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Testimony on the OIG's Accomplishment and Planned Work by June Gibbs Brown
Inspector General
U.S. Department of Health and Human Services

Before the House Appropriations Committee, Subcommittee on Labor, Health and Human Services, Education and Related Agencies
February 12, 1997

Mr. Chairman, I am June Gibbs Brown, Inspector General of the Department of Health and Human Services (HHS). The Inspector General Act establishes the statutory authority and responsibilities for the Office of Inspector General (OIG). Our primary mission is to protect and recommend improvements to the programs and management of the Department. This mission is accomplished through a program of audits, investigations, and inspections designed to reach all organizational levels of the Department, its contractors, grantees and providers of goods and services under HHS programs. Let me give you some recent examples our work.

We are nearing completion of a 3-year investigative initiative called "LabScam." LabScam is targeted at abusive marketing and billing practices by the Nation's largest independent clinical laboratories. This project evolved from a 1992 case against National Health Laboratories involving "unbundling" of tests. Unbundling is the practice of running specimens through a single piece of automated multi-channel laboratory equipment and then billing separately for each component test. In coordination with other Federal and State law enforcement agencies, our LabScam investigation has generated receivables and recoveries to date of almost $500 million, and we expect this amount will increase shortly to $823.6 million.

Our office's involvement in the Health Education Assistance Loan (HEAL) program is another example of enforcing program rules and returning tax dollars. Through HEAL, HHS provides money to students seeking an education in a health-related field of study. Unfortunately, some loan recipients ignore their indebtedness. When this happens, we propose to exclude the individual from participating in Medicare, Medicaid, and other Federal programs. Some of these health professionals, upon being notified of their exclusion, immediately repay their entire HEAL debt. In other cases, we attempt a reasonable resolution by entering into settlement agreements whereby the exclusion is stayed while the individual pays monthly amounts to satisfy the debt. If they default, we exclude them until their entire debt is repaid. Thus far, 646 debtors have entered into settlements or completely repaid their HEAL loans in response to our proposed exclusion actions. The amount of money already repaid, and being repaid through settlement agreements, totals $39 million to date.

Our program inspection activity continuously produces recommendations that improve program efficiency and effectiveness and save taxpayer dollars. Our report on Medicare prescription drug allowances is an example of this. While Medicare Part B does not pay for over-the-counter or many prescription drugs that are self-administered, the program does pay for some categories of drugs used by Medicare beneficiaries, such as those used with nebulizers (a type of durable medical equipment). In 1994, Medicare expenditures for prescription drugs totaled at least $1.4 billion. Based on 1995 expenditures, we found that Medicare pays approximately $450 million more than Medicaid for comparable drugs. Under the current rules, Medicare cannot shop around for the best prices as other purchasers would. The Health Care Financing Administration (HCFA) agreed with our recommendation to reexamine Medicare drug reimbursement methodologies, and it is our understanding it has prepared a legislative proposal to reduce payments as appropriate.

Better Ways of Doing Business

Since the beginning of my tenure in November 1993 as the Department's third Inspector General, I have aggressively sought new and innovative ways to stretch our resources and maximize our impact. In these few years we have forged new and stronger links with others in the Federal, State Government and the private sector who are working toward similar goals. These partnership approaches have greatly enhanced our ability to carry out our mission. Among these initiatives was the establishment of the Executive Level Health Care Fraud Policy Group, through which we and the Department of Justice have jointly managed the development of our investigative cases. Other cooperative efforts include:

  • State Medicaid Audit Partnerships. Our office and State auditors conduct joint reviews of the Medicaid program. In establishing this partnership, we believed that this approach would be a more effective use of scarce audit resources by both the Federal and State audit sectors. Active partnerships have been developed with 15 State auditors, 11 State Medicaid agencies, and 2 State internal audit groups. Twenty State auditor partnership reports have been issued with a financial impact of over $100 million affecting both Federal and State Government funds.

