Statement of
Michael Mangano
Acting Inspector General
April 4, 2001
Office of Inspector General
U.S. Department of Health and Human Services
Good morning Mr. Chairman and members of the Subcommittees. I appreciate the invitation to testify today on the important issue of the Health Care Financing Administration's role and activities related to educating health care providers and physicians regarding their participation in the Medicare program.
Office of Inspector General
Let me first provide some background about the origin and purpose of the Office of Inspector General (OIG) within the U.S. Department of Health and Human Services (HHS). The HHS OIG, the first statutory Inspector General in the Federal Government, was established in 1976 because of congressional concerns that fraud and abuse were improperly inflating the cost of HHS health care programs, particularly Medicare and Medicaid. The OIG's mandated mission is to prevent and detect fraud, waste, and mismanagement, and to promote economy, efficiency, and effectiveness in all HHS programs and operations.
The core mission of the OIG is carried out through a nationwide program of audits, evaluations (called inspections), and investigations related to the operations of HHS programs. The OIG is prohibited from exercising specific "program operating" responsibilities. As part of its statutory mandate, the OIG is obligated to keep
[T]he Congress fully and currently informed ... concerning fraud and other serious problems, abuses, and deficiencies relating to the administration of programs and operations administered or financed by [HHS], to recommend corrective action concerning such programs, abuses, and deficiencies, and to report on the progress made in implementing such corrective action.The Inspector General Act of 1978 ("IG Act"), § 4.
Health Care Financing Administration (HCFA)
In contrast, HCFA with its contractors is responsible for administering the Medicare program, including the review and payment of claims submitted by health care providers, which may involve pre and post payment audits. Some of HCFA's payment review activities are the result of abuses identified in OIG audit and inspection reports. These abuses threaten the financial stability of the Medicare program and its beneficiaries. Where particular problems are identified which may be indicative of fraud, they are referred to the OIG for investigation. HCFA also has the primary responsibility for educating and working with providers to inform them on its rules.
HCFA is the largest single purchaser of health care in the world. With outlays of approximately $316.2 billion in FY 2000, HCFA is also the largest component within HHS. Medicare and Medicaid outlays represent 33 cents of every dollar spent on health care in the United States in 1999. The Medicare program is inherently at high risk for payment errors due to its size and decentralized operations (39.5 million beneficiaries, 890 million claims processed annually, 54 contractors).
The Complexity of the Medicare Program and Impact on Patient Care
Since the establishment of Medicare, numerous legislative changes have been made and amendments added to Title XVIII of the Social Security Act (the Medicare Program), which have led to a number of substantive changes. With each legislative enactment, HCFA is required to develop new regulations, as well as update its contractor and provider rules and guidelines. To illustrate, the Balanced Budget Act of 1997 contained 335 provisions related to the Medicare program, including mandates for new prospective payment systems, requiring the development of a substantial number of new regulations.
It must also be recognized that much of the complexity in the Medicare program is not inherent in the program itself, nor the result of legislative changes, but rather parallels the ever increasing complexity of the nation's health care financing and delivery systems. For example, the development of various forms of managed care and new models for vertical and horizontal integration of providers have led to the need for new Medicare rules and regulations.
Additionally, the way Medicare pays for health care has changed over time, from primarily "cost or charge based" systems to new fee schedule and prospective payment systems. For example, hospital inpatient, physician, laboratory, and durable medical equipment were the first Medicare coverage areas to be switched to prospective payment or "fee schedule based" payment systems. More recently, skilled nursing facility, home health, and hospital outpatient services have been or are being revised to become prospective payment systems. This transitioning from one type of payment system to another inevitably results in an intensive and difficult learning period for HCFA, its contractors, and health care providers. In the long run, it is hoped that these new payment systems will simplify and reduce administrative burden for providers.
While the focus of this hearing is HCFA's relationship with its contractors and providers, I would like to take this opportunity to briefly discuss the OIG's outreach activities.
