Testimony of June Gibbs Brown, Inspector General, Before the House Committee on the Budget

Testimony
Before the House Committee on the Budget
United States House of Representatives

Medicare & Medicaid:
HHS High-Risk Programs

Statement of
June Gibbs Brown
Inspector General

February 17, 2000

Office of 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 some of the most significant issues that confront our Department, focusing my attention on the Medicare and Medicaid programs. These are complex problems relating to fraud, waste, and abuse 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 really want to stress to you today that we need to remain vigilant, on guard, and steadfast in our efforts to address these problems. While we have made excellent progress in recent years, this is no time for complacency, declaring victory, or relaxing our guard.

We need no further proof of this than the announcement last month of the largest health care settlement in the history of the country. Fresenius Medical Care, the world's largest provider of dialysis products and services, agreed to pay criminal and civil penalties of $486 million to settle allegations of improper payments for nutritional therapy and laboratory tests for patients suffering from renal disease. The company has also agreed not to pursue approximately $196 million in denied claims in return for a payment of $59.1 million.

The progress we have made in the area of fraud, waste, and abuse is in large part because of the efforts of a wide variety of individuals and entities including the Department, the Congress, the Department of Justice, other law enforcement agencies, provider groups, and beneficiaries. These efforts have resulted in structural and payment reforms, heightened awareness, and prosecutions of wrongdoers. Much public attention has been focused on our Medicare error rate (which we have now reported in each of the last 3 years) and the fact that the projection dropped in half in FY 1998. While this has been extremely encouraging, the error rate is still too high, there are still particular areas of Medicare that are highly susceptible to fraud and abuse, and there are still daunting issues that confront us that are not reflected in the published Medicare error rate.

With respect to the last point, I would like to stress that while the error rate estimate may include some instances of fraud, it is a payment error estimate and not a fraud estimate. That is, since our review consisted primarily of a review of medical documentation, it is unlikely to detect all instances of fraud. The review would catch some instances of fraud such as where providers did not exist. However, it is less likely to detect more sophisticated fraud, such as falsification of documents and illegal kickbacks. Therefore, the true prevalence of fraud remains unknown, but based on other work we have done we believe that it remains substantial. We believe that we can make the most progress in combating fraud by continuing to focus our resources on specific areas of vulnerability rather than attempting a broad overall measurement of the prevalence of fraud.

With this in mind, I would like to spend my time with you today discussing the vulnerabilities that confront us, and some of our recent and ongoing initiatives.

BACKGROUND

The Office of Inspector General (OIG) was created in 1976 and is statutorily charged with protecting the integrity of our Department's programs, as well as promoting their economy, efficiency and effectiveness. The OIG meets this statutory mandate through a comprehensive program of audits, program evaluations, and investigations designed to improve the management of the Department and to protect its programs and beneficiaries from fraud, waste and abuse. Our role is to detect and prevent fraud and abuse, and to ensure that beneficiaries receive high quality, necessary services, at appropriate payment levels.

The Health Care Financing Administration (HCFA) is the largest single purchaser of health care in the world. With expenditures of approximately $310 billion, assets of $181 billion, and liabilities of $40 billion, HCFA is also the largest component of the Department. Medicare and Medicaid outlays represent 34.2 cents of every dollar of health care spent in the United States in 1998. The Medicare program is inherently at high risk for payment errors due to its size as well as its complex reimbursement rules, and decentralized operations (39 million beneficiaries and 860 million claims processed annually).

OVERALL MEDICARE PAYMENT ERROR RATE

As part of our first comprehensive audit of HCFA's financial statements for FY 1996, we began reviewing claim expenditures and supporting medical records. Our primary objective was to determine whether services were (1) furnished by certified Medicare providers to eligible beneficiaries; (2) reimbursed by Medicare contractors in accordance with Medicare laws and regulations; and (3) medically necessary, accurately coded, and sufficiently documented in the beneficiaries' medical records.

For FY 1998, we projected that net improper payments totaled about $12.6 billion nationwide, or about 7.1 percent of total Medicare fee-for-service benefit payments. The FY 1998 estimate is $7.7 billion less than the FY 1997 estimate of $20.3 billion, and $10.6 billion less than the FY 1996 estimate of $23.2 billion--a 45 percent drop.

