit to be particularly vulnerable to fraud and abuse. The inability of Medicare to effectively identify improper claims before payment is made (due primarily to the sheer volume of claims), the open ended nature of the benefit, and weaknesses in physician oversight of patients' eligibility, combined with the ease of entry into the program by business with questionable credentials, increased the risk of losses due to payment errors and outright fraud. Just three years ago we found the payment error rate in New York, Illinois, California, and Texas to be 40 percent. This was primarily due to payments for medically unnecessary services, for services provided to patients who did not meet Medicare's definition of "homebound," and for services which were not properly certified by a physician.
The nature of fraud in this program can be seen in the following examples:
-- In February 1998, the vice president of a Wisconsin company that managed four home health agencies was sentenced to 4 years probation for her part in a conspiracy to defraud Medicare and Medicaid and for filing false income tax returns. The firm's president charged the government for personal living expenses such as housekeeper services, bottled water, private massage treatments, and vacations to Europe and Disney World.
-- In April 1998, the former administrator/owner of a Maine home health agency pled guilty for herself and her corporation to defrauding Medicare and Medicaid. During 1993 and 1994, false cost reports were filed that were based on fictitious invoices for office improvements, supplies, computer software development, equipment purchases, and rent. In addition, the corporation made false statements in failing to reveal related-party transactions.

-- In September 1998, an owner of a Chicago home health agency pled guilty to several counts of filing false cost reports to the Medicare program. These reports included a number of personal expenses such as $90,000 in personal loans and over $20,000 in jewelry that she had charged to the Medicare program. In all, she had obtained in excess of $500,000 in payments from Medicare to which she was not entitled. She also failed to pay $46,000 in withholding taxes.
Fortunately, most of the vulnerabilities have been addressed by the Balanced Budget Act of 1997, and in subsequent Departmental regulatory and administrative initiatives. We also worked closely with representatives of the home health industry to develop compliance program guidance to assist them in developing specific measures to combat fraud, waste, and abuse and to establish a culture of ethics that promotes prevention, detection, and resolution of instances of misconduct. We are therefore hopeful that the error rate has declined. However, until all the recent reforms are fully implemented, the Medicare home health program will remain a serious risk. Therefore, we will continue to closely monitor the program and measure the progress being made in lowering the error rate.
Implementation of Balanced Budget Act Provisions
The Balanced Budget Act of 1997 instituted what is commonly thought of as the most sweeping set of changes to Medicare since the program's inception. The law literally made hundreds of changes to the program. We were very pleased that many of these reforms were consistent with recommendations made by our office or were aimed at correcting program weaknesses and vulnerabilities identified by our work. The following is a list of some of the more significant changes contained in the law:
-- Developing a prospective payment system that covers most non- professional services rendered during Part A covered nursing home stays.
-- Requiring nursing homes to directly bill Medicare for most services rendered to Medicare beneficiaries in other than Part A covered stays. This is commonly referred to as "consolidated billing."
-- Requiring that a prospective payment system be developed for home health related services and that an interim payment system be utilized to control cost and utilization prior to implementation of the prospective system.
-- Vastly expanding the health Care options available to beneficiaries by creating the Medicare+Choice program.
-- Instituting a great number of program safeguard provisions, including requiring surety bonds for certain providers, recertifying the hospice benefit for longer term patients, and strengthening civil monetary penalty and exclusion authorities.
-- Mandating that the Department redesign the way Medicare reimburses ambulance services through "negotiated" rule making.
-- Making a whole host of reimbursement changes including but not limited to those related to Medicare prescription drugs, therapy services, and oxygen.
-- Authorizing Medicare payments for a variety of preventative services including mammography, pap smear and pelvic exams, prostate cancer screening, and colorectal screening.
-- Allowing Medicare to be a more prudent purchaser of services by authorizing competitive bidding and "inherent reasonableness" payment reductions.
These provisions are quite impressive in their scope and significance. Implementing this level of programmatic change is an overwhelming task under any circumstances. In the environment of significant concern over possible computer failures associated with the Year 2000, it is an even more daunting task. Even so, the Health Care Financing Administration reports that it has completed implementation of 188 out of 335 Balanced Budget Act provisions. However, because of the attention needed to make their systems compliant for the Year 2000, HCFA has also indicated that it will be unable to implement certain reforms by statutorily mandated dates, including consolidated billing in nursing homes, and the home health and outpatient prospective payment systems. HCFA plans to implement delayed provisions as soon after April 1, 2000 as possible, but more complex system changes may have to be phased in. We believe that it will be very important to monitor the progress of implementation of these provisions and the effects of any delays that will occur.
