<DOC> [105th Congress House Hearings] [From the U.S. Government Printing Office via GPO Access] [DOCID: f:41071.wais] HEALTH CARE FRAUD IN NURSING HOMES ======================================================================= HEARING before the SUBCOMMITTEE ON HUMAN RESOURCES of the COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT HOUSE OF REPRESENTATIVES ONE HUNDRED FIFTH CONGRESS FIRST SESSION __________ APRIL 16, 1997 __________ Serial No. 105-13 __________ Printed for the use of the Committee on Government Reform and Oversight U.S. GOVERNMENT PRINTING OFFICE 41-071 WASHINGTON : 2002 ____________________________________________________________________________ For Sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512-1800 Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001 COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT DAN BURTON, Indiana, Chairman BENJAMIN A. GILMAN, New York HENRY A. WAXMAN, California J. DENNIS HASTERT, Illinois TOM LANTOS, California CONSTANCE A. MORELLA, Maryland ROBERT E. WISE, Jr., West Virginia CHRISTOPHER SHAYS, Connecticut MAJOR R. OWENS, New York STEVEN H. SCHIFF, New Mexico EDOLPHUS TOWNS, New York CHRISTOPHER COX, California PAUL E. KANJORSKI, Pennsylvania ILEANA ROS-LEHTINEN, Florida GARY A. CONDIT, California JOHN M. McHUGH, New York CAROLYN B. MALONEY, New York STEPHEN HORN, California THOMAS M. BARRETT, Wisconsin JOHN L. MICA, Florida ELEANOR HOLMES NORTON, Washington, THOMAS M. DAVIS, Virginia DC DAVID M. McINTOSH, Indiana CHAKA FATTAH, Pennsylvania MARK E. SOUDER, Indiana TIM HOLDEN, Pennsylvania JOE SCARBOROUGH, Florida ELIJAH E. CUMMINGS, Maryland JOHN SHADEGG, Arizona DENNIS KUCINICH, Ohio STEVEN C. LaTOURETTE, Ohio ROD R. BLAGOJEVICH, Illinois MARSHALL ``MARK'' SANFORD, South DANNY K. DAVIS, Illinois Carolina JOHN F. TIERNEY, Massachusetts JOHN E. SUNUNU, New Hampshire JIM TURNER, Texas PETE SESSIONS, Texas THOMAS H. ALLEN, Maine MIKE PAPPAS, New Jersey ------ VINCE SNOWBARGER, Kansas BERNARD SANDERS, Vermont BOB BARR, Georgia (Independent) ROB PORTMAN, Ohio Kevin Binger, Staff Director Daniel R. Moll, Deputy Staff Director Judith McCoy, Chief Clerk Phil Schiliro, Minority Staff Director ------ Subcommittee on Human Resources CHRISTOPHER SHAYS, Connecticut, Chairman VINCE SNOWBARGER, Kansas EDOLPHUS TOWNS, New York BENJAMIN A. GILMAN, New York DENNIS KUCINICH, Ohio DAVID M. McINTOSH, Indiana THOMAS H. ALLEN, Maine MARK E. SOUDER, Indiana TOM LANTOS, California MIKE PAPPAS, New Jersey BERNARD SANDERS, Vermont (Ind.) STEVEN SCHIFF, New Mexico THOMAS M. BARRETT, Wisconsin Ex Officio DAN BURTON, Indiana HENRY A. WAXMAN, California Lawrence J. Halloran, Staff Director and Counsel Doris F. Jacobs, Associate Counsel Marcia Sayer, Professional Staff Member R. Jared Carpenter, Clerk Ron Stroman, Minority Professional Staff Member C O N T E N T S ---------- Page Hearing held on April 16, 1997................................... 1 Statement of: Aronovitz, Leslie, Associate Director, Health Financing and Systems Issues/HEHS, General Accounting Office; and George Grob, Deputy Inspector General for Evaluations and Inspections, Department of Health and Human Services....... 81 McElroy, Carolyn J., vice president, National Association of Medical Fraud Control Units, and director, Maryland Medicaid Fraud Control Unit; Steven Wiggs, assistant attorney general and director, Arizona Medicaid Fraud Control Unit; Stephen M. Spahr, deputy attorney general and director, New York Medicaid Fraud Control Unit; and Richard Allen, Medicaid director, Colorado Department of Social Services................................................... 4 Willging, Paul, executive vice president, American Health Care Association; and Suzanne Weiss, vice president and counsel, public policy, American Association of Homes and Services for the Aging..................................... 117 Letters, statements, etc., submitted for the record by: Allen, Richard, Medicaid director, Colorado Department of Social Services, prepared statement of..................... 57 Aronovitz, Leslie, Associate Director, Health Financing and Systems Issues/HEHS, General Accounting Office, prepared statement of............................................... 84 Grob, George, Deputy Inspector General for Evaluations and Inspections, Department of Health and Human Services, prepared statement of...................................... 98 McElroy, Carolyn J., vice president, National Association of Medical Fraud Control Units, and director, Maryland Medicaid Fraud Control Unit, prepared statement of......... 8 Spahr, Stephen M., deputy attorney general and director, New York Medicaid Fraud Control Unit, prepared statement of.... 39 Weiss, Suzanne, vice president and counsel, public policy, American Association of Homes and Services for the Aging, prepared statement of...................................... 135 Wiggs, Steven, assistant attorney general and director, Arizona Medicaid Fraud Control Unit, prepared statement of. 30 Willging, Paul, executive vice president, American Health Care Association, prepared statement of.................... 122 HEALTH CARE FRAUD IN NURSING HOMES ---------- WEDNESDAY, APRIL 16, 1997 House of Representatives, Subcommittee on Human Resources, Committee on Government Reform and Oversight, Washington, DC. The subcommittee met, pursuant to notice, at 10:10 a.m., in room 2247, Rayburn House Office Building, Hon. Christopher Shays (chairman of the subcommittee) presiding. Present: Representatives Shays, Snowbarger, Towns, and Barrett. Staff present: Lawrence J. Halloran, staff director and counsel; Marcia Sayer, professional staff member; R. Jared Carpenter, clerk; and Ronald Stroman, minority professional staff member. Mr. Shays. I would like to welcome our witnesses; I would like to welcome our guests. Mr. Towns and I are delighted to begin this hearing. Vulnerable patients. Vulnerable programs. In the nursing home setting, both can be victimized by pernicious forms of health care fraud and abuse that undermine the quality and inflate the costs of care. When separate vendors provide medical supplies, therapy, and other services to the same nursing home patient, no one is ultimately responsible for the coordination of care. When both Medicare and Medicaid are billed by the same service, health care dollars are wasted. When vendors manipulate Medicare Part A, Medicare Part B, and Medicaid reimbursement rules, decisions about the quality and quantity of nursing home services are driven by the size and source of the payments, not the best interests of the patient. Today we begin an examination of long-term care expenditures by asking: What makes health care services provided in nursing homes uniquely susceptible to abuse? One answer: the absurd complexity of multiple program eligibility and reimbursement rules. If not the direct cause, program proliferation creates a conducive environment for overbilling, overutilization, and poorly managed care in nursing homes. Fraudulent and abusive schemes take root and prosper in the definitional cracks and jurisdictional crevices of labyrinthine regulatory constructs in which toenail clipping becomes minor foot surgery and a coffee klatch can be billed as group therapy. As the single largest purchaser of long-term care services in the Nation, Medicaid covers almost two-thirds of all nursing home residents. Many nursing home patients are also covered by Medicare Part A for a time. Most elderly are eligible for Medicare Part B reimbursement for physician visits, other outpatient services, and supplies. In 1995, the three programs paid more than $45 billion for services to nursing home patients. State Medicaid Fraud Control Units are the first line of defense against nursing home fraud and patient abuse. For that reason, we invited them to testify first today, to describe the scope of the problem and their efforts to protect nursing home residents from perverse financial incentives and unhealthy medical choices. Both Health and Human Services, HHS, Inspector General, IG, and the General Accounting Office, GAO, have also investigated services to nursing home patients. Their testimony will discuss the vulnerabilities they found affecting the cost and quality of long-term care. Finally, we invited representatives from the nursing home industry to describe how they meet both their medical and fiduciary duties to those in their care. As further evidence of the complexity of the problem, we can't even fit all the key players into one hearing. The Health Care Finance Administration, HCFA, equipment and service providers, private insurers, and consumers will be invited to testify later, as we formulate more detailed findings and recommendations for regulatory and legislative solutions to address the problem of nursing home fraud. In the last Congress, this subcommittee spoke with a strong bi-partisan voice, advocating many of the anti-fraud provisions ultimately included in the Health Insurance Portability and Accountability Act. For the first time, fraud against all health care providers, public and private, is a Federal criminal offense. The new law also mandates and funds enhanced enforcement efforts coordinated at Federal, State, and local levels. Nowhere is the need for coordinated enforcement more urgent than in the fight against fraud in nursing homes. Each of our witnesses today plays an essential role in that coordinated strategy, and we welcome their testimony. At this time, I would like to invite my partner in this effort, Mr. Towns, to make a statement. Mr. Towns. Thank you very much, Mr. Chairman. Let me thank you again for holding this hearing. One of the concerns that I have repeatedly discussed is the issue of patient records. In preparing for this hearing, I was outraged to learn that, in some instances, nursing home operators make patient records available to equipment suppliers and to outside providers who are not responsible for the direct care of the patient. These operators and providers target nursing home residents to sell them unnecessary medical supplies and to perform unnecessary medical services, in many instances. This practice is wrong, and it should be illegal. It permits the exploitation of vulnerable nursing home residents and leads directly to fraud within the Medicare and Medicaid programs. Anyone caught improperly making patient records available should be excluded from the Medicare and Medicaid programs, and should be fined. Another area of concern is the complicated matter in which Medicare bills are paid. Currently, bills for outpatient and equipment are paid by six different claim processing systems-- six, Mr. Chairman. We need a single, consolidated billing system. That is why I was pleased that last week the Health Care Financing Administration awarded a contract for development of a standard system for paying Medicare physicians and other outpatient bills. I am hopeful that this system will permit a more rational Medicare billing process. Mr. Chairman, we need to develop an accurate Medicare data system as soon as possible. Federal, State, and local agencies must find better ways to share information on nursing home fraud. We need more coordinated Federal and State fraud investigations to make more efficient use of limited enforcement resources. Finally, we must insist that people convicted of nursing home fraud be punished to the fullest extent of the law, including exclusion from participation in the Medicare and the Medicaid programs. Also, licenses should be revoked and, where appropriate, prison and fines. Without a comprehensive attack on these criminal enterprises, nursing homes will continue to serve as a breeding ground for fraud. So, Mr. Chairman, again I thank you for holding this hearing, and I look forward to working with you to try to clean up the mess that is out there. I yield back. Mr. Shays. I thank the gentleman. Let me get some housekeeping out of the way first. I would ask unanimous consent that all members of the subcommittee be permitted to place any opening statements in the record and the record remain open for 3 days for that purpose. Without objection, so ordered. I would also ask unanimous consent that all witnesses be permitted to include their written statements in the record. Without objection, so ordered. At this time, I would like to introduce our first panel. We have four witnesses, from Maryland, Arizona, New York, and Colorado. We know that you come with some effort to be here, and we really thank you for that. Carolyn McElroy, vice president, National Association of Medicaid Fraud Control Units, and director, Maryland Medicaid Fraud Control Unit; Steven Wiggs, assistant attorney general and director, Arizona Medicaid Fraud Control Unit; Stephen Spahr, deputy attorney general and director, New York Medicaid Fraud Control Unit; and Richard Allen, Medicaid director, Colorado. We have four excellent witnesses. As I think you were told, we swear in all our witnesses, including Members of Congress. [Witnesses sworn.] Mr. Shays. For the record, we will note that all witnesses have responded in the affirmative. We will go just right down the line, and we will start with you, Ms. McElroy. STATEMENTS OF CAROLYN J. McELROY, VICE PRESIDENT, NATIONAL ASSOCIATION OF MEDICAL FRAUD CONTROL UNITS, AND DIRECTOR, MARYLAND MEDICAID FRAUD CONTROL UNIT; STEVEN WIGGS, ASSISTANT ATTORNEY GENERAL AND DIRECTOR, ARIZONA MEDICAID FRAUD CONTROL UNIT; STEPHEN M. SPAHR, DEPUTY ATTORNEY GENERAL AND DIRECTOR, NEW YORK MEDICAID FRAUD CONTROL UNIT; AND RICHARD ALLEN, MEDICAID DIRECTOR, COLORADO DEPARTMENT OF SOCIAL SERVICES Ms. McElroy. Thank you. Mr. Chairman, members of the committee, thank you very much for inviting me to be here today. My name is Carolyn McElroy, and I am the director of the Maryland Medicaid Fraud Control Unit. I am here today representing the National Association of Medicaid Fraud Control Units, of which I am currently serving as the vice president. I have come here today to discuss the role of the States in investigating and prosecuting health care fraud and, specifically, fraud in the delivery of long-term care to Medicare and Medicaid beneficiaries. When the Medicaid program was established in 1965, its cost to the Federal Government was $1.5 billion. Today, the cost of the program is more than 100 times as great, $160 billion, and that is only the cost to the Federal Government. States are responsible for up to 50 percent of the cost of the Medicaid programs, with some of the States devoting to 15 to 20 percent of their total budget to sustain the Medicaid program. Medicaid Fraud Control Units are presently established in 47 States. We currently have jurisdiction over provider fraud, physical and financial abuse of patients in Medicaid-funded facilities, and fraud in the administration of the program. There are some holes in the jurisdictional fabric, and the National Association has recently proposed that these loopholes be closed. Specifically, as the States seek lower-cost alternatives to long-term care facilities, we find that they are placing vulnerable adults into domiciliary care or alternative residential settings that were probably unanticipated at the time the Medicaid Fraud Control Units were established. Although these settings are even more prone to physical and financial abuse than are the more closely watched and regulated nursing homes, the Medicaid Fraud Control Units currently lack the authority to prosecute abuse in these settings. We also find that Medicare fraud which is uncovered during our Medicaid investigations is often not pursued in cases where the Federal authorities deem the amounts uncovered to be too small. The National Association believes that the proposal to amend the Medicaid Fraud Control Units' jurisdiction to fill in these loopholes, which was originally included in the Kennedy- Kassebaum legislation, would have provided the flexibility we need to more fully prosecute fraud, and we urge you to consider this in future legislative efforts. The units were established by Congress in the late 1970's, following the discovery that there was rampant fraud and abuse in the Medicaid program. To date, the units have amassed more than 8,000 convictions and recovered millions of dollars which would otherwise have been lost to the programs. Ironically, the case which spurred the congressional funding of the units was a New York City nursing home case where it was discovered that patient needs were being grossly neglected while the owners diverted millions of dollars intended for patient care to their own personal needs. We find ourselves here, 20 years later, to talk again about fraud in the nursing home industry. In 1977, when the New York nursing home case was uncovered, Medicaid fraud was relatively unsophisticated and easy to detect. Fraud was rampant mostly because there was no oversight whatsoever. Today, I share the view with my sister States that fraud and abuse are just as prevalent, but that providers are far more sophisticated and able to detect new weaknesses in the system as fast as we shore up our defenses to stop areas of past abuse. Traditionally, nursing home prosecutions involved the filing of false cost reports, which were proven false because they claimed reimbursement for expenses which were not properly attributed to patient care. In most successful prosecutions, it was shown that the expenses were personal to the owners. Using only Maryland's cases as an example, we have criminally prosecuted owners and administrators for including in their nursing home cost reports the costs of renovating their personal residences; maintaining the swimming pool; buying shrimp and tenderloin for holiday entertaining, or, in the case of one of our rural facilities, butchering the owner's hogs; including personal maid service and opera tickets on a cost report; paying a salary to a son who was in prison in Texas at the time he was drawing the salary; buying, heating, and fixing up rental properties for the benefit of the owners; and putting together a custom-built monster truck which was owned by the administrator's son. We have also prosecuted owners who overstated Medicaid's obligations on patient census reports, stole money from patient accounts, failed to report income from a related party contract with a vendor, wrongly authorized Medicaid reimbursed transportation, overstated and upcoded the level of care needed by the patients, and failed to refund amounts which should have been credited for medications that were not actually dispensed to the patients. That has always seemed to me to be a pretty impressive list of wrongs for a State that has fewer than 250 nursing homes. Today, we seldom see cases involving this kind of fraud. The State of Maryland audits nearly every nursing home in the State nearly every year. Nursing home owners now know that this kind of fraud will be detected and will be prosecuted. Instead, they concentrate on maximizing profits by analyzing the reimbursement process for weaknesses in the regulations and the oversight of the programs. Lately, the homes have focused on the gap between the oversight of the Medicare and Medicaid programs. I would like to talk about two specific examples. The first is a gray area where a nursing facility finds it profitable to be a provider or to be related to a provider of ancillary services. This allows them to essentially double-bill for certain items provided in the nursing home care. The services in Maryland which have proven particularly susceptible to this scheme are therapy of any sort--that includes occupational, physical and speech therapy--and durable medical equipment. In a nutshell, the problem is that the homes are permitted to include the costs associated with providing the therapy or equipment in their Medicaid cost report, and thereby increase their per diem rate. The facility is also permitted to bill the services to Medicare Part B. The income which is received from the Medicare reimbursement is not required to be reported as an offset to the Medicaid expenses. Hence, the facility gets paid for the services by Medicaid through a higher per diem rate, and also gets paid directly by Medicare for the same service. It is hard to recover the funds, let alone prosecute a criminal case for this double-dipping, when the regulations of the various programs are not cohesive and do not expressly prohibit this behavior. The second example is an example of outright fraud. It is exemplified by a case which was indicted by the Washington State Medicaid Fraud Control Unit just 2 weeks ago. As you know, Medicare will cover all or a portion of a patient's care following hospitalization for an acute condition. Since Medicare generally pays more than Medicaid, facilities are encouraged to hospitalize their patient for acute conditions based on eligibility cycles. Even more egregious, however, is the Washington State case where a nursing home had billed Medicare for the days following a hospitalization, but has also billed the very same care to Medicaid. Hence, the home was literally paid twice for the same days of care, and both times by federally subsidized programs. I would note also that this same fraud has been identified in Texas facilities. In order to detect and prosecute this kind of fraud, greater cooperation of both State and Federal agencies is needed. Medicaid Fraud Control Units traditionally experience difficulty in getting Medicare payment information regarding nursing homes. This is because nursing homes are permitted to submit their bills to virtually any Medicare fiscal intermediary. So, in the State of Maryland, if I were to go request information on Maryland Medicare beneficiaries in nursing homes, I would have to contact as many as 61 different fiscal intermediaries. In addition, the information which is reported to us by the fiscal intermediaries is reported in incompatible formats, either with the State's Medicaid data and, frequently, with that of the other fiscal intermediaries. In Texas, for example, information was provided on microfiche and was sorted by beneficiary instead of by facility. If it is not provided in electronic form, it's almost impossible for us to re-sort it. While this has been a past problem, I am pleased to tell you that we are presently working with the Health Care Financing Administration and other Federal agencies to find solutions. HCFA is working with the Maryland Unit currently to provide electronic data for all nursing homes in the State of Maryland, regardless of what the fiscal intermediary was, and I anticipate that this project will be successful. Washington State, also, as you know, is taking a lead in prosecuting this complex dual eligibility case, and I anticipate that they will also be successful. All of the Medicaid Fraud Control Units are working toward stronger partnerships with the Federal agencies who are responsible for prosecuting Medicare fraud. We are viewed as having a national leadership role in prosecuting health care fraud and abuse, and we intend to continue to serve in that capacity. Mr. Chairman, thank you for giving me the opportunity to be heard, and I welcome any questions you have. [The prepared statement of Ms. McElroy follows:] [GRAPHIC] [TIFF OMITTED] T1071.001 [GRAPHIC] [TIFF OMITTED] T1071.002 [GRAPHIC] [TIFF OMITTED] T1071.003 [GRAPHIC] [TIFF OMITTED] T1071.004 [GRAPHIC] [TIFF OMITTED] T1071.005 [GRAPHIC] [TIFF OMITTED] T1071.006 [GRAPHIC] [TIFF OMITTED] T1071.007 [GRAPHIC] [TIFF OMITTED] T1071.008 [GRAPHIC] [TIFF OMITTED] T1071.009 [GRAPHIC] [TIFF OMITTED] T1071.010 [GRAPHIC] [TIFF OMITTED] T1071.011 [GRAPHIC] [TIFF OMITTED] T1071.012 [GRAPHIC] [TIFF OMITTED] T1071.013 [GRAPHIC] [TIFF OMITTED] T1071.014 [GRAPHIC] [TIFF OMITTED] T1071.015 [GRAPHIC] [TIFF OMITTED] T1071.016 [GRAPHIC] [TIFF OMITTED] T1071.017 [GRAPHIC] [TIFF OMITTED] T1071.018 [GRAPHIC] [TIFF OMITTED] T1071.019 Mr. Shays. Thank you, Ms. McElroy. Thank you very much. Mr. Wiggs. Mr. Wiggs. Mr. Chairman, members of the committee, I am Steven Wiggs, director of the Arizona Medicaid Fraud Control Unit, and I consider it an honor to be here to testify today. I have been asked to identify some emerging trends of fraud and abuse in the long-term care industry, within the context of dual eligibility and managed care. Let me begin by briefly contrasting the evolution of fraud control within the Medicaid program and the transition toward managed care and its effect on the fraud control efforts, a transition that so fundamentally changes the nature of how and where fraud occurs that it presents distinct and urgent challenges to those of us concerned