As in past years, the improper payments include anything from inadvertent mistakes to outright fraud. We cannot quantify what portion of the error rate is attributable to fraud. We have, however, quantified the estimated provider billings for services that were insufficiently documented, medically unnecessary, incorrectly coded, or non-covered. These were the major error categories noted over the last 3 years. Some examples:

Medicare paid a physician $871 for 40 hospital visits. The medical records, however, supported only 18 visits. Therefore, payment of $479 for the 22 visits without supporting documentation was denied.

A community mental health center was paid $21,421 for a beneficiary who received services under the "partial hospitalization" program. This program is limited to providing services to beneficiaries with very serious mental conditions that would otherwise require inpatient hospital stays. The medical reviewers determined that the beneficiary had already achieved sufficient stabilization and did not meet the definition of one who would otherwise require in-patient services.

SPECIFIC VULNERABILITIES CONFRONTING THE DEPARTMENT

While it is encouraging that the Medicare error rate overall has declined, the challenges and issues confronting the Department are still daunting. There are specific areas or pockets of the program that are particularly vulnerable to fraud and abuse or quality control problems. This may be due in part to inadequate enrollment procedures for providers, deficient internal controls, excessive payment rates, or especially vulnerable beneficiaries.

Mental Health Services

We continue to be concerned about inappropriate Medicare payments involving mental health services in a variety of settings.

Community Mental Health Centers. In 1998, the OIG completed its five-State study of partial hospitalization services provided in community mental health centers and found that over 90 percent of the Medicare payments ($229 million of $252 million) were for unallowable or highly questionable services.

Hospital Outpatient Departments. We are currently completing in-depth reviews of outpatient psychiatric services provided by 10 acute care hospitals. Also, a similar 10-State review and individual hospital audits of outpatient psychiatric services is being performed at psychiatric hospitals.

Mental Health Services in Nursing Homes and Ambulatory Care Settings. In 1996, we examined the provision of mental health services to nursing facility residents. We found that for 32 percent of the records reviewed, Medicare paid for medically unnecessary mental health services in nursing homes. We are currently conducting a follow-up study. We are also conducting a similar study of mental health services in ambulatory care settings.

Rehabilitation Services

The Medicare program provides coverage and payment for physical, occupational, and speech therapy services that are reasonable and necessary to treat an individual's illness or injury. These services are provided in a variety of settings, including nursing homes, various rehabilitation facilities, and outpatient departments of hospitals.

Nursing Homes. We found that 13 percent of physical and occupational therapy given to Medicare patients in nursing homes in 1998 was not medically necessary or was provided by individuals who did not have the proper qualifications to do so. The cost of these improper payments was $1 billion.

Outpatient Rehabilitation Facilities. The OIG has an ongoing six-State review of outpatient rehabilitation facilities in Florida, Louisiana, Michigan, New Jersey, Pennsylvania, and Texas, which accounted for about 50 percent of the total outpatient rehabilitation facility payments nationwide during CY 1997. Our results to date indicate that Medicare fiscal intermediaries may have made substantial payments for unallowable or highly questionable services.

We are continuing our studies of therapy services provided in nursing homes to ensure that waste and abuse are prevented while necessary services are rendered. Additionally, the OIG is currently planning a review of therapy services provided in outpatient departments of acute care hospitals. We will select a statistically valid sample of claims and request medical record reviews to determine whether the therapy services provided were reasonable and necessary for the patient's illness or injury.

Medical Equipment and Supplies

While Medicare payments for medical equipment and supplies represent a small proportion of the program (about $6 billion), over the years we have devoted significant resources to this area due to the significant problems associated with the provision of this benefit. We have consistently reported on excessive Medicare reimbursement rates, unnecessary services, services not rendered, and sham business billing Medicare. For example:

We found that Medicare paid an estimated $20.6 million in 1997 for services that started after a beneficiary's date of death. Almost half of this was for durable medical equipment claims.

We recently reported that 42 percent of claims for orthotic body jackets were for more expensive items than the one actually provided. In a separate report, we found that Medicare pays substantially more for these items than Medicaid programs and other Federal payers that we reviewed.

We reported that nearly 25 percent of certificates of medical necessity for home oxygen were inaccurate or incomplete. In addition, 13 percent of beneficiaries reported never using their portable oxygen systems.

We found that 57 percent of documentation for therapeutic shoe claims were missing or inaccurate.

Many recent reforms have been made in this area. For example, the Balanced Budget Act of 1997 requires providers to pay a modest surety bond. However, this provision has not yet been implemented. Furthermore, we believe that additional action should be taken to reduce payments for selected items, such as hospital beds, and that providers should be required to pay an application fee to cover the cost of processing their applications to participate in the program. Our work in this area continues with studies related to blood glucose test strips, ventilators, orthotics, and the National Supplier Clearinghouse.

