Testimony
Before the House Commerce Committee,
Subcommittee on Health and Environment
Medicare Program: Management and Complexity
Statement of
Michael F. Mangano
Principal Deputy Inspector General
June 27, 2000
Office of Inspector General
Department of Health and Human Services
In summary, we are fully engaged and 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 talking about providers who make innocent billing errors, but rather those who intentionally set out to defraud the Medicare program or abuse Medicare beneficiaries. The importance of our ongoing work is not only to protect the taxpayers and ensure quality healthcare for Medicare beneficiaries, but to also make the Medicare environment one in which honest providers can operate on a level-playing field and do not find themselves in unfair competition with criminals.
At the same time, we must be concerned about all errors, even those which are totally innocent. The complexity of the program places an obligation on health care providers, beneficiaries, fiscal intermediaries, carriers, and HCFA to take reasonable care to comply with its rules. Thus, our audits and studies are also intended to identify vulnerabilities to administrative errors and to the related dollar losses which can be quite significant. In addition, our reviews show that Medicare complexity has not been an impediment to patient access to care nor has it imposed unreasonable burdens on most health care providers.
As a result of an unparalleled coordinated and cooperative response to the problem of health care waste, fraud and abuse by the Congress and the Administration, particularly through the landmark piece of legislation--the Health Insurance Portability and Accountability Act of 1996, we have been able to expose and measure the problem more completely and accurately than ever before. It is bigger, more sophisticated, and more formidable than many may have imagined. But we are more fully armed, have better tools, and are better organized than in the past. As a result, we have recently had some notable successes and are confident of favorable outcomes on several fronts. And we feel fully supported by allies in every branch and unit of government as well as by the healthcare community and senior advocacy groups.
However, we must temper our optimism and remain vigilant. Due to the complexity of the Medicare program and the tremendous number of dollars flowing through the program, there will always be those who will continue to seek loopholes and look for ways to siphon those dollars earmarked for maintaining and improving the health of the elderly and disabled in this country.
BACKGROUND
The Office of Inspector General (OIG) was created in 1976 and is statutorily charged with protecting
the integrity of our Department's programs, as well as promoting their economy, efficiency and
effectiveness. The OIG meets this statutory mandate through a comprehensive program of audits,
program evaluations, and investigations designed to improve the management of the department and
to protect its programs and beneficiaries from fraud, waste and abuse. Our role is to detect and
prevent waste, fraud and abuse, and to ensure that beneficiaries receive high quality, necessary
services, at appropriate payment levels.
The Health Care Financing Administration (HCFA) is the largest single purchaser of health care in the world. With expenditures of approximately $310 billion, assets of $181 billion, and liabilities of $40 billion, HCFA is also the largest component of the Department. Medicare and Medicaid outlays represented 34.2 cents of every dollar of health care spent in the United States in 1998. The Medicare program is inherently at high risk for payment errors due to its size as well as its complex reimbursement rules, and decentralized operations (39 million beneficiaries and 860 million claims processed annually).
RECENT ACCOMPLISHMENTS
Many specific, positive changes have been made to shore up the over $200 billion Medicare program and its payment methods. Thanks to increased resources provided through recent legislation, our Department, the Department of Justice (DoJ), and related agencies at the State and Federal levels now have better authority and capacity to fight fraud and to reduce waste in all federally-funded health care programs. We have also strengthened our efforts to prevent fraud, waste, and abuse from occurring in the first place.
HIPAA Accomplishments - Increased Recoveries, Exclusions, Convictions, and Settlements
The Fraud and Abuse Control Program, a key part of the Health Insurance Portability and Accountability Act of 1996, enabled us to boost our efforts in identifying and preventing waste, fraud and abuse in Medicare. This program provides much needed resources, stronger enforcement tools, and a management structure to coordinate the efforts of numerous fraud fighting units of Federal, State, and local governments.
