Sheila O. Conley
Deputy Assistant Secretary for Finance and Deputy Chief Financial Officer
U.S. Department of Health and Human Services (HHS)
Assessing Efforts To Combat Waste and Fraud in Federal Programs
U.S. Senate Committee on Homeland Security and Governmental Affairs
Subcommittee on Federal Financial Management, Government Information, Federal Services and Internati
United States Senate
Wednesday March 28, 2012
Chairman Carper, Ranking Member Brown, and distinguished Members of the Subcommittee, thank you for the opportunity to testify before you this afternoon about the U.S. Department of Health and Human Services’ (HHS or the Department) efforts to reduce improper payments. As Deputy Assistant Secretary for Finance at HHS, as well as its Deputy Chief Financial Officer, one of my responsibilities is leading the Department’s efforts to curb, reduce, and recover improper payments in some of the Federal government’s largest programs. As you may know, strengthening program integrity is a top priority of Secretary Sebelius, extending to each of our divisions and programs.
In addition, thank you for your leadership in this important financial management area of preventing, identifying, and recovering improper payments. As I will discuss later in my testimony, improper payment estimates help us monitor the programs and take actions to address the root causes of error, and the authority to carry out recovery audits is also helpful as we seek to recover any improper payments that do occur.
As you may know, HHS is the largest department in the Federal government, with Fiscal Year (FY) 2011 outlays of approximately $900 billion, accounting for almost a quarter of all Federal outlays and we are the largest grant-making agency in the Federal Government.
As you might expect, given the overall size of our agency, we have a variety of programs by type and size – from Federal entitlement programs, to block and formula grants to states and other grantees, to funding for disease research and prevention. Among these programs are some of the largest programs in terms of outlays and beneficiaries served across the Federal government, including Medicare and Medicaid. Given our size, as well as the diversity of our portfolio, it is critical that we are committed to the highest standards of program integrity and financial management.
Today, I will describe our commitment and progress in reducing and recovering improper payments to ensure that we are achieving and maintaining the highest standards of financial management, as well as some of our major initiatives to prevent, identify, and recover improper payments moving forward.
Background on Improper Payments
Estimates of improper payment rates are determined annually in an open and transparent process as required by the Improper Payments Information Act (IPIA) of 2002, and amended by the Improper Payments Elimination and Recovery Act (IPERA) of 2010. While improper payments represent a small fraction of total program spending, any amount of improper payment is unacceptable and HHS is aggressively working to reduce these errors. An improper payment can be a payment made to an ineligible recipient, a payment made in the wrong amount, a payment made without proper documentation, duplicate payments, or payments for services not rendered. It is important to note that improper payments are not necessarily fraudulent. While fraud may be one cause, improper payments are not always the result of fraud or necessarily payments for inappropriate claims. Rather, they tend to be an indication of errors made from a variety of circumstances that give us a tool for measuring how effective our internal controls are working in certain programs.
Improper Payment Results
In the FY 2011 Agency Financial Report (AFR), which we released on November 15, 2011, and can be found at http://www.hhs.gov/afr/, HHS reported improper payment estimates for seven risk-susceptible programs (Medicare Fee-For-Service (FFS), Medicare Advantage (Part C), Medicare Prescription Drug Benefit (Part D), Medicaid, Head Start, Child Care Development Fund, and Foster Care). Of the six programs that reported improper payment error rates in the previous year, five improved their performance and reported lower error rates in FY 2011 (the five programs were Medicare FFS, Medicare Part C, Medicaid, Head Start, and the Child Care Development Fund programs). In particular, two of our largest programs decreased their improper payment estimates between FY 2010 and FY 2011:
- Medicare FFS decreased its improper payment rate from 9.1 percent to 8.6 percent, and
- Medicaid lowered its error rate from 9.4 percent to 8.1 percent.
Additionally, in FY 2011 we also reported a composite error rate for the Medicare Part D program for the first time. Due to the size and complexity of this program, it took several years to develop and implement an improper payment measurement. In FY 2011, we reported a baseline error rate of 3.2 percent for the Medicare Part D program, which will allow us to identify root causes of error and formulate corrective actions to address these root causes.
