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on the
before the
June 29, 1999

Chairman Horn, Congressman Turner, distinguished Subcommittee members, thank you for inviting us to testify about the Government Waste Corrections Act and our extensive efforts to prevent and recoup improper payments. As you know, we reduced Medicare's payment error rate from 14 percent to 7 percent in just two years, and we continue to work diligently to build upon this success. We are very grateful for this Subcommittee's support in these efforts.

We have had good success with efforts similar to the recovery audits described in the proposed legislation. Of course, we prefer to prevent improper payments from occurring in the first place. We are making solid progress on that front, in large part due to increased efforts by providers to document and file claims correctly. We also use nearly 100,000 computerized "edits" that detect and automatically deny payment for improper claims, as well as manual medical record reviews and cost report audits. Our success with such efforts strongly suggests that they may have value for other government agencies.

We are making solid progress in identifying and collecting overpayments as well. As you know, the HHS Inspector General's CFO audits have found that the vast majority of Medicare claims paid by our contractors are correct on their surface. Finding most payment errors requires going beyond what's on the claim to look at the documentation behind the claim and its medical necessity. These activities are now primarily performed by our claims processing contractors. We recently held an open competition to establish a pool of new Program Safeguard Contractors to augment these efforts, and the President is proposing legislation to further increase competition among Medicare contractors.
The Act's authorization to compensate recovery auditors on a contingency basis may have appropriate uses in some circumstances, as the Department of Defense experience may suggest. It may have value for Medicare in the limited situations where we are unable to collect from providers. However, most overpayments are now recouped by making deductions from future payments to providers who have been overpaid.

We also do not believe contingency payment is necessary, or necessarily prudent, for identification of Medicare payment errors. As mentioned above, we have made solid progress identifying payment errors under existing contractor arrangements. More importantly, paying on a contingency basis for error identification could be perceived pejoratively as a "bounty system" by health care providers. Providers have raised such concern about even the very modest reward available to beneficiaries who uncover fraud under the Health Insurance Portability and Accountability Act. The vast majority of Medicare providers make only honest errors, and their good will and cooperation are key to much of our success in preventing improper payments in the first place.

Furthermore, a financial incentive to identify errors could well lead to inappropriate denials and thus create errors, instead. Our obligation is to pay correctly, and we do not want to deny proper payment any more than we want to make improper payment. Inappropriate denials resulting from contingency contracts also could backfire on the bottom line due to increased costs for appeals filed by beneficiaries and providers denied proper payment.

We also believe that all recouped overpayments made from the Medicare Trust Funds should be returned to the Trust Funds or general revenue funds, as is the case now. This will ensure that Medicare can continue to pay for necessary health care for our beneficiaries, and is consistent with the fraud and abuse control program created under the Health Insurance Portability and Accountability Act.


Since the Clinton Administration took office, the Department of Health and Human Services has taken numerous steps to stop fraud, waste, and abuse. Achieving this goal is one of our top priorities at HCFA. With help from Congress, providers, beneficiaries, and our many other partners, we have achieved record success in assuring proper payments and recouping improper payments.

Obviously, the most cost effective way to collect overpayments is to not make them in the first place. We have had great success by cooperating with providers to help them document and file claims properly to prevent improper payments. Documentation errors had been the single largest factor in our error rate, but have declined by almost 80 percent from fiscal 1996 to fiscal 1998. They now account for only about 17 percent of improper payments.

That is why our Comprehensive Plan for Program Integrity features increased efforts to educate providers about how to properly document and file claims. Most providers who make billing errors have no intent to do anything wrong, but simply make honest mistakes, and we want to ensure that providers understand our coding and documentation rules. We are therefore taking nationwide a highly successful provider education pilot project conducted last year in 13 States. It includes:

-- seminars on how to document and file claims that we have broadcast via satellite to thousands of providers and their billing agents;
-- special training to help medical residents set up their practices to bill Medicare correctly;
-- a special duplicate claims reduction program; and
training modules on the Internet at that any individual with Medicare billing responsibilities can use.

We also are meeting with physicians around the country to explore ways we might be able to make it easier to understand and comply with Medicare rules and regulations. In all these activities, it is essential that we maintain a constructive partnership with providers.

Our Comprehensive Plan also features efforts to increase and improve ongoing activities that parallel the "recovery audits" described in the Act. For example, we are tightening the performance standards and evaluation for contractor medical review efforts, in which physicians review medical records to ensure that claims are correct. We also are engaging independent contractors to evaluate key medical review processes. Some of these medical reviews are conducted on a random, post-payment basis, and others are focused on providers with aberrant billing patterns.

Other ongoing activities we use to identify overpayments include:

-- auditing of cost reports, which are filed by institutional providers;
-- statistical analysis to identify aberrant billing patterns; and
-- coordination with other insurers to recover any payments Medicare has made that should have been covered by other insurers.

Specialized contractors will assist us with the tasks of statistical analysis and coordination with other insurers. The President also has proposed legislation to require private insurers to share information with us, so that we can more easily identify cases where another insurer owes Medicare.

Ongoing activities to collect overpayments include:

-- issuing demand letters notifying providers of our intent to recoup improper payments;
-- deduction of overpayment amounts from future payments, which is the primary means of recoupment; and
-- referral to the Treasury Department's Debt Collection Center when administrative remedies are exhausted.

We also pursue legal remedies, including civil and criminal prosecutions, to recover funds that providers have obtained through fraudulent acts. The Federal Government won or negotiated more than $480 million in judgments, settlements, and fines in 1998.


We support any legislation that will give government agencies tools to help collect overpayments. However, given the extremely high priority this Administration and our Agency place on fighting fraud, waste, and abuse, it is unlikely that paying for recovery audits as envisioned in H.R. 1827 would significantly increase our success. We are concerned that contingency fees could have a negative impact on the constructive partnership with providers that is critical to preventing improper payments in the first place.

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

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Last revised: February 12, 2002