Home Health

The 1990s saw dramatic increases in Medicare payments for home health services, growing from $3 billion to almost $18 billion during this period. Some of this growth was due to the legitimate need for and the value of these benefits for homebound Medicare beneficiaries. But, we also saw signs that fraud, waste, and abuse were significant contributors.

Based on our work, we found the home health benefit to be a program that grew too quickly with inadequate controls. The inability of Medicare to effectively identify improper claims before payment combined with the ease of entry of home health agencies into the program makes the Medicare trust fund especially vulnerable to losses from the home health program. For example, a 1997 audit disclosed that 40 percent of the claims sampled in four of the most populated States should not have been reimbursed.

Fortunately, most of the vulnerabilities have been addressed by the Balanced Budget Act of 1997 and in subsequent Department regulatory and administrative initiatives. These solutions are now being implemented through the development of a prospective payment system, increases in the number of audits, more thorough enrollment and re-enrollment procedures, and various new penalties for abusive actions. Additionally, as the home health agencies themselves are best positioned to guarantee the integrity of their product, we recently issued "Compliance Program Guidance for Home Health Agencies" to assist them in developing specific measures to combat fraud, waste and abuse, as well as in establishing a culture of ethics that promotes prevention, detection, and resolution of instances of misconduct.

To determine whether these program changes were having a positive impact on Medicare reimbursement, we recently replicated our 4-State review. Our report revealed that the error rate had, in fact, been significantly reduced, down from 40 to 19 percent. Although this reduction indicates notable progress, a 19 percent error rate is still too high and we are still far from finished with the task of reforming the home health program. Until all the recent reforms are fully implemented, the Medicare home health program will remain a serious risk.

Nursing Facilities

We are continuing our longstanding monitoring of Medicare payments made on behalf of nursing home patients.

Infusion Therapy. We recently reviewed infusion therapy services (such as use of an electronic pump to administer drugs) provided by some suppliers to skilled nursing facilities. Our audit found that suppliers charged excessive prices for infusion therapy, provided unnecessary services to patients, and improperly billed for services that the nursing facilities, in turn, misclassified on the Medicare cost reports. We are concerned not only about the financial effects of the overpayments we identified but also about overutilization and underutilization of therapy services.

Access. We also studied the impact of the new nursing home prospective payment system on access to care. We found that Medicare patients are able to access care in skilled nursing facilities, particularly therapy patients. In fact, we found that it is easier to place Medicare therapy patients in nursing homes after the new payment system went into effect than before. On the other hand, patients requiring extensive services are more difficult to place under the new payment system.

Prescription Drugs

While Medicare does not pay for over-the-counter or many self-administered drugs, it does pay for certain categories of prescription drugs used by Medicare beneficiaries. Since 1992, Medicare outlays for prescription drugs have grown dramatically, increasing from $663 million to $2.3 billion in 1996. Prior to January 1, 1998, Medicare payments were based on "average wholesale prices (AWP)" which are mainly provided by manufacturers but bear little relationship to actual wholesale prices. Based on our work, we believe that Medicare continues to substantially overpay for these drugs. Legislative options include basing allowances on acquisition costs, mandating rebates, and permitting/requiring competitive bidding. We believe that such actions could save Medicare almost $800 million annually, depending upon the option adopted.

Medicare Contractors

The Medicare program is administered by the Health Care Financing Administration (HCFA) with the help of 64 contractors that handle claims processing and administration. The contractors are responsible for paying health care providers for the services provided under Medicare fee-for-service, providing a full accounting of funds, and conducting activities designed to safeguard the program and its funds. There are two types of contractors -- fiscal intermediaries and carriers. Intermediaries process claims filed under Part A of the Medicare program from institutions, such as hospitals and skilled nursing facilities; carriers process claims under Part B of the program from other health care providers such as physicians and medical equipment suppliers. We have encountered problems associated with:

financial management and accounting procedures and longstanding weaknesses in internal controls, including deficiencies related to the receivable amounts reported in HCFA's financial statements and electronic data processing.

the effectiveness of the Fraud Units which are designed to detect and deal with problems of fraud and abuse within the provider community.

In addition, there had been numerous allegations that contractors have falsified statements that specific work was performed, and altered, removed, concealed, and destroyed documents to improve their ratings on Medicare performance evaluations. Wrongdoing has been identified and we have entered into civil settlements with 13 Medicare contractors since 1993, with total settlements exceeding $350 million.

