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Hearing Of The Subcommittee On Crime And Drugs Of The Senate Judiciary Committee - Criminal Prosecution As A Deterrent To Health Care Fraud


Location: Washington, DC

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SEN. SPECTER: The hour of 2:30 having arrived, we will proceed with this hearing of the Subcommittee on Crime and Drugs of the Committee on the Judiciary of the United States Senate. The subject today focuses on the use of tough sanctions, criminal penalties instead of fines to hold down costs on Medicare and Medicaid fraud as a key part of the effort to have health care reform this year. President Obama has identified health care reform as the number one item on his agenda for the year 2009.

There is no doubt of the need for reform with some 47 million plus Americans either uninsured or under insured. One of the big issues is going to be how we are going to pay for -- in the extended floor statement earlier this week I outlined a number of lines to accomplish that. One is increased funding for the national institutes of health. What better way to hold down the cost than to prevent illness. The increase from $12 billion to $30 billion through the leadership of Senator Harkin and myself has provided I think a causal relationship on reducing fatalities and strokes and various forms of cancer and heart disease.

The issue of exercise, diet offers a prospect for holding down health care cost. Early intervention with coverage for all Americans offers the prospect for holding down costs of chronic illness by interceding at an early date. The use of advanced directives is an item which will be very, very helpful with very substantial Medicare costs in the last few hours, few days, few weeks of a person's life. And today's focus, as I said, is on the use of jail sentences, tough criminal sanctions to reduce the incidents of Medicaid fraud and Medicare fraud.

From my own experience as a district attorney of Philadelphia, I saw firsthand the assistance on jail sentences holding down white collar crime. If you deal with a domestic dispute, or you deal with a bar room knifing, that kind of an emotional matter, spur of the moment -- unaffected really my sentencing, but white collar criminals are thoughtful, and that has the real potential.

Let me thank Senator Kaufman for coming, and yield to him for an opening statement.

SEN. EDWARD E. KAUFMAN (D-DE): Thank you, Mr. Chairman. I'm finding this job -- you know, change is always hard, and dealing with it -- and I'm still getting used to being a senator, and it's -- I'm getting very used to and very, very happy about having our chairman be our chairman. And talk about hit the ground running in terms of getting right on to the business of the people, and I think this is a great hearing.

Mr. Chairman, I want to thank you for holding it.

SEN. SPECTER: Thank you, Senator Kaufman. And my thanks to Senator Durbin, who generously yielded his gavel for me to chair this subcommittee. My thanks to Senator Reid, the majority leader, for the approval, and Senator Leahy, the chairman, for his acquiescence in my taking on the chairmanship.

Mr. Breuer, if you would stand -- being sworn, do you swear that the testimony you will give before this subcommittee will be the truth, the whole truth, and nothing but the truth, so help you god?


SEN. SPECTER: I begin by thanking you for rearranging your schedule to come here on short notice. We know you have a signing ceremony in the White House, and we will get you to the White House, also known as the church on time.

Mr. Breuer comes to this position after undergoing rigorous confirmation hearings (at chair ?) questioning by the probing members of this judiciary committee. He began his career as an assistant district attorney in Manhattan where he prosecuted a white variety of cases. My own personal view is that's the best experience of all. People ask me what the best job I ever had was, senator, district attorney? I say assistant district attorney. That's where you get to question witnesses and really dig into the tough trial work, which is great experience.

In 1989, he joined Covington and Burling, becoming a partner in 1995, co-chair of the White Collar Defense and Investigations Practice Group, specializing in white collar crime, complex civil litigation, internal corporate investigations, congressional investigations, anti- trust cartel proceedings.

From 1997 to 1999, he served as special counsel to President Clinton, been recognized by numerous publications as a leading litigator and a fellow of the American College of Trial Lawyers. Excellent academic background with a bachelor's degree from Columbia and a law degree from Columbia.

Thank you for coming, Mr. Breuer, and the floor is yours.

MR. BREUER: Thank you so much, Mr. Chairman, for having me, and Senator Kaufman. Thank you for giving the Department of Justice the opportunity to appear before you today to discuss the Department's efforts to fight and deter health care fraud.

Health care fraud is one of the Department's top enforcement priorities, as the chairman just noted. We firmly believe that greater investment and enforcement will pay significant dividends in our efforts to deter fraud and safeguard the billions of dollars in federal health care spending each year. As you know, health care fraud is an enormous problem. Federal and state spending on Medicare and Medicaid exceeds $800 billion per year, and is expected to double in the next ten years.

According to various estimates, somewhere between three and ten percent of this spending is lost to waste, fraud and abuse. Even at the low end, that amounts to $25 billion lost in 2008 alone. We must, must staunch the bleeding, and we are committed to doing so.

Indeed, the Department has been vigorously fighting health care fraud for years. Since 1997, working with our enforcement partners in the Department of Health and Human Services, the Department's civil and criminal enforcement efforts have returned more than $14 billion to the federal government, and that has resulted in more than 5,000 criminal convictions and exclusions from federal health care programs.

In just the first eight months of the fiscal year, we have recovered almost $1 billion under the Civil False Claims Act. In addition, in 2008 alone, Department prosecutors obtained over 500 convictions in health care fraud cases, an all time high for the Department. In part, this success in our criminal enforcement efforts is due to a new strategic approach to health care fraud prosecutions; our Medicare Fraud Strike Forces.

In May of 2007, the Department of Justice and Health and Human Services announced an interagency effort to prosecute durable medical equipment suppliers, infusion clinics, pharmacies and other individuals and entities who blatantly steal from Medicare by billing unnecessary or non-existent services.

The Medicare Fraud Strike Forces represent an innovative approach to health care fraud prosecutions. They are data-driven, community- based real-time prosecutions. Coordinated teams of investigators and prosecutors analyze Medicaid claims data to target specific geographic areas showing unusually high levels of Medicare billing, all in all, an effort to combat ongoing crime by the worst offenders.