with program integrity. In 1977, Congress established the Medicaid Fraud Control Unit program in response to the targeting of Medicaid's soft underbelly of fee-for-service reimbursement by greedy providers. By regulation, the responsibility for fraud control was logically placed where the risk of loss was the greatest and where the location of fraud was most likely to occur. Hence, centralized claim reimbursement or claim-based provider profiling by the Medicaid agencies became the primary method of fraud detection. The success of the Medicaid Fraud Control Unit program these past two decades is widely recognized, and their evolution as effective Fraud Control Units can be attributed to the fact that that responsibility for detection and referral of fraud logically reflected the system within which they operated. Such is not the case with managed care. In 1982, Arizona was the last State to join the Medicaid system and, at the same time, the first to deliver indigent health care by way of a managed care model. It has, for the most part, succeeded. However, no thought was initially given to fraud control or program integrity. As a result, allegations of fraud and mismanagement have shadowed a system once touted as the Nation's managed care model, but have also focused a critical light on what those of us in the fraud control profession have known for a long time: fee-for-service program integrity methods cannot simply be transferred onto a managed care model with any sense of efficacy. Because of the structural differences and shifting of incentives created by managed care, the nature of fraud changes and its location shifts from the Medicaid agency to the contracting health plans or managed care organizations. The responsibility for fraud control, however, does not likewise shift, and the basis for program integrity, therefore, becomes market-based rather than justice oriented. The net result is that program integrity becomes illusory. Arizona found itself in this precise predicament and has hit the problem head on by taking several steps in implementing a comprehensive managed care fraud control strategy. Chief among these have been the inclusion of the Medicaid Fraud Control Unit in fraud control development and the clear delineation of responsibility and accountability for program integrity. I have identified other steps that Arizona has taken in this regard in my written statement prepared for the committee. Suffice it to say, however, current program integrity methods and regulations, having evolved from the fee-for-service experience, are impotent in the managed care model. This problem is further exacerbated in the long-term care arena where you have both Medicare and Medicaid populations. The amalgamation of dual program eligibility and managed care contracting creates new opportunities for fraud and abuse and leads to further blurring of program integrity responsibilities. Consider these examples: Dual eligible residents whose Medicare co-payments are included in the Medicaid capitation which is paid to a network provider are routinely placed out of network and seen by non-network vendors, who then discount their services to the nursing home and accept Medicare Part B payment as payment in full. Not only does Medicare lose out on the reduced fees, but Medicaid does not receive the service it contracted and paid for, and the discount is an illegal kickback between the provider and the nursing facility. Moreover, the patient may be defrauded regarding informed consent by electing to go out of network, and since the nursing facility or non-network provider is required to bill to collect the co-payment, the possibility of sham or duplicate billings increases. Consider also the managed care organization that awards a competitively bid contract for x-ray services, including coverage for dual eligibles, to a provider-vendor that offers a 20 percent reduction in fee-for-service billings, including those billed to Medicare Part B. The very entity that has program integrity responsibility is benefiting from the potential fraudulent activity. Consider also the physician in a rural community who has an ownership interest in the managed care organization that administers the capitated long-term care contract covering the very patients that he treats. While allegations of underutilization regarding the capitated patients abound, such as failure to prescribe antibiotics for infections, failing to order necessary x rays, and dispensing leftover or outdated drugs, indications of gang visits and unnecessary services to the dual eligible patients should come as no surprise. Who is coordinating the data to determine the scope of the problem? Consider also the nursing home administrator that operates a profitable side business involving physical therapy services to nursing home residents, which are billed to Medicare Part B, while allegations of short staffing and underutilization regarding Medicaid patients are widespread. The complications and blurring of program lines created by dual eligibility is but one example of the emerging and complex issues faced by the Medicaid Fraud Control Units. It is also a good example of how detection and enforcement efforts, which are already compromised by multilayering and decentralization of managed care, become further compromised by the crossover nature of fraud between the two programs. Fraud is no respecter of program boundaries. Although I am encouraged by the success of such programs like Operation Restore Trust, with its anticipated expansion into more States, in an effort to more fully integrate enforcement activities, I remain concerned that we will continue to play ``catch-up'' and ``hit-and-miss'' regarding fraud because of artificial enforcement boundaries which serve only to limit the Medicaid Fraud Control Units' continuing success in this new age of health care fraud. Mr. Chairman, I want to thank you for this opportunity to testify today and would welcome any questions that you or the committee may have. [The prepared statement of Mr. Wiggs follows:] [GRAPHIC] [TIFF OMITTED] T1071.020 [GRAPHIC] [TIFF OMITTED] T1071.021 [GRAPHIC] [TIFF OMITTED] T1071.022 [GRAPHIC] [TIFF OMITTED] T1071.023 [GRAPHIC] [TIFF OMITTED] T1071.024 [GRAPHIC] [TIFF OMITTED] T1071.025 Mr. Shays. Thank you, Mr. Wiggs. I'm noting that both of you are obviously sharing parts of your testimony, because it's longer than the 5 to 10 minutes that we like, and I appreciate that. I just want to point out, before our next two witnesses speak, when we passed our Health Care Reform bill last time around, it was going to have two titles. We inserted a third title, actually labeled Title II, which made health care fraud a Federal offense both in the public and private sectors. That whole title came from a hearing like this hearing that we had. It's our intention--and we have staff on both sides of the aisle here--it's our intention, obviously, to go through your entire statements and continue the dialog we've had, but we're hoping that this hearing will generate some practical legislative changes that can happen in Congress and regulatory changes that we can recommend with the administration. We have a good working relationship with the administration. I just want you to know that your testimony will, I think, ultimately result in some changes. So that's the attitude I want us to have. Mr. Spahr. Mr. Spahr. Thank you. Good morning, Mr. Chairman, members of the committee. Mr. Shays. Good morning. Mr. Spahr. My name is Stephen Spahr. I am the director of the New York State Medicaid Fraud Control Unit. Mr. Shays. Could I ask you, Mr. Spahr, to just move the mike a little closer to you. Mr. Spahr. Certainly, sir. Is that better? Mr. Shays. Even a little closer, if that's all right. Mr. Spahr. OK. Mr. Shays. Can you still read your testimony? Mr. Spahr. Yes, I can. Mr. Shays. OK. Thank you. Mr. Spahr. Mr. Chairman, in New York, we have approximately 666 nursing homes in operation. Mr. Shays. What is the number again, please? Mr. Spahr. 666, which accounts for an annual expenditure in the last year of $5.2 billion, out of a total New York State Medicaid expenditure of $25 billion. That represented a 7 percent increase over the prior year. In New York State, in recognition of the various problems which have emerged in the nursing home industry in recent years, the Medicaid Fraud Control Unit and the single State agency have engaged in a series of new initiatives, including participation in Operation Restore Trust. The Medicaid Fraud Control Unit has, in the last 3 months, formed a new Special Projects Division to deal specifically with nursing home and cost-based reimbursement issues in New York State. The problem with dual eligibility: Cases in New York State have suffered, as has been indicated by other witnesses, by a lack of program coordination between the Medicare and the Medicaid programs. The data available from the fiscal intermediaries in the Medicare program has been slow in being available, and has been made available in formats which are difficult to use. In some cases, it can take up to a year to obtain information relating to Medicare beneficiaries. Additionally, in New York, most of our nursing homes are reimbursed on a cost basis, which has an all-inclusive rate which includes a number of various therapies and modalities which are included and paid for. We have particularly identified problems in New York where durable medical equipment, physical therapy, psychological services, which are already paid for in a nursing home's rate, are being billed separate by outside vendors, both to the Medicaid system, on a fee-for-service basis, and to the Medicare program, as well. In a recent survey conducted by the single State agency of 200 durable medical equipment providers under Operation Restore Trust, they identified $2.5 million in services which had been billed to the Medicare program for durable medical equipment, an additional $2 million billed to the Medicaid program for DME, all of which were for services already included in the basic rate for those nursing homes. To date, the single State agency has recovered over $700,000 of the Medicaid dollars. It has referred over $1 million for recovery to the Region A carrier, and has referred several cases for investigation to the Medicaid Fraud Control Unit. A similar difficulty in the unavailability of data from both Medicare and Medicaid, and the coordination of that data, creates the risk that cases which are similar, frauds committed under both programs, may go largely undetected or unprosecuted. And the increased coordination of the availability of data from both those programs will increase the ability of the Medicaid Fraud Control Units and other agencies interested in fraud investigation and prosecution in increasing deterrents and potential punishment for those persons engaged in this activity. While all of the traditional fraud activities in nursing homes continue in New York, most recently with a Buffalo-based organization which, through cost-based and cost report fraud, cost the program $1.2 million plus an additional $300,000 in identified kickbacks between related entities, we have identified a number of new and emerging trends in New York. First and foremost of those are the durable medical equipment crossover cases which I've just discussed. Additionally, we have identified difficulties with therapy services rendered in nursing homes, such as the so-called ``wave therapy,'' when a therapist will come through a nursing home and wave hello to the patients and then bill both programs whenever possible, as well as billing individual therapies when group therapies are being provided. Most recently, under the aegis of Operation Restore Trust, we have pending in New York a case involving a physiatrist who billed a total of $4 million to the Medicare and Medicaid programs for physical therapy evaluations and expensive nerve tests conducted on various nursing home residents. As Mr. Towns indicated earlier, this provider was able to obtain from five nursing homes, on a monthly basis, lists of residents, including their Medicare and Medicaid billing information, and those patients were billed on a regular basis for therapies which were, in fact, not provided. Such examples of those therapies included billing for patients who were deceased as of the date of service, billing for four limb nerve conduction tests on patients who were double amputees, and billing for services for patients who were in the hospital as of the date of services that they were alleged to have been rendered. As stated earlier, the fraudulent provider will no longer recognize the boundaries of a program. The frauds are committed across all programs, both Government and private. The ability of the Medicaid Fraud Control Units to continue to combat fraud across all programs would be greatly assisted by closing the loopholes which Ms. McElroy referred to earlier and permitting the Medicaid Fraud Control Units to go after fraud in whatever Government program it exists. Mr. Chairman, I thank you for your time and will take any questions. [The prepared statement of Mr. Spahr follows:] [GRAPHIC] [TIFF OMITTED] T1071.026 [GRAPHIC] [TIFF OMITTED] T1071.027 [GRAPHIC] [TIFF OMITTED] T1071.028 [GRAPHIC] [TIFF OMITTED] T1071.030 [GRAPHIC] [TIFF OMITTED] T1071.031 [GRAPHIC] [TIFF OMITTED] T1071.032 [GRAPHIC] [TIFF OMITTED] T1071.033 [GRAPHIC] [TIFF OMITTED] T1071.034 [GRAPHIC] [TIFF OMITTED] T1071.035 [GRAPHIC] [TIFF OMITTED] T1071.036 [GRAPHIC] [TIFF OMITTED] T1071.037 [GRAPHIC] [TIFF OMITTED] T1071.038 [GRAPHIC] [TIFF OMITTED] T1071.039 [GRAPHIC] [TIFF OMITTED] T1071.040 Mr. Shays. Thank you very much, Mr. Spahr. Mr. Allen. Again, I'm going to ask you to move the mike up and just lower it a bit. If you would lower the mike down. Thank you very much. Mr. Allen. Thank you, Mr. Chairman. My name is Richard Allen, and I am the Medicaid director for the State of Colorado. Mr. Shays. Since we've had two witnesses tell us Mr. Wiggs, how many nursing homes in Arizona? Mr. Wiggs. I don't have an exact count for that. I'm sorry. I can provide it. Mr. Shays. OK. That's all right. Mr. Allen. We have 105 nursing homes in Colorado participating in the Medicaid program, out of a total of about 192. Mr. Shays. I realize that it also depends on the number of beds, and so on, but I'm just curious. Thank you. Mr. Allen. Just another statistic that I think you might find interesting is that in the State of Colorado, like most States, Medicaid pays for about 65 percent of all days of care in a nursing facility. Medicare pays for about 5 to 6 percent. And then, finally, the balance is paid for by patient payment. I have been involved with the Medicaid program for a long, long time, especially in the long-term care area. I have been working in this area for 17 years. While I certainly don't have direct knowledge of fraud and abuse type issues like the people to my right, what I do see is that we do have a systematic problem, and that is, the Medicaid world and the Medicare world, we live in two different worlds, and we don't work together very much at all. We have different incentives for the way we conduct our business, and that is probably a tragedy. The reason why I say that is that both of us are making significant amounts of money payment for the same services, for the same clients, and because we don't coordinate, we are setting up situations which are imperfectly understood by either payment system. We are setting up systems that perhaps invite abuse and perhaps even fraud. I think that's what you heard from some of the testimony here earlier. Medicaid sets up its payment system one way; Medicare sets up its payment system yet another way. And the provider, the vendor who is working in the middle, figures out how to maximize the reimbursement from the two systems. What I would like to share with you are some problems that we see with the Medicaid hospice benefit. The Medicaid hospice benefit is an optional benefit, and it came on line in 1986, and Colorado took advantage of the program in 1992. The reason why we got involved with the hospice program is due directly to the AIDS epidemic, and we knew that many persons suffering from AIDS needed to have a hospice type benefit. However, we were disappointed in the restrictions that were placed on the program by the Federal Government in the administration of the program. The hospice benefit is, indeed, also paid for by Medicare. Medicare pays to the nursing facility about $105 a day in my State for what we call routine care. That is the payment from Medicare. In addition to that payment, the Medicaid program will make another $85 payment, coupled with the patient payment, to the same hospice agency. The combined payment is about $195 a day. Just to put that in perspective, the average rate that I'm paying in my State for a full day of nursing home care is about $98.50. What you can see there is that, between Medicare and Medicaid, we've made a payment of $190, when, in fact, for most types of care in nursing facilities, I can get the job paid for by $98 a day. What this clearly represents, in my mind anyway, is a very lucrative payment system for hospice people, who have also Medicare and Medicaid, and then they are put into a nursing facility. This lucrative payment, in my opinion, has resulted in the hospice benefit in Medicaid, in Colorado, being now primarily an institutional benefit. Seventy percent of all the people who are on our Medicaid hospice benefit are in nursing facilities. And the reason why we think that is happening is because of the lucrative payment system that has been designed. Again, both of these requirements are Federal requirements. The Federal Government does issue this payment under the Medicare system for $105, and we also have to make this other $85 payment. By ``have to'' I mean that it is a Federal mandate that we have to pay the nursing home hospice 95 percent of our usual rate that we pay for a nursing home, even though that nursing home and the hospice have received another $105 from another payment source. If the States had flexibility, the States, I think, may choose two different things. The first thing that they may do is decide that, if they are going to pursue a hospice benefit, they would only use it in the home-based situation. Most States have realized the wisdom of using long-term care in the home situation rather than using nursing homes. The second thing that we would also ask for flexibility on is, let the State design the rate structure that it wants to pay for the hospice person who is in a nursing home. I would think that our rate, instead of being $85 a day, would be somewhere around $20 a day, to pay for what is loosely defined as room and board cost. The other issue I would point out is that there are very interesting incentives that exist between the Medicare and the Medicaid systems. Those, generally speaking, are that Medicare has an incentive to put people into nursing facilities, and the Medicaid program has an incentive to try to put people back into hospitals. What is happening to the client is that they are not getting coordinated care. We think that the long-term response to that is to allow the Federal Government to issue waivers to the Medicaid agencies to put long-term care services for both the Medicare and the Medicaid systems into an HMO, managed care environment, where you would have a private sector HMO trying to coordinate the money and the care for the people who are being served by both programs. They would have an interest in coordinating not only the money but even the care. Medicare, generally speaking, pays for the acute care benefit; Medicaid pays for the long-term care benefit. If you had one entity trying to coordinate the care, we believe we would see improvements in care and also doing it for less cost. We are seeking a waiver from the Federal Government. We have been seeking that waiver since September 1995; it is still not approved. We hope that it will be approved soon, but even that waiver is on a small scale. It would only be in a county of about 150,000 people and would only cover 1,000 people. What we believe can happen here is that the coordination that is so sorely missing between the Medicare and Medicaid programs can, in fact, can be accomplished through the use of managed care principles through private entities such as HMOs and other similar entities. Thank you, Mr. Chairman. I am available for any questions. [The prepared statement of Mr. Allen follows:] [GRAPHIC] [TIFF OMITTED] T1071.041 [GRAPHIC] [TIFF OMITTED] T1071.042 [GRAPHIC] [TIFF OMITTED] T1071.043 Mr. Shays. Thank you very much. I was just asking my staff why we couldn't step in and try to help you with your seeking to get a waiver. Now, I understand the issue is that your program would be mandatory rather than voluntary, in terms of participation in managed care? Mr. Allen. That's not true. Actually, we have voluntary participation. Mr. Shays. I don't know if that's wrong or not. I'm not saying having mandatory is wrong, I'm just saying, what are you hearing is the challenge? Because we're going to have HCFA before us later, not today, but later, just to help us understand their thought processes. Mr. Allen. We believe that HCFA has real reluctance to move the elders into managed care. They have done their own studies, and they are not quite sure if the programs are cost-effective. The elders are also a very strong constituency and nervous about managed care, and things of that nature. We submitted our waiver in September 1995. We got our first questions from HCFA in May 1996, and when we got the questions, there were 80 questions for what we thought was a fairly simple, direct, forward sort of concept. And it's a pilot; it's just an experiment. Coupled on that, they wanted 5 years worth of payment data, you know, for the program that we're trying to set up in a small county called Mesa County in Colorado. Mr. Shays. So this would have been a pilot in one county; this would not have been Statewide. Mr. Allen. Exactly right. Mr. Shays. Interesting. I'm going to first acknowledge that some of what has been discussed, I'm not fully grasping it, so I'm going to tell you, I'm going to be asking some ignorant questions, and I'm going to try to put it in a way that I can understand. Some of this is just trying to remember what I knew 2 years ago and have just forgotten. It strikes me that one of the challenges we're dealing with is, ``legal but wrong.'' It's legal; it's just dumb the way the Government allows things to happen. Another way I look at it is, it's illegal, but it's hard to stop because of lack of coordination, and so on. I want each of you to tell me what you think is legal but just wrong. What is happening now that is legal, but it's just wrong, dumb, stupid, just unacceptable. We'll just go down the line. Ms. McElroy. Well, Mr. Chairman, I think the example that I gave regarding the ability of a nursing home and a related ancillary service provider to bill for therapy services to Medicare, as well as including that in its cost base for its cost report to Medicaid. Mr. Shays. OK. I want to interrupt you. When you say ``ancillary,'' we're just talking about any service provider-- physician, psychiatrist, whatever? Ms. McElroy. Yes. Here's how we know what's happening in Maryland. When all of the nursing homes declare that they have, as a related party, a durable medical equipment provider, we know there's a reason for it. When this happens, it happens-- literally 80 to 90 percent of the nursing homes at the same time will do the same thing, and the other 10 percent are the ones that we believe are out of the loop. Mr. Shays. Give me some kind of examples with real numbers. Ms. McElroy. I'm afraid I can't do that, in terms of how much money. Mr. Shays. No, just give me an example of what--I'm just trying to understand how they put it in the base. I'm just not seeing how the system works. You can make up numbers. Or if someone else wants to give me an example, because this is a common problem with all four of you; correct? We're talking about ancillary services being put in the base and, in a sense, double billing, but legal. Ms. McElroy. Yes. Mr. Shays. But legal, not illegal. Ms. McElroy. Not illegal. Not prohibited. Mr. Shays. Not prohibited. OK. Ms. McElroy. A nursing home is required to screen its patients for therapy needs and to provide any therapy that the patient needs. If the nursing home determines that a patient needs, for instance, physical therapy, the nursing home hires a