In FY 2012, we expect to report improper payment estimates for the seven programs listed above. In addition, HHS is also on track to report improper payment estimates for an eighth program, the Children’s Health Insurance Program (CHIP). As you may know, section 601 of the Children’s Health Insurance Program Reauthorization Act of 2009 (CHIPRA) required HHS to revise the improper payment methodology used to estimate improper payments in CHIP. Further, CHIPRA prohibited HHS from calculating or publishing any error rates for CHIP until six months after the new final measurement rule is effective, which is why we did not calculate or report estimates for CHIP in recent years. These eight programs collectively account for approximately 88 percent of HHS estimated outlays for FY 2012.
Once we report an error estimate for CHIP, we will have only one risk-susceptible program remaining without an improper payment estimate – the Temporary Assistance for Needy Families (TANF) program. The TANF program has not reported an error rate because statutory limitations prohibit HHS from requiring states to participate in a TANF improper payment measurement. However, we will work with Congress to address this issue. Until the law can be changed, HHS will continue to work with states to reduce improper payments in the TANF program.
We recognize that much more work remains to be done to obtain measurements and to prevent, reduce, and recover improper payments, but HHS continues to make progress in addressing improper payments in our programs.
Efforts to Prevent and Reduce Improper Payments
At this point, let me take a step back and describe generally our overall process for driving down our error rates. It’s a continuous quality improvement program that starts with measuring and reporting payment error rates for our largest programs based on samples taken of payment information for those programs.
Establishing error rates for a program allows HHS to examine those errors, classify them into error types, and establish corrective action plans that address the root causes of the errors. As we receive new and updated error rates and error type breakdowns, HHS reviews and modifies these corrective action plans, to the extent necessary. These modifications to the corrective action plans can include everything from speeding up the timeline for implementing a corrective action to devising new corrective actions to better address root causes of errors in our programs.
HHS is employing a variety of approaches across our programs to better prevent improper payments before they occur. For example, within our Federal health care programs, HHS is increasing prepayment medical reviews, enhancing analytics, and expanding education and outreach to the provider and supplier communities. Similarly, for many of our human services programs - like Head Start, the Child Care Development Fund, and the Low Income Home Energy Assistance Program – HHS is expanding training and technical assistance for grantees, and issuing guidance on how programs can better determine and verify program eligibility. While HHS has many other corrective actions underway to prevent and reduce improper payments, we believe that the corrective actions that could have the biggest impact on preventing and reducing erroneous payments fall under three distinct areas: leveraging technology, strengthening partnerships, and exploring innovative solutions.
With technology continuing to advance, its expanded use could help us greatly improve our stewardship of Federal resources. While more work remains to be done to identify and implement technological solutions to address improper payments in a financially prudent manner, I believe HHS – with the support of this Subcommittee and others in Congress - has been a government-wide leader in efforts to leverage technology to prevent, detect, and reduce improper payments.
- One technology initiative that you may be familiar with is the Public Assistance Reporting Information System (or PARIS), a Federal-state partnership that provides all fifty states, Washington, D.C., and Puerto Rico detailed information and data to assist them in maintaining program integrity and detecting improper payments in state-administered programs like TANF, Medicaid, the Supplemental Nutrition Assistance Program (formerly known as Food Stamps), Child Care, and Worker’s Compensation. Under PARIS, states submit information on beneficiaries to the Federal government, which then matches the records against Federal databases and other states’ submissions, and reports back to states on any individuals that may warrant further investigation to determine their continued eligibility for the program. For example, PARIS will flag individuals that are receiving benefits in multiple states, leading to improper payments since a beneficiary cannot receive benefits from multiple states. PARIS is an initiative that has been underway for more than a decade, and provides real value to both taxpayers and Federal and state agencies alike.
- Another, more recent initiative is our use of “predictive modeling” technology – similar to technology used by credit card companies to identify fraudulent charges. While predictive modeling is still relatively new technology at HHS and has not yet reached its full potential, it is already making a difference in our efforts to identify and prevent fraudulent and improper payments in Medicare.
Like many other agencies, we recognize that HHS alone cannot prevent and reduce every improper payment. Accordingly, we are placing an increasing emphasis on breaking down barriers between agencies and strengthening partnerships with our Federal, State, and local government colleagues to prevent, reduce, and recapture improper payments.