This approach to health care fraud prosecution has proven to be a powerful weapon in the fight against fraud in our federal health care programs. To date, Medicaid Fraud Strike Forces in Miami and Los Angeles have obtained 129 guilty pleas and 18 trial convictions, resulting in 113 sentences with an average length of 45 months in jail, approximately one year longer than the national average for health care fraud prosecutions. Seven of those sentences were ten years or more, including one sentence of 30 years for a doctor in Miami who fraudulently billed Medicare for $11 million in unnecessary HIV/AIDS infusion therapy.

We're seeing tangible results from these efforts. The work of the Medicare Strike Force in Miami alone contributed in the task force's very first year of operation to a $1.75 billion drop in claims submitted and a $334 million decrease in claims paid by Medicare. These results were achieved in a single county in South Florida, proving that targeted enforcement works and that investment in health care fraud enforcement is worth every penny.

Indeed, our combined civil and criminal enforcement efforts have returned almost $4 to the Medicare trust fund for every dollar of funding that Congress has provided to federal law enforcement agencies. Of course, despite these accomplishments, there is always much more to be done. And just today, the Departments of Justice and Health and Human Services took some additional significant steps to ramp up our prevention and enforcement efforts even further. Approximately an hour ago, the attorney general and Secretary Sebelius announced the formation of a senior-level task force designed to bring together the leadership of their departments to tackle health care fraud across the country.

This task force, to be named The Health Care Fraud Prevention and Enforcement Action Team, or HEAT, will increase coordination, intelligence sharing, and training among our investigators, agents and prosecutors. As a top priority, the task force will look at how we can better share real-time intelligence data on suspected fraud by closely monitoring claims, payment data, identifying problematic billing patterns immediately, and investigating those suspected of stealing. This enhanced coordination between the two agencies will provide a vital link in our ongoing efforts.

The attorney general also announced today that we've expanded our strike force operations into Detroit and Houston. As we saw in the example from Miami that I described a few minutes ago, targeted enforcement now also aimed at Detroit and Houston, offers immediate and sustained benefits. We urge Congress to support the Administration's request for additional funding to support these efforts. With additional funding, we can deploy additional strike forces to target emerging and migrating fraud schemes in other areas across the country.

In closing, let me assure you that the Department of Justice will remain steadfast in its pursuit of health care fraudsters. We look forward in the months and years ahead to working with Congress to identify and pursue legislative and regulatory reforms, focus on the prevention, deterrents, and prosecution of health care fraud.

Mr. Chairman, thank you for allowing me to share the Department's views today on this important issue, and I welcome any questions.

SEN. SPECTER: Thank you very much, Mr. Breuer. We've been joined by Senator Klobuchar. Would you care to make an opening statement?

SEN. AMY KLOBUCHAR (D-MN): Oh, well, Mr. chairman, I want to welcome you as our --

SEN. SPECTER: (Inaudible.)

SEN. KLOBUCHAR: -- and thank you for having your first hearing on this very important topic. As a former prosecutor of that also, in my civil role as a county attorney represented the biggest emergency care hospital in our state. I have always been especially interested in this issue of waste and abuse in our health care system. I think we all know the figures about our rising health care costs, and we know it's not all attributable to fraud and abuse. But if we can do anything to weed out the fraud and abuse with some estimates being that it's at least three to ten percent of the total amount of money that we spend on health care, I think we should do it.

So I want to thank Mr. Breuer and Attorney General Holder and the HHS secretary for setting up this new group that's going to pursue these fraud cases. I think it's a very important endeavor, and I look forward to talking with you more about it.

SEN. SPECTER: Thank you very much, Senator Klobuchar.

Mr. Breuer, later this afternoon -- (inaudible) -- you earlier, you're going to a legislation signing ceremony at the White House on the Fraud Enforcement and Recovery Act of 2009. That legislation provides for an additional $165 million for fiscal years 2010 and '11 for the FBI, U.S. Attorneys, and Criminal Division of the Department of Justice. What do you expect to do with that money, focused specifically on the subject of today's hearing, and that is to get tough on health care fraud with jail sentences?

MR. BREUER: Mr. Chairman, the -- (inaudible) -- legislation -- and I want to thank you and your colleagues for passing that legislation -- will enable us in the Criminal Division and the United States attorneys to have more prosecutors. What our goal is with -- specifically with respect to the topic of today is that we will have, we hope, more strike forces throughout the country. And we were going to dedicate our lawyers from the Criminal Division in greater numbers --

SEN. SPECTER: Well, where you say -- what do you expect to do specifically?

MR. BREUER: Well, today what we've said is in Houston and Detroit -- we're expanding already into Houston and Detroit, Mr. Chairman, and there specifically what we're going to do is -- working with the data that we received from CMS, our goal is very quickly to identify aberrant billing patterns and to go after providers very quickly and bring cases very quickly. And the goal here is not to have long investigations, but to identify those who are abusing the system, to shut them down immediately, to take their past conduct for sentencing purposes and increase the enhancements, and then after Houston and Detroit, to continue as much as we can to go into other cities in the way that we've already done it in Miami and Los Angeles.

SEN. SPECTER: What are the practices of your division with respect to making recommendations to the court on sentencing?

MR. BREUER: Well, what we will do is we're going to take all of the conduct that's involved in these cases and make them available to the court. So, for instance, what we will do is we will bring the case, and then we will look at the past conduct of the person and make that available to the court. In a situation, for instance, where there was a significant sentence that I mentioned before where there was unnecessary HIV infusions, we think that that risks -- if there are health risks involved, we're going to make sure the court knows that, and we're going to bring that in so that the sentences will be in --

SEN. SPECTER: Aside from information, do you make it a practice to make recommendations on sentencing?

MR. BREUER: We do. We do, Mr. Chairman.

SEN. SPECTER: Do you meet with any resistance as a generalization from judges thinking it's their sole province, as opposed to standing for a prosecutor to make a recommendation?

MR. BREUER: You know, Mr. Chairman, I haven't, in all candor, my first month taken a national poll. I think candidly from my one month, the Judiciary runs the gamut, and there are some courts that are more receptive to our recommendations, and there's some that are probably less. On the whole, though, I don't think that's been a significant issue, and we --

SEN. SPECTER: May I make a suggestion to you? When I became district attorney of Philadelphia, the standard procedure was leaving it at the discretion of the court. That's what was said by the assistant. And I changed the policy to specific recommendations. And for awhile the judges were very unreceptive. There's been a very different view of victims' rights in the intervening years. And when the victim is the United States government -- and when we know the cost of health care fraud, I think we have real standing.

