Joint Hearing on Statutorily Required Audits of Medicare Advantage Plan Bids
HEARING ON ACCOUNTABILITY AND OVERSIGHT
SUBCOMMITTEE ON HEALTH,
JOINT WITH SUBCOMMITTEE ON OVERSIGHT
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
October 16, 2007
Printed for the use of the Committee on Ways and Means
COMMITTEE ON WAYS AND MEANS
|FORTNEY PETE STARK, California
SANDER M. LEVIN, Michigan
JIM MCDERMOTT, Washington
JOHN LEWIS, Georgia
RICHARD E. NEAL, Massachusetts
MICHAEL R. MCNULTY, New York
JOHN S. TANNER, Tennessee
XAVIER BECERRA, California
LLOYD DOGGETT, Texas
EARL POMEROY, North Dakota
STEPHANIE TUBBS JONES, Ohio
MIKE THOMPSON, California
JOHN B. LARSON, Connecticut
RAHM EMANUEL, Illinois
EARL BLUMENAUER, Oregon
RON KIND, Wisconsin
BILL PASCRELL JR., New Jersey
SHELLEY BERKLEY, Nevada
JOSEPH CROWLEY, New York
CHRIS VAN HOLLEN, Maryland
KENDRICK MEEK, Florida
ALLYSON Y. SCHWARTZ, Pennsylvania
ARTUR DAVIS, Alabama
|JIM MCCRERY, Louisiana
WALLY HERGER, California
DAVE CAMP, Michigan
JIM RAMSTAD, Minnesota
SAM JOHNSON, Texas
PHIL ENGLISH, Pennsylvania
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
RON LEWIS, Kentucky
KEVIN BRADY, Texas
THOMAS M. REYNOLDS, New York
PAUL RYAN, Wisconsin
ERIC CANTOR, Virginia
JOHN LINDER, Georgia
DEVIN NUNES, California
PAT TIBERI, Ohio
JON PORTER, Nevada
SUBCOMMITTEE ON HEALTH
|LLOYD DOGGETT, Texas
MIKE THOMPSON, California
RAHM EMANUEL, Illinois
XAVIER BECERRA, California
EARL POMEROY, North Dakota
STEPHANIE TUBBS JONES, Ohio
RON KIND, Wisconsin
|DAVE CAMP, Michigan
SAM JOHNSON, Texas
JIM RAMSTAD, Minnesota
PHIL ENGLISH, Pennsylvania
KENNY HULSHOF, Missouri
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records of the Committee on Ways and Means are also, published in electronic form. The printed hearing record remains the official version. Because electronic submissions are used to prepare both printed and electronic versions of the hearing record, the process of converting between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process is further refined.
C O N T E N T S
Jeffery Steinhoff, Managing Director, Financial Management and Assistance, U.S. Government Accountability Office
James Cosgrove, Acting Director, Health Care, U.S. Government Accountability Office
Timothy B. Hill, Chief Financial Officer, Centers for Medicare and Medicaid Services
SUBMISSIONS FOR THE RECORD
Paul Precht, Policy Coordinator, Medicare Rights Center
Harry Hotchkiss, Senior Products Actuarial Director, Humana Inc, Louisville, Kentucky
Cindy Polich, Senior Vice President, Secure Horizons, UnitedHealth Group, Minneapolis, Minnesota
Bart Asner, MD, Chief Executive Officer, Monarch Healthcare, Irvine, California
HEARING ON ACCOUNTABILITY AND OVERSIGHT
IN THE MEDICARE ADVANTAGE PROGRAM
Tuesday, October 16, 2007
U.S. House of Representatives,
Committee on Ways and Means,
Subcommittee on Health,
The Subcommittee met, pursuant to notice, at 10:07 p.m., in Room 1100, Longworth House Office Building, Hon. Fortney Pete Stark (Chairman of the Subcommittee) presiding.
[The advisory announcing the hearing follows:]
*Chairman Stark. I want to thank Chairman Lewis and Mr. Camp for joining us to discuss the lack of oversight on Medicare Advantage plans. It is the third Ways and Means hearing this year to discuss the Medicare Advantage industry.
The focus of our hearing is the issue of private government contractors receiving billions of dollars to administer a government program with no oversight or control by the administration.
The Government Accountability Office will review for us their first oversight in six years on private Medicare plans, whether they have been known as: Medicare Part C; Medicare Plus Choice; Medicare Advantage. During that time, the administration has never -- or we, Congress, has never asked the administration to report or review these programs. We spent $56 billion on these plans in 2006, and we will spend north of $75 billion this year. We have got 8 million beneficiaries enrolled. And yet, for six years, nobody has thought that the plans require any oversight.
When the plans formally asked to join Medicare in 1982, we heard the tired refrain that private industry does everything better and cheaper than government. So the payment was set at 95 percent of fee for service. Then, the plans came back a few years later, and said they could do it better, but only if they got paid as much as Medicare. Then, in 2003, they said, well, they could provide choice, or an advantage, but only if they got paid more than Medicare.
The Medicare Payment Advisory Commission, CMS's own actuary, and the Congressional Budget Office, each estimate that Medicare Advantage plans are overpaid. MedPAC estimates that the average overpayment is 112 percent of Medicare's cost, with plans in some areas exceeding 150 percent of Medicare's rates.
It is no secret that many of us find this wrong, as do many of America's taxpayers. These overpayments increase premiums for all Medicare beneficiaries. And the so-called additional benefits to Medicare enrollees are elusive, often designed to weed out the less health, more expensive beneficiaries.
CMS's actuary estimates that the overpayments to Medicare Advantage reduce the viability of the Medicare trust fund by three years. Those who wish to see Medicare Advantage continue must accept that we demand transparency. We will hear claims today that Medicare Advantage provides increases in benefits to enrollees. And, at a 12 to 20 percent premium over traditional Medicare, they ought to. But even these claims aren't substantiated by any factual reporting or detail. Those who sing the praises of Medicare Advantage must accept responsible oversight.
If you think this program is helping beneficiaries and the integrity of the Medicare system, you should be able to provide detailed accounting of what is promised and delivered, and explain how much is paid for these services. GAO reports that CMS audits only a small percentage of the bids that plans submit, even though the law requires them to audit one-third of the plans.
What is even more disturbing is that, while they have failed to meet the terms of the law, even the small percentage reveals large discrepancies with millions of dollars in lost benefits and incorrect accounting. The few audits that are actually performed only show us what plans offer, not the benefits that they actually deliver. In a $73 billion program, we have no idea what benefits are being delivered. That's not good government; it is dereliction of duty.
I hope today we can dispose with the sales pitches, and get some facts and figures that will help us determine the value of Medicare Advantage to anyone other than the stockholders and the providers.
Mr. Camp could go next, then Mr. Lewis. Is that all right?
*Mr. Lewis. Yes, that is fine.
*Mr. Camp. Well, thank you, Mr. Chairman. I don't think anyone sitting up here will argue that the Medicare program is perfect. For example, we have learned that some Medicare Advantage plans have engaged in misleading marketing practices, overly aggressive sales tactics, and questionable denials. But then I have seen that in more than a few campaigns, as well.
But, however, this is a serious issue, and we simply cannot turn a blind eye to it. And I commend the chairman for using our oversight authority to improve this program.
I am concerned that the GAO found that CMS is not auditing Medicare Advantage plans, consistent with the law. Congress enacted the audit requirements because we recognized how important it is to review and verify the data that these plans submit. CMS's failure to meet this requirement is unacceptable, and I expect to hear what steps they are going to take to address this problem.
It is also unacceptable that some plans are being paid, and not providing the benefits they promised to Medicare beneficiaries. I look forward to learning what CMS is doing to ensure that Medicare Advantage plans are providing these benefits, and whether they need any additional authority to recoup these inappropriate payments to Medicare Advantage plans. I am sure this congress will be more than happy to grant them such authority, if it is needed.
However, this is far from the only area we need to be pursuing. We are seemingly focused on the Medicare Advantage program, which deserves our scrutiny. But it is clear that there are bad apples sprinkled throughout Medicare. Recent press reports have detailed shocking examples of fraud within the fee-for-service Medicare program that have cost the Medicare program and its beneficiaries billions of dollars.
Just one recent case involving durable medical equipment providers in south Florida saw the Medicare fee-for-service program bilked out of hundreds of millions of dollars for services and equipment that were never provided. Similarly, the GAO reported that thousands of physicians who received federal Medicare payments failed to pay their federal taxes.
Despite the committee's clear jurisdiction in this area, we have yet to explore ways to ensure that these abuses do not continue, and I hope we do so. I say this to provide suggestions for future hearings, as well as to put the issues surrounding Medicare Advantage into perspective.
While we have heard witnesses question the Medicare Advantage program, one such witness also agreed that the problems he found within the Medicare Advantage program affected only .3 percent of the Medicare Advantage enrollees in his state. Again, putting these issues in context is important.
There is no question that Medicare Advantage payment rates should be re-examined. The challenge is finding the balance between trimming the fat and cutting the bone. We don't want seniors in rural areas to lose their health coverage, nor do we want benefits slashed.
Also, we don't want plans to reap such excessive profits that they are unable to invest in and add supporting a massive expansion of government-run health care -- they are able to invest and supporting a massive expansion of government-run health care.
I look forward to working with the chairman, and I hope he will take me up on my offer and engage in a constructive debate to craft a reasonable Medicare package that could be signed into law. And with that, I yield back the balance of my time.
*Chairman Stark. The co-chairman.
*Mr. Lewis. Thank you, Mr. Chairman. This morning, the oversight and health subcommittees will hold a joint hearing to review the Medicare Advantage program. It is a pleasure to co-chair this hearing with my good friend from California, Chairman Stark.
Over eight million Americans rely on Medicare Advantage. They enroll in this program because they believed that the premiums they were paying would be fair for the benefits they receive. But this is not always the case. Private insurance companies make huge profits by offering these plans. The Federal Government pays, on average, 12 to 19 percent more for each senior in a Medicare Advantage plan than for a senior in traditional Medicare.
This overpayment does not buy any additional benefits, or reduce copayments. It is going directly into the pockets of the insurance companies. The waste in the Medicare Advantage program is shameful. The lack of CMS oversight is a disgrace. And the treatment of beneficiaries is just unacceptable.
Current law requires CMS to audit at least one-third of the organization participating in Medicare Advantage each year. The GAO found that CMS has not met this goal. The audits that were performed reveal large overpayments to Medicare Advantage plans. For 2003, the audits showed overpayments of up to $96 million -- $96 million. That is unbelievable.
What is more amazing is that CMS did nothing, absolutely nothing, to get this money back, or to sanction these private plans. Large overpayments, huge profits and commissions have led to scandals in MA plans. Eleven states have reported seniors, who thought they were signing an information form, were suddenly enrolled in an MA plan. Fifteen states reported mass enrollment at senior centers, nursing homes, and senior housing.
In Georgia, insurance agents asked to visit patients alone in their rooms, and not in the common areas. One agent switched a mentally disabled patient to an MA plan without anyone's knowledge.
We must protect the beneficiaries. Senior must have a voice. If CMS will not properly oversee this program, and provide seniors with a voice, then the Congress will. Mr. Chairman, I yield back.
*Chairman Stark. Thank you. And I think the staff is going to pass out -- unless your eyes are a lot better than mine, the chart that we are looking at over there, the blue chart, we are going to hand out a reprint of it, if it will help those of us who are sight-challenged.
This morning our first panel consists of: Mr. Jeff Steinhoff, who is the managing director of Financial Management and Assistance at the U.S. Government Accountability Office -- GAO, as I like to call it; Mr. James Cosgrove, who is the acting director of health care at the GAO; and Mr. Timothy B. Hill, the chief financial officer for the Centers for Medicare and Medicaid Services -- once HCFA and now CMS.
I would like to welcome all of you here. We sort of run a clock, but if you really get us fascinated, we may let you scoot over a few minutes. We have your prepared testimony. Without objection, all of it will appear in the record in its entirety. And I would welcome you to enlighten the committee in any manner you choose.
Mr. Steinhoff, would you like to lead off?
*Mr. Steinhoff. By all means.
STATEMENT OF JEFFERY STEINHOFF, MANAGING DIRECTOR, FINANCIAL MANAGEMENT AND ASSURANCE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE
*Mr. Steinhoff. Mr. Chairman, members of the subcommittees, we are pleased to be here today to discuss our July 2007 report on Medicare Advantage audits. Our work covered audits for 2001 to 2006. For 2001 to 2005, the audits covered the adjusted community rate submissions. And beginning in 2006, shifted to bid submissions under MMA.
The Balanced Budget Act of 1997 requires that CMS annually audit the financial records supporting the submissions of at least one-third of the Medicare Advantage organizations. The law requires that GAO monitor these audits.
Now, what did we find when we most recently reviewed CMS's audit process? The bottom line: the audit process was of limited value. We identified three fundamental problems.
First, as shown on page four of my statement today, as well as the sheets that were just passed out to you all, and on the blue chart over here on the side, CMS did not come close to meeting the one-third requirement in any of the five years of the ACR audits. The highest rate was 23.6 percent for 2001.
For the 2006 bid audits, the audit rate dropped to 13.9 percent. CMS told us that it plans to perform additional procedures for 2006. The nature of this work had not been finalized at the time of our review. But the stated time frame for completion was three years, which will limit the use of any results.
Second, the audits were not designed to provide information on the impact of audit findings on beneficiaries. The ACR auditors reported findings ranging from the lack of supporting documentation to overstating and understating certain costs, but were not required by CMS to determine the impact on benefits, copayments, or premiums. So you knew something was wrong, but you didn't know really what it meant in dollar terms, or in benefits delivered.
CMS subsequently hired a contractor to do so for the 2003 ACR audits, and ultimately, quantified the impact as $35 million. Chairman Lewis mentioned an earlier figure. the contractor found that there were overstatements of $96 million, as Chairman Lewis said, and understatements in other areas. And then, CMS reviewed this, and reduced the total to a net $35 million.
Reviews of the impact of errors identified by the 2004 and 2005 audits were not completed when we finished our review. And the work for 2005 was somewhat suspended because of the bid audits for 2006. Similarly, the bid audits did not require a determination of the impact of findings on beneficiaries. The type of finding was laid out. The fact it would be material in some way was stated. But the dollar effects were not quantified.
Third, although information on the impact on beneficiaries eventually became available for 2003, you had the $59 million and the $35 million net numbers, CMS plans to close out the 2003 audits without pursuing financial recoveries, or taking other remedial actions, and does not plan to take actions for the other years.
CMS's position is that it has neither the legal authority nor the contractual right to pursue recoveries based on audit results. We view this problem as being self-imposed. Our reading of the law is that CMS has the authority to amend its regulations to provide that all Medicare Advantage contracts give CMS the ability to address audit findings, including pursuing financial recoveries and other remedial actions.
We agree that CMS's regulations and contracts did not include such provisions for 2001 to 2006, which is why we recommended CMS remedy the situation going forward, either administratively, by changing its regulations -- which we believe it has the authority to do -- or by seeking legislation.
In closing, when CMS falls short in meeting the statutory audit requirement, opportunities to determine if participant organizations have reasonably estimated the cost to provide benefits to Medicare Advantage enrollees are lost. Inaction or untimely audit resolution undermines the presumed effective audit efforts.
Finally, the oversight that Congress called for when it mandated the audit requirement 10 years ago is not being achieved. Today's hearing provides a good starting point for re-evaluating what the congress expects out of the audit process, and determining how audits can be turned into a tool that provide value and accountability -- trust, but verify through the audit process -- for a program that is $60 billion today and growing rapidly, and touches the lives of millions of Americans each and every day.
Mr. Chairman, this completes my summary remarks. We would be pleased to respond to any questions that you or members of the subcommittees may have at this time.
[The statement of Mr. Steinhoff follows:]
*Chairman Stark. Thank you. Mr. Cosgrove?
*Mr. Cosgrove. Mr. Chairman, I don't have any prepared remarks. I am available to answer any questions that you may have.
*Chairman Stark. Okay. Mr. Hill?
[The statement of Mr. Cosgrove follows:]
STATEMENT OF TIMOTHY B. HILL, CHIEF FINANCIAL OFFICER, CENTERS FOR MEDICARE AND MEDICAID SERVICES
*Mr. Hill. Good morning, Chairmen Stark, Lewis, Ranking Member Camp, and distinguished members of the committee, thank you for inviting me here to discuss our audit efforts for the Medicare private health care plans.
This is the second appearance I have made before this committee to discuss how CMS meets our fiduciary obligations to beneficiaries and to taxpayers. I remain steadfast in my commitment to maintaining the highest level of accountability for the agency's financial resources, and reiterate the commitment that our acting administrator has made to you for a transparent and robust compliance effort for all the programs we administer, including Medicare Advantage.
I would like to use my time this morning to briefly summarize our response to the GAO report, and discuss the steps that we are taking to ensure the accuracy and the integrity of the payments we make to Medicare Advantage plans, including how we are complying with the one-third financial audit requirement of the MMA.
As you know, the GAO study focused on ACR and bid audits of Medicare Advantage organizations, and made five specific recommendations. I am pleased to inform you that, as noted in our response to the GAO, we have already begun implementing the five recommendations.
GAO also describes our bid audit process as insufficient to comply with the statutory requirement to conduct a financial audit of one-third of plans each year. We agree. It is important to note, however, that the scope of the GAO review was limited to CMS's bid audits. In other words, the reviews we conduct are after we sign contracts with plans, but before the plan year is complete. The reviews are conducted to gather information on, and assess needed changes to, the bidding process for future years, which would lead to more complete and accurate bids from plans.
I want to clarify for the committee that we have never intended the bid audits to be the mechanism by which we would comply with this important statutory requirement. Rather, they are one piece of a larger strategy to ensure the accuracy and integrity of payments and protect beneficiaries.
The components of our strategy include: ensuring that bids are accurate up front, before the plan year begins, and before we sign contracts with plans; ongoing compliance monitoring throughout the plan year; and, a full-scale financial audit of one-third of the plans, once the plan year ends.
The first element of our strategy begins with reviews we conduct of bids before we sign contracts with plans. Using contracted actuaries and accounting firms, we thoroughly review each bid and its data and underlying assumptions before we sign contracts with plans. This process ensures that, to the maximum extent practicable, each contract we sign results in the maximum benefit to beneficiaries, and accurate payments from Medicare. To fall back on a fee-for-service concept, we focus our efforts on paying correctly up front, rather than relying solely on a pay-and-chase scenario.
The second element of our strategy includes ongoing compliance audits. These audits, while not financial in nature, occur throughout the plan year, and are designed to ensure that plans are complying with the various beneficiary protection requirements in our regulations. The audits are conducted largely by CMS staff on an ongoing basis, and are supplemented by ongoing data collection, ad hoc reporting, and complaint tracking mechanisms, to ensure that we identify and mitigate any compliance issues before they have an impact on our beneficiaries.
The final element of our strategy is a full-scale financial audit of one-third of the plans, once the plan year ends, per the requirements of the MMA. CMS has a specific plan in place to meet this requirement, the elements of which have been in place since last year. We will be contracting with CPA firms to review plan information and data regarding all elements of payments, including validating risk scores, claim submissions, and beneficiary out-of-pocket costs.
