Chairman Barton, thank you for convening this hearing today to talk about one of my highest
priorities as Administrator: combating waste, fraud and abuse in Medicare. It is a pleasure to be
in Texas, a state which has been a pioneer in the fight against health care fraud.
Medicare has literally changed what it means to be old or disabled and sick in America. Over its
32 years of existence, Medicare has provided access to health care coverage for almost 80
million Americans, many of whom who would otherwise have lacked access to any kind of
health care. And very importantly, Medicare is coverage that cannot be lost as you get older or
sicker, or if you lose your spouse. Medicare has helped keep many elderly out of poverty status
and prevented American families from having to bear the full burden of health care costs for their
elderly or disabled parents or relatives. When President Lyndon B. Johnson signed Medicare
into law, he predicted that Medicare would "take its place beside Social Security and together
they will form the twin pillars of protection upon which an our people can safely build their lives
and their hopes."
President Johnson was right. Today, Medicare is serving over 2 million residents of Texas, and
more than 39 million beneficiaries nationwide. In Texas, Medicare spends about $11 billion
each year, providing the State's elderly and disabled with over 3 million days of hospital care; 2
million days of skilled nursing home care; some 25 million physician visits and providing home
health services to about 260 thousand beneficiaries.
We are already achieving record success in increasing fraud and abuse investigations,
indictments, convictions, fines, penalties and restitutions. Last year, using new Health Insurance
Portability and Accountability Act authorities nearly $1 billion was returned to the Medicare
Trust Fund, thanks to our partnerships with the HHS Inspector General, Department of Justice
and state and local authorities. Medicare alone saved an estimated $7.5 billion in FY 97 --mostly
by preventing inappropriate payments -- through audits, medical reviews, and ensuring that
Medicare does not pay for claims owed by private insurers. Health fraud convictions are up
nearly 20 percent and the number of civil health fraud cases increased 61 percent.
ON-GOING ANTI-FRAUD INITIATIVES
Operation Restore Trust (Restore Trust), launched by President Clinton in May, 1995, was a
two-year comprehensive anti-fraud initiative in five key states designed to test the success of
innovations in fighting fraud and abuse in Medicare. The initiative focused on three specific
areas: home health agencies, nursing homes and durable medical equipment (DME) services in
California, Florida, Illinois, New York, and Texas.
During its two-year, five-state demonstration phase, Restore Trust accomplished measurable
successes: identifying $23 in overpayments for every $1 spent looking at home health care,
skilled nursing facilities and suppliers of DME and identifying 2,700 fraudulent health care
providers and entities who were excluded from doing business with Medicare and other federal
and state health care programs. Because of its successes, in May 1997 Restore Trust was
expanded to 12 additional states and all Medicare service areas.
Operation Restore Trust in Texas
Our Dallas Regional Office developed an Operation Restore Trust management plan and has
actively pursued fraudulent providers. The Dallas Office designed and implemented a number of
projects aimed at reducing fraud, waste, and abuse in Medicare. One example is the Texas Home
Health Survey initiative which proved to be one of the most successful in Restore Trust and has
since been adopted as a fraud fighting tool by states across the country. As part of the project,
the Dallas Office used existing relationships with the Texas Department of Health to have
registered nurses conduct claims reviews as part of their regular quality of care reviews in home
health agencies. Nurses who visited home health agencies, were given a sample of claims billed
by the agencies and paid by Medicare. The nurses, were asked to review those claims at the
same time they surveyed the quality of care provided by the agency. The nurses looked for
documentation to establish that all billed services were properly ordered and provided and that
Medicare coverage requirements were met.
Since March 1995, 83 Texas home health agencies have been reviewed under this project with
just under $33 million identified in inappropriate Medicare payments. The most prevalent
reasons that claims were denied were because the patients did not meet Medicare homebound
requirements, or the services provided to patient were not medically necessary. The project
objectives and methodologies were distributed throughout central and regional Restore Trust
teams and soon became the model on which other regions developed their own projects to survey
home health agencies.