The program is under the joint direction of the Attorney General and the Secretary of Health and Human Services, working through the Inspector General. It mandates a comprehensive program of investigations, audits, and evaluations of health care delivery; authorizes new criminal, civil, and administrative remedies; requires guidance to the health care industry about potentially fraudulent health care practices; and establishes a national data bank to receive and report final adverse actions imposed against health care providers. The Act also provides an innovative mechanism to fund these new anti-fraud efforts, thereby assuring that needed resources are always available for the effort.
We are grateful to the Congress in passing this landmark legislation and we are pleased to report that we are already reaping substantial benefits of the additional resources and authorities. In the past three years under HIPAA (FY 1997 through FY 1999), we have reported overall savings of $31.0 billion. This is comprised of $226 million in audit disallowances, $2.1 billion in investigative receivables, and $28.7 billion in savings from implemented legislative or regulatory recommendations and actions to put funds to better use. The savings that result from our recommendations that are implemented into law or regulation, and independently scored by the Congressional Budget Office or HCFA, represent taxpayer or Medicare Trust Fund dollars that will not be spent.
During this same period, we excluded more than 8,697 abusive or fraudulent individuals and entities from doing business with Medicare, Medicaid, and other Federal and State health care programs. Additional accomplishments include 1,085 convictions of individuals or entities that engaged in crimes against departmental programs. We increased convictions by nearly 20 percent in 1997, another 16 percent in 1998, and by almost 54 percent in 1999.
Medicare Fee-For-Service Payment Error Rate
The OIG recently issued its fourth report on the Medicare fee-for service payment error rate. Based
on a statistically valid sample, improper payments totaled an estimated $13.5 billion, or about 8.0
percent of the $169.5 billion in FY 1999 processed fee-for-service payments. Improper payments
include those for: unsupported services, medically unnecessary services, errors due to incorrect
coding, and noncovered services. Over the four years we have conducted this review, the improper
payment rate declined by 42 percent, from a midpoint of $23.2 billion (14 percent) in 1996, to $13.5
billion (8.0 percent) in FY 1999--a drop of $9.7 billion. This represents a cut in Medicare costs
without a single beneficiary being denied a needed service or a health care provider being denied
legitimate compensation.
Many Medicare watchers attribute at least part of this downward trend to the increased oversight
and enforcement efforts of our office, HCFA, DoJ and the FBI that were made possible by the
steady funding stream created by HIPAA. According to the Medicare Trustees and the
Congressional Budget Office, these waste, fraud and abuse efforts contributed to Medicare's lowest
inflation rate in history and the extension of the viability of the Trust Fund until 2025 -- a 26 year
extension brought about over the last three years.
Waste, Fraud and Abuse Prevention
The OIG has continued to expand activities designed not just to uncover existing waste, fraud and abuse, but to prevent it. A cornerstone of our prevention efforts has been the development of compliance program guidance to encourage and enlist the private health care industry in the fight against waste, fraud and abuse. The guidance is developed in cooperation with the provider community and identifies steps that health care providers may voluntarily take to improve their compliance with Medicare and Medicaid rules. We have published eight compliance guidance documents covering hospitals, clinical laboratories, home health agencies, third-party billing companies, durable medical equipment, hospices, Medicare + Choice organizations, and nursing facilities. We have recently invited comments on our draft guidance related to individual physicians and small group practices.
OIG has also increased its activities with respect to monitoring settlement agreements with integrity provisions and corporate integrity agreements that have been entered into by health care providers as part of a global settlement of OIG investigations and audits. The current caseload of approximately 440 is expected in increase to over 475 by the end of 2000. Our efforts to focus on preventing health care fraud also includes guidance to the industry on the propriety of health care transactions. OIG has published two significant final regulations creating 10 new safe harbors to the Federal anti-kickback statute. Finally, the OIG continues to promote beneficiary involvement in identifying fraudulent activities. This includes operating our HHS hotline which currently receives approximately 48,000 calls per month.
