Director, Program Integrity Group
Office of Financial Management
Centers for Medicare and Medicaid Services
U.S. Department of Health and Human Services (HHS)
Reducing Fraud, Waste and Abuse in Medicare
Committee on Ways and Means, Subcommittee on Health
Subcommittee on Oversight
United States House of Representatives
Tuesday June 15, 2010
Chairmen Stark and Lewis, Ranking Members Herger and Boustany, and Members of the Subcommittees, thank you for the invitation to discuss the Centers for Medicare & Medicaid Services’ (CMS) strong program integrity efforts to reduce waste, fraud, and abuse in concert with our partners and the new tools and authorities given to the Secretary of the Department of Health & Human Services (HHS) and CMS in the Affordable Care Act of 2010 (ACA).
Health care fraud is a national problem, with vulnerabilities and aberrant behavior or billing in Federal and State as well as private insurance programs. This Administration is committed to minimizing waste, fraud and abuse, including improper payments, in Federal health care programs. Enactment of the ACA represents a significant opportunity to build on CMS’ existing efforts to combat waste, fraud and abuse in Medicare and Medicaid. The new authorities provided to CMS under the ACA offer more front-end protections to keep those who are intent on committing fraud out of the programs, and new tools for deterring abusive practices, identifying and addressing fraudulent payment issues promptly, and ensuring the integrity of the Medicare and Medicaid programs.
Strategic Principles for Program Integrity Operations
The first strategic principle of HHS’ program integrity operations is to tailor interventions towards the areas where fraud and abuse have been shown to be the greatest. For example, CMS has identified Durable Medical Equipment (DME) and home health care as areas highly vulnerable to waste, fraud, and abuse. As a result, CMS has instituted stricter DME supplier and home health provider enrollment requirements in an effort to reduce the number of fraudulent providers participating in these programs. These standards have already shown success at keeping those with intent to defraud Medicare out of the program. During 2009 CMS put in place new enrollment, accreditation, surety bond, and “unscheduled site visits” requirements for Medicare DME suppliers, which in part may explain that the number of suppliers enrolling in the program dropped by nearly 15 percent from the prior year’s participation levels. We need to make the Medicare and Medicaid programs flexible enough to shift resources to scrutinize claims and providers in high-risk areas.
When possible abuse is known, we take immediate action to remedy the situation. Due to the high levels of waste, fraud and abuse in South Florida, an area with many thousands of Medicare beneficiaries and caregivers, we developed a fraud hotline for our beneficiaries living in the State of Florida as part of the infusion demonstration project begun in October 2007. In January 2009, that hotline was expanded to address all types of Florida Medicare fraud complaints. This hotline, which has been widely publicized in public service announcements and routine mailings to Medicare beneficiaries, allows Medicare beneficiaries to report suspected fraud or service charges from a physician, provider or supplier that may be fraudulent with a dedicated hotline phone number and email address. The hotline has shown very promising results and reports of potential fraud. As of April 2010, the hotline had led to 498 investigations, 8 law enforcement referrals, and requests for providers and suppliers to return more than $10 million of overpayments.
The ACA has provided CMS with additional tools that will assist with tailoring interventions to address problem areas. Enhanced screening requirements for providers and suppliers throughout Medicare, along with oversight controls such as payment caps and pre-payment review of claims for high-risk services, will allow the Agency to better focus its resources on addressing the areas of greatest concern. Additionally, the surety bond requirement in ACA will further ensure the integrity of DME and home health providers and suppliers, as will the new requirement that providers who order or refer covered items or services be enrolled in Medicare.
The second strategic principle of HHS program integrity operations is to consolidate and coordinate program integrity policies and operations for Medicare and Medicaid. It also calls for an overhaul of specific contractor functions relating to program integrity efforts at CMS.
CMS has taken several administrative steps to better meet the Agency’s future needs and challenges. A realignment of CMS’s internal organizational structure, which went into effect on April 11, 2010, consolidated Medicare and Medicaid program integrity activities under the CMS Center for Program Integrity. It will enable a more strategic and coordinated approach between Medicare and Medicaid and facilitate collaboration on anti-fraud initiatives with our law enforcement partners like the HHS Office of Inspector General (OIG) and the Department of Justice (DOJ). This new organization will position CMS to build upon and strengthen existing programs to combat fraud while also investing new resources and technology to reduce the instances of fraud, waste and abuse before it occurs.
