[Senate Hearing 106-521] [From the U.S. Government Publishing Office] S. Hrg. 106-521 OVERSIGHT OF HCFA'S SETTLEMENT POLICIES: DID HCFA GIVE THREE PROVIDERS SPECIAL TREATMENT? ======================================================================= HEARING before the PERMANENT SUBCOMMITTEE ON INVESTIGATIONS of the COMMITTEE ON GOVERNMENTAL AFFAIRS UNITED STATES SENATE ONE HUNDRED SIXTH CONGRESS SECOND SESSION __________ MARCH 28, 2000 __________ Printed for the use of the Committee on Governmental Affairs U.S. GOVERNMENT PRINTING OFFICE 64-583 cc WASHINGTON : 2000 _______________________________________________________________________ For sale by the Superintendent of Documents, Congressional Sales Office U.S. Government Printing Office, Washington, DC 20402 COMMITTEE ON GOVERNMENTAL AFFAIRS FRED THOMPSON, Tennessee, Chairman WILLIAM V. ROTH, Jr., Delaware JOSEPH I. LIEBERMAN, Connecticut TED STEVENS, Alaska CARL LEVIN, Michigan SUSAN M. COLLINS, Maine DANIEL K. AKAKA, Hawaii GEORGE V. VOINOVICH, Ohio RICHARD J. DURBIN, Illinois PETE V. DOMENICI, New Mexico ROBERT G. TORRICELLI, New Jersey THAD COCHRAN, Mississippi MAX CLELAND, Georgia ARLEN SPECTER, Pennsylvania JOHN EDWARDS, North Carolina JUDD GREGG, New Hampshire Hannah S. Sistare, Staff Director and Counsel Joyce A. Rechtschaffen, Minority Staff Director and Counsel Darla D. Cassell, Administrative Clerk ------ PERMANENT SUBCOMMITTEE ON INVESTIGATIONS SUSAN M. COLLINS, Maine, Chairman WILLIAM V. ROTH, Jr., Delaware CARL LEVIN, Michigan TED STEVENS, Alaska DANIEL K. AKAKA, Hawaii GEORGE V. VOINOVICH, Ohio RICHARD J. DURBIN, Illinois PETE V. DOMENICI, New Mexico MAX CLELAND, Georgia THAD COCHRAN, Mississippi JOHN EDWARDS, North Carolina ARLEN SPECTER, Pennsylvania K. Lee Blalack, II, Chief Counsel and Staff Director Linda J. Gustitus, Minority Chief Counsel and Staff Director Mary D. Robertson, Chief Clerk C O N T E N T S ------ Opening statements: Page Senator Collins.............................................. 1 Senator Levin................................................ 3 Senator Thompson............................................. 6 Senator Durbin............................................... 20 WITNESSES Tuesday, March 28, 2000 Robert H. Hast, Acting Assistant Comptroller General, Office of Special Investigations, accompanied by William D. Hamel, Special Agent, Office of Special Investigations, and Robert P. Murphy, General Counsel, U.S. General Accounting Office........ 8 Jean Ohl, Technical Health Insurance Specialist, Health Care Financing Administration....................................... 30 Tony Seubert, Payment Specialist, Health Care Financing Administration................................................. 36 Charles R. Booth, Director, Financial Services Group, Health Care Financing Administration....................................... 42 Bruce C. Vladeck, Former Administrator, Health Care Financing Administration................................................. 54 Alphabetical List of Witnesses Booth, Charles R.: Testimony.................................................... 42 Prepared statement........................................... 78 Hast, Robert H.: Testimony.................................................... 8 Prepared statement........................................... 69 Ohl, Jean: Testimony.................................................... 30 Seubert, Tony: Testimony.................................................... 36 Vladeck, Bruce C.: Testimony.................................................... 54 Prepared statement........................................... 82 Exhibit List * May Be Found In The Files of the Subcommittee 1. GCopy of HCFA Regulation, 42 CFR Sec. 401.601 Basis and Scope, regarding debt collection............................... 101 2. GCopy of HCFA Regulation, 42 CFR Sec. 401.603 Definitions, regarding definition of a claim................................ 102 3. G3/6/97 E-mail from Jean Ohl to Charles Booth regarding LA County settlement as a subversion of regulations............... 103 4. G2/22/94 E-mail from Charles Booth to Thomas Ault regarding issuance of NPR (Notices of Program Reimbursement) to VNSNY (Visiting Nurse Service of New York)........................... 104 5. G3/16/94 E-mail from Charles Booth to Judy Stec regarding confidentiality provision in VNSNY settlement agreement........ 105 6. G11/27/96 E-mail from Charles Booth to officials in HCFA's San Francisco Regional Office regarding LA County settlement-- ``Bruce Vladeck hopes we can move this process faster . . .''.. 106 7. G11/29/96 E-mails from Alysson Blake to Charles Booth regarding LA County settlement--``I don't know what Chuck thinks we can `negotiate' . . . without additional documentation . . .''.......................................... 107 8. G3/7/97 E-mail from Jean Ohl to Charles Booth regarding LA County settlement, requesting OGC (Office of General Counsel) concurrence that settlement be in compliance with State laws... 108 9. G4/28/97 Letter from Mark Finucane of LA County to Bruce Vladeck thanking him for the LA County settlement.............. 109 10. G12/1/94 memorandum from Darrel J. Grinstead of HCFA's Office of General Counsel to Bruce Vladeck advising him that the monetary aspects of the Howard University Hospital agreement have been approved by the Department of Justice................ 110 11. G31 U.S.C., Sec. 3711 Collection and Compromise, Federal Claims Collection Act.......................................... 111 12. G2/8/94 E-mail from Charles Booth to Thomas Ault regarding exit conference between VNSNY and its fiscal intermediary, United Government Services..................................... 113 13. G4/7/97 Letter from Bruce C. Vladeck to Kevin Thurm regarding ``Settlement of Cost Report Issues with Los Angeles County''... 114 14. G3/27/00 Letter to the Permanent Subcommittee on Investigations from the Department of Justice regarding HCFA settlements.................................................... 115 15. GExcerpt from Provider Reimbursement Manual addressing ``Overpayments to Providers''.................................. 117 16. GExcerpt from Medicare Intermediary Manual addressing ``Overpayments for Provider Services''......................... 119 17. GExcerpt from the Permanent Subcommittee on Investigations' March 6, 2000, deposition of Charles R. Booth in which Mr. Booth states ``[m]ost every other provider goes through the administrative process''....................................... 122 18. G5 CFR Sec. 2635.502--Standards of Ethical Conduct for Employees of the Executive Branch.............................. 123 19. G3/27/00 Letter to the Permanent Subcommittee on Investigations from Robert J. Anello, attorney for Bruce C. Vladeck, regarding GAO's investigation......................... 124 20. G8/1/97 Program Memorandum regarding ``Calculation of Average Cost Per Visit For Home Health Services''...................... 128 21. a. GSettlement Agreement between Visiting Nurse Service of New York (VNSNY) and the Department of Health and Human Services, Health Care Financing Administration (HCFA).......... 130 b. GSettlement Agreement between New York City Health and Hospitals Corporation (NYCHHC) and the Department of Health and Human Services, Health Care Financing Administration (HCFA)..................................................... 137 c. GSettlement Agreement between Department of Health Services, County of Los Angeles (LA County) and the Department of Health and Human Services, Health Care Financing Administration (HCFA)............................ 143 d. GSettlement Agreement between Howard University (HU) and the Department of Health and Human Services, Health Care Financing Administration (HCFA)............................ 146 22. GSEALED EXHIBIT: Permanent Subcommittee on Investigations Deposition of Thomas A. Ault, March 16, 2000................... * 23. GSEALED EXHIBIT: Permanent Subcommittee on Investigations Deposition of Charles R. Booth, March 6, 2000.................. * 24. GSEALED EXHIBIT: Permanent Subcommittee on Investigations Deposition of Bruce C. Vladeck, March 9, 2000.................. * 25. GGAO Report to the Chairman, Permanent Subcommittee on Investigations, Committee on Governmental Affairs, U.S. Senate, ``HCFA: Three Largest Medicare Overpayment Settlements Were Improper,'' February 2000, GAO/OSI-00-4........................ 154 26. G3/27/00 Memorandum from Michael Hash, Deputy Administrator, Health Care Financing Administration, to K. Lee Blalack, II, Chief Counsel and Staff Director, Permanent Subcommittee on Investigations, regarding ``Guidance on the Resolution of Medicare Payment Disputes''.................................... 210 27. G3/27/00 Letter from Congressman Charles B. Rangel (D-NY) to Senator Susan Collins, Chairman, Permanent Subcommittee on Investigations, regarding Subcommittee's hearing and support of HCFA and Bruce Vladeck......................................... 245 28. G3/27/00 Letter from Congressman Henry A. Waxman (D-CA) to Senator Carl Levin, Ranking Minority Member, Permanent Subcommittee on Investigations, regarding Subcommittee's hearing and LA County settlement............................... 246 29. GStatement for the record of the Visiting Nurse Service of New York (VNSNY)............................................... 248 30. GSubmission for the record of the National Association for Home Care (NAHC)............................................... 252 31. GSubmission for the record of the National Association of Public Hospitals and Health Systems (NAPHS).................... 254 32. G4/10/00 Letter from Robert H. Hast, Assistant Comptroller General for Special Investigations, General Accounting Office, to Senator Susan M. Collins, Chairman, Permanent Subcommittee on Investigations, regarding issues raised at March 28, 2000 Subcommittee hearing........................................... 256 33. G4/11/00 Letter from Mark Finucane, Director, County of Los Angeles, Department of Health Services, to the Permanent Subcommittee on Investigations, regarding the Subcommittee's March 28, 2000 hearing and Medicare settlements................ 258 34. G5/11/00 Letter from the Department of Health and Human Services (HHS) to the Permanent Subcommittee on Investigations, concern HHS' letter to the General Accounting Office (GAO) regarding GAO's report on HCFA settlements..................... 261 35. G4/30/93 Letter from the Department of Health and Human Services' Office of General Counsel (HHSOGC) to the Office of Government Ethics regarding review of Bruce Vladeck's financial disclosure report and HHSOGC's advisement of Vladeck to take certain actions in order to avoid the potential for conflict of interest....................................................... 268 OVERSIGHT OF HCFA'S SETTLEMENT POLICIES: DID HCFA GIVE THREE PROVIDERS SPECIAL TREATMENT? ---------- TUESDAY, MARCH 28, 2000 U.S. Senate, Permanent Subcommittee on Investigations, of the Committee on Governmental Affairs, Washington, DC. The Subcommittee met, pursuant to notice, at 9:38 a.m., in room SD-342, Dirksen Senate Office Building, Hon. Susan Collins, Chairman of the Subcommittee, presiding. Present: Senators Collins, Thompson, Specter, Levin, and Durbin. Staff Present: K. Lee Blalack, II, Chief Counsel and Staff Director; Mary D. Robertson, Chief Clerk; Karina Lynch, Counsel; Brian C. Jones, Investigator; Claire Barnard, Detailee/HHS; Elizabeth Hays, Staff Assistant; Linda Gustitus, Minority Chief Counsel; Felicia Knight and Steve Abbott (Senator Collins); Robert Shea (Senator Thompson); Erin Quay (Senator Specter); Judy White (Senator Cochran); Erin Sammons and Cathy Bates (Senator Roth); Marianne Upton (Senator Durbin); and Laura Stuber (Senator Levin). OPENING STATEMENT OF SENATOR COLLINS Senator Collins. The Subcommittee will come to order. Today, the Permanent Subcommittee on Investigations convenes this hearing to examine the settlement practices of the Health Care Financing Administration (HCFA), the Federal agency responsible for the Medicare program. This hearing is one in a series held by the Subcommittee during the past 3 years to examine instances of waste, fraud, and abuse that siphon money out of the Medicare trust fund, costing billions of dollars and jeopardizing health care for our disabled and elderly citizens. Previous Subcommittee hearings have focused on Medicare fraud prevention and enforcement efforts, flaws in the enrollment process, and the ability of criminals to bill Medicare for bogus claims. The Inspector General of the Department of Health and Human Services recently found that improper Medicare payments to health care providers rose to $13.5 billion last year. I hope that the IG's report and oversight hearings, such as this one, will prompt HCFA to strengthen its financial controls. Indeed, I would note, as has happened with some of our previous hearings, HCFA last night issued new guidance on settlements, perhaps in response to the issues we will discuss today. The continuing drain in Medicare is all the more urgent given projections that the trust fund is threatened with insolvency in just 15 years. Last spring, I asked the General Accounting Office to investigate HCFA's settlement of debts owed to Medicare. Today, GAO officials will discuss the findings of a comprehensive 8- month investigation in which they examined 96 settlements in which HCFA's claims exceeded $100,000. In 93 of those agreements, the GAO found nothing improper. For the three largest settlements, however, the GAO uncovered many irregularities. In these three settlements, HCFA circumvented the normal administrative process for resolving reimbursement disputes. These three claims represented 66 percent of all Medicare overpayment settlements for the 8\1/2\-year period reviewed by the GAO. Moreover, HCFA accepted payment of only $120 million, or 36 percent, of the $332 million owed the Medicare trust fund by the three providers. Equally troubling, GAO found that HCFA agreed to reimburse two of the providers for certain future costs without documentation, special treatment that is contrary to the regulations and not allowed other health care providers. These findings raise serious concerns about the equity of the settlements. The three settlements also included highly unusual secrecy provisions intended, it appears, to prevent other health care providers from finding out about the special deals. Several officials involved in the settlement negotiations, including representatives of the fiscal intermediaries and the regional offices of HCFA, told the GAO that the settlements were not in the best interest of the Medicare trust fund. Despite the strong protests of these individuals, HCFA officials in Washington compromised the claims for less than their value. Moreover, in a Subcommittee deposition, the official who negotiated the agreements testified that he knew of no other Medicare provider in the country that had been afforded similar treatment. Contrary to HCFA's own regulations, no government attorney reviewed or approved the three questionable settlements. In fact, of the 96 overpayment settlements examined by GAO, these three settlements were the only agreements that were never reviewed by HCFA's Office of General Counsel. The first questionable settlement uncovered by GAO involves the Visiting Nurse Service of New York. In September 1991, the fiscal intermediary determined that VNSNY's average cost per home health visit was about $160, more than three times HCFA's limit of about $50 at that time. The intermediary concluded that VNSNY owed Medicare approximately $98 million for which HCFA ultimately agreed to accept $67 million in settlement in 1995. The second case involves New York City Health and Hospitals Corporation, HHC. Between 1983 and 1993, the fiscal intermediary disallowed reimbursement for certain costs because HHC lacked the documentation necessary to prove that it had actually incurred the costs. HCFA settled this case in 1996 by accepting $25 million in payment of the $155 million debt. The third questionable settlement identified by the GAO involves the Department of Health Services, County of Los Angeles, LA County. Between 1987 and 1993, LA County's fiscal intermediary disallowed its claimed reimbursement for certain costs because, again, of missing documentation. In this case, HCFA agreed to accept $28 million in satisfaction of more than $79 million in overpayments. This agreement was reached in 1997. The GAO's findings raise serious questions about the three settlements and the conduct of senior HCFA officials. Today, we will attempt to seek the answers to a number of critical questions. First, why did HCFA officials