CONTINUING VULNERABILITIES
We in the Office of Inspector General are heartened by the support we have received from the Congress, Administration, as well as by the healthcare community and senior advocates in our fight against fraud, waste, and abuse in the Medicare program. At the same time, our new authorities and resources have enabled us to see more clearly just how pervasive and overwhelming these problems are. While our recent error estimates in the fee-for-service part of Medicare show a general decline, it is still too high; all money improperly paid is wasteful. Additionally, these audits do not detect well known forms of fraud such as kickbacks or deliberate forgery of bills or supporting documents. Further, whatever the audits reveal or fail to reveal, we know from our investigations and from complaints that we receive that waste, fraud and abuse are still pervasive in the health care sector.
All of this is to say that we cannot take much time out of our fight against fraud, waste, and abuse. We are still watching all areas of Medicare through our audits, inspections, and investigations. And we are continuing to encourage and receive support from industry and beneficiary groups in our efforts. At this time, however, I would like to single out some areas where we continue to have special concerns and give some examples of the results of several significant audits and investigations.
Partial Hospitalization and Community Mental Health Centers
In collaboration with the Department, we examined the growth of Medicare expenditures to community mental health centers for partial hospitalization services (highly intensive psychiatric services) and found that Medicare was paying for services to beneficiaries who had no history of mental illness and for therapy sessions that consisted of only recreational and diversionary activities, such as watching television, dancing, and playing games. Our review in five States, which accounted for 77 percent of partial hospitalization payments to mental health centers nationally during 1996, disclosed that Medicare paid $229 million for unallowable and highly questionable services. Ninety-one percent of the services reviewed did not meet Medicare reimbursement requirements. Reviews of 20 individual centers by both OIG and HCFA disclosed similar problems. In response to our recommendations, HCFA instituted extensive corrective actions, including terminating egregious centers, conducting intensified medical reviews, and collecting overpayments.
Hospital Outpatient Psychiatric Services
The OIG conducted a 10-State review of outpatient psychiatric services, which accounted for 77 percent of the value of the partial hospitalization program and other outpatient psychiatric claims at acute care hospitals nationally. Our final report estimates that in the ten States reviewed, about $225 million of $381.9 million (almost 60 percent) in 1997 outpatient psychiatric claims made by hospitals did not meet Medicare's reimbursement requirements. These unallowable services included: services not reasonable and necessary for the patient's condition; services not authorized and/or supervised by a physician; services not adequately documented or not documented at all; and, services rendered by unlicenced personnel. Reviews at individual acute care hospitals disclosed problems with unsupported and medically unnecessary services and unallowable costs included on the hospital cost reports.
Home Health
Looking behind the explosive growth in Medicare expenditures for home health care since 1990, OIG, using claims data from 1995 through part of 1996, found that 40 percent of the payments were improper. We also determined that many home health agencies shared characteristics that could undermine the Department's ability to recover overpayments or levy sanctions. Our recommendations to strengthen the Medicare certification process and to otherwise protect the trust fund were adopted in the Balanced Budget Act of 1997. Conducted at the Department's request, our follow-up work, which examined 1998 claims data, noted that the payment error rate had fallen to 19 percent. Below is an egregious example of misappropriation of Medicare funds and potential abuse of Medicare patients by a home health agency which we audited as part of our Operation Restore Trust effort.
St. John's Home Health Agency
In our audit of St. John's Home Health Agency, the highest paid home health agency in South Florida, we found that St. John's billed Medicare for non-rendered or upcoded home health services and that nurses and home health aides permitted subcontracting groups to use their name and/or create fraudulent documents to support nonrendered services. We also found that some nursing visits were provided by unlicenced persons. Further, we found that subcontractors paid kickbacks to St. John's employees in order to do business with them. Twenty-six people were indicted in December 1999 for racketeering, conspiring to racketeer, conspiring to launder money and conspiring to submit false claims to the Medicare program. Subsequent to plea or trial, there were 24 guilty verdicts (one individual became a fugitive and one was acquitted); all 24 guilty verdicts are in the process of being excluded.
