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Hearing on Social Security Disability Fraud Conspiracy in Puerto Rico

September 19, 2013

Hearing on Social Security Disability Fraud Conspiracy in Puerto Rico 










September 19, 2013


Printed for the use of the Committee on Ways and Means

DAVE CAMP, Michigan,Chairman

PAUL RYAN, Wisconsin
DEVIN NUNES, California
JIM GERLACH, Pennsylvania
TOM PRICE, Georgia
DIANE BLACK, Tennessee
TOM REED, New York
MIKE KELLY, Pennsylvania

RICHARD E. NEAL, Massachusetts
JOHN B. LARSON, Connecticut
RON KIND, Wisconsin

JENNIFER M. SAFAVIAN, Staff Director and General Counsel
JANICE MAYS, Minority Chief Counsel



SAM JOHNSON, Texas, Chairman

MIKE KELLY, Pennsylvania






Advisory of September 19, 2013 announcing the hearing


The Honorable Patrick P. O’Carroll Jr.
Inspector General, accompanied by the Honorable Paul C. Lillios, Associate Chief Administrative Law Judge, Social Security Administration

Beatrice M. Disman
Regional Commissioner, New York Region, Social Security Administration, New York, New York




Hearing on Social Security Disability Fraud Conspiracy in Puerto Rico 

Thursday, September 19, 2013
U.S. House of Representatives, 
Committee on Ways and Means, 
Washington, D.C. 


The subcommittee met, pursuant to call, at 2:30 p.m., in Room B‑318, Rayburn House Office Building, Hon. Sam Johnson [chairman of the subcommittee] presiding. 

[The advisory of the hearing follows:]

Chairman Johnson.  The hearing will come to order. 

This is the first subcommittee hearing since the passing of my friend and former subcommittee chairman Clay Shaw.  We all remember him.  Clay was one of the best, a great American, a diplomat, and a joy to work with regardless of your politics.  I sat right next to Clay as he led the subcommittee during the 106th, 107th and 108th Congresses. 

Through his leadership the committee achieved a number of legislative accomplishments for America and its people.  Chief among them were the Seniors Freedom to Work Act of 1999, which repealed the retirement earnings penalty for individuals who attained their full retirement age; the Ticket to Work and Work Incentives Improvement Act of 1999 to help those receiving disability benefits to return to work; and the Social Security Protection Act of 2003 to protect vulnerable Social Security recipients from representative payees who misused benefits and other program protections, including withholding benefits from fugitive felons and parole violators.  I guess that is similar to what we are going to talk about today. 

Chairman Shaw believed in Social Security and worked tirelessly to secure its future by authoring legislation to keep the Social Security promise, protect Social Security finances, and enhance Social Security benefits for women. 

Clay’s instincts were to be bipartisan if possible and a gentleman legislator always.  He joined efforts with then‑Ways and Means Chairman Bill Archer in developing and promoting legislation to save Social Security for 75 years and beyond, the Social Security Guarantee Plus Act, a bill his Florida constituents and even some Democrats found thoughtful and possible.  He was one of the earliest Members of Congress to lead the fight to protect Social Security numbers. 

Our hearts go out to Clay’s beloved wife Emilee and his family, and I ask that we bow our heads for a moment of silence to honor our former Chairman.

[Moment of silence.]

Chairman Johnson.  Thank you.  I appreciate that. 

You knew him, too. 

Mr. Becerra.  I did, Mr. Chairman.  If I may say a word? 

Chairman Johnson.  You may. 

Mr. Becerra.  Mr. Chairman, if I may associate myself with every single word that you just uttered with regard to our colleague and friend Mr. Shaw.  There are people who understand this institution and who work hard to try to make it work.  Mr. Shaw was one of those individuals.  He would reach out to his friends, Republican and Democrat alike. 

It is tough when you hear about a colleague who passes on because you think that you never quite grow that old, and you still remember those memories, and it is almost as if it was yesterday that Clay was here with us.  So I join you in remembering a dear colleague and friend, and I hope that we are able to see this House continue to make progress on behalf of people like Clay Shaw, who gave quite a bit of his life and his hard work to make it work. 

So with that, Mr. Chairman, I thank you for yielding some time. 

Chairman Johnson.  Thank you.  I appreciate your comments. 

We now turn our hearing to Social Security disability fraud conspiracy in Puerto Rico.  On August 21st, the United States Attorney for the District of Puerto Rico announced the arrest and indictment of 75 individuals for Social Security fraud.  Let me repeat that number.  Seventy‑five arrested for allegedly seeking to defraud Social Security.  So we are not talking about a few bad apples here.  Those arrested include a claimant representative who was a former Social Security employee, three physicians, and 71 beneficiaries.  My understanding is that the investigation is ongoing, and there could be additional arrests. 

Under the alleged scheme, the former Social Security worker would help a claimant file an application for disability benefits and, with the assistance of a conspiring doctor, provide fraudulent medical evidence that would result in taxpayer‑funded benefits that should never have been paid in the first place.  The representative would collect a fee from the claimant of 25 percent of any past‑due benefits owed up to a cap of $6,000.  The doctors would receive a kickback of $150 to $500 by the claimant for their submission of false reports to Social Security. 

The investigation began back in November 2009 after medical consultants in the Puerto Rico Disability Determination Services reported a suspicious pattern of benefit claims involving nearly identical medical evidence.  Social Security and the Office of the Inspector General then began an extensive review of the medical information.  Later the FBI and the Puerto Rico Police Department joined the investigation. 

Social Security has now suspended benefits claimed by the indicted beneficiaries.  It has also begun reviewing the files of over 6,000 beneficiaries that included medical evidence from the indicted physicians or representative.  Unless beneficiaries are able to prove their disability with nontainted medical information, they will be required to pay back to Social Security the benefits they should not have received in the first place. 

