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Testimony on Medicare Abuse at Community Health Centers by Penny Thompson
Program Integrity Director, Health Care Financing Administration
U.S. Department of Health and Human Services

Before the House Committee on Commerce, Subcommittee on Oversight & Investigations
October 5, 1998

Chairman Barton, Congressman Klink, distinguished Subcommittee members, thank you for inviting me here today to discuss problems with community mental health centers and our efforts to ensure that Medicare beneficiaries with acute mental illness get quality treatment.

The HHS Inspector General, working with our staff at the Health Care Financing Administration, has in two separate reports documented widespread abuse of Medicare's partial hospitalization benefit at many community mental health centers (CMHCs). We greatly appreciate the work the Inspector General's Office has done in producing these reports. We are already acting to address these problems. We are terminating providers who have egregiously abused this benefit. The President has also proposed legislation that we need to help prevent abuses of this benefit in the future.


Medicare's partial hospitalization services are reserved for beneficiaries with acute mental illness who otherwise would need to be hospitalized. These intensive psychiatric services can be provided by both CMHCs and outpatient psychiatric programs in hospitals.

The number of CMHCs has grown rapidly since Congress first allowed the centers to serve Medicare beneficiaries in a 1990 law. There are about 1,150 CMHCs participating in the Medicare program today. Nearly half are concentrated in four states Florida, Texas, Pennsylvania and Alabama. About 1,000 hospitals also provide the partial hospitalization benefit. Medicare payments to CMHCs rose by 342 percent between 1993 and 1996, from $60 million to $265 million. The average payment per beneficiary during this period rose by 319 percent, from $1,642 to $6,874. Preliminary figures for 1997 show an even greater increase, with total payments to CMHCs climbing to $349 million and average payment per beneficiary topping $10,000.

Problems with CMHCs were first documented through Operation Restore Trust, our cooperative effort with the Inspector General and other law enforcement agencies to ferret out fraud and abuse. As you know, the Clinton Administration has made stopping waste, fraud and abuse in the Medicare program one of its top priorities. In fiscal 1997, Medicare saved more than $7.5 billion through its anti-fraud and abuse efforts, and, with its law enforcement partners, returned another $1 billion to the Medicare Trust Fund.

Operation Restore Trust last year examined 18 Florida CMHCs. The investigation found that 89 percent of sampled beneficiaries were not eligible for partial hospitalization services, and that 100 percent of the services provided in these facilities were not Medicare covered services. In addition, 17 of the 18 CMHCs did not provide all of the core services they are required by law to provide in order to participate in Medicare.

The law requires CMHCs to provide four core services: 1) outpatient services to the elderly, children and the severely mentally ill; 2) 24-hour-a-day emergency care; 3) day treatment or other partial hospitalization services; and 4) screenings to determine whether to admit patients to state psychiatric hospitals.

We suspended payments to all 18 providers involved in that review, and made referrals to appropriate law enforcement agencies to investigate those providers for fraud and abuse.

Also, based on other findings in Operation Restore Trust, we are reviewing every claim submitted by several other CMHCs in Florida where we have identified widespread problems. And, this year, we increased our budget for medical reviews and audits for all services and all providers, including CMHCs.

This year we conducted site visits to about 700 Medicare-participating CMHCs and applicants. Our Administrator, Nancy-Ann DeParle, inspected some of these programs herself and saw first hand that some centers are using this program and billing Medicare in ways that are completely inappropriate.

Many CMHCs meet few, if any, of the statutory requirements for Medicare participation, raising doubts about their ability to properly care for beneficiaries. There also is extensive evidence of CMHCs billing Medicare for patients who are ineligible for partial hospitalization services, and for services that are not appropriate. Some CMHCs offer bingo and other entertainment, which Medicare does not cover, but do not offer the full range of psychiatric services that they legally must provide in order to receive Medicare payments. In some cases, beneficiaries were receiving services they did not need and did not even know that they were in a program intended for people with mental illness.

We must correct these problems now before they grow worse, and we must ensure that beneficiaries who do need partial hospitalization services get the appropriate, quality care they need. Centers must be equipped to provide the services that are needed, and they must stop enrolling beneficiaries who do not need these benefits.