- One partnership that I would like to highlight is the ongoing relationship that exists between Federal and State or local agencies, and which is a key component of HHS efforts to reduce improper payments. As you know, not every program is directly administered by the Federal government. In fact, many of our programs at HHS – from Foster Care, to TANF, to the Child Care Development Fund – are jointly funded by the Federal government and States, and administered by States or local governments. Accordingly, to address improper payments in these programs, the Federal government must work with State agencies to identify root causes and implement corrective actions. This type of intra-governmental coordination is occurring across HHS programs and each year HHS further strengthens its relationships with the States in an effort to reduce improper payments in State-administered programs. I believe we are starting to see these efforts pay off, as evidenced by the improved improper payment performance during FY 2011 in programs like Medicaid and the Child Care Development Fund that are administered by State or local governments.
- A second partnership that I would like to highlight is one with our Office of Inspector General (OIG). We are working with the OIG to identify opportunities and leverage their experiences to help strengthen program integrity across HHS.
- Finally, the third partnership that I would like to mention, even though it focuses more on fraud than improper payments, is the Medicare Fraud Strike Force initiative, which is part of the Health Care Fraud Prevention & Enforcement Action Team (HEAT) in which the Secretary has been personally involved. HEAT is a joint initiative announced in May 2009 between the Department of Justice and HHS to focus their efforts to prevent and deter fraud and enforce anti-fraud laws around the country. This initiative has been very successful in helping to identify and prevent fraud, stop and charge wrong-doers, and recover important Federal resources, all of which are important components of reducing and recouping improper payments.
Exploring Innovative Solutions
While I believe that our efforts to leverage technology and to strengthen partnerships are helping to address improper payments, it’s also important that we continue to explore innovative new ways to further improve our efforts.
- Last fall, the Department announced that it is implementing three new Medicare FFS demonstrations that aim to further reduce Medicare FFS improper payments by focusing on error prone areas. The first allows hospitals to rebill for 90 percent of the outpatient payment when an inpatient claim is denied because the services were provided in the wrong setting. The second demonstration will implement prior authorization for power wheelchairs for beneficiaries residing in certain states. The third demonstration will allow the Medicare FFS recovery auditors to review certain hospital claims prior to payment, rather than after payment as they do in their traditional recovery auditing efforts. One demonstration is already underway, while the other two will begin later this year.
- A second example of our efforts to identify innovative solutions is the Department’s work with the Partnership Fund for Program Integrity Innovation (Partnership Fund) that is administered by the Office of Management and Budget. The Partnership Fund seeks innovative ideas for improving the stewardship of Federal dollars – including reducing improper payments – among programs that are Federally- and State-administered. After identifying proposals to improve the stewardship of Federal funds, the Partnership Fund will then fund pilot projects and evaluations that test ideas for improving Federal programs. The Partnership Fund has recently selected two pilots related to the prevention of improper payments in Medicaid.
Efforts to Recover Improper Payments
Recovery Audit Programs
While our highest priority is to make correct payments on the front end, HHS is also aggressively working to recover improper payments when they do occur. One of the ways that we recapture improper payments is through the use of recovery audit contractors. These are specialized auditors, paid on a contingency fee basis, that review payments made to providers and suppliers that bill Medicare. The recovery audit contractors identify and correct improper payments, both overpayments and underpayments. The Medicare FFS recovery audit program has been very successful in this effort. As you know, the Medicare FFS recovery audit program began as a demonstration project required by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. Congress subsequently expanded the FFS recovery audit program in the Tax Relief and Health Care Act of 2006, directing HHS to implement a national recovery audit program in Medicare FFS by January 1, 2010. FY 2010 was the first year of the national FFS recovery audit program, and HHS and the four regional contractors spent much of the year implementing the new national program and positioning it for future success. In FY 2011, the recovery auditors focused their reviews on short hospital stays and claims for durable medical equipment, which were identified through error measurements and auditor reviews as more prone to improper payments than other services and claim types and recovered $797.4 million in overpayments to providers and suppliers. FY 2011 recoveries were many times greater than the recoveries in the implementation year of FY 2010, when $75.4 million in over-payments were recovered.