So the bottom line is that at a time when the Disability Insurance program will be unable to pay full benefits beginning in 2016, Social Security has been doling out millions of dollars in fraudulent taxpayer‑funded payments.  This is unacceptable.  And on the heels of the Puerto Rico case, GAO reported last week that Social Security paid $1.3 billion in overpayments to disability beneficiaries.  Moreover, the debt owed to the Disability Insurance Trust Fund from those who need to pay back overpayments is now $6 billion.  In this particular case, the problem occurred before beneficiaries even got their first check, so they may have been awarded benefits when they shouldn’t have, all because Social Security’s enforcement operations doesn’t generate earnings alerts in all cases when earnings occur during the 5‑month waiting period.  In other words, in my view, Social Security wasn’t doing its job. 

The Puerto Rico case along with GAO’s report raises serious and troubling questions about Social Security’s management of the disability program.  The American taxpayer is right to wonder whether Social Security is fully committed to rooting out waste, fraud and abuse. 

Let me be clear that Social Security should not try to downplay the Puerto Rico case and the GAO’s report by spinning the numbers to try to minimize the loss of taxpayer dollars.  To do so would be an insult to taxpayers.  Waste, fraud and abuse in the Disability Insurance program cheat honest, hard‑working American taxpayers and those who truly need benefits.  The best way to protect the disability program is to prevent waste, fraud and abuse before it occurs. 

The American people want, need and deserve answers.  Social Security’s leadership needs to get serious about better protecting this program paid for by America’s hard‑working wage earners. 

Chairman Johnson.  I now will recognize our ranking member Mr. Becerra for his opening statement. 

Mr. Becerra.  Mr. Chairman, thank you very much. 

American workers pay for Social Security, and we owe it to them to protect their investments by preventing fraud and stopping it where we can.  Every month over 160 million American workers contribute part of their hard‑earned paychecks to Social Security to prepare for retirement and to protect themselves and their families. 

To put it in context, over Social Security’s lifetime American workers have contributed $14.5 trillion to Social Security.  During those 78 years, Social Security has safeguarded those contributions, it has invested surpluses in U.S. Treasury bonds, and it has paid American families their benefits on time and in full for 78 years.  And in those 78 years today, there are some $2.5 trillion in reserve that has yet to be used to help cover the future benefits of Americans who paid into this system.  We owe it to Americans, therefore, to do everything we can to protect their contributions from those looking to defraud Social Security, while still paying those honest workers their earned benefits when they need them. 

SSA does a good job of fighting fraud, as evidenced by this successful investigation that we will hear about more.  Most Social Security fraud is reported or prevented by Social Security Administration employees, as was this conspiracy.  It was frontline employees at the Puerto Rico office who first detected this conspiracy as part of their work reviewing benefit applications.  They brought it to the attention of SSA’s regional leadership, and a referral was then made to the inspector general for investigation and potential prosecution. 

But SSA didn’t stop there.  They continued to track the suspicious cases, subjecting them to additional scrutiny.  And in light of the deepening investigation and the emergence of a conspiracy, SSA set up a process to quickly rereview all suspicious cases as soon as the Attorney General filed indictments.  SSA has already suspended benefits to the 71 individual beneficiaries who were indicted on August 16th. 

The vast majority of disability insurance recipients are honest.  They are hard‑working Americans who became too disabled to work, and the disability insurance program has grown in recent years because of demographics and the aging population, not because of fraud.  As Social Security’s chief actuary as testified, the disability program has grown primarily because there is a larger population, the baby boomers are hitting their most disability‑prone years, and the increase in the number of women in the workforce.  These are factors that have nothing to do with fraud and that the actuaries have actually known about and projected for many years. 

Finally, I would note for the record that fraud is not a driver of the growth of the DI program in and of itself.  Last year, in 2012, SSA employees made over 26,000 fraud referrals to the inspector general, including disability fraud.  Of these the inspector general found that 5,300 cases merited investigation and, of those, 236 rose to the level of criminal prosecution; 236 out of 26,000 fraud referrals.  That is less than 1 percent.  And that doesn’t even say that there was a conviction.  That was a referral for a criminal prosecution. 

By the way, of those 236 cases that rose to the level of criminal prosecution, which represents 236 of the 26,000 fraud referrals, that is out of the 3.2 million applications that were received by the Social Security Administration for disability benefits out of the 57 million people who are in the Social Security beneficiary population altogether. 

So I think it is very clear that SSA is working very hard to root out fraud, because no one wants to see the hard‑earned benefits of any American used for other than the benefits that have been earned.

A highly trained, well‑staffed SSA is our best defense against fraud.  When SSA’s disability examiners noticed this problem in Puerto Rico and reported it to the IG, SSA had more staff available to it than they have today.  So we have to take a look.  In 2012 reports from Social Security, employees were responsible for nearly two‑thirds of the fraud investigations opened by the inspector general.  They are not coming from the outside, folks.  They are not coming from regular people.  They are coming from the SSA employees themselves who are detecting this fraud. 

Unfortunately, SSA’s budget has been cut by about $1 billion a year since 2011, which has had real consequences for taxpayers, beneficiaries and the workers who are counting on Social Security in the future.  It pains me to say, but this House has blocked $421 million that the Budget Control Act provided for SSA to fight waste, fraud and abuse, costing taxpayers billions of dollars.  SSA has lost nearly 11,000 highly trained employees to budget cuts over the past 2 years.  As Ms. Disman says in her testimony, that leaves far fewer people to “stand watch over Social Security” and leaves them with far less time to document what they see and to report it to the inspector general. 

I am pleased that we have had a chance to come together for this hearing to see how SSA combats fraud, to learn more about what happened in this particular conspiracy and whether additional action is needed.  At the same time we must keep in mind that in the overwhelming majority of cases, there is no fraud involved. 

SSA does a good job overall of detecting and preventing fraud, and the inspector general aggressively investigates reports of potential fraud.  But without adequate resources, SSA cannot adequately police fraud while ensuring that individuals who have earned their benefits get paid on time and in the right amount. 