agree to these settlements in the first place? Second, why were the standard rules not followed? For example, why did HCFA officials not seek the approval of the Department's own lawyers as well as the Department of Justice before compromising multi-million dollar claims for only 36 percent of what was owed? Finally, did pressure from the individual then serving as the administrator of HCFA cause settlements to be reached that were not in the government's best interest? We will hear testimony this morning from the GAO's Office of Special Investigations, various HCFA officials involved in the settlement negotiations, and former HCFA Administrator Bruce Vladeck. Finally, let me make clear the reasons why I am so concerned about what appeared to be improper settlements that may have cost the Medicare trust fund millions of dollars. As many health care providers and my colleagues know, no one has fought harder than I have to ensure that Medicare adequately reimburses our hospitals and home health agencies for the essential services that they provide to our Nation's elderly. One of my highest priorities last year was reversing excessive cuts in Medicare that were jeopardizing the ability of numerous well-run home health agencies and hospitals to care for our seniors and our disabled citizens. Thanks to a bipartisan effort which involved Senator Thompson and Senator Levin, as well as myself, we were successful in restoring some of these funds. When HCFA enters into improper settlements involving millions of dollars, it undermines the efforts of those of us advocating better rates of reimbursement. It jeopardizes our ability to afford new and better benefits for our senior citizens. It endangers the integrity and fairness of the entire system and it further strains an already shaky trust fund. For these reasons, I am extremely troubled by the GAO's findings. I would now like to recognize the Ranking Minority Member, Senator Levin, for his opening statement. OPENING STATEMENT OF SENATOR LEVIN Senator Levin. Thank you, Madam Chairman. Today, we are looking at how HCFA resolved cost reimbursement disputes in the 1990's with respect to three of the largest health care providers in the Medicare program. Each provider which is a subject of this hearing today is a nonprofit institution providing health care services in most cases to the poorest among us. The issues involved in these settlements are complex and some of them are legalistically challenging. The Department of Justice, HCFA General Counsel, and the GAO have been wrestling with the application of the Federal Claims Collection Act for years. In doing so, they have been trying to decide what is a claim, what is a debt, what is a compromise versus a settlement, and so on. These are the issues that lawyers and bureaucrats thrive on, and from all appearances, it does not look like HCFA did a very good job of clarifying these terms and applying them to the procedures required for settling cost reimbursement disputes. GAO argues that these settlements were improper because HCFA ``unilaterally chose not to obtain Justice Department approval of the settlements and ignored its own regulations and internal guidance,'' arguing that under the Federal Claims Collection Act, HCFA should have referred these settlements to the Justice Department for approval. This finding of GAO gives short shrift to the determination of the Department of Justice itself that settlements of cost reimbursement disputes such as these are not subject to the Federal Claims Collection Act and that in two of these cases, there were no claims by the Federal Government or HCFA against the providers. It was the opposite: The providers were seeking money held by HCFA that they believed HCFA owed them. Now, that is in two of the three cases, HCFA was holding money that the providers claimed was owed to the providers. GAO also argues that the settlements are improper because the administrator's participation in the settlement involving Health and Hospitals Corporation of New York, or HHC, ``raised conflict of interest concerns'' despite the lack of evidence, in my judgment, that there was such a conflict. The only fact pointed to by the GAO is that the administrator, Dr. Bruce Vladeck, had served as a volunteer on the board of HHC prior to coming to HCFA about 3 years before he was asked by the appointee of Mayor Giuliani to help HCFA reach a settlement with HHC. I do not think that is a covered relationship or close to it within the meaning of the regulations. Nor does the GAO explain how it can assert, based on its review of this case and without asking any of the providers for their opinions on the settlements themselves, that ``the providers were all able to pay the entire overpayment amount, that,'' in GAO's words, ``HCFA would have prevailed if the matters were litigated.'' How in the name of fairness and completeness can the GAO reach those conclusions without hearing from the providers about their views of the substance of the settlements? In fact, Madam Chairman, although given only a few hours to read the report, a written statement from one of the providers, the Visiting Nurses Service of New York, surely a highly respected entity, was submitted to the Subcommittee, and the Visiting Nurses Service has taken strong issue with the conclusions of GAO. For instance, with respect to GAO's strongest conclusion, that ``the settlement agreement with HCFA would permit the Visiting Nurses Service's reimbursement for costs for which the Visiting Nurses Service would not otherwise be entitled,'' the Visiting Nurses Service says, ``This conclusory statement is extremely damaging and totally inaccurate''--totally inaccurate. How in the name of fairness and completeness can the GAO then give us a conclusion that these claims were without merit, could not have been proven at litigation, without seeking the merit of those claims from the providers, about the basis for their claims? Now, the GAO report then goes well beyond criticizing HCFA for doing a poor procedural job in this area. The GAO claims that the three biggest settlements were ``improper,'' not only in the way they were reached, but also with respect to the substance of the settlements themselves. But again, they did not ask the providers for their comment about the substance of the settlements. Then the GAO said this. ``It is unlikely that any of the providers could have mounted strong defenses.'' How on earth, without asking the providers for their defenses, could GAO fairly and objectively conclude that it is unlikely that any of the providers could have mounted strong defenses? Now, when I asked my staff to do what the GAO had not done, ask the providers for their opinions of the settlements, each provider stated that they perceived the settlements to be ``hard fought,'' and involving the expected ``give and take'' necessary for settling difficult cases. One provider, Health and Hospital Corporation of New York, told us, ``GAO wanted to hear about what we got, not what we gave up, and that is unfair.'' Finally, when you look through the list of all the 96 settlements reviewed by the GAO, the percentages that HCFA actually received of monies at issue in these three settlements are well within the ballpark of the percentages received in the other 93 settlements. So unlike their past work, including work for this Subcommittee which I found on the whole to be thorough and careful, I believe in this case the GAO unfairly omitted the other side of the settlement story, that of the providers, as to the substance. I emphasize ``of the settlement,'' because the GAO report goes far beyond evaluating the procedures, and we will hear much of that this morning, whether the procedures were proper or not. The GAO report goes to the substance of those settlements. Madam Chairman, I come to this issue as one who has fought the HCFA bureaucracy over the years on numerous occasions on behalf of health care providers in my home State. I have at least two ongoing battles with HCFA right now because I have too often experienced HCFA as a frustrating agency, slow to respond, unwilling at times to make accommodations for the real-life situations of our health care providers, bureaucratic, unwilling even to provide information which is requested, much less other materials. I believe it is not only the right, but the duty of the head of the health care provider or a political official in an affected area to try to get the attention of HCFA to address longstanding issues. I do not think it is improper for the head of a health care provider to pick up the phone and call the Administrator of HCFA to inform the administrator of a serious financial claim being imposed by HCFA on the provider which the provider thinks is unfair or inappropriate. That is what is supposed to happen. Moreover, I am not concerned by the fact that the head of HCFA, upon receiving such a phone call, would contact his assistant and direct him to try to resolve the problems identified by the call. The administrator would be remiss if he or she did not do that. But the GAO report implies that there is something improper when that happens. We are going to hear some confusing testimony today, conflicting versions of what key people have said about the process in these settlements. In the end, however, we are going to also have to deal with GAO's repeated inference that these three providers got more than they should have when I do not believe the GAO ever asked the providers for their side of that issue. So, Madam Chairman, with those tasks facing us, with the conflicting testimony and the complicated policy questions at issue here, the Subcommittee does indeed have its work cut out for us this morning. Thank you. Senator Collins. I am very pleased to now call on the Chairman of the full Committee, Senator Thompson. OPENING STATEMENT OF CHAIRMAN THOMPSON Chairman Thompson. Thank you, Madam Chairman. Madam Chairman, you have very ably brought out some very troubling problems. They are a part of a larger problem. Last November, I released a report by the General Accounting Office that touted the amount of overpayments made by the Federal Government. I found out that only 14 programs in all of the Federal Government even bothered to count their overpayments. Even then, in just 14 programs, we found that in 1998, the Federal Government made overpayments totalling $19 billion. Medicare accounted for $12.6 billion of that number. In 1996, numbers are just coming in, and it looks like overpayments in the Medicare program rose by almost $1 billion. That is no surprise. Every 2 years, GAO lists the programs in the government most vulnerable to waste, fraud, and abuse. Medicare has been on GAO's high-risk list since its inception. With overpayments in Medicare now estimated at $13.5 billion, the problem is getting worse. In the most recent reports from the Inspector General at the Department of Health and Human Services, I have learned that Medicare is paying millions of dollars for services provided to patients after they have died. So, as I say, unfortunately, what you have brought out here and will be bringing out today is just a part of a larger problem, and these matters that you have demonstrated, and the GAO I think very ably has demonstrated, is not just procedural. We are talking about millions of dollars here, $332 million that was settled for $120 million. Obviously, after the facts, you can go back and pick at the individual components and elements of any decision that is made, any settlement that is made or not made, but if the merits are so much in dispute and there are two such sides to this matter, why was it done in such secrecy? Why were procedures not followed? Why was this not approved by the Department of Justice in these large amounts when their practice and the law requires anything over $100,000 to be approved? Why was their own Office of General Counsel not involved in just these three settlements? Only in these three, these three huge settlements that constitute 66 percent of all Medicare overpayment settlements since 1991, in only these three, their Office of General Counsel was not involved. In fact, no government attorney at all reviewed these matters. And why was pressure brought to bear to get these settlements done and done in a way that apparently would not see the light of day? We will hear testimony as to whether or not this even fit the settlement criteria. My understanding is a determination has to be made by the people at HCFA as to whether or not it fits the settlement criteria, whether or not the provider can pay, whether or not HCFA could win, whether or not the cost of collection exceeds what they would collect. These determinations have to be made. You do not have to have a trial to determine whether or not they fit the settlement criteria. These are determinations that HCFA has to make based upon the information that they have, and that is the determination that GAO in turn came in and made after the fact. As I say, these are not just procedural matters. These are matters involving millions of dollars about which lower-level people in these agencies made determinations in secret costing apparently millions of dollars. As I said before, the most disturbing part of this is it seems to be a part of an overall problem where billions of dollars are going down the drain over at the Medicare program, billions of dollars that otherwise could be used for beneficiaries. Thank you, Madam Chairman. Senator Collins. Thank you, Senator Thompson. The Subcommittee has received two statements that will be included in the record. One is from the Visiting Nurses Service of New York.\1\ --------------------------------------------------------------------------- \1\ See Exhibit No. 29 which appears in the Appendix on page 248. --------------------------------------------------------------------------- The second statement is a letter from Congressman Rangel.\2\ Both will be included in the hearing record, as will other statements that are received during the next 2 weeks. --------------------------------------------------------------------------- \2\ See Exhibit No. 27 which appears in the Appendix on page 245. --------------------------------------------------------------------------- I would now like to call forth our first panel of witnesses from the General Accounting Office. Our first witness this morning is Robert H. Hast, who is the Acting Assistant Comptroller General of the Office of Special Investigations. Accompanying Mr. Hast this morning is William Hamel, the Special Agent with GAO's Office of Special Investigations, and Robert Murphy, the General Counsel for GAO's Office of General Counsel. These gentlemen will be testifying regarding GAO's 8- month investigation of HCFA's process for settling overpayment claims with Medicare providers. I would first like to welcome all three of you this morning and to thank you for GAO's comprehensive, thorough and excellent work on this investigation. The work is very much in keeping with the tradition of GAO and this Subcommittee has a very long tradition of working very closely with the GAO. Pursuant to Rule 6, all witnesses who testify before the Subcommittee are required to be sworn in, so at this time, I would ask that you stand and raise your right hand. Do you swear that the testimony you are about to give to the Subcommittee will be the truth, the whole truth, and nothing but the truth, so help you, God? Mr. Hast. I do. Mr. Hamel. I do. Mr. Murphy. I do. Senator Collins. Thank you. Mr. Hast, I am going to ask you to proceed with your statement. TESTIMONY OF ROBERT H. HAST,\1\ ACTING ASSISTANT COMPTROLLER GENERAL, OFFICE OF SPECIAL INVESTIGATIONS, ACCOMPANIED BY WILLIAM D. HAMEL, SPECIAL AGENT, OFFICE OF SPECIAL INVESTIGATIONS, AND ROBERT P. MURPHY, GENERAL COUNSEL, OFFICE OF GENERAL COUNSEL, U.S. GENERAL ACCOUNTING OFFICE Mr. Hast. Madam Chairman and Members of the Subcommittee, thank you for inviting me here today to discuss the results of our investigation into HCFA's improper settlement of its three largest Medicaid overpayments [sic], executed between 1991 and 1999. At this time, I would like to introduce our other representatives seated with me today. They are Special Agent William Hamel from my staff and our General Counsel, Robert Murphy. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Hast appears in the Appendix on page 69. --------------------------------------------------------------------------- As you are aware, the depletion of the Medicare trust fund has been the subject of significant scrutiny in recent years and we have previously reported that fraudulent and abusive practices have raised concerns about the program's vulnerabilities. As recently as March 15 of this year, we testified about HCFA's financial management and its need to further improve its controls and accountability to better ensure that improper payments are not made. HCFA, which administers the Medicare program, is required to ensure that debts owed the program are paid. Historically, rather than collect the entire debt, HCFA often enters into settlement agreements with providers and accepts less than the full amount owed. Although we found nothing improper with 93 of the 96 settlements for overpayments in excess of $100,000 that HCFA provided us, we did determine that HCFA acted improperly in settling its three largest matters in 1995, 1996, and 1997. These three overpayment matters totaled $332 million, or 66 percent of all Medicare overpayment settlements for which HCFA provided us records. HCFA agreed to accept $120 million of the $332 million in its settlement of these matters. The first of these three settlements was preceded by just 2 months by a large settlement that was referred to the Department of Justice and Justice refused to allow HCFA to execute. We determined that then-HCFA Administrator Bruce Vladeck had directed the three improper settlements be made and that he had a prior professional association with two of the three providers just prior to being appointed HCFA Administrator. In the largest settlement, $155 million in overpayments to a hospital that HCFA settled for $25 million, Mr. Vladeck had been on the hospital's board of directors, which raised conflict of interest concerns. In this instance, we learned that Kevin Thurm, then chief of staff to the HHS Secretary and current Deputy Secretary, instructed Mr. Vladeck to inquire about the status of the overpayments. As a result, Mr. Vladeck suggested to Mr. Charles Booth, HCFA's then-Director of Payment Policy who Mr. Vladeck had tasked with making the settlement, that time was more important than money and instructed him to move more quickly to settle, this despite Mr. Booth's protest to Mr. Vladeck that quickening the process could cost HCFA an extra $8 million to $10 million. Remarkably, despite this being HCFA's largest settlement, HCFA kept no records or documentation about the settlement, not even a copy of the settlement agreement itself. We were fortunate that the fiscal intermediary maintained records and furnished them to us. Mr. Vladeck also failed to disclose his affiliation with the other provider, a home health care agency, on his financial disclosure forms upon his appointment. We could not resolve these issues given his refusal to meet with us. HCFA's regulations and internal guidance state that HCFA must refer all settlements over $100,000 to the Department of Justice for approval in accordance with the Federal Claims Collection Act. Two months prior to initiating the first of these three improper settlements, HCFA had been notified that a HCFA-proposed settlement that was referred to Justice on another multi-million-dollar overpayment was rejected by Justice. Mr. Booth, the official who negotiated the three improper settlements, chose not to seek Justice approval or HCFA's own Office of General Counsel review because he told us that he was concerned if he did the three large settlements would go up in smoke as they were written. He also told us that he knew that these settlements were not in the best interest of the government. Concerning the specifics surrounding the three settlements, HCFA appears to have disregarded the permissible settlement criteria established by regulation since evidence suggests that the providers were all able to pay the entire overpayment amount, that HCFA would have prevailed if the matters were litigated, and the amount of recovery would have exceeded the cost of collecting the multi-million-dollar debts. In addition, the agreements were troubling for other reasons, as they contained several questionable provisions. The terms of two of the settlement agreements, which were to be kept confidential, permit future provider reimbursement for costs for which they would not otherwise be entitled. These provisions do not ensure that the payments made are not improper in that they allow billing without auditable recordkeeping. HCFA also waived interest and required the refunding of interest already paid and permitted repayment in installments for one of the agreements, despite contrary directions in its internal guidance. Mr. Booth disregarded the objections of knowledgeable HCFA and fiscal intermediary officials who protested the settlements as being bad precedents. Lastly, HCFA officials acted imprudently by executing these settlement agreements which relinquished the government's right to recover tens of millions of dollars without the benefit of any legal counsel review. Finally, we are disturbed that after we advised HCFA of our specific questions in advance about its collection of overpayment process, such as how does HCFA define a claim, when does a claim become a debt, who is HCFA's appropriate agency official to determine a claim or the applicability of the Federal Claims Collection Act to Medicare overpayments, that neither its Chief Financial Officer, Michelle Snider, nor its Chief Counsel, Sheree Kanner, could answer these questions. Even more troubling was that after these interviews, we gave HCFA the opportunity to respond in writing to these questions, yet its letter to us from the Deputy Administrator, Michael Hash, was unresponsive to our questions. The chronologies of the three improper settlement and our legal analysis of the Federal Claims Collection Act to the Medicare program can be found in the report we previously issued to you. At this time, I would like to submit my statement for the record. Madam Chairman, this completes my prepared statement. I would be happy to respond to any questions you or other members of the Subcommittee may have. Senator Collins. Thank you very much for your statement, and again, thank you for a thorough, well-documented report. I am particularly troubled by four findings: First, that HCFA violated its own rules and regulations; second, that the agreements included highly unusual secrecy provisions that were intended to prevent anyone from finding out about these deals; third, that the Administrator of HCFA at that time, Bruce Vladeck, pressured subordinates to reach these agreements; and fourth, that the agreements included provisions for special treatment that were not afforded to other health care providers. So I would like to focus on those four points in this first round of questioning. Mr. Hamel, I want to direct this question to you. One of my chief concerns, as I mentioned, is that HCFA appears to have circumvented its own regulations in approving these settlements. Can you tell us if HCFA ever showed these three settlements to its own lawyers in the Office of General Counsel? Mr. Hamel. No, they did not. Senator Collins. And of the 96 settlements that you reviewed data from 1991 through 1999, were there any other HCFA settlements that were never shown to the Department's own lawyers? Mr. Hamel. No. Senator Collins. So these three settlements, which constituted the three largest settlements during the past decade, were the only ones that were not shown to HCFA's lawyers or to the Department of Justice, indeed, to any government lawyer, is that accurate? Mr. Hamel. That is correct. Senator Collins. As part of your investigation, Mr. Hamel, I understand that you interviewed Charles Booth, who is the official who negotiated the settlements, is that correct? Mr. Hamel. Yes, it is. Senator Collins. Did Mr. Booth tell you that he knew at the time that he negotiated the settlements of the requirement within HCFA's own rules to obtain the approval of the Office of General Counsel and the Department of Justice? Mr. Hamel. Yes, he told us that. Senator Collins. In explaining why he did not seek this approval, did Mr. Booth also tell you that if he had shown the three agreements to the Department's own lawyers or to the Department of Justice, he feared that ``the deals would go up in smoke?'' Mr. Hamel. Yes. Senator Collins. Is it also your testimony that Mr. Booth told you that if the Department of Justice had objected to the settlements that he would be unable to satisfy Mr. Vladeck, who was then the administrator? Mr. Hamel. Yes. Senator Collins. And did he also tell you that he felt at the time he negotiated the settlements that they were not in the best interest of the Medicare trust fund? Mr. Hamel. I will clarify. He said that they were not in the best interest of the government. Senator Collins. They were not in the best interest of the government. Is it your conclusion that Mr. Booth agreed to the settlements that he knew were not in the government's best interest because of the pressure he was receiving from Mr. Vladeck? Mr. Hamel. That is the impression he gave us. Senator Collins. Mr. Hamel, were you also told by another HCFA official, Mr. Seubert, that giving HHC a waiver from the supporting documentation requirement was ``unique and set a terrible precedent''? Mr. Hamel. Yes. Senator Collins. And were you also told by an employee of Medicare Empire Services, which I understand was the fiscal intermediary for HHC, that he was not happy that HCFA had excluded HHC from having to document is bad debt costs? Mr. Hamel. Yes. Senator Collins. Did he also express the concern that an exception was being made and that HCFA was holding other providers to a different standard? Mr. Hamel. Yes. Senator Collins. Mr. Murphy, it is my understanding that you are the General Counsel of GAO, is that correct? Mr. Murphy. I am. Senator Collins. I find it very troubling that secrecy provisions were included in these three agreements. Are they not public claims and would they not usually be subject to the Freedom of Information Act? Mr. Murphy. Normally they would, Madam Chairman. Senator Collins. Did the GAO discover why HCFA and the providers wanted to keep these claims secret? If you are not the appropriate person to answer that, Mr. Hast or Mr. Hamel maybe? Mr. Hast. Yes. They felt that if they did not keep them secret, it may set a bad precedent. Other providers would want the same deal. Senator Collins. So the concern was that because there were some unusual provisions in these agreements giving special treatment to these three providers that would not be available to other providers, if that became known, then other hospitals and other home health agencies might cite this as a precedent in settling their own disputes with HCFA, is that fair? Mr. Hast. Yes, I would say that is fair. Senator Collins. Related to that issue and one of the most disturbing findings of the report, which is really chock-full of disturbing findings, is that two of the settlements actually permit providers to be reimbursed for future costs regardless of whether or not there are documents to support those costs, is that correct, Mr. Hamel? Mr. Hamel. Yes. Senator Collins. Now, I do not understand how that can be. Is HCFA actually going to pay claims for which there is no documentation, Mr. Hamel? Mr. Hamel. Yes. Senator Collins. So in two of these agreements, HCFA has agreed to pay money out of the Medicare trust fund even if there is no supporting documentation to prove that the services were provided, is that correct? Mr. Hamel. That is correct. Senator Collins. Did the fiscal intermediaries find those provisions troubling, Mr. Hamel? Mr. Hamel. Yes. Senator Collins. Could you tell us of the concerns that they expressed? Mr. Hamel. They were concerned in one instance that, again, as Mr. Hast had said, that other providers who were similarly situated would want to request the same particular benefit that that provider had received. In the other instance, Empire had expressed to us concerns that they have to deal with many providers and hold them to a standard of providing documentation and that they also have to deal with providers who are similarly situated, potentially have cost disallowances, and they feel uncomfortable lying to them, telling them, well, we have to hold everybody to the same standard. Senator Collins. Are you aware of any other provider elsewhere in the country that is receiving this kind of special treatment from HCFA in which they are allowed to be reimbursed for future costs and yet they do not have to prove that they actually incurred the costs? Mr. Hamel. No. Senator Collins. Mr. Murphy, the General Accounting Office report raises an issue of whether conflicts of interest, either actual ones or an appearance of a conflict, may have been a factor in the settlement of these cases. Could you please elaborate on what brought forth the conflict of interest issue? Mr. Murphy. Well, our OSI investigators came to the Office of General Counsel and asked whether, because the then-head of HCFA, Mr. Vladeck, had at one time been a director of one of the providers, whether that presented a legal problem from the viewpoint of the government's ethics rules, and so that is how we got involved in it. The bottom line is that with respect to a black letter violation, there is not one here. Mr. Vladeck had not been a director of the provider for 3 years. The issue is whether under the regulations promulgated by the Office of Government Ethics he should have raised the issue and consulted with the ethics officer in HCFA. The provision reads that an employee who is concerned that their dealings would raise a question regarding their impartiality, then they should consult with the ethics officer. In our view, even though he had not been a director for several years, this would have raised an issue of his impartiality and he should have consulted. Senator Collins. Mr. Vladeck, it is my understanding, served as a director of HHC up almost to the point that he became the HCFA Administrator. I believe he resigned as a director the month before he was confirmed, is that correct? Mr. Murphy. That is right. He resigned in April 1994. He had been a director, I believe, for 2 years prior to that. Senator Collins. So in your judgment, given his previous relationship as a director of HHC and the magnitude of the money involved, it would have been prudent for him to seek advice from the agency ethics officer as to whether or not he had an appearance of a conflict of interest and should have recused himself? Mr. Murphy. I agree with your terminology. It would have been prudent for him to have done so. Senator Collins. I will be asking Mr. Vladeck whether he did so. If he did not do so, does it cast a further shadow on the impartiality of this decision, given that the rules were circumvented? Mr. Murphy. Well, I think these provisions of the government ethics rules really go to the confidence of the public in public servants. Any time public servants act in ways that raise questions about their impartiality, it seems to me that the underlying purpose of the rules is being constrained. Senator Collins. Mr. Hast, the attorney for Mr. Vladeck yesterday sent me a letter that raises an issue about the propriety of Mr. Hamel's involvement in this investigation given work that he had done on this investigation in a previous capacity with the Office of the Inspector General. Were you aware of that concern and could you comment to us on what actions you took? Mr. Hast. Yes, I am aware of that concern. When we hired Mr. Hamel approximately a year and a half ago at the Office of Special Investigations, we just sat down and discussed our health care program in our office, and one of the things that Mr. Hamel told me is because of prior investigations he had done with the HHS IG, he had questions as to how HCFA acted in making large settlements. Because of that, we had a meeting with the HHS IG and her staff and discussed large HCFA settlements and they said that they had not investigated any other than the very single settlement that Mr. Hamel had been involved in and they had never gone to HCFA and asked them about all of their settlements and that they did not have it in their work plan for this year and that they saw no reason that Mr. Hamel could not participate in an investigation based on the work he had done. We then went to the Department of Justice and discussed his prior involvement in work with the Department of Justice when he was with the HHS IG. The Department of Justice and the judicial district in which he worked both said that as long as he followed certain guidelines, there would be no problem in him participating in the investigations. We then proceeded to discuss this with your staff, and I know that your staff has discussed it with Senate counsel and it was determined