We are currently reviewing the results of a small audit pilot, and will be refining our audit criteria in the coming weeks, so that auditing firms can build on these findings as they begin their work. We have selected, and have begun notifying, the first 81 plans from contact year 2006 that will be audited.
These comprehensive first-round audits will examine, in detail, the approved components of the plan bids, as well as data supporting payments made during the year, to ensure that Medicare beneficiaries in the Federal Government received what the contract specified and the plan promised. And, to the extent that we identify overpayments or underpayments as part of those audits, we will be recouping money from the plans.
We are on schedule to audit the first 81 plans this fall. But, we have a way to go to reach the 165 audits that would be required to meet the statutory one-third requirement. We have identified funds to begin the audits from within our ongoing operations, but do not believe we can meet the full statutory requirement, absent enactment of the President's budget request for 2008.
I want to emphasize that this administrative funding is a critical component of the Medicare program, and very much appreciate Congress support of the President's budget levels for these important oversight activities.
In conclusion, CMS takes our auditing responsibilities seriously, and has plans in place and in effect to meet our statutory and fiduciary responsibilities to beneficiaries and taxpayers. I appreciate the committee's ongoing interest in monitoring CMS's efforts on this front, and believe that, by working together, we can support Medicare beneficiaries, and ensure that they can maintain access to the Medicare plans that meet their individualized health care needs.
This concludes my opening remarks, and I would be happy to answer any questions that you may have. Thank you.
[The statement of Mr. Hill follows:]
*Chairman Stark. Well, I want to thank the witnesses. I am just going to ask, Mr. Steinhoff, if -- I guess all my colleagues have a copy, or can see the chart. Can you just briefly explain to us what --
*Mr. Steinhoff. Okay. By all means.
*Chairman Stark. -- what the chart was designed to --
*Mr. Steinhoff. It is really to show the degree of audit coverage here. And we have gone through, for each of the six years, five years of ACR audits, one year of bid audits, and determined the percentage of the organizations -- and by organizations, we mean contracts -- that were audited.
As you can see, the percentage of audits has declined. We will caveat that 2006 was not, in fact, complete. These were the bid audits. And Mr. Hill mentioned the other other component, which was not really in place when we were performing our work.
As you can see, the percentage of contracts audited has stayed around 20 percent for several years, then dropped down to 18.6 percent for 2005. And, as of today, for 2006, it rests at 13.9 percent. I will say that, in contract year 2000, which we covered in our 2001 report, CMS did meet the 33 percent requirement. But the bulk of those audits were done by the inspector general. The inspector general did 53 of 80 audits. So CMS did, in fact, meet the requirements then, and it has gone down since.
If you go to the second chart, it gives you an idea of what this means, in terms of plans. Maybe I have jumped ahead here on this, if you all haven't got that chart. But when we're speaking about auditing, and we're speaking about auditing contracts typically, contracts have multiple plans, ranging from 1 plan to 170 plans on 1 contract. The average is about eight plans per contract.
So, for the 2006 bid audits, which are at the bottom of that chart, there were 4,920 plans. If you look at the previous chart, there were 80 organizations audited. Of those 80 organizations, they had almost 1,200 plans, and CMS audited 159 of those plans, giving you an audit rate of 3.2 percent of the plans.
Now, CMS is measured based on organizations. But just to be clear what the magnitude of the auditing is, CMS audited roughly 3.2 percent of the plans, so far, for 2006. And you will see for the other years, it declined each year, from 22 percent of the plans in 2001, down to 5.3 percent of the plans in 2005.
Mr. Hill mentioned the resource issue. If you go back to the first chart -- hope I am not going too fast on this -- you will see that audit resources are not high, and that, in fact, they went down for 2006. So you've got a program that was dramatically growing, more beneficiaries, more cost, less being spent on the audits, and you're talking about audit costs in the range of $3 million per year for a program that is now $60 billion to $70 billion.
So, that is, in a nutshell, what we found. CMS didn't meet the audiit requirement in any year. And, depending on how you slice and dice it, the audit rate for plans was about 3.2 percent, to date, for 2006.
*Chairman Stark. Thank you. You mentioned -- and I'm just going to run through a couple of items here, Mr. Steinhoff -- you mentioned that you performed audits, or that -- I am sorry, that the inspector general has performed audits, the HHS inspector general has performed some audits, of additional MA payments.
And the -- you might, in response, let us know what the inspector general found, and whether or not the inspector general should be involved in this auditing process, and whether, if they found money owing, there was any effort to recover it. That is one issue.
There has been some difference of opinion between you and CMS as to whether there is legal authority to seek financial recoveries. You believe it does. You might want to comment on whatever --
*Mr. Steinhoff. Okay --
*Chairman Stark. Well, let me finish. Any statutory changes that you think might be made that will clarify this matter, if it is needed, I think we would all be interested in your opinion as to not only what might be wrong, but what we might do to correct this in the future.
And you might also -- for those of us for whom audit is something that ends up at the end of a corporate annual report, or what we have to do for the IRS if we don't do our tax returns right -- I think these audits are somewhat different than the financial audit that many of us -- you might enlighten the committee a little bit as to what is in the audit.
So, that is a broad range of topics. If you could briefly address those, I think it would be helpful to the members.
*Mr. Steinhoff. Okay. Let me start, Mr. Chairman, with your first question. And I think you are referring to the Benefit Improvement Protection Act audits. There were 6 such audits done of the 2001 payments. This is where the organizations were entitled to receive additional funds.
The IG covered six different plans, amounting to $88 million in additional payments, and questioned $29 million of the $88 million. Basically, their findings zeroed in on what they thought was a lack of documentation that the capitation payment increase was justified, or that additional direct medical care had been provided. No action was taken to recover any amounts. The IG did recommend that amounts be paid back to CMS by the carriers. One of the companies audited is here today, Humana. They were one of the six. Humana of Texas was audited.
The audited $14.4 million of additional payments to Humana under that Act, and the IG questioned $10.5 million of those amounts. But as we found for any audit where a number was tied back to the audit, CMS did not act to recover or require anything to be done.
Getting to your second question on statutory changes, I believe that we and CMS are at a stalemate here. We believe that there is nothing in the law that precludes them --
*Chairman Stark. We have been in a stalemate with them for years.
*Mr. Steinhoff. Well, we believe there is nothing in the law that precludes CMS from placing in their regulations, and then in their contracts, provisions that would say, "This is what we are going to do if we find something wrong.''
They believe they don't have the authority to do it. So, when you get in that position, I think it is probably best for it to be resolved by the congress through a specific provision that would say yes or no. I have noted that the IG, when does the work to identify the impact of a problem, it does call on either the plan to return the money, or CMS to collect something. And that's the same position that GAO is taking. You're doing an audit, you're finding something. This isn't just an academic exercise to help the company prepare a better bid later on. There has to be more to it.
But I think it would be very important to really resolve this and I think, this hearing is perhaps a good starting point for beginning a dialogue on exactly what the congress wishes to get out of this.
With regard to your third question, for the ACR audits -- those were the ones for 2001 to 2005 -- CMS had CPA firms apply agreed-upon procedures. This is a complex academic -- American Institute of CPA's jargon and Government Auditing Standards terminology, but these audits were done under what are called the attestation standards. They are not a financial audit, but they are a professional audit under professional standards.
What the auditor is doing is auditing what you have asked them to audit, and nothing more. So the auditors were asked to find whether there were any problems in the preparation of the bids. They were not asked to make a determination for 2001 through 2004 or 2006, as to what is the dollar impact of what they found. So, they are agreed-upon procedures.
For 2006, CMS shifted to the bid audits. And Mr. Hill makes the point that CMS has plans for additional at some time in the future. But, to date, what CMS has done what they call bid audits. And those bid audits are actually actuarial reviews. There is a lot of in-depth requirements that are placed on the organizations in preparing bids. It looks like there is quite a bit of rigor.
I am not an actuary myself, but Medicare Advantage Organizations have got to really provide a lot of information to CMS. CMS makes a bid review, which is a desk-type review, and for 13.9 percent of the contracts, and they made an actuarial review. These are not audits in the same sense as you know audits, and everyone knows audits from financial auditing. But there was some rigor to them, and they are an actuarial study. I hope that answers all your points.
*Chairman Stark. Thank you. And I would just briefly ask Mr. Hill -- and I apologize to my colleagues, but perhaps this will set the stage for future questions -- do you agree, Mr. Hill, that, in whatever manner we do it, either you all do it at CMS by regulation, or we write into the legislation that you do it, that it would be a good thing for CMS to recover funds that somebody determines were paid in error?
*Mr. Hill. It is more than a good thing, sir. It is the thing that we need to do to fulfill our fiduciary obligations.
And I would just note for a moment, just to -- I am not quite sure we are at stalemate, I am not sure that is the word I would use.
*Chairman Stark. Okay.
*Mr. Hill. I think the issue here is where do we begin to take that money back. And the issue is, do you take it back on a bid review during the middle of a plan year, or do you do it once -- a full-scale financial audit at the end of the year, when all the records are settled, and you could do a full review, as you said, of the benefits that have been delivered, and the records that we have gotten from the plans, do you take it back then?
I think it is our contention that it is best to take it at the end of the audit, than in the midst of the plan year, when there would probably be an impact on beneficiaries.
*Chairman Stark. The other question that I would direct you -- and at least my interest, I do not know about my colleagues -- but in all of the -- if we cut through a good bit of the plans' sales pitches and the audit actuarial language, we are supposed to believe that paying some amount in excess of fee-for-service rates to these plans results in additional benefits to the members of the plans, to the beneficiaries.
Many cases, there are lower premiums. That is easy to figure. I mean, if I am paying $30 a month for part B, or 40 or 90, and somebody offers to give it to me for 10, I have saved some money. I think I can understand that. The problem is, we find that many of the plans, they kick up the copays subsequently, so that the first cost may not be the last.
But we have been unable, whether you know or not, to determine with any accuracy how much -- first of all, what benefits are actually provided by these plans. They tell us what benefits are offered, but they don't tell us whether any of the beneficiaries actually take up their offer. I mean, you know, they may be offering Viagra to every member, but if people don't line up to get the pills, it doesn't cost the plan anything.
So, it would seem to me that it would help us -- and perhaps even you -- to know what each plan actually spends, relative to the amount over 100 percent we are paying, and whether these benefits were used or not used.
That all seems to be hidden, or buried under the idea that it is proprietary and secret. And -- but basically, we have not been able to find out. I don't even know if you can find out. I hope so.
But do you think that it would be reasonable for us to have that information in some detail with each plan, so that we know what actual extra benefits, other than the standard Medicare health benefits, are being offered and used, and how much the plans are paying for them, so we have some idea whether we are paying the plans appropriate amounts?
*Mr. Hill. I --
*Chairman Stark. Does that trouble CMS in any way?
*Mr. Hill. I think the issue here is not so much understanding what plans are providing to beneficiaries. The question is reasonable, sort of taken on its face.
From my perspective, not getting into a discussion of whether or not we should be paying plans what we are paying, and how are they using their benefits, the one thing I can tell you -- we can say, and we will be able to say with some definitiveness -- is, to the extent that a plan has told a beneficiary, "These are the services that I offer, and this is the benefit that you are getting for the premium that you pay,'' at the conclusion of these audits we are going to be able to say if the plan has provided those benefits, or if they have not.
Now, that, I do not believe, gets to your question of, you know, that marginal percentage above the fee-for-service payments, how does that work, and I think that is another level of sophistication to the analysis that the audits will tell you. So, an audit, yes, will be able to say, "Did they deliver what they said they would deliver?''
The other issue, just to keep in mind, is, to the extent that during the year, if there is a beneficiary who says, you know, "I have signed up for this plan, and it is offering a copay of $5, and they are charging me $10,'' that is an action we would take during the year. I mean, if a beneficiary were to call up, say, "They are charging me the wrong premium, they are charging the wrong copay,'' that is a compliance action we would take immediately.
*Chairman Stark. I want to talk about getting in touch with that compliance --
*Mr. Hill. I understand. There is more coming --
*Chairman Stark. Well, I have overstayed my welcome here, and I would like to give Mr. Camp a chance to get into this. Thank you both.
*Mr. Camp. Well, thank you very much, Mr. Chairman. Obviously, Mr. Hill, with the GAO's report that CMS has failed to meet this one-third requirement -- and your testimony confirms that -- I guess what I would like to try to understand is why CMS has failed to meet the statutory requirement.
And, from what I understand of your testimony, you do not believe you have the legal authority to recoup funds once determined. Is that correct?
*Mr. Hill. No. Well, sort of correct. I think the area of disagreement here between us and the GAO is when we do an audit of a bid during the middle of a plan year -- so we have looked at the bid, we have already signed a contract, and we have looked at the bid, and we find that some underlying assumption there, either it accretes to the benefit of the government, or accretes to the benefit of a plan, should be somehow -- make that adjustment, either pay more money to the plan, or take money back from the plan in the midst of the plan year.
*Mr. Camp. Well, I am not interested. I know the timing issue. Let us assume this is done at the end of the year.
*Mr. Hill. We have no --
*Mr. Camp. What authority do you need, or resources do you need, to comply with this statutory requirement?
*Mr. Hill. In terms of recouping the money, I do not believe we need additional authority. We believe that the statute is fairly clear, in terms of the requirement for the audits, and the fact that we can recoup money, to the extent that the audits show there is an issue.
With respect to actually carrying out the audits, to do -- you know, to spend the money -- and I respect the GAO's analysis here -- the one-third financial audits that we are going to undertake as part of MA and MAPD post-MMA are quite more expensive than what we have done in the ACR side. And the President's budget has made a request for the last two years above our amounts, and it is quite substantial, but it is one I know that Congress is --
*Mr. Camp. So you are telling us the type of bid review required is more complex than what was required under previous law.
*Mr. Hill. Oh, absolutely. The one-third financial audits are much more --
*Mr. Camp. And tell me how the resources have grown as that complexity has increased, and, in fact, as it looks as though the number of organizations offering Medicare advantage plans has increased.
*Mr. Hill. Right. I mean, and I think it is a fair assessment that, to do the ACR audits that we conducted, in the limited capacity that we did them, was a $3 million to $5 million exercise.
When we are talking about auditing one-third of the MA and MAPD plans, we are talking about a $30 million exercise to get into the level of detail that we need to get into to validate risk scores, to validate the claims data that we are getting into, to look at all the information that the plan has provided. It is a much higher level of rigor that we need to do.
*Mr. Camp. Have the number of auditors grown at your disposal, or are these bid out?
*Mr. Hill. It is bid out.
*Mr. Camp. And has that ability -- obviously, with the resources remaining fairly constant over the last five years, that ability to increase the number of auditors has not been there.
*Mr. Hill. Right. I mean, we have found money within our base to be able to fund the things that we have funded to date. But we recognized, sort of on a going forward basis, we are going to need more resources.
*Mr. Camp. Now, the $34 million from 2003 has not been recouped. It is unclear to me why that has not been recouped. Because you say that there is really no problem there.
*Mr. Hill. Well, again, this gets to the issue of -- and this is complicated enough that it gives me headaches sometimes -- prior to the MMA, when we are looking at the ACR audits --
*Mr. Camp. Yes.
*Mr. Hill. -- and the audits of the adjusted rates, and how the plans told us they were going to spend the money on the extra benefits, on those issues, for the ACR audits, we do not believe we have the authority to go back and recoup that money. This is why there has been no action taken on plans in the $34 million that is there. We do believe, however --
*Mr. Camp. So you feel you need statutory authority from Congress to go back and recoup the money, pre-MMA?
*Mr. Hill. If it was Congress's intention for us to do that, we would need --
*Mr. Camp. Okay. But post-MMA, you feel you have the legal authority to conduct the bid reviews, if you have the resources to do it, and recoup those funds?
*Mr. Hill. Correct.
*Mr. Camp. All right. Thank you. And it is your sense that, because the complexity of the audit process has increased, that you need more resources in order to adequately perform your statutory obligations?
*Mr. Hill. Yes, sir.
*Mr. Camp. All right. Thank you. Thank you, Mr. Chairman.
*Chairman Stark. I was not being facetious when I suggested to the ranking member that, if you collected this money, perhaps you could use it to hire additional resources, or charge the plans a fee to audit them. That would be --
*Mr. Camp. I think there are requirements as to where the recouped money goes.
*Mr. Hill. The money goes back to the Medicare trust fund, sir.
*Chairman Stark. Well, it comes out of there --
*Mr. Hill. I understand.
*Mr. Camp. That could be a statutory change, also.
*Chairman Stark. Sure. Chairman Lewis?
*Mr. Lewis. Thank you, Mr. Chairman. Mr. Cosgrove, in 2003, is it correct that CMS estimated that there were $96 million in overpayments to the organization? Is that correct?
*Mr. Cosgrove. Yes it is, Mr. Chairman.
*Mr. Lewis. Could you tell members of the committee, is there similar data for other years?
*Mr. Cosgrove. No. When we conducted this review, it was in terms of a comprehensive look at one year. That was what CMS had completed.
*Mr. Lewis. Well, should CMS be required to provide information, this data, for each year? What is the position of GAO? Should that information be forthcoming?
*Mr. Cosgrove. Yes, it should be part of the audits. When we issued our report in 2001, we recommended that CMS require the auditors to quantify what the impact would be on beneficiaries and the program. And, at that time, CMS said that it would do so. In fact, CMS did not, for several years, amend the instructions for the auditors, to require them to do that kind of quantification. It was for 2003 that CMS hired a separate contractor to go back and look at all the individual auditing reports. And at that time, the contractor came up with that amount of money for 2003.
*Mr. Lewis. Do you think it should be the responsibility of CMS, or should there be an attempt to recover some of this $96 million?
*Mr. Cosgrove. Certainly the auditors identified overstatements, that CMS should have tried to recover. So, yes.
*Mr. Lewis. Mr. Hill, how does CMS decide which law it will or will not comply with?
*Mr. Hill. Sir, we make every effort to comply with every law.
*Mr. Lewis. Do you think you have complied with the law?
*Mr. Hill. I mean, I do not think there is any way I can say to you that we have complied with the one-third audit requirement from 2001 to 2005.
*Mr. Lewis. Mr. Hill, let me ask you. Has CMS ever sanctioned a plan in the Medicare Advantage program?
*Mr. Hill. Yes --
*Mr. Lewis. -- For a payment issue or improper bid? Have you ever sanctioned one organization, just one?
*Mr. Hill. For an improper bid?
*Mr. Lewis. Improper bid, or overpayment. For a payment issue.
*Mr. Hill. Not for a payment issue, no.
*Mr. Lewis. What about an improper bid?
*Mr. Hill. Well, the sanctions that we have imposed, whether they be some monetary penalties, or suspending enrollment, or up to termination, have been largely due to larger scale contract violations, either not delivering the services that they said they were going to deliver, or denying access to beneficiaries, or being insolvent, marketing violations such as the private fee-for-service issues that we have talked about here before.
But specifically to a payment issue, I think it would be hard to articulate just a payment issue.
*Mr. Lewis. Well, just so we are clear, just over three percent of the plans are audited. Audits are not completed until a year after they are conducted. CMS apparently does not even look at the audits that are conducted. And not one sanction action or any other penalty has ever been issued for an improper bid.