Managed Care

Managed care plans, such as managed care organizations (MCOs), provide comprehensive health services on a prepayment basis to enrolled individuals. Medicare beneficiaries have the option to enroll in these plans, which contract with HCFA to furnish all medically necessary services covered under the Medicare program. Medicare enrollment in managed care plans has been steadily increasing. In January 1993, 177 plans with Medicare contracts serviced 2.5 million beneficiaries. In October 1999, 409 plans had approximately 7 million Medicare enrollees. Medicare payments to managed care plans have also grown significantly--from $8.6 billion in Fiscal Year (FY) 1993 to $37.2 billion in FY 1999. Some of our most recent work includes the following:

Enhanced Payments to Managed Care Organizations. Our past audits demonstrated that HCFA did not have effective controls over the higher capitation payments to MCOs for beneficiaries with either end stage renal disease (ESRD) or dually eligible (Medicare and Medicaid) status. These audits identified over $122 million in improper payments. We have also been reviewing the extra payments made for beneficiaries with institutional status. Our audits indicate that there is potentially $22 million in overpayments to MCOs for beneficiaries classified as institutional status. We are continuing our audits to identify overpayments based on institutional status at specific MCOs and also determining whether past problems with properly identifying ESRD and dually eligible beneficiaries have been corrected.

Fee-for-Service Payments to Disenrolled Beneficiaries. The HCFA analysis of how well a MCO performs does not include reviewing fee-for-service (FFS) payments made for beneficiaries after they have disenrolled from the managed care organization. We identified $224 million in Part A FFS medical services received within 3 months of the disenrollment date by these individuals. We are continuing our review to determine if the managed care organizations may have encouraged the disenrollment and/or provided poor care.

Administrative Costs. Risk-based MCOs receive what appears to be a large amount of funds for administrative costs to operate their Medicare managed care programs. The HCFA has very little information available on how the MCOs used these funds, which are provided as part of the Medicare capitation amount. Based on our analysis of 9 MCOs, we found that the MCOs overestimated by 100 percent the funds they needed to cover administrative costs. We also found that the 9 MCOs had $66 million in administrative costs that would have been disallowed had the MCOs been required to follow Medicare's general principle of paying only reasonable costs. We are also analyzing the variances in administrative funds (as a percentage of total funds received from Medicare) among MCOs.

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.

Medicaid

Medicaid is a means-tested health care entitlement program financed by States and the Federal Government -- 43 percent from the States and 57 percent from the Federal Government in FY 1998. To date, all 50 States, the District of Columbia, and the five territories have elected to establish Medicaid programs. The responsibility for detecting, investigating and prosecuting fraud and abuse in the Medicaid program is shared between the Federal and State Governments. Each State is required to have a program integrity unit dedicated to detecting and investigating suspected cases of Medicaid fraud. Most States fulfill this requirement by establishing a Medicaid Fraud Control Unit (MFCU). Although originally managed within HCFA, the oversight responsibilities for the fraud control units were transferred to our office in 1979 since the Units' activities were determined to be more closely related to the OIG investigative function. Federal funds for the Medicaid fraud control program are included in the Health Care Financing Administration appropriation. The program currently reimburses the States for the cost of operating a unit at a rate of 75 percent.

The types of fraudulent schemes we see in the Medicaid program in many ways mirror those in Medicare:

Billing for Services Not Provided. This is one of the most common types of fraud. Examples include a provider who bills Medicaid for a treatment or procedure that was not actually performed, such as blood tests when no samples were drawn or x-rays that were not taken.

False Cost Reports. A nursing home owner or hospital administrator may intentionally include inappropriate expenses not related to patient care on costs reports submitted to Medicaid.

Illegal Remunerations. A provider (i.e., nursing home operator) may conspire with another health care provider (i.e., physician, ambulance company) to share a certain portion of the monetary reimbursement the health care provider receives (kickbacks) for services rendered to patients. Kickbacks include not only cash, but vacation trips, automobiles or other items. The practice results in unnecessary tests and services being performed for the purpose of generating additional income to both the referring source and the provider of the service.

In 1998, the MFCU reported 937 convictions and recoveries totaling more than $83 million (Federal and State). It should be noted that there are areas of MFCU activity, such as patient abuse cases, that do not generate a monetary return, but are part of the overall effort to provide quality care and to hold the health care community accountable for the Federal and State dollars spent. In FY 1998, patient abuse cases accounted for over 30 percent of the 6,839 cases investigated by the 47 units.