that we would be able to proceed, and I feel that we have fulfilled all our obligations to have Mr. Hamel conduct this investigation and I am very, very comfortable with how we handled it. Senator Collins. Thank you. Senator Levin. Senator Levin. Thank you, Madam Chairman. Mr. Hast, you say in your report that ``HCFA would have prevailed if the matters were litigated.'' Later on in the report, you say ``it is unlikely that any of the providers could have mounted strong defenses.'' Those are sweeping conclusions on the substance. Your office told us that when you talked to the providers about these settlements, you asked only about the process, not about the substance. In fact, one provider told us ``GAO wanted to hear about what we got, not about what we gave up, and that is unfair.'' Now, how could you make those conclusions that it is unlikely that any of the providers could have mounted strong defenses without talking to the providers about their views of the substance of the settlements, giving them a chance to tell you why they thought this money was owing to them? Mr. Hast. When we discussed the settlements with the providers, there was a give and take and the providers did talk about their feelings on the settlements. Our analysis of why we felt they could not prevail is based on what the fiscal intermediary said, what the other HCFA individuals told us, and what the providers told us. In discussing this with our legal counsel, our analysis of that is that it was not likely that they could have prevailed. Senator Levin. Did you put into your report their arguments on the substance? Mr. Hast. No, we did not. Senator Levin. I want to read you something that the Visiting Nurses wrote us. Now, they only had a few hours to review this report. ``The Visiting Nurses Service of New York''--I think you would agree, this is a reputable organization? Mr. Hast. Yes. Senator Levin. ``--is extremely distressed about the March 2000 GAO report. As part of its attack against the Health Care Financing Administration, its allegedly inappropriate settlement of disputes with three providers, inaccurate and very damaging statements are made in the report about the behavior of the Visiting Nurses Service,'' and then it says, ``This statement seeks to correct some of the most egregious and inaccurate allegations in the report.'' Jumping down to page 2, and I think the Chairman has put this report in the record, this statement of the Visiting Nurse Service of New York, page 2, ``Contrary to the implication in the GAO report, the difference in length between Medicare and non-Medicare visits does not make it inappropriate for VNS to include such visits in its cost report. We resent and take issue with the implication in the report that the settlement agreement with HCFA would permit provider reimbursement for costs for which the provider would not otherwise be entitled. This conclusory statement is extremely damaging and totally inaccurate.'' Now, you have given us a report in which you say that they are not entitled to this, that they in their settlement obtained something that they were not entitled to receive. They, a highly reputable outfit, say that that is totally inaccurate, and then they go on and they say this is unfair and it is untrue and they say why they were entitled to this outcome. This is their position on the substance, and yet not one word do we get from the Visiting Nurses Service giving their side of the story in the GAO report. Instead, we have your conclusion that they would not have prevailed, basing that on the fiscal intermediary of HCFA, which of course takes the same position that HCFA would have taken and HCFA was arguing. Now, I must tell you, I think that that failure to give to this Subcommittee VNS's argument on the substance as to why they believe they had a good case is unfair. I think it omits one side of the story; it fails to give us the arguments that they make so that we can see whether or not your conclusion, and after all, you base a great deal of your conclusion on a sub-conclusion that they would not have prevailed, and yet their argument as to why their case was meritorious is not even presented to us by the GAO. Why did you not ask them for the substance of their argument and why did you not put the substance of their argument in your report? Mr. Hast. I think in the interview process, we discussed the substance of their argument, but I would like to point out that they requested the settlement. They are the ones that made phone calls to the Director of HCFA asking for the settlement. They were not interested in litigating. They wanted to settle prior to getting into litigation. Mr. Hamel may have a little bit more on the discussion of the substance. Mr. Hamel. Well, on the substance, we had substantial documentation maintained by HCFA and the fiscal intermediary on what VNS's arguments were for why they felt what they did was acceptable. We interviewed them. We heard what they believed was their case. But at the end of the day, they chose not to bring this case forward to the Provider Reimbursement Review Board. Instead, they chose to ask for a settlement. Senator Levin. Are you suggesting that people who propose that a claim be settled do not believe that they have a legitimate claim? Mr. Hamel. We did not suggest that they did not have a legitimate claim. Senator Levin. Did you not tell our staff that you did not ask the providers about the substance of the settlements, only the process? Is that correct, that that is what you told our staff? Mr. Hamel. I probably did say something to that effect to your staff. Senator Levin. And yet, you concluded in your report that they would have lost on the substance. Even though you did not ask them about their arguments on the substance, you did not present to this Committee their arguments on the substance, you concluded that they would have lost the case on the substance. I find that, frankly, startling. I find it a failure on the part of the GAO to give us the side of the story of the providers here. That is a critical part of the story. The process issues are important, by the way. I know we are going to be going into the process issues, and we should. But to suggest, to find, as you found in your report, that they would have lost this case without asking them about the merits of their case, without presenting to us what those arguments are, it seems to me is one side of the story and there is a very important other side of the story. We have two other providers, legitimate groups of hospitals, numerous hospitals, negotiating for years with millions and millions of dollars at stake relative to their survival financially with millions of cases, patients, pieces of paper who would come into them, and yet the providers are not asked, why is it you thought you were entitled to this? They were not asked, nor were we told their position. Instead, we are given a conclusion, that GAO thinks they would have lost on the merits. Therefore, these settlements are improper. I think that is wrong. I do not think it is consistent with what the GAO has done over the years. Now, let me ask you some questions, Mr. Hast. Did you conclude that Mr. Vladeck did anything illegal? Mr. Hast. No. Senator Levin. Did you conclude that Dr. Vladeck did anything criminal? Mr. Hast. No. Senator Levin. You have also suggested that Dr. Vladeck would not talk to you, that you invited him in and he would not talk to you. His attorney, Dr. Vladeck's attorney, wrote a letter to the Committee saying that in October of last year, he notified Majority counsel that Dr. Vladeck was available for an interview--this is long before your report was completed--and he was told, and this is what he represents to us, I do not know if he was or not, that the train had left the station, that the GAO already was preparing a report. Now, why would you not take up Dr. Vladeck's offer to talk to him since this was October 1999 and since there was apparently a grand jury proceeding? His attorney wanted that to be completed, as I understand it. It was completed and then he said, OK, we would be happy to have Dr. Vladeck talk to you, and yet you did not take up that offer, and yet conclude repeatedly that his failure to talk to you led to some kind of a negative implication. Why did you not talk to him last October? Mr. Hast. Between the middle of July and the middle of October, we contacted his attorney 15 times. On several of those occasions, his attorney told us he would set up an interview. The interview was set up. Two weeks would pass. At the 11th hour, he would cancel the interview. That happened on numerous occasions. We asked the Committee to intercede to see if they could get him to come in. The Committee interceded. We continued with negotiations back and forth suggesting he would cooperate and be interviewed and then having him at the last minute decide not to. It appeared to be a delaying tactic. We also made an offer to Mr. Vladeck because of his concern about the prior case that was a grand jury matter that we would ask absolutely no questions about that settlement. We would just interview him on the other two settlements that surfaced afterwards. He did not come in on that offer. We had to process the report. We had a deadline to present it to the Committee. We gave him a final offer as to when we were able to interview him. The letter saying that he was available did not make it so. As we know, he did not really come in until a couple days before this hearing, and those were continuing negotiations with the Committee. Senator Levin. So, basically, you disagree, then, with his lawyer's letter that he in October of last year made a clear offer to come in and talk to you? Mr. Hast. I had no confidence that was a good faith offer. Senator Levin. All right. Now, Mr. Murphy, I am puzzled by your conclusion on the conflicts of interest matter, and I want to read from the letter of the HCFA ethics official to the OGE confirming an element of Dr. Vladeck's ethics agreement, and here is the relevant paragraph. Senator Collins. Senator Levin, I am going to ask you to finish with that question so that we can go on to Senator Thompson. Senator Levin. I am sorry. I did not notice. I will pick that up next round. Thank you. Senator Collins. Senator Thompson. Chairman Thompson. Thank you very much, Madam Chairman. Could you explain a little bit about how the initial determination was made that these monies were owed by these providers? Were these initial determinations made by the so- called fiscal intermediaries? Mr. Hamel. Yes. Chairman Thompson. Such as Blue Cross-Blue Shield? Do you know who the intermediaries were in these cases? Mr. Hamel. Yes. United Government Services, which is a part of Blue Cross of Wisconsin, handles Visiting Nurse Service of New York. Empire Blue Cross handles New York City Health and Hospitals. And Blue Cross of California takes care of LA County. Chairman Thompson. All right, and what do they do? Do they go in and do an audit as such or how do they make the determination that these monies are owed by these providers? Mr. Hamel. Every year, the providers submit a cost report which sets forth the basis for their reimbursement, and every year, the fiscal intermediary conducts an audit of that cost report and then determines, much like a tax return, sometimes there is money owing back and sometimes there is money owing to. That audit sets forth usually the basis of an overpayment. They are given a notice of program reimbursement, which is like a bill, which says you have to liquidate your debt, and providers have 180 days to file an appeal before the Provider Reimbursement Review Board if they contest it. Chairman Thompson. Do you have any history with regard to these fiscal intermediaries in terms of whether or not their assessments usually hold up or bear out or are challenged or overturned or can you generalize in any way with any degree of accuracy with regard to the reliability of these fiscal intermediaries? Mr. Hamel. No. We have never done any review work in that area. Chairman Thompson. Is part of your determination concerning the collectibility of this based upon the analysis of the fiscal intermediaries? Mr. Hamel. More so of also the HCFA officials in the regions. Chairman Thompson. All right. So these were not your unilateral determinations. As I understand it, you have to determine, or HCFA has to determine whether or not a particular claim fits the settlement criteria. Some do not even fit the settlement criteria and you cannot settle. One of the criteria for settlement is whether or not the provider can pay the claim, is that right? Mr. Hamel. That is correct. Chairman Thompson. And one is whether or not HCFA would probably win, and another is whether it would cost more to collect than you might recover. Those are things that HCFA has to make a determination on before it can even fit a settlement criteria, is that right? Mr. Hamel. That is correct. Chairman Thompson. Is that what you relied upon in making your determination? Mr. Murphy. Senator, if I could follow up---- Chairman Thompson. Yes, go ahead. Mr. Murphy [continuing]. Because one of the things, there was a dialogue between the Office of Special Investigations and the lawyers in GAO. We do not know whether, if this were litigated, and we do not even know whether at the review board that HCFA has, whether the providers would have prevailed or not. In the end, we do not know whether this was fair or not, as Senator Levin has pointed out earlier. What we do know is that there are internal controls imposed by the Social Security Act, by the HCFA regulations and guidelines, and by the Claims Collection Act that are designed to assure the American public that decisions are not made arbitrarily, that they are made in accordance with the law and the regulations as written, and it was those internal controls that we found were not followed. So in the end, nobody knows whether these were fair or whether they were legal or not, and the reason is that the process was not followed. Now, what we found was that the fiscal intermediaries and HCFA officials pointed out that the providers had not given us documentation that would substantiate their claims. Based upon that and based upon their opinion, we offered the view that they were unlikely to have mounted strong defenses. But in the end, we do not know what the litigation risk was because HCFA did not assess it. Chairman Thompson. That appears to be a reasonable conclusion on your part. You are not obligated to go in and retry the case and give us 600 pages of the merits and the arguments that the lawyers make back and forth. What we are interested in here, essentially, is the operational of governmental agencies. Mr. Murphy. That is right. We were not looking at the providers---- Chairman Thompson. That is what you are---- Mr. Murphy [continuing]. To see whether their claims were valid. We were looking at HCFA officials and what they did. Chairman Thompson. With regard to this and these settlements, two of the settlement agreements, as has been pointed out, permitted the providers to obtain reimbursement for future costs that are not otherwise compensable under the Medicare program. HCFA also waived interest on the claims and permitted repayment in installments for one of the agreement despite contrary directions in its internal guidance, is that correct? Mr. Murphy. That is correct. Mr. Hast. In fact, Senator, the president of that home health care agency requested the secrecy agreement, according to Mr. Booth, because they were worried about bad publicity had that agreement been made public. Chairman Thompson. You say two of the settlements permitted the providers to obtain reimbursement for future costs that you already said would not be documented. Those were the two New York provider, is that correct? Mr. Hast. Yes. Chairman Thompson. And I noticed here, we have been talking in round numbers, but the New York City Health and Hospital Corporation, the HHC that Dr. Vladeck was associated with before he went to HCFA, that claim was for $155 million and was settled for $25 million. Mr. Hast. That is correct. Chairman Thompson. Is that correct? Mr. Hast. That is correct. Chairman Thompson. And in the agreement with VNS, that is the Visiting Nurse Service in New York, HCFA allowed VNS to add a specified number of hours to its Medicare average for all future years regardless of the number of hours that services were actually rendered, is that correct? Mr. Hast. That is correct. Chairman Thompson. And in the agreement with HHC, HCFA allowed HHC to continue to bill for bad debts without any documentation to support those