Can you honestly say that you think these audits serve as a deterrent? Or look like an invitation for big trouble, real trouble?
*Mr. Hill. I understand your question, sir. And, based on the numbers that are up there from the GAO, I can appreciate your frustration.
I think the issue for me is to be able to articulate for 2006, for this plan year, post-MMA, now that the MMA is in full operation, that the audit and the oversight activities that we have ongoing encompass more than just the bid reviews that are articulated here by the GAO.
So, my answer to your question is, yes, I do think that the infrastructure that we have put in place, from the bid reviews to the one-third audits, to the ongoing compliance reviews we do with plans, do put in place a deterrent effect, if you will, for plans, to be sure that they are bidding appropriately.
*Mr. Lewis. Who is protecting the beneficiaries?
*Mr. Hill. We are, sir. We are trying.
*Mr. Lewis. Do you have an agency? Do you have a person? Do you have an office within CMS that is protecting and looking out for the beneficiaries?
*Mr. Hill. There are a couple of ways to answer that. I mean, there are two ways to answer that question. The first, and the most direct, is the MMA required us that we have -- and we do have -- a Medicare beneficiary ombudsman, if you will --
*Mr. Lewis. What is the size of that office?
*Mr. Hill. I have those facts, I don't have them at my fingertips --
*Mr. Lewis. What is the personnel make-up? What is the budget?
*Mr. Hill. I can get you that information for the record --
*Mr. Lewis. You are telling me you don't know the staff make-up of that office?
*Mr. Hill. I don't have --
*Mr. Lewis. The budget for that office? Can someone at GAO tell me?
*Mr. Steinhoff. No.
*Mr. Lewis. It is my understanding that the staff is about 34 people, and to represent 43 million disabled people, senior citizens. Only 34 people? That is nonsense. And the budget is only, what, $1.6 million? You should be able to do better, much better.
*Mr. Hill. If I might, Congressman, the second part of that equation is not just the ombudsman office, but the ongoing compliance and oversight activity that is taking place by the plan managers in the regions, by the separate program integrity contractors that we have contracted with to oversee these plans, the --
*Mr. Lewis. Are you telling us that you have enough resources to look out for our seniors, to look out for the people that are taking part in this program?
*Mr. Hill. I believe that we have enough resources to watch out for the seniors in this program.
*Mr. Lewis. Thank you, Mr. Chairman.
*Chairman Stark. Mr. Becerra?
*Mr. Becerra. Thank you, Mr. Chairman. Thank you for your testimony today.
Mr. Hill, I am not sure if there is any other way to put it, but to say that CMS should be embarrassed by what we are hearing today. I do not know if any senior who is trying to figure out whether to make a payment for a copay, or figure out how to take care of a premium payment for his or her Medicare benefits to which he or she contributed years worth of taxpayer dollars while they were working, could sit and watch this and say, "I am struggling to figure out how to pay for that prescription drug or for that next doctor visit, and here I hear that CMS has failed to collect millions upon millions of dollars that were overpaid,'' for which they received nothing.
I hope that you are sufficiently impressed by the questions and the concern expressed by members on this panel, that the next time we have a chance to talk with CMS, that we will see some significant change.
You have mentioned that you need more resources. Is your 2008 budget request going to reflect that need for more resources to do the auditing oversight responsibilities that CMS has?
*Mr. Hill. It absolutely does, and both the House and Senate appropriations committees have considered that request. And, to the extent they go through and get enacted, we should be okay.
*Mr. Becerra. With regard to the statutory authority that you possess, according to CMS's opinion, to collect monies for -- in the particular case of pre-MMA overpayments, that is pre-2003 overpayments, are you proposing to the administration that it seek, through this congress, the authority to go after any overpayments prior to 2003?
*Mr. Hill. No, sir, we are not.
*Mr. Becerra. Are you planning to ask the congress --
*Mr. Hill. I am not aware that we are. We can go back and consider that. But from --
*Mr. Becerra. Would you support this congress giving you the authority to go after overpayments dating before 2003?
*Mr. Hill. I think it is something we would need to talk about, because, quite frankly, some of those plans are no longer in the program.
*Mr. Becerra. For those that are?
*Mr. Hill. Right.
*Mr. Becerra. Do you support it?
*Mr. Hill. I need to defer, sir. I would need to go back and --
*Mr. Becerra. Is there a reason why you wouldn't want to support a repayment of taxpayer dollars that went to plans that did not provide a service?
*Mr. Hill. If it is true, that plans have not provided services that they said they were going to provide, we would absolutely want to go back and recoup that money.
*Mr. Becerra. So, you would support having the authority given to you by Congress to go ahead and review pre-2003 plans that may have -- may have -- overcharged?
*Mr. Hill. To the extent that they have delivered benefits -- or not delivered benefits they said they were, absolutely.
*Mr. Becerra. So you would --
*Mr. Hill. I don't mean to be --
*Mr. Becerra. -- support having the authority to do pre-2003 audits? Yes or no?
*Mr. Hill. I would -- I don't know that I can make that commitment, sir.
*Mr. Becerra. Okay. That is why I think you should be sufficiently embarrassed. Because if you can't tell the American taxpayers, American seniors, that you believe that the government should have the authority to recoup monies that were overpaid, it is --
*Mr. Hill. I think that is the issue, that there is the notion of whether or not it is a strict overpayment.
*Mr. Becerra. Well, wait a minute. If you don't request the authority to audit and recoup, how can you ever get the money back? If you don't ask us to give you the authority to go after that money, you are telling the taxpayers, "It is okay,'' that, "We know that we overpaid using your taxpayer dollars, but we don't want to go after it.''
*Mr. Hill. I can appreciate what you are saying, sir. I just -- there is some disagreement as to whether or not the nature of those audits, and what they found, that they represented any true overpayment.
*Mr. Becerra. And I understand that point. I don't want to be overzealous in my questions. I do understand that point. But my question is very simple. It is a very innocent question.
*Mr. Hill. Well, let me answer it very simply, and sort of -- you know, I am the CFO for the agency, I am not the program manager for Medicare Advantage, I don't sign those contracts.
I will tell you, as the CFO, to the extent that there is an overpayment, I want to go back and collect that overpayment.
*Mr. Becerra. That is fair. And I think many of us can interpret that as saying that we should give you the authority, then, to go after anything that was overpaid back before 2003.
Now, let me ask this. Going forward, is there any reason why we should hear you say that -- CMS say -- that it does not have the authority, statutory authority, to do a full audit, and any subsequent actions to recoup overpaid dollars?
*Mr. Hill. No, sir. I believe we have that authority.
*Mr. Becerra. Okay. Mr. Steinhoff, at one point you seemed to have heartburn at one of Mr. Hill's responses. I think it had to do with the 2003 -- pre-2003 -- overpayments. And maybe it was on something else.
Let me ask this. Do you believe that you are -- and I will end with this, Mr. Chairman, because I know my time has expired -- do you believe that you are receiving the cooperation from CMS that you need in order to be able to conduct sufficient oversight of CMS, and also then to make the appropriate recommendations to CMS on how to proceed, in making sure we are preserving taxpayer dollars?
*Mr. Steinhoff. Yes. In looking at this particular issue, let me go back to our first review of this program, which covered 2000.
At that time, we were told by CMS that it planned, as part of the audit process, to quantify the effect of any audit findings. And we recommended that it do exactly that. In our view, the intent of quantifying the impact was to do something with the result.
CMS did not act, did nothing for 2001, 2002, 2003, 2004, or 2005 to ever change its regulations, to ever change its contracts. Went back for 2003, and did some work, but didn't take any action, other than telling the organizations that were audited, "We found these problems.'' Didn't do anything with the six audits by the IG, and showed no intention, during our review, of ever doing anything with the results.
I would agree fully with Mr. Hill, in his earlier response to you, when he said, "If we find an overpayment, based on benefits delivered or costs not incurred, we will go back and recoup it.'' Well, if you look at the audits done between 2001 and 2005, none of those audits were directed at determining whether there was an over payment. They were directed at looking at a bid, or a proposal. And when they found problems with the proposal. They did not know whether or not the actual results were better or worse than the proposal.
So, you have to, one, design the audit in a proper manner to get a result, and to, in fact, hold the plans accountable to the American taxpayer. And then, two, have a very clear set of actions to go back and follow up. And that is really, I think, the differences that we and CMS have had all along.
*Mr. Becerra. Thank you. Thank you, Mr. Chairman. I yield back the time.
I do want to make the point, Mr. Chairman, that this is a -- we hope to be able to do oversight over all of Medicare, not just Medicare Advantage; Medicare fee-for-service as well. This is not an attack on one type of plan or another. It is to preserve Medicare for seniors who are on Medicare. Thank you, Mr. Chairman.
*Chairman Stark. My distinguished friend from Texas, would you like to inquire?
*Mr. Johnson. Thank you, Mr. Chairman. I appreciate that.
I am wondering. It is my understanding that the GAO report found that Medicare Advantage audits conducted in 2003 yielded a net overpayment of roughly $35 million. Did you find any instances where the plans were, in fact, underpaid, resulting in enrollees receiving additional benefits they wouldn't have otherwise received, if the bid were calculated correctly?
*Mr. Steinhoff. Yes. What the audits showed were that there were overstatements and understatements. The $35 million number that was computed by CMS was made up of $64 million of overstatements, and $29 million of understatements.
If you shift to the work that was done by CMS's contractor, who CMS had come in to review the audits, they found -- and Mr. Lewis used this number -- $96 million of overcharges, $37 million of undercharges. And these contractor was looking at, in this case, the adjusted community rate proposal. None of this is actual cost, getting back to Chairman Stark's initial questions. This is based on the rate proposal.
So, there were both overcharges and undercharges, based on the audits.
*Mr. Johnson. So your 35 net is net out.
*Mr. Steinhoff. If a net number, yes. Correct.
*Mr. Johnson. Okay. Do you know if those companies were ever coming back for the --
*Mr. Steinhoff. Nothing was done to collect, or to provide for or to require any additional benefits.
*Mr. Johnson. Earlier this year, GAO reported 21,000 part B providers, many of them physicians, are collecting federal Medicare payments while owing billions. What is CMS doing to address that issue?
*Mr. Hill. We have -- after the GAO report, we have been now working with the Department of Treasury and Financial Management Service, as well as the IRS, to implement the tax levy offset program for Medicare, so that we are sharing our data on an ongoing basis with the Treasury Department, so that, before we make payment, or as we make payment, we are being sure to offset payments to the extent that physicians, owe taxes, or -- physicians, or any other provider, I would say.
Also, back to the Medicare Advantage issue, those plans already are subject to the tax offset process. So, to the extent that Medicare Advantage, or a Part D plan has tax debt to the IRS, those monies are recouped before we make payments.
*Mr. Johnson. Well, you know, following up with what Mr. Becerra was talking about, you've got from 2001 to 2005, really, overpayments that haven't been recouped. What are you all going to do about it?
*Mr. Hill. Well, as we have discussed here, I think the Agency's position -- or I know the Agency's position -- at this point is that the audits are going to be closed out. We are going to look at each of the individual audits, and are looking at each of the individual audits, to be sure that, to the extent a plan misrepresented the information that had been provided, or was somehow trying to game us, as opposed to just an honest error in the system, we are going to make the appropriate referrals to the OIG, or to others, to the extent that we want to pursue action that way.
But we are -- it is not our intent, right now, to go back and try and recoup those overpayments, because --
*Mr. Johnson. Well, what are you going to do about this year, then?
*Mr. Hill. For 2006, for the plan year beginning the first year of the MMA, if you will, the Medicare Advantage and part D programs, we have put in place a process to be sure the bids -- unlike the proposals we got in the ACRs, we are now reviewing bids as they come in, before we sign a contract, to be sure that they are appropriate.
And at the end of the plan year, as the GAO has indicated, we are going to look at actually the benefits that had been provided, the services that the plans provided, the information that they gave us to support their risk scores and other payments, do a full scale audit of those, and recoup overpayments, to the extent that we find them.
*Mr. Johnson. So, you will take care of the people who were underpaid, and you will take care of the people who were overpaid?
*Mr. Hill. Yes, sir. It is a symmetrical --
*Mr. Johnson. Guaranteed?
*Mr. Hill. Well, that is the approach now. I -- hopefully --
*Mr. Johnson. Okay, thank you very much. Thank you, Mr. Chairman.
*Chairman Stark. Thank you, sir. Mr. Doggett?
*Mr. Doggett. Thank you. Thank you for the audit that you conducted. I think it is very helpful.
And, Mr. Hill, if I understand the answer that you just gave my colleague from Texas, what is it that you're not going to go back and recoup now, for the taxpayers?
*Mr. Hill. I think that the OIG has identified an amount that we now agree, about $34 million --
*Mr. Doggett. We can just write that off?
*Mr. Hill. We don't believe that it is a debt that is owed.
*Mr. Doggett. You don't believe it's a debt that is owed?
*Mr. Hill. That is correct.
*Mr. Doggett. Well, in addition to the tens of millions of dollars pointed out in this audit, the CMS attitude has been, "We might not have authority, but we are not going to bother asking for any authority.''
I asked back at the July hearing about the $100 million that CMS paid to these part D plans for retroactive coverage for dual-eligibles who were never told that they -- in a timely way -- that they had the coverage. And I have been asking for documents about that $100 million that may well have been wasted, in addition to all these tens of millions of dollars, ever since.
The CMS reply was that there was a reconciliation in August. As is usually the case, CMS isn't returning calls or e-mails. Is the reconciliation complete?
*Mr. Hill. Yes, sir.
*Mr. Doggett. Why don't we have the answers that I have asked for since July?
*Mr. Hill. I don't know why you don't have those answers, but I will --
*Mr. Doggett. Well, sir, that seems to be typical of CMS.
Let me ask you, with regard to the material that I have been provided from CMS, a big stack of materials concerning CMS's decision-making on abusive marketing practices, if, in your work, you ever have occasion to communicate with Abby Block at the Center for Beneficiary Choices that administers Medicare Advantage?
*Mr. Hill. Do I? Yes, sir, I do.
*Mr. Doggett. Do you do any of that by e-mail?
*Mr. Hill. Yes.
*Mr. Doggett. Do you have any idea why, in all of the documents that I have been provided, there is not a single e-mail back or forth with Abby Block, who runs the program?
*Mr. Hill. No, sir. I do not.
*Mr. Doggett. Well, would you go back and try to get me an answer on that? Because that is another of the --
*Mr. Hill. Is there a particular --
*Mr. Doggett. -- answer questions.
*Mr. Hill. We will find out.
*Mr. Doggett. Okay. Now, much of the focus has, of course, been with regard to marketing practices. But, as I look through this audit, it is not only -- you know, as you look through all this audit, to me, I have a slightly different impression than my colleague. Because I don't see just a few bad apples, I see an entire orchard. And it is a very expensive and unproductive one.
Every time someone gets sucked into these Medicare Advantage programs, the taxpayer is out about $1,000 a year that it wouldn't have to pay unless -- if they were in traditional Medicare.
But in addition to those marketing abuses, there are outlined in here a significant number of what are called chapter 13 abuses, where there have been corrective action plans. And those are when a person wants in, then has a grievance or can't get coverage, and then calls to try to get help.
My question to you about those corrective action plans is whether any Medicare Advantage plan has ever been sanctioned in any of these corrective action plans for not having a sufficient grievance and appeals process.
*Mr. Hill. I can tell you that we have sanctioned plans for multiple contract violations.
*Mr. Doggett. Well, I am just asking about grievance and appeal processes, since it appears, from my analysis of the audit, that there were more corrective action plans that were issued with regard to plans not the way they declined grievances and didn't handle the appeal process -- there were more appeals process corrective action plans than there are marketing abuse action plans.
*Mr. Hill. Right. And I know that a significant amount of the CMP activity, civil monetary penalty activity, we did last year was around the annual notice of change, which is a grievance process, but it is the notice that plans are required to give to beneficiaries, as we transition from one plan year to the next, outlining what the benefits are going to be or not be.
And we did issue CMPs on a number of plans last year on that issue.
*Mr. Doggett. And does -- do you require bids to include a line item in the bid, demonstrating that the plan has sufficient funds in their budget to handle appeals?
*Mr. Hill. Well, their bid includes the administrative cost, which includes the administrative cost of meeting our regulations.
*Mr. Doggett. Well, I understand it includes administrative costs. But how do you determine whether they have a sufficient amount to cover appeals?
*Mr. Hill. I would need to get back to you exactly on how they make that determination.
*Mr. Doggett. Okay. It appears to me that these plans get through deceptive marketing practices, in many cases at a cost of $1,000 to the taxpayer. Once they get in, they have great difficulty getting their grievances processed. And then I note if a care giver wanted to look at the website that CMS has to find out if they are getting in a good plan, great inflation at CMS seems to be rampant.
And in Texas, at least, when I looked at it, it looked like everybody was, you know, on the dean's list on these plans. They all got three-star, very good, ratings, except for one. I noticed that one Humana plan had 18 corrective action plans pending for appeals process violations at the same time it got a 3-star rating.
Is there ever any attempt to inform the consumer, relative to what is happening with the corrective action plans?
*Mr. Hill. Well, yes, actually. The corrective action plans, as you know, are now posted on the web, and folks have access to that information.
I think, with respect to the rankings -- take the Humana example for a minute -- the 18 corrective actions that are on the web for Humana may relate to Humana as an organization. And it is the same violation, but it runs through all their contracts. So it is not like it is 18 separate --
*Mr. Doggett. Have you ever taken a star off one of these all-star Medicare Advantage plans because they were doing such a sorry job with their marketing practices and their grievance processes, that they got one corrective action plan after another?
*Mr. Hill. Well, this is the first year we have done the rankings the way we're doing them. But I can imagine that we are going to be removing stars from folks. Yes, sir.
*Mr. Doggett. Okay. Thank you.
*Chairman Stark. Mr. Emanuel.
*Mr. Emanuel. I will take the time. What I would -- more of a statement, here. I mean, a lot of focus has been on the percentage on the reports, how many reports have actually been done, et cetera.
I know we had a hearing earlier on a lot of the state insurance commissioners, who said they would like to have the authority to do not only the investigations, but also the enforcement. And one of the -- you know, CMS argues that they don't have the authority to do the proper type of -- not just investigations, but then pursue those investigations. And my own sense here, Mr. Chairman, is that we can either have CMS do what they're supposed to do -- they do it now on the supplemental Medicare -- or give it to 50 different state commissioners, and then we can watch what they do on the oversight of these plans.
But somebody has to be a police on the beat who is overlooking these plans. And if it was up to me, I don't think the insurance companies would want to see this happen, but I would be more than willing to become a convert to the new sense of federalism here, and let 50 state insurance commissioners all of a sudden regulate and prosecute where they think there has been some violations here. But somebody has to be on the job to see, not only if -- not only auditing, but then prosecuting, if there are any violations here.
And, to anyone who wants to pick up on this, I mean, which would you think would be more effective in overseeing this marketplace insurance plan? Would it be 50 different state insurance commissioners? Or would it be, in fact, CMS actually exercising what I think they have the authority to do? Mr. Hill?