therapist. The therapist provides the therapy to the patient, and the cost of the therapist's salary would go on the nursing home's cost report. If the nursing home were to set up a related entity, say ABC Therapy, and it was owned by the same persons as owned the nursing home, they would be required to include the costs and the expenses of that company on their cost report because it's a related entity. They are all owned by the same people. Mr. Shays. Right. Ms. McElroy. But if they set up that related entity and they put the costs of that entity on their cost report, they are going to get a higher per diem rate. So if they pay the therapist $20,000 a year, they will put $20,000 a year on their cost report, and Medicaid will increase their per diem rate accordingly. Mr. Shays. Medicaid? Ms. McElroy. Medicaid. Mr. Shays. But Medicare would be paying? Ms. McElroy. But if they have a related entity--all right, it's not the nursing home itself; it's just this related entity--ABC Therapy can bill Medicare Part B and be paid for providing the therapy which is needed by the Medicare beneficiary in that home. Mr. Shays. Now, when you see that, are you able to have them stop, or they can continue doing it because it's not illegal? Ms. McElroy. It is not illegal, but if our State contract auditors are advised to attempt to back out that cost from the Medicaid cost report, they will try to do it. They will be in appeals; they will be fighting. Mr. Shays. Something may not be illegal, therefore, they can attempt to do it and some can get away with it. You might say, this is crazy. Someone couldn't look you square in the eyes and say this is right. And you could basically say, stop. Some might fight you, and some might not. But the one thing is, they know they can do it. The bottom line is that you're telling me it's not illegal, and therefore someone can attempt to do it. If they are found out, you might attempt to stop them, and you may succeed or may not succeed. Ms. McElroy. And if we do succeed, it will take several years to do it. By the time we do succeed in backing it out, they will be doing durable medical equipment instead of therapy. Mr. Shays. OK. And that would fit my definition of legal but wrong. Ms. McElroy. Correct. Mr. Shays. It is just really dumb that Government would allow this to happen. Would you all agree that this is one type of an example that's legal but wrong? Mr. Wiggs. I would also suggest--I would concur with that. When you have owners and operators of nursing homes or physicians that have an ownership in either the managed care organization to which they are providing care--you know, they have an ownership in the managed care organization that has the patients, so they are effectively treating their own patients, and you can see those trends. But also in the nursing homes where you maybe have a side business, and you're using that business to bill. Mr. Shays. In some areas of medical care, that's illegal. Mr. Wiggs. Correct. Mr. Shays. Or just not allowed. Mr. Wiggs. Right. And it would be illegal if it--you know, kind of a violation of self-referral type of--anti-kickback. Mr. Shays. Right. Mr. Wiggs. Another area that's of concern to me, frankly. Mr. Shays. Still on the issue of legal, but wrong. Mr. Wiggs. Legal but wrong. Mr. Shays. OK. Mr. Wiggs. Or legal but leads to areas where it could go wrong very quickly. Mr. Shays. OK. Mr. Wiggs. Would be in the context of managed care contract for long-term care services, such as the mobile x-ray type of industry, where you have a network provider who has contracted, is capitated, who has gone through the bidding process, has shown that he's legitimate, and is providing those services under a capitation rate. Your current rules allow nursing facilities to choose any willing provider for the dual eligibles. For example, if it's a Medicare primary patient, and then the secondary coverage is picked up by Medicaid, they can choose whoever they want to come in there and do those x rays. What we're seeing is a trend of them choosing non-network or noncontracted vendors. That's perfectly legal, although the capitation has already paid for their coverage. The dilemma comes in, how is the co-pay getting billed? Who is billing? Is the vendor billing the nursing home, and then the nursing home turns around and, through their Part A cost report, showing it as a bad debt, perhaps, because it's uncollectible from the indigent or the managed care agency? The picture I'm trying to paint here is, it gets terribly complex, in terms of, gee, what's really happening here? Does the program end up paying more, both programs? And then how do you create a trail sufficient to say it's fraud or it's not fraud, without expending an inordinate amount of resources? Mr. Shays. But is it illegal for two people to submit the same bill? You're implying that it may not be illegal. I mean, two different entities. Mr. Wiggs. Well, what's being submitted is, the coverage is already there under a capitation arrangement. Mr. Shays. It's already paid for. Mr. Wiggs. It's already paid for through a Medicaid arrangement. Mr. Shays. Right. Mr. Wiggs. It's legal for the nursing facility to go out of network, basically choose any willing provider to do noncapitated x rays for dual eligibles. So you pull a non- network vendor in there to do the x rays. Mr. Shays. So, basically, it was covered under Medicaid. Mr. Wiggs. It's covered under Medicare and Medicaid, but then it's billed out to Medicare for the Medicare portion. And you're supposed to bill out that co-pay, but that's already covered by capitation. So the non-network vendor is--there's kind of a benefit there. Mr. Shays. Let me be clear. Is Medicare paying twice, or is it an issue between Medicaid and Medicare both paying? Mr. Wiggs. They are both not getting the benefit of the bargain of a discounted service. Medicare would not be getting the bargain from a 20 percent reduction in the discounted service by the nonvendor; Medicaid has already paid for that. So both programs--it's double coverage, if you will. Medicaid has already paid for that through capitation. The capitation rates are set based upon, you know, how many people and what services, and so forth. So it's already there. There's nothing illegal about a nursing facility choosing any willing provider for the dual eligibles. It just gets terribly complex to try to sort it out. Mr. Shays. But the bottom line is, the taxpayer pays more. Mr. Wiggs. Exactly. And it makes it terribly difficult, in terms of investigation and prosecution, as has been alluded to. Where do we get the information? Who is monitoring it? Does it really boil down to a kickback or just a bad practice? Mr. Shays. OK. Well, I'd like you all to be thinking, ultimately, how we try to address that issue in statutory language. Mr. Snowbarger, I'm going to call on you in just a second. I'm not going to get to my ``illegal but hard to stop.'' I want to keep going just with ``legal but wrong.'' Mr. Spahr. Mr. Spahr. Mr. Chairman, let me identify another issue for you that has to do with the dual eligibility and the crossover payments. Under New York's Medicaid program, DME equipment requires prior approval for most items, durable medical equipment. Mr. Shays. DME being? Mr. Spahr. DME--durable medical equipment. Mr. Shays. Right. Mr. Spahr. When Medicare is the primary payor on items which are then billed for a 20 percent co-payment to Medicaid, no prior approval is required by Medicare. In a recent example that arose in our Syracuse office, there were multiple bills being submitted for nursing home residents. Mr. Shays. I'm going to ask you to slow down just a little bit. I'm just trying to keep up with you. Mr. Spahr. Sure. Mr. Shays. You're saying Medicaid had a co-payment? Mr. Spahr. Yes. Mr. Shays. I thought you said Medicaid, and I thought you should have said Medicare. Mr. Spahr. If Medicare is primarily responsible for payment for the patient services, the 20 percent co-payment for a dual eligible patient is then billed to Medicaid. Mr. Shays. OK. Mr. Spahr. In this particular circumstance, a company was billing for a very expensive item, which I won't give you the long name of, it's basically a custom-fitted body jacket, for which Medicare would pay $1,231. Medicaid, because it was only paying the 20 percent co-pay, was not permitted to enter into a prior approval review of the material, and paid the 20 percent on Medicaid's approved rate of $951, without having the opportunity to examine either the medical necessity or the physical invoice for the material that was being provided. In that case, upon referral and examination by experts, it was determined that the actual device being provided was a $100 seat adjustment, which Medicaid would have totally denied payment for, had it had the opportunity to do so. As a result of that, the U.S. attorney's office, I believe, in New Jersey, entered into a civil settlement, because Medicare decided that it constituted one device, at a reduced rate, and settled the case civilly. Whereas, New York State's Medicaid, had it had the opportunity to do a prior approval on these items, would have saved over $80,000 by not having paid the co-payments on those items, as well. And in terms of a lack of coordination, I would also point out that, when the settlement was entered into by the Federal office, it was done without attempting to collect the State's Medicaid share, as well. So that case is pending to try to recover that civilly. That's a case that was correct, to the extent that the difference in the regulations between the programs permitted a primary bill to Medicare without prior approval. Mr. Shays. What I'm having trouble understanding is--that sounds illegal. Mr. Spahr. Well, what was illegal was the question of what the actual device was. Mr. Shays. OK. What was legal but wrong? Mr. Spahr. What was legal was the ability to bill any device to the Medicare program without prior approval, without their being any medical review as to either the necessity or the quality of the material being provided, under the State regulations. Mr. Shays. Thank you. Mr. Allen. Mr. Allen. Thank you, Mr. Chairman. I guess, in the area of legal but wrong, I think the issue that you're hearing from the others around the nursing home getting paid from Medicare for a day of care, or they get paid from Medicare for what we call a Part B service, and then they are able to take that same cost and place it on the Medicaid cost report. What that does is, it causes the cost report to overstate the cost of treating the average person in a nursing facility. By doing that, Medicaid is paying out more than it should, at least in my State. This is what we have just recently discovered in our State. We went in, we examined it, we have found it, and now we're in the process of taking corrective action on the problem. I would not declare it to be an illegal situation; it's just an issue where, again, because Medicare does its thing, and Medicaid does its thing, we're slow to coordinate on these issues. In my State, what we've done is, we've put some caps on some rate growth, and we're also trying to get away from the use of the cost report and go to what we call a ``case mix'' reimbursement system. I would also add that, in my experience, this is a relatively new phenomenon. I think it started seriously about 5 years ago, when, for whatever reason, Medicare started paying a lot more long-term care services than ever before. I've seen some HCFA publications that their expenses for long-term care- related Medicare costs have increased something like 1,000 percent over the last 5 or 6 years. I could be wrong with that statistic, but it was a remarkably large percentage increase. With that change and pattern of payment out of Medicare, the effect is to drive up the cost in an unrelated area such as the Medicaid cost report. There are things the States can do, perhaps like moving to a case mix reimbursement system or moving away from a cost report system. I cannot say that this system exists in the same way in every other State as it existed in my State. For instance, we did offset Part B revenues, but that's just an accounting thing. But we have found it also to be true in our State. The other thing that's legal, but dumb, is the whole issue of the hospice benefit. Medicare makes a $105 payment; we make an $85 payment. The person is still inside a nursing facility. And I think the answer there is to allow the State some flexibility to administer their own Medicaid hospice program, in conjunction with Federal oversight, but certainly give us some flexibility. We're the ones in the field. We see it day to day, and we suspect we can come up with some better responses to make sure the job is done right. Mr. Shays. Well, I would say that one of our attempts, 2 years ago, was to just allow States a lot more flexibility, clearly, with Medicaid, and to bring in the private sector in competition in Medicare. I appreciate Mr. Snowbarger's patience here. When you just have two Members, you can get a little more followup here, which is nice. What I'm having trouble reconciling is, Maryland probably has five Members of Congress right now. I'm just trying to think of your size. Ms. McElroy. Six, at least. Mr. Shays. What is your population in Maryland? Ms. McElroy. About 2 million. Mr. Shays. These are not trick questions, honestly. Ms. McElroy. Yes, but they're the ones I can't answer. Mr. Shays. Let me just tell you what I'm wrestling with. I'm not going to ask--you know, I feel like I just did something very dirty pool-like. You know, if you asked me who the President was of a particular country, and I might get flushed or not be able to tell you. And then you say, he's a Member of Congress, good grief. What I'm trying to reconcile is, if I heard you, Mr. Spahr, you said there were only 666 nursing homes? Mr. Spahr. That's correct. Serving a population of about 117,000 right now. Mr. Shays. You have, in your State of New York; correct? Mr. Spahr. Correct. Mr. Shays. In the entire State there are how many nursing homes? Mr. Spahr. 666 Medicaid-certified skilled nursing facilities. Mr. Shays. But there are lots more nursing homes. I'm comparing apples to oranges here. You were talking just total nursing homes. Ms. McElroy. 243 nursing homes, 30,000 beds in Maryland. Mr. Shays. But we're not comparing apples to apples here, are we? Yes or no? How many skilled? Mr. Spahr. Skilled nursing facilities, Medicaid-funded, 666. Mr. Shays. And how many in Maryland, do you know? Ms. McElroy. How many of those beds are skilled, I don't know. Most of our facilities have some skilled beds and some intermediate beds. Mr. Shays. I'm just trying to see the difference, because it would seem to me your difference would be one to eight, or something. That seems so close. It's just surprising to me. Mr. Snowbarger. Mr. Snowbarger. Mr. Chairman, first of all, let me apologize to the panel and to you for being late. Mr. Shays. You never need to apologize. You have 100 different meetings. Mr. Snowbarger. Well, I will. I'll apologize anyway. Mr. Shays. I'm not going to do it when I'm late. Mr. Snowbarger. The other thing is, I know that you're on a tight timeframe, and I think it might be the best use of our time if I would yield back to you and let you continue. Mr. Shays. If you don't mind. Mr. Snowbarger. That's fine. Mr. Shays. If I could just have you go through ``illegal but hard to stop.'' Ms. McElroy. Mr. Chairman, I think probably the thing that concerns me a great deal is that anytime you get into a situation with a nursing home contracting for a service or allowing another vendor to come in and provide a service, you have the potential for a kickback. And the kickbacks that we would like to see, as criminal prosecutors, are a situation where, if I am allowed to sell $100 worth of my wound care kits in your nursing home, I will give you $10. We don't see that at all. You are far more likely to see, if I'm allowed to sell $100 worth of wound care kits in your office, I will allow you to come to the sky box at the Orioles, at Camden Yards, with me. And then, if I'm allowed to sell 200 or 500, then, you know, we'll go to the Caribbean and play golf. These are extraordinarily difficult situations for us to investigate and prosecute, and yet there is very little doubt that there is a lot of quid pro quo when it comes to being permitted to provide services. To go back to the situation of therapy in nursing homes, both mental health therapy, occupational, physical, what have you, if you look at the increase in the therapy services over the past 5 years, any kind of therapy, you're going to find that it has doubled and tripled, as an item provided to Medicare and Medicaid patients in nursing homes, sometimes to the point where the therapy services billed to Medicaid and Medicare, together, cost more than the programs are paying for the long-term care. In some instances, therapy services are required. People must be screened for them. You get an outside contract agency to come in. The people who are doing the screening are the ones who ultimately are going to be providing the service. Well, guess what they recommend? They recommend that this person could benefit from therapy. You have frequent cases where people with Alzheimer's and diseases that will just not be corrected by any type of therapy being treated and, at a great cost to both programs, receiving virtually useless mental health therapy and counseling or occupational therapy. This kind of situation, when we look at it, we do not believe that it does not come with a kickback. If the kickback is, ``I will refer these people to you, if you will refer these people to me,'' it becomes extraordinarily difficult for us to prosecute that in a court of law. Mr. Shays. I'm trying to understand, though, what the cost to the taxpayers is. In other words, are we overpaying for these services? Are these services you wouldn't have otherwise? Ms. McElroy. Frequently, we're overpaying. If you bring in an outside contract service, you do not have that cost included on the cost report; it's billed separately. And if the company decides to bill it at $100 an hour, and Medicare is going to pay $100 an hour, but they pay the therapist only $5 an hour, then there's a $95 profit figure in there. If it were included on the Medicaid cost report, they would not be able to take the $95 profit figure. So, yes, it does cost more to bring an outside company in. You also have the cost that's associated with the incentive to provide a service that is not necessary and is not beneficial. And you have virtually no checks or controls. You have the therapy company itself screening the patient for necessity. You may even have a doctor that is affiliated with the therapy company, or really not very involved with a particular patient, signing off on that. And you have a therapist who probably is trained to go in and market the therapy services at the nursing home, to market to the families: ``This might help. This might help. It can't hurt, and you don't have to pay for it.'' So you wind up, in the end, paying for a service which, even if you get it, has not helped either the patient or the program or the cause. Mr. Shays. So, in some cases, it's legal but wrong, and in other cases, it's simply illegal. Ms. McElroy. If there's a kickback of any type involved, it is illegal, but it is hard to prove. Mr. Shays. OK. As a general rule, any kickback is illegal? Ms. McElroy. Yes. Mr. Shays. OK. And we define ``kickback'' by all the different ways you described it: some financial gain. Ms. McElroy. Yes. Mr. Shays. OK. Mr. Wiggs. Mr. Wiggs. I think it's simple. Mr. Shays. We're talking about ``illegal but hard to stop.'' Mr. Wiggs. I think it's a two-part answer. One is, I think it's as simple as a dual billing might be, where you have a billing to the Medicaid program and a duplicate billing to the Medicare program, certainly illegal, certainly hard to stop because of the lack of coordination between the two programs. That's a very simplistic level that's just pretty much always going to be there as long as you have the different methods of payment, et cetera. Mr. Shays. But there could be a solution to that. Mr. Wiggs. Sure. I think what concerns me, once again, in the managed care context, in addition to kickbacks that will be hidden because of the capitation contracting from the managed care organization to the various vendors. I think you're going to have concerns that rise naturally with managed care because of underutilization potential, and ownership interest, et cetera. I can't blame that on dual program eligibility, necessarily, but that's very difficult to sift through and get to the information. If you had access to that information, you could compare Medicare services to Medicaid services and start to get a picture of what this physician--what are his or her practice patterns relative to the long-term care patients. In an underutilization case, it's going to be hard to show anyway. We're further handcuffed because we can't really gather all the data and say, here's the complete picture. I'm trying to think of other examples. Mr. Shays. We've covered one. That's all right. We can just go on to Mr. Spahr. In other words, you would agree with Ms. McElroy's example, as well. Mr. Wiggs. Certainly, the kickback arrangements, they are there, and it's a matter of sifting through the data to get the information that it's there, No. 1, and then being able to build your case based upon all the information available, to carry it forward to a prosecution. Mr. Shays. Thank you. Mr. Spahr. Mr. Spahr. First, I would agree with what Ms. McElroy said with respect to the existence of the kickbacks in these ancillary services being provided in the nursing homes. An additional problem is, to establish, in a criminal case, whether those ancillary services have, in fact, even been provided to the residents of the nursing homes is extremely difficult to prove. You're dealing with a population that is vulnerable, often ill, almost exclusively unable to testify whether or not a particular service was ever received. In many cases, even where we are able to establish the existence of criminal activity, we cannot establish the full extent of the criminal activity because the dollars stolen can only be established circumstantially. I am reminded of a recent case where, in establishing the existence of a scheme to bill for services not rendered, a doctor, on some occasions, attached copies of test studies which had been xeroxed out of a textbook for a marathon runner and were being offered up as proof of services rendered to a 96-year-old nursing home resident. But where that doesn't exist for all of the residents in that nursing home, you cannot conclusively or circumstantially establish that every single bill was fraudulent. So those types of activities, where there has already been a financial incentive to bring an ancillary service into the home, and a greedy provider can further enhance his profitability by simply not rendering the service at all, it becomes difficult to prove not only the existence of the crime but the extent of the crime. Mr. Shays. Mr. Allen. Mr. Allen. Thank you, Mr. Chairman. I'm not the head of a Medicaid Fraud Control Unit, so I'm a little bit out of my league; that's for sure. What I have heard and what staff have told me about is a situation where you've got the nursing home owned by the same entity that also controls something called the management company. And the management company then has a contract with the nursing facility to say, we will provide various consultant services, and what have you, and so a fee is paid. The issue is, have services ever been rendered, or are they rendered in the full amount. That's very difficult to prove, simply because, in both entities, they are both controlled by the same party. So, in an arms length arrangement, if I paid someone for service and the vendor did not show up, you terminate the contract, or you don't make the payment. But when you have owner-related situations, you don't have that normal check that you have in the marketplace. Mr. Shays. OK. I'm struck by the fact, as you were talking, that it would be very difficult to know if you have just someone who is doing therapy with a patient, who is just pretty much coming in and asking how they feel, and in the end you don't know how long they spent. So I would think your task would be very difficult, in some ways, really determining clearly if a service had been rendered or not. You have to prove