costs, is that correct? Mr. Hast. That is correct. Chairman Thompson. And in the case of LA County, HCFA did not require LA County to meet recordkeeping requirements generally required by Medicare? Mr. Hamel. Well, they did not specifically say in the agreement that you do not have to, unlike the New York City Health and Hospitals agreement. However, HCFA officials in the regional office had complained that LA County had been ``a problem child'' for them in their oversight and that they wanted a provision in the settlement that would ensure or at least guarantee that LA County would try to meet those requirements, and they did not get that. Chairman Thompson. In the 96 settlements you reviewed, how many included the kind of provisions referenced in the settlement agreements I mentioned? Mr. Hast. None of the other ones. Chairman Thompson. And these three settlement agreements constituted 66 percent of all Medicare overpayment settlements since 1991? Mr. Hast. That is correct. Chairman Thompson. Neither of these three agreements were approved by the Department of Justice? Mr. Hast. That is correct. Chairman Thompson. Neither of these three agreements was approved even by the Office of General Counsel within HCFA? Mr. Hast. Not even reviewed by the Office of General Counsel in HCFA. Chairman Thompson. Neither of these three agreements was reviewed by any government attorney at any time? Mr. Hast. That is correct. Chairman Thompson. I believe that is all. Senator Collins. Thank you, Senator Thompson. Senator Durbin. OPENING STATEMENT OF SENATOR DURBIN Senator Durbin. Thank you, Madam Chair, and I would like to ask that my opening remarks be made a part of the record. Senator Collins. Without objection. Senator Durbin. Thank you. [The prepared opening statement of Senator Durbin follows:] PREPARED OPENING STATEMENT OF SENATOR DURBIN Madam Chairman and Senator Levin, thank you. I appreciate the opportunity to join you today. I have supported your continuing efforts, Chairman Collins, to examine weaknesses in the Medicare program which threaten the integrity of this critical safety valve that ensures the delivery of health care to 39 million seniors and disabled individuals in our country--a program which paid out $169.5 billion last year. Under your leadership over the last 3 years, this Subcommittee has undertaken several important inquiries into various deficiencies in how the program operates which make it susceptible to fraud and abuse and to explore solutions to address these problems. Earlier this month, the HHS Inspector General released new figures about Medicare program losses--funds wasted through fraud, mistakes and other problems. In 1999, such losses inched up to $13.5 billion after falling for 2 consecutive years. Nearly 8 cents out of every dollar paid by Medicare last year was wasted. The program paid out $169.5 billion last year. In 1998, the program lost 7 cents on every dollar, or about $12.6 billion. In 1996, the first year the comprehensive Medicare audit was done, overpayments accounted for 14 cents of every dollar spent, or $23 billion. In 1997, 11 cents on the dollar, or $20 billion, was lost. I applaud the continued success of Operation Restore Trust, an effective anti-fraud program launched by President Clinton and one of our witnesses today, Dr. Bruce Vladeck when he was at HCFA's helm. When the results of the first comprehensive audit of 1996 payments was published, Dr. Vladeck explained how HCFA worked shoulder to shoulder with the auditors and welcomed their findings as a roadmap for further improvements. In a USA Today article Dr. Vladeck then wrote, ``In its 31 years, Medicare has vastly improved the health and welfare of seniors and disabled citizens. We are the world's largest health-care insurer, processing 800 million claims a year at a far lower administrative cost than any private company. But only in the last 5 years have modern accounting principles and the standards that go with them been applied--making Medicare run more like a business.'' Today's hearing takes a somewhat different tack than some of our previous inquiries, focusing attention on some of the complexities in how this massive program interacts financially with those who provide and deliver health care services to program beneficiaries. I have reviewed GAO's Report to be released today and the written statements submitted by those who have been invited to testify. GAO's report raises some particular issues about the processes involved in recovering overpayments. I certainly hope today's forum will be an opportunity to hear fully from witnesses and put these issues in context and proper perspective. I wish to associate myself with the concerns outlined in the opening remarks of Senator Levin. I am troubled that the providers in the cases examined are not here to present their perspectives. I am particularly concerned that some of GAO's assertions and conclusions may convey mistaken or inaccurate impressions about the propriety of what actually occurred in these cases and about what happens in the routine administrative cost adjustment procedures used in the course of dispensing Federal funds to providers and recouping overpayment amounts when such are identified. I hope we can create a clear, accurate, and fair record today and, as a result, examine whether there are any bases for seeking legislative changes or other corrective steps to clarify any legal ambiguities in collecting amounts owed to the government and to improve the processes for prompt recovery of overpayments. Above all, we must ensure that the vital reputation of the Medicare program remains strong and untarnished. I welcome and look forward to hearing from the panelists. Senator Durbin. I would like to ask as a preliminary question, Mr. Murphy, you are General Counsel at GAO, so I am assuming correctly you are an attorney. Mr. Hast and Mr. Hamel, are either of you attorneys? Mr. Hamel. No, sir. Mr. Hast. No. Senator Durbin. The reason I ask that is that I found really troubling the line of questioning which my colleague, Senator Levin, has raised. This report is unusual, and I have seen scores or maybe hundreds of GAO reports, particularly in that it focuses on that three largest Medicare overpayment settlements were improper, and yet questioning by Senator Levin has led me to conclude that you are not being as forthcoming as you should in terms of the GAO efforts to fully investigate the merits of these claims before drawing some rather sweeping conclusions as to whether or not they were improper. There is an instruction given in courts of law across America which says that the jury may take into consideration the failure of the moving party or prosecutor to either call a witness or to bring forward testimony, and the jury may conclude that if they have not called such a witness or elicited such testimony, that it is likely that that testimony or witness would not have helped the government, would not have helped the movant. I find it interesting that not only did you not question the substance of the agreements and settlements that are the reason for your investigation, but that we are not calling any of those parties today before this Committee to talk about whether or not this was, in fact, fair or proper. How can you draw conclusions as sweeping as saying that had these matters been litigated--let me quote directly--``Providers were all able to pay the entire overpayment amount. HCFA would have prevailed if the matters were litigated. The amount of recovery would have exceeded the cost of collecting each of these multi- million-dollar debts''--if you, in fact, did not get into the substance of the claims that were before you? Mr. Hast. Well, I think we did get into the substance of the claim, and I would like to just clarify a little bit. When we talk about improper settlements, we are talking about the lack of internal controls by HCFA or following their own internal controls caused these settlements to be made by HCFA improperly, not talking about what the hospitals or the home health care agency did, but the improperness of the settlements is the failure of HCFA to follow its own internal guidance in how they settled the claim---- Senator Durbin. Oh, but that is not what you say. Mr. Hast. Let me---- Senator Durbin. I will let you finish, but that is not what you said. Mr. Hast. I will go to the second part of it, also. When we talk about litigation risk and we talk about the fact that we believe they would prevail, when we spoke to the health care providers, they basically gave no excuses. Their excuse for not being able to keep documentation is there is just too much of it. We cannot do it. I mean, they did not come up with reasons that we found to be credible. When we said that we believe they are able to pay the entire amount, in two of them, HCFA had already withheld the money, so they had the money. If they did not give it back, they had been paid in full by those two providers. The home health care agency had set up a reserve of about two-thirds of the money, $56 million, so most of the money to pay it back was either already in HCFA's hands and they would not have had to return it, or it was in the health care---- Senator Durbin. Mr. Hast, following procedural guidelines is one thing. Going to the substance, and you have raised some questions which I would bet we could have 2 days of hearings with any one of these parties over, whether they had an ability to pay, whether there were underpayments by HCFA that might have been claimed as set-offs. This could go on for a long time. It is a lot of money. One of these cases was pending over 11 years, if I am not mistaken, before HCFA. And what you have found are, as I can conclude here, three technical and procedural questions which are raised by GAO in their report, and, therefore, you have concluded that had you taken this to court, the government would have won, in your words, if litigated, the government would have succeeded. I just find that very troubling, to reach those conclusions. This is the Sherlock Holmes barking dog. This dog is nowhere to be found, neither in your investigation nor in this Committee hearing, and for you to reach these conclusions and to really cast a shadow over the efforts of Mr. Vladeck as well as career employees at HCFA I think goes a little bit beyond what the GAO has done in any report that I have seen. Let me ask Mr. Hamel this question. Mr. Hamel, this has really become kind of a personal crusade for you, as I gather. First, you worked on this case with the Department of Health and Human Services, is that correct? Mr. Hamel. First of all, it has not been a crusade. Second of all, there was only one matter which I did have an affiliation with of the three. Senator Durbin. But did you not work on this first with the Department of Health and Human Services? Mr. Hamel. Well, I take exception to the matter as if GAO's matter was all three combined. I worked on one of the three matters. Senator Durbin. Let us stick with that one. Did you not work on that case with the Department of Health and Human Services? Mr. Hamel. Absolutely. Senator Durbin. And then you took the same case over to the U.S. Attorney's Office in their investigation, is that correct? Mr. Hamel. I am not going to comment on that. Senator Durbin. Excuse me? Mr. Hamel. I cannot comment on that matter. I can talk about the Inspector General's work, but I cannot comment on matters involving the U.S. Attorney's Office. Mr. Murphy. Senator, I think he is referring to Rule 6(e) in the Rules of Criminal Procedure and his ability to discuss grand jury matters because of that rule. Senator Durbin. OK. Well, I am going to ask Madam Chair, then, that we make as part of the record here a letter from March 27, the year 2000, sent, I believe, to both the Chairman and Senator Levin, and it was sent by the attorney who represented Mr. Vladeck, I hope I pronounce his name correctly, Robert Anello with a New York law firm, Morvillo, Abramowitz. The only reason I make this part of the record, or ask that it be made part of the record, is it states clearly that Mr. Hamel was involved in the investigation of this case with the U.S. Attorney's Office for the Southern District of New York, and if he does not want to comment for whatever reason, that is entirely his prerogative. But I would ask that this be part of the record. Senator Collins. Senator Levin [sic], it has already been marked as an exhibit and will be included in the record.\1\ --------------------------------------------------------------------------- \1\ See Exhibit No. 19 which appears in the Appendix on page 124. --------------------------------------------------------------------------- Senator Durbin. Then not commenting on whether or not you would confirm or deny what has been said here by this attorney, you pursued this case again with the General Accounting Office, is that correct? Mr. Hamel. A portion of it, yes. Senator Durbin. OK. Let me ask you this. Are you an attorney? Mr. Hamel. No. Senator Durbin. I will ask Mr. Murphy then, as an attorney, if you were representing a client before a grand jury and you were asked to submit to an investigation by the GAO while that investigation was underway with the grand jury, would you have any second thoughts about testifying before the GAO while there was a pending grand jury investigation? Mr. Murphy. There is no doubt in my mind that I would not want my client testifying in front of GAO. Senator Durbin. Neither would I, and I think that is one of the reasons Mr. Vladeck did not, and to use this against him at this point, suggesting that there was something untoward or suspicious, I think is wrong. I think it also should be a matter of record, as noted--let us assume for the record that it is true, we can ask you for your own comments--that in October 1999, Mr. Vladeck's attorney let the GAO know that he was available if they wanted to ask questions and was told, and I quote here from the letter, ``the train had left the station.'' The GAO did not want to hear him. Is that correct? Mr. Hast, do you know? Mr. Hast. I think I commented before that we had given him a deadline at which time our report was going to be written. By that time, he was negotiating with the Committee and the Committee had told us they would continue to try to interview Mr. Vladeck, which they did, but that we would close out our report with the information we had at that time. But the investigation by the Committee was ongoing. They continued to negotiate with Mr. Vladeck and we would not have been able to write our report until last Thursday had we waited until the time that they finally produced Mr. Vladeck to give any type of deposition. Senator Durbin. So you had a publication deadline that you were faced with? Mr. Hast. Yes. Senator Durbin. And you have heard Mr. Murphy's testimony here that, as an attorney, he would not have suggested to Mr. Vladeck to submit to the GAO questioning if there was a case pending before a grand jury. I am just asking, based on that, the suggestion that he was uncooperative by not speaking to the GAO really does not tell the whole story, does it? Mr. Hast. I would stand by that on two out of the three. I understand that in the one, which I think he knew was already closed, to be perfectly honest with you, but on the other two that had only surfaced through the GAO investigation, there was no pending investigation by the Department of Justice and I could see no reason for him as a former public official not to explain to us his actions in those two settlements. Senator Durbin. Can I ask you one other question? You say in your report that you conducted your investigation from May through December 1999, and if Mr. Vladeck's attorney agreed that he was willing to provide information to the GAO in October 1999, apparently that was before you had concluded your investigation. Mr. Hast. Our investigation concludes once we have finished our vetting process, which as I am sure you know takes a period of time. That period from October to November was moving it through the GAO process. Senator Durbin. So you were moving through your internal procedural process---- Mr. Hast. Yes. Senator Durbin [continuing]. But again, your procedural process, I do not think, should go to the question of the substance of this issue. I think Mr. Vladeck did the prudent thing. As an attorney, that is what I would have advised him to do, and to suggest that he was not cooperative, I do not believe is altogether accurate. Can I mention one other thing? This Federal Claims Collection Act, which I do not know much about but I am learning, is apparently controversial. There is a HCFA memo