  • Operation Restore Trust. Operation Restore Trust is an ambitious interdisciplinary project in which Federal and State agencies join to fight fraud, waste, and abuse in home health agencies, nursing homes, and the medical equipment and supply industry. With strong Secretarial support, the 2-year demonstration project targeted five States which account for about 40 percent of the Nation's Medicare and Medicaid beneficiaries. As the project's coordinator, our office assembled teams that included investigators, auditors, and other professionals from within the Office of Inspector General, the Health Care Financing Administration, the Administration on Aging's ombudsmen program, the Department of Justice, and the States. We also enlisted the support and participation of the public and the industries that the initiative targets. Thus far, 65 criminal convictions and 57 civil actions have been obtained under Operation Restore Trust. Currently, there are 50 providers under indictment. In addition, 166 fraudulent or abusive providers have been excluded. More than $124 million in fines, recoveries, settlements and civil monetary penalties owed to the Federal Government have been effected. The project has resulted in numerous inspection and audit reports and proposals to change policy to correct systemic weaknesses. This interagency and interdisciplinary approach to law enforcement is a model that exemplifies the kind of coordinated planning program required by the Health Insurance Portability and Accountability Act to control health care fraud and abuse.

  • The Department's recent success in Operation Restore Trust was demonstrated in virtually eliminating over $100 million per year in inappropriate payments for incontinence supplies. Incontinence supplies are used for individuals who have bladder or bowel control problems. Medicare Part B covers certain supplies for dealing with urinary incontinence. We found that Medicare allowances for such incontinence supplies more than doubled in 3 years ($88 million in 1990 to $230 million in 1993). In a December 1994 study, we found that questionable billing practices may have accounted for almost half of incontinence allowances in 1993. Outlays continued to rise to $260 million in Fiscal Year 1994. However, our exposure of these billing abuses, coupled with a coordinated nationwide investigation involving more than 20 separate cases and a concerted effort by the Health Care Financing Administration's durable medical equipment carriers has turned the escalating reimbursements downward. By the end of FY 1995, the abusive practices we had identified had all but disappeared.

My office is encouraging the health care industry to voluntarily strengthen internal controls by implementing Medicare and Medicaid compliance programs based on model compliance programs we are developing. In addition, we are developing protocols by which providers can arrange for third party reviews of certain billing practices.

  • Model compliance programs. The creation of model compliance programs is becoming a key means to engage the private health care community in the fight against fraud and abuse. As part of our investigation and settlement efforts, we require integrity agreements with health care providers who abuse HHS programs. These agreements are designed to curb further improper practices. Based on this concept, we are now encouraging providers to voluntarily implement compliance programs to prevent problems from ever developing. A model for clinical laboratories represents our first effort to provide guidance to industries. We intend to publish the final version of this and future models in the Federal Register and make them available on the Internet.

  • Review Protocols. Our audit program generates substantial returns, primarily through its examination of billing patterns. When an improper billing practice is revealed, we audit that provider to assess liability and arrive at fair settlements. For example, we are realizing substantial billing problems at teaching hospitals. We found noncompliance with a Medicare rule regarding physician services provided by residents, yet billed by teaching physicians, and improperly "upcoding" the level of service provided. (Upcoding means billing Medicare for a service that has a higher reimbursement level than the service that was actually provided.) The original review resulted in recovery and fines of more than $30 million.

  • It became apparent from our work at additional hospitals that this was a somewhat widespread problem. We then established a review protocol to be used by other hospitals and physician group practices to assess their own liability for this improper billing practice. This initiative is referred to as "PATH," an acronym for "physicians at teaching hospitals." Active participation includes arrangement, at the hospital's or group's expense, for an independent review conducted by a third party, using our protocol. This provides an alternative to having my office conduct all the reviews and thereby leverages our audit impact. A number of voluntary settlements are expected from these reviews. The first settlement using this protocol resulted in an agreement to pay $11.9 million.
OIG Funding Sources

Beginning in Fiscal Year 1997, my office has two separate funding sources. In addition to our discretionary appropriation, the Health Care Fraud and Abuse Control Account, established by the Health Insurance Portability and Accountability Act of 1996 (Public Law 104-191), funds our activities with the Medicare and Medicaid programs. From the $104 million appropriated in the Health Care Fraud and Abuse Control Account in Fiscal Year 1997, our office will receive mandatory funding of $70 million. From the $119.6 million in the Account for Fiscal Year 1998, we can receive not less than $80 million and not more than $90 million. Allocation of these Fiscal Year 1998 resources will be determined by the HHS Secretary and the Attorney General.