it wasn't rendered; they don't have to prove it was rendered. Correct? In a criminal case, is that accurate? Ms. McElroy. That's correct. Not only that, sir, but they bill in units, so they have perhaps a minimum, one unit being 15 minutes. But if a service actually only takes 5, they are permitted to bill the one unit, or 15 minutes. So you can look at a case where a therapist has billed a 12-hour day and worked 8.5 hours, and still have something that you could not prove beyond a reasonable doubt in a court of law, was a service not rendered. Mr. Shays. Very interesting. Mr. Towns. Mr. Towns. Thank you very much, Mr. Chairman. Let me begin with Ms. McElroy. We do have some problems. There's no question about it. I want to get clear in my mind-- you indicated that most facilities are audited. Were you talking about the State of Maryland, or were you speaking nationally, at the time? Ms. McElroy. I speak only for the State of Maryland on that. We have a contract agency which does at least a desk audit, and most times an onsite audit at the major facilities, every year. Mr. Towns. Mr. Spahr, what legislative changes would you propose to deal with the problems of therapy services, managed care, and drug diversions that you have outlined in your testimony. What recommendations or suggestions would you make? Mr. Spahr. With respect to managed care, there are a group of model statutes which Ms. McElroy, I hope, has with her, on behalf of the National Association of Medicaid Fraud Control Units. They have been introduced in various State legislatures. They have been introduced, in one form, in New York's legislature this year by Attorney General Vacco, which will seek to provide the tools which prosecutors will need to address the oncoming frauds in managed care. Arizona has had long experience with it. New York has been seeking an 1115 waiver to mandate managed care for its 2.6 million recipients, I think since 1995. With respect to the problems of drug diversion, again, New York, in November 1995, enacted or adopted the first noncontrolled drug diversion statute in the United States, at the State level, which made it a crime up to a 5- to 15-year C felony to sell noncontrolled substances outside the normal course of business. Several weeks ago, in Manhattan, the Medicaid Fraud Unit had the occasion to seize, during the execution of a search warrant, over $350,000 in cash from the back room of an apartment, along with numerous drugs that had been diverted from the legitimate marketplace, most of which or much of which is paid for by the Medicaid program, not only once, but on some occasions two and three times, because the drugs are paid for by the Medicaid program, resold back into pharmacies, and paid for by the Medicaid program again. Before the New York legislature this year is a proposal to criminalize the possession of those diverted drugs, which was not included in the original statutory package in 1995, which will make it a crime up to a B felony to possess in excess of a million dollars worth of drugs. Since January 1997, the New York Medicaid Fraud Unit has taken over a million dollars worth of drugs from various locations, including, on one occasion, over 30,000 capsules of AZT contained in garbage bags, in an apartment in the Bronx. So that's a continuing problem, and legislation concerning possession and diversion of drugs at the Federal level would be appropriate, as we have seen more and more occasions where those drugs are crossing State lines or, in fact, being diverted out of the country. What was the third? Managed care, drug diversion? Mr. Towns. Managed care, drug diversion and, of course, the other one was therapy services. Mr. Spahr. With respect to therapy services, the ability of the Medicaid Fraud Control Units to examine, investigate, and prosecute instance of dual eligibility, and prosecute the Medicare sides of the cases on a regular basis, would allow us to address that problem substantially. Also, the further coordination or the mandated availability of information from the Medicare and Medicaid programs to each other, so that they can coordinate what services are being rendered, would go a long way toward alleviating that problem, as well. Mr. Towns. Let me raise the issue here. Mr. Chairman, I think that it's something I want to talk further with you about as we move along. But I think that we have some experts here, and I would like to get their opinions on this issue. I'm concerned about the uniformity of recordkeeping. The fact that, in some States, if a facility closes, nobody is responsible for the records. They can throw them out the window; they can do anything they want to do with them. Now, in your area, in terms of those of you who have the burden of going to look and see, whether somebody has done something illegally, if those records are gone, I think it makes it very difficult for you to be able to establish a case. What suggestions or recommendations do you have that we might--I must say, Mr. Spahr, New York State has been taken care of. We've done that. But the point is, in other States, we do not have that. So what suggestions do you have for us here that we might be able to do that, because I think this ties in to the whole thing of fraud. We're talking about downsizing, in terms of hospitals, you know. We're saying that the stay is no longer needed. A lot of things now can be treated on an ambulatory basis rather than in a hospital setting, which means that some hospitals are going to close. Some facilities are going to close, and when they close, nobody has jurisdiction over those records. I even take it a step further, Mr. Chairman, that even when physicians die now, nobody is taking over their practices. In the past, it would become a part of the estate, and somebody would come in and they would buy it. But now all of a sudden, there is no interest. In many areas of this country, if a physician's office closes, it just stays closed; nobody takes over, which means that those records become the property of no one. I would like to get your input on that while you are here. I really would like to hear, because I'm looking very seriously at that issue. Mr. Wiggs. That problem arises also in a managed care type of setting where we've recently seen, in a particular case, where you might be investigating some particular organization who has closed shop, so to speak, for whatever reasons might attend to that, but the records disappear. So it's not only a problem for ongoing treatment of those patients, in terms of whoever takes over the care, but it's certainly a problem if you're trying to establish any kind of paper trail, what was provided, what wasn't provided, regarding a criminal prosecution or any kind of civil restitution that may be warranted. I don't think we've adequately dealt with the necessity to have some type of sanctions for, you know, making sure that those records are where they should be. Certainly, we have fraud laws and forgery laws that we can deal with it if they are altered, which is frequently the case. But in terms of where they are retained, I don't think we've dealt with this sufficiently. Ms. McElroy. I'm going to get in trouble for making this point, but I'm going to do it anyway. When we have Medicare intermediaries change or when we have Medicaid data holders change, we can't even get the records from the Medicare intermediaries that have stopped being paid by Medicare. So it is, indeed, a problem. But from criminal prosecution standpoint, we have more problems getting records from defunct fiscal intermediaries than anywhere else. Mr. Towns. Mr. Allen. Mr. Allen. I really wouldn't have much to add to that. It's been my experience that, when a nursing facility changes hands, the medical records stay with the facility, for continuity purposes. I would share what you have seen about physicians. In the old days, it used to be that, when a physician passed on or got out of the business, they would sell the practice, and with the practice would come the medical records. I have seen, just in the last few years, that no longer is the case. Physicians are getting out of the business, and they are not selling their practices, which leaves a care coordination issue for us in the Medicaid program, trying to pick up a new physician for the client. But I've not really seen that in the nursing home area, to any extent. The only thing I would add is that there is something called the minimum data set. All the nursing homes are supposed to use the same sort of a client evaluation system, nationwide. And it's pretty much a computerized-looking form, which is a good thing. Unfortunately, it's still not automated, and that was the original intent. They are still piloting it and experimenting with it. This requirement was done in, I believe, 1987, and we're still not automated on a nationwide basis, which is really unfortunate, because then you could have data to make comparisons across the States, which would help with operating the programs better. Mr. Towns. Mr. Spahr. Mr. Spahr. If I may just add to the size of the problem for you, if you may recall, in New York, the nursing homes were reimbursed on a 1983 cost year, which was trended forward. New York State's regulations require that all the records underlying the cost reports be maintained for a period of 6 years. In 1989, it became suddenly apparent that all of the nursing homes were going to be in a position to destroy all the records underlying their cost reports, and an emergency regulation was passed which required that they be kept 6 years past the last year in which that cost year is maintained. But there are other problems. When conducting a fraud audit with respect to a cost report, you are not only going to look at the records in the possession of the nursing home, you are looking at the records of the vendors, who may have done the construction, or provided the food services, or provided various equipment. Those vendors are not bound by any of the regulations requiring them to maintain records beyond whatever the IRS would require for tax purposes. So, when looking at older cost years, it is often difficult to establish a case because those records of vendors are no longer in existence. Mr. Towns. That's interesting. Let me throw this one out, then I will yield back, Mr. Chairman. Are we devoting sufficient resources to combat Medicaid and Medicare fraud? We're talking a lot of stuff, but do we really have the resources out there to deal with it effectively? I don't want to put anybody on the spot, but I sure want to get some information. Ms. McElroy. We would certainly like to have more money. You know, quite frankly, as you know, the Medicaid Fraud Control Units are 75 percent federally funded. And the problem that I have is not in getting the 75 percent Federal money, it is getting the 25 percent State money from my own State. The States are extraordinarily strapped at this point, and coming up with that first quarter, as little as it is, is sometimes very difficult. So my unit has lost investigators, lawyers, staff attorneys, over the past 3 or 4 years, and the people I have working for me are leaving to go to other jobs because they haven't had a raise in 4 years. So I am dealing with a personal problem, and it's affecting what we do, but I don't know that it's a problem that the Federal Government can solve under the current funding structure. Mr. Wiggs. We have the same dilemma. I revert money back from our Federal grant every year because we can't use it, because we don't have the adequate State match from which to use those funds. So I'm a bit chagrined when I send money back that I think that I could use in other ways. For example, we see a lot of areas that we could perhaps become more proactively involved, that would require some detailed auditing, inspection-type activity, but there's no way that I'm really going to seriously consider it when I'm short- staffed in the area that we are. Again, not to beat the managed care drum too loudly, but it does increase the level of sophistication and the degree to which crime hides and fraud hides, that you do need to throw those resources into it just to get the picture and to be able to do the detailed runs that you need to, in a managed care setting. So I, too, would like to see more resources, but more importantly, I would like to see more of a coordinated effort with the resources that are there, to hit head on the problems that we identify. If I think those resources could be used strategically, I think we'd see more effect. Mr. Towns. Mr. Spahr. Mr. Spahr. I have to agree with both my colleagues that the resource question is a problem. It's primarily a question at the State level. In 1978, when the New York State Medicaid Fraud Control Unit was first certified, it had a staff which was 40 percent larger than it does now. And in that time, since 1978, New York State's Medicaid budget has gone up 90 percent. So we are policing a Medicaid program that is almost 10 times as large, and doing it with nearly half the staff at this point in time. I would also point out that, in Kennedy-Kassebaum last year, the Federal Government dedicated large amounts of resources to combat health care fraud and to coordinate the Federal, State, and local investigations into health care fraud. But as I look at it, that fund which was created dedicates the resources primarily to Federal agencies and doesn't make any of that funding available to assist either the State or local agencies in the battle that they have been fighting for the last 20 years. Mr. Allen. It's a sad tale. States don't have enough resources to do the jobs that need to happen. I would like see some innovation, because getting a State legislature to see the wisdom of investment is one of the harder things to do. But one thing that we're doing in our State is that we've just entered into a contract with a private legal firm, on a contingency basis, so they may look into taking on those cases which the Medicaid Fraud Control Unit has determined that it would be very difficult to prove fraud. They would go in under another statute which is called, I think, the Civil Claim Penalty Act, and they would come in on that side. They would work on a contingency basis so that there's Federal fund or general fund obligation to pay those folks, but they would take up the case if they thought it was worthwhile. The other thing, I think, that could be done is--you've heard people here, from four different States, all find the same problem on their own around the inclusion of costs on the Medicaid cost report. Four separate jurisdictions had to find that problem on their own. It's interesting that the Federal Government, who has jurisdiction over it all, has not found the problem yet. And I wonder if we shouldn't be bringing more coordinated resources together, especially at the national level, maybe to bring more experts in and to examine the whole Medicare/Medicaid payment relationship. You do have a lot of resources out there now. Take advantage of what you have and spread the information, and it can go a lot further. Thank you. Mr. Towns. Thank you very, very much. Let me thank all of you. I really think you've been extremely helpful. I yield back, Mr. Chairman. Mr. Snowbarger [presiding]. Thank you, Mr. Towns. I'm going to ask what I think are some fairly simple and short answer questions. I've found before that what I think should be short answers never come out that way. In your investigations, do you find that you're focused and finding more in the nursing home operations or in the vendor side of things? Ms. McElroy. The vendor side of things. Mr. Wiggs. Vendor. Mr. Allen. Quite frankly, I'm finding, in our experience, it's home health agencies that we really need to worry about. And transportation is also very troublesome. But especially home health. It's a growing part of the industry, and what we've got is a lot of claims being submitted that no care was behind it, or we have what we typically refer to as ``procedure creep,'' things of that nature. Mr. Snowbarger. OK. Let's go to a short answer on kickbacks. I believe, Ms. McElroy, you were the one that mentioned the sky box tickets or the trip to the Caribbean. All of those are pretty obvious examples of kickbacks. Why are those so difficult to track and to prove that there has been a kickback? Ms. McElroy. In order to prove that you have a kickback, you have to show that the benefit that was received had, as one of its material purposes, the intention that it would induce a referral for an item that was going to be paid out of the Federal or the State program. The defense to the tickets to the Orioles is, well, you know, I got to know this gentleman through my business dealings with him, and I genuinely liked him, and I wanted to take him to the Orioles, and that is the only reason why I took him to the Orioles game. And that is a very difficult defense. Again, keep in mind, we are dealing with a standard. All the Medicaid Fraud Control Units are primarily criminal prosecution units. We deal with the ``beyond a reasonable doubt standard.'' If you are unable to show a pattern that is an exact quid pro quo, it gets to be a little bit more difficult to prove that the purpose was for the obtaining of a referral, or a vendor contract, or another benefit. Mr. Snowbarger. Are there changes in law that would help that by loosening the standard? You know, the general public doesn't have any problem indicting me if I accept those things and they can't show a quid pro quo. We have ethics reform at least every 2 years, even numbered years, for some strange reason. So I don't quite understand the difficulty. I'm going to act like the general public does toward politicians. It sure seems to me like there's a quid pro quo, if that kind of thing is happening. Are there changes in law that we might be able to enact that would make that an easier thing to prove? Ms. McElroy. Certainly, thinking along the lines--any provision that prohibited conflict of interest between vendors and nursing home owners and administrators would be something that would be welcomed by someone seeking to prosecute a kickback case. Whether or not something like that would be feasible, I would not venture to say. Mr. Snowbarger. Problem in defining conflict of interest? Ms. McElroy. Yes. Mr. Snowbarger. Most of these facilities, I presume, not only provide services to Medicaid and Medicare patients, but also to other patients? Ms. McElroy. Correct. Mr. Snowbarger. Private pay, either individually or through other plans, I presume. I presume there are no prohibitions for private pay or for private insurance companies on these kickbacks. Is that a fair statement? Ms. McElroy. The answer is going to be found on a State by State basis. As to Maryland, the answer is yes, there is no prohibition against private. Mr. Snowbarger. The answer is no. Ms. McElroy. In Maryland, there is no prohibition against any kickback that relates to anything other than Medicaid. Mr. Snowbarger. What about the other States? Mr. Wiggs. In Arizona, we have an anti-kickback statute, but there has to be a nexus to the Medicaid program. You can usually establish a nexus to the Medicaid program simply because a facility delivers services. But the difficulty lies in that the statute is so convoluted, really, on how it defines what the quid pro quo that it is of no value, frankly, for staunch enforcement efforts. Mr. Spahr. In New York, the answer is, it depends on the service that's being rendered. We have a kickback statute similar to Arizona's that makes it a felony to pay a kickback of over $7,000 in connection with the Medicaid program. However, it's only a crime for a medical provider to do so, because of the way the statute was originally drafted; whereas, the Federal law makes it a crime for any person to do so. There has been introduced in our legislature this year a felony all-payor kickback statute. But also on the books, it is a crime under our public health law to make a self-referral or a kickback with respect to certain types of services, which would include laboratory services, radiation therapy, x ray, things of that type. So while it doesn't cover all services under that case, it does cover certain services. Mr. Snowbarger. Let me go to a little different issue, and that's on the dual eligible population. Do I understand from all of you that one of the major problems there is that--well, maybe I need to ask an initial question. What tools and methods do you normally use to investigate these potential fraud situations? In connection with that, I note that you just don't have access to the Medicare side of things. So how do you get a handle on the dual eligible fraud issue? Does that look for a simple answer? Ms. McElroy. Well, there's a simple answer, and the answer is, it's very difficult to do. We go beyond that. I think Stephen Spahr mentioned this, as well. When the Medicaid program pays a co-pay, we can't even tell what the underlying service was unless we go back to the Medicare intermediary and get a copy of the claim. So, we don't even know what this money is paid for. We would be unable to tell whether or not a therapy service that was billed to Medicaid had also been billed 100 percent to Medicare, because we would not know what the Medicare billings were. So that becomes extraordinarily difficult. We don't have jurisdiction, currently, to investigate and prosecute any Medicare fraud. That lies with the U.S. attorney's office in Maryland. So we don't have any incentive to look at it, and we actually really probably should not look at it. So it becomes difficult. The situation we're talking about here, where Medicaid and Medicare are paying for a patient, for the same day, in a nursing home, really is a Medicaid issue, because Medicaid, as the payor of last resort, is the program that I would see as the one primarily harmed by such a scheme. In order to get that information, I have gone to HCFA and asked them to provide the information for all of the Maryland nursing home residents to me, and they have indicated that this is possible. Mr. Snowbarger. That it is possible? Ms. McElroy. It is possible. In fact, I don't believe it's going to be very difficult. Mr. Snowbarger. OK. So this has just been a matter of asking for that information, and you will be able to coordinate? Ms. McElroy. Well, I will say it took me 2 years trying to figure out where to go to get it, but yes, the answer is just asking, executing a Memorandum of Understanding, which is similar to that which HCFA has with the Federal Bureau of Investigation. Mr. Snowbarger. It may get back to Mr. Allen's comment that 50 States shouldn't have to figure this out, that HCFA should figure it out and be able to offer it. Mr. Allen. In collaboration with the Medicaid States. If one State gets a bright idea, it should quickly get spread to the other 50 States, and HCFA would be the obvious vehicle to do that. If I could just add, there is a wonderful instrument out there, and that is the Medicare nursing home-cost report. It is a stepped-down cost report. What that means is, it isolates the costs associated with the Medicare client, the Medicaid client, and other payors, which is pretty much the business. I say it's a wonderful instrument because it's much more sophisticated a tool than what most States are using for their own cost reporting mechanisms. The way that we were able to identify our problem was, it came out of the Medicare cost report. The only problem with the Medicare cost report is that it's slow to be audited. So oftentimes you, in the State, are dealing with a 1996 or 1997 cost basis, but the Medicare cost report perhaps is reflecting costs in 1994. So it makes it hard for the comparison to be done, but it can tell a big part of the story. And like I said, it's a wonderful instrument, and all States should be encouraged to secure the Medicare cost report in their States, and analyze it and put it on spreadsheets. What will come from it is very valued and good information. Quite frankly, in my State, I require the nursing facilities to submit their latest Medicare cost report when they submit their Medicaid cost reports, just so I can do this comparison. And it's interesting, the nursing homes get a little grumpy in handing over the Medicare cost report. They will do it, but they complain about it. I think one of the reasons why they complain about it is, they know we're doing these comparisons and things of that nature. Mr. Snowbarger. Yes. Mr. Wiggs. I might add that, typically, we will be called into