So we are very much interested in your testimony today, and with that, Mr. Chairman, I yield back my time.

Chairman Johnson.  I think as a matter of record it took too long to get into this.  2009 until today is a long time. 

As is customary, any Member is welcome to submit a statement for the hearing record. 

Chairman Johnson.  Before we move on to our testimony today, I want to remind our witnesses to please limit your oral statements to 5 minutes.  However, without objection, all the written testimony will be made part of the hearing record. 

We have one witness panel today seated at the table, the Honorable Patrick O’Carroll, Inspector General, accompanied by the Honorable Paul Lillios, Associate Chief Administrative Law Judge, Social Security Administration; and Beatrice Disman, Regional Commissioner, New York Region, Social Security.  You are the one that has responsibility for Puerto Rico, I guess. 

Mr. O’Carroll, welcome and thanks for being here.  Please go ahead with your testimony.


Mr. O’Carroll.  Good afternoon, Chairman Johnson, Ranking Member Becerra, and members of the subcommittee.  It is a pleasure to be here today to discuss our ongoing criminal investigation in Puerto Rico. 

About 4 weeks ago in the early morning hours, 19 OIG special agents with 125 FBI special agents and about 150 Puerto Rico Police Department officers successfully executed 69 arrest warrants within a few hours.  The arrests were meticulously planned and accomplished without incident. 

The arrestees were taken to the Morales Basketball Coliseum in Guaynabo where the United States Marshals Service was standing by to process and fingerprint them.  They were able to appear immediately before an on‑site United States magistrate.  In addition to the 69 arrested, 6 additional suspects were arrested or surrendered to authorities in the days that followed. 

These arrests were based on 75 indictments returned by a grand jury in Puerto Rico.  Our investigation had revealed that these 75 individuals took part in a massive scheme to defraud Social Security of millions of dollars in disability benefits.  Seventy‑one of the arrestees were disability beneficiaries, three were medical providers, and one was a nonattorney claimant representative named Samuel Torres Crespo, who was a former SSA employee. 

The scheme was simple enough.  Word of mouth was all it took.  Anyone looking to obtain disability benefits fraudulently, either because they had recently been laid off or because they saw what they thought was an easy mark, would go see Torres Crespo.  He would, for 25 percent of the claimant’s accrued benefits, put together an application and send the claimants to one of three of the indicted doctors.  The doctor would charge the claimant a fee between of $125 and $500 to produce a false medical report, and then the fraudulent claim would go forward. 

Over time, observant disability examiners noticed that nearly identical medical reports were coming across their desks, and the OIG was notified.  Over a period of months, from late 2009 to 2010, we received a series of such allegations.  Each was carefully examined, and many required interviews or video surveillance before a decision could be made whether to conduct a criminal investigation.  Some allegations proved unfounded, or, more often, the fraud could not be fully established. 

Finally, however, we were able to gain a foothold in early 2011 thanks to an exhaustive review of records, tireless work by SSA analysts and our agents, and the timely cooperation of the FBI.  Working with the U.S. Attorney for the District of Puerto Rico, the FBI and the Puerto Rico Police Department, we conducted scores of interviews, covert surveillances and undercover visits to doctors’ offices.  We also executed search warrants and used other investigative techniques that slowly revealed the breadth and extent of this complex scheme. 

I cannot say enough about the level of cooperation amongst these agencies.  This was truly government and law enforcement at its finest. 

The judicial process in this case will take time to unfold.  Some of these people will likely go to jail.  Many will be required to repay the money they stole, and the government has already seized about $1.7 million in assets from Torres Crespo. 

Meanwhile, this investigation continues, and other investigations are spinning off from it.  Calls to the toll‑free hotline number that we established are generating new leads.  That number, 1‑855‑777‑0821, is being contacted frequently. 

Our work in Puerto Rico is far from finished, and Puerto Rico is by no means the only place where our office is investigating doctors, lawyers, representatives, interpreters and others who facilitate disability fraud in large numbers.  This type of fraud has long been a priority of our office.  It was one of the inspirations for the CDI program, with which this subcommittee is very familiar, and the Puerto Rico CDI unit is now up and running.  It was also the motivation behind the recent creation of the disability fraud pilot.  We specifically designed this program to detect and investigate facilitator fraud such as that which we found in Puerto Rico. 

Judge Lillios, who is here with me today, will work with one of our deputy assistant inspector generals for investigation and audit and investigative staff to mine data, review past allegations and beat the bushes for leads.  They will also be looking for professionals who have abused the government’s trust as paid participants in the disability process.  Be they doctors, lawyers or representatives, they should know that we are looking long and hard at similar schemes. 

Of course, we will continue to advise this subcommittee as this work continues, and as always I appreciate your unflagging support, and I will be happy to answer any questions. 

Chairman Johnson.  Thank you, sir.  I appreciate that testimony. 

[The statement of Mr. O’Carroll follows:]

Chairman Johnson.  Ms. Disman, welcome.  Please proceed.

Ms. Disman.  Chairman Johnson, Ranking Member Becerra, members of the subcommittee, thank you for this opportunity to discuss Social Security’s role in uncovering the complex disability fraud conspiracy in Puerto Rico.  My name is Bea Disman.  I am Social Security’s Regional Commissioner for the New York Region.  I have direct authority over the agency’s operations in New York, New Jersey, Puerto Rico and the U.S. Virgin Islands.  I began my career at Social Security as a field office employee in 1965.  While much has changed since then, the agency’s commitment to service and stewardship has never wavered. 

Like you, I am outraged whenever anyone attempts to defraud the government.  I am especially chagrined that a former Social Security employee acting as a nonattorney claimant representative was an integral part of the conspiracy uncovered in Puerto Rico.  This individual betrayed his former colleagues by violating the public trust, and, frankly, I am incensed by his actions. 