Quality of Care in Nursing Homes
Sorely needed payment reforms for nursing homes were included in last year's Balanced Budget Act and summarized above. We are now turning our focus to the quality of care in nursing homes. Recent studies by the General Accounting Office and HCFA as well as our own office have revealed serious concerns about the quality of care. These were highlighted in recent Congressional hearings by the Senate Special Committee on Aging, and HCFA has developed an action plan to address most of the serious systems problems noted in these reviews. Our own office has had a long history in dealing with such problems--through the Medicaid Fraud Control Units which are funded by grants administered by my office; through our removing any individuals or entities convicted of abusing patients from participation in Federal Government funded nursing home operations; and through various studies of abuse in nursing homes and the systems intended to deal with abuse complaints.
Most recently we issued a report that provides insight into measures taken by States to safeguard nursing home residents from abuse. We found that States varied widely in the way they systematically identify, report, and investigate suspected abuse and that background checks of nursing home employees were usually limited to State records. Also, individuals with criminal histories were not recorded in State central registries for use in screening prospective employees. Specifically, our audit of 8 Maryland nursing homes disclosed 51 employees that, according to FBI records, had been convicted of a variety of crimes, some of a violent nature. The employees included certified nurse aides as well as staff holding jobs not subject to background checks. Similarly, our background check of 35 individuals who had been convicted of elder abuse in Maryland showed 7 had prior convictions for other types of crimes. We recommended that HCFA consider establishing Federal requirements and criteria for criminal background checks and assist in the development of a National abuse registry and expansion of current Stateregistries to include all workers who have abused residents in Federally reimbursed facilities. We also suggested that legislation be enacted to allow inclusion of the National abuse registry in an expanded version of the current Healthcare Integrity and Protection Data Bank.
We continue to remain concerned that a more intensive effort is needed to raise the level of quality of care in nursing homes to an acceptable level. During 1998, we took action against nursing homes that furnished substandard, even dangerous, patient care:
-- A chain of three nursing homes in suburban Philadelphia settled an action alleging grossly deficient patient care. One case resulted in the scalding death of a patient. The homes were required to institute rigorous and extensive quality of care compliance provisions. These standards included strict guidelines for the care of nursing home residents with diabetes; standards that in many respects exceed professional standards in the industry. Enforcement of the standards is ensured by an independent monitor; at one of the three homes we required an outside manager to oversee all aspects of the facility until such time as HCFA finds that the home is operating effectively and safely.
-- The Government also concluded its investigation of a publicly owned nursing home for allegations of substandard care (including excessive use of restraints, lack of cleanliness, and a high level of injuries among patients). Again, in settlement of the action, the city agreed to implement specific protocols to ensure quality of care, and to employ a monitor to ensure full implementation and further safeguard the patients. The paramount impetus for these and similar actions is not to obtain compensation for the Government's losses, but to prevent future violations and protect patient safety.
-- An additional investigation disclosed that a northern Louisiana rehabilitation hospital was billing Medicare for services that were medically unnecessary or provided no benefit to the Medicare patient. The hospital also delayed discharging Medicare patients in order to bill additional services to Medicare. The hospital and its majority stockholder agreed to pay nearly $4.5 million in settlement of these allegations of false claims to Medicare.
Corporate integrity agreements can also be an important instrument in safeguarding patient quality of care. For example, a psychiatric hospital agreed to have a monitor selected by the Government to oversee the medical necessity for and duration of each admission, and otherwise review the quality of patient care. Also, a Pennsylvania nursing home signed a settlement agreement that included strict guidelines for the care of nursing home patients with diabetes.
The Omnibus Budget Reconciliation Act of 1987 created a comprehensive set of nursing home reforms. We have begun a multi-year, systematic examination of the implementation of those provisions. We are currently examining the trends in quality of care in nursing homes and the overall capacity of current processes (survey and certification, ombudsman program, and State patient abuse coordinators) to deal with them, and assessing the availability of nursing home survey results to the public. In the future, we plan to examine the accuracy of resident assessments and plans of care; the process for resolving patient abuse complaints; the role of medical directors in ensuring quality of care; and nurse aide training requirements.