The problems we are acting to correct were not anticipated when the law was changed in 1990 to allow CMHCs to provide partial hospitalization services. CMHCs at that time were primarily either government agencies or federal grantees. It seemed reasonable to simply have them sign attestations that they did in fact meet the requirements. Since then, however, private entities have come into the program, particularly in states with no CMHC licensure requirements. Also since then, we have learned a great deal about what we must do to fight waste, fraud and abuse. This Administration has put unprecedented emphasis on finding and stopping these kinds of problems. Working with Congress, we have recently obtained resources to conduct necessary oversight. Clearly, if this benefit were enacted today, we would we take a much more restrictive approach to enrolling and reviewing providers from the start.


We are taking action. We have so far this year denied more than 100 new applicants that failed to provide all the core services. And, just last week, we unveiled our comprehensive, 10-point plan to ensure that Medicare beneficiaries with acute mental illness get quality treatment in CMHCs and that Medicare pays appropriately for those services. We are terminating many centers that are not providing legally required core services, and will require others to come quickly into compliance. In some cases, we also will demand repayment of money paid inappropriately for non-covered services or ineligible beneficiaries.

We need to move in a deliberate, targeted manner to assure that beneficiaries' needs are met, and at the same time that fraud and abuse in this program is eliminated. Termination actions will be phased in over a period of months in order to address the most egregious providers first and to assure that beneficiaries needing psychiatric services will continue to receive them in an appropriate setting. Last week we sent non-compliance notices, which begin the termination process, to 20 CMHCs. We expect to terminate an estimated 80 CMHCs in all by early 1999.

We will work with the Administration on Aging, the Substance Abuse and Mental Health Services Administration, and patient advocacy groups as we terminate facilities to ensure that beneficiaries receive any appropriate services they may need.


As mentioned above, we have developed a 10-point action plan to protect the partial hospitalization benefit and prevent fraud and abuse by CMHCs. It will ensure that beneficiaries who need intensive psychiatric services get them from qualified providers. At the same time, it will protect beneficiaries and taxpayers from waste, fraud and abuse of the benefit. Our 10-point plan includes:

  • Protecting beneficiary access to covered services. We will consider the needs of beneficiaries before terminating any centers. We will work with the Administration on Aging and other federal agencies, mental health advocates, state officials and others to ensure that beneficiaries receive appropriate services from Medicare, and when appropriate, other social service agencies.

  • Terminating the worst offenders. Medicare will end its relationship with those CMHCs that are most out of compliance with legal requirements. Other CMHCs that are not as far out of compliance will need to quickly correct identified problems.

  • Increasing scrutiny of new applicants. We will require site visits nationwide to ensure new applicants meet all of Medicare's core requirements. As mentioned above, we have already this year denied Medicare participation to more than 100 applicants because they failed to provide all the required services.

  • Pursuing the President's proposed legislative reforms. We will seek passage of legislation President Clinton sent to Congress in January to strengthen CMHC enforcement activities by: authorizing fines for falsely certifying a beneficiary's eligibility for partial hospitalization services; prohibiting partial hospitalization services from being provided in a beneficiary's home or other residential setting; and authorizing the Secretary to set additional requirements for CMHCs to participate in the Medicare program. In addition, we will work with other agencies to consider additional reforms.

  • Intensifying medical review of claims. We will increase review of partial hospitalization claims to ensure Medicare pays only for appropriate services to qualified beneficiaries. This will involve claims from CMHCs as well as hospital outpatient departments.

  • Implementing a prospective payment system. We are working to develop a new prospective payment system for hospital outpatient services, as required by the Balanced Budget Act of 1997. The new system will apply to partial hospitalization benefits in CMHCs and will eliminate the financial incentives to provide inappropriate, unnecessary or inefficient care.

  • Conducting a broad evaluation of the benefit. With the Inspector General, we will conduct an overall review of the partial hospitalization benefits in both CMHCs and hospital outpatient departments. We will take appropriate steps to address problem areas identified during that review.

  • Reinforcing Medicare's CMHC standards. Through our regional offices and state survey agencies, we will reinforce the need for prospective CMHCs to meet all existing statutory and regulatory requirements for participation in the program.

  • Evaluating the need for re-enrollment requirements. We will consider new regulations that would require CMHCs to re-enroll periodically in the Medicare program and to serve a minimum number of non-Medicare patients.

Community mental health centers may account for a small fraction of Medicare's overall budget, but the abuses the Inspector General and our staff have uncovered are egregious. We must ensure that every Medicare dollar goes to legitimate services. We must secure passage of the legislation President Clinton has proposed to provide tools we need to stop these abuses. We must stop these abuses, both to protect taxpayers, and to ensure that beneficiaries are getting the appropriate, quality care to which they are entitled.

Again, I thank you for holding this hearing to highlight this issue, and I am happy to answer any questions you might have.

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