We applaud the recent news that law enforcement officials indicted the former employee, several physicians, and approximately 70 disability claimants for allegedly defrauding the disability program.  While the Federal grand jury investigation continues, evidence suggests that the involved parties conspired to submit fabricated or exaggerated medical evidence in order to fraudulently obtain benefits.  This criminal behavior is unconscionable, and we do not tolerate it. 

In this case it was the diligent employees of the Puerto Rico DDS, funded and trained by Social Security, who first identified the fraudulent medical evidence.  The DDS employees referred the allegation to us in March 2009 during an on‑site visit by my regional office staff and the quality reviewers. 

In November 2009, after completing additional analysis and case development, we referred the allegation along with information about the nonattorney representative to the Office of the Inspector General.  In addition to referring the case to the OIG, we took aggressive steps to identify any additional cases and develop a process for reviewing the cases.  These steps ensured that we could reliably handle any high‑volume review that might result from the investigation. 

We directed Federal resources to Puerto Rico to assist in the investigation, monitor the Puerto Rico DDS operations and help decide cases.  We also redirected and trained staff on medical issues from our Puerto Rico field offices and our program service center in New York City.  These additional staff resources were focused on Puerto Rico cases, including those involved in the investigation. 

In addition, we authorized the New Jersey DDS to hire bilingual disability examiners to assist with Puerto Rico.  Other DDSs, both inside and outside the New York region, provided workload assistance to the Puerto Rico DDS, which added more outside eyes to the cases being filed in Puerto Rico.  A sustained, multiyear cross‑training effort, as well as additional quality studies, further strengthened our work with the Puerto Rico DDS and ensured their quality continued to remain strong and the fraud identified. 

Without question, our antifraud activities in Puerto Rico worked.  They have shown that our frontline employees are the best defense against fraud.  Over the years our emphasis on their role in the integrity of our programs and responsibilities for reporting fraud have strengthened our stewardship focus. 

We have suspended over $130,000 in monthly benefits to the indicted individuals and their auxiliaries.  As of today we are reviewing at least 6,600 disability applications in which we awarded benefits based in part on the medical evidence supplied by the doctors.  These reviews will occur in New York City and in New Jersey.  In redetermining these cases, we will disregard the tainted medical evidence.  If the remaining evidence does not support our original allowance, we will suspend the benefits, providing the opportunity to submit additional medical evidence prior to a final determination.  Beneficiaries will receive notification if we terminate their benefits and assess an overpayment. 

If we suspect additional fraud of medical providers in any of these cases we review, we will refer that to the OIG for investigation and possible referral to the U.S. Attorney.  Under a program we are considering for Puerto Rico based on success in other regions, our agency’s attorneys may pursue cases not accepted for criminal prosecution by the U.S. attorney. 

Looking ahead we know that it is critical that Congress fully fund our cost‑saving program integrity activities while ensuring we have the resources to serve the deserving disability applicants who turn to us for help.  Investigations are time‑consuming and labor‑intensive.  In Puerto Rico it required close coordination between Social Security, the Puerto Rico DDS, and multiple layers of law enforcement.  We need your support to keep the disability program strong. 

Thank you, and I will do my best to answer any questions you may have, with the understanding that this is still an active grand jury investigation. 

Chairman Johnson.  Thank you for your testimony.  I appreciate it. 

[The statement of Ms. Disman follows:]

Chairman Johnson.  Mr. O’Carroll, let met ask you a quick question.  Has there ever been a case as big as this in the history of Social Security, in your opinion?  Yes or no. 

Mr. O’Carroll.  No, there has not been any one as big as this. 

Chairman Johnson.  Okay.  I am glad you and your Acting Commissioner are convinced that fraud conspiracy is not limited to Puerto Rico since you have set up disability fraud pilot programs here in the United States focusing on third‑party facilitators, claimant representatives and medical providers.  It seems like everybody wants some of our money.

Ms. Disman, with respect to the Puerto Rico case, what is the total amount of fraudulent taxpayer‑funded benefits paid out by Social Security?  I expect it will reach millions of dollars. 

Ms. Disman.  At this point in time, Mr. Chairman, I do not have that figure because we are rereviewing all these cases, and our initial review of the 6,600 cases, which we have already started, shows a number of these people will continue to receive benefits because there is other medical evidence in the file even after we remove the tainted evidence.  So we will be able to ‑‑ after we finish the review be able to tell you what was involved with the tainted medical evidence and the amount of the benefits. 

Chairman Johnson.  Well, I know it is Social Security’s idea to get payments out as fast as they can.  Do you think we are doing it too fast without checking what the status of the claimant is? 

Ms. Disman.  In this situation it shows our frontline employees did their job and did the checking.  What they uncovered was looking at template medical evidence, and they didn’t stop there.  They went ahead and followed the procedures that we have and the operating procedures that we have trained them on. 

Chairman Johnson.  Yes, but you already paid them. 

Ms. Disman.  Right, because based on other evaluation of the medical evidence in file and other factors ‑‑ remember, this was fabricated medical evidence ‑‑ it appeared that these people were eligible to meet the definition of disability. 

Chairman Johnson.  Do you think our taxpayers will be made whole?  Yes or no. 

Ms. Disman.  I think our taxpayers will be made whole for those people we determine that are no longer eligible to receive disability. 

Chairman Johnson.  In other words, all that money that we put out is going to be paid back? 

Ms. Disman.  We are going to be charging overpayments if those decisions were based on fabricated medical evidence and cannot be supported, and they will be required to pay back the overpayments. 

Chairman Johnson.  How do you go about getting that? 

Ms. Disman.  Well, basically you ask them to pay the money back.  You go through a process that gives them their due rights.  But ultimately there is a request for the money. 

Chairman Johnson.  Okay.  And how much is Social Security spending to deal with this fraud? 