Child Support Enforcement
On December 31, 1998, the Administration on Children and Families reported that the Federal/State child support enforcement programs collected an estimated $14.4 billion for Fiscal Year 1998, an increase of 7 percent from 1997's $13.4 billion, and an increase of 80 percent since 1992 when $8 billion was collected. In addition, the Federal Government collected over $1.1 billion in delinquent child support from what was to have been Federal income tax refunds for tax year 1997. This amount was 3 percent higher than the previous year and a 70 percent increase since 1992. Collections were made on behalf of nearly 1.3 million families.
Although collections have increased dramatically, much work still remains to be done. According to the Administration of Children and Families' 21st Annual Report to Congress, information reported for FY 1996 indicates that $16.9 billion in current support and $40 billion in prior years support remains uncollected. To the extent that these payments are not collected, the children of these families are at greater risk of welfare dependency. These statistics reflect both the positive result of many years of continuing and increasingly intensive attention to the problem of unfulfilled parental obligations through the payment of child support, and the more negative features of the intractability of the problem and progress yet to be made. Our office has been involved in these efforts for more than a decade though audits and evaluations dealing with such topics as paternity establishment, review and adjustment of orders, medical support, and income tax cheating by non-custodial parents. More recently, our investigative capabilities have also been brought to bear on this problem.
In 1995, the Office of Inspector General was authorized by the Department of Justice to investigate violations of the Child Support Recovery Act. This Act, passed in 1992, makes it a Federal offense for a non-custodial parent residing in a different State than the children to willfully avoid paying his or her court ordered support obligations. Since 1995, we have opened over 420 cases, and arrested 130 subjects. As a result of these efforts, 90 individuals have been sentenced and over $7.3 million ordered in restitution. Additionally, in conjunction with the Office of Child Support Enforcement, my office has created and established a multi-agency, multi-jurisdictional task force whose purpose is to identify, investigate and prosecute the most egregious criminal non-support matters at both the State and Federal levels. To date, this task force, covering the States of Illinois, Michigan, and Ohio, has opened over 250 investigations and arrested approximately 185 individuals. These arrests have resulted in 167 convictions and restitution ordered in the amount of $4.4 million.
The following are examples of some of our recent cases:
-- A non-custodial parent was arrested after being charged in Oregon with failure to pay child support. There were three additional arrest warrants for him in the Oregon, including a warrant for illegal weapon possession. He was working as a pipefitter/welder at remote gold mines in Nevada and Utah, earning $60,000 per year. He owed approximately $47,000 in child support; and, to avoid paying, he changed jobs every time the State tried to garnish his wages. When he appeared before the U.S. Magistrate, he was ordered detained as a flight risk and was transferred back to Oregon.
-- A Virginia resident told his former spouse that he was quitting his job and leaving the country to avoid paying child support. He then went to Hawaii and started a scuba diving school. He was arrested by U.S. Marshals on the dock when he brought his boat in after a class. The man pled guilty and was sentenced to pay the full amount of child support owed -- $17,000.
We are also continuing our studies in the area of child support enforcement, focusing primarily on ways to improve paternity establishment, gain greater support from public assistance clients in establishing support orders, improving States methods of reviewing and adjusting child support orders, and improving medical support coverage in support orders. Medicare Prescription Drugs
Under provisions of the Balanced Budget Act of 1997, Medicare allowances are now based on a 5 percent discount of the published average wholesale price of prescription drugs. Based on our work, we believe that Medicare continues to substantially overpay for these drugs. For example, we found that Medicare and its beneficiaries could save about $1 billion per year if Medicare allowed amounts for 34 drugs were equal to prices obtained by the Department of Veterans Affairs. This potential savings represented almost half of the $2 billion Medicare and its beneficiaries paid for these drugs in 1997.
We believe that additional legislative action or more extensive use of "inherent reasonableness" payment authorities is warranted to reduce outlays for prescription drugs. Legislative options include basing allowances on acquisition costs, mandating rebates, and permitting/requiring competitive bidding.