I would urge you to give consideration to a policy in the Department of Justice. You're the man. The attorney general's going to have to sign off on a policy of this sort. But it would be your recommendation as to what would be done. And I would urge you to adopt a policy of recommending sentences. And after awhile the judges became used to it, but it was tough for a time. I would petition for reconsideration of sentences. I was once held in contempt of court when a dealer -- a case called Commonwealth of Pennsylvania Versus Arnold Marx. Six ounces of pure, uncut heroin worth several hundred thousand dollars -- this is a long time ago. Got six months in jail. And I petitioned for reconsideration of sentencing, pressed very hard.

But I think if it's a uniform policy, if it comes out of main Justice as the sanction of the attorney general, implemented by the assistant attorney general in the Criminal Division, would carry a lot of weight. There are a lot of sentences that I could reference here, but picking out just one case, there was a prosecution against (Ludsen Health Divisions ?), defrauded TRICARE of over $100 million. The sentence was five years in jail. How do you respond to that kind of a sentence with that kind of money involved?

MR. BREUER: Well, senator, I absolutely agree that it is essential that those who are defrauding the Medicare and Medicaid systems and defrauding the taxpayers need to have harsh sentences. And we're going to seek harsh sentences. I agree that viscerally sometimes some of these sentences appear. Without knowing more, it seems somewhat low, and I don't know the specific facts of that case, so I can't comment.

But I'm in complete agreement that we need to have prison sentences for those who are responsible. They need to be substantial, because it goes to the very foundation of deterrents, and we're committed to doing that.

SEN. SPECTER: Well, I request that you report back to the subcommittee within three months as to what you intend to do about a policy of recommending sentences and some indication as to guidelines that you're going to instruct your assistant of United States attorneys, and to what extent the amount of the dollar figure is calculated in the sentencing recommendation so that the subcommittee and the full committee will have an idea as to how you're treating this subject. And let us see it on health care fraud.

But this is something we're going to be taking a look at on other lines. It is a common practice, which I've seen in the past, where the fines -- while the -- while appear to be substantial, are not really substantial compared to what dollar figure is involved, and they really amount to a license to do business, whereas if you put people in jail, that's a big, big difference. So we'll look forward to your report there, and we will have oversight, not only on health care fraud, but on other cases as well. But we'll ask you, as I say, in the next three months just to look to health care.

We've been joined by the distinguished ranking member of the full committee. That's always been an important position. And our practice is to alternate. You just sat down. Would you care to exercise your time now, or --

SEN. JEFF SESSIONS (R-AL): Thank you, Mr. Chairman.

SEN. SPECTER: I take this as an -- (inaudible) -- to exercise -- (inaudible) -- now.

SEN. SESSIONS: All things considered, chairman's better than ranking member. It is great to be with you --

SEN. SPECTER: Depends on whether it's the full committee or the subcommittee, or --

SEN. SESSIONS: (Laughs.) (I suppose ?).

SEN. SPECTER: -- where you are, but we'll work seniority out.

SEN. SESSIONS: Well, I appreciate your questions, Senator Specter, because you understand these issues very well as a proven prosecutor.

Mr. Breuer, I would just like to ask a few things, and I'm going to look at this, because when I was a United States attorney, I tried to make sure we were earning the taxpayers' money. Now, you get from the health care fraud and abuse -- Department of Justice gets $50 million a year just for that outside your normal DOJ budget. Is that correct?

MR. BREUER: Yeah, the entire Department -- that's correct, senator.

SEN. SESSIONS: And I remember -- it started in '96, this official account, but I remember -- gosh, in -- around the early '90s that we were encouraged to form health care fraud task forces, and every time this has been done -- I guess that was -- seven, eight years later we had this $50 million, and everybody promises to do better. But just looking at the Administrative Office of Court Statistics, which I think are pretty accurate -- lot of times agencies put forward cases that they recommended prosecution, and if you don't -- they don't get prosecuted, they count it as a case or something. So you've got to watch data.

But in 2003, the Department of Justice carried -- commenced 238 health care fraud cases in 2003, and in 2007 it had edged up to 261. I don't know exactly what the funding levels are, but -- whether you got -- what kind of increases you've got, but that's not a whole lot of cases nationwide. Some of them may be very expensive and very prominent and time consuming. Some could be guilty plea right off the bat.

So have you looked at those numbers? Do you have any feel for what kind of cases are being brought, and whether or not for your basic budget, plus the $50 million this is sufficient production for the taxpayers?

MR. BREUER: Senator, I think that we've done well, but we need to do better. And by that, one of the examples I give is the strike forces, those that, for instance, have been already very successful in Miami and Los Angeles. They're in a very limited time centered -- we really have provided a good number of convictions. I think just since 2007, if you look at Miami and Los Angeles, there have been some 125 or so guilty pleas. There have been people going to jail. Perhaps on average not as long as the chairman thinks, but still, at least a year more than has traditionally been the case for health care fraud.

And what we're doing in those, of course, is targeting in very real time with the data while people are doing it, and we're bringing those cases. And I think that --

SEN. SESSIONS: Well, wait a minute. I like that. Now, that should tell you something, which is a focused team approach in which you have interagency commitment, computer information for rapid sharing from the health -- HCFA, whoever the -- Federal Health Department agencies can help identify fraud early and move forward on it. Are you satisfied that you have that kind of sophisticated, coordinated effort in all your districts, and wouldn't that be a good idea?

MR. BREUER: Well, it would be a great idea. I don't want to represent to you that we have it yet. What I can tell you is just today the attorney general and the secretary of Health and Human Services together announced the formation of a new commitment. We understand that CMS will be sharing its data in very real time with our prosecutors. And so the commitment from the very top of the Cabinet and from the President suggests to me that as we go forward, you will see a very dynamic approach.

We are very committed in addressing and stopping the fraud that we think is obviously far too great.

