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Committee Leaders Initiate Investigation Into Medicaid Waste, Fraud and Abuse
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Contact: Ken
Johnson (202.225.5735)
WASHINGTON
(June 12) -- Citing the placement of
the Medicaid program on GAO's list of government programs at "High
Risk" of waste, fraud and abuse, House Energy and Commerce Committee
Chairman Billy Tauzin (R-LA), along with Health Subcommittee Chairman Michael
Bilirakis (R-FL) and Oversight and Investigations Subcommittee Chairman James
Greenwood (R-PA), today sent a letter to all 50 state governors informing them
of the committee's investigation of Medicaid abuse and requesting their
cooperation.
(Attached below is a copy of the letter sent June 12 to all 50 state governors.)
June
12, 2003
Dear Governor:
The Committee on Energy and Commerce, which has
exclusive jurisdiction over Medicaid, is conducting an investigation into
potential waste, fraud and abuse in this Federal-State health care program for
the needy. In January 2003, the
U.S. General Accounting Office (GAO) placed Medicaid for the first time on its
list of government programs at "High Risk" of fraud, waste, abuse or
mismanagement.
Such a risk demands immediate attention in a program of this vast size
and projected growth. Indeed,
last year the Congressional Budget Office projected Medicaid expenditures,
totaling $228 billion in fiscal year 2001, to grow 14% in fiscal year 2002 and
then an average of 8.8% per year after that - doubling total Medicaid spending
in 9 to 10 years.
This Committee is dedicated to diligent oversight of this vital program
to ensure that these precious resources are used wisely to meet the health
care needs of Medicaid beneficiaries.
As such, in this letter, we are approaching each
State for assistance with three specific areas of inquiry:
(1) state financing mechanisms designed to generate additional Federal
Medicaid matching funds; (2) Section 1115 Demonstration Projects; and (3)
organization, coordination and funding of waste, fraud and abuse efforts.
Financing
Mechanisms
A
number of reports over the past several years have documented persistent state
schemes designed to generate excessive Federal matching payments under the
Medicaid program.
For example, a January 2003 GAO report stated:
For
more than a decade, states have used various financing schemes to
inappropriately generate excessive federal Medicaid matching funds while their
own share of expenditures has remained unchanged or decreased.
Using statutory and regulatory loopholes over the last decade, some
states have created the illusion that they have made large Medicaid payments to
certain providers, such as county health facilities, in order to generate
excessive federal matching payments. In
reality, generally through electronic funds transfers, the states have only
momentarily made payments to these providers, as states have required the
payments to be returned. In some
cases, states have used these Federal payments for purposes other than Medicaid.
. . . Although the Congress and
[the Centers for Medicare and Medicaid Services (CMS)] have repeatedly acted to
curtail abusive financing schemes when they have come to light, states have
consistently developed new variations to this basic approach.
GAO
has identified several types of these schemes:
Payments
to State Health Facilities
States
made excessive Medicaid payments to state-owned health facilities, which
subsequently returned these funds to the state treasury.
The payments were then reported for the purposes of obtaining Federal
matching Medicaid dollars.
Provider
Taxes and Donations
Revenues
from special taxes on hospitals and other providers were collected by the State
and then subsequently returned to the providers in order to create an illusion
of payments for Medicaid services, allowing the State to receive a Federal match
on the returned amount.
Disproportionate
Share Hospital (DSH) Payments
DSH
payments compensate hospitals that care for a disproportionate number of
low-income patients. "[U]nusually
large" DSH payments were made to certain hospitals, which then returned the
bulk of the state and Federal payments to the State.
Payments
to Local Government Health Facilities
In
an effort to ensure that Medicaid payments are reasonable, Federal law and
regulations prohibit Medicaid from paying a certain amount more than what
Medicare would pay for comparable services.
This upper payment limit applies to total payments and not to individual
services. As a result of the
aggregate upper limit, States were able to make large supplemental payments to a
few local public health facilities, such as hospitals and nursing homes.
