Chairman Upton, Congressman Klink, distinguished Subcommittee members, I am pleased to
have this opportunity to discuss the Health Care Financing Administration's (HCFA) management of fiscal intermediaries in their
efforts to combat fraud, waste, and abuse in the Medicare program. I would like to thank
the Department of Health and Human Services Office of Inspector General (IG) and the
General Accounting Office (GAO) for the invaluable assistance they have provided HCFA in
improving and enhancing our oversight of the contractors. We are committed to improving
our management and oversight of contractor activities and are making solid progress in
addressing the IG's findings in their November
1998 Report, Fiscal Intermediary (FI) Fraud Units.
The results of the Fiscal Year 1998 Chief Financial Officer's (CFO) audit of HCFA by the IG are evidence of the
progress we have made over the last few years. This year's
audit shows that we have cut the Medicare payment error rate in half in just two years,
from 14 percent to 7 percent. That 7 percent represents 12.6 billion taxpayer dollars,
which is a big step forward. But it is still too high and we must be diligent in
sustaining and increasing the improvement we have made thus far.
Since the Clinton Administration took office, the Department of Health and Human
Services has taken a number of steps to implement a "zero
tolerance@ policy for fraud, waste, and abuse.
To do this, we must assure that Medicare pays the right amount, to a legitimate provider,
for covered, reasonable, and necessary services for an eligible beneficiary. Achieving
this goal is one of our top priorities at HCFA. With help from Congress, our contractors,
providers, beneficiaries, and our many other partners, we have achieved record success in
assuring proper payments. We also have made considerable progress in fighting fraud by
increasing investigations, indictments, convictions, fines, penalties, and restitutions.
To this end, we developed a Comprehensive Plan for Program Integrity, which was
released in March 1999. Its development began a year earlier when we sponsored an
unprecedented national conference on waste, fraud, and abuse in Washington, D.C., with
broad representation from our many partners in this effort. The bulk of the conference
consisted of discussions on how we could build on the highly successful Operation Restore
Trust demonstration project, in which we increased collaboration with law enforcement and
other partners to target known problem areas.
Groups of experts, including private insurers, consumer advocates, health care
providers, state health officials, and law enforcement representatives, shared successful
techniques and explored new ideas for ensuring program integrity. Their suggestions were
synthesized and analyzed to determine the most effective strategies and practices already
in place, and the new ideas that deserved further exploration. The result was our
Comprehensive Plan for Program Integrity.
One of the ten key areas included in this plan is related to improving the
effectiveness of medical review and fraud detection within our contractors, including the
fiscal intermediaries (FI) that process Medicare claims.
Improving Medicare Contractor Performance Evaluation. In order to enhance our
ongoing contractor oversight and provide consistency in our review processes, HCFA
implemented a new National Contractor Performance Evaluation Strategy in May. This new
effort is a nationwide, multi-tiered approach and focuses our review on key, high risk
contractors and program benefits categories. Our evaluation strategy for fiscal 1999
includes ten core evaluation areas such as millennium compliance, accounts receivable,
audit quality, standards for timely processing of claims and customer service, as well as
follow-up on performance improvement plans that we required contractors to submit based on
program deficiencies identified during our fiscal 1998 reviews.
National teams comprised of HCFA regional and central office staff are evaluating the
fraud and abuse operations, as well as other functions of a number of fiscal
intermediaries and carriers, including the five Regional Home Health Intermediaries and
the four Durable Medical Equipment Regional Carriers. In conducting their reviews, the
teams will use a standardized fraud and abuse review protocol, and team members will
participate in reviews at multiple contractors, thus helping to ensure the consistency of
our evaluations across different contractors.
We also have established specific, objective standards for contractor benefit integrity
performance that have been incorporated into our Contractor Performance Evaluation (CPE)
review protocol. These standards provide consistent guidance to contractors as to what
improvements are needed. The CPE system uses a standard data set to measure FI fraud units= performance in accomplishing established performance
Contractor evaluations center on the contractors':
- Use of proactive and reactive techniques in detecting and developing fraud cases;
- Use of corrective actions, such as payment suspensions, Civil Monetary Penalties,
overpayment assessments, pre-payment or post-payment claims reviews, edits, and claims
- Proper development of fraud cases before referral to law enforcement entities; and
- Effectiveness of working relationships with internal and external partners.