*Mr. Hill. Speaking for CMS, clearly, we believe that CMS has the authority, the wherewithal, and the obligation to be overseeing the plans, and their marketing practices, and how they are dealing with beneficiaries, and believe that is in the best interest of our beneficiaries, to have a single, consistent set of oversight activities and corrective actions being put in place.
*Mr. Emanuel. Well --
*Mr. Hill. As opposed to having 50 different states. Now, the states have a role here, their --
*Mr. Emanuel. Well, Mr. Hill, let me just say this. As Abraham Lincoln once said to McClellan, "If you aren't going to use that army, do you mind if I borrow it for a time?''
*Mr. Hill. I --
*Mr. Emanuel. And so, my question to you is, since you are woefully short on the audits, on the prosecution side, or, in fact, enforcing what is in the interest of the beneficiaries there, I don't think you have been fully exercising what we believe is in your authority and capacity.
*Mr. Hill. I can appreciate the frustration that you are exhibiting, with respect to CMS in the past. I can only tell you, as I mentioned in my opening statement, that we are going to use the army. As you may have heard from Kerry Weems, the new acting administrator, that the start-up period here for Medicare Advantage is over. We are beyond the initial phase of getting plans in. And the focus now is on accountability, oversight, and access for our beneficiaries.
*Mr. Pomeroy. Will the gentleman yield?
*Mr. Emanuel. Yes, I yield to my colleague from North Dakota.
*Mr. Pomeroy. Thank you. Mr. Hill, there is no army. I believe you testified earlier your entire staffing was 34. Is that correct?
*Mr. Hill. That is not correct, no.
*Mr. Pomeroy. Help me with the number. We have had different testimony from CMS over the time. How many people do you have all ready to go to sign with this new much-belated imperative of CMS?
*Mr. Hill. A little bit over 500 staff, sir, and a budget of, right now, roughly $30 million, but that will grow to roughly 120, to the extent that the congress enacts the President's fiscal year 2008 budget proposal.
*Mr. Pomeroy. You've got 500 staff people. What are they doing today, if they are not doing this today?
*Mr. Hill. I believe they are doing this today, sir.
*Mr. Pomeroy. They are doing this today?
*Mr. Emanuel. Mr. Chairman?
*Mr. Pomeroy. I yield back.
*Mr. Emanuel. No, it's okay. Mr. Chairman, I would like to suggest, though, that if there is not a change -- and not to -- you know, beyond audits, if you are not going to oversee the marketplace correctly -- and there is no numerical sense of what is hitting a certain number.
But the leverage is here, in fact, that either CMS does its job -- and if the committee, as a whole, does not think it is, then in six months, nine months' worth of time, we take a look back of the performance. And if not, then we move on legislation, as it relates to the state insurance commissioners.
*Mr. Hill. I think --
*Mr. Emanuel. There are many roads to take to enforcement.
*Chairman Stark. The distinguished gentleman from North Dakota, when he was an insurance commissioner, made that deal with us some years back. And found that, eventually, in the case of supplemental insurance, that is just what he had to do.
*Mr. Emanuel. I mean, they have done a good job there. And so, the question is how you pursue that. And my colleague from Wisconsin, I do not know if he would like to add on this.
But I would like to thank you for both holding this hearing, and talking about it. But, Mr. Hill, we may have cut you off from --
*Mr. Pomeroy. May I just have a second more?
*Chairman Stark. Sure.
*Mr. Pomeroy. I think that this 500 representation really does need some scrutiny. And if you have had 500 people waiting around to do this, they should have been doing it. If they had been doing it, we wouldn't have had the audit report that we have got.
The reality is, you have got these people, they have got all their jobs to do. We have heard testimony about them loosely dispersed through the regions, no clear business plan offered by the Agency, in terms of how they are suddenly providing new measures of consumer protection, reflecting, basically, what has been taking place in state insurance departments.
I believe the chairman's suggestions that we ought to look at -- we ought to assess the failure of the Federal Government --
*Mr. Camp. Mr. Chairman, could we have regular order?
*Mr. Pomeroy. -- and look at an expanded role for states that already have the capacity to do it. I yield back.
*Chairman Stark. Thank you. The time for the gentleman from Illinois has expired. Mr. Tiberi?
*Mr. Tiberi. Thank you, Mr. Chairman and Mr. Hill. In talking to my Medicare case worker in my office, he tells me that most of the complaints that we get from seniors are seniors that are in the Medicare fee-for-service program. I know most of the focus has been on Medicare Advantage today, and the audit, and I know some of my colleagues are skeptical of the private sector's involvement in providing health care benefits to beneficiaries, Medicare beneficiaries.
From your perspective at CMS, what have you seen the benefit for those Medicare beneficiaries with this new market-oriented benefit called Medicare Advantage? What do you see today?
*Mr. Hill. I think if you were to talk to the folks at the Agency, and tried to understand how Medicare Advantage and part D has changed the landscape --
*Mr. Tiberi. Right.
*Mr. Hill. -- you will see beneficiaries who are generally satisfied with the coverage that they have, in terms of drug coverage that they have now that they have not had in the past. You are generally seeing savings, relative to what they had had prior to BBA -- prior to me, prior to the MMA.
For me, as the CFO's standpoint, the overall cost of the program is lower than we had originally projected, which
*Mr. Tiberi. Can you say that again?
*Mr. Hill. The overall cost of the program is lower than we had originally projected, both in terms of premiums and the absolute outlay for part D and MA. So that is -- from my perspective, that was a good thing, and which generally relates to lower overall Part D costs for taxpayers, generally.
*Mr. Tiberi. We all acknowledge that there is a one-third audit requirement for the Medicare Advantage oversight. We have gone over that today on numerous times. Is there any comparable requirement for the regular fee-for-service program?
*Mr. Hill. In terms of a requirement to look at a standard set? The only sets of requirements that exist are on the quality side for the state agencies who do survey and certification who go into nursing homes, home health agencies, other institutional settings, to be sure they are meeting our levels of care for quality.
But on the payment side, there are no statutory requirements for the level of payments that --
*Mr. Tiberi. Is there anything that you have done, comparably, on the audit side, on the payment side?
*Mr. Hill. On the payment side, we use a performance metric to ensure that we are paying appropriately.
As many of you know, and as I have testified before on this committee, we are measured by a fee-for-service error rate over time. And at one point that error rate was in double digits. We spent a lot of time and effort over the past four or five years to get it down, and now it is at roughly 4.5 percent, 4.4 percent, which has, I think -- you know, using a risk-based approach to how we devote our resources to get that error rate down.
*Mr. Tiberi. Well, let me just go over this again, and see if I am missing something that I cannot quite understand.
In the September CMS -- you posted a list of current corrective action plans, CAPs, to your website.
*Mr. Hill. Correct.
*Mr. Tiberi. Do you believe this is a fair representation of the Agency's Medicare Advantage oversight activities, or does it represent just one aspect of a much broader, or larger picture?
*Mr. Hill. Oh, I think it is one aspect of a much broader picture.
*Mr. Tiberi. Can you expand on that?
*Mr. Hill. It is a planned time estimate, as of that day, of the open caps that were in place. It doesn't reflect action that has taken place since before -- corrective action plans that had been open and closed, subsequently closed out since prior to that date.
Nor does it represent the amount of work that is ongoing with beneficiaries and providers and plans on a day-to-day basis, both centrally, in our central office, as well as with the regions, to be sure that beneficiary complaints are being dealt with, and that plan compliance issues are being dealt with on a daily basis.
*Mr. Tiberi. Anything comparable on the fee-for-service program?
*Mr. Hill. In terms of reporting --
*Mr. Tiberi. Yes.
*Mr. Hill. -- compliance issues? Other than the error rate, no sir.
*Mr. Tiberi. Would that be helpful, to compare apples to apples, rather than apples to oranges, as we seem to be doing?
*Mr. Hill. I -- given the absolute level of providers in the Medicare fee-for-service program -- you are talking about more than a million, versus the plan side -- it would be very difficult, other than the aggregate, you know, sort of hospitals have these sorts of issues, physicians have these sorts of issues, to have a comparable sort of set of metrics.
*Mr. Tiberi. Final question. Assuming that you have 49 organizations representative of the Medicare Advantage program that were part of this audit that has been talked about today. If you take the $35 million in overpayments, divide it by the total amount paid of the plans, you will find that the overpayment represents .4 percent, if my math is correct here.
What would be the error rate for payments under the fee-for-service Medicare plan?
*Mr. Hill. 4.4 percent right now.
*Mr. Tiberi. Say it again.
*Mr. Hill. The error rate in Medicare fee-for-service is 4.4 percent.
*Mr. Tiberi. So, the error rate for Medicare fee-for-service is 4.4 percent, versus the Medicare Advantage rate for error under your -- under the GAO study, as .4 percent?
*Mr. Hill. And --
*Mr. Tiberi. That would be a good headline to see in tomorrow's paper. Thank you, Mr. Hill.
*Chairman Stark. I am going to ask Mr. Steinhoff to comment on that. I think there is some -- I think we have got some apples and oranges. If --
*Mr. Steinhoff. Yes, correct. We did not project an error rate. What our audits showed were, that CMS' audit rate for 2003 was around 22 percent. And for those audits that were done, they were done of the adjusted community rate proposal. This is the proposal, not what actually happened. This is what was actually paid.
So, you had less than 100 percent coverage, and you had a net of $35 million per CMS. You did not have, though, a review of every payment that is being made. So, I don't think it is even apples and oranges, I think it is more like apples and something else.
*Chairman Stark. I would say, to CMS's credit, the 4 percent, or 4.5 percent --
*Mr. Steinhoff. Yes.
*Chairman Stark. -- used to be 14, I believe.
*Mr. Steinhoff. That is right.
*Chairman Stark. And, in those days, it was half -- and I don't know whether it still is -- half was theft, fraud, and half was just mistakes, you know, processing 80 million pieces of paper a day, there are just mistakes.
But I think, if that is correct, I think that CMS is entitled to a real round of applause, because they have cut that error rate by at least two-thirds that I have known over the past 15 years, and that is -- I don't mean to diminish that, that is a hell of a record. But I just wanted to add that.
I thank the gentleman. You have completed your inquiry, sir? All right. Mr. Kind?
*Mr. Kind. Thank you, Mr. Chairman. I want to thank you and Mr. Lewis for offering this hearing today, and also to our witnesses for your testimony.
And as someone who reviewed the GAO report, and has been sitting here listening to the testimony so far this morning, I will guarantee you there wouldn't be a taxpayer in America that wouldn't be horrified by what is taking place with this program. And I also guarantee that most of the seniors in MA plans today would be shocked and dismayed with the lack of oversight.
This -- it really strikes you as the Blackwater of health care in this country today. You know, no oversight, no accountability, no consequences. And, just as the administration was quick to privatize our security needs in Iraq, in this experiment to try to privatize the Medicare program, this is the type of oversight that we are getting. And it is just clearly not acceptable.
Mr. Steinhoff, let me ask you. In preparing your report, and the investigation that the GAO did, is the lack of the audits being accomplished, not meeting the one-third requirement, due to a lack of will within CMS, or a lack of resources?
*Mr. Steinhoff. When one steps back and looks at the audit rate, when one looks at the fact that CMS didn't really have any program in place to even determine what the audit rate was, when one looks at the fact that CMS did not require the auditor to determine the impact, when one looks at the fact that CMS never looked at what actually happened, what benefits were delivered, what costs were incurred, it looked like CMS was going through just a minimal compliance effort. There wasn't much value to it, wasn't much coming out of it. And one could really question CMS will to really aggressively pursue this.
*Mr. Kind. Well, you hear of 35 people in CMS that's in charge of the audit department here, which just smacks as severely insufficient. And then, not only do we have a lack of the audits being conducted, but even a lack of the quality information that we need in order to make policy decisions based on the audits aren't even getting accomplished.
So, my question again, Mr. Steinhoff, to you, is what do we need to do to try to fix this? I mean, do we have to do a separate line item with specific instructions to CMS with specific resources? Because it is my understanding right now that the audit budget comes out of the overall administrative fund at CMS, and there is no specific line item from the appropriate bill that goes to CMS.
Do we need to look at that? Do we need to explore the possibility of user fees to help pay for the audits, to ramp up the army that we need here to conduct and to meet these requirements that --
*Mr. Steinhoff. Okay. I think certainly people should sit down with a clean sheet. Mr. Hill outlined some plans that CMS has, going forward, following the MMA. And -- going forward, he said they CMS is going to do X, Y, and Z. I think that is, at least, a starting point.
If one looks back at the 1997 law, there was a provision requiring audits. It mentioned looking at the financial books. It mentioned one-third audits coverage annually. But there wasn't much, other than that, in the law. There was no clear legislative history, no clear committee report on it, and no real clear commitment or understanding on CMS's part as to what it was, in fact, to be.
So, I think, stepping back, taking a hard look at whether or not this new plan that Mr. Hill has mentioned today will, in fact, get us where we want to be. And, again, this plan was emerging and evolving as we were doing our work. But is this truly a post-audit? Is this truly going back and determining, did we get what we were paying for? Did our beneficiaries get a fair break? Were providers they offering services but they weren't being used? What were the profit margins, et cetera, et cetera.
*Mr. Kind. Well, Mr. Steinhoff, on that point, let me ask you. Does CMS right now have the authority or the discretion to look into executive compensation with these MA providers in the course of the audit, and report back to us what is taking place?
*Mr. Steinhoff. I don't know of any limits they have, as to what they can and can't look at. And certainly that is something CMS can explore. But I know of no legal limits -- I will caveat I am not a lawyer, but I know of no legal limits.
But the time is really here today to rethink Medicare Advantage oversight, as I was kind of hopeful, as Mr. Hill laid out the future, that while perhaps the last six or seven years will be a very expensive lesson learned, that the lack of oversight during that period will be rectified, going forward.
But there is going to have to be a real change in culture here. And whether it is a $35 million oversight program as Mr. Hill mentioned, or much more expensive, you are talking about $60 billion, $70 billion being spent annually on the Medicare Advantage Program, a lot of money, a lot of complexity, a lot of plans, over 4,000 plans. And you are going to have to have a very good strategy, and a strategy that is enforced, a strategy with metrics, and a strategy that you can hold CMS accountable for meeting.
*Mr. Kind. Mr. Hill, may I quickly ask you? Are you familiar with Humana's second quarter profit report that came out in August of this year?
*Mr. Hill. I am not.
*Mr. Kind. It is the second largest provider of MA, $217 million profit, doubling their profit. The analysts on Wall Street said Humana reported its strongest quarterly result in recent memory on the back of stronger-than-expected performance in the government segment. In line with the company's recently updated forecasts, and indicative of continued strong Medicare performance, how can you not look at that profit in the last -- in the second quarter of this year, and not view it as a huge profit at taxpayer expense?
*Mr. Hill. I --
*Mr. Kind. Because it appears to be directly related with the MA compensation.
*Mr. Hill. There is no evidence that Humana is making profit at the expense of taxpayers -- based on what they have told us, and what they have told us in their bid, and what we are paying them. If what we are paying them is leading them to make money in the market, I think that that is the purpose of the program, is for private plans to come in and deliver the program.
*Mr. Kind. Thank you, Mr. Chairman.
*Mr. Lewis. [Presiding] Thank you. Mr. Pascrell is recognized.
*Mr. Pascrell. My good friend from Wisconsin, whatever the market can bear. Because it is very, very interesting that the -- while reporting huge profits, the outgoing CEO of United, he had a $400 million bonus. I feel sorry for the guy. And he had a total retirement package worth a reported $1.5 billion.
You know, I am outraged. And I know you could care less, but I am still outraged. And I am outraged about these windfall profits, because they go back to the debates of 2003, when we discussed the Medicare Modernization Act, plan D, which is now pretty famous.
And to hear what I am hearing today, hard working Americans are facing increased premiums and decreased quality of care, I am disappointed by the unwillingness to provide any accountability or oversight to ensure our tax dollars -- and I know we're talking about civil situations, we're not talking about criminal. Are we? Are we, Mr. Hill? We are not talking about criminal actions, we are talking about civil actions. Some of these are pretty close, though. The difference between one and the other, many times, is very questionable.
It means that private insurance companies are free to determine a substantial portion of the services that are covered by Medicare. There is 43 million people on Medicare, 7 million of those people are in the Medicare Advantage. This is a big deal. This is pretty significant, as to what is happening.
And if you read the last issue of AARP Magazine, which I get because of obvious reasons, very clear about a couple of examples they give in that magazine. Bobby Boxer, a retired construction worker, he was very content with the regular Medicare. But -- he was content, but last December a sales woman comes to his house and sells him a plan of Medicare, a Medicare HMO, when he thought he was buying a medigap policy. She lied. All MA plans are obliged to cover emergency care, as you well know. But what happened was he wound up with a bill of $16,000. Now, CMS is telling him, "Don't worry about that, we will get you back into regular Medicare.''
This is bologna. This is not the way to deal with what is going on with these people, day in and day out. You confuse the senior community enough, and darn it, you better stop. You better end it right now. You confuse them. With all of these plans, how could they make sense of what is going on? How can they make sense?
I want to ask you a question, Mr. Hill, if I may. According to the GAO's assessment of the statutes, that CMS had the authority to pursue financial recoveries. But its rights under contracts for 2001 to 2005 are limited, because it is implementing regulations that are not required, that each contract include provisions to inform organizations about the audits and about the steps that CMS would take to address -- identify deficiencies, including the pursuit of financial recoveries, which many have asked about.
Why would your agency write regulations for the MA contracts that did not include the recovery authority? Why would you do that?
*Mr. Hill. I cannot speak to the ACR process that was in place from 2001 to 2005, and why those requirements are not in there, or why the Agency chose not to pursue that.
I can speak to the MAPD and the Part D plans that are in place now, post-MMA, and can tell you and assure you that it is very clear for the plans that, to the extent that we find overpayments on an audit, we have the authority to go back and recoup those funds.
*Mr. Pascrell. Now, the National Association of Insurance Commissioners, when they were asked what can be done, they advocate a stronger role for the states. The states play a stronger role in the Medicaid program. In many of the states, the attorney general's office oversees it. You administer the MA program. You administer it. Am I correct in saying that? When we talk about administering the program, that means very specific things.
So, the states would have more authority and oversight of the MA marketing, especially in the regulation of agents and brokers, which is a state law issue in the first place. The language in the CHAMP bill, which the President said we should not vote on, because it would throw seniors off of Medicare -- that is what he said, I know what he said -- CMS had argued that state laws are pre-empted by this Medicare Modernization Act. That is what you said.
On September 28, 2007, an Alabama district court judge held that the state could sue for Medicare Advantage marketing abuses in state court under state insurance law. What is your reaction to that, Mr. Hill?
*Mr. Hill. I am not familiar with the lawsuit, and I would like to take a look at it before I offer --
*Mr. Pascrell. Well, what do you think about the idea of states assuming a greater responsibility in going after the very abuses and deficiencies that you have heard questions about from this panel?
*Mr. Hill. I don't think that we disagree that the states are our partner here. They are on the ground. The state insurance --
*Mr. Pascrell. Well, what do you mean by being a partner, Mr. Hill?