Ms. Disman.  Well, during the review itself we are in the midst of determining what we will be spending on the review.  I can tell you right now that the medical evidence in Puerto Rico is in Spanish, so that in order to start this review and to have it done by people that are not just bilingual and biliterate, we have had to translate a number of the medical documents, and that is hard to do because you have to be more than bilingual, you have to be biliterate in medical.  So we have already spent $3 million in a contract to do the translation.  We are right now factoring all the costs, and I will provide that for the record as soon as we finish putting that together. 

Transcript Insert 1

Chairman Johnson.  So usted no hable espanol?

Ms. Disman.  It is not just speaking Spanish, it is reading complex medical terms.  And I do agree with you, because I know you have spent, Chairman Johnson, some time in Puerto Rico. 

Mr. Becerra.  But he is a Texan.  He knows everything. 

Chairman Johnson.  Ms. Disman, I want to turn to the findings of a GAO study released last week on overpayments.  It found that Social Security paid out $1.3 billion in disability that were wrong mostly because the individuals earned over the legal limit during the 5‑month waiting period before they received their first check.  The problem was simple:  Social Security did not catch the earnings if they occurred the year before the year benefits were first paid. 

Now, this seems like a problem that ought to be able to be solved by a high school computer student.  Why hasn’t this been addressed, and can you give me an assurance it will be, and when? 

Ms. Disman.  Well, Mr. Chairman, I read the GAO report as you did, and I have been involved in the enforcement operation as being Regional Commissioner for years.  I can tell you that the enforcement operation is very complex, and it requires complicated work by our program service center employees as well as our field employees. 

In reading the GAO report, and also talking to our policy people, I know that we are going to have to go look behind the cases because GAO did not do any analysis.  If someone has worked during a waiting period, it may be an unsuccessful work attempt, there needs to be a look at the cases itself. 

However, we agreed to look at those cases.  We also agreed to look at GAO’s recommendation, that we take a look at what the cost would be and the resources for us to obtain this information during the waiting period, understanding that if we did this, we may not be able to do something else given our budgets and what we are dealing with. 

Also, there are two proposals in the President’s budget to deal with exactly this issue.  One deals with going to a quarterly wage reporting.  You know now it is yearly, so that by the time the data come to us, enforcement is already late.  And the second is to continue and redelegate our demonstration authority to go ahead and experiment with different ways of counting earnings for the disability beneficiaries.  And we have been experimenting with different demonstrations to see if we can simplify the program and still get at the heart of the issue of enforcement. 

Chairman Johnson.  Have you been down there yourself? 

Ms. Disman.  Where? 

Chairman Johnson.  Puerto Rico. 

Ms. Disman.  Oh, I have been down to Puerto Rico over the years.  I must admit I go in August when it is 100 degrees.  But having said that, you have very dedicated Social Security employees in Puerto Rico.  They are really dedicated to the mission.  I can tell you that this fraud investigation and this conspiracy, if you talk to my employees on the frontline, they are incensed and upset, and a number of them knew the retired Social Security employee, and they are beside themselves. 

Chairman Johnson.  Well, GAO says it urged Social Security to use other verification sources since 2004, but you didn’t.  In responding to the GAO report, Social Security referred to the, quote, “strategic plan goal of preserving the public trust and improving payment accuracy” as one of your highest priorities.  Is that true? 

Ms. Disman.  Well, our highest priority is to ensure the public trust.  I take stewardship responsibility personally.  I have over the years been one of the foremost supporters of antifraud activities within Social Security.  As a matter of fact, the inspector general and I set up antifraud committees in the regions, which are chaired by both of us. 

Chairman Johnson.  When did you do that? 

Ms. Disman.  We set that up a good 10 years ago that we have been working on that.  We bring in line management.  We identify various trends. 

So I will tell you, for a while I was the operations lead on anti-fraud ‑‑ I want to say antifraud, not fraud ‑‑ and I take this seriously and to heart, because when I was trained as a claims representative, that motto, we get the right check to the right person on time, is our foundation. 

Chairman Johnson.  Well, you need to do both, and I am told that, you know, some people think you are more interested in cutting checks than trying to prevent fraud, and I hope that is not true. 

How can we believe the agency’s statement that payment accuracy is the highest‑step priority when the actions here say something different? 

Ms. Disman.  Well, Mr. Chairman, I think you can see the actions here were a complex conspiracy, and if you actually look at the information of our accuracy of the data of Puerto Rico, they are equal or better than the national average, and, you know, we have an independent quality organization that looks at that. 

Chairman Johnson.  Well, as the New York Regional Commissioner, you are responsible for overseeing the Puerto Rico Disability Determination Program; is that correct? 

Ms. Disman.  That is correct. 

Chairman Johnson.  And I would like to get your attention to the slide, if they can put it up on the screen.  I think the staff gave you a hard copy of that. 

Ms. Disman.  I don’t have it, and let me see if I can see it.  I can’t see it, but I understand what it is showing. 

Chairman Johnson.  Okay.  You understand it just shows that the allowance rates in Puerto Rico are way above the national average anywhere else, like double and triple, and it was pointed out in a Wall Street Journal article from March of 2011, which we will insert in the record without objection.

[The Wall Street Journal article follows:]

Chairman Johnson.  And show the next slide, please. 

That table shows the percent of beneficiaries nationwide, and the percentage of beneficiaries diagnosed with a mental disorder in Puerto Rico is at least 10 percent higher than the national average for all years.  The percentage with a mood disorder is more than double the national average.  And this is important since we have been told back problems and affective disorders, including mood disorders, were alleged by most of the beneficiaries who were arrested.  Assuming you saw both the award rate and the diagnosis trends when they happened, what action did you take and when, and what was the result? 

Ms. Disman.  Well, we have taken multiple actions in Puerto Rico.  We have actually had a multipronged approach.  We have had our quality reviewers and my own disability staff visit Puerto Rico and do extensive training.  As a matter of fact, when we found out about the allegation of the doctors, we were there training them on the medical documentation of the file, how to identify suspect medical evidence, going over the risk factors for fraud and similar faults.  Two of the categories in those risk operations for operations deals with affective disorders as well as back disorders, going through what the factors are for them to look at. 