The ACA builds on these efforts by providing CMS with the ability to improve and streamline its program integrity capabilities in two ways. First, it requires Medicare & Medicaid’s program integrity (PI) contractors to assemble and track performance statistics, including the number of overpayments identified, the number of fraud referrals, and the return on investment (ROI) resulting from these actions. The Secretary is also required to conduct evaluations of these PI contractors at least once every three years. Second, ACA expands the scope of the Recovery Audit Contractor (RAC) program to all Medicare and Medicaid programs.
The third strategic principle of HHS program integrity operations is to strengthen prevention of fraudulent and improper payments before payments are made rather than after in CMS’ claims payment systems. Due to prompt pay requirements in Medicare, our claims processing systems were built to quickly process and pay 4.8 million claims each day, approximately 1.2 billion claims each year.
However, with the new tools provided to CMS under ACA, we are steadily working to shift more of our attention to preventive activities. This involves implementing stricter provider enrollment criteria, such as requiring providers to enroll in Medicare and to use their assigned National Provider Identifier (NPI) when submitting claims, and establishing new screening requirements for new and existing providers who are enrolled in Medicare, Medicaid, and the Children’s Health Insurance Program (CHIP).
In addition, under ACA, providers will undergo a special screening over the course of the next three years, with additional verification and licensure checks on certain providers. This screening will be based on risk factors that will help to identify which new and existing suppliers/providers pose the greatest vulnerability to the Medicare program. The ACA also includes better data sharing between Federal entities to monitor and assess high-risk program areas and identify potential sources of fraud. CMS will soon be able to expand its Integrated Data Repository (IDR) to include claims and payment data from other Federal entities (including the Department of Veterans Affairs, the Department of Defense, the Social Security Administration, and the Indian Health Service) and enter into data sharing and matching agreements with these entities to identify potential waste, fraud, and abuse throughout Federal health programs. These new authorities help move CMS away from its historical “pay and chase” mode towards a closer alignment with strong fraud deterrents and increased enrollment screenings, new disclosure and transparency guidelines, and early identification of high-risk providers and suppliers.
The fourth strategic principle of HHS program integrity operations is to establish new partnerships with the private sector to share information and methods to detect and prevent fraud; since the public and private sectors have common problems it makes sense that we should seek common solutions. HHS’ partnerships with the private sector have been growing since the introduction of the inter-Departmental initiative known as the Health Care Fraud Prevention and Enforcement Action Team or Project HEAT. Through Project HEAT, a National Summit on Health Care Fraud was held in January, bringing together Federal and State officials, law enforcement experts, private insurers, health care providers, and beneficiaries for an unprecedented meeting to discuss and identify the scope of fraud, weaknesses in the current Federal, State and private health care systems, and opportunities to move towards new solutions.
Implementing these strategic principles will be an incremental process. We must keep in mind that these Federal health care programs are designed to provide health care to needy, disabled, and aging Americans. We also need to remember that the vast majority of health care providers are honest people who do the right thing and provide critical health care services to millions of people every day. So as we seek to reduce fraud, HHS and CMS are mindful of striking the right balance between preventing fraud and other improper payments without impeding the delivery of critical health care services to beneficiaries in need.
Immediate Steps and Accomplishments
While HHS begins implementing ACA, we are making use of our new funding authority and taking immediate steps to strengthen CMS' provider enrollment efforts. Further, Congress’ support of the President’s budget request for the Health Care Fraud and Abuse Control (HCFAC) in FY 2009 and FY 2010 has also bolstered our Departmental effort to reduce waste, fraud, and abuse. CMS has initiated several projects to focus on areas of high programmatic vulnerability such as DME, home health, and infusion therapy by doing more prepayment medical review and in-person interviews to ensure that the services were actually provided. The Administration is also taking steps to improve oversight of the Medicare Part C and Part D programs. We have invested in critical data infrastructure, enhanced field operations at CMS and DOJ, and initiated new efforts to reduce improper payments.
Fully funding our FY 2011 Budget request and the continued commitment of the Administration and the Department will build on these successes. Our request would invest more than $1.7 billion in mandatory and discretionary resources for the HCFAC program in FY 2011. This proposal is the largest one-year increase in HCFAC since its inception in 1997 and reflects the strong commitment the Administration is making to program integrity. This request is part of a multi-year strategy to implement our strategic principles and goals, and is part of a larger, government-wide effort to invest in program integrity activities that reduce improper payments and return funds to the Federal treasury. We are confident that investments in fraud-fighting programs will more than pay for itself in averted fraudulent payments, increased recoveries, and stronger audit functions.