a facility, for example, because of a patient abuse type of case that opens the door to investigation of resident abuse, physical abuse. We will often see that there may be some allegations that some staff may want to say about, you know, billing patterns, et cetera. But usually we will have to just carve out maybe the abuse allegations and separate them from the fraud allegations; whereas, we would really prefer to be able to put those together. Because not only do you have crossover between the two programs, but, typically, in a patient abuse type of investigation, we may want to look at how these services are being billed, or is that part of the problem. But we end up referring those types of cases to the Office of Inspector General, appropriately so, but they may not have the inclination nor the interest nor the resources focused, at that time, on that particular case. So a lot of it is energy-driven, which is determined by, if you have an investigative unit that's in there, that's looking, and has the energy to go forward with the prosecution, why not bring all components together and be able to deal with it that way, rather than carving it out. Mr. Snowbarger. This is a very elementary, basic question: what are the consequences for the perpetrator of the fraud? Ms. McElroy. In Maryland, 5 years in jail and a $10,000 fine. Mr. Snowbarger. OK. Mr. Wiggs. In Arizona, it depends on the class of felony. If it's a fraud scheme, class 2 felony, it depends on how many prior convictions, et cetera, but you're looking at up to 10, 15 years, potentially. Typically, though, white collar crime, you know, first offense, is not viewed as abhorrent, if you will, as some kind of blue collar crime, if you will. So probation or something like that usually occurs. Mr. Snowbarger. What is the range of the fines? I'm sorry. Was it $5,000? $10,000. Ms. McElroy. $10,000 in Maryland, currently. We have just passed a new statute which would increase that up to $250,000, in the case of a corporate provider. Mr. Wiggs. Up to $150,000, for an individual, for Arizona. Mr. Spahr. In New York, if, say, it's a larceny of over $1 million, it would be mandatory State prison up to a period of 25 years, with a fine equal to double the gain. Mr. Allen. I certainly don't know the provisions for criminal misconduct, but one of the biggest deterrents would be, you kick the vendor out of the program. Right now, there are some limits over how long it goes on, but that will get especially a national corporation's attention, which is, you're not only out in Colorado, but you're out in all the other States that you do business in, as well. That's a major deterrent. Mr. Snowbarger. Now, is that nationwide? I mean, if you find something in Maryland with a national vendor, they can no longer be a Medicaid vendor. Is that by Federal law? Ms. McElroy. It's Federal law. If there is a criminal conviction, there is a mandatory exclusion of a minimum of 5 years for a health care related offense. Mr. Snowbarger. Corporate offenders, up to $250,000. What constitutes a corporate offender, if you're incorporated? Ms. McElroy. Anyone who is not an individual. Mr. Snowbarger. OK. Ms. McElroy. Again, we patterned that on the Federal statute. Mr. Snowbarger. OK. Is that enough deterrence? I mean, if you're talking about multimillions of dollars. Now, in New York, I understand, where you've got a multiple of the benefit that was gained, I see that. In other States, I'm concerned that $10,000 is certainly worth the risk; $250,000 may be worth the risk. Was it $150,000? I don't remember. But are the penalties stiff enough, or is this a risk of doing business that most vendors are willing to take their chances on? Ms. McElroy. In cases where there is no real probability of exclusion, I think it's a risk of doing business that the vendors will accept. Mr. Wiggs. I think all criminals, to whatever degree of sophistication, do some form of cost-benefit analysis, in terms of the likelihood of getting caught, to getting prosecuted, to getting significant jail time. To the extent that you have aggressive prosecution, you're going to create that deterrent effect. Mr. Snowbarger. Do these penalties get to the owners of the business? In other words, it's pretty easy for a corporation, particularly if they are just doing business in one State, to go out of business. Like we mentioned before, you lose the records at that point. Are there penalties, though, for the business owners, if you find the fraud? Mr. Spahr. If the fraud can be traced directly back to the individuals, it is a policy, with our unit, to prosecute both the individuals responsible for the acts as well as the corporate entities. And yes, they would trace directly back. I would also just point out, in terms of the deterrent effect, the difference between a single State's attempt to collect, civilly, dollars, as opposed to the effect of a criminal deterrence. In a recent case, we had a subject of an investigation who, being threatened with a civil audit by a single State agency, made the statement, ``Who cares if we get audited; we've already made millions.'' If that becomes the threat of criminal prosecution and a permanent or a long-term exclusion, it becomes a significant deterrent to the future activity. Mr. Snowbarger. Let me throw out one more topic and get a response from all four of you, just real quickly, if I could. Could you assess for us what you would see as the value or not of consolidated billing by nursing homes? In other words, where nursing homes are billing for the other providers, so that you're not getting flooded from all different directions, I suppose. Ms. McElroy. To be perfectly honest, I'd have to see how it worked before I could answer that. It sounds like a good idea, but I don't know whether it would be feasible. Mr. Snowbarger. And I'm thinking particularly on the dual eligibles. Mr. Wiggs. I think, in theory, the better you are able to consolidate where the information is going to be to determine fraud, the more likelihood you're going to be able to have effective program integrity. But, again, it depends on how it takes place. Mr. Spahr. I am in general agreement. I would just be concerned that, by creating a billing umbrella in one location, you would permit criminal activity which may go on around the services done for the nursing home that would then never hit the information data bases that the Government programs maintain. Either the names of the vendors or the services that they are billing would never appear anywhere except under the name of a facility. Mr. Snowbarger. So it would depend on how the program is set up. Mr. Allen. I really can't comment on whether a consolidated billing process would solve the problem. You may have other difficulties, which is then the nursing home is responsible for the pharmacy billing, and all the rest of it, and I'm not sure you would necessarily want that. It does seem to me that you should allow the States to experiment with more managed care type operations in long-term care, for the dual eligibles, which is, all the billing information now goes to one HMO that has to pay all the Medicare and the Medicaid bills, with all that information being centralized, plus the financial responsibility. You've brought marketplace dynamics onto the problem, which is, why do I want to pay for this; I think I already paid for this somewhere else. Mr. Snowbarger. Thank you very much. Mr. Towns. Mr. Towns. Thank you. I just wanted to explore something that was raised earlier. Now, I understand, in terms of if a person is convicted in one State, then they can't practice in that State, but I'm not sure, in terms of whether or not we are able to do this nationally. If a company is doing business in more than one State, do we really have the information to prevent them from doing business elsewhere? Ms. McElroy. Yes, we do. The Medicaid Fraud Control Units are required to report their convictions to the Federal Government. The Office of Inspector General regularly publishes, and it is on the Internet, a list of all of the providers that are barred from doing business. If Maryland convicts someone, the Federal Government will bar that provider from participating in the Medicare program and in any other State Medicaid program. Mr. Towns. The same? Mr. Allen. Yes. Indeed, the information is well shared. So, indeed, if something happened in New York, we do learn about it in Colorado. We get those just about on a monthly basis. The only thing I would throw out for consideration is, is 5 years long enough? We've seen in Colorado where a nursing home owner was found guilty of fraud. They waited their 5 years, and they came back. And it was quite disturbing to me, because I thought we had seen the last of them. So I'm not sure if 5 years is long enough. In a business cycle, it's not really very long. Mr. Towns. Let me ask a question along those lines. Let me make sure, because this is a part where we've had a lot of problems, in terms of dealing with various pharmacists, in particular, in terms of doing business in different States. Shut them down in one State; they do in the next State. Let me ask, in terms of the extent of that, that means, if it's a husband, can a wife take over the business? What are we really talking about here? Or is it the fact that, one brother is convicted, then the other one now takes over and is able to do business? I just want to get as close to this as we can, because I just feel that there is a big problem in terms of fraud. So you grab me, and, of course, my younger brother now takes over and still continues to do business. He might even change the name for a minute, and then 5 years later we change it back. Is that a problem? Mr. Spahr. It's a problem. It's also a problem of proof, in many respects. In New York, I believe it's an unacceptable practice for any Medicaid provider to employ a person who has been debarred from any State or Federal program, or to have them have an ownership, I believe, of more than 5 percent. But proving the existence of the relationship between yourself and your brother, that you actually have an interest or that you are actually performing a service for that company, can be extremely difficult. We have done it, on occasion. Where we have been able to prove that a debarred provider is out acting as a salesman for a company, we have been able to put the additional company out of business or put them out of the system. It's a difficult question to prove. Mr. Wiggs. I would say there's nothing stopping that individual from closing down their shop, incorporating under a new name, and having a new board of directors, their brother, or something like that, and continuing on in the practice. I don't see how that's going to be--as Steve says, it's going to be hard to establish the relationship, the link there, to be able to say that that falls under the exclusion categories. I think your concern is well-founded. Mr. Allen. The only thing I would add is that I've seen the same dodge that you're describing. You do get the brother, and then you find a sister comes in to operate the company, things of that nature, or the wife, or what have you. We've seen that very same thing, and it is, from what I can tell from our Medicaid Fraud Control people, very hard to stop it. Mr. Towns. It's a tough situation, I tell you. But thank you very, very much. Mr. Chairman, I yield back. Mr. Snowbarger. Thank you. Thank you to the panel members. I think that will conclude the questioning of this panel, and we will move on to the next. Mr. Grob and Ms. Aronovitz, if you will come forward, we will swear you in and get started on the next round. I should have caught both of you before you sat down. If you would both stand up, we've made a practice of swearing in those who are going to testify before us. So if you would raise your right hand. [Witnesses sworn.] Mr. Snowbarger. Mr. Grob, if you want to lead. Mr. Grob. Mr. Chairman, would you mind if Ms. Aronovitz goes first? Mr. Snowbarger. That's fine with me. I have no problem with that. Ms. Aronovitz. STATEMENTS OF LESLIE ARONOVITZ, ASSOCIATE DIRECTOR, HEALTH FINANCING AND SYSTEMS ISSUES/HEHS, GENERAL ACCOUNTING OFFICE; AND GEORGE GROB, DEPUTY INSPECTOR GENERAL FOR EVALUATIONS AND INSPECTIONS, DEPARTMENT OF HEALTH AND HUMAN SERVICES Ms. Aronovitz. Members of the subcommittee, I am pleased to be here today to discuss the challenges that exist in combating fraud and abuse in the nursing facility environment. While the Medicaid program, as you heard, is the largest payor for nursing facility care, Medicare does pay a substantial portion of the health care costs of nursing facility residents. For the opportunistic provider, a nursing home represents a vulnerable elderly population in a single location, and the opportunity for multiple billings. That is why it is so important for nursing facilities to be aware of and oversee the services and supplies that are being billed on residents' behalf. While most providers abide by the rules, some providers of supplies and services have used the nursing facility setting as a target of opportunity. This has occurred for two main reasons: First, the complexities of the reimbursement process invite exploitation. And second, insufficient control over Medicare claims has reduced the likelihood that inappropriate claims will be denied. First, I would like to briefly address the complexities of the reimbursement system. Ancillary services and items for Medicare beneficiaries in nursing facilities can be provided by the nursing facility itself, a company wholly or partially owned by the nursing facility, or an independent supplier or practitioner. As a matter of fact, our work has shown that independent providers and suppliers can bill directly for services or supplies without confirmation from the nursing facility that the care or items were necessary or delivered as claimed. Billing for therapy service is even more complicated. Reimbursement rates and procedures vary according to the patients circumstances, who provides the services, and who submits the bills to Medicare. These factors also affect the type of contractor which reviews and processes the claims, and whether the claim is paid from Part A or Part B. Until recently, HCFA had not established salary guidelines, which are needed to define reasonable costs for occupational or speech therapy. Even for physical therapy, for which salary guidelines do exist, the Medicare established limits don't apply if the therapy company bills Medicare directly. In regard to HCFA's lax oversight, we have long been critical of the unstable funding support HCFA's contractors have to carry out program integrity activities. While Medicare contractors do employ a number of effective automated controls to prevent some inappropriate payments, our 1996 report on 70 fraud and abuse cases showed that atypical charges or very large reimbursements routinely escape those controls and typically went unquestioned. Initiatives on various fronts are now under way to address fraud and abuse that we are talking about today. To address the root cause of the problems, the administration has announced an initiative to change the way Medicare reimburses for services and supplies in skilled nursing facilities. They are calling this consolidated billing. This proposal will require skilled nursing facilities to bill Medicare for all services provided to their beneficiary residents, except for physician and some other practitioner services. We support this proposal. A consolidated billing requirement would make it easier to control payments for these services and give nursing facilities the incentive to monitor them. In regard to therapy services, after a lengthy administrative process, HCFA proposed salary guidelines last month for occupational and speech therapists, and revised current guideline amounts for physical and respiratory therapists who furnish care to beneficiaries under a contractual arrangement with a nursing facility. The administration estimates these changes will result in savings to Medicare of $1.7 million between now and the year 2001. On the legislative front, the Health Insurance Portability and Accountability Act established the Medicare Integrity Program, which ensures that the program safeguard activities function is funded separately from other processing activities. The act also included provisions on administrative simplification, and there is also a requirement that HCFA send out explanations of Medicare benefits for all services billed, not just where co-payments or deductibles are involved. We are encouraged by these recent efforts to combat fraud and abuse. As more details concerning these or other proposals become available, we will be glad to work with the subcommittee and others to sort out their potential implications. This concludes my prepared remarks, and I would be happy to answer any questions. [The prepared statement of Ms. Aronovitz follows:] [GRAPHIC] [TIFF OMITTED] T1071.044 [GRAPHIC] [TIFF OMITTED] T1071.045 [GRAPHIC] [TIFF OMITTED] T1071.046 [GRAPHIC] [TIFF OMITTED] T1071.047 [GRAPHIC] [TIFF OMITTED] T1071.048 [GRAPHIC] [TIFF OMITTED] T1071.049 [GRAPHIC] [TIFF OMITTED] T1071.050 [GRAPHIC] [TIFF OMITTED] T1071.051 [GRAPHIC] [TIFF OMITTED] T1071.052 Mr. Snowbarger. Thank you. Mr. Grob. Mr. Grob. Mr. Chairman and Mr. Towns, all of my colleagues on both panels have given numerous examples of fraud, waste, and abuse in the nursing home setting. I have a set of my own, but I thought that it might be more useful if I would just take a few minutes to try to explain at least the backbone of the complicated reimbursement system that currently exists in the Medicare and Medicaid programs. I can't explain it in all of its complexity, but at least I can outline the major features of it. Even at the highest level of aggregation, I think you will see that it is, indeed, a very complex system. It reminds me of Gordian's knot, for which there was a promise that, if it was untied, the untier could conquer the world. No one ever untied it, although Alexander the Great came up with a solution which I will refer to at the end of my presentation. The system is outlined on the charts that you see before you. First of all, it is good to remember that we are talking about several different financing sources for nursing homes. The first one is Medicare Part A, about $9 billion in 1995. What we're talking about there is the basic payment that is made to a Medicare beneficiary who is in a nursing home to receive skilled nursing care after a hospital stay. I will call this a Medicare Part A stay, and we are talking about basically being in the nursing home, with some services, collateral services, related to that. Medicaid, $33 billion in 1995, would be for poor individuals who receive care under the Medicaid program to be in a nursing home. This could include skilled care, or it could also include long-term care. I have included in that $33 billion the money spent for both kinds of nursing homes, not just the skilled nursing homes. Now, the reason that I put Medicare Part B last instead of putting it right into Part A, where most people think it belongs, is because the payments made under Part B would be for other services, physician services, for example, or some of the other services people have mentioned. I will refer to some of them later. Those payments can be made for a Medicare beneficiary in a nursing home, no matter which nursing home that beneficiary is in. So, for example, if a Medicare beneficiary is in a Medicare Part A paid stay, the physician's payment will be made out of Medicare Part B. But if that Medicare patient is also poor and is in a Medicaid nursing home, Medicare Part B will still pay the physician's payment for that resident, and that's logical enough. But it also provides other services, as well, some of which might duplicate payments made under Part A or in the Medicaid program. Now, on the other chart, we can see clearly what the structure of the payment is. Under the Medicare Part A program, the payment is divided into three parts: a per diem, which is basically room and board and related services that all nursing patients receive; the so-called ``ancillary services,'' primarily therapy services, but also things like portable x rays; and capital payments: the beds, the facility itself, and things of that nature. Medicaid is paid for in a variety of ways, because every State sets up its own system for paying for Medicaid programs. There you see just a listing of some of the different systems that are used in the Medicaid nursing home. And then Medicare Part B pays for supplies and services for Medicare beneficiaries who are in nursing homes. With all these different payment mechanisms, it would be easy to see why a decision that a biller might make would be to bill for the service on the line item that would pay the greatest amount. That, basically, is what will often happen for the sophisticated biller. Again, it falls into the categories that Mr. Shays referred earlier as legal but troublesome, perhaps. I would like to now just give a few examples. Some of them you have heard before, but I would like to relate them to that payment system, because I think that will help in understanding the possible ways to fix it. On my left, we see here a pole for a nursing bed. Now, traditionally, in Medicare, we don't pay separately for that pole. That pole is covered under the capital expenses. It is just a cost item. It is well placed in that category because it gives the nursing home the incentive to economize in the purchasing of equipment like that. They don't bill for the pole. However, recently, starting in 1994, enteral nutrition services were regarded as a billable service under Medicare Part B. Now, since the nutrient is covered under Medicare Part B, someone thought, well, the pole ought to be, as well. So starting in 1994, we started receiving billings for the pole. In 2 years, we've worked our way up to $3.5 million. That was at the end of 1995. I think we're seeing the beginning of one of those rocket ship curves that we see so often in the billing practices, where we're going to see something take off, because as people begin to understand that they can bill for these, they will. Also, the incentives change. If you were, under Medicare Part A, receiving reimbursement for that pole under capital expenses, you would try to bulk purchase them. And if you did, you could get them for about $33 each. But if you bill Medicare Part B, you can get $110 for that pole. This is an example of where the billing mechanism does provide incentives for things that could be very inefficient. Mr. Chairman, I see that I've used up my 5 minutes on one example. I could give a few more. If you have a preference, I will end my testimony here. If you would like me to give a few more, I would be happy to do so. Whatever your choice is. Mr. Snowbarger. We have normally allowed people to go beyond their 5 minutes, so if you want to continue with a couple more, we have the time. We're going on the second round. Why don't you go ahead. Mr. Grob. OK. So we showed with the pole the thing that can occur, primarily resulting in a loss of economy. Now, let me give you another couple examples. The example of the pole that I just gave would fit Mr. Shays' earlier example of legal but dumb, perfectly legal. In fact, if you were a nursing home operator, you would probably be chastised by your company if you didn't bill that way. Let me give some examples now that I would call outright fraud. We found in a study we did that incontinence supplies billed to Medicare patients, most of whom were in nursing homes, were falsely billed. Bills were made for services not rendered; they were billed for supplies that Medicare doesn't cover; they were billed for excessive use, to the tune of about $100 million a year. This is flat-out fraud. The rules were clear. The billers knew they were violating the rules. We just put someone in jail for 10 years who admitted to billing Medicare for $70 million of incontinence supplies, and he received $45 million of that, all illegal billings. A couple years ago we looked at wound care supplies under Part B for people in nursing homes. Again, about $100 million that probably should not have been billed, given the guidelines that were in effect in those days. One of them was for 12 miles worth of bandages and dressings for one patient and 5 gallons of gel for the wounds. Now, we are sure that patient didn't get that amount; it was probably stored in the nursing home for the other