which we have been given where they go to great length to suggest that your conclusion about its application in this case may be wrong. Are you familiar with that, Mr. Murphy? Mr. Murphy. Yes. I actually saw that just a few days ago, Senator. I have read it. Senator Durbin. Do you understand that even within HCFA, there is some question as to whether the first conclusion of the GAO of impropriety here may not even apply? Mr. Murphy. I read that letter, yes, sir, or that memo. Senator Durbin. So certainly within HCFA, there is--and perhaps with other agencies--there is some difference of opinion as to whether the Federal Claims Collection Act even applies to this case. Mr. Murphy. I cannot argue with that, because I have read that legal memo. Senator Durbin. OK. Senator Collins. Senator Durbin, your time has expired, as you can see from the light there. Senator Durbin. I am sorry. Senator Collins. The light on the table apparently is not working as it should. Senator Durbin. Thank you, Madam Chair. Senator Collins. We have a number of other witnesses to get to. I know there are additional questions. I am going to suggest we do one final very brief round of 3 minutes each. Mr. Hast and Mr. Murphy, I want to follow up on a point that Senator Durbin just raised. I want to show you Exhibit 1,\1\ which is an excerpt from HCFA's own regulations concerning debt collection, its own regulations, and as you can see, it clearly states that HCFA refers all claims that exceed $100,000 or such higher amounts as the Attorney General may prescribe, and that has not happened, to the Department of Justice or the GAO--I realize GAO has been taken out of it now--but for the compromise of claims. As far as you know, was this regulation in effect at the time that the three claims we are discussing were being compromised? --------------------------------------------------------------------------- \1\ See Exhibit No. 1 which appears in the Appendix on page 101. --------------------------------------------------------------------------- Mr. Murphy. It was in effect, Madam Chairman. Senator Collins. And was it HCFA's usual practice to refer to the Department of Justice claims over $100,000 for which settlements were being proposed? Mr. Murphy. It was their practice to refer claims that had been determined by fiscal intermediaries over $100,000 to the Department of Justice. Senator Collins. And these claims were way over $100,000, correct? Mr. Murphy. They were. Senator Collins. Mr. Hast, did GAO's investigation determine that this was, therefore, not in keeping with HCFA's usual practice that these three very large claims, the largest in the last decade, were not referred to the Department of Justice when their own regulations very clearly state that they should be? Mr. Hast. That is exactly what we found. Senator Collins. Mr. Hast, an issue has been raised about whether it is likely that the providers would have prevailed in litigation had they gone forward. Now, I realize, as Mr. Murphy said, that none of us knows for certain what would have happened had we gone forward, had the claims gone through the normal process and not been circumvented, but would it not have been very unlikely that providers would be able to prevail when they did not have the documentation to support the claims that were in dispute? Mr. Hast? Mr. Hast. Yes, that was our opinion. Senator Collins. And was that the basis for your conclusion that they were unlikely to prevail? Mr. Hast. Yes, that was. Senator Collins. And your opinion in this matter was shared by the fiscal intermediaries, is that not correct? Mr. Hast. By the fiscal intermediaries and by HCFA officials in the regions. Senator Collins. So the lower-level HCFA officials, the regional officials who knew the providers, plus the fiscal intermediaries who handle these kinds of claims at the first level agreed that they thought they could prevail? Mr. Hast. That is right. Senator Collins. I am going to ask you one final question. Mr. Hast, do you believe that these settlements were in the best interests of the government? Mr. Hast. Because of HCFA's lack of following their internal controls, there is no way to positively know that. But HCFA, Mr. Booth, who negotiated the settlements for HCFA and did that for a living, told us they were not in the best interest of the government, and individuals that worked in the regions that reviewed overpayments for over 20 years told us they believed they were not in the best interest of the government, as did the fiscal intermediaries. The people that do this for a living believed this was not in the best interest of the government. Senator Collins. Thank you, and thank you very much for your testimony this morning. Senator Levin. Senator Levin. Thank you, Madam Chairman. The fiscal intermediaries are agents for HCFA, right? Mr. Hast. Yes. Senator Levin. And they make certain assessments as to what they believe is owing to HCFA from these providers, is that not correct? Mr. Hast. That is correct. Senator Levin. And you have given us a chart, I believe you have that in front of you, of all of the HCFA overpayment settlements? \1\ --------------------------------------------------------------------------- \1\ Chart referred to is a GAO work product--not publically available. --------------------------------------------------------------------------- Mr. Hast. Yes, I do. Senator Levin. That is the 96 that have been referred to? Mr. Hast. I do. Senator Levin. And when you go down all these alleged overpayments by the intermediaries, in most if not all cases, HCFA ended up agreeing that their fiscal intermediaries' assessment of overpayment was not either provable or was not perfect. They ended up settling all these cases, did they not, or just about all these cases? Mr. Hast. Some of them were bankruptcies and so forth, but yes. Senator Levin. They settled most of them? Mr. Hast. They settled most of them. Senator Levin. So, for instance, take a look at number nine, Century City Hospital, California. The fiscal intermediary said that there was an overpayment of $239,000, but they ended up paying the hospital $180,000, right? Mr. Hast. That is correct. Senator Levin. As a matter of fact, was there not a confidentiality agreement in that one? Take a look at your last column there. Mr. Hast. I would say yes. Senator Levin. Thank you. Mr. Hast. There were about six other ones that had them, yes. Senator Levin. There were other confidentiality agreements besides these three, were there not? Mr. Hast. Out of the 96, there were six or seven. Senator Levin. So this was not unique? Mr. Hast. Unusual, not unique. Senator Levin. Right. Is it not true that there were other confidentiality agreements, just to be straight? Mr. Hast. It is true. Senator Levin. Thank you. Look at number ten, Cleveland Clinic. The fiscal intermediary said there was an overpayment of $648,000, correct? Mr. Hast. Yes. Senator Levin. HCFA ended up paying $300,000, right? Mr. Hast. Yes. Senator Levin. And there was a confidentiality agreement there, right? Mr. Hast. There was. Senator Levin. And then look at number 13, Howard University. The so-called fiscal intermediary said that Howard owed them $58 million, right, owed the government? Mr. Hast. That is right. Senator Levin. And then it ended up that Howard paid the government $10 million, is that correct? Is that correct, without going into the whole history, because you have only got 3 minutes. Mr. Hast. It is correct. Senator Levin. Thank you. Now, take a look at all of these claims, National Medical Enterprises, number 15. The fiscal intermediary said $2.6 million was owing the government, right? Mr. Hast. Yes. Senator Levin. But the government ended up paying $2.4 million, right? Mr. Hast. Yes. Senator Levin. So case after case after case, we figure that the amount of payments ended up to be about the same percentage as the payments in these cases. By the way, you can make your own assessment, but I do not want to run out of time here. Mr. Murphy, I am puzzled by your conclusion on the conflicts of interest issue. The HCFA ethics official asked the OGE to confirm certain elements of Dr. Vladeck's ethics agreement, and here is the relevant paragraph. This is when he was hired, OK, because he had these prior connections. He is required by 5 CFR for a period of 1 year--1 year--following his resignation to consider the need for a recusal from personal and substantial participation in an official capacity in any particular matter. That was approved by the Office of Government Ethics, is that correct? Mr. Murphy. Absolutely, yes. Senator Levin. And how many years after his resignation was his involvement, to the extent there was involvement here that had taken place? Mr. Murphy. I think it was almost 3 years. Senator Levin. All right. Senator Collins. Senator, your time has expired. Senator Thompson. Chairman Thompson. Well, that being the case, then, why was Mr. Vladeck trying to stay out of this? My understanding was that he was kind of giving instructions as to what to do kind of behind the scenes, but he did not want to be out front on it, is that not correct? Mr. Hast. That is correct. Chairman Thompson. Well, if there was no conflict of interest problem under the law, then it has to raise the question. Perhaps, just perhaps Mr. Vladeck thought that although there might not be a technical conflict of interest under the law that it might not look too good for an administrator who had been previously on the board of this entity to be pressuring these people to go against their own rules and procedures and secretly cut a deal for $25 million for a claim of $155 million. Perhaps he thought that might not look very good. I agree with Mr. Vladeck. That does not look very good, and I think it is very important that we keep our eye on the ball. An official in a department, especially a lower-level official in a department, cannot cut a deal on his own behalf with regard to a claim that the government has for a few cents on the dollar in hopes that maybe ultimately when all the trials are conducted, perhaps these people did not owe the government all that much money anyway, or that after we have hearings on the subject, maybe we can attack the GAO because of their motivations or something like that. Government officials cannot do that. They cannot go against their own rules. They cannot hide these deals from the attorneys. They cannot keep these things out of the hands of the Justice Department or their own attorneys. They cannot stand back behind a tree and pressure others to do their work for them when it goes against the interest of the government. That is what all of this is about, and I think you have done a fine job in pointing that out. Thank you very much. Senator Collins. Thank you, Senator. Senator Durbin. Senator Durbin. Thank you, Madam Chair. I tried to read this Federal Claims Collection Act, which is your number one reason for arguing that this whole process by HCFA was unfair and improper, and I will tell you, this is really a challenge for any law student, lawyer, or law professor to try to figure out what this law means. We have seen one paragraph of it, just two or three paragraphs down, completely conflicting instructions in terms of whether or not these matters need to be submitted to the Department of Justice. There is a lengthy memo here from HCFA saying that refers to compromises. This was a settlement before an administrative hearing and it does not apply. So there is clearly a difference of opinion, and you have made your case on this. I really think that if that is what you are relying on to convict or condemn, that it is a thin read. May I ask specifically, it has been stated in your report and again at this hearing that Mr. Booth said, ``the settlements were not in the best interest of the government.'' I am quoting from your report, not quoting from Mr. Booth because you did not put it in quotation marks. Were those his exact words? Mr. Hamel. I have to take a look in the report. Senator Durbin. Well, I am anxious for you to do it, because he is going to be here in a little while and he says in his statement that he will give before this Committee under oath, ``I believed at the time the settlements were appropriate.'' So he has either had a change of heart or perhaps what you are representing to the Committee is not what he said. Mr. Hamel. No, he said they were not in the best interest of the government. I do not know whether he quoted it with quote marks around it in the report. That is what I was looking for. Senator Durbin. But those were his words, they were not in the best interest of the government? Mr. Hamel. That is correct. Senator Durbin. Was that the extent of his statement? He did not go any further? Mr. Hamel. Oh, well, there was substantive discussion about settlements, but we asked him at the end of the day, were these in the best interest of the government and he said no. Senator Durbin. In the context of, if we could have received more money from these providers, it would have been better for the government, or in the context that it was illegal or improper to reach these settlements? Give us a context for that statement that has been oft quoted. Mr. Hast. I think that Mr. Booth told us that he believed he was asked to go outside the normal procedures and he was uncomfortable with being asked to go outside the normal procedures and he did it as an accommodation for Mr. Booth. He said that both he and Mr. Ault were uncomfortable with it and they knew full well that these needed to go to their OGC. Senator Durbin. Well, we will have a chance to ask him directly because his statement, which will be under oath, suggests otherwise. Secondly, the question of who would have prevailed if this case had gone to court, I think has been beaten to death here and need not go any further, but I think the fact that these providers are not here today and they were not brought into this to a level to judge the substance really raises a question about that. Finally, let me just say, the last point that you make about the ethics here, I am anxious to hear Mr. Vladeck because your conclusion says, ``More importantly, his participation in the largest of these settlements raise conflict of interest concerns which we could not resolve given his refusal to meet with us,'' and I think it has been at least indicated by his attorney that he was prepared to meet with you, and that is the third point that you made of the three. I think he could have erred on the side of prudence and submitted this to an ethics evaluation because of his past connection and then some conclusion might have been reached. But to base the whole case on that question, or really coming down to that question, really is not what I have seen in the past from the GAO and I certainly hope that subsequent testimony will clarify this. Thank you. Senator Collins. Would you like to respond to that, Mr. Hast, or would you just as soon be excused at this point? Mr. Hast. No, we stand behind what we have submitted in this report. Senator Collins. Thank you for your testimony. I would now like to call forth our second panel of witnesses this morning. Both of these witnesses are currently employed in the regional offices of the Health Care Financing Administration. Our first witness is Jean Ohl, who is a Technical Health Insurance Specialist in HCFA's San Francisco Office. Tony Seubert is a Payment Specialist at HCFA's regional office in New York. Both these individuals participated in the settlement negotiations that resulted in the eventual compromise of Medicare claims in the cases involving LA County and the Health and Hospitals Corporation of New York. Would you please stand so that I can swear you in. Do you swear that the testimony you are about to give to the Subcommittee will be the truth, the whole truth, and nothing but the truth, so help you, God? Ms. Ohl. I do. Mr. Seubert. I do. Senator Collins. Thank you. First of all, I want to thank you very much for being here today. I realize that this is very difficult for you, and indeed, Ms. Ohl's lawyer has expressed concerns to the Subcommittee staff about possible retaliation for her testimony. I want to give you my personal assurance that if there is any such action taken against either of you for telling the truth before us today, that I will personally get involved. We count on our civil servants to do what they believe is right and to tell the truth to members of Congress, and I just want you to have that personal assurance. I know it is very difficult, nonetheless, to be here today and I appreciate your willingness to help us better understand the circumstances of these settlements. Ms. Ohl, do