SEN. SESSIONS: Well, that is what they've been saying for 20 years. Everyone that's sat in that chair, wouldn't you say, Senator Specter? We're going to step it up. But you still -- pretty weak numbers, if you ask me, considering the hundreds of billions of dollars spent on health care in America. But I'm not arguing. I'm just warning you --

MR. BREUER: Right.

SEN. SESSIONS: -- that everybody has said that. But with your kind of leadership, I believe you can produce a little more. Now, there's another thing that we've had, and I had a number of meetings with health care providers over the years, and I think for the most part they were too nervous, and I've told them that. But running a big hospital is a big thing, and every error in some billing code that occurred is not necessarily a crime. And while we want you to aggressively pursue those who are willfully acting to violate the law and defraud the taxpayers, would you recognize that when you have on a yearly basis thousands and thousands of claims coming through, many by young clerks who may have miscoded this or that, doesn't necessarily mean that the hospital lacks integrity. Maybe they need to tighten up. Maybe they're civilly liable. But do you see the concern there, that some good physicians and hospitals and providers have when we talk about health care prosecutions?

MR. BREUER: Absolutely, senator. I actually think that Secretary Sebelius today talked about simplifying some of these methods. And let me be clear here. We're not going to be targeting those who make mistakes, but if you look at the -- for instance, the Medicare Task Force, what it does is it looks for extraordinary aberrations in the numbers. So if in Miami we see certain providers who in certain areas are billing at astronomical numbers compared to what should be the norm around the country. Those are the people we're going to go after.

And we're not just going to go after them criminally. We're going to go after them civilly. And really, the Department of Justice has shown great success in that. I mean, through our civil colleagues right now, I think it's fair to say that for every dollar that's been appropriated, we've returned four dollars, much of it through, of course, the False Claims Act, which has been an extraordinary civil hammer. But for those doctors out there who are doing their best, the 90 or 99 percent of the people involved, of course, are acting in good faith. We want them to continue to provide their medical care.

SEN. SESSIONS: Well, thank you. I appreciate your approach. I believe you have the ability to make this happen, and count me a supporter.

MR. BREUER: Thank you, senator.

SEN. SPECTER: Thank you, Senator Sessions.

Mr. Breuer, you're surrounded by ex prosecutors.

MR. BREUER: I know.

SEN. SPECTER: Maybe I shouldn't say ex prosecutors, just surrounded by prosecutors. But you're one of a clan, so you know what we're looking for.

And now I yield to a senator, an ex prosecutor, Senator Klobuchar.

SEN. KLOBUCHAR: Thank you very much, Mr. Chairman, and good to see you again, Mr. Breuer. I was interested in your focus -- the mention of Miami, and I was reading this article about the task force today, about how estimates in Miami alone might've saved $334 million in fraudulent medical equipment claims and more than $1.7 billion in phony Medicare billings. And the reason I bring that up is I've often used a statistic about geographic disparity in Medicare spending, that -- the studies have shown that the same Medicare services in Minnesota, in the twin cities, cost about $7,000, and there are $15,000 in Miami. And it is startling to me, and it's nothing -- cost of living is a very small fraction of that. And so perhaps some of it is this fraud. So I appreciate your efforts.

The FBI's Financial Crimes Report for fiscal year 2007 said that "one of the most significant trends observed in recent health care fraud cases includes the willingness of medical professionals to risk patient harm in their schemes, and they focused on unnecessary surgeries, prescribing dangerous drugs, and engaging in abusive care practices." I have to tell you, being from my state where we have one of the highest quality rankings for health care in the country, I know those 99 percent, 99.59 percent -- (laughs) -- whatever it could be of doctors who would never do anything like this.

But this trend that we're seeing -- I've always thought about this as a rip-off of taxpayers when you have medical fraud, and if it goes unchecked, really can create a culture where people are lying on billings and things like that. But I had never thought of it as much in terms of patient risk. Do you want to comment on this trend at all?

MR. BREUER: Absolutely, and senator, for the minority of fraudsters out there first, it's completely unacceptable to defraud the taxpayers. And we're going to go after those people. But for those who are so greedy that they're actually willing to put people's lives at risk by either providing them with a medical care that they don't need, or what's even more dastardly, knowing exactly what they do need, but not giving it to them and convincing them to do something else, we're just going to have to prosecute them to the full effect, to the full extent of the law. It's completely unacceptable, and those people are going to face extraordinarily long sentences.

SEN. KLOBUCHAR: You mentioned to Senator Sessions -- using civil remedies sometimes instead of criminal. How do you make those determinations? As you and I both know, there's a different burden of proof in having to prove these things.

MR. BREUER: Sure. Well, in some cases, I don't think we have to make the choice. I've talked a lot with my counterpart, the assistant attorney general in the Civil Division, Tony West, and I know the deputy and the attorney general agree that what we're going to do is we're going to have a comprehensive approach, and we're going to use the full force of the Department of Justice. So for entities or for those who do this, we're going to pursue it criminally, but given that there's a different standard of proof -- and, of course, they're -- in False Claims Act cases (there are travel ?) damages. We'll do whatever we need. I don't think we're going to have to decide necessary. Instead, I think we may use both remedies.

SEN. KLOBUCHAR: Okay. Another trend that we're seeing is more technological issues and tools of technology that are meant to be very good used for ill-begotten gain. And certainly, we -- actually, I remember when I was a prosecutor -- saw -- well, we saw identity theft going on in hospitals, things like that. And obviously, one of our big pushes right now is to computerize medical records. But one of the things that comes with that is that sometimes the crooks are able to use more sophisticated systems than those of us who are trying to catch them.

Could you comment on the role technology will play in the work that you are going to be doing in the health care area?

MR. BREUER: Well, clearly, obviously, to the degree we can have more and more state of the art technology, it will help our ability. I think our friends at HHS are -- I'm hopeful -- at the cutting edge and understand it well. With our own Medicare Task Force and the leadership of one of the people in the division, Kurt Legrowski (ph), we've been able to look at data. Sometimes it, frankly, hasn't required the most sophisticated of means. We've just looked at the data and gone with it.