patients. The famous orthotic body jackets that virtually every speaker has mentioned in their testimony was something that we found. That was a jacket that Medicare pays about $1,000 for, if you need the lumbar support for critical injury of your back, but we were finding that people were billing for seat cushions to keep people in their wheelchairs. But they were billing for the $1,000 instead of the $50 or $100 worth. Mr. Shays [presiding]. That's clearly illegal. Mr. Grob. That's clearly illegal. They were falsely billing for the item that clearly was not covered by the Medicare program. We found that 95 percent of the billings for that item were illegal billings. We started out paying $1 million a year for that item, and it suddenly shot up to $14 million year, and 95 percent of that we found to be illegal. Sad to say, we recently did a study where we looked at mental health services for people in nursing homes, and we found that one-fourth of the billings that we looked at were not properly billed. These were for services that were inappropriate. The previous speakers mentioned examples of these: people with Alzheimer's disease, incapable of understanding, were given therapy sessions; or people giving coffee klatches charged for group therapy, things of this nature. These are examples of where you have outright fraud. And, of course, the fraud is possible because, as people have mentioned, it is the supplier billing for this without any coordination necessarily with the nursing home owner. For some of these supplies, the biller could go to the nursing home operator and say, ``Look, let me take care of things for you. I'll check your patients out. I'll make sure they get everything they need. And, don't worry, it won't cost you a penny; I will bill Medicare directly.'' And they bill Medicare directly for that. Consolidated billing is meant to overcome that kind of problem of lack of supervision. I might mention that this creates a serious problem of quality of care for the patient, as well, since the nursing home is not now necessarily supervising the care. As Mr. Towns previously made reference to, we have a problem of access to patients' records and a violation of the privacy of records, if suppliers go into those nursing homes and look at the records to see how much services can be billed for these patients. To show you that every aspect of the system can be ``gamed,'' if you will, and again, perhaps legitimately, I will go back to a case of ``legal but dumb.'' We would be going back to the ancillary services. Several people have mentioned this. If you bill for a service such as therapies or portable x rays under ancillary services instead of under Part B, there is no Part B limit. It's based on reasonable charge. So we may end up paying considerably more, even several times more, for the same item under the ancillary service portion of the payment than we do under Part B. In fact, to make matters worse, if the payment is made under arrangement, there may be additional overhead and business expenses that are added on, and sometimes those can be higher if there is some collaboration between the nursing home operator and the nursing home supplier. Finally, I would like to mention something that's not quite on a chart, that an earlier speaker mentioned. We are also concerned about hospice services for people in nursing homes. There is, indeed, a double payment for that. There are questions being raised about the level of service provided for the hospice services and the legitimacy of the payments. We have that under study right now, and we will be hoping to provide you some information about that very soon. With regard to solutions for this problem, I believe the knot cannot be untied. I believe we should take the approach Alexander the Great did, which was to simply cut the knot and then proceed to take over the world. And I believe what we need to do here is to simply cut the whole thing. If the problem is complexity, I think the solution is simplicity. So the idea, first, of a prospective payment system under the Medicare Part A program is probably a pretty reasonable one where a flat payment could cover all the services. This has been proposed by the administration, and if it were adopted, our strong recommendation would be that you would put as many of the services as possible under that prospective payment rate, so that they would not be separately billed under Part B, for example, as separate services. In my opinion, this would certainly include enteral nutrition, which is basically food for people who need special help with nutrition, which is one of the reasons why they go to the nursing home. It could include all the incontinent supplies, and probably should include much of the wound care, as well. For the parts that don't belong under that prospective payment, we strongly support the idea of consolidated billing. We recognize that this creates additional billing problems; we are well aware of that. Perhaps there would even be some inefficiencies. But we believe that the nursing home would now have responsibility to supervise the care that is being given in a nursing home, and we believe that would be a step up, as far as quality of care is concerned, and also provide a better handle on where to look for problems as they occur. If those broad kinds of actions cannot be taken, we would recommend some fixes such as more limits on what we pay, limiting the amount we pay to what a prudent purchaser might pay, for example, per capita payments, and finally, correcting that discrepancy between the ancillary and the Part B services that I mentioned earlier. So that's my explanation. I hope that you find it useful. We're happy to answer questions. [The prepared statement of Mr. Grob follows:] [GRAPHIC] [TIFF OMITTED] T1071.053 [GRAPHIC] [TIFF OMITTED] T1071.054 [GRAPHIC] [TIFF OMITTED] T1071.055 [GRAPHIC] [TIFF OMITTED] T1071.056 [GRAPHIC] [TIFF OMITTED] T1071.057 [GRAPHIC] [TIFF OMITTED] T1071.058 [GRAPHIC] [TIFF OMITTED] T1071.059 [GRAPHIC] [TIFF OMITTED] T1071.060 [GRAPHIC] [TIFF OMITTED] T1071.061 [GRAPHIC] [TIFF OMITTED] T1071.062 Mr. Shays. I will ask questions last. Do you want to start, Mr. Snowbarger? Mr. Snowbarger. Let me ask a couple real quickly. One, I still don't quite understand about the pole here. I mean, it wasn't difficult for you to figure out that it was being paid for under Part A and then being paid for again under Part B. When you said that somebody figured out that, because it's part of the delivery system for the nutrition, they decided to include it, who is ``they''? Mr. Grob. The decision to allow the billing for that came from HCFA. It was an interpretation, because enteral nutrition is a covered service under Part B. So it was an interpretation. I understand now that they may be reconsidering that decision. Mr. Snowbarger. Why are they just billing for a pole? Why don't they bill for an employee to stand there and hold it? Wouldn't they get more money that way? Mr. Shays. Don't give them any ideas. Mr. Snowbarger. Well, I understand. I shouldn't have given them the idea. But it's just that ridiculous. It seems to me, you've already paid for that pole once; why are we paying for it a second time? You and I both saw that pretty clearly. What was wrong with HCFA? Mr. Grob. Well, again, we've called the problem to the attention of HCFA in a report that we've issued, and they have agreed that this needs looking at, and hopefully, they will fix it real soon. It actually is much more complicated than that. If you hang a cancer drug bag on that pole, then it's not covered. But if you hang an enteral nutrition bag on that pole, it is covered, because it's the enteral nutrition that is paid for, not the pole. The pole is part of capital, and should be. Mr. Snowbarger. Well, I'm not going to pursue that line of questioning, because it would presume rational thought on the part of somebody, and there doesn't seem to be any. Mr. Grob. It is complicated. Mr. Snowbarger. This is a question that I really probably should have asked the panel before, but it goes back to the whole overall payment system. Somebody had mentioned in that panel that there is a requirement, when a person goes into the nursing home, that there be some assessment about their needs and what services need to be provided. And they were talking about that, in essence, being a conflict, because it's normally the nursing home that does that assessment. Is that a correct assessment of that? Mr. Grob. Yes. Mr. Snowbarger. I agree; that is a conflict. Do you know why we have it set up that way? It had seemed to me that, in dealing with this at the State level in Medicaid, we had required the assessment to be done. For instance, if it was a patient that was coming out of a hospital into a nursing home, it was done by a social worker, or whomever, at the hospital, as opposed to the nursing home, to try to get around that conflict. Does it vary by State? Mr. Grob. Well, Mr. Snowbarger, in that case, I would have to say that it probably was a great advancement in medical care that that requirement was put in place. That stems from the reforms of the nursing home care that were the result of several years of study that occurred around the late 1980's and the early 1990's. The problem that they were addressing there was the conditions in the nursing homes where patients would languish a long time in nursing homes, perhaps, without having the kind of care that they needed. So that was really trying to make sure that the needs of the patient were assessed during their stay in a nursing home. Ms. Aronovitz. One thing I should mention is that we are in no way advocating that services that are medically necessary do be provided. I mean, clearly, in 1987 and after that, there was some indication that nursing home patients were not receiving all the services that they needed. Nursing home patients are very, very vulnerable. Half of them probably have dementia. They don't have a family support system in the community. They do rely on the nursing home itself to make sure that they get the services they need. The nursing home itself already has a significant role in planning and providing patient care. They are the closest. They are the people who are responsibility for the care of that patient. This is not a hotel; it's not a boarding house. So, therefore, it makes a lot of sense, in our minds, that because the nursing home is responsible for coordinating and helping establish a comprehensive assessment of that patient's medical, nursing, mental, and psychosocial needs, that it would also then be responsible for assuring that the proper services and items that are being delivered on behalf of that patient in fact are delivered. So it's just a little bit of an extension beyond what we think is a rational approach to what the responsibility of a nursing home is anyway. Mr. Snowbarger. I can tell you that it's not only the patients that rely on that, but it's the families of the patients. Ms. Aronovitz. Yes, that's true. Mr. Snowbarger. Because those families don't know any better. Maybe we've got a little better handle on things and watch for services that we don't see a need for, but we, as a family, don't particularly have the incentive to keep them from doing something extra. If someone says your mother really needs this, then you think, well, OK then, she must really need that. Ms. Aronovitz. You're exactly right. And very often family members don't always know all the services that are being provided. And you're right, there's a real sense that family members are happy that their parents or the people they care about the most are being looked after. Mr. Snowbarger. Thank you, Mr. Chairman. Mr. Shays. I thank the gentleman. Ms. Aronovitz, on page 5 of the ``Early Resolution of Overcharges for Therapy in Nursing Homes''--do you have that document? Ms. Aronovitz. Yes. Mr. Shays. Walk me through this chart. Physical therapy, is that a capped expenditure? Ms. Aronovitz. I'm sorry. I'm not sure what you're referring to. Oh, I see. That's something else. Mr. Shays. It's ``Early Resolution of Overcharges for Therapy in Nursing Homes Is Unlikely,'' August 1996. Ms. Aronovitz. OK. Mr. Shays. What I'm wrestling with, are all of them uncapped expenditures? Ms. Aronovitz. No. It gets very, very complicated. This is pertaining to therapy services. How the therapy services are billed has a lot to say about whether the amount is capped or not. If a nursing home contracts with a therapy company and pays that therapy company, and then puts that amount in its cost report, that amount is capped, if it was physical therapy. There were also salary guidelines for respiratory therapy. So later, when that nursing home would get audited, there would be a limit on how much the nursing home could have reimbursed a physical therapy company. And that's called an arrangement, where the nursing home reimburses the therapy company. If, on the other hand, the nursing home agrees or has an agreement with a rehabilitation company to come in and provide that same service to the same beneficiary, and the nursing home doesn't actually reimburse the therapy company but the therapy company bills Medicare directly, then there is no limit. It's not capped, in terms of how much they could charge. And that's one of the reasons why you see these exorbitant amounts that are charged, because they are billed directly. Mr. Shays. So you're not saying that physical therapy was capped and the others. All of these could be capped or noncapped, depending on how they are billed? Ms. Aronovitz. Right. Mr. Shays. And all of them went up significantly. Ms. Aronovitz. Right. What we're advocating, though, is that, at least in the sense where you have an arrangement between a nursing home and a therapy company, you do want to make sure--right now, speech and occupational therapy don't even have any salary guidelines. So for those two services, even if the nursing home reimburses the therapy company and then puts it in the cost report, in that case, Medicare will probably pay the whole amount, because there aren't any salary guidelines for those two types of therapies. Medicare can come back to the nursing home and say, you've overstated in your cost report how much, or you paid this therapy company way too much money, based on salary guidelines. Mr. Shays. I'm not clear on that. I'm not clear. There has to be some limit that they can't charge. A certain amount per hour, a certain amount per episode; something. Ms. Aronovitz. I know you seem surprised. We were very surprised also. But, in fact, when you have a therapy company which is billing directly to Medicare, it would get what is considered to be their reasonable cost. And if it could show that these were its reasonable costs, whatever these costs are, it would get those reimbursed. Or if it was reimbursed by a nursing home for speech or occupational therapy, it could actually bill the nursing home-- we found some examples where they could bill the nursing home for $100 a unit, and that would go into the nursing home's cost report. Now, another complication--and I certainly don't mean to overcomplicate this more than it already is--but there is no real good definition of what a unit of billing is either. Typically, or in the industry lingo, a unit could be 15 minutes. So if you're billing $100 to a nursing home for a unit of service, that's $400 for an hour. If there is no salary guideline, which there is not for speech or occupational-- although HCFA is in the process of trying to establish those guidelines--then the nursing home reimburses you. The nursing home could reimburse you $400 for an hour, and it has an incentive to do that, because it goes in their cost report and ultimately it would get paid a certain amount of administrative reimbursement for having paid the therapy company and put it in its cost report. So it has an incentive to let the therapy company charge it whatever the therapy company wants to. Mr. Shays. In a rational world, particularly in a business environment, this would be an absurdity. Ms. Aronovitz. We think it borders on absurdity, in certain cases. Mr. Shays. No, it is an absurdity. I look at this, and I realize that we may--because Lord knows we do it--have mandated nursing homes do certain things and certain services, and all these services are important services. But to see, in a period of about 6 years, a 646 percent increase in--that's utilization. Ms. Aronovitz. That's correct. Mr. Shays. For physical therapy. A 1,270 percent increase in occupational therapy--excuse me, in speech therapy. And a 1,968 percent increase in occupational therapy, for the last one. It just boggles the mind. Ms. Aronovitz. That's correct. It is outrageous. I should say one thing, though, and that is that this chart does show charges. In all due respect, we can't determine for sure that all the amounts, the complete amount that was billed was actually paid. However, in most cases, you have to wait for the cost report and get audited later on, and most of that would get paid. Mr. Shays. But the issue is, the billings went up by those percentages. Ms. Aronovitz. Exactly. Mr. Shays. It's an example of, you give people what they pay for, not what they need. Ms. Aronovitz. Exactly. I think this is a clear indication that people realized that this was a benefit, that this was a way to really take advantage of the Medicare program. Mr. Shays. Let me back up and say, I have no trouble whatsoever arguing that Medicaid for health care for the poor be managed care, because my view is that most of the recipients didn't pay into the tax stream, but they are getting a benefit which they are not forced to take, which they would be fools not to take. So I feel very comfortable mandating managed care, frankly, for the poor. I have argued in my own mind that managed care for the elderly in Medicare should be discretionary, given that they put into a fund. But I would also probably have to admit that some of it is political, as well. They have argued they put into the fund for all these years, they also are primary taxpayers, as well, so they can make that argument. But I have made it optional, in the work that I was doing 2 years ago, but believe that, ultimately, managed care, because of all the waste and the fraud and the games in the system, could actually capture a lot of volunteers under managed care. They could promise eye care, dental care, pay the entire premium, pay the co-payment, and do a lot of things that say you would be foolish not to consider them. And then we would let them go out, if they didn't like the system. But what I'm wondering is, what kind of mechanism could you have for Medicaid-paid nursing care cost? What would be the mechanism for having managed care in a nursing home? Just basically saying, you get a lump sum, and whatever you save, you save; whatever your costs are, so be it. Ms. Aronovitz. Actually, George, you might want to address the whole idea of PPS, because that's getting at that exactly, but not per episode, but for per diem. Mr. Shays. I'm not talking Medicare; I'm talking Medicaid. Mr. Grob. Yes, and I think that's a point well worth making. The administration has now proposed a prospective payment system. Mr. Shays. I'm going to have you speak a little more slowly. Mr. Grob. OK. Mr. Shays. Some of this, you know, you're using acronyms, and so on, and I'm just a little behind here. Mr. Grob. The administration has proposed to adopt a prospective payment system for the Medicare Part A nursing homes. Some of us believe that it would be equally reasonable to use a system like that for all Medicaid stays, as well. Some States already have prospective payment systems. Now, the prospective payment system is perhaps the nursing home version of what you're talking about. You would pay so much for the patient to stay or so much per day, a simple flat rate. There are various ways to construct it. And it could depend upon the patient's condition, for example, if you could structure a way to classify the patient's needs. So there are a lot of details to work out about it, but still you could make a simple payment, basically, rather than having many different billings. Mr. Shays. Could you have an insurance company basically assume the responsibility and manage the health of individuals, and then place them in nursing homes and negotiate, with the nursing home, fees? Mr. Grob. To be honest with you, I haven't thought my way through the relationships with the insurance companies. I know that the long-term care insurance business has not come to be the protection that everyone wished that it would be, perhaps because it's so discretionary. Mr. Shays. Help me sort out how we can combine under one-- my simple view is, basically, Medicare is a Federal program; Medicaid is a partnership, federally matched. But I keep in my office the big yellow manual, which, ultimately, we wanted to dump in a waste paper basket. One of the more exciting parts of what we did 2 years ago was to get people in the health field, and we'd say, we want to slow the growth of Medicare and Medicaid from 10 to 7 percent, and they'd say, you can't do it. We'd say, why not? And they would tell us all these reasons why, and basically, they were Federal rules and regulations. Then we'd say, we're not going to do that. And they would look at us, what do you mean? What right do you have to say we're not going to do it? And we'd say, well, we're Congress, and we're going to change the law; we're going to change the law governing the regulations. Then we'd say, what happens if we do this? They would say, we can't do this because of this. And finally, we couldn't get in their minds that we were going to literally take this yellow book and dump it in the waste paper basket. But if we could, we would allow so much flexibility. I don't think the Federal Government has the ability to properly regulate. And it's not disrespect toward the Federal Government, or HCFA, or whomever; it's that we can't keep up with the times. We basically have a floor that becomes a ceiling. This ``one-size-fits-all'' particularly bothers me. We want to keep it simple. If we keep it simple, frankly, there are more ways to ``game'' the system, in some ways. In complexity you can hide yourself, but the simplicity means that you can do certain things because you haven't put rules and regulations that say you can't. So, you make it too complex, people will hide in the system; you make it too simple, there are 100 different ways to abuse it. So either way, people can abuse it. And that's why I begin to think that maybe we shouldn't be in the business, and we should let the private sector sort it out and just give them lump sums. Now, do you think it is possible to write the laws in a way that simplifies and reduces the abuses? If so, tell me the biggest area--sorry, I've taken a long time to come to this question--tell me the biggest payback, the least difficult thing to do with the biggest payback, the least difficult change with the biggest payback. Mr. Grob. In the nursing home area? Mr. Shays. Yes. Mr. Grob. I do believe that it would be some kind of a flat payment or prospective payment system. For people in nursing homes, that would capture as many as possible of the services into one payment. Mr. Shays. Including Medicare services? Mr. Grob. Yes. Ms. Aronovitz. Especially Medicare services. Mr. Shays. Especially. Mr. Grob. Medicare Part B services. Some of those could not be. The professional services, like physician services, you know, someone needs heart surgery, you're not going to put that in the nursing home payment. But the nonprofessional services, as many of those as possible, to put in that flat payment. And those that you just couldn't tolerate that even, I would use the consolidated billing as the way to try to exercise some control over it. Ms. Aronovitz. At least, if you use consolidated billing, there would be one entity, which would be the nursing home itself, that would be responsible for overseeing all the services that were ordered and delivered for a particular patient in that facility. Right now, because you could bill directly for Medicare ancillary services under Part B, very often the nursing home should but doesn't, or claims it doesn't, or it, in fact, doesn't know all the services that are being provided. Now, there are quite a few nursing homes in this country which do a wonderful job at becoming very involved with the needs and the services provided to their nursing home residents. This is not an outrageous request that nursing homes do