Improving Contractor Referral Practices. In December 1998, President Clinton
announced that HCFA is now "requiring all
Medicare contractors to notify the government immediately when they learn of any evidence
of fraud, so that we can detect patterns of fraud quickly and take swift action to stop
them.@ To implement this, in December 1998 we
issued a Program Memorandum to all contractors clarifying their obligation to protect the
Medicare Trust Funds, and we are requiring contractors to take all necessary
administrative action to prevent or recover inappropriate payments. This includes a
reminder that contractors refer all cases of suspected fraud to the IG.
National Contractor Training. Beginning in May and continuing through July 1999,
HCFA, the IG, and the Department of Justice (DOJ), conducted contractor training sessions
for all Medicare contractor fraud units across the country to ensure timely and
appropriate referral of fraud cases. We provided our contractors with expert guidance on
how best to identify and develop cases of fraud for further investigation by law
enforcement authorities. During the course of training, contractor program integrity
personnel, HCFA central and regional office staff, as well as law enforcement personnel
learned the proper procedures, documentation processes, and analytical methods necessary
to ensure that the IG and law enforcement can take aggressive action and successfully
prosecute all legitimate fraud cases.
Using Technology. We are always looking for ways to use technology to help us Apay it right.@
To ensure we are taking advantage of the latest in anti-fraud technology, we recently
completed a comprehensive survey of software employed by our contractors to detect fraud
and abuse. We are now expanding that survey to identify private sector tools. Our goal is
to establish a system to routinely evaluate emerging technologies to ensure we possess the
most effective tools for fighting Medicare fraud. We plan to undertake an analysis of
these tools and their effectiveness in concert with our law enforcement partners.
Improving Qualifications of Contractor Program Integrity Staff. We will require
both current and future contractors to ensure that their program integrity staff have the
knowledge and skills critical for their jobs. Contractors will be required to demonstrate
that they have appropriate staff to meet program integrity objectives. In particular, we
are requiring contractor fraud units to implement training programs focused on fraud
detection techniques, interviewing, and data analysis.
Quality Improvement Program. As recommended by the IG, we also are requiring each
contractor to establish a Quality Improvement program that is tailored to best suit their
particular operational procedures. The Quality Improvement program must be approved by the
appropriate HCFA regional office. To assist the contractors in developing these programs,
we will be sharing "best practice" findings gathered by our regional office staff, as
well as providing technical assistance through our Fraud Unit Improvement Task Force.
Feedback from Performance Reviews. We also want to build on effective practices now
employed in our fraud units and develop constructive solutions to common problems. At the
end of the Fiscal Year 1999 contractor review cycle, we are holding a conference for our
national and regional contractor review team members to provide an opportunity for all our
reviewers to share their experiences, including contractor problems and best practice
Implementing the Medicare Integrity Program. In May, HCFA named 12 businesses with
expertise in conducting audits, medical reviews, and other program integrity activities,
to be the first-ever Medicare Integrity Program (MIP) contractors. MIP, as authorized
under the Health Insurance Portability and Accountability Act, allows us to hire special
contractors whose sole responsibility is ensuring Medicare program integrity. Until now,
only the insurance companies who process Medicare claims have been able to conduct audits,
medical reviews, and other program integrity activities. Under this new authority, we are
with these 12 firms to bring new energy and ideas to this essential task.
MIP allows us to issue Task Orders for any or all program integrity activities. And
provides us a pool of contractors who are available to undertake work before we solicit
proposals for specific contractors' workloads.
We also will be able to turn to these contractors on-the-spot when various situations
arise, such as the appearance of new fraud schemes or the departure of another contractor.
These 12 selected contractors are now eligible to compete for specific work
assignments. Beginning with the six initial Task Orders also released in May, contractors
will be selected for each of the following tasks:
- Conducting cost-report audits for large health-care chains. Through careful review
of the way large health care chains allocate their home office costs, this task will
ensure that Medicare pays providers appropriately.