New Program Integrity Authorities
Further, we appreciate the $350 million for the HCFAC account and the Medicare Integrity Program provided by Congress in ACA over the next 10 years, which, along with the Consumer Price Index for all Urban Consumers (CPI-U) adjustment to the base funds for FY 2010, will infuse additional resources into the HCFAC program over the next decade. This investment will allow HHS to implement and exercise the new authorities in the ACA that strengthen the Medicare program through a shift toward preventative activities, stricter provider and supplier enrollment requirements, and expanded oversight controls, such as pre-payment review of claims for high-risk services.
The new HCFAC funds in ACA will be used to implement and oversee the program integrity provisions within ACA. The $250 million discretionary increase in the President’s FY 2011 budget request will support initiatives of the newly established, joint HHS-DOJ HEAT. These activities include adding up to 13 new Strike Force cities to combat fraud and abuse on the front lines, bringing the total number of Strike Force cities to 20; increasing law enforcement access to data, stopping fraudulent schemes and practices before they take root and exposing systemic vulnerabilities being exploited by fraudulent providers; and funding legislative and administrative program integrity proposals in the President’s budget that, if implemented, are projected to save about $14.7 billion over the next 10 years.
Health Care Fraud Prevention and Enforcement Action Team
Project HEAT is one of our key initiatives and cooperative efforts underway in this Administration. As stated previously, Project HEAT brings together key personnel from the Department and our law enforcement partners to ensure we are working collaboratively to detect, prosecute, and recover fraud.
Strike Force Teams
A central feature of Project HEAT is the use of Strike Force teams. Strike Forces are multi-agency units of Federal and State investigators, prosecutors, and analysts designed to identify, investigate, and prosecute Medicare fraud. Strike Forces combine sophisticated data analysis techniques and community policing approaches to identify fraud quickly and target enforcement resources effectively. Strike Force teams include, HHS OIG and the Federal Bureau of Investigation (FBI) investigators, DOJ prosecutors, and local law enforcement, and these teams are supported by a data analysis team and CMS program experts.
Since May 2009, this Administration has expanded Strike Force cities from two to seven locations. In addition to Miami and Los Angeles, Strike Force teams were launched in Houston and Detroit in May 2009 and then Brooklyn, Baton Rouge, and Tampa in December 2009.
More effective partnership between CMS and its law enforcement partners
The unprecedented and new partnership that the HEAT task force has created between HHS and DOJ is breaking down bureaucratic silos to create a more efficient and coordinated effort against health care fraud.
The most critical area where this enriched partnership is already paying dividends is improved data sharing. CMS, HHS OIG, and DOJ are developing new tools and techniques to identify fraudulent activity by proactively analyzing suspicious patterns in emerging claims data. In addition, we are improving the collection and storage of Medicare claims data. CMS is moving to combine all Medicare paid claims into a single, searchable database, instead of having the claims scattered among several databases and different contractors. This integrated data repository serves as a critical data analysis and fraud-fighting tool. It also allows CMS the ability to begin using predictive analytic tools and begin tailoring its program integrity efforts in a much more prevention focused way rather than the “pay and chase” model utilized in the past.
A centralized database means that we can proactively analyze our data faster and more efficiently than we do currently. Instead, we are using tools that notify us when claims for one kind of treatment in a geographic area spike dramatically compared to claims in a neighboring community. For example, our complex data analysis recently identified that Miami Dade County, home to two percent of Medicare home health patients overall, had ninety percent of all home health patients receiving more than $100,000 in care each year. While there are legitimate situations where a home health agency should receive an increased payment for a patient with unusually high costs, the spike in high dollar claims in Miami Dade County appeared to be an abuse of Medicare’s payment rules. To respond to this vulnerability, CMS instituted a cap on home health payments for high cost patients (called outliers) effective January 1, 2010. Through actions such as this, CMS will reduce inappropriate home health payments.
Reducing Improper Payments
As I have said, reducing fraud is part of the Administration’s overall goal of stopping all improper payments. Toward this end, on November 20, 2009, President Obama issued an Executive Order to reduce improper payments and waste in Federal programs. This Executive Order not only applied to Medicare, Medicaid, and CHIP, but to programs across the Federal government. While improper payment rates are not necessarily an indicator of fraud in Medicare or any other Federal program, they are an indicator of errors that need to be fixed. Improper payments include overpayments, underpayments, payments without proper supporting documentation, and payments to ineligible participants.