And so I want to be clear. Even with what we have, we can do more, and we will. But you're absolutely right, that fraudsters out there are more and more -- using more sophisticated means, and one of our goals is going to be to keep up with them. And to do that, I think we just need to have sort of dedicated prosecutors and dedicated investigators and those at CMS following this as closely as we can.

SEN. KLOBUCHAR: And have you thought about, as you go ahead here and try to prevent this as well as prosecute it, developing some best practices, and maybe the American Hospital Association does that, others, but, I mean, I just remember some cases where no one would've wanted this to happen, but, you know, patients' Social Security numbers, while locked in a computer appropriately, someone had written them on a card and put them in a filing cabinet so that someone who went to work there then just simply got these cards and used them to apply for credit cards.

It's very different than you're talking about -- the Medicare billing necessarily. But, it just made me think at that time if there must be some best practices that can be developed across the board for health care providers.

MR. BREUER: Senator, I agree and I think that's really why today having the Attorney General and the Secretary of Health and Human Services together is so special. One, it shows their commitment from the top. But, secondly, it really shows that partnership because if at HHS, the real experts in the best practices, I think they can really provide that kind of education. I think they're doing that and will continue to do that. And, then of course, by providing us the data, we can take care of that law enforcement piece by pursuing it both civilly and criminally. So, I think you're absolutely right. With our renewed law enforcement commitment, has to be a renewed effort in teaching and ensuring that best practices go forward.

SEN. KLOBUCHAR: Finally, the FBI report said that the FBI provides assistance to various regulatory and state agencies that may seek exclusion of convicted medical providers from further participation in the Medicare and Medicaid health system. This seems incredibly important that we don't let these same providers abuse the system again. Has there been a problem of this in the past of not keeping the bad apples out after they've been prosecuted the first time?

MR. BREUER: I think there've been challenges in keeping the data and of course any time you have a federal/state/local partnership, there're going to be gaps. I think one of the goals for us is to ensure that that doesn't happen, that there's swift and certainty of punishment, and that exclusion is much more likely to occur. I think it's occurred. I think it's occurred a lot. But, I think probably we can always improve and we're going to have to.

SEN. KLOBUCHAR: Thank you very much.

MR. BREUER: Thank you, Senator.

SEN. SPECTER: Thank you very much, Senator Klobuchar and thank you, Mr. Breuer. We got you out on time to make your bill signing. Thank you for taking on this very important public job and thank you for your testimony.

MR. BREUER: Thank you for the hearing, Mr. Chairman.

SEN. SPECTER: We'll now call Professor Sparrow, Ms. Farrar, and Commissioner Dilweg. Would the three of you take your positions and raise your right hands, please?

Do you solemnly swear that the testimony you will give before this committee will be the truth, the whole truth, and nothing but the truth, so help you God? Thank you. You may be seated.

We'll start with you, Professor Sparrow. Professor of Practice of Public Management and Harvard's Kennedy School. Ten years with the British Relief Service. A Master's degree in mathematics from Cambridge, Ph.D. in applied mathematics from Kent University- Canterbury. Thank you very much for joining us and the floor is yours.

MR. SPARROW: My name is Malcolm Sparrow, and I teach regulatory and enforcement policy at Harvard's John F. Kennedy School of Government and have worked on the practical challenges of fraud control in a number of different industries. With your permission, I've prepared written testimony which I would like to introduce --

SEN. SPECTER: Without objection, that will be made a part of the record.

MR. SPARROW: If I could just highlight a few key points from that testimony? Thank you.

In 1993, I was working with the IRS on a tax fraud problem and a commissioner introduced me to Attorney General Janet Reno. It was in 1993 that the Attorney General had named Health Care Fraud the number two crime problem in America, which is an extraordinary status for a white collar crime. And, there was little academic research on the subject at the time. And, after my conversation with her, I took a research grant from the National Institute of Justice and my job was to assess the state-of-the-art in health care fraud controls and try to explain why this was such a persistent and pernicious problem.

My first book on the subject, which is now out of print, I can summarize for you in a sentence or two. It said that the controls in the health care industry are weakest with respect to the most outrageous crimes. Outright criminal fraud requires verification, not just processing accuracy and the systems in place did relatively well on the grayer, middle ground issues, such as policy coverage and pricing and processing accuracy. The criminals, who are prepared to lie, need only to learn how to build their lies correctly and they will, on the whole, be paid automatically, without any human involvement by computers and without a hiccup.

Deterrence Theory says that the magnitude of a deterrent effect will depend on three things, in the mind of a would-be perpetrator. First of all, their perception of the likelihood of being caught. Second, their perception of the probability of being convicted if they're activities are detected, and third, the severity of the punishment if they are eventually convicted.

I appreciate that this committee is very much interested in the effects of the third: Severe punishment. I would urge you to consider the situation with respect to the first two as well because I think the most visible weaknesses in health care fraud control may lay in these areas.

To emphasize two points about the current situation. I believe that resources available for fraud detection and control in the health care industry are not only inadequate; they are of the wrong scale. We don't know how much we are losing in these programs and, in the absence of clear knowledge about the loss rates, investments in control remain pitifully small. Spending on program integrity functions across the industry as a whole runs on the order of one- tenth of one percent of funds paid out. Medicare is slightly ahead of that at the moment. But, with estimates of the loss rate of 3 percent, of 10 percent, 20 percent, 40 percent in some segments, one- tenth of 1 percent seems like a drop in the ocean.

Meanwhile, the small investments that are made pay off handsomely. Inspector General has just reported a return ratio of $17 for every $1 spent. That can be interpreted as evidence of an efficient investigative system. But, an economist would say that's also an indication that investments are nowhere near optimal and that a system should continue adding marginal dollars until the marginal return comes much closer to one-to-one.

If investment resources are terribly small and the problem is huge, it's a little bit like standing in a lake. It's a very easy thing to scoop up a bucket of water and show everybody what you found. I believe that it's possible that 10 percent or even 20 percent could be saved from the Medicare and Medicaid budgets, but it would take spending of a different order to do that. Maybe 1 percent of the funds paid out, not one-tenth of one. I realize that it is politically inconceivable that you would have a ten-fold increase in the level of attention to this problem -- at least politically inconceivable while the loss rate remains uncertain. And that's why I put a lot of emphasis in my writings and today in my testimony on the importance of adequate and reliable measurement of the loss rate.