this. It's done every day, and it's done very well. We think that there needs to be some accountability in one place, so that therapy companies know, and the nursing home would say to a therapy company, I'm sorry, you can't bill $400 for this therapy. This person doesn't even need it; we didn't ask for it, and so on. Mr. Shays. My best sources for abuses in the medical profession are from nurses, male and female nurses who tend to be paid on an hourly rate, and who will describe various services that are provided that they just feel are an absolute outrage. We know we've got a big problem. I'm wondering if staff, on either side, has a question. Do you have any questions? Ms. Sayer. Yes, I wanted to ask a question. Mr. Shays. Identify your name, please. Ms. Sayer. Marcia Sayer. I want to ask a question on the consolidated billing that you've talked about, and you've indicated that it is a possible solution. If the industry takes the position that, indeed, consolidated billing is good but they would need some additional revenues or reimbursement in order to take on this additional responsibility, what would be your reaction to that? Are they already reimbursed for that function? Would they need additional resources in order to take on the consolidated billing concept? Ms. Aronovitz. When the nursing home provides or coordinates or conducts a plan of care, and makes sure that it knows all the services that are needed on behalf of a resident, it needs to update that plan of care every 3 months and reflect that in the plan of care. It is very involved on the quality side already. Admittedly, nursing facilities are not as involved right now in monitoring all the services from outside entities, and they don't do the billing for these entities. So there is a little bit more work there. We believe that it would not be an inordinate cost, although we haven't studied it in depth, and we need to study it more. But any type of administrative services or administrative costs that are involved with patient care can be put into the cost report. So if we're talking about very efficient nursing homes that are currently under the Medicare ceiling on their cost reports, they will be able to add those costs to their cost report and get reimbursed for it. It's really the less efficient nursing homes that are at or above the Medicare ceiling, that would be hurt. Congress has tried very hard to encourage nursing homes to become more efficient, and this would be along those lines. Mr. Grob. Also, in that sense, I believe that it's conceivable that the nursing homes would need to cover that cost of billing, but, of course, there are economies in the billing process in a nursing home. I would like to point out, as well, that by having those services bundled in a nursing home, I believe the nursing home might well be looking for opportunities to gain the economies and the efficiencies in the procurement of the services. We did a study where we looked at enteral nutrition, for example, and we found that nursing homes that bulk purchased the enteral nutrition for the patients, that Medicare was paying 40 percent more for the enteral nutrition under Part B than was being paid for by the nursing homes that were bulk purchasing it for the patients. So we think there's lots of room in there to economize, and that the forces of economy would come into play to perhaps offset some of those administrative costs. Mr. Shays. We have a vote now. If we only have one vote, then we will start in about 15 minutes with the next panel. I have a few minutes more. I'm just interested to know if there is any question you wished had been asked, that we should have asked you, something that you feel needs to be put on the table? Mr. Grob. Mr. Shays, if I could mention one thing. Mr. Shays. Sure. Mr. Grob. I'll try to be very brief about it. Mr. Shays. Let me also say, if there was any question we asked the previous witnesses that you wished we had asked you. Mr. Grob. Could I take the opportunity to elaborate slightly on the earlier question about the kind of reform that would be needed? Mr. Shays. Yes. Mr. Grob. Considering those extra payments under Medicare Part B, if you could briefly think of them this way. Get in your mind a kind of continuum here. On the one end, think of things that everyone would think of as things that should be part of the daily rate. Nutrition might be a good example, the pole, whatever, it's part of going to the nursing home, nutrition, wound care. At the other end of it, put heart surgery, physician payment. Clearly, we would not want to include the heart surgery in the nursing home payment. Many people would think that the nutrition should be in. You could run the gamut, and you would find things in the middle. Let me give an example: mental health care, psychotherapy services, group counseling, whatever, some of those therapies. I think that honest people would disagree where to draw those lines. So I see three categories: The first category are things that obviously belong to the daily stay; they just belong to going to a nursing home. Then there are things you clearly would exclude. Then the things that are in the middle, and I think it's probably just a process of people coming to an agreement, perhaps even an arbitrary one, that would be the subject of the consolidated billing. So perhaps that will help explain the categories that we're talking about here. I hope that helps. Mr. Shays. OK. Thank you very much. Do you have any last comment? Ms. Aronovitz. There are probably two things that are worth mentioning, and they are probably not the most critical, but they certainly would help with these problems. One of them has to do with something that--and the legislation has already passed, in the Health Portability and Accountability Act, and that's making sure that EOMBs, explanations of Medicare benefits, go to beneficiaries for every service, not just ones where there's a co-payment or a deductible involved. I think that will help a lot in just making sure that the families, to the extent that they get these, are aware of the services that are being provided. One other thing that was very frustrating for us and has continued to be is that it's very hard to get a handle, with HCFA data, on the services or the money spent on behalf of nursing home recipients, because nursing homes are not a unit a analysis. Mr. Shays. Yes, I hear you. Ms. Aronovitz. In other words, the place of service block on the Medicare form is either unreliable or incomplete. And the reason for that is, it's not a billing item; it's not necessary to get reimbursed. If that block could be more reliable, and if we could assure that we could do more analyses based on that, I think we'd have a chance to try to get in front of the problem. Mr. Shays. Are you suggesting, in a way, that if you were in a nursing home, being billed by Medicare, that the bill might have to go to the nursing home? I'm just wondering why you couldn't do it that way. In other words, what I'm hearing you saying is, if my mother were in a nursing home, she would be billed as if she were living in my house. Ms. Aronovitz. Right. Very often, it's impossible to tell whether your mother is in a nursing home or not. Mr. Shays. Which tells me you don't even know the problem then. Ms. Aronovitz. We don't know the extent of the problem, especially on the Part B side. Mr. Shays. You don't even begin to know it. Ms. Aronovitz. That's correct. Mr. Shays. How would you know it? Ms. Aronovitz. That's correct. Mr. Shays. I'm really happy you made that point. Mr. Grob. Mr. Shays, the $4 billion on our chart there for Part B, we had to conduct a random sample of cases and go backward and get the data. It took quite a bit of work to find that number. Mr. Shays. This begs a lot more questions. I've never missed a vote yet, and I have 4 minutes left. So I'm going recess, and we're going to take the next panel. Thank you. And I would like staff to followup on just this whole point. Thank you. We will be about 15, 20 minutes. [Recess.] Mr. Shays. I call this hearing to order and thank our third panel: Paul Willging and Suzanne Weiss. Paul Willging is executive vice president of American Health Care Association, and Suzanne Weiss is vice president and counsel, Public Policy, American Association of Homes and Services for the Aging. Thank you for remaining standing. I will swear you in, if you would raise your right hand. [Witnesses sworn.] Mr. Shays. Let me say that one of the disadvantages of the third panel is, you have to be here from the beginning, in some cases. But the advantage is that you can hear the questions and you have comments. So you get the last word, which is an advantage. So I would welcome you to deliver your testimony, part of your testimony--certainly, you've been here, and you deserve to be able to do that--but also welcome you to just comment on what you've heard. You can ask yourself the questions that we asked and answer them, if they are questions you want to answer. We will start with you, Mr. Willging. STATEMENTS OF PAUL WILLGING, EXECUTIVE VICE PRESIDENT, AMERICAN HEALTH CARE ASSOCIATION; AND SUZANNE WEISS, VICE PRESIDENT AND COUNSEL, PUBLIC POLICY, AMERICAN ASSOCIATION OF HOMES AND SERVICES FOR THE AGING Mr. Willging. Thank you, Mr. Chairman. I thought our being last was more a reference to Biblical studies and the wedding feast at Cana, the best wine was saved until last. Mr. Shays. This is true. Mr. Willging. So I have no problem whatsoever with that. Mr. Shays. And the first shall be last. Mr. Willging. I actually am pleased to be here, pleased for a variety of reasons. One of them is that we share a common goal, which is the eradication of fraud and abuse, either in America's nursing homes or on the part of those who provide services to America's nursing homes. That mission becomes even more critical when one deals with a population that's frail. Mr. Shays. I have to give fair advertising here. I misrepresented. I said you'd get the last word, but I will say to you--I'm sorry to interrupt--but anyone from the first and second panel who stayed will be able to have some dialog with you, as well. I'm going to let you start over, but I just want to say that you can say whatever you want. I'm going to stay as long as it takes, but I will also invite anyone who stayed, if they want to, just at the end, dialog, have a little question and a good exchange. I'm sorry to interrupt you. Mr. Willging. You might find that fairly dull, though, because this may surprise you, Mr. Chairman, as it turns out we probably agree with a great number of the solutions that the previous panels have put on the table. Mr. Shays. Right. Mr. Willging. I've been in Washington some 30 years, and I'm not sure I've ever agreed with the Inspector General's Office before. But this time I can't disagree with most of their proposals. As I said in my initial comment, it is because I think we share a common goal, which is the eradication of fraud and abuse. And I think we probably share a zero-tolerance level, as far as fraud and abuse are concerned. I understood, from your opening statement, Mr. Chairman, that we may agree on a third point, which is, let us make sure we know what is fraud and abuse and what is simply confusion. You referred to the labyrinth of confusing, sometimes conflicting, Federal and State regulations. I think we want to make sure that we apply the harshest possible penalties to those who are truly defrauding the programs, and engage the ultimate in education for those who are simply confused. And I didn't sense any disagreement there either. I think the key is, what do we want to do about the problems? I don't feel the necessity today to quibble about whether it's a huge problem, a minor problem. If we're both at zero-tolerance, it really doesn't make any difference how big it is. How do we get rid of it, is the critical issue. It was interesting, as I suggested, to hear much of what was proposed by some of the previous panels. We, as an industry, as an association representing 70 percent of all nursing facilities in the country, essentially, we're in lock step, as far as those solutions are concerned. What I would like to suggest, in just the couple of minutes I want to take in my opening comments, however, is whether the solutions should be focused on the symptoms of the problem or whether we ought to try to get a sense of what the underlying root causes are. As it turns out, we support consolidated billing. We certainly support consolidated billing for the Part B services provided to Part A patients. That has been a long part of our congressional testimony over the years. Mr. Shays. Would you define ``consolidated billing,'' as you understand it? Mr. Willging. Essentially, as you have heard from some of the preceding panelists, for Part B services, the vendor of the service can bill, under certain circumstances, the Medicare program directly. That bill may never be seen at the facility. Mr. Shays. Right. Mr. Willging. One of the reasons I think we have to look carefully. Mr. Shays. OK. Keep defining the consolidated billing. Mr. Willging. Consolidated billing essentially means that the bills go through, are consolidated at the point of the facility itself. In other words, the therapy company, the pharmacy company, everything goes through the facility. Mr. Shays. Everything goes through. Mr. Willging. Now, there are different ways of managing that. One can, in effect, say only the facility may actually bill, and they are ultimately responsible. One can say simply that they have to flow through the facility, so that the facility is familiar with what's being billed. And the devil is in the details, obviously. Mr. Shays. Yes. Mr. Willging. But the concept is an important one. The reason the concept is important, back in 1987, this Congress enacted the Nursing Home Reform Law. That law made it unequivocally clear that it was the nursing facility responsible for the totality of services provided to the residents in that facility. Mr. Shays. And that was 1987? Mr. Willging. That was 1987, in the Omnibus Budget Reconciliation Act of 1987, a major provision, a watershed provision for our industry, which, in effect, said, we bear, ultimately, the responsibility for the services. You can't blame it on all those other suppliers; the nursing home is responsible. If we are responsible, then perhaps we ought to see who is billing under that area of responsibility. But that's just an immediate and, I think, an interim step. You don't even have to worry about consolidated billing if you take the next step, which was referenced by at least two or three panelists, prospective reimbursement. Why do we want to have multiple bills and multiple payments for what is essentially one service? We should have one bill and one payment. Now, the big debate: Should we do it on a per diem basis, or should we do it on an episodic basis? We actually prefer an episodic basis, but nobody has yet been able to figure out exactly how you do that. It's analogous to the DRG program in hospitals, but it was much easier to group patients in the hospital setting. It becomes very difficult to do it in the nursing facility setting. But we still support that. If you have prospective reimbursement, a lot of these issues we've been talking about fall by the wayside; they really do. If you have a price which accurately reflects what the payor, be it Medicare or Medicaid, should be paying for that service, and you have at the same time the regulations-- and we would not propose eliminating all regulations. The regulation that says we are responsible, as an industry, to maintain the highest practicable level of physical, mental, and psychosocial wellbeing, that provides a balance. It keeps us from taking that single payment for a service and trying to skim, because we have this other requirement that says we have to provide the highest practicable. So I think prospective reimbursement takes care of a lot of the problems. But here's where I really want to color outside the lines. It doesn't take care of the problem. Mr. Shays. You want to what? I'm sorry. Mr. Willging. Color outside the lines. It's one of these cliches I throw out every so often. Be innovative. Mr. Shays. Where did you grow up? Mr. Willging. I grew up in St. Paul, MN. Mr. Shays. OK. Mr. Willging. I had hoped to grow up in Connecticut, but, unfortunately, my parents weren't there at the time. None of what we've talked about really deals with the issue of Medicare and Medicaid, and the potential for ``gaming.'' And everyone games. States game; the Federal Government games. Do providers game? Of course not. But, hypothetically, I'll say we do. How do you deal with that? Well, if the problem is we're not coordinating effectively, why don't we coordinate effectively? And here's where I'm going to be a little bit off the wall. The long-term care part of Medicaid, Mr. Chairman, was never intended, by the enactors of that bill, Title XIX. They thought that Medicaid was going to be basically acute care and ambulatory services for the traditional welfare population, the AFDC population. Nobody thought a whole new program was going to grow up within the program, which was elder care in nursing facilities. Mr. Shays. I'm a very impressionable person, and I will say this to someone else, and they will say I'm crazy. So you have to be very careful what you're telling me. You're saying to me that nursing care was never part of the original Medicaid bill? Mr. Willging. I'm saying that the growth, the size that nursing home care became was never envisioned by those who enacted it. Mr. Shays. We didn't envision any of the health care programs to be that size. So I don't know why that would be any more significant with nursing homes. Mr. Willging. Because of something called ``spend-down,'' Mr. Chairman. There is a provision in Medicaid that is referred to as ``spend-down.'' Mr. Shays. OK. Right. Yes. Mr. Willging. That is, if you deplete all of your resources, and essentially you have no resources, assets, or income, you are then deemed to have spent down to Medicaid eligibility. And basically, the vast majority of those people on Medicaid in nursing facility are not your traditional welfare population. They are, as I put it, mom and dad; my mom, your dad. These are taxpaying, middle class, American citizens who, except for the unfortunate circumstance of having gotten old, having gotten sick, had to pay so much in bills to nursing home care that they spent down to eligibility. Mr. Shays. I understand that issue. Mr. Willging. That, I don't think, was ever envisioned, the growth, the size. So what we have here is, at the State level, run by 50-some separate jurisdictions, a program for elder care which almost begs to be controversial when it comes up against Medicare, the other major program designed for the elderly. What we are suggesting is, pull them both together. Give the welfare part of Medicaid to the States, lock, stock, and little green apples--it ties into the devolution of responsibility this Congress had already enacted as far as the welfare program is concerned--and coordinate. And do it all in a budget neutral fashion. I think it can be done. Bring the elder care part of Medicaid, nursing homes being primary, up to the Federal level, where you can, finally, with one basic program, coordinate these two funding streams. At the same time, I would certainly take your suggestion, move as much of that out into the marketplace as you can, and let the marketplace do a lot of the regulating. Mr. Shays. What's interesting is, you are going totally contrary to the trend of Congress last year. I mean, we were going to have Medicaid be a block grant to States, and we were looking to give the States a lot more flexibility. You are saying the component that is health care for the poor stay with the States, and nursing care for the elderly come to the Federal Government. Mr. Willging. Because you already have, at the Federal level, the two major support mechanisms for the elderly: Social Security and Medicare. Mr. Shays. That's interesting. I'd like to think about that. Mr. Willging. It will ultimately resolve all the issues we've talked about, in terms of these conflicts between the Medicare and the Medicaid programs. Mr. Shays. It's interesting. Mr. Willging. And I think it can be done in a budget neutral fashion. You've got to do some switching and swapping, obviously. Mr. Shays. It's very provocative. Mr. Willging. Well, that's the point at which I will then close my testimony. [The prepared statement of Mr. Willging follows:] [GRAPHIC] [TIFF OMITTED] T1071.063 [GRAPHIC] [TIFF OMITTED] T1071.064 [GRAPHIC] [TIFF OMITTED] T1071.065 [GRAPHIC] [TIFF OMITTED] T1071.066 [GRAPHIC] [TIFF OMITTED] T1071.067 [GRAPHIC] [TIFF OMITTED] T1071.068 [GRAPHIC] [TIFF OMITTED] T1071.069 [GRAPHIC] [TIFF OMITTED] T1071.070 Mr. Shays. I thought you said you were going to be boring. Mr. Willging. Only in the sense that I'm not going to be disagreeing a lot with my colleagues from the GAO or the Inspector General's Office. Mr. Shays. You're just trying to set a good example for Congress. Ms. Weiss. Ms. Weiss. Thank you, sir. May I begin, Mr. Chairman, by clarifying some of the remarks and some of the questions that came up a little earlier? Mr. Shays. Sure. Ms. Weiss. I would specifically like to address an issue raised by Mr. Towns, and that is the issue of confidentiality of records. He is absolutely correct about that. Mr. Shays. Could I just--just so I have it--define to me how you both have similar responsibilities and different responsibilities. Do you represent certain nursing home associations? Where is your perspective? Ms. Weiss. Our perspective is from a continuum of care, Mr. Chairman. We represent only 501(c)(3) organizations. They must be not-for-profit. They represent freestanding nursing facilities, retirement communities, senior housing or apartments, assisted living, and home and community-based services. Mr. Shays. And you tend to have a smaller constituency. Do you sometimes have the same organizations? Mr. Willging. We sometimes even have the same members, Mr. Chairman. Mr. Shays. That's what I meant. Mr. Willging. What the American Association of Homes and Services for the Aging does is, indeed, the entire continuum, including housing. Mr. Shays. I've got it. Mr. Willging. Total non-health care. We do not represent any housing. We do represent the entire array of facility-based long-term care: subacute, assisted living, and nursing facilities. Mr. Shays. You have nursing facilities, but you have other activities, as well. Ms. Weiss. That's correct. Mr. Shays. Thank you. Ms. Weiss. May I just address Mr. Towns' remark on the confidentiality of records? Mr. Shays. Sure. Ms. Weiss. We want to emphasize that he is correct, that nobody should have access to resident records in a nursing facility except bona fide clinicians who need to see that record for the purpose of treatment planning. I am unaware that our members are making those records available to vendors so that they can copy beneficiary numbers and use those for fraudulent purposes. But we will caution our members again and try to alleviate some of his concern. The other question I wanted to address is the issue of dual eligibles and the interaction between Medicaid and Medicare. I think a lot of the people from the first panel described that as ``legal but ridiculous.'' I'm not sure it's legal. I think the tendency there was to equate the term ``legal'' or ``illegal'' with ``criminal.'' It is against the regulations to be paid from both sources. Medicaid is always the last payment resort, always the last, which means there can only be one that's the last. So what they should do, and what many States do, is to first look at the Medicaid coverage. Some States cover it very differently. Wisconsin, for instance, takes the therapies out of the Medicaid rate, and they are always billed separately. New York combines therapies in their Medicaid rate. Texas combines it in their Medicaid rate. So what should happen is that, if Medicare Part B is paying for that therapy, there should be some kind of carve-out from that Medicaid payment that represents that payment was made from another source. In the case of Wisconsin, for instance, where they have separate billing for therapies, then it's not an issue, because Medicaid wouldn't be paying for that anyway, within the daily rate. So there is not a criminal penalty for that kind of thing, but there is a source of recovery. And the problem, probably, is that when you do a Part B