Precisely because Medicaid is really a compilation of 56 separate programs, fraud and abuse coordination is extemely important. Therefore, the OIG, MFCUs, and other law enforcement agencies work together to coordinate anti-fraud efforts. For example:

The OIG and MFCUs have joined with other State and Federal law enforcement agencies to organize health care fraud task forces throughout the country.

The OIG has established with the Department of Justice and other enforcement agencies an Executive Level Working Group to focus on health care fraud.

Ten years ago, the OIG helped establish the National Health Care Anti-Fraud Association, representing both governmental and private third party payers and law enforcement agencies, to coordinate governmental and private health care fraud enforcement activities.

Other cooperative efforts include State Medicaid Audit Partnerships. Five years ago, we began an initiative to work more closely with State auditors in reviewing the Medicaid program. The Partnership Plan was created as an effort to provide broader coverage of the Medicaid program by partnering with State auditors, 11 State Medicaid agencies and two State internal audit groups. Reports issued have resulted in identifying $173.7 million in Federal and State savings. Since its inception in 1994, active partnerships have been developed in 23 States on such diverse issues as:

Program issues related to Medicaid outpatient prescription drugs.
Unbundling of clinical laboratory services.
Outpatient non-physician services already included as an inpatient charge.
Excessive costs related to hospital transfers.
Excessive payments for durable medical equipment.
Acquisition costs for Medicaid drugs.
Program issues related to managed care.

Joint projects have also identified areas where improvements in program operations could be achieved, unallowable program expenditures could be recovered and future cost savings could be recognized.

WAYS TO ADDRESS THESE PROBLEMS

As noted earlier and as evidenced by the examples discussed above, the problems that I have discussed with you today are extremely complex. Clearly, the Department cannot eliminate the errors, waste, and fraud without relentless oversight through audits, investigations, and evaluations and through effective agency oversight. In the past, a stable source of funding was not always available. 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 for fraud and abuse control efforts.

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 expanding our investigative efforts to new geographic areas, 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 Department of Justice.

In FY 1999 there were 401 convictions (303 were health care related), 541 civil actions (534 were health care related), 2,976 exclusions from the Medicare or other Federal health care programs, $251.5 million in disallowances from questioned costs, and $407.7 million in investigative receivables. The Office of Inspector General also conducted studies and made recommendations which contributed to the achievement of $11.9 billion in savings related to program reforms and other actions to put funds to better use. Furthermore, $369 million was returned to the Medicare trust funds in 1999, and an additional $4.7 million was recovered as the Federal share of Medicaid restitution.

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 over-utilize 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 5 years.

Financial Statement Audit

As required by the Government Management Reform Act of 1994, we issued our third comprehensive financial statement audit of HCFA. The purpose of financial statements is to provide a complete picture of 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 and determine whether they were fairly presented.

We are pleased to report that HCFA has continued to successfully resolve many previously identified financial accounting problems. For example, substantial progress was made in improving Medicare and Medicaid accounts payable estimates, as well as estimates of potential improper payments included in cost reports of institutional providers. However, our opinion on the FY 1998 financial statements remains qualified. In accounting terms, a qualification indicates that we still found insufficient documentation to conclude on the fair presentation of all amounts reported.

Most significantly, Medicare accounts receivable (i.e., what providers owe to HCFA) were not adequately supported. We found deficiencies in nearly all facets of Medicare accounts receivable activity at the 12 contractors in our sample. Some contractors were unable to support the beginning balances, others reported incorrect activity, including collections, and finally others were unable to reconcile their reported ending balances to subsidiary records. We also found that substantial amounts of receivables had been settled with insurance companies but were still presented as outstanding accounts receivable. As a result of these problems, we could not determine whether the Medicare contractors' accounts receivable balances and activities were fairly presented.

Material weaknesses are serious deficiencies in internal controls that could lead to material misstatements of amounts reported in the financial statements in subsequent years unless corrective actions are taken. The FY 1998 report on internal controls notes two material weaknesses besides accounts receivable:

Financial reporting remained a material weakness because, among other things, HCFA does not have an integrated accounting system to capture expenditures at the Medicare contractor level. Instead, HCFA relies on a complex system of reporting that includes use of ad hoc reports to accumulate data for financial reporting.

The HCFA central office and Medicare contractors continued to have material weaknesses in electronic data processing controls relating to security access, application development and change controls.