*Mr. Hill. I think this is -- they have their regulatory authority for brokers and --
*Mr. Pascrell. So you feel they have the ability, then, to pursue these civil complaints?
*Mr. Hill. No, sir. I think they are our partners in this, and we work with them closely. We have entered --
*Mr. Pascrell. So you have no problems with this?
*Mr. Hill. With?
*Mr. Pascrell. You have no problems with the states pursuing, as Alabama has?
*Mr. Hill. As I said, I would need to take a look at that suit, to know exactly what it is they have pursued.
*Mr. Pascrell. Thank you, Mr. Chairman.
*Chairman Stark. [Presiding] Thank you. Mr. Nunes?
*Mr. Nunes. No.
*Chairman Stark. No? Mr. Hulshof?
*Mr. Hulshof. Thank you, Mr. Chairman. Let me try to put things in perspective. I do this at my own peril, Mr. Chairman. At a previous hearing in front of the full committee on income and equality, I pointed out that the 4.6 percent national unemployment rate was considered by most mainstream economists to be full employment, and my friend from California, a gentleman from Los Angeles, took me to task and chided me that every American deserves a job. I guess 0.0 percent unemployment is our goal.
But let me put things in perspective. The fact is that there are many on the majority side who have shown disdain for Medicare Advantage. I am not saying that is the genesis of this hearing, but I think that needs to be spoken.
The gentleman from Texas says that seniors have been "sucked in'' -- his words -- to the Medicare Advantage program. I would like to quote specifically what the chairman of the oversight subcommittee has said, and I agree with him, where he says in his written statement, "Over 8 million Americans rely on Medicare Advantage, and there are 15,000 of those 9th congressional district of Missouri.''
I am a small business owner. I pay Medicare taxes for the workers I hire. Every employer and every employee alike, every taxpayer in America deserves the comfort, or knowledge, or confidence that they are getting the bang for the buck, whether they are on Medicare Advantage, or whether they are helping fund the program.
So, with that in mind, at the end of Mr. Tiberi's questioning -- I want to go back to that, because I think that has been glossed over to some degree. Now, I acknowledge, Mr. Steinhoff, that you take issue with the assumptions that Mr. Hill made regarding this error rate. So I take that as a given. My most famous constituent, Mark Twain, once said that there are lies, there are damn lies, and then there are statistics. So allow me, then, to talk about statistics.
Mr. Hill, let me flesh out a little further what Mr. Tiberi inquired of you. Because I think he asked, trying to put this in perspective again, there were audits of 49 organizations, which is about a 22 percent of those participating organizations, is that right, Mr. Hill?
*Mr. Hill. That is correct.
*Mr. Hulshof. And as I also understand -- again, I took this figure from Mr. Tiberi -- in 2003, we spent -- we taxpayers spent roughly $36,800,000,000 on Medicare Advantage. Is that number correct?
*Mr. Hill. That is roughly correct.
*Mr. Hulshof. And we have learned, through this hearing, a net overpayment of about $35 million in overpayments?
*Mr. Hill. That is correct.
*Mr. Hulshof. And that is a net, because, in addition to overpayments, there are also underpayments. Is that true?
*Mr. Hill. That is correct.
*Mr. Hulshof. So, in other words, again, making sure that every taxpayer gets what they are entitled to -- so, in other words, some on Medicare Advantage plans were getting benefits that they weren't paying for. Is that a fair assessment?
*Mr. Hill. It would be implied, yes, sir.
*Mr. Hulshof. So, you calculated that, given all of that, the amount of money going to Medicare Advantage -- and if we were to extrapolate those participating organizations, the error rate is what, for Medicare Advantage?
*Mr. Hill. I think that is -- I think, as Mr. Steinhoff indicated, we did not extrapolate that $35 million. I think if you did the math, the $35 million as a proportion of the total Medicare Advantage payments, it is a tiny fraction, a very tiny fraction. But it is not the extrapolated error rate for Medicare Advantage.
*Mr. Hulshof. Mr. Tiberi -- and again, I know him to be a knowledgeable, reputable man -- a .4 percent error rate, which again, I -- every dollar should be legitimately spent or collected. So that -- in my mind, again, I accept Mr. Tiberi's math -- 99.6 percent correct, .4 percent incorrect, as opposed to you have calculated the fee-for-service error rate, and that is significantly higher. True?
*Mr. Hill. Correct. It is 4.4 percent.
*Mr. Hulshof. So, I acknowledge this is useful, I think. You know, I know the righteous indignation by some, talking about profits and whatever, I mean, that is great political speech.
But I think, as far as making sure that the taxpayer gets the bang for their buck -- and I hope, Mr. Chairman -- I am not privileged to serve on the oversight subcommittee, but I hope that there is equal righteous indignation or aggressiveness looking at other areas of the tax code. For instance, the 25 to 30 percent error and fraud rate on the income supplement program called the earned income tax credit. I think every dollar that we allocate should be a dollar well spent. And I appreciate you having this hearing.
*Mr. Pascrell. Mr. Chairman, can I have a moment to speak out of turn for one minute? For 30 seconds?
*Chairman Stark. Sure.
*Mr. Pascrell. Thank you. Chairman, I listened very carefully to my good friend, economics 101. This whole program is so efficient that is has been paid for by deficit financing. Thank you Mr. Chairman.
*Chairman Stark. Okay, I --
*Mr. Pascrell. They have not paid for this program.
*Chairman Stark. I was just -- I suppose, as one of the two here who had asked for these hearings, I stipulate to my good friend that I happen to think that Medicare Advantage plans offer good medical care. Half of the residents -- not half of the insured, but half of the people -- who live in my district belong to one plan alone, Kaiser Permanente, and they are probably as good as any managed care plan in the country, and I happen to think that managed care is perhaps a better way for all of us to receive our medical care.
But the issue before us, the basic issue, is that we are overpaying by -- according to MedPAC. And CBO and OMB all agree that we are overpaying these plans by about $40 billion over 5 years. That is the issue. Now, out of that $40 billion in overpayment, we can argue about what kind of inefficiencies there are, and how we collect that money.
But the basic problem is that, as compared to fee-for-service, which has no control over utilization, so you may actually find that we're actually paying more in fee-for-service than to say we are paying anywhere from 12 to 40 percent more is the issue.
Now, if we could somehow find out how to fairly pay the Medicare Advantage plans and recoup a good bit of that $40 billion, we would have a double win. We would have perhaps more efficient delivery of medical care, and we would save $40 billion for the taxpayers. And that, I think, would be an objective that we could all be proud to work toward on this committee.
So, I -- the gentleman is right, we may be picking at small nits here, but let us not forget there is a big chunk of change out there that we have to distribute. Ms. Tubbs Jones is next.
*Ms. Jones. Mr. Chairman, I thank you for holding the hearing. You know, today is Tuesday. And in two days, we are going to be voting to override the President's veto. And it is just hard for me to believe that we are arguing over $35 million to cover health care for children. And I keep trying to read this correctly to figure out how many dollars we are concerned about here, with CMS.
I am interested, Mr. Hill. What did you do before you came to CMS?
*Mr. Hill. I worked at the Office of Management and Budget.
*Ms. Jones. And what did you do there?
*Mr. Hill. I worked on the Medicare --
*Ms. Jones. I am asking for your curriculum vitae, so you aren't concerned about the question. I am just wondering what your skill set is.
*Mr. Hill. I was a budget examiner, working on Medicare and Medicaid issues.
*Ms. Jones. And how long did you do that?
*Mr. Hill. I was there for about four years.
*Ms. Jones. Four?
*Mr. Hill. Yes.
*Ms. Jones. And what did you do before that?
*Mr. Hill. Before that, I was a legislative analyst at the then-HCFA.
*Ms. Jones. At what?
*Mr. Hill. HCFA. What was then -- I was a legislative analyst at the Centers for Medicare & Medicaid Services before I was at OMB.
*Ms. Jones. In your responses, you said you have no idea what happened between 2001 and 2005 on the contract for Medicare Advantage, but you know what has happened since 2005, because you have been in charge. Is that a fair statement?
*Mr. Hill. I think that is a fair statement, yes.
*Ms. Jones. But when you looked at 2001 and 2005, did you say to anybody, "Let's look at the contract, we're having a problem here, we need to go back and reassess them?''
*Mr. Hill. I can only tell you, ma'am, that there were some full and frank conversations between me and our Office of General Counsel about what we could or could not do with those overpayments from --
*Ms. Jones. And the good lawyers that you have in the office of general counsel, didn't they have some idea that -- I am sure, if they were great lawyers, and I am confident that they were -- there had to be some provision in these contracts for them to address some of the issues that you raise.
*Mr. Hill. Right. And the provisions in the contracts that allow us to address those issues are, to the extent there was misrepresentation by the plans. So, some of the plans on that $35 million disagreement --
*Ms. Jones. Say that number again.
*Mr. Hill. $35 million.
*Ms. Jones. Okay, go ahead.
*Mr. Hill. Disagreement -- were misrepresenting what they told us. And that is what led to that discrepancy. Then we have authority under the statute to either pursue a civil monetary penalty, or to pursue a referral to the Office of the Inspector General.
*Ms. Jones. So, now that you have received this GAO study that says something about why audit, or whatever --
*Mr. Hill. Right.
*Ms. Jones. What are you doing to make some changes?
*Mr. Hill. I can tell you that, for 2006, we are not going to ignore the one-third audit requirement, as laid out in the MMA. We have put in place what I characterize as a sort of three-prong strategy here.
We make sure that, before we sign contracts with plans -- as you know, they bid, we spend the summer looking at bids, and then we sign contracts in the fall. Before we sign those contracts, we look very clearly -- in detail -- at these bids, to be sure they accurately reflect the benefits and the assumptions that need to go into making a reasonable bid. To the extent that they don't, we ask plans to make changes, yes, ma'am.
*Ms. Jones. So, consistent with your oath, as an employee of the U.S. government, and a representative of the people of America, you are saying that we made a commitment that we won't be in a position, on the contracts that you negotiate that we are in today?
*Mr. Hill. That is correct.
*Ms. Jones. Mr. Steinhoff, how are you, sir?
*Mr. Steinhoff. Real fine.
*Ms. Jones. How long have you been in your job?
*Mr. Steinhoff. I have been with the Government Accountability Office since 1973, my current job probably for the last 8 or 9 years.
*Ms. Jones. So, when you make or issue a report like you have issued with regard to Medicare Advantage to CMS, I mean, here we are, 2007. Your report speaks to -- what years did this last report cover?
*Mr. Steinhoff. We are talking about 2001 through 2006, as of the end of the May/June 2007 time frame.
*Ms. Jones. Let me ask you this. The report for 2001 -- okay, I am an official in the government, you are my auditor.
*Mr. Steinhoff. Yes.
*Ms. Jones. Something happened bad in 2001. How soon do I know after that, that I made mistakes in my conduct?
*Mr. Steinhoff. Actually, you would have expected that CMS itself would have had the rate of audit, and the selection of audit, and the results of audit every year.
*Ms. Jones. Hold on a minute. I would have expected. They do not?
*Mr. Steinhoff. You would have expected that they would have had that information.
*Ms. Jones. My question is, do they?
*Mr. Steinhoff. They did not have that kind of information.
*Ms. Jones. 2001?
*Mr. Steinhoff. They didn't have -- it.
*Ms. Jones. 2002?
*Mr. Steinhoff. They didn't' have it.
*Ms. Jones. 2003?
*Mr. Steinhoff. They didn't have it.
*Ms. Jones. 2004?
*Mr. Steinhoff. They didn't have it.
*Ms. Jones. 2005?
*Mr. Steinhoff. They didn't have it.
*Ms. Jones. 2006? Come on.
*Mr. Steinhoff. 2006 was --
*Ms. Jones. You are joking me, right?
*Mr. Steinhoff. 2006 was not completed yet. But no, they didn't have it.
*Ms. Jones. I am out of time.
*Chairman Stark. Mr. McDermott.
*Mr. McDermott. Thank you, Mr. Chairman. I want to commend you on having this hearing. And I think, particularly when you read the article in the October 7th New York Times by Robert Pear, you realize that there are some audit problems.
But I think that one of the things that is troublesome to me is that there is a growing concern that the Medicare administration contracting, the macro form, in Section 911 of the Part D bill, is being implemented in a way that is setting up Medicare for failure.
And I think that the chairman and members should be looking to the future of what it is going to do when you take 49 contractors across the country and reduce it to 15, and put those contracts out purely on the basis of cost. Because you are going to have everybody talking about cutting offices.
Now, I had the -- when you ride from Seattle on the airplane, you have a long time. And sometimes you have a seat mate who actually has something that is important to learn about. I sat next to a medical administrator for one of the national contracting organizations and talked to him about what is happening.
And right now when a doctor has billing, and you have auditing and you are doing -- and you have what are called LDCs, local determinations, where you help the doctor try and figure out how to put his information in correctly, you try and pick up everything in advance. What is being set in place is a way to destroy Medicare fee-for-service because there is going to be a great reduction in the LDCs. The doctors won't get any help at the front end.
So everything will be paid, and then the contracts go out to the folks who are sitting there doing the payment safeguard, and recovery audit contractors will be going out into doctors' offices saying, ah-hah. We have got a fraud here.
Now, if you don't help people up front and then you hit them at the back end, it is going to set the place for a hearing in this room where people are going to come in and say, see all the fraud in the doctors. It will have been created by the way we set it up.
I came to Congress in 1989 when we were going through the savings & loan crisis. We said to the savings & loan, you can lend the money anywhere you want. You can lend swimming pools or golf courses or whatever. And the second thing they did was they cut down the number of auditors so that many of those savings & loans never had anybody coming in and saying, hey, let's look at your portfolio. Let's see what you are actually doing here, and stop it up front. We waited until the whole thing collapsed, and then we had hearings in the banking committee on endless days. We sat and listened to one folly after another that could have been prevented if we had had decent auditing.
Now, I see us in this effort. We are going to put together North Dakota, South Dakota, Nebraska, Kansas, Arizona, New Mexico, and Wyoming, I think are all in one. And it is going to have one office. One office for six or seven states.
Now, how is a doctor going to get any information whatsoever under that kind of system? And it is supposed to be reform. It is going from 46 -- each state has their own now. So we are going to cram them all together. Alaska, Washington, Idaho, and Oregon will all be one office. Right? California and Nevada will be one office. Now, you tell me how any doctor practicing is going to have any chance whatsoever to get any help up front.
And I think I would like to hear your ideas because those regulations are being written right now, and they are being put in place, and they are letting the contracts. I would like to hear you talk about what you think will happen in three or four or five years in this regard.
*Mr. Hill. Right. I mean, I have to tell you, if I had heard sort of this laid out as the way the medical director or whoever it was you were sitting next to on the plane had described it, I too would be concerned. But I think it is safe to say that it is not quite as advertised.
So yes. For example, for the five states that you mentioned, there will be one contract and one entity that will be responsible for processing those claims. But it is also the case that that contractor has to have an office and a medical director in every state. And that contract has to make its local coverage decisions based on what is going on in any individual state or geographic area to account for the variations that we see from region-to-region in the way that medicine is practiced differently.
And so the intent here isn't to sort of nationalize the way we process claims and nationalize where physicians or home health agencies or DME suppliers have to go to to get the information. It is more for us to get economies of scale on the back end for the people who stuff the envelopes and the people who process the claims or answer the phones for more routine issues.
We would be shooting ourselves in the foot and being penny wise and pound foolish to not maintain that education and communication up front because, quite frankly, as we talked about the Medicare error rate earlier, the way we got that rate down was by communicating very aggressively with the providers who provide services.
*Mr. McDermott. It is your testimony today that there will not be a reduction in the educational effort for physicians in this country who are in fee-for-service medicine taking care of Medicare patients?
*Mr. Hill. Absolutely. That is my testimony.
*Mr. McDermott. That is your testimony?
*Mr. Hill. Yes, sir.
*Mr. McDermott. Well, we will mark it down and we will see because I intend to be here a couple years from now when this whole thing begins to play out. Because my belief is if you are rushing through payment, you are going to ultimately wind up catching people in the net down there that are not necessarily fraudulent physicians.
*Mr. Hill. Right.
*Mr. McDermott. I think that is what makes doctors the most angry, is when they can't figure out the system, and then somebody comes in and treats them like they are a fraudulent doc. That isn't fair. And I think we ought to look at it up front. You say it is not going to happen. I hope you are -- maybe you won't even be in the office. That will be the problem. I won't be able to find you. But we will bring up your quote.
*Mr. Hill. If I can get out of this hearing, I think I may --
*Mr. McDermott. Thank you, Mr. Chairman.
*Chairman Stark. Well, you will be happy to learn we are winding up. I just wanted to ask Mr. Steinhoff, finally, regarding the $29 million that wasn't returned to Medicare, was any of that -- maybe you can summarize whether that came and whether any of that is owed to us from United and Humana, and maybe in the next panel I can help you collect some of that, Mr. Hill.
*Mr. Steinhoff. With respect to the $29 million that the IG found on the six audits of the supplemental payments, 10.5 million of that related to Humana. They audited 14.4 million of costs reimbursed to Humana, and questioned 10.5 of that.
*Chairman Stark. And with United?
*Mr. Steinhoff. I don't believe they were one of the six, but I would have to check on that for you. But I do not believe they were one of the six.
*Chairman Stark. Well, Mr. Camp, do you have any further inquiry? If not, I want to -- Mr. Chairman?
*Chairman Lewis. No, sir.
*Mr. Camp. I just have one quick question.
*Chairman Stark. Please.
*Mr. Camp. We heard some comments about salaries. But does CMS have the authority to review the salaries of hospital administrators, for example, with the result to Medicare payments?
*Mr. Hill. No, sir.
*Mr. Camp. All right. And many of them have fairly significant salaries as well. So it is not just managers of Medicare Advantage plans.
Thank you, Mr. Chairman.
*Chairman Stark. Thank you. And I want to thank the panel, all of the staff from GAO, and Mr. Hill's staff, who have been sitting there trembling all morning for fear he would make a mistake. And see, he didn't, so your worries were in vain. Thank you all for being here. And we will proceed with our next panel.
And I will introduce them as they make their way to the witness table: Mr. Paul Precht, the Policy Coordinator of the Medicare Rights Center; Mr. Harry Hotchkiss, who is the Senior Products Actuarial Director of Humana of Louisville, Kentucky; Ms. Cindy Polich, the Senior Vice President of Secure Horizons, UnitedHealth Group of Minneapolis, Minnesota; Dr. Bart Asner, the Chief Executive Officer of Monarch Healthcare of Irvine, California.
I want to welcome the panel. My guess is in the next 15 minutes or so, they will call a series of votes. Perhaps we can get through the summation of your testimony, and then we will recess. We are not sure yet how many votes there will be, but I suspect it will be about at least a half an hour.
And so I will ask Mr. Precht to summarize, as with the previous witnesses. Your prepared testimony will appear in the record in its entirety. If you would like to summarize it any way you are comfortable. And we will start with Mr. Precht.
STATEMENT OF PAUL PRECHT, POLICY COORDINATOR,
MEDICARE RIGHTS CENTER
*Mr. Precht. Chairman Stark, Ranking Member Camp, members of the health and oversight subcommittees, thank you for this opportunity to testify. I am Paul Precht, Deputy Policy Director for the Medicare Rights Center.