Medical Equipment and Supplies
While Medicare payments for medical equipment and supplies represent a relatively small proportion of the program (about $6 billion), over the years we have had to devote significant resources to this area due to the significant problems encountered. Some of these problems, including kickbacks, false claims, and excessive prices became so widespread and ingrained that they were almost accepted as unsolvable, almost tolerable, features of the program. The following examples illustrate the extremes to which irresponsible Providers have gone to exploit the Medicare program:
-- In January 1999, the owner and operator of a medical supply company pled guilty to conspiring to submit $41.8 million in false Medicare claims. The supplier knowingly sold incontinence urinary kits to nursing homes that Medicare did not cover and admitted to billing Medicare between $8.35 and $22.57 for adult diapers (which are also not covered under Medicare and which cost between 25 and 45 cents.) He also pled guilty to laundering $8.9 million of the $15.1 million in illegal proceeds Medicare paid to him. The Court issued a Preliminary Order of Forfeiture that forfeited to the United States Government between $35 million to $40 million in currency, real estate and personal property he had accumulated with the illegal proceeds. The property forfeited included over $700,000 in cash and negotiable instruments, the proceeds of 45 corporate and individual bank accounts, 32 pieces of real estate worth approximately $35 million, 11 pieces of real estate in the Cayman Islands worth over $3 million, the assets of 27 corporations owned by the supplier, 3 trucks, 2 cars and one motor home, 6 fur coats, 100 to 150 head of cattle, and jewelry valued at $127,000. The supplier additionally devised three phony supply companies in order to continue billing Medicare for three years after the program suspended payments to his company. Sentencing has not yet taken place.
-- Along the same lines, one of the highest-reimbursed Medicare suppliers of incontinence care products pled guilty to conspiracy to defraud Medicare of more than $70 million. He had actually collected $45 million by distributing adult diapers but billed Medicare for female urinary collection pouches. He agreed to forfeit $32 million in seized bank accounts, paid $2.5 million in restitution, and was sentenced to 10 years imprisonment.

-- We found that questionable payments of wound care supplies (fillers or protective covers that treat openings on the body caused by surgical procedures, wounds, ulcers, or burns) may have accounted for as much as two-thirds of the $98 million Medicare allowed for these items from June 1994 through February 1995. We found one beneficiary was charged $5,290 for tape over a 6-month period. Medicare paid for, but the beneficiary probably did not receive, 66,000 feet, or 12.5 miles of one-inch tape. Another beneficiary was charged $11,880 in hydrogel wound filler. This beneficiary's record showed payments for 120 units of one-ounce hydrogel wound filler each month for six consecutive months, or over 5 gallons. Concerted efforts by HCFA, Medicare's durable medical equipment regional carders, and our office have since contributed to a dramatic decline in allowances for wound care, saving Medicare $58 million between 1995 and 1996.
-- Orthotic body jackets are customized, rigid devices intended to hold patients immobile and treat patients with muscular and spinal conditions. They cost about $100 to $1,200 each. Medicare payments for this device increased by over 8,200 percent from 1990 to 1992 (from $217,000 to $18 million). We found that 95 percent of claims in a sample which we studied were for non-legitimate devices. We have obtained convictions of entities that billed-Medicare for body jackets but provided seat pads or other restraining devices typically used to help support beneficiaries in wheelchairs. We are currently updating our study because we believe that this problem may not have been completely corrected. Although Medicare expenditures have decreased, we feel that we have not yet eliminated this problem.
We are continuing our work in this area, including looking for ways to keep illegitimate providers out of the Medicare program. For example, we recommend that providers should be required to pay an application fee to cover the cost of processing their applications to participate in the program.Provider Numbers
Ensuring that only legitimate providers enter the program and provide services to Medicare beneficiaries is of paramount importance to us. The Balanced Budget Ac us a powerful tool by authorizing Medicare to collect Social Security and tax identification numbers from providers. The Health Insurance Portability and Accountability Act of 1996 also contained significant provisions related to administrative simplification which call for a National provider identification system. Medicare will not be secure until these new systems are carefully developed. We will closely monitor the implementation of the new statutory provisions to ensure that these systems work as intended. We are now conducting a study on the identification system used for Medicare physicians and another to determine if medical care providers who have been excluded from the program continue to bill for services to Medicare beneficiaries.