SEN. SPECTER: Professor Sparrow, your time is up so let me interrupt you with a question or two.

MR. SPARROW: Yes. Please do.

SEN. SPECTER: Where would you direct that additional spending?

MR. SPARROW: The additional spending would be spread across the board. First, in improved detection technology. Second, in a much greater willingness to take cases to court. The reviews of control operations that I have conducted reveal -- for instance, post-payment utilization review --

SEN. SPECTER: Well, I agree with you. I do that certainty of apprehension is a big factor. A sentencing issue because if you don't think you're going to get caught, you don't worry as much about the sentence. I didn't quite follow all of your statistics.

How do you make your computation of what the return is on expenditures? Would you repeat that?

MR. SPARROW: The office of Inspector General in their last annual report has reported that they --

SEN. SPECTER: Inspector General of HHS?

MR. SPARROW: Yes, sir.


MR. SPARROW: Returns $17 for every $1 spent. They report trend over time that that ratio has been increasing even while -- and they also report that the number of cases and the number of complaints at the same time is increasing.

SEN. SPECTER: Seventeen dollars return for every $1 which is spent.

MR. SPARROW: Yes. Yes, sir. And one of the areas that I feel is of great concern at the moment is we have fake billing scams all around the country -- in some regions concentrated. I believe that the response that CMS and the OIG are recommending when these fake billing scams are discovered does not end up in criminal prosecution. In fact, I believe that the response recommended at the moment, actually makes life easier for those who would just build these programs. I can give you some examples of --

SEN. SPECTER: How do they make life easier?

MR. SPARROW: Well, I have a big pile in my office of reports talking about categories of patients that ought not to show up in Medicare claims data -- paid Medicare claims data. I have a few of them here. Medicare payments for patients that were already dead at the time when the services were delivered, and it's not just rentals that ran on past death, but new diagnoses and --

SEN. SPECTER: There is knowledge that there were charges for those who had already died?

MR. SPARROW: Yes and the office --

SEN. SPECTER: And nothing was done?

MR. SPARROW: No. Something is done. The office of Inspector General, through analysis is able to identify by cross-matching with social security records, Medicare claims --

SEN. SPECTER: Was there any enforcement action taken?

MR. SPARROW: No. The approach that they recommend not only with respect to dead patients, but deported patients who ought not to be in the country, imprisoned patients who should be covered by different health care insurance, and the final insult, which came to light last year through the work of --

SEN. SPECTER: So what was done, Professor Sparrow?

MR. SPARROW: They recommend that CMS --

SEN. SPECTER: What was done by way of enforcement?

MR. SPARROW: Very little in most cases.

SEN. SPECTER: Anything?

MR. SPARROW: I'm sure something was done in a few cases, but --

SEN. SPECTER: Well, it sounds like Philadelphia is -- (inaudible) -- the graveyard.

MR. SPARROW: So, the general strategy is to treat it as a processing error. In other words, get the information about dead patients and deportations into CMS's processing systems and bounce those claims back to the people that submitted or to rejection --

(Cross talk.)

SEN. SPECTER: Well, we will pursue that. Do you have anything else that juicy?

MR. SPARROW: Well, the only thing that would make that a little more juicy is what it might indicate. If you ask the question, what kind of business practices could produce bills that are completely implausible -- dead patients, dead doctors, people not in the country -- the most obvious answers that these are fake billing scams and that somebody is billing off a Medicare list without providing any medical treatment at all. And, in that case, what's happening is there's just a few patients on the list who might be dead -- very small numbers compared with --

SEN. SPECTER: Well, we've covered the dead patients. How do you make the determination that they didn't treat those patients if they are alive? If they're dead, it's pretty conclusive.

MR. SPARROW: And my view is that if you submit a hundred claims, and one of your patients happens to be dead and the other 99 are alive, that the chances are your claims for the 99 are no better.

SEN. SPECTER: Okay. You fulfilled the requirement. We're going to pursue that further and we will take it up with the agency.

MR. SPARROW: Thank you, sir.

SEN. SPECTER: We turn to now you, Ms. Farrar. Born in McCook, Nebraska. Was Senator Nelson born in McCook?

MR. : (Off mike.)

SEN. SPECTER: You don't know all the people who were born in McCook. You probably don't even know all the people who died in McCook, even those who have Medicare payments. Well, you've had a very distinguished career, Ms. Farrar. Special Agent with the FBI. February '92, Assistant Special Agent in charge of the Detroit office -- 1994, lots of crime in Detroit and since June of 2004, working for the Health Care Service Corporation in Chicago. Thank you for coming in to testify and we look forward to your testimony.

MS. FARRAR: Thank you.

SEN. SPECTER: Your full statement will be made a part of the record.

MS. FARRAR: Thank you. Mr. Chairman, on behalf of the National Health Care Anti-Fraud Association and Health Care Service Corporation, thank you for providing this opportunity to share our views on the important role of criminal prosecution as a deterrent to health care fraud and specifically the role that information sharing plays in fraud investigations.

Health Care Service Corporation is the largest customer-owned health insurance company in the nation, serving more than 12.4 million members through our Blue Cross Blue Shield Plans in Illinois, New Mexico, Oklahoma and Texas. As a non-investor-owned company, we view anti-fraud efforts as vital to protecting our members and the community we serve.

As my role as the Executive Director in the Special Investigations Department, I oversee the anti-fraud program for all four of our Blue Cross Blue Shield Plans. In addition to that position, I serve on the Board of Directors of the National Health Care Anti-Fraud Association, the only national association devoted exclusively to the fight against health care fraud.

The highest priorities of our investigative division are to identify and investigate high impact health care fraud schemes and refer for criminal prosecution individuals and companies who defraud or attempt to defraud our company and its customers. Our primary means of identifying the most costly health care fraud cases are through effective data analysis and liaison with law enforcement in other health plans. Our staff participate in all of the federally- sponsored health care fraud task forces and working groups in our respective states. Through these associations, we routinely discuss new and emerging health care fraud schemes and share information concerning known perpetrators of health care fraud.