Medicare Contractors
The Medicare program is administered by the Health Care Financing Administration (HCFA) with the help of 64 contractors that handle claims processing and administration. The contractors are responsible for paying health care providers for the services provided under Medicare fee-for-service, providing a full accounting of funds, and conducting activities designed to safeguard the program and its funds. There are two types of contractors -- fiscal intermediaries and carriers. Intermediaries process claims filed under Part A of the Medicare program from institutions, such as hospitals and skilled nursing facilities; carriers process claims under Part B of the program from other health care providers such as physicians and medical equipment suppliers.
Of all the problems we have observed, perhaps the most troubling has to do with contractors' own integrity -- misusing government funds and actively trying to conceal their actions, altering documents and falsifying statements that specific work was performed. In some cases, contractors prepared bogus documents to falsely demonstrate superior performance for which Medicare rewarded them with bonuses and additional contracts. In other examples, contractors adjusted their claims processing so that system edits designed to prevent inappropriate payments were turned off, resulting in misspent Medicare Trust Fund dollars. We have also encountered problems associated with financial management and accounting procedures and longstanding weaknesses in internal controls, including deficiencies related to the receivable amounts reported in HCFA's financial statements and electronic data processing.
In addition, there have been numerous allegations that contractors have falsified statements that specific work was performed, and altered, removed, concealed, and destroyed documents to improve their ratings on Medicare performance evaluations. Wrongdoing has been identified and we have entered into civil settlements with 13 Medicare contractors since 1993, with total settlements exceeding $350 million. In addition, two contractors have entered into guilty pleas for obstruction of a federal audit.
Fresenius Medical Care Holdings, Inc.
The government recently reached a record-breaking Medicare fraud settlement with Fresenius
Medical Care Holdings, Inc. (FMCH), the Nation's largest provider of kidney dialysis products and
services. As a result of a joint investigation by OIG and multiple law enforcement agencies and an
OIG audit, FMCH agreed to a global resolution under which three subsidiaries pled guilty, and the
company agreed to pay $486 million to resolve the criminal and civil aspects of the case. As part of
the civil settlement agreement for credit balances, the company paid directly to HCFA $11 million
for overpayments which were previously reported to the fiscal intermediaries but never recouped.
The alleged criminal misconduct involved illegal kickback activity, submission of false claims for
dialysis-related nutrition therapy services, improper billing for laboratory services and false
reporting of credit balances. This misconduct was engaged in by National Medical Care, a
nationwide dialysis company, and various of its subsidiaries prior to a 1996 merger with FMCH. As
part of the settlement, the company also entered into the most comprehensive corporate integrity
agreement ever imposed by OIG.
COMPLEXITY OF MEDICARE AND IMPACT ON PATIENT ACCESS
Increasing Complexity
Since the inception of Medicare, numerous legislative changes have been made and amendments added to the Social Security Act which have led to substantial changes to the Medicare program. With each addition, HCFA is required to develop new regulations as well as update its contractor and provider rules and guidelines. For example, the Balanced Budget Act of 1997 contained 335 provisions related to Medicare programs, including mandates for new prospective payment systems in several programs, which required the development of a substantial number of new regulations.
Much of the complexity in the Medicare program is not inherent in the program itself, but rather it parallels the ever increasing complexity of our health care system. For example, the development of various forms of managed care and new kinds of vertical and horizontal integration have led to the need for Medicare rules and regulations to evolve along with them.
Additionally, the way Medicare pays for health care has changed through time, from primarily cost/charge based payment systems to new fee-schedule and prospective based arrangements. For example, hospital inpatient, physician, then lab and durable medical equipment services were the first areas of the program to switch to prospective payment or fee schedule based payment systems. More recently, skilled nursing facility, home health, and hospital outpatient services have moved or are moving to prospective payment systems as well. This transitioning from one payment system to another inevitably involves an intensive and somewhat uncomfortable learning period. In the long run, it is hoped that these new payment systems will simplify and reduce the administrative burdens of providers.