As noted earlier and as evidenced by the examples discussed above, the problems that I have discussed with you today are extremely complex. Clearly, we cannot eliminate the errors, waste, and fraud without relentless oversight through audits, investigations, and .evaluations and through effective agency oversight. In the past we have not always had a stable source of funding to do this. However, since the passage of the Health Insurance Portability and Accountability Act of 1996 our effectiveness has been strengthened through an increased and predictable funding base for us and the Health Care Financing Administration.
It became increasingly obvious that our traditional approaches alone would not be sufficient to win this battle. We needed structural reforms, new partnerships, and new ways of thinking.
Only through a multifaceted, coordinated effort could we eliminate or mitigate the risks and avoid the consequences I have discussed here. Again, the Health Insurance Portability and Accountability Act of 1996 gave us the foundation for doing this. It authorized the Health Care Fraud and Abuse Control Program, a partnership between the Office of Inspector General and the Department of Justice to coordinate Federal, State, and local law enforcement activities with respect to health care fraud and abuse. We are very thankful that the Congress and the Administration have provided us with additional resources and authorities in recent years to assist us in addressing the challenges we face. I would like to take a moment to describe some of the broad initiatives that we have taken as a result.
General Upgrading of Capacity
Our first step was to upgrade our facilities, methods, technologies, skills, and organizations. We are opening new offices, particularly in areas with higher than usual suspicious activity, and more generally in an all out effort to provide full security coverage for our programs. We have developed new analytic techniques and computing capacity to uncover and analyze suspicious payment and utilization trends which can then be investigated or audited as appropriate. We are combining our audit, investigative, evaluation, and legal functions to more effectively prevent, uncover, and respond to fraud and waste. And we have strengthened our procedures for coordinating our efforts with those of the Justice Department.In FY 1998 there were 261 convictions (193 were health care related), 927 civil settlements (921 health care), and 3,021 exclusions from the Medicare program. The Office of Inspector General was pleased to report record savings of $11.6 billion comprised of almost $11 billion in implemented recommendations and other actions to put funds to better use, $147 million in disallowances from questioned costs, and $516 million in investigative receivables.
Program Structural Reform
It was clear that some of the more serious problems the Department was facing stemmed from the very structure of its programs. This was particularly true of those where payments to providers were based on their costs or charges. This approach contains inherent incentives to exaggerate prices and overutilize services. Some programs also had very weak screening criteria and enrollment processes, enabling easy entry by unscrupulous individuals and business entities. Others used payment methods that made it too easy for Medicare to pay incorrectly in the first place and difficult to recover funds when improper payments were discovered. In many cases the sheer volume of payments made reasonable scrutiny practically impossible.
Examples of exactly these kinds of situations are those which I have described earlier in my testimony--including home health, nursing home, and mental health services, and medical equipment and supplies. No amount of auditing and investigating can adequately deter, detect, and respond to the errors, waste, and outright fraud that could occur in these areas. What is needed are fundamental reforms in the program structures themselves, and stronger safeguards in the form of certification standards and enrollment procedures.
We are particularly proud of the studies which my office contributed to promoting a greater understanding of the vulnerabilities that were addressed in the Balanced Budget Act of 1997. The Congressional Budget Office has estimated that the savings from the reforms to which we made contributions will total almost $70 billion over five years.
Industry Outreach and Education
We have engaged in numerous proactive outreach efforts designed to help the medical care industry avoid fraud and waste, increase their compliance with Medicare rules, and generally understand more about the nature of waste, fraud, and abuse. Following is a brief description of these initiatives. Information about these outreach efforts and results of our audits, investigations, and evaluations are routinely made available through the Internet on our website at We have issued an open letter inviting health care providers to join us in a National campaign to eliminate fraud and abuse.
-- Compliance Plans. A cornerstone of our prevention efforts has been the development of compliance program guidance to encourage and assist the private health care industry to fight fraud and abuse. The guidance, developed in conjunction with the provider community, identifies steps that health care providers may voluntarily take to improve adherence to Medicare and Medicaid rules. Each guidance sets forth seven elements that we consider necessary for a comprehensive compliance program and identifies risk areas for the specific industry settlor. So far we have issued compliance program guidance foruse by clinical laboratories, hospitals, home health agencies and third party billers. We also solicited input from the nursing home and durable medical equipment industries on issues that should be addressed in upcoming guidance for those health care sectors.
-- Corporate Integrity Plans.