By sharing information, the losses attributed to the activities of one subject can be aggregated to enhance the prosecutorial potential of the case. On average, we refer approximately 40 percent of our cases to law enforcement to include federal, state and local agencies. Three of these cases are detailed in my written testimony.

Health care fraud cases are some of the most complex white collar crime cases handled by prosecutors necessitating dedicated staff who develop an expertise in understanding how health claims are processed and understanding the intricacies of proving the necessary criminal intent. In many jurisdictions limited prosecutorial resources impact the ability to dedicate staff accordingly. Additionally, health care fraud cases compete with other investigative programs that are deemed higher priority.

Staying one step ahead of those who are intent on committing health care fraud requires continual information sharing and collaboration among the various law enforcement and prosecutorial agencies, regulatory agencies and private health insurers. As a result, in addition to our ongoing liaison with law enforcement in our respective states, we maintain effective information sharing relationships with law enforcement in other states and other private insurance plans through our corporate membership in the National Health Care Anti-Fraud Association. The NHCAA, which has 81 corporate members representing 200 health plans and 70 federal, state and local law enforcement and regulatory agencies, routinely and voluntarily share information through a variety of methods.

Those perpetrating fraud against the health care system do so indiscriminately across the range of government health care programs and private health plans. Too often, however, information sharing in health care fraud cases is a one way street with the private sector regularly sharing vital information with the public sector -- either voluntarily or through mandate -- without reciprocal information sharing to bolster our fraud fighting efforts.

In many circumstances, the government representatives believe that they do not have the authority to share information about fraud investigations with private insurers. However, guidelines developed for the operation of the Coordinated Health Care Fraud Program established by HIPAA provide a strong basis for information sharing. Those principles outlined in the program recognize the importance of a coordinated program, and we believe that they should be reemphasized and reincorporated and clarified in new legislation to ensure that the goal of an effective and coordinated health care program can be developed. We also encourage the government to incorporate the losses of private insurers and to integrate its settlement agreements involving health care providers who have defrauded both public and private programs.

My written testimony expands on our recommendations to enhance the collaboration between government and private insurers that I hope you will consider. The NHCAA and the Health Care Service Corporation are committed to working with Congress to address health care fraud and we hope that you will consider us resources and partners in this fight. Thank you for the opportunity to appear before you today and I look forward to answering your questions.

SEN. SPECTER: Well, Ms. Farrar, after you've gotten all that information, what prosecutions have worked out?

MS. FARRAR: Well, I did describe three of them in my testimony. As I said, we refer about 40 percent of our cases for prosecution. Not all of them get prosecuted due to --

SEN. SPECTER: Do many of them get prosecuted? How many?

MS. FARRAR: It's very difficult to give you an exact answer on that because we just really started in our company to focus on prosecution --

SEN. SPECTER: Well I'm not interested in an exact answer. I'd just like an answer. What I'm looking for here is what response you're getting when you go to the District Attorney or the U.S. Attorney and say there's fraud here. And what I'm looking for are instances where nothing happens because we could exert a little pressure.

MS. FARRAR: We do have a problem with delayed prosecutions. We get excellent response from the law enforcement agencies --

SEN. SPECTER: Well, can you give us some specific cases so we could take a look at it and press somebody. Those generalizations don't do a whole lot of good.


SEN. SPECTER: We know that before you said it.

MS. FARRAR: Well, I will tell you that the cases we have referred in 2005 and 2006, only a handful have yet been prosecuted.

SEN. SPECTER: That doesn't tell much. How big's your hand? See if you can provide the subcommittee with more specific information. When you talk about information sharing, sure. We're all for information sharing. But, what are we going to do with it? In some jurisdictions, I hear that the insurance companies get together and subsidize Assistant D.A.'s. I don't think that's a particularly -- necessarily a good idea because a D.A.'s quasi-judicial. But, they ought to do their job without the subsidy.

MS. FARRAR: We don't do any of those subsidizing arrangements in our state.

SEN. SPECTER: Well what do you do by pressing the public prosecutors to act?

MS. FARRAR: Well, we meet with them on a regular basis to review the cases and offer to do whatever additional investigation we can do. The difficulty is in the lack of prosecutors who get the cases before the Grand Jury. They seem to stall out. To give you exact numbers, we have had three cases prosecuted in Chicago this year. Those were cases that were referred about 18 months ago to law enforcement, and that's relatively quick. We just finished a case in Chicago involving 10 defendants that had been on the docket for six years.

SEN. SPECTER: Well, when you talk about Chicago, you're talking about a lot of competition for prosecution.

MS. FARRAR: That's exactly right. You're right, sir.

SEN. SPECTER: They didn't even put your cases ahead of the Governor's prosecution.

MS. FARRAR: Probably not.

SEN. SPECTER: Thank you very much, Ms. Farrar. We turn now to Commissioner Dean Silweg, State of Wisconsin. Has been in that position since January 1st of 2007. Holds a Master in Public Administration from La Follette Institute of Public Affairs at the University of Wisconsin and a B.A.A in English from Lawrence University in Appleton. Thank you for coming in Commissioner Silweg and we look forward to your testimony.

MR. DILWEG: Thank you for the opportunity, Chairman Specter. I commend you and the committee for taking the lead in examining fraudulent activity in the health care marketplace. Health care consumers have in the past and continue today to be harmed by health care fraud and regulatory gaming. State insurance regulators have fought a decades-long battle against fraudulent and near fraudulent health care plan schemes. Such Ponzi-like schemes range from bogus health care plans that leave millions in unpaid claims to more sophisticated schemes designed to circumvent rating and other restrictions to protect less healthy, less fortunate consumers.

As you examine and study the prevention of billing and provider and other fraud that increase the costs of health care delivery, affecting Medicare and Medicaid, it is just as critical that federal legislative proposals include measures to prevent schemes designed that directly harm consumers. I urge you to examine and look at what we see occurring in our marketplace. As we look at health care reform, we advocate for areas that allow confidential coordination of inquiries and investigations among state and federal regulatory and law enforcement agencies, creates a coordinating council in the U.S Department of Justice, and gives regulatory flexibility to adapt to the changing face of fraudulent and regulatory gaming schemes.