For the past two years, the staff and volunteer counselors at the Medicare Rights Center have been preoccupied with two types of cases: helping victims of deceptive, fraudulent, and abusive marketing by private Medicare plans; and helping people enrolled in those plans obtain coverage for their medical care and prescription drugs.
The subject of today's hearings, the oversight of private Medicare Advantage plans by the Centers for Medicare and Medicaid Services, goes to the heart of this work. In short, the laxer CMS's oversight of these MA plans is, the more problems we see. The looser the rules CMS sets for MA and drug plans, the harder it is for our clients to get the medical care they need.
Earlier today, GAO reported how CMS had failed to conduct the audits of MA plans mandated by law, and when it did audit plans, failed to recoup subsidies that the audits showed should have funded additional benefits for plan members. In my testimony, I would like to touch on three different aspects of CMS's oversight of MA plans: CMS's review of plan benefit packages, CMS's review of the plan appeals and grievance procedures, and CMS oversight and enforcement of marketing guidelines.
MA plans and private fee-for-service plans in particular are being marketing as low cost alternatives to supplemental insurance, yet they often fail to provide the protection against catastrophic medical expenses that people receive under any of the standard supplemental Medigap plans. Individuals who enroll in Medicare Advantage plans cannot purchase supplemental coverage to cover the gaps in the benefits like they can under original Medicare.
Health insurance that works when you are healthy but cuts out when you are sick is not what Medicare has offered for over 40 years. In my written testimony, I describe how a client of ours from Long Island was hit with $3,000 in copays from her Medicare Advantage plan for the treatment of ovarian cancer after she had been told before enrolling that all of the costs associated with her chemotherapy would be covered.
Unfortunately, our review of the benefit packages offered by MA plans shows that coverage of chemotherapy is one of a number of areas where plan coverage is often inadequate. Plans charge more for chemotherapy and other Part B drugs than the 20 percent coinsurance charged under original Medicare.
More commonly, plans carve out chemotherapy and the other Part B drugs from the annual caps they place on enrollees' out-of-pocket spending, if they have a cap at all. Some plans do both, charge more for chemotherapy and carve this service out of their out-of-pocket cap. In our view, these practices are unacceptable. They discriminate against people with cancer and other illnesses that require treatment with high cost drugs administered by their doctor.
CMS has the authority to prohibit such plan designs as discriminatory. Such plans continue to be approved by CMS, however, because the agency takes an overly restrictive view of its legal authority to prohibit discriminatory benefit packages. In 2004, MedPAC recommended that CMS exercise its full authority to reject plans that have benefit designs and cost-sharing structures that discriminate on the basis of health status. Still, CMS has not acted.
The Medicare Rights Center has a small team of lawyers and counselors who help people appeal when their private Medicare plan denies coverage for a drug or medical procedure they need. Often people come to us after they were stonewalled by their plan.
We know now, from a review of CMS audits of plan appeals and grievance procedures, that a failure to abide by the timelines, notice requirements, and procedures for appeals seems to be the rule, not the exception, among MA and drug plans. A full 94 percent of the plans audited failed to meet CMS requirements on handling appeals and grievances, requirements that are fundamental to ensuring that plan members know their appeal rights and can pursue them effectively.
For the benefits offered by MA plans to become real for people with Medicare, plan enrollees must actually be allowed to fill the prescriptions and obtain the medical services that they need. I began this testimony by recounting how one of our clients was charged high copayments for chemotherapy. The other aspect of the story, the false promise she received from plan representatives that her chemo would be covered, illustrates the deception that is too often used in the marketing of MA plans.
There are many much more egregious examples. Agents go door to door, pretending they are from Medicare. Agents threaten people under that pretense that they will lose their Medicare or Medicaid coverage if they do not sign up. Agents fraudulently obtain signatures for plan enrollment by having people sign up to receive more information, or for a raffle.
A CMS official recently told a conference of health plans that the reports of deceptive and fraudulent marketing were not abating, but were growing in intensity and volume. We know from the corrective action plans released by CMS that such marketing misconduct is widespread in large part because the Medicare advantage plans do not have the systems in place to prevent it. For example, audits consistently find that agents are inadequately trained and supervised and are not properly licensed.
Faced with the absence of these basic safeguards, CMS's response is to insist, at some future date listed in the corrective action plan, that the company actually do what is already required of it. The pattern is clear, whether it concerns marketing violations, denial of appeal rights, or the inflated bids discovered upon audit: The response by CMS is not to punish the plans for misbehavior, not to recover for taxpayers the money we have paid for services not delivered, but to wag their finger at the plans.
When oversight is lax and enforcement is absent, enrollees in Medicare Advantage plans are shortchanged on their benefits and their access to care is compromised. We applaud this committee for holding this hearing and urge you to do what you can to ensure that CMS makes all Medicare private plans play by the rules.
Thank you again for this opportunity.
[The statement of Mr. Precht follows:]
*Chairman Stark. Thank you.
STATEMENT OF HARRY HOTCHKISS, SENIOR PRODUCTS ACTUARIAL DIRECTOR, HUMANA INC., LOUISVILLE, KENTUCKY
*Mr. Hotchkiss. Chairman Stark, Chairman Lewis, Representative Camp, and distinguished members of the subcommittees, thank you for inviting me to testify about Humana's Medicare Advantage or MA bid process. As an actuarial director for senior products for Humana, my responsibility is limited to working on the team that develops and submits bids and responds to CMS MA bid audits.
Humana has served Medicare beneficiaries for many years. We currently offer prescription drug and MA plans in all states. Today I will discuss Humana's compliance with the regulatory requirements for bid submission following the enactment of the Medicare Modernization Act. My written testimony also describes how this worked prior to MMA.
The MMA changed the way plans develop and submit bids and how they determine the value of the premium and benefit structure for their MA plans. Humana has detailed structures and controls in place to meet bidding, process, and audit requirements.
The MMA changed the timing and submission rules for premium and benefit filings. CMS's 45-day notice of rates comes out in mid-February, and the final rate book containing the benchmarks comes out the first Monday in April. CMS issues bid instructions soon after, and bids are due the first Monday in June.
As you can see from this chart off to my right, we begin our bid and pricing modeling in January. The bids represent Humana's expected average cost for the Medicare-covered benefits for each plan. The expected average costs for Medicare-covered benefits are then compared to the CMS MA benchmark. If the plan's bid is below the benchmark, the plan must use 75 percent of the savings to increase members' benefits, decrease members' premiums, or cost-sharing. The remaining 25 percent of savings is returned to the federal treasury.
Bids are completed by the first week of May and are peer-reviewed by a team of internal qualified actuaries. Revisions are made, and bids are then processed through an internal audit program that checks for outliers based on preestablished parameters.
CMS uses a similar process. Each outlier is reviewed, and adjustments are made where necessary. We then develop the actual documentation required by CMS, including two-year look-back claim cost forms. We upload this information to CMS's system by the filing deadline. We then correct any discrepancies identified by CMS in their validation tests. By mid-June, we submit actuarial bid certifications.
For the next 45 days, CMS's audit firms conduct a thorough review of all bids and benefit packages. When issues arise, we generally respond within 48 hours. The auditors sign off on our bids. In mid-August, CMS releases the final PDP and RPPO benchmarks. We reconcile these final benchmarks with our earlier expected benchmarks and resubmit affected bids. In early September, CMS approves our bids.
CMS's auditors then evaluate the reasonableness and consistency of our assumptions with applicable actuarial standards of practice and CMS's instructions for completing the bid forms. Auditors conduct a desk audit, followed by a one-week onsite visit. We then respond to an initial draft of their findings and/or observations. Auditors then issue a final agree/disagree letter, to which we provide a final response.
For contract year 2006, CMS audited two contracts, resulting in no material findings. For contract year 2007, CMS audited two contracts, yielding one finding and two observations. We inadvertently used a rate development factor for provider expenses that didn't reflect all provider reimbursement structures for the plans. This resulted in beneficiaries in the two affected plans receiving a slightly better benefit. For 2008, we improved our methodologies based on this finding.
As you evaluate improving this process, we respectfully suggest that final audit reports be issued in March of the contract year in order to impact the following year's bids. Humana has mechanisms and controls in place to internally and externally audit our processes to comply with statutory, regulatory, and contractual MA program requirements.
My written testimony also describes actions related to other areas of the MA program, including corrective action plans and site audits. I am part of the bid and audit team, and our processes are vigorous in all areas.
We take seriously the trust that the government has placed in us to offer coverage to Medicare beneficiaries and understand the vulnerability of this population. We seek to cure any issues brought to our attention, whether by external or internal sources. Thank you.
[The statement of Mr. Hotchkiss follows:]
*Chairman Stark. Thank you.
STATEMENT OF CINDY POLICH, SENIOR VICE PRESIDENT, SECURE HORIZONS, UNITEDHEALTH GROUP, MINNEAPOLIS, MINNESOTA
*Ms. Polich. Thank you, Mr. Chairman, and thank you to the committees for giving me an opportunity to testify today. I am Cindy Polich, Senior Vice President of Secure Horizons, which is a part of UnitedHealth Group, and I help lead the company's efforts in the areas of geriatric health and long-term care.
I have spent the last three decades working in the field of managed care and aging, am co-author of a book called "Managing Health Care for the Elderly,'' which has been used as a college textbook, and I have done extensive research and teaching in gerontology and health care.
At UnitedHealth Group, we take our role as partner with the Federal Government very seriously. We are committed to working with Congress and regulators to make sure that CMS has the information interest needs to provide timely, impartial, and effective oversight.
Our participation in the Medicare program is fundamental to UnitedHealth Group's mission: to support the health and well-being of individuals, families, and communities. We are proud to serve the 1.3 million members who have chosen our Medicare Advantage plans. These plans provide integrated benefits, enhanced coverage, lower out-of-pocket costs, and coordinated care.
Medicare Advantage plans are a health care success story for millions of Americans. Fully 90 percent of Medicare Advantage beneficiaries say they are satisfied with their coverage. We also know that over the past four years, the paid pace of change in the Medicare program has created a steep learning curve for insurers, for regulators, and for beneficiaries alike. However, we believe that the new bidding and oversight provisions that recently took effect should greatly improve the ability of CMS to audit and monitor plans effectively.
The recent GAO report focused largely on CMS auditing of the old adjusted community rate process, a process that no longer exists. The new bid process that went into effect in 2006 is a significant improvement. While the old process was based on the costs and assumptions for a plan's commercial business, the new bid process is focused specifically on Medicare. It is more in line with the way the business is actually managed, which means that CMS will now have more relevant processes and data to audit. Also new in 2006 was a requirement for actuarial certification of bids before they are submitted to CMS. This provides a higher level of rigor in bid development.
CMS also has an important role in operational oversight. We take a diligent and aggressive approach to implementing any action plan that is requested by and developed with the agency. Often we find that issues raised by CMS already have been identified through our own internal audit process and work to implement improvements is already well underway.
UnitedHealth Group is also a strong supporter of rigorous oversight of the sales and distribution of Medicare Advantage products, particularly private fee-for-service plans. That is why we backed CMS and the industry this summer in accelerating adoption of marketing guidelines that had been planned for 2008.
Medicare Advantage was created in part to give Medicare beneficiaries additional health coverage choices because all of us understand that a one-size-fits-all approach cannot possibly meet the needs, the individual needs, of every Medicare beneficiary.
Medicare Advantage plans provide benefits that do go beyond original Medicare and Medicare supplement. These benefits can include integrated prescription drug coverage at no additional cost, preventive and wellness services, vision and hearing benefits, and caregiver support.
Moreover, Medicare Advantage plans can cover all of a person's health care needs in one integrated benefit package. This means more than just convenience. It means better health. Medicare Advantage plans encourage members to access primary and preventive care, which reduces acute episodes and hospitalization, providing better outcomes at lower costs.
An integrated benefit plan reduces fragmentation that can occur when a patient has multiple chronic conditions and multiple health care providers. This integration allows for better coordination and attention to individual needs across the continuum of care.
Medicare Advantage plan sponsors have pioneered care and disease management programs to support managers with serious chronic conditions and who are nearing end of life. Besides providing great value to the individuals who need them, these programs are also critical to the long-term financial health of Medicare, since 20 percent of beneficiaries with five or more chronic conditions consume more than two-thirds of Medicare spending.
At UnitedHealth Group, we believe that smart and effective government regulation is good for beneficiaries, and we firmly believe that what is good for beneficiaries will be good for our company as well. We are committed to continuing to work in cooperation and in a collaborative manner with CMS and all Members of Congress to further this goal.
[The statement of Ms. Polich follows:]
*Chairman Stark. Thank you.
STATEMENT OF BART ASNER, M.D., CHIEF EXECUTIVE OFFICER, MONARCH HEALTHCARE, IRVINE, CALIFORNIA
*Dr. Asner. Thank you, Mr. Stark. My name is Dr. Bart Asner, and I am privileged to testify before this committee today. I am here representing CAPG, the California Association of Physician Groups, a trade association comprised of 150 medical groups in California who provide coordinated health care services to 12 million Californians, including 1.4 million Medicare Advantage beneficiaries.
I am also the chief executive officer of Monarch Healthcare, a medical group in Orange County, California, which provides care for 175,000 patients, of whom 27,000 are Medicare Advantage beneficiaries. Monarch Healthcare physicians have real-life experience in taking care of these patients, many of whom are fragile, vulnerable seniors.
Let me first state that oversight of health plans is correct and appropriate. I am not here to defend or criticize CMS in its audit function, but rather to defend the Medicare Advantage program by providing a contrast between the episodic, disorganized care in traditional Medicare and the comprehensive, coordinated care in Medicare Advantage.
Critics of the Medicare Advantage program have used this GAO report as proof that Medicare Advantage plans are not using the money they receive to provide additional benefits to seniors. I am here today to say that this couldn't be further from the truth.
Seniors in California choose to join Medicare Advantage, such that in many areas, as Mr. Stark has alluded, 40 to 50 percent of seniors have enrolled in these programs and satisfaction is high. Enormous challenges lie ahead as the baby boomers age and enter the Medicare system, coupled with the rising rate of chronic illness such as diabetes and heart disease. Medicare Advantage can and will address this challenge in California by having built the infrastructure to care for these patients.
Medicare Advantage provides seniors with greater value, in both economic and human terms, when compared to Medicare fee-for-service. The true value of Medicare Advantage is evident and realized in enhanced benefits, additional services, better quality care, and at a lower total cost to our senior citizens.
Medicare Advantage plans provide additional benefits to our patients, including vision, dental, podiatry, chiropractic, and, very importantly, coverage of the doughnut hole in the drug benefit. Everyone deserves these benefits. For the many low income beneficiaries in our programs, these services are vital to their health and well-being.
Much has been made of the difference in the cost to the government of Medicare Advantage versus traditional Medicare. In fairness, one should consider the cost to the beneficiary as well. When the costs to the beneficiary of coinsurance, Medigap coverage, and non-covered drugs are taken into account, the true cost of Medicare Advantage is less than traditional Medicare. In addition, this lower cost to the beneficiary promotes better access to health care services.
The value proposition for Medicare Advantage is lower total program costs coupled with superior quality, as I will explain. Medicare Advantage beneficiaries receive comprehensive care under our model in California. Many seniors are frail elderly with chronic illnesses who are confused by the complexity of the health care system. Under Medicare Advantage, California physician groups provide care coordination programs to guide these patients through the health care system and ensure that they receive the right care at the right time in the right setting.
We employ experienced nurse care managers to work with these seniors in both the inpatient and outpatient setting to be certain that they do not fall through the cracks that inevitably arise as patients move from doctor to doctor and from inpatient to outpatient settings. We employ hospitalist physicians who provide high quality, consistent care to patients in the hospital and skilled nursing facilities, as well as staff in clinics for the high-risk patients transitioning to the outpatient setting.
Monarch nurses provide case management services for our patients at high risk of complications to see that they receive the care that they need, such as specialist visits, medications, and durable medical equipment. We work with their primary physicians to offer disease management programs and other preventative services to keep people healthy.
Monarch has invested in and deploys technology unavailable to the individual physician in private practice to remind them of recommended preventative care, such as vaccinations, and of chronic illness patients who have not come to see them in their office.
Medical groups in California have made multi-million-dollar investments in disease registries, electronic health records, and technology to improve the care of our patients. Thanks to the aforementioned programs, additional resources, and investments in technology, the quality of care received by these patients is superior in Medicare Advantage.
It is difficult to be a physician today and to think beyond the immediate needs of the patient who is being seen in the examining room. Under Medicare Advantage, we manage the care of populations of patients, not merely the one-time episodic interactions of a patient and physician.
California physician groups participate in programs that measure quality and performance, and align the incentives of physicians with the goals of these programs. No comparable programs exist in traditional Medicare.
CMS has recently stated that it will no longer pay for volume, but must pay for value. Medicare Advantage programs in California provide that value. Let us together optimize health care quality at a cost our nation can afford for these deserving seniors through the Medicare Advantage program. CAPG and its members urge Congress to consider both the true economic performance of Medicare Advantage as well as the superior care this program provides to enhance the health and well-being of our nation's seniors. Thank you.
[The statement of Dr. Asner follows:]
*Chairman Stark. Thank you.
Mr. Hotchkiss, how many beneficiaries does Humana have altogether?
*Mr. Hotchkiss. We have 1.1 million MA members and 3.4 million PDP members.
*Chairman Stark. 3.4 million what?
*Mr. Hotchkiss. 1.1 million MA members and 3.4 million PDP members.
*Chairman Stark. PDP?
*Mr. Hotchkiss. Prescription drug plan.
*Chairman Stark. For a total of 4-1/2 million?
*Mr. Hotchkiss. 4.5 million.
*Chairman Stark. And out of your $500 million in profit in 2006, how much of that profit came from managed care, Medicare Advantage?
*Mr. Hotchkiss. I don't have that information.
*Chairman Stark. Why?
*Mr. Hotchkiss. I do know that when we develop our MA plans, we target a 5 percent profit margin. And for -- just a moment please -- for 2006, our profit was 2.9 percent, and in the first half of 2007 it was 2.4 percent.
*Chairman Stark. It grew from 300 million to 500 million from 2005 to 2006. So could you get me the figures as to how much of the 500 million in 2006 came from Medicare Advantage and how much came from the -- somebody behind you is shaking their head.
*Mr. Hotchkiss. I will follow up.
*Chairman Stark. Will you? I would like to have it.
There was a statement made by some analyst or another that your loss ratio in the unmanaged private fee-for-service plans is 150 basis points better than it is in traditional products. That would indicate that not all of the additional reimbursement you are getting goes for additional benefits. Would you agree?
*Mr. Hotchkiss. I don't have access to that or I haven't seen that report. I would like to see it before I respond to it.
*Chairman Stark. Would you see whether you could? Because if that is correct, this would indicate that you are paying for fewer additional benefits in the Medicare Advantage plans, wouldn't it?
*Mr. Hotchkiss. I still need to read the reports, Mr. Chairman.
*Chairman Stark. Okay. I will see that you get it.
*Mr. Hotchkiss. Thank you.