Provider Burden
Is the Medicare payment system too difficult 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 error rate review would indicate that providers are doing a very good job of negotiating their way through Medicare payment systems -- we found that 92 percent of all claims submitted by health care providers are free of error. In the substantial majority of cases, legitimate providers are billing for legitimate services.
We do recognize that HCFA has placed some additional burdens on the health care providers. Many of these, however, we think are legitimate and some have been instituted from IG recommendations based on past abuses we have found in the system. For example, to sustain its progress in reducing payment errors, we have recommended that HCFA:
It should be noted, however, that very few health care claims are subjected to this more intense review. For example, while some 660,000 physicians receive Medicare payments each year, HCFA only reviews about 5 percent of physician claims. Additionally, we continue to work with industry sectors to develop voluntary guidance to help them avoid innocent billing errors as well as discover and/or prevent more abusive practices within their organizations. This will help to ensure that they can avoid any unnecessary scrutiny.
Prior to HIPAA, the efforts of HCFA, the OIG, and DoJ to identify and prevent waste, fraud, and abuse in health care were far less than adequate. With the new infusion of resources, we have been able to get serious. Some of the impact has been greater scrutiny of certain types of providers and more care by providers in general to bill properly. For example, there has been more scrutiny by HCFA of home health and intensive psychiatric services as a result of our identifying serious abuse by some providers. As a result of these efforts we have realized:
These results have had a positive effect on beneficiaries as well. The lower inflation rate, and our greater scrutiny of claims, means that beneficiaries pay lower copayments and receive the services they really need. These have been possible because health care providers are doing a better job of complying with Medicare rules and we are doing a better job in catching the errors and more serious attempts to defraud the Medicare program.
Patient Access to Quality Care
We do not believe that the complexity of the Medicare program has resulted in a threat to patient access to quality of care in the areas we have examined. For example, we studied the impact of the new nursing home prospective payment system on access to care. We found that Medicare patients are able to access care in skilled nursing facilities, particularly therapy patients. In fact, we found that it is easier to place Medicare therapy patients in nursing homes after the new payment system went into effect than before. Further, in a recent inspection looking at how the interim payment system for home health agencies is affecting Medicare beneficiaries' access to home health care for patients discharged from hospitals, we found that 85 percent of discharge planners report that Medicare patients are able to obtain home health care when they need it and three quarters said that they need to only contact one home health care agency on average to arrange for that care. We will continue to monitor access to these services as well as other areas in the health care system.
In general, we see that the failure of enforcing provisions, rather than the increased complexity of rules and regulations, has led to improper and poor quality of care. For example, dollars spent on psychiatric patients to watch television, could and should have been put to better use in providing appropriate and high quality mental health care for these beneficiaries.
CONCLUSION
As I stated at the beginning of my testimony, I believe a concentrated effort by a large number of people has resulted in tangible progress in combating fraud, waste, and abuse in recent years. But as I have also discussed with you today, the problems that remain are serious, complicated, and have profound consequences. I am particularly concerned about the deliberate fraud which we cannot always measure but that we know continues. We must never let down our guard, and we must continue to dedicate the resources and make a concerted effort to reduce these problems.
We in the Office of Inspector General will be actively overseeing how the new resources and safeguards provided in the HIPAA are used to determine their effectiveness in preventing and combating criminal activities. For true criminals, the only effective safeguards are tough-minded program measures to prevent fraud and a strong law enforcement presence with equally strong penalties applied to defrauders.
It must be recognized that some of these efforts have led to an increased burden on some providers. Put into context however, it also must be recognized that this is a small price to pay to extend the viability of the Medicare Trust Fund and ensure health care for our elderly and disabled for another 26 years. This concludes my testimony.
I greatly appreciate the opportunity you have given me today to focus attention on the continuing problems and vulnerabilities that confront the Medicare Program and to share with you our progress as the result of some of our recent efforts and initiatives. I would be happy to answer any questions.