We did more than that.  We did very special training in July of 2011 where we brought together the ALJs and our DDS examiners.  We had headquarters, we had our own people from the region, we had quality, going over again the characteristics of affective disorders, similar fault, and actually going through how you deal with the files for inconsistency when you see the types of trends.  We do have very specific operating procedures for them to follow, and they have continued to do the referrals. 

But I do have to say allowance rates make up a total ‑‑ a composite of a number of factors.  It is not just what you are seeing with this conspiracy.  It really does depend on the demographics of a population, it depends on the age, it depends on the education, it depends on the poverty level that exists, it depends on the jobs and the economy. 

So you can’t draw a conclusion just by looking at the allowance rate, but you have to look behind it.  We also asked for a special study where they did a 1,000‑case analysis of what the Disability Determination Service was doing, and when they looked at those cases, they also made special referrals to the OIG, but at the same time they determined that the quality and accuracy of the decisionmaking was equal to or better than the national average. 

In addition, as I have said before, we have had help from outside my region as well as within the region.  So I really established eyes and ears to look at these cases to see if we could pick up any special trends and analysis and continue with the reporting of fraud. 

In addition to that, I have taken my own Federal resources from my field offices in Puerto Rico, and I could ill afford it, to devote them to training them on medical decisions and looking at specific cases. 

So I actually looked at, in working with the OIG, cases from specific areas in Puerto Rico to try to identify patterns.  We would move it to ZIP codes and establish information that the OIG could use. 

Chairman Johnson.  When did she first inform you of this effort? 

Mr. O’Carroll.  Well, Chairman, we have been working in conjunction with Regional Commissioner Disman and her office right from the beginning in 2009 when we heard about this.  From there on we started referring cases to her for review.  So we have been pretty much working united on this thing for the last few years. 

Chairman Johnson.  Were you satisfied with what the answers were that you were getting? 

Mr. O’Carroll.  Yes.  As we keep going with this, it is so complicated on it, and there are so many different tentacles to this situation, it has taken a lot of interaction back and forth and education on the part of our agents in terms of reviewing files, and I have got to say it has been a very good cooperation on this one. 

Chairman Johnson.  Well, you know, if the Federal quality reviewers are saying the decisions are right, either we have got more fraudulent evidence out there, or we really need to take a good look at the statute defining disability. 

Mr. Becerra, do you wish to question? 

Mr. Becerra.  Yes, Mr. Chairman, thank you. 

And I think the admonishment that the Chairman just made is, I think, something all of us would agree with at this dais, and that is that we have to hunt this stuff down as quickly as we can.  No one wants to see any kind of report of fraud, because it is what undermines the confidence that the people have that when they pay these Social Security contributions, these taxes to Social Security, that they will be used for the right purposes. 

So we appreciate, Ms. Disman, everything that your people have done, especially the line workers who often times don’t get to be here to explain exactly what they have done.  Please tell them that we appreciate that they were the ones that detected this, and that we hope they have the resources they will need to continue to be able to continue to do that.  By the way, I also hope that you are able to keep those experienced staff, who probably have the knowledge it takes to sort of understand when something looks a little fishy on those applications. 

So I think you answered the first question I was going to ask, and that is what are you doing today to try to make sure you can prevent this type of fraud from occurring again when the Chairman asked some questions. 

So let me ask this:  It all seems to hinge on this former employee who knew how the office operated, who sort of understood what your reviewers are looking for to determine if an application passes that bar so that it goes to the next step of getting closer to being approved. 

I agree with you and your line workers that if you could descend on this guy with every tool you have, we should, because he breached a trust.  He learned the system, and then once he left and probably took a decent retirement with him, he still went ahead and shafted the very system that helped him.  Those kind of guys don’t even belong behind bars. 

Anyway, I would say that what you should do is give us a sense.  There are probably several other people who have learned the system, understand what your disability reviewers are looking for, and therefore could tailor this fabricated evidence to look like they qualify.  And unless you are really good ‑‑ it is like when Sam, the chairman, and I talk about these fake IDs that are used to do all sorts of things including getting employment, an employer looks at this thing, and this looks like a real Social Security or a real driver’s license, and, lo and behold, it is fake. 

How do you get to the point where you can prevent that from occurring?  Because there are a whole bunch of former Social Security employees who are probably doing great work defending a lot or representing a lot of future beneficiaries or beneficiaries today.  We don’t want to indict everyone who just happens to have done good work and knows the system, but how do you make sure that those who know how they might be able to game the system aren’t doing that? 

Ms. Disman.  Well, I have to agree with your comments about the former employee, and one of the things that I hope is that this indictment and what has taken place in Puerto Rico serves as a notice to any former employee and anyone that we will find the fraud, we will investigate it, and you will face criminal charges and perhaps imprisonment. 

I will tell you we used this opportunity of the indictment to send out a message throughout Social Security to talk about what took place, to remind people about reporting it, how to report it, what to look for, and to continue to do it.  How we really save this ‑‑ and this hotline that the inspector general mentioned is bringing in information as to some other nonattorney reps that may exist.  We do not know yet if they are former employees or just nonattorney reps. 

Having said that, I can’t say a lot more because there is a grand jury investigation, but I will tell you that we are looking very closely at cases.  We are trying to come up with patterns.  It takes resources.  I can tell you my regional office that helped do all this analysis and is working with the inspector general is down 22 percent in the last 3 years. 

I have moved resources from doing other work that Social Security requires to focus on this investigation.  And this investigation will take place, and others, by doing on‑the‑ground work, analytical work, hard work.  But I do want to send a message to anyone that is out there:  If you commit fraud against our programs, we will find it, and the Inspector General will find it, and you will serve the appropriate sentence. 