The local government health facilities then returned the bulk of the
state and Federal payments to the State.
The
Federal government, in cooperation with the States, has taken significant steps
to identify and reform such practices as they have arisen, but such schemes
continue to emerge and demand vigilant oversight.
The Committee now is reviewing whether these past reform efforts have
been successful and whether additional action is required.
Section
1115 Demonstration Projects
Under Sec. 1115 of the Social Security Act, the Secretary of Health and Human
Services can waive certain Medicaid rules to allow States to use Medicaid funds
for experimental, pilot or demonstration projects.
The innovation encouraged by these waivers is vital to the long-term
viability of Medicaid and strongly supported by this Committee.
Nevertheless, this important feature of Medicaid, which in 2001 accounted
for as much as 20% of the program's total expenditures, must be closely
monitored.
An important financial check on the waiver application process is the
demonstration of the project's budget neutrality.
This step, which ensures the proposed project will, in effect, save as
much money as it will cost, does not appear to be applied with fiscal rigor.
GAO suggests that some current waivers may lead to significant additional
Federal payments over the course of the programs.
The Committee now is examining the use of such waivers and how strictly
the requirements of budget neutrality are observed.
Medicaid
Waste Fraud and Abuse Enforcement
The day-to-day surveillance and enforcement of Medicaid waste, fraud and abuse
is carried out by a host of actors in the Federal-State partnership
administering and overseeing this vast program.
An initial look at this complex system suggests two problem areas: (1)
organization and coordination; and (2) funding.
According to one Medicaid Fraud Control Unit ("MFCU") official
interviewed by the Committee, CMS is equipped to offer little direction of fraud
control efforts across the program as a whole.
With respect to funding, although the Federal government subsidizes a
substantial percentage of any State's efforts to control Medicaid fraud through
MFCUs, GAO reports that no State utilizes its full available anti-fraud funding
and, in the case of three States, there are no MFCUs at all.
This less than full commitment from both sides of the Federal-State
Medicaid partnership exists despite proven returns on anti-fraud dollars in
terms of recoveries, fines and deterrence.
Finally,
we are investigating state efforts to address one specific area of waste in
Medicaid: ensuring that the full amount of available manufacturer rebates for
drugs dispensed under the program is collected.
In accordance with the Medicaid Rebate Agreement between the Department
of Health and Human Services (HHS) and manufacturers, drug makers are required
to give States rebates based upon the average manufacturer price (AMP) and
"best price" figures. However,
the process through which providers seek reimbursements for dispensing drugs in
most States utilizes "J-Codes," which in some instances do not give
States the specific manufacturer information necessary to enable them to seek
rebates. In a March 14, 2003 letter
to state Medicaid directors, CMS encouraged States to reform this system to
capture these "millions of dollars in uncollected rebates."
The Committee will examine state efforts to ensure that Medicaid programs
collect the full amount of manufacturer rebates available.
Record
and Information Requests
In order for the Committee to review effectively the issues described above, we
are requesting that, pursuant to Rules X and XI of the U.S. House of
Representatives, you provide the Committee with the following records and
information by July 7, 2003. Please
note that Requests Nos. 1, 2, 4, 6, 7, 8, 10, 11, 13, 15, 17, 19, 20, and 21 ask
for narrative responses or a statement of specific data.
The breadth and timeliness of this investigation require each State to
prepare and submit complete written responses, as appropriate.
To avoid any doubt, answers by way of simple reference to produced
documents will be considered insufficient and incomplete for the purposes of
this investigation. Finally, the
Committee directs each Request below to each and every State department, agency
or entity, where relevant and responsive information or records may be found
including, but not limited to, any departments or agencies of health and human
services, public health, Medicaid or budget.