In addition, Restore Trust in Texas made national policy recommendations which HCFA swiftly
adopted including: developing a statement for home health agencies to certify their
understanding of the Medicare homebound requirements, and revising manual instructions to
include the definition of homebound.
In 1997, the Dallas Office initiated a project to review physical, occupational, and speech therapy
claims paid by Medicare for patients in skilled nursing facilities. The project adopted the process
used successfully in the home health agency projects by combining the resources of the State
Health Departments, the Medicare contractors, and the HCFA Regional Office. The overall
objective of the project was to use the State Health Department's onsite visit to review a sample
of claims Medicare had paid. Nurses looked for documentation that the billed services had been
properly ordered and provided and that the services were medically necessary. The Medicare
contractor reviewed the nurses' information and began seeking repayment for these inappropriate
billings. In 1997, this project identified over $400,000 of inappropriate payments made to skilled
nursing facilities in Texas. In addition to recouping, these types of projects prove the importance
of partnerships between Federal and State partners to combat fraud, waste, and abuse.
Another Restore Trust project, directed by the HCFAs Dallas Office, identified inappropriate
payments for durable medical equipment (DME) furnished to patients in nursing homes. All
nursing homes in Texas are responsible for providing DME needed by their patients because
payment is considered to be included in the rate paid to the nursing home. In cooperation with
the State Medicaid Agency, and the Medicare contractor which processes DME claims, we were
able to do identify separately filed and paid DME claims for nursing home residents for both
Medicare and Medicaid. The project identified $1.5 million in overpayments which has been
recovered from the DME companies.
Anti-Fraud Initiatives in Oklahoma, Louisiana and Arkansas
Building on lessons learned in Texas, our Dallas Regional Office formulated fraud management
plans for Oklahoma, Louisiana, and Arkansas, where we have continued to crack down on those
who wrongly take monies from Medicare. In Oklahoma, nurses from the State Health
Department paid visits to 24 home health agencies last year where they uncovered just under $1
million in Medicare overpayments. Working in conjunction with HCFA, nurses from State
Health Departments visited skilled nursing facilities in Oklahoma, Louisiana and Arkansas to
verify that speech, physical and occupation therapies that had been billed to Medicare were in
fact provided and had been correctly billed. The nurses identified over $1 million that was
inappropriately billed to Medicare.
Working in partnership with the HHS Inspector General, the Department of Justice, and state and
local authorities, we are achieving record successes in increasing fraud and abuse investigations
indictments, convictions, fines, penalties, and restitutions. Our regional offices have been
leaders in uncovering schemes used to steal from Medicare and developing initiatives for
fighting them. In fact, the efforts of these men and women on the front fines have borne fruit in
recent legislation, regulations, or other initiatives.
THE BALANCED BUDGET ACT AND RECENT INITIATIVES
With the support of many members of this committee, the Balanced Budget Act made the most
significant changes in Medicare and Medicaid since the programs were enacted more than 30
years ago. We're already putting in place significant new tools to fight fraud, waste and abuse.
Among these are the authority to: bar felons from participating in Medicare; require a surety
bond of at least $50,000 for home health agencies, durable medical equipment suppliers, and
certified rehabilitation facilities; impose penalties for services offered by a provider who has
been excluded by Medicare and Medicaid; impose penalties for hospitals who contract with
providers who have been excluded from Medicare; require home health agencies to bill from the
place the service was provided rather than from a more expensive central office; and require
health care providers applying to participate in Medicare to provide their Social Security
numbers and their employer identification numbers so HCFA can check an applicant's history.