payment, billing for these therapies, and so on, to Medicare, what you're dealing with is Medicare carriers, the contractors who pay those claims on behalf of Medicare. They often cover claims from a several-State area, and it's very doubtful that they would understand how every State Medicaid system is set up to cover therapy costs. So they probably pay it, not realizing that the therapies may be in that Medicaid rate. So that would be the issue to be concerned with there. All right. The other thing I would like to talk a little bit about is the consolidated billing issue that wasn't raised. You asked if it would require added reimbursement on the part of providers. I think the GAO's response was that they hadn't really studied the issue, but there would be tradeoffs, and so on. We haven't done an exhaustive study either, but we did call some of our members who do Part B billing now, on a voluntary basis. What they told us is, eventually, over a long period of time, you can recover those costs in many ways. There are benefits. But the startup costs are enormous for this kind of thing. If you've got the volume so that you do Medicare Part B billing, consolidated billing, in your facility, you have a dedicated staff member who does nothing for a living but Part B billing. A miserable life, but some people choose to have it. OK. The other thing is that you need a computer system to do that, and it's not the same system that you use to check your census data every day, which separates Medicaid billings, Medicare billings, private pay billings. So that's a separate, parallel system. You also need training. We've been talking about how badly the therapists handle their billing when they do it themselves, well that's because it's very complicated. So all those things together mean resources. And they may not mean resources for 20 years, but they are going to need resources initially. That said, I would like to move on to a point that I don't think has been made in front of the committee today, Mr. Chairman, and that is the issue of what we fear is the looming conflict between nursing home regulatory provisions and the False Claims Act. The False Claims Act is part of the Medicare fraud and abuse regulatory scheme. It's probably the oldest part. It goes way back to the Civil War, when suppliers were giving rotten food and blind mules and ammunition made with sawdust to the Union Army. And they passed this law so that they could go after those suppliers. That has carried forward to this day and is now a major component of the Fraud and Abuse Act. I'm surprised that so far nobody on these panels has mentioned a nursing home case that we call ``Geri-Med,'' the official name being U.S. v. GMS Management and Tucker House. Mr. Chairman, that was a terrible, terrible nursing home situation, in 1996. What it involved was residents who had gotten such poor nutrition in the nursing home that they developed decubitus ulcers, the video of which made people leave the room. It was a very bad situation. Somehow that was not picked up in the normal regulatory scheme. So what happened is that the Inspector General took that case and applied the False Claims Act in a way that it had never been applied before. What they said was--the argument went like this: We gave you a certain amount of money--this being Medicaid--to provide care to this resident. The condition of this resident shows that you could not have used the money that way. Therefore, submitting the claim for reimbursement was a false claim. The case never went to court, so we don't know if it's a good theory, it's a bad theory, or whatever, but it was an impressive enough theory and threat to the facility that the case was settled the day the complaint was filed, for $600,000. Now, that's a penalty facilities almost never would see under the normal survey and certification process. Mr. Shays. Was she one of many patients? Ms. Weiss. It was a ``he,'' and he was one of three patients who were in that condition. There were three named in the complaint. That's correct. All right. Nobody in our field, whether this is a good theory or not, nobody in our field would ever attempt to defend or even explain the facts of Geri-Med. It just should never have happened. Those residents, the bottom line is, they didn't get what they needed. OK. At the other side of the extreme, the other extreme case, we have been informed by the OIG's fraud alerts and other anecdotes that we have occupational therapists now in facilities, giving OT to comatose residents; the other extreme, another false claim unnecessary service, and something we don't condone. But what we see happening is that between these two extremes there is a vast difference and a vast middle ground where things are not as clear as they were in these cases. In thinking this through, we have to remember what Mr. Willging said, that nursing homes are the only entities that, as a matter of law, are mandated to guarantee certain outcomes. As he said, those outcomes are lumped together, collectively, under the highest practicable level of care for each resident. In effect, the highest practicable level is a ``failure to thrive'' standard for the nursing home population, the vast majority of whom are over 80, with multiple chronic conditions. The term ``failure to thrive,'' too, is very differently applied and very newly applied in long-term care. This is what we use in the criminal law to look at child abuse, that standard. We look at what the measurements are for a normal child developing at a certain stage. We look at the child before us, and we see if that child has unexplainable failures to reach the averages. We aren't sure what this standard yet means, in terms of nursing home residents, and HCFA is very ready to admit that. We won't know, in terms of benchmarks, for several years. But because of this standard, even before we have benchmarks, nursing homes are required to work as aggressively as possible to assure improvement whenever possible, not the status quo. That is not enough. We have to keep trying until we go as far as we can to get improvement. The irony of this to us is that, in the current fraud and abuse climate, the harder we work to meet that standard, and the closer we get to the goal, the more likely it is that some of these services are going to be considered unnecessary. So, from our point of view, the world looks like this now: If we're bad, that's fraud. If we're really good, that's fraud. So the most practicable standard for us is mediocre, and then we will surely be cited for noncompliance by the State licensure agency, and we should be, because that means that we didn't live with OBRA. That's not what OBRA is about, and frankly, that's not what we are about. Mr. Shays. Well, it is interesting. I mean, I think that's a very interesting analysis. But I was thinking, before you were talking about this, we want nursing care patients to be getting very good health care. Ms. Weiss. Right. Mr. Shays. I'm just thinking, do we want it to be fair, do we want it to be good, or do we want it to be excellent. I'm not sure. In my judgment, it would be good to excellent, somewhere in that range. But we don't want it to be fair. Ms. Weiss. Right. Mr. Shays. And I realize we would have to define that. But kids in school, I mean, we have two different standards. For kids under special education, they have to get ``the best.'' And the best may mean that you take in special ed someone out of a school system and send them 300 miles away to get ``the best.'' But we don't mandate ``the best'' for the vast majority of students there, because ``the best'' would be unaffordable. So we're not saying ``the best.'' If we are, then we have created a circumstance that we would go bankrupt. Ms. Weiss. And some people feel that that's where we're going, and that's one of the problems. Think of it in terms of the regulatory structure. HCFA's standards area is saying ``the best,'' that's what the law says. The payment agency is saying, ``the best,'' but we can't pay for it or we will be bankrupt. Mr. Shays. Right. Ms. Weiss. And the IG's Office is saying, ``the best,'' and maybe it's a crime. I mean, literally, that's where we find ourselves. Mr. Shays. ``The best'' may be having a nurse in every room. It can get carried away. Reading to the patient. Your point is valid. I'm not discounting your point. I'm just thinking that we have to look at that. As I was saying that, I was thinking, ``My God, I hope there's not a reporter here saying I don't want the best care for people in nursing homes.'' Ms. Weiss. The problem is, we all want the best care, because someday it's going to be our parent. But the problem is how we accomplish that within the resources we have available. Mr. Shays. I would want very good health care for my mother. And to me that would be very good. And I would want it for me. Mr. Willging. If I could, in one of the previous panels, Suzanne, there was a suggestion that there was something perhaps ``iffy'' about the provision of occupational therapy to Alzheimer's patients. Well, I suggest, Mr. Chairman, if you had the head of the Alzheimer's Association here, they would demand that same kind of highest practicable care. It is a definitional issue. Unfortunately, this word in the law, and it is in the Nursing Home Reform provisions of OBRA 1987, it does say our responsibility is to bring the resident up to and maintain the resident at--and I'm quoting exactly from the law--the highest practicable level. Mr. Shays. No, you left out ``practical.'' ``Practical'' is good. I like that. Mr. Willging. And that's what they haven't defined yet. That is our dilemma. Mr. Shays. OK. But, no, that satisfies me. I want the highest practical, most excellent care we can give. Mr. Willging. And we would all like to be able to define it before it gets to the courts, I suspect. Mr. Shays. Right. Yes. Ms. Weiss. May I just build on his reference to the Alzheimer's case, Mr. Chairman? Mr. Shays. Yes. Ms. Weiss. That is quite real. What you heard today is actually, we fear, becoming Government payment policy. Today, one of our members in Oregon is meeting with a fiscal intermediary, the contractor that pays Medicare Part A claims, because that fiscal intermediary has said to that member that Medicare should no longer be paying for any therapies for people with Alzheimer's. What that is going to result in is people who could be up and on their own, are people bedfast, with contractures, limbs that have contorted from lack of exercise, feeding tubes, and, at worst, pressure sores. We will be right back to the Geri-Med case. Mr. Shays. Right. I hear you. Ms. Weiss. Thank you, Mr. Chairman. We really look forward to working with you. [The prepared statement of Ms. Weiss follows:] [GRAPHIC] [TIFF OMITTED] T1071.071 [GRAPHIC] [TIFF OMITTED] T1071.072 [GRAPHIC] [TIFF OMITTED] T1071.073 [GRAPHIC] [TIFF OMITTED] T1071.074 [GRAPHIC] [TIFF OMITTED] T1071.075 [GRAPHIC] [TIFF OMITTED] T1071.076 [GRAPHIC] [TIFF OMITTED] T1071.077 [GRAPHIC] [TIFF OMITTED] T1071.078 [GRAPHIC] [TIFF OMITTED] T1071.079 [GRAPHIC] [TIFF OMITTED] T1071.080 [GRAPHIC] [TIFF OMITTED] T1071.081 [GRAPHIC] [TIFF OMITTED] T1071.082 [GRAPHIC] [TIFF OMITTED] T1071.083 [GRAPHIC] [TIFF OMITTED] T1071.084 Mr. Shays. Well, you will have a chance at that. Do you want to just speak directly to it now? I would be happy to have you, if you want to make a comment. Mr. Grob. If I could. Mr. Shays. Just state, for the recorder, your name again. Mr. Grob. Mr. Chairman, just to address the concerns. Mr. Shays. No, for the record, since you're joining the panel, your name. Mr. Grob. It's George Grob, and I'm with the Office of Inspector General. I just would like to address some of the concerns that were raised here about the Office of Inspector General. I think that any police force, in any place, can be abused. And I think it is incumbent upon all the people who govern that in the country to be very wary of that ever happening. I think that if we did reach a situation where the Inspector General's Office was bringing cases against people for providing legitimate services, I think that everyone should, in fact, make sure, through the political process or whatever, that that doesn't happen. I certainly hope that we're not there right now. I think the cases that were brought up were rather extreme. In the case of Tucker House, as I understand it--and I hope you will correct me here, if I'm wrong about the detail--criminal charges were brought by the State against that nursing home. Mr. Shays. Which nursing home are we talking about? Mr. Grob. The Tucker House nursing home that was mentioned. Mr. Shays. Right. Mr. Grob. I believe several people died there as a result of malnutrition. Mr. Shays. But I don't think your testimony was that there shouldn't have been this case. Ms. Weiss. No. Mr. Shays. No. I don't think she was--correct me if I'm wrong, but, Ms. Weiss, I think you were just giving us a spectrum on the kinds of cases. Ms. Weiss. That's correct. Mr. Grob. I think the concern was that there was a creative use of an authority here to deal with that, and probably properly used in this case. Mr. Shays. And that's the point. In this case, properly, but just think, that could be carried to an extreme. Mr. Grob. It could be. Mr. Shays. Correct? Is that your point? Ms. Weiss. That's correct. Mr. Shays. In this case, you weren't making that claim? Ms. Weiss. No. Mr. Shays. Yes. Mr. Grob. Again, I just wanted to emphasize that it was a pretty extreme case, and that doesn't necessarily mean that the Inspector General's Office is out there looking for the marginal. Mr. Shays. Don't be too sensitive. I think we're doing pretty well. Mr. Grob. That's good. OK. Mr. Willging. When have I ever agreed with you this much? Mr. Grob. No. Mr. Willging. Somebody once said, when you've sold the car, get off the lot. Mr. Grob. The other one I'd like to mention had to do with the Alzheimer's patients and the therapies. The reference was to occupation therapy. I don't remember that reference. My reference, in my testimony, was to mental health services. And the reviewers that looked at those cases did not reject, out of hand, any mental health therapy for anybody with Alzheimer's. They looked at the record to see whether those particular individuals could benefit from the treatment or needed it. So, again, I would agree with you about the concern for making sure that Alzheimer's patients receive all the services they need. Ms. Weiss. And we would have no objection to individual reviews made by qualified people. My concern at this point is the fiscal intermediary's position that Medicare should not pay for any therapies, and there were no qualifications. Mr. Shays. We bring different experiences to the table, but as a State legislator, I remember there was a very old facility--it almost had the feeling of a house to it--but patients didn't have certain activities, but they loved that place. They loved being out on the porch; they loved the flowers and the lawn. But our local paper went after them because of one or two things they didn't do. And you could come and take pictures of this place and make it look a certain way, and they shut it down. I would have submitted that the people at that nursing home were far happier--they had a really family feel to it-- than some of the new ones with everything according to Government regulations, the hallways just the right size, and so on. It's a difficulty when we, in Government, just try to regulate to fit some kind of view of what we want. We don't always accomplish that. So I have a lot of sympathy for nursing home facilities, in terms of you have to not only do it right, you have to look right, as well. But I do know we have tremendous abuses, and you all know that, as well. You all know that, given the amount of money we're talking about, 10 percent, or 5 percent, whatever it is, I would just say to you, I do think that we're talking billions of dollars of problem, not millions or not even hundreds of millions. Mr. Willging. Regardless, Mr. Chairman, it should be eradicated. Mr. Shays. But, see, I'm going to go--you said ``regardless.'' No, it always should, and I think that's the view, whenever you have your legalities, and so on. But I'm just saying to you, in this one, it conks us over the head to do it quickly and to save the taxpayers a lot of money. Mr. Willging. But I think what we're also saying, and I repeat what you said, is, let's make sure we know what is a result of confusing interpretations of regulations and what is indeed fraud. And let's go after the fraud vigorously. Mr. Shays. Ms. Weiss, I will call on you in just a second. This staff is eager to work with all three panels, not just the first two. You are partners in this effort. I would defend anyone, if they said you weren't involved in this process, to say, who better to be involved than people who have to deal with it every day. What did you want to say? Ms. Weiss. The only thing I wanted to say was that I agree with Paul, that it should be zero-tolerance and that we should get it under control. Where I don't agree with him is that it doesn't matter what the source is. It does matter what the source is, because the ``fixes'' are very different, and the resources should be directed differently. If we have criminal behavior, then resources should be put there. But if we have misunderstanding and bad reimbursement policy, which is what an awful lot of this is about, then we ought to give HCFA the resources to put in a couple of GS-14s and work on this problem. They could save a lot more money by curing that problem than they would save just by cutting the HCFA staff. Mr. Shays. I have a feeling, though, we have the biggest chunk in the middle. And the biggest chunk in the middle are the people who know it's probably wrong and criminal, but it's confusing enough to give them cover. I suspect we have a large chunk right in that area. Ms. Weiss. We are providing them with a lot of loopholes that could be closed. Mr. Shays. True, true. Other comments you all want to make? Any questions that we had asked earlier? Does Colorado want to respond in any way? You have such a nice smile, I was thinking, what is he thinking? Mr. Allen. If I may, Mr. Chairman. Mr. Shays. Sure. Just state your name and title. Mr. Allen. Richard Allen, Colorado Medicaid program. Mr. Shays. We have New York here, too, if New York wants to respond. Mr. Allen. Just a few comments. In the area of the best, let's make sure we do the best, and how we ever are going to afford it, the big problem we have in long-term care is that it's financed through the Medicaid program. The Medicaid program is a welfare program. It's not an actuarially sound program at all. There is no money being put aside like you typically see in insurance, getting ready for the day where you need something like long-term care insurance, just like car insurance, or life insurance, or something like that. There is a new product on the market; it is called long- term care insurance. My department believes that that is a prudent new policy that should really be pursued by both the Federal and the State level. Several years back, there was something called asset protection, which is that if an elder bought a long-term care insurance policy, the State then would promise to protect their assets as they went through the spend- down process, or what have you. We think that was a very good model. The real thing we need to do is to get the entire long-term care industry, if you will, set up on an actuarially sound basis, which is some sort of insurance program other than the Medicaid insurance program, where we're really cutting ourselves all short, in the long run. It's only 20 years from now that many of us will, indeed, be looking at the same situation, and do you really want it to be the Medicaid program that's going to come in and pay for your care, especially with the baby boomer situation out there? The clock is ticking, and we've got a real problem. In terms of this sharing back and forth on the Medicaid program, States, you take the acute care program, and the Federal Government will take over the long-term care program, it is an intriguing idea. As a Medicaid director, I get to do long-term care and acute care, and I think it would be a wonderful bargain for the Federal Government, because the acute care side, which would remain with the State, is the larger portion of the Medicaid program right now. Mr. Shays. Let me just tell you, in my judgment, what I recall, using more of the averages, is that one-third of the patients are nursing care, and they take two-thirds of the money. And the two-thirds that are AFDC recipients under Medicaid health, they get one-third of the money. I think the national statistic is close to that. Mr. Willging. That is correct. There's no question that the smaller percentage of beneficiaries, the elderly, take the disproportionate amount, because they are in nursing facilities, to a considerable extent, and at the end of life. Mr. Shays. Exactly. I was trying to think of the reasons why we didn't think of this idea, because Congressmen are always brighter, obviously, you know, than everyone else. Why didn't we think of this idea? Mr. Willging. We, unfortunately, just were not articulate enough at the time. Mr. Shays. To make us think it was our idea. Mr. Willging. That's right. Mr. Shays. Yes. Mr. Willging. You pointed out the reason. If you don't look behind that proposal, it does appear to run against the grain, in terms of what this town--and I don't think just Republicans, Mr. Chairman--what this town has generally been moving toward, which is a devolution of more authority to the States, not something coming back up to the feds. But you make this swap. Actually, one of your colleagues on the Republican side in the Senate, Nancy Kassebaum, a former colleague, had, in effect, broached this idea, oh, 3, 4, 5 years ago. Mr. Shays. I knew it was a Member of Congress. Mr. Willging. Oh, it was. Just took me a while to think of it. Mr. Shays. Yes. Right. Well, the other reason may be, and this would be sad, but those who are on one committee, Ways and Means, or, in this case, Commerce, may not want to give that authority to Ways and Means, because it would become a Ways and Means responsibility. Mr. Willging. But for the greater good of the American people. Mr. Shays. No, I'm just being very candid with you. I'm not saying that's good; I'm just saying that this is one of the things that has been very disturbing to me. Why do you have 48 percent of all education programs only in the Department of Education, and 52 percent outside the Department of Education? The reason is, when you check it, some Member of Congress had an idea, and they put it through their committee, and they wanted their jurisdiction. I mean, the Agriculture Department has all rural housing. That's not in HUD. Don't get me started here. But, anyway, you had an intriguing idea. I will claim it as my own, if I like it, and I will go on to better things because of it. Mr. Willging. And we will give you all the credit. Mr. Shays. May I ask if anybody else has any last comment here? [No response.] Mr. Shays. If not, let me say this has been a very interesting hearing. I think you will see its impact in legislation, if not this year, sometime next year, but maybe this year. We don't begin to know what that is, but we're getting a sense of the problem. With that, I would like to thank Marcia Sayer and Jared Carpenter, on the majority side of the staff, and Ron Stroman and Ashan Detok, on the minority side, and Donna Ferguson, who was our transcriber. Thank you very much, as well. And I thank all of our witnesses. You have provided this committee a tremendous amount of helpful information. We thank you for being here. Mr. Willging. Thank you, Mr. Chairman. Mr. Shays. This meeting is closed. [Whereupon, at 1:45 p.m., the subcommittee was adjourned.] [Additional information submitted for the hearing record follows:] [GRAPHIC] [TIFF OMITTED] T1071.085 [GRAPHIC] [TIFF OMITTED] T1071.086 [GRAPHIC] [TIFF OMITTED] T1071.087 [GRAPHIC] [TIFF OMITTED] T1071.088 [GRAPHIC] [TIFF OMITTED] T1071.089 [GRAPHIC] [TIFF OMITTED] T1071.090 [GRAPHIC] [TIFF OMITTED] T1071.091 [GRAPHIC] [TIFF OMITTED] T1071.092 [GRAPHIC] [TIFF OMITTED] T1071.093 [GRAPHIC] [TIFF OMITTED] T1071.094 [GRAPHIC] [TIFF OMITTED] T1071.095 [GRAPHIC] [TIFF OMITTED] T1071.096 [GRAPHIC] [TIFF OMITTED] T1071.097 [GRAPHIC] [TIFF OMITTED] T1071.098 [GRAPHIC] [TIFF OMITTED] T1071.099 [GRAPHIC] [TIFF OMITTED] T1071.100 <SKIP PAGES = 015> -