HHS is working diligently to implement the requirements of the Executive Order. We have recently imposed a stricter methodology for calculating the Medicare fee-for-service (FFS) error rate. While this new, stricter methodology resulted in an increase in the FY 2009 error rate compared to previous error rates, we believe this more honest assessment of payment errors in Medicare FFS provides CMS with more complete information that can be used to focus corrective actions. Pursuant to the Executive Order, we will continue to refine our methodology to reflect the most relevant and accurate Medicare FFS error rates.
To reduce improper payments in Medicare FFS, we are taking action to ensure that providers are submitting all required documents to support a claim and that beneficiary claim histories are no longer being used to fill in missing treatment documentation. CMS will also be spending more time working with providers through increased training, education, and outreach to eliminate errors in claims. To that end, President Obama recently announced that CMS will cut the Medicare FFS improper payment rate in half by 2012.
As the Department moves forward in developing and implementing electronic health records (EHR), we also anticipate that it will result in a reduced error rate for Medicare FFS. After EHRs are fully implemented there will be fewer errors for illegible or missing signatures. Further, documentation errors are the most frequent reason for claim denials; the expectation is that the EHR will contain all the documentation to support the claim. In addition, EHRs should be easier to retrieve and submit when requested because the process will be electronic, as compared to manual photocopying which can lead to omissions, causing missing documentation errors.
Educating Our Beneficiaries and Partners
Meanwhile, HHS and CMS continue to work with and rely on our beneficiaries and other partners to reduce waste, fraud, and abuse in Medicare and Medicaid. A program led by the HHS Administration on Aging (AOA), Senior Medicare Patrol (SMP), empowers seniors through increased awareness and understanding of healthcare programs. This knowledge helps seniors to protect themselves from the economic and health-related consequences of Medicare and Medicaid fraud, error and abuse. SMP projects also work to resolve beneficiary complaints of potential fraud in partnership with state and national fraud control/consumer protection entities, including Medicare contractors, State Medicaid fraud control units, state attorneys general, the HHS OIG, and CMS. Through 2009, nearly 2.6 million beneficiaries were educated during 67,491 group education sessions led by SMP staff or SMP projects. HHS plans to double the size of the SMP program and put more people in the community assisting in the fight against fraud.
Last week, HHS, with the support of senior leadership at the AOA and CMS, launched a national fraud prevention campaign to protect Medicare Part D beneficiaries who will receive a one-time $250 prescription drug rebate check from ACA provisions. The campaign will begin with national radio advertising that will run concurrently with the timeframe that the rebate checks are mailed out to eligible seniors each month, and targeted in areas with high percentages of Medicare recipients who have fallen into the coverage gap and also on ethnic radio to communicate with groups of seniors who have been particularly targeted by fraudsters.
In addition, HHS Secretary Kathleen Sebelius and Attorney General Eric Holder wrote on June 8, 2010 to all State attorneys general urging them to work with HHS and federal, state, and local law enforcement officials to mount a substantial outreach campaign to educate seniors and other Medicare beneficiaries about ways to prevent scams and fraud. The Secretary and Attorney General outlined education and outreach efforts where State attorneys general could offer assistance, including a series of regional fraud prevention summits around the country in the coming months; regular health care fraud task force meetings to facilitate the exchange of information with partners in the public and private sector, and to help coordinate anti-fraud effort; and a new educational media campaign that will educate Medicare beneficiaries about ways to protect themselves against fraud. HHS is committed to continuing to find new opportunities to educate our beneficiaries and work with our partners to use every tool at our disposal to stop waste, fraud, and abuse.
Health care fraud and improper payments undermine the integrity of our public and private health care insurance programs. Taxpayer dollars have been stolen, fraud has driven up health care costs, and in a few cases, patients have been endangered. Reversing the problem will require a long-term, sustainable approach that brings together government entities, our Federal, State and local law enforcement partners, and the private sector.
This Administration has made a firm commitment to reigning in fraud and wasteful spending, and with the Affordable Care Act, we have more tools than ever to implement important and strategic changes. We thank the Congress for providing us with these new authorities, and look forward to working with you in the future as we continue to make improvements in protecting the integrity of the Medicare program and safeguarding taxpayer resources.
Last revised: April 19, 2011