Mr. Becerra.  Well, I hope you can communicate to the U.S. attorney who is handling the prosecutions in this case that we hope that they throw not just the book, but the kitchen sink at these guys, including the doctors, because the doctors made it possible for this medical evidence to look real.  And this former employee should be severely punished however the law allows it, but those doctors as well.  Too often these professionals who abuse their own license to practice get off very easily, and before you know it, they are out there practicing again. 

I hope you can send a very clear message, especially, Mr. O’Carroll, as you said, this is the worst case of conspiracy and fraud that we have seen under SSA, that you will descend on these individuals as aggressively as you can.  And if there is anything we can do to help by contacting the Department of Justice or the U.S. attorney to say, we need you to set an example so you don’t have to come and testify in the future about these kinds of fraud cases, let us know, because this is ‑‑ and I think this is a small, minute fraction, but it does spoil it for all those hard‑working Americans who ultimately do qualify, are truly eligible for the benefit that they have paid for. 

So we urge you to continue to work.  We thank you for what you are doing.  And know that you have the support of, I think, this Congress to try to really go aggressively at any fraud that may occur out there.  And I hope that we heed your guidance about resources; that you can only do so much and stretch a dollar so far in trying to get this done.  And it is pound foolish to cut your resources and then find the fraud occurred because you don’t have the personnel available to sort of catch it, and then have to spend lots of money and a lot of your personnel resources to now try to go after the bad guys who defrauded the system. 

But thank you very much for being here and for all your testimony. 

Chairman Johnson.  Thank you, Mr. Becerra. 

Mr. Renacci, would you care to question? 

Mr. Renacci.  Thank you, Mr. Chairman, and I thank the witnesses for their testimony. 

Ms. Disman, you sound sincere, and I heard you say one of your mottos was “right check to the right person,” and clearly there was some systematic failures that occurred.  So let’s not talk about Puerto Rico as much as maybe you can help me with your office and other offices in the country. 

I guess I am concerned about uniform qualifications for DDS examiners.  Can you tell me the qualifications of the examiners in the facilities that you oversee?  And what I am asking is I understand some have high school educations, all the way to graduate school.  What is their background and experience, because these are the frontline people. 

Ms. Disman.  Well, I think to understand it, the DDSs are State employees or Commonwealth employees, and so they are not actually employed by Social Security.  We pay the freight for it, the costs of it, and we train them.  The States have different standards as to the qualifications for the employees.  In most places it is a college graduate.  For example, in the State of New York they have even nurses that are already come up and be disability examiners. 

So it varies by State.  But we also do a very extensive disability training program for them.  So they are not really considered proficient for about a 2‑year period.  They go through stage training.  And we also ‑‑ they are tested, they are mentored.  So it is a very, very intense program for it. 

And, again, qualifications vary, but we have been looking at this on a national level in Social Security.  There has been a task force looking at what type of standards should we try to set.  And since I am not responsible for policy, there is a task force working on it, and I can get more information for the record for you.

Mr. Renacci.  I would appreciate that. 

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Mr. Renacci.  But you do agree there could be a high school graduate and a graduate student, and they are making some of the up‑front decisions? 

Ms. Disman.  It could be from high school through graduate or postgraduate. 

Mr. Renacci.  They have the training ‑‑ you said they have a 2‑year training, but they could be making decisions during that training process, correct? 

Ms. Disman.  They make decisions, but there is a quality control in the DDSs.  There is an internal quality.  They don’t function on their own.  They also have to pass a number of tests in order to succeed.  So they are not left to their own devices, because we all collectively know that the medical decision that they make is a gateway, and we want to make sure that that medical decision is appropriate. 

Mr. Renacci.  Mr. O’Carroll, can you tell me, were video hearings used in some of the Puerto Rico cases? 

Mr. O’Carroll.  Mr. Renacci, no, I am not familiar with whether videos were used in those hearings. 

Mr. Renacci.  Do you know, Ms. Disman?

Ms. Disman.  I do not know, but I will tell you in looking at the universe of cases, very few of the 6,600 cases that we are looking at that are involved actually were made at the ALJ level.  So it is a small amount.  It is about 100. 

Mr. Renacci.  Do you know how much use we have of video hearings?  Across the country I am talking about. 

Ms. Disman.  Since that is not my area of responsibility, if I can get the information for the record, I would be glad to provide it. 

Transcript Insert 3

Mr. Renacci.  Mr. O’Carroll, do you know?  Is there a backlog, and is there a reason we are using, or how many we are using?  I am just trying to get systematic. 

Mr. O’Carroll.  I don’t have a number.  I will get it to you.  But we have done some work, and we are supportive of it. 

Mr. Renacci.  Mr. O’Carroll, can you tell me a little about the hurdles OIG has to overcome in order to prosecute those that defraud SSA? 

Mr. O’Carroll.  Yes, and this is ‑‑ probably a good example of it is that in order to do a prosecution, it requires a lot of criminal evidence and a lot of background on it.  And I guess, again, in this case here where we had the cooperation of the U.S. Attorney’s Office, and we were working with them, it was probably a little bit easier than we have it in any other districts on it in terms of that when we are making our presentations to U.S. Attorney’s Offices, we are kind of in line with all the other Federal agencies, and oftentimes the fraud against SSA is usually in smaller amounts of money than what U.S. Attorney’s Offices are looking to do their prosecutions on. 

So I guess the long answer to this thing is that it is very difficult to get prosecutions when you are competing against, you know, bank robbers or whatever on it, but we do do a lot.  We use the State, we use local prosecutions as well as Federal, and we also use civil monetary penalties, again, to assert fines and penalties on people. 

Mr. Renacci.  I would just say in conclusion, and I am running out of time, that in the private sector ‑‑ and, of course, I was in investigations from a CPA standpoint, many financial institutions ‑‑ even though one person may have caused the problem, there are usually systematic issues that allowed that one person to cause that problem.  So I am hoping that we are looking across the board at all our systems.  And I thank you for your testimony. 

I yield back. 