Health Care Provider Compliance Program Guidance
The enactment of Health Insurance Portability and Accountability Act of 1996 (HIPAA) established a national Health Care Fraud and Abuse Control Program under the joint direction of the Attorney General and the Secretary of HHS, acting through the OIG. This new program was designed to coordinate federal, state, and local enforcement activities with respect to health care fraud and abuse. Since HIPAA's enactment, the OIG has embarked on a major initiative to promote voluntary adoption of compliance programs by provider organizations. Our goal has been to help health care providers bill the Medicare program more accurately. When they do, Medicare pays the right amount for a covered service delivered to an eligible beneficiary.
Through its audits, inspections, and investigations, the OIG has confirmed that health care providers that have effective compliance plans including internal audit procedures and comprehensive staff training, not only provide quality services, but also have fewer systemic billing errors. In order to encourage the adoption of compliance measures by health care providers, the OIG has worked with health care industry groups to develop model, voluntary compliance plans. They identify steps that health care providers may voluntarily take to improve adherence with Medicare rules.
The OIG guidances are very specific in identifying risk areas for a particular health care industry sector. Since enactment of HIPAA, nine health care industry sector compliance guidances have been issued, including specific ones targeted to hospitals; home health agencies; clinical laboratories; third-party medical billing companies; durable medical equipment, prosthetics, and orthotics suppliers; hospices; Medicare+Choice organizations; nursing facilities; and individual and small group physician practices.
The OIG and the health care industry, through various organizations such as the Health Care Compliance Association (HCCA) and the Council of Ethical Organizations, have engaged in an ongoing dialogue on health care compliance to better understand and resolve the challenges associated with creating effective compliance programs. We were pleased to read in the recent HCCA annual survey of health care compliance professionals, that 71% of health care organizations now have ongoing compliance programs in place.
Health Care Industry Guidance
An important core element of the new HIPAA fraud and abuse control program is the provision of guidance to health care providers regarding potential liability for activities which may be considered fraudulent or abusive. Specifically, HIPAA requires that the OIG:
Since HIPAA's enactment, the OIG has promulgated nine new "safe harbors" under the Medicare/Medicaid Anti-Kickback Statute, and clarified or modified seven existing regulatory safe harbors. These OIG issuances have all being published in the Federal Register and are also available on the OIG's web site (oig.hhs.gov).
In addition, all of the OIG's final audit and inspection reports, as well as its annual workplan and other issuances are published on its web site. Health care providers and other interested parties are regularly advised of new OIG issuances through a free "List Server" on its web site which currently has approximately 9,000 registered subscribers.
OIG/Health Care Provider Partnership
The OIG is actively engaged in working with health care providers and believe we are making good progress. We continue to believe that most health care providers do their best to provide high quality care and are honest in their dealings with Medicare. When we talk about fraud, we are not referring to the vast majority of providers who make innocent billing errors, but rather those unscrupulous few who intentionally set out to defraud the Medicare program. The importance of our ongoing work is to not only protect the integrity of the Medicare program and ensure that high quality health care services are furnished to Medicare beneficiaries, but to also make the Medicare a program in which honest providers can operate on a "level playing field"- and not at a competitive disadvantage with those who choose to defraud or abuse the program.
Continued participation of all types of health care providers - hospitals, nursing homes, home health agencies, physicians, laboratories, and suppliers - is critical to the continued success of the Medicare program. All of these providers have been profoundly affected by recent Medicare reforms. Their operations are also affected by Medicare regulations and procedures.
Provider concerns relating to inappropriate investigations and audits are unfounded and both HCFA and the OIG are reaching out to provider groups to reassure them. Under law, physicians and other health care providers are not subject to criminal or civil penalties for honest mistakes, errors, or even negligence. The Government's primary enforcement tool, the False Claims Act, covers only conduct undertaken with actual knowledge, reckless disregard, or deliberate ignorance of the falsity of a claim. The False Claims Act simply does not cover mistakes, errors, or negligence. The other major civil remedy available, an administrative remedy called the Civil Monetary Penalties Law, has exactly the same standard of proof. For a criminal case, the standard is even higher. As a result of the high standards of proof needed to establish liability under current law, the number of criminal and civil penalty actions initiated against physicians is very small.