To ensure progress in reducing past problems while keeping abreast of continuing changes in the health care area and adequately safeguarding the Medicare Trust Fund, we recommended, among other things, that HCFA:

enhance prepayment and post payment controls by updating computer systems and related software technology to better avoid and detect improper Medicare payments and

continue to direct that the Medicare contractors and peer review organizations (PROs) expand provider training to (1) further emphasize the need to maintain medical records containing sufficient documentation, as well as to use proper procedure codes when billing Medicare, and (2) identify high-risk areas and reinstate selected surveillance initiatives, such as hospital readmission reviews and DRG coding reviews.

We believe these types of reviews are critical to reducing improper Medicare payments and ensuring continued provider integrity.

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. Information about these outreach efforts and results of our audits, investigations, and evaluations are routinely made available through the Internet on our website at www.hhs.gov/progorg/oig. We have issued an open letter inviting health care providers to join us in a National campaign to eliminate fraud and abuse. Following is a brief description of these initiatives.

Compliance Guidance. 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 sector. So far we have issued compliance program guidance for use by clinical laboratories, hospitals, home health agencies and third party billers, hospices, durable medical equipment suppliers, and Medicare+Choice organizations. We also solicited input from the nursing home and physician communities on issues that should be addressed in upcoming guidance for those health care sectors.

Corporate Integrity Agreements. Virtually all health care providers that enter into agreements with the government in settlement of potential liability for violations of the False Claims Act must also agree to adhere to a separate "corporate integrity agreement." Under such an 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 the OIG on its compliance activities. At the close of 1998, our office was monitoring 428 agreements; a total of 138 corporate integrity agreements were entered in 1999.

Special Fraud Alerts and Advisory Bulletins. We issue special fraud alerts and advisory bulletins on topics that warrant attention by medical care providers. Through these publications we can spell out kinds of situations that could get providers into trouble. Recent topics include hospital payments to physicians to reduce or limit services to beneficiaries (commonly known as "gainsharing" arrangements); the effect of exclusion from Federal health care programs on excluded providers and those who employ or contract with them; and physician liability for certifications of medical necessity in the provision of medical equipment and home health 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. From the inception of the advisory opinion program in February 1997 to the close of FY 1999, the OIG issued 32 advisory opinions. In addition, we frequently speak to industry groups on areas of suspected fraud and abuse and measures they can take to avoid trouble.

Self Disclosure Protocol. Introduced as the Voluntary Disclosure Program as part of Operation Restore Trust, the self disclosure protocol allows health care providers to report questionable practices they discovered as part of a comprehensive compliance plan to the Government for resolution. The practices are more than simple errors that amount in direct overpayment to the contractors, but rather those issues that may be viewed as potential fraud and abuse. It allows the provider community to work with the Government in fighting fraud and abuse as partners instead of adversaries. The cooperative effort has created a better working relationship between the Government and the provider community regarding current health care fraud issues. We have had 70 self disclosures, 59 since our new protocol was published in the Federal Register in October 1998. To date, we have had 7 settlements amounting to $4.3 million.

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. Our studies indicate that Medicare beneficiaries are well-positioned to identify possible 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 carry out an outreach campaign to educate beneficiaries and those who work with the elderly to recognize potential fraud and abuse and to report it appropriately. State and local area offices on aging supported by the Administration on Aging have contributed to this effort. They 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.

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 improving 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 1997, the Hotline has received 900,000 calls which contributed to identifying $30 million in improper Medicare payments, of which approximately $6 million has already been recovered.

CONCLUSION

As I stated at the beginning of my testimony, I believe a concentrated effort by a large number of people has resulted in tangible progress in combating fraud, waste, and abuse in recent years. But as I have discussed with you today, the problems that remain are serious, complicated, and have profound consequences. I am particularly concerned about the deliberate fraud which we cannot always measure but that we know continues. We must never let down our guard, and we must continue to dedicate the resources and make the concerted effort to reduce these problems.

I really appreciate the opportunity you have given me today to focus attention on the continuing problems and vulnerabilities that confront us and to share with you some of our efforts and recent initiatives. I would be happy to answer any questions.
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Visit the Office of Inspector General Web Site at http://oig.hhs.gov

The HHS Office of Inspector General's response to Chairman Kasich's request for an assessment of the Department's areas of concern for 2000 is located on the House Budget Committee Web site at http://www.house.gov/budget/waste/HHS.pdf

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