- Preventing possible Year 2000 threats to program integrity. This task involves
conducting national data analyses to detect and prevent potential risks of fraud and abuse
during the critical months surrounding the millennium change.
- Conducting on-site reviews of Community Mental Health Centers (CMHC). These reviews
will build on HCFA's ongoing CMHC initiative and
require qualified mental health professionals to conduct unannounced visits to CMHCs to
ensure they provide the services required by law and meet all other applicable federal and
- Identifying effective areas to target for national provider education. Under this
task the contractor will provide analysis of data and trends, surveys of health-care
providers, and other research to develop target areas for a national provider educational
- Performing data analysis and other activities to support the fraud units in New England.
This work will support the efforts of the relatively small fraud units at New England=s Part A Medicare contractors, which will continue
their current workload and staffing levels. The contractor will analyze regional data and
develop fraud cases.
- Ensuring providers comply with settlement agreements with the IG. This work involves
on-site reviews of providers who have established corporate integrity agreements to ensure
the contractors meet the terms of the agreement as well as follow proper procedures.
Overall Contractor Management
The improvements discussed above are part of a larger initiative to improve our
management of the contractors in all areas. I would like to take a few moments to
highlight some aspects of this larger strategy. I also would like to express our
appreciation to the GAO for the recommendations that they have provided us in this regard.
One of the first, and among the most important, steps we took was to restructure and
consolidate HCFA's management of the
contractors. In November 1998, we established the position of Deputy Director for Medicare
Contractor Management as part of the Center for Beneficiary Services. Marjorie Kanof,
M.D., is directly responsible for all contractor management activities within the Agency.
Dr. Kanof previously served as a Medical Director of Blue Cross of Massachusetts and has
firsthand knowledge of both contractor performance and HCFA's oversight.
In order to ensure the overall financial integrity of the Medicare program, we are
taking action to ensure the accuracy of all of our contractors= internal financial controls and reported performance
data. To this end, we are planning to contract with an Independent Public Accounting (IPA)
firm to develop standard review procedures and methodologies for evaluating the
documentation submitted by the contractors during the annual self-certification of their
internal controls. In addition to preparing individual contractor review reports, the IPA
will provide the contractors with information on best practices, as well as ways to
improve management control certification processes and evaluation activities. Based on the
results of these internal reviews, we are considering conducting additional audits to
examine in detail the adequacy of the contractors'
internal control policies, procedures, and documentation. And we anticipate issuing a
contract to develop protocols for validating data reported to HCFA by the contractors.
We also are developing a new management reporting system, called Program Integrity
Management Reporting (PIMR), to assist us in measuring contractor performance in the area
of program integrity. This new procedure will use data derived directly from the
contractors' claims processing systems, as
opposed to the current system which relies on self-reported data, and will significantly
increase the reliability and usefulness of the data.
We also are developing a business strategy for Medicare fee-for-service contractor
operations, taking into account both our past experience and current environmental
factors, including the changing business environment for Medicare contractors. One of our
primary goals is to be more consistent in our management of fee-for-service contractor
performance. The validation of several strategic management approaches, through limited
pilot programs, will be critical to this effort. For example, our experience with the new
MIP Program Safeguard Contractors will provide valuable information to us on how we can
improve our contrActing
processes and oversight. Furthermore, we have established the
Medicare Contractor Oversight Board, which provides Executive
leadership and establishes
guiding principles for HCFA's oversight of the
Medicare fee-for-service contractor network.
Finally, the Administration has proposed comprehensive contrActing
numerous times since 1993. If enacted, this legislation would provide the Secretary with
flexibility, bring Medicare contrActing
more in line with standard
procedures used throughout the Federal government, and create an open
marketplace so we do not have to rely on a steadily shrinking pool of contractors.
We are making substantial progress in fighting fraud, waste, and abuse in the Medicare
program and ensuring that we pay right. We realize that more work needs to be done. And we
are committed to continuing to build on the improvements we have made in our management
and oversight of our contractors. We appreciate this Committee's leadership in this area, and the important work
that our colleagues at the IG have done in highlighting areas that need improvement. I
thank the Committee for holding this hearing and I am happy to answer any questions you