Chairman Johnson.  Mr. Kelly, do you care to question? 

Mr. Becerra.  Why don’t we just reduce the time for each of the two so that way we can make sure we make votes. 

Chairman Johnson.  I will give you a minute. 

Mr. Kelly.  All right.  Just very quickly. Thank you. 

I think my concern is because when you look at the amount of money that we are talking about, and are we talking about very small percentages, but a very small percent on a very large sum is great.  And I think the integrity of the program always does come down to there are certain people that just find a way, as Mr. Renacci said, with these systemic opportunities. 

I look at Puerto Rico that has an unemployment somewhere beyond 13, 14 percent, so they are going to find a way to make money somewhere or get revenue somewhere.  So you look to where the low‑hanging fruit is, and apparently they found a way to gain revenue. 

I know this is tough, and I know you are trying to do an awful lot of things, but I see you have done a good job of redeploying some of your funds and looking at prioritizing your spending, and in a time when things get tough and coming out of the private sector, sometimes you don’t have a choice, you just have to prioritize.  I think what you have done is quite wise, although the amount of this is staggering. 

The chances of us ever getting that money back, slim to none?  I mean, seriously, how much ‑‑ what is the total amount?  I mean, it runs into the billions, right, in overpayments or fraudulent payments? 

Ms. Disman.  At this point I cannot tell you that because we are reviewing our 6,600 cases, and from our initial review of some of the cases, we just started this review, people have other medical evidence that would sustain it.  So, for example, I am seeing medical evidence from the Veterans Administration and other places.  So you can’t make the assumption because we identified 6,600 cases that had these medical providers, that ultimately it was based on that that made the decision. 

Mr. Kelly.  But in my own business, having dealt with when you get to the situation of accounts payable and them being overdue, the longer they are overdue, the less chance you have of recovering.  So the recovery process on this ‑‑ and we are talking in the billions of dollars in overpayments; is that correct? 

Ms. Disman.  I don’t think you are talking about billions. 

Mr. Kelly.  Okay.  All right.  The chances of getting any of that money back? 

Ms. Disman.  I think there is a good chance, because we have a very good debt process.  And ultimately, remember, these people came on our roles when they age.  There is such a thing called retirement.  There is offsets.  There is a lot of other things we can do. 

I think the bottom line is we have to finish this rereview to see how many people really are involved and would no longer be eligible for benefits.  And we intend to take the full action in recovering these overpayments. 

Mr. Kelly.  My concern is always that, you know, there is a way of running out the clock on this stuff, and after a point the cost of recovery is greater than what you can possibly recover, because usually the recovery amount is very small. 

But I am going to yield back, Mr. Chairman, because we are running out of time, and I think Mr. Thompson has a question.  Thank you all for being here.

Chairman Johnson.  Thank you all for your questions. 

Mr. Thompson, do you care to question? 

Mr. Thompson.  Thank you, Mr. Chairman, and thank you to all of you for being here.  Just a couple of things. 

You had mentioned, ma’am, that there is a policy part of this, and as you figure out what sort of policy is needed or needed to be changed, I would hope that you would consider our subcommittee so we can help facilitate that if any of that has to be done statutorily. 

In regard to getting the money, first, I couldn’t agree more with Mr. Becerra and his comments on the fact that there is a special place in hell for people who would cheat this critical system, a system that is important to so many people.  So I would hope that you would take every effort to make sure that whatever punishment is available, that it is doled out, because that sends a strong message to other folks.  And we have all seen too many times when people who perpetrate this type of foul behavior walk.  It is not right.  So I hope you would do that. 

In regard to getting the money back, I think there is two kinds of money that we are talking about.  There is the money that was paid out that shouldn’t have been paid out, and I trust that your comments about getting that back, that you are going to do everything you can.  But how about the money that it is costing us to go after this?  You have had to rearrange priorities.  We are spending a lot of dough to track these guys down, to investigate this.  Is there a policy in place that allows us to go back and capture that? 

Ms. Disman.  Well, I think I would have to yield to that to the Inspector General since he is involved with the U.S. attorney on recovery of assets. 

Mr. O’Carroll.  Mr. Thompson, in fact we have been in touch with the U.S. Attorney’s Office a number of times over the last few weeks.  But one of the issues that happened when we made the arrest on, in fact, the former SSA employee was we seized $1.7 million worth of assets from him.  Those assets were turned over to the Justice Department as assets, and eventually what will happen is that if a judge in the case assesses that he has to repay money to SSA, SSA can petition Justice Department to get at those seized assets. 

Mr. Thompson.  But what I am talking about is not just the money they took an inappropriately, but the cost of figuring this out and trying to get that.  Can we get payment for that? 

Mr. O’Carroll.  I would like to see a way that we can penalize them that way, and I think that we can probably put that before the judge. 

Mr. Thompson.  I think we should look at that.  I think that would be important to do. 

Mr. O’Carroll.  We will do that. 

Mr. Thompson.  Thank you. 

Chairman Johnson.  We have got votes going on.  Mrs. Black, I am sorry.  Have you got a quick question? 

Mrs. Black.  They can get back to me on this.  I am just curious about when we look at recovery, not in this particular incident, but in recovery across the board, I am very interested in what percentage ‑‑ looking over maybe a 10‑year period, what percentage do we actually recover?  And in that I would also like the figure what is the cost of the recovery?  That should be one area.  And then the other is the actual dollars that were inappropriately committed to the client, how much of that do we actually get back?  So two different areas. 

Thank you, Mr. Chairman.  I appreciate it.

Transcript 4

Chairman Johnson.  You know, we have got to get serious about better protecting this program which is paid for by America’s hard‑working wage earners, and Americans want, need and deserve no less. 

I thank you all for being here today.  And we have votes, so we are going to call it a day.  With that, the subcommittee stands adjourned.  Thank you for being here.

[Whereupon, at 3:30 p.m., the subcommittee was adjourned.]

Questions For The Record