Our discretionary appropriation can be used for any activity of my office, but is used primarily for projects related to the Public Health Service (PHS), Administration for Children and Families (ACF), Administration on Aging (AoA), and general departmental management. Our discretionary budget request for Fiscal Year 1998 is $31,921,000, a decrease of $2,869,000 from the comparable Fiscal Year 1997 operating level. The increases for annualization of the January 1997 pay raise, the anticipated January 1998 pay raise of 2.8 percent, and personnel costs such as within-grade and proposed CSRS increases, will be offset by reductions in staffing devoted to the programs of PHS, ACF, AoA and general departmental management. Our overall FTE level has been increased for anticipated growth under the Fraud and Abuse Control Program for Medicare and Medicaid.

Work Underway and Planned

Based on this funding configuration, I would like to highlight some of the areas we will be working on this year and in Fiscal Year 1998.

Medicare and Medicaid. Although the Operation Restore Trust demonstration project ends this spring, there are many ongoing cases and studies that will be continued over the next year or so. We expect to complete our work on home health, hospices, nursing home services and several items of durable medical equipment. We will also continue pursuing our work involving prescription drug payments in both the Medicare and Medicaid programs. We anticipate additional savings and recoveries to come out of that work. Further, we intend to continue similar cooperative activities on these and related subjects at a national level.

We will also be starting some new projects. We are particularly interested in physician and hospital reimbursement issues. For example, we plan to determine whether a targeted approach for identifying hospital miscoding is effective; the effect of hospital ownership of physician practices on billing practices and utilization; and whether hospitals are correctly coding patient stays. We also plan to assess the physician's role in controlling non-physician services and supplies and will continue reviewing Medicare compliance by physicians at teaching hospitals.

In addition to Medicare and Medicaid, the OIG provides oversight to the other programs and processes of the Department as well. Our planned emphasis areas, to be funded from the discretionary appropriation, include:

Increasing Collections in the Child Support Enforcement Program. These reviews will evaluate various options and methods to improve child support collections such as the effective use of judicial or administrative processes to revoke various types of State licenses belonging to delinquent non-custodial parents and wage withholding. We recently released a report showing that a reasonably simple data exchange between HHS and the Internal Revenue Service can help identify noncustodial parents misrepresenting their children's living arrangements on their tax returns. Based on this study and other information, we believe there could be total annual tax losses of $1.4 billion or more resulting from noncustodial parents inappropriately claiming custody of children on Federal income tax returns. The Department of Justice recently granted deputation to our agents to work Federal child support violations (regardless of whether HHS funds are involved) contingent on working jointly with any other agency having interests in the case such as the Internal Revenue Service and the FBI.

FDA Processes. We will assess the adequacy of the Food and Drug Administration's controls over investigational new drugs, review FDA regulation of Institutional Review Boards, and evaluate FDA Device Safety Alerts.

Public Health Fraud. Investigations of fraud in public health programs are diverse, complex, and often critical to protecting the health of the American people. These investigations will address grant and contract fraud, research fraud, and allegations of wrongdoing. For example, an investigation by our staff at a major medical center revealed that a lab director had systematically diverted to his own use laboratory employees, equipment, supplies, and other resources supported mainly by research grants funded by the NIH. The lab director established a private company through which he submitted claims for payment to his own account for lab services which were actually performed by the lab employees at the medical center. The medical center, in response to an audit report by my office, has agreed to refund about $670,000 in overcharges for lab costs caused by its lab director. We referred this matter to a U.S. Attorney, and after a thorough investigation, the lab director was indicted on 49 counts of mail fraud and 3 counts of money laundering. He is currently awaiting trial.

Mr. Chairman, we appreciate this opportunity to review our accomplishments and planned work with your subcommittee. We assure you that the Office of Inspector General will continue to protect HHS programs, offer recommendations to improve program effectiveness and efficiency, and produce savings to the taxpayers. We have proved over the years that we can produce a generous return on investment, and I am confident we will continue to do so. I will be happy to answer any questions you may have.

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