Health care providers that enter into agreements with the government in settlement of potential liability for violations of the False Claims Act also agree to adhere to a separate "corporate integrity agreement." Under this agreement, the provider commits to establishing a compliance program or undertaking other specified steps to ensure their future compliance with Medicare and Medicaid rules. The duration of most corporate integrity agreements is 3 to 5 years, during which time the provider must submit an annual report to us on its compliance activities. At the close of 1998, our office was monitoring approximately 350 agreements; a total of 231 corporate integrity agreements were entered in 1998.
-- Fraud Alerts. We issue special fraud alerts on topics that warrant attention by medical care providers. Through these alerts we can spell out the kind of situations that could get providers into trouble if they are not careful. For example, in March 1998 we issued a special fraud alert on the interrelationship between the hospice and nursing home industries describing some potentially illegal practices identified in arrangements between these providers. These arrangements are vulnerable to fraud and abuse because nursing home operators have control over the specific hospice or hospices they will permit to provide hospice services to their residents. An exclusive or semi- exclusive arrangement between a nursing home and a hospice may involve a request or offer of illegal remuneration to influence a nursing home's decision to do business with a hospice. Potential kickbacks may also be involved in an attempt to influence the referral of patients. Nursing homes and hospice care providers can use the guidance in the fraud alert to avoid potentially problematic and illegal arrangements.
Other fraud alerts have been issued concerning physician liability for certifications in the provision of medical equipment and supplies and home health services; the provision of services in nursing facilities; joint venture relationships; routine waiver of Part B copayments and deductibles; hospital incentives to referring physicians; prescription drag marketing practices, and arrangements for the provision of clinical lab services.
-- Advisory Opinions. During this past year, in consultation with the Department of Justice, we finalized our process for providing written advisory opinions in response to requests for clarification from businesses regarding the sanction authorities enforced by the Office of Inspector General, including the anti-kickback statute and the Civil Monetary Penalties Law. We received 21 requests for opinions in the last quarter of the year, almost 40 percent of the total requests for the year, reflecting growing industry recognition of the value of the advisory opinion process. In addition, we frequently speak to industry groups on areas of suspected fraud and abuse and measures they can take to avoid trouble.
Beneficiary Outreach and Education
Enlisting beneficiaries as partners in fighting fraud and waste assists in identifying abuses at an early stage, and preventing ongoing or widespread abuse. In a survey completed last year, we found that Medicare beneficiaries are well-positioned to identify fraud, with three out of four stating that they always read their Explanation of Medicare Benefits statements. We have been working with the Administration on Aging, HCFA, and AARP to develop an outreach campaign to educate beneficiaries and those who work with the elderly to recognize fraud and abuse and to report it appropriately. Some steps are already well underway, including our assistance to State and local area offices on aging supported by the Administration on Aging. Some of them are already teaching Medicare beneficiaries how to protect their Medicare cards and numbers, avoid situations which can lead to fraud, how to interpret their Medicare bills and explanations of benefits, and how to report questionable billings to Medicare or to the Inspector General's Hotline. A much broader campaign that also involves HCFA, the Justice Department, and AARP will be launched just two weeks from now.
Congress has also been of assistance in our fight against waste, fraud and abuse by enacting the Beneficiary Incentive Program in which individuals can receive cash awards in exchange for leads resulting in action against fraudulent or abusive providers.
Fraud Hotline
In conjunction with both the industry and beneficiary outreach efforts, we have also been expanding the toll-free hotline for beneficiaries and providers to report suspected fraud. Now millions of beneficiaries see the number 1-800-HHS-TIPS printed on the forms they receive that explain the Medicare benefits paid for them. Since 1995, the Hotline has received 600,000 calls which contributed to identifying $15 million in improper Medicare payments, of which approximately $10 million has already been recovered.
I appreciate the opportunity to appear before you today and share with you some of our concerns related to issues that confront the Department. There are other problems as well. Each year we issue our Cost-Saver Handbook, also known as "The Red Book," which summarizes all of our major cost saving recommendations that have not been substantially implemented, as well as "The Orange Book," a compendium of significant non-monetary recommendations for improving departmental operations. If you remember one thing from my testimony today, I hope it will be that the problems we confront are significant and their impact tangible and alarming; we can address them effectively if we work together.
I welcome your questions.

LOAD-DATE: February 12, 1999

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