We estimate that a single provision of the Balanced Budget Act which closes a loophole that
allows home health agencies to bill in high cost areas will save the Medicare program millions of
dollars in the state of Texas alone. For example, a home health agency currently based in a
metropolitan area of South Central Texas provides services to thousands of Medicare
beneficiaries throughout that part of the state. Since Medicare reimbursement rates are driven by
the cost of doing business in that community, reimbursements are much higher in metropolitan
areas than in rural communities. Although many of the Medicare beneficiaries are served by
satellite offices of the home health agency in rural areas where the reimbursement rates for their
services are much less, the company bills the services from the metropolitan office where the
reimbursement rates are much higher. The Balanced Budget Act requires Medicare to pay for
home health services based on where the service was provided rather than where the parent office
of the home health agency is located. By closing this loophole, we estimate that Medicare will
pay $1 million less for home health services in this one instance.
Home Health Initiatives
Over the last several months we have taken steps to make it tougher for home health agencies to
enter and remain in the Medicare program. On September 15, 1997, the President announced a
moratorium on all new home health agencies entering the Medicare program until HCFA could
implement a range of new rules and management tools designed to enhance oversight of home
health agencies and ensure that new Medicare home health agencies are not "fly-by-night" or low
The moratorium was lifted earlier his year with the publication of a regulation requiring all home
health agencies that participate in Medicare to: obtain a surety bond of at least $50,000, reveal
"related business interests" that often assist in fraudulent and abusive activities, and serve at least
10 patients before they are admitted to the Medicare program after their quality of care is
reviewed. Instructions have been issued to state survey agencies requiring that they must verify a
surety bond and directing them to ensure an home health agency is serving its own patients
and not those that have not been "borrowed" from an already certified home health agency.
Furthermore, later this year HCFA will issue regulations to require home health agencies to
re-enroll every three years.
Durable Medical Equipment Initiatives
Just last month we took additional steps to stop waste, fraud and abuse by illegitimate dealers of
durable medical equipment (DME). HCFA proposed a regulation to make it more difficult for
unscrupulous DME suppliers to enter the Medicare program. Our goal is to make sure Medicare
only does business with legitimate firms. In addition to clarifying the law requiring a surety
bond of at least $50,000, DME suppliers will be banned from telemarketing, be required to have
a physical location and a working business phone at that location, be prohibited from reassigning
supplier numbers, be held liable for criminal and civil sanctions for false information on billing
number applications and will be required by regulation to re-enroll in Medicare every three years.
HCFA is also taking other actions to ensure that DME suppliers receiving Medicare billing
numbers are legitimate. As the HHS IG has recommended, HCFA began requiring periodic
training on billing procedures for new and existing suppliers and modified the DME application
form to obtain additional information about prospective DME suppliers.
Community Mental Health Center Initiatives
One of the newest and fastest growing areas of fraud and abuse has been associated with
Community Mental Health Centers. In January, we began a new initiative to stop the growing
amounts of fraud and abuse associated with partial hospitalization services rendered by these
types of mental health centers. In the last four years, there has been a dramatic rise in the total
reimbursements, the average payment per patient and the number of mental health centers.
Reviews conducted jointly with the HHS IG have revealed large scale amounts of fraud,
including services being rendered to beneficiaries who are not mentally ill by unqualified,
In an effort to ensure that only legitimate mental health centers are permitted to enter and remain
in the program, HCFA will conduct onsite reviews of all mental health centers in nine targeted
States, including Texas and Arkansas. We will terminate the provider agreements of all entities
that do not meet Medicare standards. If this initiative proves successful, each fiscal intermediary
will conduct onsite reviews of all new mental health center applicants, stopping illegitimate
entities from gaining entry to Medicare and defrauding the Trust Fund.