you have a statement you would like to make? Ms. Ohl. No, Madam Chairman, I do not have a statement. Senator Collins. Mr. Seubert, do you have a statement you would like to make? Mr. Seubert. No, I do not. Senator Collins. Thank you. I am going to proceed right to questions, then. I am going to ask each of you to be sure the microphone is right in front of you. They are very directional and it is difficult for us to hear you if you are not speaking directly into the microphone. Ms. Ohl, how long have you worked for HCFA and what is your current position? TESTIMONY OF JEAN OHL, TECHNICAL HEALTH INSURANCE SPECIALIST, HEALTH CARE FINANCING ADMINISTRATION Ms. Ohl. I joined HCFA in 1978 as an Audit and Reimbursement Specialist in the Division of Medicare. From that position, I moved into Audit and Reimbursement in Medicaid. In 1992, I became Manager over the branch that contains the Audit and Reimbursement Section. And in September 1999, I moved out of management into my current position, which is a technical health insurance specialist specializing in fraud and abuse and other special projects. Senator Collins. So you have been with HCFA for more than 20 years, is that correct? Ms. Ohl. That is correct. Senator Collins. At the time of your involvement with HCFA's settlement with LA County, what was your job title and responsibility? Ms. Ohl. I was Branch Manager over the branch that was Program Safeguards in the Division of Medicare. Senator Collins. How did you first become involved in the negotiations with LA County to resolve the disputed reimbursement claims? Ms. Ohl. In mid-October 1996, one of my staff on my Audit and Reimbursement Section, Gary Terada, was asked by another individual in Medicaid to look at a letter that was sent him by LA County explaining that Medicare had owed LA County Hospital some reimbursement. Mr. Coupar, who was the individual in Medicaid that came to Mr. Terada, because Mr. Coupar did not know any of this, and had asked Mr. Terada to look into this, and as Branch Manager, Mr. Terada kept me informed. In early November, then, another letter came in from LA County, again as a result of some information that Mr. Terada had passed back to Mr. Coupar, and this early November letter again discussed some of these issues. Then in mid-November, we received in the regional office an E-mail from Mr. Booth in central office HCFA asking us what we were doing about--if we were doing anything, even, with respect to a settlement on LA County. Senator Collins. At some point during the settlement process, did Mr. Booth inform you that he was taking the matter away from the regional office and that he would handle the settlement negotiations from HCFA's central office in Washington? Ms. Ohl. He wrote an E-mail saying that he believed they could move it faster than the fiscal intermediary could because of a lack of documentation. Senator Collins. And this is the issue where LA County provided some documents but they did not support the claims that were in dispute, is that correct? Ms. Ohl. They were not able to provide acceptable documentation to support what they had claimed on their cost report and which they had under appeal at that time with the PRRB. Senator Collins. Was it unusual for you to lose jurisdiction over the settlement of a claim in your region? Was it unusual for it to be taken out of the region and to be handled by Washington? Ms. Ohl. Well, actually, this is an independent appeal process that HCFA is not to interfere in. It is a provider's due process, and HCFA is--tries to stay out of it so it keeps its independence. We are very conscious about the appeals process being independent. Senator Collins. Do you recall in your 22 years working for HCFA any other case in which it was taken out of the region and handled at Washington? Ms. Ohl. I do not. Senator Collins. So this was the only case that you remember in your 22 years at HCFA? Ms. Ohl. This was very unusual, yes, the only one I remember. Senator Collins. And did Mr. Booth ever tell you that he was under direction from Mr. Vladeck, HCFA's Administrator, to resolve the dispute? Ms. Ohl. Yes, he did. He said he was doing this as a personal favor to Mr. Vladeck. Senator Collins. He said that he was handling it as a personal favor to Mr. Vladeck? Ms. Ohl. That is correct. Senator Collins. Did he mention that part of the purpose was to get more money for LA County? Ms. Ohl. Yes, he did. Senator Collins. What is your understanding of the Federal Claims Collection Act? Do you believe that the Justice Department does need to sign off on settlements exceeding $100,000, based on your experience? Ms. Ohl. Yes, they do. Senator Collins. So in your opinion, had you been handling this case in the normal course, had it not been so highly unusual, in fact, unique in your career, the LA County settlement would have been referred to both the Office of General Counsel and the Department of Justice for review and approval? Ms. Ohl. Yes, that is correct. Senator Collins. Ms. Ohl, did you and the other officials in the regional office think that the LA County settlement was a good deal for the Medicare trust fund? Ms. Ohl. No. In fact, I had documented my concerns in an E- mail to our central office and I stated in that E-mail that I did not think this was in Medicare's best interest---- Senator Collins. Let---- Ms. Ohl. And I was not alone in this. The whole regional office is very much behind me in this position. Senator Collins. So all of your colleagues who are familiar with this case agreed with you that this was not in the best interest of the Medicare trust fund? Ms. Ohl. Those of us working in the Medicare program, that is correct. Senator Collins. And they were upset about what was happening? Ms. Ohl. That is correct. Senator Collins. Could I show you the E-mail that you sent to Mr. Booth responding to his request for comments on the draft of the proposed agreement.\1\ Now, again, is it accurate that you sent this E-mail because you wanted to be on record that you were very dissatisfied with this settlement, you thought it was a bad deal for the government? --------------------------------------------------------------------------- \1\ See Exhibit No. 3 which appears in the Appendix on page 103. --------------------------------------------------------------------------- Ms. Ohl. Yes. Senator Collins. And you told my staff that you were shocked when you saw the proposed settlement and the terms of the settlement. Why was that? Ms. Ohl. I was shocked because the original amounts that were claimed on the hospital cost reports for LA County totaled about $12 million that were under appeal with the PRRB. And, additional documentation that LA County had provided to central office had shown various issues that they felt were a little bit higher than that. They had eventually raised that amount to somewhere around $32.5 million. And, I thought that was the last I had heard of what figures we were talking. So in early March 1997, when we got the proposal to look at the settlement agreement, it had $51 million in there, and I was very surprised--extremely surprised, to say the least. I went back to my staff to ask for an explanation, to see if he could explain it. He was able to come up with some documents to show me that in mid-January 1997, Mr. Booth had sent some documents LA County had provided to the fiscal intermediary to get a background explanation of what the issues were, and in there, the figures actually totaled about $53.6 million. So, actually, further on in this very same E-mail, I asked for an explanation of my assumption being that the $51 million settlement was on the $53.6 million, because that is all I knew about. Senator Collins. Was one of your concerns, and I believe it says in the E-mail that the basic dispute between LA County and the fiscal intermediary is one of recordkeeping and billing requirements or the lack of supporting documentation, rather than a difference in policy interpretation? Ms. Ohl. That is correct. The biggest portion of this was bad debts. LA County had actually several times delayed their hearing on that particular issue because they did not have documentation to support their position, and they had actually sent letters to the PRRB asking for delays because they did not have documentation. Senator Collins. So were you essentially warning Mr. Booth that LA County could not prove its claims for reimbursement under Medicare? Ms. Ohl. They would not be able to, in my opinion or the opinion of the fiscal intermediary, to be able to justify all of what they were claiming. Senator Collins. Did you believe LA County was getting special treatment? Ms. Ohl. Yes, I did. Senator Collins. Are you aware of any other providers in your region that have received this kind of special treatment? Ms. Ohl. No, I am not. Senator Collins. Is that part of the reason why you were so upset about this settlement? Ms. Ohl. I believe that was the major reason. A process like this circumvented the normal procedures and allowed special consideration. If something like that were to get out, it would set very bad precedents and we would be inundated with additional requests, and it was clearly outside the authority we in the regional office would have to deal with these. Senator Collins. Is it fair, Ms. Ohl, to say that you thought HCFA was simply giving LA County the money without regard to whether they were entitled legally to reimbursement under Medicare? Ms. Ohl. I cannot say what documentation LA County finally provided to central office, but all of the documentation that we had seen in the regional office or that our fiscal intermediary had seen clearly did not support the amounts that were being claimed in these numbers. Senator Collins. Thank you. Senator Levin. Senator Levin. Thank you, Madam Chairman. When we say LA County, is that like a group of hospitals? Ms. Ohl. They have, I am not sure of the number, but it is eight to ten hospitals. Senator Levin. And they have a lot of health care centers? Ms. Ohl. Yes, they do. Senator Levin. Could there be as many as 40 or 50 health care centers? Ms. Ohl. I am not sure what you mean by health care centers, but they have a lot of outpatient departments associated with each of those hospitals and there are probably even more than that number. Senator Levin. The figures we have are that there are about 3 million outpatient visits a year at these facilities and that they total 54. Would that sound within the ballpark? Ms. Ohl. I would not know, sir. Senator Levin. Could that be possible? I mean, could it be millions of outpatient visits a year? Ms. Ohl. It could definitely be. LA County is tremendously large. Senator Levin. And there was a problem, a dispute, whatever you want to call it, a billing difference that covered years starting in the early 1980's? Ms. Ohl. There were actually two different types of problems we were dealing with. We were dealing with LA County's inability to actually submit claims for services provided, and that was actually in another part of the division that I did not have first-hand knowledge on. The part that I was looking at was the audit side, where it talked about the reimbursement and identification of costs involved. With bad debts, that falls under my area, and that would be the coinsurance, the deductible portion of the claims that should have been billed. And yes, they did have problems actually submitting claims. Senator Levin. And this problem that existed for about-- since the early 1980's, so there was an ongoing problem about billings and reimbursements with a whole bunch of hospitals here, is that correct? Ms. Ohl. My understanding on that side, on the claims side, is that LA County was developing new computer systems and billing systems that were supposed to be ready in 1992 or 1993. Again, it is not my primary area of responsibility, but those are--I had been told by the contractor rep for Blue Cross of California at the time. Senator Levin. Now, HCFA had actually had money in its hands which the Los Angeles Hospital claimed, is that correct? In other words, was there not, once this process began, a decision by HCFA to hold up on certain reimbursements, to hold back on certain reimbursements, is that correct? Ms. Ohl. HCFA does not hold back on reimbursement. It pays--when the claim comes in, it makes an interim determination and pays that amount. There is a final settlement, and that goes on through the cost report at the end of the fiscal year. Then the fiscal intermediary is responsible for settling that cost report through an audit-type process and that audit process would make adjustments for any costs that the auditors would find to be not Medicare-related, inappropriate, unreasonable, unnecessary, and that would be an adjusted amount. Then there would be a claim that would go out called an NPR, the Notice of Program Reimbursement, and at that point in time is when Medicare, if there was an overpayment, would demand payment back on that. Senator Levin. In addition to demanding payment back, they also would withhold money that would be otherwise owing to the hospitals, is that correct? Ms. Ohl. Only withhold after giving the provider an opportunity to pay or ask for an extended repayment plan, and if neither one of those were met, then they would be put on withhold. Senator Levin. Was about $53 million then withheld here from these hospitals? Ms. Ohl. I could not say. I do not know where the $53 million came from. Senator Levin. You do not know how much money was withheld, if any, from these hospitals? Ms. Ohl. I am trying to understand how to--try to figure out how to explain the process to you, sir. The cost report may have actually even come up with an underpayment and a payment may have been made at that point in time. I do not know. I did not go back in the history and see that process. The $53 million figure came from LA County, I presume. I do not know what it is based on, nor do I know if it was ever even included in the cost report for there ever to have been a withholding on it. Senator Levin. So you do not know whether there was an NPR relative to these hospitals? Ms. Ohl. There is an NPR related to them, but the NPR, in that, there is only $12 million in dispute. Senator Levin. Is it fair to say there were a lot of unresolved reimbursement claims between HCFA and the hospitals? Ms. Ohl. Unresolved reimbursement adjustments on the cost report. Senator Levin. Right, and that they had been outstanding, these differences, disputes, for many, many years? Ms. Ohl. That is correct. In fact, they were actually scheduled to be heard by the PRRB and delayed at the request of LA County. Senator Levin. And the unresolved claims had gone back as far as the early 1980's, is that accurate, do you know? Ms. Ohl. I have heard as early as 1981, but I believe at this point in time things had been settled up until about 1986, 1987, 1988, so there is really only at this point in time going back to the latter part of the 1980's. Senator Levin. Let me read you a letter which was received, I believe yesterday, from Congressman Waxman, that I would ask to be made part of the record.