*Chairman Stark. Ms. Polich, you have got a million three Medicare Advantage beneficiaries. Correct?
*Ms. Polich. That is correct.
*Chairman Stark. How many total beneficiaries in UnitedHealth? All plans?
*Ms. Polich. Actually, I am not sure what the total number is, including the commercial business. But I can get you that information.
*Chairman Stark. Can you make a guess? Five million? Six million?
*Ms. Polich. Oh, more than that. We have 1.3 million Medicare Advantage members. We have over 5 million Part D prescription drug members. We also serve a large number of Medicare supplement --
*Chairman Stark. How many do you have in AARP? You must have millions there. Right?
*Ms. Polich. With the Part D?
*Chairman Stark. With AARP's plan.
*Ms. Polich. With the Part D, the prescription drug plan?
*Chairman Stark. The supplemental --
*Ms. Polich. Oh, the Medicare supplement? Also have millions of members inform Medicare supplement. But I can get you the exact figures.
*Chairman Stark. What was your total profit in the last, what, 2006? Do you know?
*Ms. Polich. I don't have that information with me. But again, I can take that question and get back to you.
*Chairman Stark. Make a guess. You must have heard.
*Ms. Polich. Again, I --
*Chairman Stark. They don't post it on the wall when you come into the lobby?
*Ms. Polich. No. Actually, we don't.
*Chairman Stark. Gee. Well, that would be of some interest to us. Let me suggest this to you. It has been announced by AARP and you that you all are going to underwrite a Medicare Advantage plan that will be sold through AARP. You are aware of that?
*Ms. Polich. We have a partnership with AARP around Medicare Advantage starting in 2008.
*Chairman Stark. Right. And AARP tells us that they are not going to sell that for more than 100 percent of fee-for-service. Now, why then, if a great company like yours, through the marketing arm of a great institution like AARP, is going to offer all of us AARP members a Medicare Advantage plan at what I would call par, at no more than 100 percent of the cost for fee-for-service, why shouldn't you do that for the rest of your Medicare advantage plans?
*Ms. Polich. Actually, I am not familiar with that comment from AARP, so I really can't --
*Chairman Stark. It was made to me. I challenged them on it, and they swore to God that they weren't going to charge us more than 100 percent of fee-for-service. So if they can do it, I would suspect it is really you doing it. So we ought not to pay you -- the taxpayers then ought not to pay you any more than us AARP members pay you, do you think?
*Ms. Polich. Well, Mr. Chairman, I am not familiar and can't really comment on AARP's position on that. But I would say that we continue to believe that steep and rapid cuts in Medicare Advantage funding would harm beneficiaries.
*Chairman Stark. No. It would harm stockholders. Beneficiaries still get the same benefits by law. It just might cut the stockholders a little bit. But we are not in the business here of protecting your stockholders.
One other question. In the marketing of all of your plans, of the -- let's guess, there are 5 or 10 million of your beneficiaries over and above the 1.3 million Medicare Advantage, in every instance the marketing of those plans is controlled or under the auspices of one or another state insurance commissioner, are they not?
*Ms. Polich. The Medicare supplement.
*Chairman Stark. Every plan you sell other than Medicare Advantage is under the auspices of one of the 50 insurance commissioners in the states that you operate. Isn't that the case?
*Ms. Polich. I know they have some authority over many of our products, yes.
*Chairman Stark. All of your products. Can you think of a product other than Medicare Advantage that isn't subject to the rules of state insurance commissioners?
*Ms. Polich. Yes. I don't believe the Part D plans are, either.
*Chairman Stark. Stipulated. Good idea. That is one of the other problems we have.
Is there any reason that your sales people, as long as you are obeying the laws of the State of California or the State of Michigan or the State of Georgia, shouldn't obey those rules -- sales people, now -- in regard to marketing of Medicare Advantage plans?
*Ms. Polich. We absolutely share your concern around marketing and sales abuses and --
*Chairman Stark. No. But would you be willing to have the state insurance commissioners regulate them as they do now for all your other products?
*Ms. Polich. We believe that the states have absolutely a role in overseeing the sales and marketing practices. However, I would also say --
*Chairman Stark. I will take that as a tentative yes subject to your boss's approval. All right?
*Ms. Polich. I would also say that Medicare is a federal program and really needs to be overseen at a federal level. And we are also concerned about consistency of the oversight across all of our geography.
*Chairman Stark. How about Humana? All your other insurance products are subject to state insurance commissioners.
*Mr. Hotchkiss. We have the same position, that we have concerns that there would be inconsistency among the states.
*Chairman Stark. There is now, isn't there, for all your other --
*Mr. Hotchkiss. No. We would be concerned that -- you know, it is a federal program -- that there would be inconsistencies if it was --
*Chairman Stark. I am just talking about the sales people, you know, things like telling the truth, that sort of thing. All of whoever sells -- brokers or agents who sell your plans now, with the exception of D, as Ms. Polich has so correctly informed me, and Medicare Advantage, are subject to regulation by state insurance commissioners, are they not?
*Mr. Hotchkiss. Yes.
*Chairman Stark. Why then couldn't they regulate all of it, and then we might not have these problems of rogue agents going off, which bother you, I am sure, as much as they bother me, don't they? You don't want that.
*Mr. Hotchkiss. Well, they bother Humana. But in all fairness, sir, I am an actuarial director, and that is really outside the scope of my expertise. So I would prefer to respond in writing.
*Chairman Stark. Okay. But just as a guy in the insurance business in general, isn't it better for the reputation of Humana to have good agents, honest agents, representing you?
*Mr. Hotchkiss. Absolutely.
*Chairman Stark. There you go. And they already do, don't they?
*Mr. Hotchkiss. Yes.
*Chairman Stark. Except for Medicare Advantage and Part D. And I am just suggesting that if you can have three-quarters of your business regulated by state insurance commissioners, why not the other quarter? And then you would only have one -- you wouldn't have to fuss with us. You would get all that federal regulation off your back. Sounds like, on your way to becoming executive vice president of the whole company, that it would be a good decision, wouldn't it? I will tell the board of directors --
*Mr. Hotchkiss. Again, it is outside the scope of my expertise.
*Chairman Stark. I will tell the board of directors how perspicacious you are in this, and that may help.
Mr. Camp, I am going to suggest that we have another ten minutes before we have to vote.
*Mr. Camp. All right.
*Chairman Stark. I am going to have to ask the witnesses, if they would mind, I will probably recess us till the end of a series of votes, which may take us as many as 45 minutes, and urge you to get some lunch or stretch, seventh inning stretch.
*Mr. Camp. Well, thank you, Mr. Chairman. I want to thank the witnesses for coming. I appreciate your testimony very much as we try to understand these issues.
Dr. Asner, I understand in the California Association of Physicians Groups, there are about 59,000 physicians in that organization. And you outlined some of the additional -- well, you treat both Medicare beneficiaries as well as those enrolled in Medicare Advantage.
*Dr. Asner. That is correct.
*Mr. Camp. And I appreciate that you outlined some of the additional benefits that are provided to seniors in Medicare Advantage. And you mentioned vision, dental, podiatry, covering the doughnut hole; also, more importantly, I think some of the disease management, prevention, as well as the coordination of care. And it is a very difficult thing to have multiple conditions and to deal with those in a hospital setting, going from physician to physician, group to group, in some cases.
Now, earlier this year the House passed a bill that would have slashed Medicare Advantage payments by $157 billion. And what sort of impact do you think that would have on the patients who rely on Medicare Advantage and the doctors who care for those patients?
*Dr. Asner. If there were cuts of that magnitude in Medicare Advantage, that would undo the entire infrastructure that we have built up in California to care for these patients.
The investments we have made and continue to make in information technology to identify these patients, to identify them for their physicians, to give the physicians the information they need to better care for them, the coordination programs we have put in place which require a number of highly skilled nurses, the hospitalist program that I described to you, which are inpatient specialists who care for these patients in a coordinated fashion -- it would be devastating to our ability as physicians to take care of these patients in the coordinated fashion that they deserve.
It would, in fact, move us back to what was a traditional fee-for-service mode of care for patients, and our physicians all say that that would be detrimental to their patients. Our physicians care, as you said, for both the fee-for-service patient and the coordinated care patient. These patients who are sick, frail, elderly, need that care coordination. Our physicians know that, and I think you need to understand that as well.
*Mr. Camp. You also mentioned and I commend you for the advances you have made in health IT, electronic medical records, and quality measures. Now, we have often heard that if we could just use electronic medical records, that alone would reduce the number of medical mistakes, this new technology.
With the compilation of the quality measures that you have seen in your practice, are there advances being made as a result of the technological changes that you have been able to make?
*Dr. Asner. Absolutely. The Integrated Healthcare Association in California has been the organization that has come forth with the pay-for-performance program, which is emulated across the country. And their most recent data show that there is a clear correlation between improvement in clinical care and the use of electronic health records and technology. So there is definitely a linkage between those two.
*Mr. Camp. All right. And Ms. Polich, you mentioned in your testimony a recommendation for improving the audit process, to reflect the methodology for developing Medicare Advantage bids across the range of company plans.
Can you explain this recommendation a little bit further, please?
*Ms. Polich. Certainly. One of the things that we found in our audits, in the bid audits that we have had with CMS in the past on the ACR process, that many of the findings relate to the supporting documentation and approach that we take to making assumptions. Because of course a bid is always a forward-looking process. We have to make assumptions and forecasts based on what we think is going to happen.
And so much, I think, of how solid those bids are is a function of the methodology and approach you are taking to using past data, and the methodology that you have in creating assumptions. In my view, in our view, the extent to which CMS can work with us, which they have started doing in this new bid process, to help us get guidance and understand methodologically how plans are approaching the bids and these assumptions, would make for not only the submissions of the bids much more valuable and solid, but also make sure that there is consistency across a plan's bids and even across the industry.
*Mr. Camp. All right. Thank you very much. And again, I want to thank you all for being here. I appreciate your testimony very much.
Thank you, Mr. Chairman.
*Chairman Stark. Mr. Lewis?
*Chairman Lewis. Thank you very much, Mr. Chairman. And thank each of you for being here today.
Mr. Precht, is there an office in CMS that protects beneficiaries?
*Mr. Precht. There is the ombudsman's office, yes.
*Chairman Lewis. Should this office be independent?
*Mr. Precht. I believe that is the idea.
*Chairman Lewis. Well, should it be something like we have at the IRS, the taxpayer advocate, which is independent to the IRS? Shouldn't there be something within CMS?
*Mr. Precht. Well, I can only speak to my personal and our organization's experience with the ombudsman, and that is we had a couple of meetings with the ombudsman at the outset of 2006 when a lot of the problems surfaced around the new Medicare drug benefit.
And that is it, essentially. I have not -- and for whatever reason in terms of resolving particular problems, that has no longer been the channel. It has been more informal channels, going through the administrator's office. So I can't really speak to what that office does at this point in time.
*Chairman Lewis. Well, in Georgia, insurance agents are selling Medicare Advantage plans to the elderly when they are in the room alone. Have you ever heard of anything like this?
*Mr. Precht. Oh, yes. We have heard quite a bit of that. And unsolicited door-to-door sales are prohibited, but it happens anyways. And the other way that the plans get around it or the agents get around it is to essentially get an invitation. So somebody will call a plan and say, I would like to sign up for drug coverage, and they are told, you know, it would be better if we had somebody come and visit you.
Then that person comes and visits them and sells them an HMO or another Medicare Advantage product. And, you know, when we talked to CMS about this problem, they said, well, the agents want to go in the home because they have a higher closing rate.
*Chairman Lewis. Are there laws or regs that protect a beneficiary?
*Mr. Precht. Well, there are regulations that prohibit this door-knocking, and an agent that is found to do that can be fired from the plan. Theoretically, at least, CMS could punish the plan for the actions of its agents for conducting this.
In terms of the beneficiary themselves, the only protections they have is they -- and it is a difficult process, but they can get back into original Medicare and into the plan that they -- you know, after they have been fraudulently coerced into one of these plans.
*Chairman Lewis. We are running out of time here. Earlier in the hearing, the GAO reported that the Inspector General audited the 2001 payment to Humana's Medicare plan and questioned 10.5 million of this payment. These amounts were not refunded to Medicare.
Are there any plans to refund this or maybe to make it available to the beneficiary or to cover co-payments or premiums? What do you plan to do with the overpayment?
*Mr. Hotchkiss. Well, Mr. Chairman, Humana received a letter from CMS in December of 2006 --
*Chairman Lewis. But you didn't refund it. Right?
*Mr. Hotchkiss. No. CMS stated that we did not have to refund any money because we filed our --
*Chairman Lewis. Oh, they told you to just keep it?
*Mr. Hotchkiss. We did not file -- we filed our BIPA ACRs consistent with the instructions that we received from CMS in January of 2001.
*Chairman Lewis. Thank you.
*Chairman Stark. We have about four or five minutes till the votes. They will be about 30 minutes anyway. So why don't we just say that we will come back around 1:30 or immediately after the fourth or fifth vote, however many there are. And I hope the witnesses will bear with us till that time.
The committee will be in recess.
*Chairman Stark. If we can find our patient and accommodating witnesses, we would ask them to come back to the table. I hope you all had a great lunch.
Mr. Hulshof, it looks like it is your turn.
*Mr. Hulshof. Thank you, Mr. Chairman. First of all, I appreciate you having us come back to continue questions. And I know this will be a bit disjointed in the sense that we had some ebb and flow of questions before. And so let me sort of resurrect a couple of those issues.
And one of the questions I think perhaps put to the panel by the chairman, or maybe someone else, regarded this idea of regulation at the federal level vis-a-vis regulation by individual states. And I think that, Mr. Chairman, the Federal Employee Health Benefit Plan, the system that Members of Congress enjoy, is a federally regulated set of plans, not at the state level.
*Chairman Stark. That is right.
*Mr. Hulshof. And I think -- also correct me; I will turn to the witnesses, Mr. Hotchkiss and Ms. Polich in particular. I believe that on the fee-for-service plans, that state insurers and regulators really play little to no role in those plans. Is that true, Mr. Hotchkiss, if you know? I know you are an actuary, and maybe that is beyond your expertise.
*Mr. Hotchkiss. Cindy, do you want to --
*Chairman Stark. Ms. Polich?
*Ms. Polich. Sure. So the question was private fee-for-service and the regulation of sales and marketing practices?
*Mr. Hulshof. Correct.
*Ms. Polich. Actually, the states do have a role in overseeing. We work very closely with the states in terms of our -- you know, understanding what brokers are appointed, and if in fact we need to terminate brokers, to notify the states.
*Mr. Hulshof. But in regards to the Federal Employee Health Benefit Plan --
*Ms. Polich. Oh, you are right. Absolutely. That is correct.
*Mr. Hulshof. Absolutely what?
*Ms. Polich. Oh, that that is not regulated -- that is a federally regulated program. Yes.
*Mr. Hulshof. Okay. I just wanted to make sure that we heard from someone that is an expert in the field.
Regarding that expertise, Mr. Hotchkiss, I also understand as the chief actuary, and you have been asked some questions maybe beyond that bounds of expertise, but I wanted to focus on a question that you responded to to make sure I got that answer correctly.
And one question that you weren't allowed to respond: Ideally, when you are putting a package out for bid -- which is in fact a binding contract once the bid is out and it is accepted by a beneficiary; correct?
*Mr. Hotchkiss. Right.
*Mr. Hulshof. That ideally your company says, we would like to have a 5 percent return on our investment, a 5 percent profit. But I thought you said that for Medicare advantage in the year 2006, that you were significantly less than that, less than 3 percent. Is that true?
*Mr. Hotchkiss. Correct. Yes. In 2006, we had a pre-tax profit of 2.9. And for the first half of 2007 it is 2.4 percent,
*Mr. Hulshof. 2.4 percent extrapolated for the entire year or for just that --
*Mr. Hotchkiss. No. Just the first half of the year.
*Mr. Hulshof. Okay. Well, let me get to -- and again, I welcome all of you here, but especially Mr. Hotchkiss and Ms. Polich. You may have felt like you were being led into the lion's den, and I know that at least during the previous panel -- and I know that there has been some period of time, and members have other commitments, but some of the members that were quite outspoken.
And so let me take the persona of maybe a colleague of mine who spoke earlier and pick on you, Ms. Polich.
*Ms. Polich. Okay.
*Mr. Hulshof. You are an executive, are you not, with UnitedHealth Group business?
*Ms. Polich. Yes.
*Mr. Hulshof. And even though you say that you have spent three decades working in the field of gerontology, even though you have co-authored a book, even though you have done extensive research and teaching in gerontology and aging, and even though you have helped lead your company's efforts in this area, the fact is you really just are about gouging seniors. You have executives that are over-compensated. The private sector really has no business in the Medicare field at all. And the only needs that you intend to serve are those not of your patients, but of those shareholders and the stock price, as one of my colleagues mentioned.
How dare you come here and say that you actually care about seniors?
*Ms. Polich. The reason I can say that is because I have spent three decades caring for seniors. I am a gerontologist by training. I work, and the work that I do is all geared toward trying to improve the way in which we care for seniors, and making sure that Medicare is a program that not only today serves seniors well, but is there forever to serve seniors in the future. You know, that is why I work. That is why I get up in the morning. And that is my personal mission.
*Mr. Hulshof. Thank you for that. And my facetious question, and you took it in the spirit it was given, is that, Mr. Chairman, my fear -- it is entirely appropriate that we have oversight, and we should have aggressive oversight. That is our constitutional role. Every taxpayer deserves to have his or her tax dollars spent in the most positive fashion possible.
And yet I think sometimes we talk past one another, and that there are too many political speeches and ideologies. Because I take your answer, Ms. Polich and Mr. Hotchkiss -- and Mr. Precht, you have done a good job in your industry, and obviously, Dr. Asner, you are on the front lines caring for patients.
And I think too often we get caught up in the rhetoric of trying to condemn the private sector or a particular company and forget the fact that our primary role for Medicare is to make sure that patients live longer, healthier lives. And if Medicare Advantage can accomplish that, Dr. Asner, as you have so eloquently stated, then why would we be so insistent on doing harm to a program that does good?
Thank you, Mr. Chairman.
*Chairman Stark. Thank you.
Do you have any further questions?
*Chairman Lewis. No. I don't want to get involved in a debate with my friend from Missouri who is such a wonderful friend. But I must tell you, there is an old saying that the road to hell is paved with good intentions. And, you know, good people sometimes go off track, and good people can do bad things. I think we have an obligation to engage in oversight.
*Mr. Hulshof. Would my friend yield?
*Chairman Lewis. Pleased to yield.
*Mr. Hulshof. I absolutely agree with you, Mr. Chairman. I do. And the oversight function -- again, I appreciate the fact we have a joint hearing here because I am not privileged to serve on the oversight subcommittee, but I am with Mr. Stark's committee on health. And I think it is good that we have these joint hearings so that, in effect, the oversight and health committees can have the opportunity.
And I think tough questions are appropriate. Some good tough questions have been asked today of this panel and other panels. But I would say to my friend from Georgia, in our effort to provide that good quality care -- and the chairman of the health subcommittee stated it, and I appreciate his acknowledgment that many of these plans are providing very good, beneficial services and benefits.