-
Has
your State, at any time since the beginning of 1995, considered or engaged
in any plan, program, policy or practice similar to the financing mechanisms
described above or any other similar plan, program, policy or practice the
intended effect or result of which was to generate additional Federal
Medicaid matching funds while your own State's expenditures on related
services, or share of such expenditures, remained unchanged or decreased?
-
If
your response to Request No. 1 above is anything but an unqualified
"no," please describe any such plan, program, policy or practice.
-
If
your response to Request No. 1 above is anything but an unqualified
"no," please provide all records relating to any such plan,
program, policy, or practice.
-
Has
your State ever hired any outside consultant or expert for the purpose of
assisting in the design or development of any plan, program, policy or
practice as described and referenced in Request No. 1 above?
If so, please identify the consultant or expert and their project,
and state the total dollar amount paid to the consultant or expert by your
State.
-
Please
provide all records relating to the relationship, advice or work of any
consultant or expert identified in Request No. 4 above.
-
Please
describe how your State accounts for and tracks Medicaid funds, including
Federal Medicaid matching funds, to ensure such funds are used only to pay
for legitimate Medicaid services.
-
Has
your State, at any time since the beginning of 1995, considered or engaged
in any plan, program, policy or practice (including, but not limited to, the
use of inter-governmental
transfers) the intended effect or result of which was to increase Federal
matching payments in order to fund, in whole or in part, non-Medicaid
services?
-
If
your response to Request No. 7 above is anything but an unqualified
"no," please describe any such plan, program, policy or practice.
-
If
your response to Request No. 7 above is anything but an unqualified
"no," please provide all records relating to any such plan,
program, policy or practice.
-
For
each year from 1995 to the present, please provide a list of your State's
ten largest public medical providers, in terms of total Medicaid funds
received, and for each such provider and year, state the following:
a.
net patient revenue;
b.
gross Medicaid revenue;
c.
net Medicaid revenue;
d.
total costs for Medicaid services;
e.
total Medicaid funds received; and
f.
total Medicaid funds advanced, remitted or repaid by the provider to any
payor, including the State, by any means including, but not limited to,
intergovernmental transfers.
For
the purpose of responding to this request, "Medicaid funds received"
includes any and all Medicaid funds sent, directed, reported or attributed to
each provider for whatever purpose or duration, including payments for Medicaid
services, DSH funds and any other supplemental payment under Medicaid.
With respect to Request Nos. 10(a) - 10(d), please use these terms as
understood for the purposes of Medicare cost reporting.
-
Since
the beginning of 1995, has your State applied for a waiver under Social
Security Act Sec. 1115 for any experimental, pilot or demonstration project?
If so, please provide a brief narrative synopsis of the waiver
project and its present status. Please
include in your narrative a statement explaining the budget neutrality of
the project. If the project is
currently ongoing, please describe how projections of budget neutrality in
the application process are meeting the actual performance of the project.
-
For
each project identified in your response to Request No. 11 above, please
provide all records relating specifically to the evaluation or review of the
budget neutrality of the waiver project.
With respect to this request, please do not produce the complete
application and supporting documentation for the Section 1115 project, but
only those documents that specifically relate to whether the waiver project
is or will be budget neutral.
-
Please
briefly describe the organization, structure, and duties of your State's
MFCU, or similar type agency.
-
For
the period beginning January 1, 1999, please provide all records relating to
any complaints or criticisms relating to the coordination, structure,
organization or effectiveness of your State's Medicaid anti-fraud efforts.
-
For
the period beginning January 1, 1999, please describe any proposed,
considered or implemented changes to the overall authority or powers of your
MFCU, or similar type agency, as well as the status of such proposed,
considered or implemented changes.
-
For
the period beginning January 1, 1999, please provide all records relating to
any proposed, considered or implemented changes to the overall authority or
powers of your MFCU, or similar type agency.
-
For
the period beginning January 1, 1999, please describe any proposals or plans
to increase or decrease the funding for your State's Medicaid anti-fraud
efforts as well as the status of such proposals or plans.