This Congressional session may be a turning point in the history of our country's health care financing system.

Great care must be taken to ensure that these proposals do not inadvertently expose consumers, our families and friends, to fraud, or leave them unprotected from unscrupulous schemes. Now is the time to enact measures that encourage communication and coordination among federal and state regulatory and law enforcement jurisdictions, as well as set firm boundaries in the law to prevent schemes that abuse consumers.

There have been other such turning points in our history. The enactment of the federal Employee Retirement Income Security Act of 1974 is an example. ERISA was a major step towards protecting workers against fraud and abuse in the private pension system. It was also an unintended door opener to fraudulent health care insurance schemes. After enactment, unscrupulous and innovative operators set up multiple employer trusts to provide bogus health care coverage. These operators used the cover of ERISA preemption of state regulatory authority over insurance to set up such fraudulent health insurance plans.

The history of this criminal health coverage fraud is documented extensively in Congressional records and studies. A 2004 GAO study reported that in the period from 2000 to 2002, 144 unauthorized entities provided bogus health plan coverage to 15,000 employers --

SEN. SPECTER: Commissioner Selwig, let me interrupt you. What was done with that information? Were there any prosecutions?

MR. DELWIG: There was and what you're dealing with is quite a connection between the state regulator, the federal Department of Justice, Health and Family Services, and what we've done since then to address these what I term kind of Ponzi-like schemes is to try and provide the information ahead of time, try to educate the consumer. I guess I have some specific recommendations that I assume will be put into the record that would also enhance some of the criminal penalties on these activities.

I know this gets -- I was asked to respond to these issues. I know it gets outside of Medicaid provider billing issues, but it does get into a serious area as you look at national health care reform issues.

SEN. SPECTER: Well, when you mentioned the criminal conduct, the question that comes to my mind --

MR. DELWIG: It's forwarded on from my perspective, as we see something like that it is my role to forward it on to either my Attorney General or my U.S. Attorney.

SEN. SPECTER: What has happened?

MR. DELWIG: We have had cases in the Wisconsin Western District that have been taken to court and people have been put in jail because of it. In that GAO report, it shows a specific survey of the states and those -- you know, it reflects the activities where there was criminal prosecutions carried forth.

SEN. SPECTER: Do you think it's had any deterrent effect?

MR. DELWIG: It has. This tends to be a problem as you have increasing health care costs that we're seeing today and that you had in the late 1990's and early 2000.

SEN. SPECTER: Well, but that hasn't dissuaded people from engaging in that kind of criminal conduct.

MR. DELWIG: It has in the past. I guess we lay out seven areas that could help further coordinate the agencies and directly prosecute these criminal entities as we see them, to give the tools to -- so that we can take the confidential information that we're seeing and convey it to the U.S. Attorney's or the --

SEN. SPECTER: Well, I interrupted your testimony when you had two minutes left. So --

MR. DELWIG: That's no -- I mean, we're covering basically the issues that I would have touched upon. So,

SEN. SPECTER: So often these hearings tend to be a little sterile with the witnesses testifying and not a whole lot of interaction. It's like the old story of the -- (inaudible) -- passing from the notes of the professor to the notes of the student without going through the minds of either. That's why I interrupted you.

MR. DELWIG: I appreciate the questions and Senator Kohl is not always so inquisitive. So, those are really the, I guess --

SEN. SPECTER: How about Senator Feingold?

MR. DELWIG: Senator Feingold is very inquisitive and --

SEN. SPECTER: How about Senator Proxmire?

MR. DELWIG: I have a good Proxmire story, but I can --

SEN. SPECTER: Go ahead.

MR. DELWIG: Well, Senator Proxmire, as you know, was a very active campaigner throughout Wisconsin and the trick that he --

SEN. SPECTER: He spent $163 on one of his 6-year campaigns.

MR. DELWIG: The trick that he learned -- he would go to every state fair, every summer fest and he's stand at the gate and then when he would run into somebody they would say, "Oh, I remember seeing you last year at the state fair". And, he'd say, "Oh yeah. That's right. At the gate." So, that was one of his tricks, Senator.

SEN. SPECTER: Senator Proxmire made a speech every day on genocide, every day. He had a seat rear row on the aisle and every day he went over and made a speech -- this is before television -- and he reputedly collected for going home to Wisconsin saying his residence was Washington. Senator Stephens found out about that one day and just blew up that any senator would stoop so low as to say Washington as his home so that he'd collect for travel going back to his home state. So, we've covered Senator Kohl. You brought Senator Kohl up. I brought Senator Feingold up. I brought Senator Proxmire up. Now, let's see, I guess that takes us to Senator Joe McCarthy. You have more than just a big smile.

MR. DELWIG: I was not a fan of Senator McCarthy, Senator.

SEN. SPECTER: Anyone in the room a fan of Senator Joe McCarthy? I wonder if he operated out of this Judiciary Committee room. It brings to mind the Army-McCarthy hearings. He was against the Army, 1954. I listened to those hearings on the radio, driving back and forth from law school. Do you have further testimony, Commissioner?

MR. DELWIG: I really had just three points on this area that I'd like to conclude with. It's really recommendations that as health care reform is looked at that --

SEN. SPECTER: Shows getting dull. People are leaving. Go ahead.

MR. DELWIG: I know. That you consider. Really, just establish a privilege and statutory structure for the confidential coordination and exchange of information among federal agencies and state insurance regulators; provisions reaffirming state insurance regulators' authority to protect consumers under any federal health care reform legislation; provisions establishing a coordinating body in the federal Department of Justice to help focus on health insurance fraud schemes and schemes to exploit regulatory gaps, that would pull in all the various state and federal entities; and then criminal and civil penalties for operators, and those who assist operators, of health plans that falsely represent itself as exempt from state insurance regulation. Thank you, Senator.

SEN. SPECTER: Thank you very much. Without objection, we will put into the record, Senator Leahy's statement and the excellent opening statement prepared by my staff, which I did not read. Anybody have anything they'd like to add? Thank you all very much.

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