Results
OIG Medicare Fee-for-Service Audits
Over the past five years, the OIG has undertaken audits of Medicare's fee-for-service claims to estimate the extent of the resulting payments that did not comply with Medicare laws and regulations. For FY 1996, we estimated that Medicare made improper payments of approximately $23 billion, or about 14% of Medicare program expenditures. Most of the identified improper payments resulted from improperly documented claims, medically unnecessary claims, or improperly coded claims. In FY 1997, after enactment of HIPAA, the percentage of improper Medicare payments began to decrease. And most recently, the OIG audit of FY 2000 claims (issued on February 5, 2001) estimated that improper Medicare payments had dropped to $11.9 billion, or about 6.8% of the $173.6 billion in Medicare payments. The improper payment rate declined by over 50% or $11 billion in five years.
Medicare Inflation Rate
The decrease in improper payments has had a positive effect on Medicare's financial situation. From 1991 to 1996, the Congressional Budget Office (CBO) reported that Medicare's rate of inflation averaged 10.9% per year. In FY 1998, the rate of inflation for the Medicare fee-for-service program dropped to the lowest in the program's entire history (since 1965): 1.5%. Overall, CBO calculated the average Medicare inflation rate for FY 1997 to FY 2000 at 3.2%. CBO commented that: "Most of the decline can be explained by a strong effort to ensure compliance with payment rules." (The Budget and Economic Outlook: Fiscal Years 2002-2011, CBO, January 2001).
Medicare Part A Trust Fund Solvency Projections
As of 1996, the Trustees of the Medicare Part A Trust Fund projected that the Trust Fund would be insolvent in 1999. However, over the past 5 years, the Trustees have extended their estimate of the financial life of the Trust Fund by thirty years, from 1999 until 2029. One of the primary contributing factors cited by the Trustees has been "the continuing efforts to combat fraud and abuse." (Status of the Social Security and Medicare Programs, Trustees Annual Report, March 1999).
We believe that these positive economic findings with respect to the financial integrity of the Medicare program, which will positively impact on both taxpayers and beneficiaries, are due in large part to the fact that the vast majority of health care providers are engaged in submitting accurate claims to HCFA and providing high quality, medically necessary services.
Future Education and Guidance Activities
Obviously, more can be done to provide information to health care providers and physicians regarding compliance with the laws, rules, and policies governing their participation in and submission of claims to the Medicare program. At an OIG physician roundtable in July 2000, a number of concerns were raised by physicians regarding their inability to receive comprehensive and timely responses to questions raised to Medicare contractors. It was the general consensus of participants that "education and training resources would be a key factor in implementing an effective compliance program." To accomplish this goal, further use of web-based technologies should be explored, making them as "user friendly" as possible. This might include quarterly updates from HCFA regarding new policies and interpretations. Physicians also encouraged HCFA to reduce regional variations in interpretation and enforcement as much as possible.
Finally, I want to also note that in the report relating to the OIG's recent Medicare fee-for-service improper payment audit, we made the following recommendations.
Are Medicare program rules and requirements too difficult for providers to understand? In some cases our audits and evaluations do indicate that some rules are unnecessarily complex and burdensome. In such cases, we make recommendations for simplification. However, our recent Medicare improper payment audit indicated that providers are doing a very good job of negotiating their way through Medicare rules and procedures, and we estimated that 93% of all Medicare payments to health care providers were free of error. In the substantial majority of cases, legitimate providers are billing appropriately for Medicare covered services.
However, providers remain concerned. Their legitimate concerns about program complexity, inconsistency, burdens, and hassles need to be considered. Providers need reassurances that they will not be assessed penalties for honest errors. I expect that ways will be found, primarily through education and communication, to provide honest health care providers with the understanding and assurances they deserve in furnishing health care items and services to Medicare beneficiaries. We look forward to working with HCFA and health care providers in finding ways to do this.
At the same time, we must be vigilant in our efforts to protect the integrity of the Medicare program. Due to the tremendous number of claims and amount of federal dollars involved, there will always be those who will continue to take advantage of program vulnerabilities for their own unjust enrichment.
We stand ready to help the Subcommittees and all parties involved in identifying better ways to administer the Medicare program. Thank you for the opportunity to present the OIG's views.