FY 99 President's Legislative Proposals and Other Initiatives
In January, the President unveiled a legislative package and several initiatives which give us
new tools in our fight against Medicare fraud and abuse. The legislative proposals seek authority
to collect a fee from providers in order to increase the number of audits; eliminate wasteful
excessive reimbursement for certain drugs; eliminate abuse of Medicare's outpatient mental
health benefits; and prevent providers from taking advantage of Medicare by declaring
These proposals will allow us to stop some of be unscrupulous home health agencies who have
set up shop in Texas. In the early 1990's, a home health agency moved to Texas from the
Midwest and started serving large numbers of Medicare beneficiaries. HCFA soon became
suspicious of their large billings and with the HHS IG initiated an audit which found that the
agency had wrongly billed Medicare for $30 million. Before we could recoup these monies, the
agency filed for bankruptcy, discharging their debt and stopping our ability to recover these
The President also announced that HCFA has increased the number of on-site visits to DME
suppliers. Restore Trust initiatives have found many purported DME suppliers whose addresses
are the sixth floor of a five story building or are only mail drops in places like Laundromats and
night clubs. Site visits to two thousand suppliers five states with the most DME fraud problems
resulted in 650 suppliers being ejected or rejected by Medicare in 1997. Site visits began in an
additional 10 states this month and will be expanded nationwide. These measures will make it
more difficult for unscrupulous suppliers to enter the Medicare program.
Additionally, the President announced an unprecedented effort to involve Medicare beneficiaries
in identifying waste, fraud and abuse. Over the next few months the Medicare toll-free fraud
hotline -- 1-800-HHS-TIPS -- will appear on the statements beneficiaries receive that list the
services that have been billed to Medicare on their behalf . Later this year, provisions in HIPAA
will be implemented to give beneficiaries rewards for reporting fraud.
We simply cannot tolerate those who would cheat our beneficiaries and the taxpayers. That is
why just last month I announced that Medicare will open an office in New Orleans that will
coordinate anti-fraud activities in Louisiana. The New Orleans field office will open this spring.
It's the latest step of the crackdown that President Clinton began in 1993. It will operate in the
same way as our highly successful office in Miami. Medicare staff based in New Orleans will
coordinate efforts among federal and state officials, law enforcement, private insurance and
consumer advocacy groups. Working together, we will do an even better job of finding,
prosecuting and preventing fraud and abuse.
Our experience with the Miami field office proved that onsite presence makes a considerable
difference in raising public awareness of the Medicare fraud and abuse problems. The Miami
office helped detect new types of fraud and proposed steps to stop it. We expect that this new
field office too will make major inroads against fraud and abuse here in this region. Medicare
beneficiaries of today and tomorrow deserve no less.
In the very near future, HCFA will publish a proposed rule which will allow us more flexibility
in contacting with companies who can provide valuable services in the fight against waste, fraud
and abuse. The Health Insurance Portability and Accountability Act (HIPAA) provided HCFA
with new authority to contract with private organizations to perform program safeguard activities
like audits and site visits. We hope to start enlisting these private entities by the end of the year.
National Conference to Identify Best Practices
In a few weeks, I will be convening a national conference to identify best practices in fighting
waste, fraud and abuse. This conference will bring together about 200 representatives of private
industry, law enforcement, health care providers, and beneficiaries to discuss what is being done
to combat problems like credit card fraud, insurance fraud, and telecommunications fraud in
addition to health care fraud. Representatives from our Regional Offices will also be present and
following the conference will help design a long-range plan to guide the agency in fighting and
preventing fraud, waste and abuse.
We have stopped a great deal of unscrupulous dealings over the last 4 years. However, the
nature of health care fraud demands that we must continuously identify new measures in order to
stay a step ahead of those whose intention is to misuse Medicare Trust Fund dollars. Each
Medicare dollar spent fraudulently is a direct drain on the resources which provide health care for
our nation's seniors. I hope to build on the growing momentum to ensure that the Medicare Trust
Fund remains solvent for generations to come.
As I said in my confirmation hearing, fighting fraud is a top priority for me. My tenure as HCFA
Administrator will build upon the anti-fraud and abuse efforts that have already been initiated
under the Clinton Administration. The Congress provided the Administration with significant
new tools in HIPAA and the BBA. Coupled with a number of new legislative proposals we are
requesting for FY 99, we believe we have a strong new arsenal to remove bad actors from our
roll. I look forward to working with you in our efforts to stamp out fraud and abuse.