In addition to identifying improper payments, the recovery auditors also help identify areas where policy changes, systems changes, and provider education and outreach can help prevent future improper payments. HHS continues to monitor the FFS recovery audit program and makes continuous improvements to activities, such as the appeal process, feedback to providers, and systems. HHS expects that implementation of certain corrective actions will lower collections for some types of claims; however, collections will remain stable or increase slightly as recovery auditors continue to expand their reviews to other claim types.
In addition to the Medicare FFS recovery audit program, the Affordable Care Act expanded the recovery audit program to Medicare Parts C and D and required states to establish Medicaid recovery audit programs. We are currently establishing and implementing these new recovery audit programs, and are drawing from the lessons learned during the Medicare FFS recovery audit pilot and national program as we do so. In December 2010, HHS sought public comment on innovative strategies for the review of Medicare Part C data as part of the recovery audit implementation strategy. Taking these comments into consideration, HHS is currently developing its strategy to efficiently and effectively implement the Part C recovery audit program. In addition, in January 2011, HHS awarded its first Medicare Part D recovery audit contract, and is currently working with the contractor to determine priority areas.
As mentioned earlier, the Affordable Care Act also expanded the recovery audit program to Medicaid, and states were required to have their recovery audit programs in place by January 1, 2012. HHS’ website provides basic information to the public and interested stakeholders about each state’s recovery audit program. Over the next five years, we project that the Medicaid recovery audit contractor effort will save the Medicaid program $2.1 billion, of which $910 million will be returned to the states. As we stand up these new recovery audit programs in Medicare and Medicaid, we will report information on the results and lessons learned from these recovery audit programs in our annual AFR and other documents.
Just as the Medicare FFS recovery audit program helped inform the expansion of our recovery audit programs to Medicare Part C, Medicare Part D, and Medicaid under the Affordable Care Act, we also expect the lessons learned from this expansion of recovery audits to provide insight on how to most effectively implement the expanded recovery audits authorized under IPERA in other HHS programs. Many HHS programs are administered by states and other grantees. The work that states will undertake in establishing and operating Medicaid recovery audit programs will help inform efforts in other joint Federal-state and grant programs. While HHS continues to develop the best approach to expanding recovery audits under IPERA, we believe we will be able to draw upon the lessons learned from our ongoing recovery audit programs.
Other Payment Recovery Efforts
In addition to the recovery audit programs, HHS also undertakes other recovery activities, including recoveries from single audits, post-payment reviews, Office of Inspector General reviews, Medicare contractors and recoveries from improper payment sampling activities. These recoveries cumulatively amounted to more than $10 billion in FY 2011, which was reported in HHS’ FY 2011 AFR. While it is imperative to prevent improper payments from occurring, HHS will continue to focus on aggressively recovering improper payments – through recovery audits, single audits, and other activities - whenever they do occur.
HHS has demonstrated a longstanding commitment to measuring, reducing, and preventing improper payments. We have published an error rate for Medicare FFS since FY 1996, which was one of the first error rates published across government. HHS has also reported Foster Care and Head Start error rates since FY 2004, and has developed improper payment measurements for other programs like Child Care and Medicare Part D. This commitment is taken seriously and shared throughout the Department. For example, HHS management performance plan objectives hold agency managers, beginning with leadership and cascading down through HHS Senior Executives (including component heads) to the lowest accountable program official, responsible for achieving progress on this important area. As part of the semi-annual and annual performance evaluation, HHS Senior Executives and program officials are evaluated on the progress the agency achieves toward this and other goals.
While HHS has made progress in reducing improper payments, we acknowledge that more work remains. Reducing waste and errors across our Departmental programs will allow us to target taxpayer funds to provide important health care and human services for our beneficiaries and the individuals that benefit from our programs. I am confident that the systems controls and ongoing corrective actions that HHS is undertaking across our programs will result in continued reductions in improper payments.
We look forward to working with this Subcommittee, our Federal and state partners – including the Office of Management and Budget, the HHS Office of Inspector General, and the Government Accountability Office - on these important issues as we work together to bring value to taxpayer dollars as they are used to operate these important programs.
Thank you for the opportunity to testify and I would be happy to answer any questions you may have.
Last revised: April 25, 2012