Now, the question then of the overpayments is a fair question. But to tar and feather or to say because you work for a particular industry, or in this case, as has been stated, and I don't want to mention the gentleman's name earlier, but to call out by name certain companies and to insinuate that those health care professionals who have come here today somehow are more interested in the almighty dollar than they are about the health care of the people that they serve, I think is not constructive.
And that was my only comment. Thank you for yielding.
*Chairman Stark. It is your turn.
*Chairman Lewis. I yield back, Mr. Chairman.
*Chairman Stark. I would just say to all my friends on the committee and the witnesses, the issue here before us came up basically as one governmental agency, GAO, criticizing another governmental agency -- not the industry, not us -- for not performing a series of audits according to a law which was written actually by the minority.
In other words, there was a requirement in the beginning of these plans that the bids be audited, and there was some suggestion -- and it is pretty arcane. As they said earlier, it is not a financial audit to determine the integrity of their assets.
But there was some feeling that there were several companies that had received 5, $10 million to which the rules didn't entitle them; maybe that is the way to say it -- and that there had been no effort, perhaps because there was a disagreement as to whether they were legally required to collect the money back.
And it may be that the law is confusing as to whether they owe the money. But it seemed to us that in the light of the GAO report, that we ought not to find out, one, can we clarify those rules? Will the audits find out information that will help us determine not whether there should be Medicare Advantage plans -- I think that is a given -- but what is a fair rate to pay them, both from their standpoint and their ability to provide the benefits, earn a profit, if that is -- or a margin for expansion; if they are not for profit, give the taxpayers a fair price for their dollars.
I think to assert that there is any other agenda here would not necessarily be the case. And I would hope that we will have better cooperation between GAO and CMS. And if there is a requirement that we legislate or review the legislation, I hope that we could do that. It hardly seems partisan.
In other words, if there is something confusing in the laws now, I think we could sit down and fit out what it ought to be. What is the best way for these audits to be conducted that is efficient, that doesn't create major inconvenience on the providers. And we ought to go ahead with that.
I was going to ask that either -- if I may at this time, and I would recognize others for a second round here. But Mr. Hotchkiss or Ms. Polich, I have been concerned that we are not clear or we are not informed -- we aren't -- and we have had some trouble getting this information as between what services are actually provided to patients or beneficiaries versus what are offered.
Now, in many cases I have heard proponents of an overpayment -- by overpayment, I don't mean that as a pejorative, but over the fee-for-service rate -- that that provides extra services. And the question, of course, is it access to extra services or is it actually paying for services provided?
So my question to both of you would be: Do you track internally what extra services are in fact provided to your Medicare Advantage beneficiaries? Mr. Hotchkiss, do you suppose you could come up with that information? I am not sure you have to now, but --
*Mr. Hotchkiss. Not at this time, but I would be more than happy to respond.
*Chairman Stark. But you would have the records, would you not?
*Mr. Hotchkiss. I think we would be able to supply the information.
*Chairman Stark. Would United have those, too, as far as you know?
*Ms. Polich. Yes. In most cases we do. We do have some supplemental services that, for example, may be part of a capitation rate to a physician group that we may not be able to track precisely. But yes. In general, yes.
*Chairman Stark. I think that, from my own -- it would be a lot easier for us to determine the value of the services offered and what we should pay if we had some idea of what were used and what were just offered. So that is an area which I would like more information. And we are not getting it now, routinely at least.
Mr. Camp, did you want to --
*Mr. Camp. Mr. Tiberi has not had a first round yet.
*Chairman Stark. I am sorry.
*Mr. Tiberi. Mr. Chairman, thank you.
*Chairman Stark. Mr. Tiberi, dive in. You go right ahead.
*Mr. Tiberi. Thank you. I apologize I didn't get here sooner after votes. I got stopped along the way. I apologize I didn't hear your opening testimony.
But to the panel specifically, and my question is to the two plan participants who are here today, when we were debating and eventually passing the bill earlier this year in the House on SCHIP and where we had the Medicare Advantage cuts, my office, like I am sure most offices, received a number of calls and e-mails and letters from participants, Medicare Advantage participants, in my congressional district. And some of those were generated by Medicare Advantage companies.
And so what I did is I took some of those calls and I called some of those folks who had sent letters and e-mails in. And to a person, I was shocked at the level of understanding and emotional commitment to the new Medicare Advantage plans.
Some of the people that I talked to, constituents -- one lady in particular stands out. She said, I used to work for the Federal Government. I used to work for Medicare. I was on Medicare for ten years. And now I am on a Medicare Advantage plan, and it is the best thing that has ever happened to me with respect to my health care. A pretty knowledgeable person with respect to Medicare and the way it worked.
Do you all -- and really in concert to the chairman's question -- do you all internally have a system in place, to the two plan participants here, that tracks either complaints or customer/client comments explaining how they feel about the program, pro or con?
*Ms. Polich. Yes. Yes, in fact, we do, both complaints that come in through our customer service as well as our physician offices, complaints that come in to us from external organizations, like state insurance commissioners or CMS. So we track all those complaints, follow up on them, track them, investigate them, and work very diligently to resolve them on behalf of our members.
*Mr. Tiberi. Just to follow up, and then I will go to the next participant, do you have any positive comments that come in? And why I am -- I know that people are speaking with their feet obviously by saying, I am going to choose your plan rather than these 20 other plans that may be offered to me. But do you have any other way of showing to you the quality customer assurance program or anything like that?
*Ms. Polich. Absolutely. I get letters, and actually, this is part of what really motivates me every day, is I get letters from members all the time telling me about how their membership in Secure Horizons plans have saved their life -- the money that they have saved, the quality of care that they have gotten.
So yes, we do get positive feedback, which is always greatly appreciated. But also, as I say, we also have members that are having problems or concerns, and we take those very seriously as well.
*Mr. Tiberi. Mr. Hotchkiss?
*Mr. Hotchkiss. I would have to agree with what she has said, that we do have policies in place that focus on customer satisfaction. Good or bad, we follow up. So I think in general, Humana does a strong job of following up with the customer.
*Mr. Tiberi. Do both of you have any idea what percentage of beneficiaries that you represent were before on the fee-for-service program versus new participants to Medicare, meaning have switched? Like my mom and dad were on Medicare fee-for-service and switched to an Advantage plan, rather than maybe a person who is just qualifying for Medicare and went straight to a Medicare Advantage plan?
*Mr. Hotchkiss. I don't know the number that have switched over to an MA plan. But I know that the members that have switched over, 99 percent are still on that MA plan. So they are happy. They enjoy it. It is their choice, not ours, and they have chosen that MA plan.
*Mr. Tiberi. Same question.
*Ms. Polich. Yes. I could not give you the exact numbers, but we do surveys. And so I can take that question for the record around where our members are coming from. And the last data that I saw did suggest that there was a nice mix of members that are coming in from fee-for-service that are aging into the program, as well as those are switching from Medicare supplement or possibly another Medicare Advantage plan. So we see members coming from all of those areas.
*Mr. Tiberi. Thank you. Thank you, Mr. Chairman.
*Mr. Camp. Thank you, Mr. Chairman.
Dr. Asner, I appreciate the direction that your testimony took in evaluating the Medicare Advantage plans and actually comparing them to traditional fee-for-service, not just in terms of the cost to the Federal Government or the taxpayer, but the cost to the beneficiary, who often are taxpayers as well. And you mentioned a couple of factors.
Could you just sort of outline that for us again?
*Dr. Asner. Sure. I think when you look at this from the beneficiary's point of view, there are a number of factors that are savings for the beneficiary. As an example, the coinsurance that fee-for-service, traditional fee-for-service, Medicare beneficiaries have to pay is not an issue in Medicare Advantage. There are Medigap policies that they pay for as individuals. That is not an issue in Medicare Advantage as well.
And then in the drug benefit area, if you have traditional Medicare, there is an enormous doughnut hole that we all know about. And in Medicare Advantage, those drugs are covered for those beneficiaries in most cases. In addition, all of the programs that we are providing to coordinate the care of these patients don't exist in the traditional fee-for-service arena.
So they are getting enhanced benefits. We also talked earlier about the vision, the dental, the chiropractic benefits. These are benefits that don't exist for the traditional fee-for-service.
*Mr. Camp. Limits in out-of-pocket costs, for example, in Medicare Advantage programs?
*Dr. Asner. In our experience in California, the limits on out-of-pocket are lower than they are in traditional Medicare.
*Mr. Camp. The other point that you make, too, is the whole direction that medicine is taking, and that is to coordinate care, particularly as we see seniors having several chronic conditions. And you mentioned in your testimony the coordinating of medical and drug therapies, for example, as really bringing efficiencies to the system. And we talked earlier a little bit about health IT.
Could you elaborate on those just a bit?
*Dr. Asner. Well, let me tell you a story that maybe will illustrate this very well. I will tell you the story of an 88-year-old woman who was an Orange County patient visiting in Los Angeles. And she had a mild stroke, and got admitted to one of the finest institutions in Los Angeles.
She ended up seeing a cardiologist and a neurologist. The only problem was this was out of area, so it was in the fee-for-service realm that first day. They made rounds at 12:00 midnight and 12:00 noon, so they never talked to each other. She was put on a medication that actually could have been fatal for her.
We moved her back immediately to Orange County. She came into our coordinated system. She had the nurse care manager there. She had our hospitalist there. And they discovered this problem immediately, took her off that medicine, and frankly, probably saved her life.
And these are anecdotes, I am sure. But frankly, we see this all the time. The coordination, the intensity with what we pay attention to the needs of these patients, inpatient, outpatient, preventing them falling through the cracks as they leave the hospital and go home, these are huge, huge benefits to the beneficiaries.
When our patients leave the hospital, we know that they are going to sometimes forget to get their drugs, be confused, not get their equipment that they need. We have nurses who make sure by guiding them through that system, calling them to make sure that they are following through and getting those things.
That prevents these patients from getting sicker. It prevents them from having to be readmitted to the hospital. These are all very, very important issues. So that is what we mean by coordination of care. And it takes programs. It takes IT systems to know who these patients are and know what interventions need to be accomplished.
*Mr. Camp. Particularly, I think, when you see many seniors don't have a family member or advocate who can help them through really the intense administrative side of health care as well, especially as care gets more complicated. So I certainly appreciate your comments there. And I think it is something that we certainly want to look forward to.
I guess with that, Mr. Chairman, I appreciate your time. I think -- I would be happy to yield to you, or do you want your own time? I am done with my time, Mr. Chairman. I think Mr. Hulshof would like to question as well.
*Chairman Stark. Go ahead, Mr. Hulshof.
*Mr. Hulshof. Thank you, Mr. Chairman. I appreciate your generosity in allowing this time. And again, I appreciate some of the statements that you have made, Mr. Chairman, about trying to focus. I mean, when you consider the number of senior citizens that now depend upon Medicare, when you look down the road not that much further, I mean, the number of senior citizens that will be dependent upon Medicare is going to be a staggering number, nearly 78 million. And we are living longer, which is a good thing. Thank you, Dr. Asner, on behalf of all medical people for helping make that happen.
And I guess I have kind of a Pollyanna-ish point of view about Medicare, is that if we can focus on the quality of the health care provided to the beneficiary, not only is the senior citizen going to be in better personal health, but the system itself is going to be in better financial health. And so that is why, in a bipartisan way, we focus on wellness, and prevention, and early screening for colorectal cancer, and a host of other things.
Along that line, Dr. Asner, here is my question. Last year Congress passed a bill that implemented a program that actually would provide physicians with a bonus payment, if you will, if physicians reported some quality measures to CMS. Personally, I thought this was a good first step because if we are going to go -- if we go in the direction of pay for performance, this was one of the ways to do that.
Now, that is my point of view, and I know there are differing points of view. But for instance, an earlier bill that we considered here on this committee repealed that provision. In your view, is repealing that bonus payment to report quality initiatives, is that good thing to repeal it? Or should we maybe rethink that in the future?
*Dr. Asner. I would strongly encourage you to continue the pay for performance program in fee-for-service Medicare.
*Mr. Hulshof. Why?
*Dr. Asner. There is no question in my mind that you need to have physicians paying attention, especially in the fee-for-service arena, to quality metrics. The initial step is to tell them what they need to be measured on and then have them report on that, which is what has begun.
And those metrics have actually taken hold. I actually sit on a committee that works with the AMA to help them understand California's expertise in this area. And as I said earlier, measurement of these metrics does improve performance. We have seen that in California. We have seen the clinical improvements.
So I do believe that we need to do that. There is much more of a challenge in fee-for-service Medicare because the individual physician doesn't have the systems in his or her office to even do the reporting. You ought to ask the question about how many physicians were reporting. The numbers are not as high as they should have been.
And it is not the fault of the physicians. It is really a problem with the system. It is difficult to report on these types of metrics off of your paper charts and your office computer. Most of the offices aren't set up for that.
In California, we have invested in the type of technology and infrastructure to report on our metrics. But again, those are the IT investments that I talk about that medical groups have made. We need to have that everywhere in this country. We need individual physicians to be measured. Physicians don't mind being measured. Physicians have been measured their entire life. Through all of their schooling, they were measured and they got good grades. They want that. We can actually influence physician behavior. If we tell them what we expect of them, they will perform.
*Mr. Hulshof. Thank you, Mr. Chairman.
*Chairman Stark. Mr. Tiberi?
*Mr. Hulshof. Thank you, Mr. Chairman, for your indulgence.
One last question, Dr. Asner. I am convinced, in talking to my constituents and physicians, that there is a benefit to the Medicare Advantage program. However, the critics would say that it costs more money and it creates a higher unfunded liability in the Medicare system that, with baby boomers getting ready to retire, is going to create greater unfunded liability.
In your estimation, having dealt with both long-term, what is your sense of measuring Medicare Advantage costs long-term versus fee-for-service Medicare long-term going to do to the unfunded liabilities?
*Dr. Asner. Well, obviously I am not an economist. But I can tell you that there is no question that high quality care is cost-effective care. And as we approach the baby boomers coming in in 2011, I am very concerned about what that is going to do to our Medicare system if those patients don't have the benefits of Medicare Advantage.
If we don't focus on prevention, coordination of care, and quality care, I think the system will collapse under the economics that we will face in the future. I am not yet a senior citizen, but I am a baby boomer. When the time comes for me, I want to be in that system from a quality perspective. And I do know from our experience that that is the most cost-effective way to take care of patients and provide the best quality. And those two go hand in hand.
*Mr. Hulshof. But which?
*Dr. Asner. Medicare Advantage.
*Mr. Hulshof. Why?
*Dr. Asner. As I said, if you focus on prevention, then you are going to diminish the number of complications for patients with heart disease, diabetes, obesity. All of these are coming. And we focus on that. And at least 85 percent of the cost of the system is, as we heard earlier, in about 15 percent of the Medicare Advantage patients. And those are the patients with chronic disease.
We need to make sure we keep those people well, avoid complications, keep them out of the hospital. That we do in Medicare Advantage. In Medicare fee-for-service, the incentive is, frankly, pay for volume. The more you do as a physician, the more you get. That is not the incentive that we want to have in place as we have the baby boomers aging into Medicare.
*Mr. Hulshof. Thank you, sir.
*Chairman Stark. Mr. Precht, isn't it your understanding that most of the Medicare Advantage drug plans do not cover pharmaceuticals in the doughnut hole except for some inexpensive drugs? Is that not correct?
*Mr. Precht. That is correct.
*Chairman Stark. Okay. I just wanted to set that record straight, that it is a rare -- other than generics, there are very few plans that cover. That has been suggested several times that the case was otherwise, and set that record straight.
Dr. Asner, you refer in your testimony, and I don't know whether I think it is an error or cute, but that 90 percent of Medicare beneficiaries have access to a Medicare Advantage plan with a $2500 cap on out-of-pocket costs. And that might be a reference to regional PPOs. But fewer than one-half of one percent of Medicare Advantage beneficiaries actually are enrolled in that kind of plan.
So there is a world of difference between the 90 percent who have access to those plans and the half of one percent who are enrolled in them. And I just thought I -- from the standpoint of accuracy.
But there are different plans. And while most members in Medicare plans do not now have a cap on out-of-pocket costs, would you support a cap on out-of-pocket costs for all plans?
*Dr. Asner. For Medicare Advantage programs?
*Chairman Stark. Yes.
*Dr. Asner. Oh, I would support a cap on out-of-pocket expenses.
*Chairman Stark. Good. I think that is -- in our recent bill that we just passed, I think we had that in there, didn't we? A rule that they couldn't pay more than -- charge more than the Medicare deductibles or copays. In other words, many plans, while they have a lower premium, might charge $500 a day for a hospital copay, where Medicare would charge $900 and change for the whole encounter. So if you are in the hospital three or four days, you are doubling the cost of what you would pay under fee-for-service.
We had suggested in that bill that the plans could charge no higher a copay or deductible than fee-for-service Medicare. And I presume that you would be agreeable with that as well.
*Dr. Asner. As you know, we don't design the benefits. The plans do. So I know you are referring to the plans.
*Chairman Stark. Yes.
*Dr. Asner. But I have been in discussions with plans over benefits, and it seemed to me that at least in our market in Southern California, they are well aware of trying to keep the benefit cost to the beneficiary below fee-for-service Medicare.
*Chairman Stark. Well, as I say, I thank the panel, reminding them that the purpose of the hearing was not to suggest that Medicare Advantage plans, perhaps with the exception -- maybe, Dr. Asner, would you care to comment on the difference? Because I suspect you are -- either a staff model or HMO plans that mostly you are referring to in Southern California.
What has been your experience with the private fee-for-service plans?
*Dr. Asner. That is a great question. We actually are an organization of physicians who are private practice, so our physicians are independent. We don't employ them. And in our organization, we don't have any experience with the private fee-for-service plans. In fact, when I talk about Medicare Advantage and the coordination of care, that is what I am referring to, our type of coordinated care plan.
*Chairman Stark. Or a staff model like --
*Dr. Asner. My understanding is in private fee-for-service there is no coordination of care.
*Chairman Stark. Or staff model plans like --
*Dr. Asner. Well, and again, staff models have the coordination of care as well. But I am not referring in any of my testimony to the private fee-for-service component.
*Chairman Stark. Thank you for that clarification.
Again, I want to thank all of you for your patience and your willingness to participate. I will look forward both to Mr. Hotchkiss and Ms. Polich giving me some idea of whether there is a great difference in profits between the commercial book and the private -- well, actually, private fee-for-service where you have it, and the other Medicare Advantage plans.
Because what we are really trying to determine here is not whether -- I think we would all stipulate that managed care plans are beneficial as a delivery system for medical services. The question is: How do we pay for it, and how much should we pay? And that is the road we have to go down.
Thank you all for your participation. The hearing is adjourned.
[Whereupon, at 2:25 p.m., the subcommittees were adjourned.]
[Submissions for the Record follow:]
Paul Precht, Policy Coordinator, Medicare Rights Center
Harry Hotchkiss, Senior Products Actuarial Director, Humana Inc, Louisville, Kentucky
Cindy Polich, Senior Vice President, Secure Horizons, UnitedHealth Group, Minneapolis, Minnesota
Bart Asner, M.D., Chief Executive Officer, Monarch Healthcare, Irvine, California