-
For
the period beginning January 1, 1999, please provide all records relating to
any such proposals or plans to increase or decrease the funding for your
State's Medicaid anti-fraud efforts.
-
Please
provide a brief narrative synopsis of the process by which your State
obtains manufacturer rebate amounts for drugs submitted for reimbursement
using J-Codes rather than unique NDC numbers.
Please also describe any obstacles your State faces in determining
the rebate amounts for these types of drugs.
-
For
each quarter from 1999 to the present, please provide the following
information for your State's Medicaid program:
a.
The number of single source J-Codes utilized by providers seeking
reimbursement;
b.
The number of multiple source J-Codes utilized by providers seeking
reimbursement;
c.
The volume of drugs, in both quantity and dollar amount, reimbursed by
single source J-Codes;
d.
The volume of drugs, in both quantity and dollar amount, reimbursed by
multiple source J-Codes;
e.
The total manufacturer rebates in dollars received for single source
J-Coded drugs;
f.
The total manufacturer rebates in dollars received for multiple source
J-Coded drugs;
g.
The total volume of single source J-Coded drugs, in number of codes,
quantity of drugs reimbursed under such codes, and reimbursement dollar amount,
for which your State does not seek any manufacturer rebates; and
h.
The total volume of multiple source J-Coded drugs, in number of codes,
quantity of drugs reimbursed under such codes, and reimbursement dollar, for
which your State does not seek any manufacturer rebates.
-
Please
describe and provide all records relating to any plans or efforts to reform
your Medicaid system to capture any rebates on J-Coded drugs before and
after the March 14, 2003 letter to state Medicaid directors mentioned above,
including, but not limited to, any calculations of rebates which your State
has failed to capture for Medicaid reimbursed drugs.
Please note that, for the purpose of responding to these requests, the terms
"records" and "relating" should be interpreted in accordance
with the attachment to this letter. If
you have any questions, please contact Mr. Mark Paoletta, Chief Counsel for
Oversight and Investigations, at (202) 225-2927.
Sincerely,
W.J.
"Billy" Tauzin
Chairman
Michael
Bilirakis
Chairman,
Subcommittee on Health
James
C. Greenwood
Chairman,
Subcommittee on Oversight and Investigations
cc:
The Honorable John D. Dingell, Ranking Member
The Honorable Peter Deutsch, Ranking
Member, Subcommittee on Oversight
and Investigations
Attachment
1.
The term "records" is to be construed in the broadest sense and
shall mean any written or graphic material, however produced or reproduced, of
any kind or description, consisting of the original and any non-identical copy
(whether different from the original because of notes made on or attached to
such copy or otherwise) and drafts and both sides thereof, whether printed or
recorded electronically or magnetically or stored in any type of data bank,
including, but not limited to, the following: correspondence, memoranda,
records, summaries of personal conversations or interviews, minutes or records
of meetings or conferences, opinions or reports of consultants, projections,
statistical statements, drafts, contracts, agreements, purchase orders,
invoices, confirmations, telegraphs, telexes, agendas, books, notes, pamphlets,
periodicals, reports, studies, evaluations, opinions, logs, diaries, desk
calendars, appointment books, tape recordings, video recordings, e-mails, voice
mails, computer tapes, or other computer stored matter, magnetic tapes,
microfilm, microfiche, punch cards, all other records kept by electronic,
photographic, or mechanical means, charts, photographs, notebooks, drawings,
plans, inter-office communications, intra-office and intra-departmental
communications, transcripts, checks and canceled checks, bank statements,
ledgers, books, records or statements of accounts, and papers and things similar
to any of the foregoing, however denominated.
2.
The terms "relating," "relate," or
"regarding" as to any given subject means anything that constitutes,
contains, embodies, identifies, deals with, or is in any manner whatsoever
pertinent to that subject, including but not limited to records concerning the
preparation of other records.
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