\1\ --------------------------------------------------------------------------- \1\ See Exhibit No. 28 which appears in the Appendix on page 246. --------------------------------------------------------------------------- Senator Collins. Without objection. Senator Levin. ``It has come to my attention that the Senate Governmental Affairs Subcommittee is conducting a hearing tomorrow concerning how HCFA settled certain Medicare claims in 1996, including some claims relating to public hospitals in LA County. I thought it might be useful to give you some context on this issue.'' ``During the 1995-96 period, LA County was in a period of severe fiscal crisis with alarming implications for the continued viability of the public hospital system. There were threats of bankruptcy and some were even suggesting that the county would have to walk away entirely from their obligations to serve the poor. There was probably not a member of the LA delegation of either party who was not aware of the serious threat posed to continuing health care services to the many poor and uninsured persons who were served by these providers.'' ``During that period, the California State administration under Governor Wilson supported and forwarded to HCFA proposals for a waiver of certain Medicaid requirements, and during the discussions of the county and State with HCFA, the severity of the problem facing the LA health system was undoubtedly impressed on HCFA and other officials in the administration. Many members of the delegation, I am sure, urged HCFA officials to act appropriately and responsively in whatever areas were before them to aid the county in avoiding what loomed as a public health disaster. In other words, we wanted to assure that inattention or bureaucratic delays in resolving resolvable issues were avoided to the extent possible.'' Were you familiar with the effort on the part of the California delegation and the governor to get this matter resolved because of the financial circumstances of the hospitals? Ms. Ohl. I knew on the Medicaid side of our regional office that they were working in trying to see what could be done, but I did not know the details related to that. Senator Levin. Thank you. Thank you, Madam Chair. Senator Collins. Thank you. Senator Thompson. Chairman Thompson. Thank you very much. Mr. Seubert, let me ask you some questions, and I have several questions and I will try to get through them as fast as I can here. I understand that you have worked for HCFA since 1976? TESTIMONY OF TONY SEUBERT, PAYMENT SPECIALIST, HEALTH CARE FINANCING ADMINISTRATION Mr. Seubert. That is correct. Chairman Thompson. You are currently a Payment Specialist in the New York Regional Office? Mr. Seubert. Correct. Chairman Thompson. You previously worked in overpayment review for many years, is that right? Mr. Seubert. I did. Chairman Thompson. You became aware of the settlement negotiations between the New York City Health and Hospital Corporation, HHC, and HCFA. As I understand, in the spring of 1996, Chuck Booth called the regional office to tell you about a meeting that was being set up at your office with Empire, the fiscal intermediary, and HHC to discuss the appeals, is that correct? Mr. Seubert. That is correct. Chairman Thompson. What was the purpose of this meeting? Mr. Seubert. As I understood it, the purpose was to initiate a discussion between the provider, Health and Hospital Corporation, and HCFA to see if there could not be some settlement reached or some breaking of the logjam. Chairman Thompson. When Mr. Booth arrived in New York, did you offer to help him in any way? Mr. Seubert. I did. Chairman Thompson. What was Mr. Booth's response? Mr. Seubert. Mr. Booth cautioned me. I think his words were, ``Do yourself a favor, stay away from this.'' Chairman Thompson. What did you think Mr. Booth meant by that statement? Mr. Seubert. I took it to be a caution that this was highly sensitive in nature and that there would be some rocky shoals and that I might be wise to give it some distance and just sit at the table. Chairman Thompson. Did you attend that first meeting? Mr. Seubert. I did. Chairman Thompson. Did you find the meeting to be unusual in any way? Mr. Seubert. I did, Senator. Chairman Thompson. Why was it unusual? Mr. Seubert. Similar to the situation that I just heard Jean Ohl explain in California, the bad debt issue was a prominent issue under discussion. Bad debt is a relatively straightforward issue. It is a matter of producing documentation to substantiate a provider's claim for reimbursement. Essentially, it is to show that there was, in fact, treatment made and that that claim for payment had gone unpaid and that all necessary action had been made to collect that debt. It became apparent during the course of discussion that the fiscal intermediary, Empire Blue Cross, felt very strongly that the documentation requirements had not been met. At some point during the discussion, Mr. Booth offered a suggestion that something called the disproportionate share percentage be inserted in lieu of actual hard documentation for bad debts, and that was very unusual. Chairman Thompson. And why was that unusual? Mr. Seubert. Well, it would be a proxy in lieu of documentation. Normally, Medicare, we work as an entitlement program---- Chairman Thompson. In other words, was he suggesting a settlement on behalf of HCFA that was based on no empirical data? Mr. Seubert. That is correct, no supportable document, or no supportable, auditable documentation. Chairman Thompson. Did anyone else find that meeting to be unusual? Mr. Seubert. Yes, Senator. Chairman Thompson. Who? Mr. Seubert. Well, the auditors I spoke to at Empire Blue Cross and the Director of Audit and Reimbursement were somewhat disturbed by it. Chairman Thompson. Would this be a Mary Adam from Empire? Mr. Seubert. She was and still is the Director of Audit and Reimbursement at Empire. Chairman Thompson. Was she one of the ones who expressed shock or surprise? Mr. Seubert. Yes. Chairman Thompson. At Mr. Booth's comments and methodology for resolving the bad debt claim? Mr. Seubert. Yes. Chairman Thompson. Is it my understanding that you did not attend additional meetings related to the settlement negotiations? Mr. Seubert. That was the only meeting I attended. Chairman Thompson. Why? Mr. Seubert. To be candid, I was kind of disturbed by the outcome of the meeting and the direction it was taking, and frankly, I did not want to be sitting somewhere like here today. [Laughter.] Chairman Thompson. Well, I would rather be sitting here with your story than some of the other stories that we are going to hear. Do you believe that HCFA gave HHC special treatment? Mr. Seubert. I do. Chairman Thompson. Were they trying to cut a special break for HCFA? Mr. Seubert. It appeared so. Well, not for HCFA, but for the Health and Hospital Corporation. Chairman Thompson. I am sorry, for HHC. What has been your experience with regard to HHC? Mr. Seubert. They were a troubled provider chain. At any point in time, there were about a dozen hospitals, sometimes more, sometimes a few less depending on who was still in business, but when I say troubled, their documentation or their ability to produce documents to substantiate costs that were claimed by the Medicare or in the Medicare program were less than good. Chairman Thompson. What is HHC's history at HCFA, how they have been treated? Mr. Seubert. Well, they had a record for appealing almost everything. I think at the time that this settlement was reached, there was somewhat in excess of 100 appeals pending and they were tardy in allowing us in to perform audits and they were tardy in producing documentation. They were a problem provider, which is not to say that they did not have a lot of work to do. In terms of our dealings with them, though, they were unable to substantiate costs with frequency. Chairman Thompson. Did they have a reputation as to how they were treated at HCFA? Mr. Seubert. I think they were treated with kid gloves over the years because they did deal with a large number of inner- city hospitals and a poor population. Chairman Thompson. Were you concerned that the settlement was not proper? Mr. Seubert. I was. Chairman Thompson. Explain that a little bit. Mr. Seubert. I was concerned with two things. We have already talked about the Federal Claims Collection Act, and I think that that was still a factor. My understanding is that under the Federal Claims Collection Act, any time there is in excess of $100,000 in controversy, and HCFA did have a claim substantially in excess of that amount, that the Department of Justice was supposed to sign off on any agreements that were reached. I do think there was collection made on the original debt and some of that might not have been totally under the Federal Claims Collection Act. But it is my understanding that part of the debt was still outstanding and the part that was collected was under appeal. In fact, the whole amount was under appeal to the Provider Reimbursement Review Board, but as Jean Ohl testified, normally, HCFA's position is one of non-involvement in the process once an appeal is initiated before the Provider Reimbursement Review Board. Chairman Thompson. But they were involved in the process in this case big-time? Mr. Seubert. Yes. Chairman Thompson. Do you think HCFA has the authority to agree to compensate HHC for bad debts in the past or into the future without requiring HHC to provide proof of the costs that they were claiming? Mr. Seubert. In the past, I would say yes, as long it is under the threshold of $100,000 because there was precedent for settlements being reached based on secondary evidence. Into the future, I would say absolutely not. Chairman Thompson. Have you ever seen the actual settlement agreement with HHC? Mr. Seubert. I did, subsequently. Chairman Thompson. From what you know of the settlement, do you think it was a good deal for the Medicare trust fund? Mr. Seubert. I will only address the bad debts, because that is the only thing I had a discussion about with the folks at Empire Blue Cross, and that was the largest part of the settlement. I spoke to the Empire auditors at length about it, and based upon the discussions I had with them, I would say resoundingly, no, it was not a good deal. Chairman Thompson. Did HHC have any proof whatsoever for bad debts? Mr. Seubert. My understanding is they had some and they were compensated for the proof that they presented. The issue revolved around those debts that were unsubstantiated. Chairman Thompson. Did you think HHC would have prevailed on the merits of its appeals if they had gone before the PRRB? Mr. Seubert. Well, clearly, no. I have not looked at their audit papers, but if something is unsubstantiated, again, this is an entitlement program and the burden is on the provider in the first instance to submit documentation. If documentation does not substantiate the claim, it cannot be supported upon appeal. Chairman Thompson. There is a provision on page 2 of the settlement agreement,\1\ paragraph 1(b), which as I understand it binds HCFA to compensate HHC for a certain percentage of all future bad debt claims without requiring HHC to prove that they incurred those costs. Are you familiar with that part of the agreement? --------------------------------------------------------------------------- \1\ See Exhibit No. 21b. which appears in the Appendix on page 137. --------------------------------------------------------------------------- Mr. Seubert. I am. I have read that part of the agreement. Chairman Thompson. What is your view of this clause of the HHC agreement? Mr. Seubert. I find it mystifying. Barring an approved waiver agreement, it basically carves out an exception for Health and Hospital Corporation as opposed to all other providers in the Medicare program. Chairman Thompson. Do you believe this settlement subverts the audit process? Mr. Seubert. I do. Chairman Thompson. Well, I do not know of anything that I can add to that, other than to thank both of you. We have seen these problems that HCFA has had in times past and now we are understanding why. But we also see that there are some people on the inside trying to do the right thing, and I want to tell you how much I appreciate it and associate myself with the statements of the Chairman. Senator Collins. Thank you, Senator. Senator Durbin. Senator Durbin. Thank you, Madam Chair. I just have a few brief questions. I want to clarify here. The GAO report states that HCFA agreed to accept about 36 percent of the total principal at issue in the LA County case and the Visiting Nurses case. Is that your understanding? Mr. Seubert. Senator, I am unfamiliar with those two cases. The only one I have a familiarity with is the Health and Hospital Corp. Senator Durbin. Do you have any familiarity with those? Ms. Ohl. I have not seen the GAO report, so I cannot comment on what it might have said. Senator Durbin. Well, the reason I raise that question is that I am told that, according to the numbers in the statement from Mr. Booth, the total amount at issue in Los Angeles County and HHC was $273 million. Is that your understanding? Ms. Ohl. In Los Angeles County, what was claimed on the cost report and that was under appeal was closer to the $12 million figure I referenced earlier. And then as Mr. Booth asked for additional documentation from LA County, those issues grew in numbers and I cannot discuss what made them up because I never saw any documentation. Senator Durbin. Then I will pursue this question with Mr. Booth. I do not want to put you on the spot on something you are not familiar with, but it is my understanding that the total amount at issue in LA County and HHC was $273 million and the settlement was for $181 million, recovery of about 67 percent, and that the Visiting Nurses matter was settled for over 70 percent of the disputed claim. I just want to make sure that that is clarified. But could I ask you this, Ms. Ohl, if you would. I read in the testimony we are going to receive from Mr. Vladeck that this Los Angeles County situation was, he characterized, a potentially massive public health crisis and might have forced hospitals to close and outpatient facilities to close, as well, due to lack of funds. Do you think that is a fair characterization? Ms. Ohl. I am not familiar with the details at that time. LA County, in fact, I mentioned it in my E-mail, that it does a lot of indigent care, a lot of that type of stuff, but I do not understand--from the documentation and discussions I had with Blue Cross of California, there is evidence that some of the amounts in those figures were for patients or individuals who were not Medicare beneficiaries. So I did not understand how we could use Medicare trust fund dollars to pay for those, and I suggested alternatives in my E-mail, such as grant program. Senator Durbin. Again, that raises the question about why the GAO did not go into more depth in terms of the substance of this claim, and I do not understand that still, why they did not do so after they made some rather sweeping conclusions about whether the amount of settlement was adequate. But thank you very much for your testimony. Senator Collins. I want to thank you both for being here today and for your complete and candid responses to questioning. Senator Levin. May I ask one more question? Senator Collins. If it is quick. Senator Levin. Thank you, Madam Chairman. There was a claim that HHS had against HCFA, is that not correct? Mr. Seubert. HHC, Health and Hospital Corp. Senator Levin. I am sorry. HHC had a claim against HCFA because HCFA had withheld a significant amount of money, is that right? Mr. Seubert. It was an appeal. They had an appeal of monies that they claimed against HCFA. Senator Levin. But that money was basically withheld by HCFA, was it not? Mr. Seubert. I believe it was partially withheld. I believe some was still outstanding and some had been---- Senator Levin. Do you know about how much money? Would it be in the $100 million range? Mr. Seubert. I think initially, the amount in controversy was in the $100 million range, but how much was still outstanding, I am not certain of, Senator. Senator Levin. But is it possible that there was $100 million that HCFA had withheld that HHC was claiming? Is that possible? Mr. Seubert. It is. Senator Levin. Because sometimes we talk about overpayments, claims and so forth. In this case, I understand, money, a significant, large amount of money, had been withheld by HCFA which HHC claimed, and that is what the dispute was about. In ordinary parlance, it was a claim that HHC had against HCFA for money which had been withheld by HCFA. But we talked to Rick Langfelder, of HHC about the documentation. He said that HHC had given HCFA a room full of documents on their bad debts. Did they give a large number of documents on bad debts? Mr. Seubert. My understanding is, yes, it was a--because there were at least 12 hospitals involved and bad debt, by its very nature, particularly on the outpatient side, involves one record for each claim paid, so there was quite---- Senator Levin. Does HHC have 11 hospitals, three skilled nursing facilities, and service perhaps 5 million outpatients a year? Mr. Seubert. That sounds accurate. Senator Levin. And the settlement in question here covered about 11 years, is that correct, from 1982 to 1993? Mr. Seubert. My understanding was 1983 to 1993, yes. Senator Levin. Eighty-three to---- Mr. Seubert. Eighty-three to 1993 was my understanding. Senator Levin. Thank you both for coming forward. Senator Collins. Again, I very much appreciate your testimony and your coming forward and explaining the circumstances of these cases to us. Thank you. Mr. Seubert. Thank you, Senators. Senator Collins. Our next witness this morning is Charles Booth, who is currently the Director of the Financial Services Group for the Health Care Financing Administration. Mr. Booth executed the three overpayment settlements at the center of the Subcommittee's investigation. He has been an employee of HCFA since 1977, but actually originally joined the Medicare program at its inception in 1965 when he was employed by the Social Security Administration. I would now like to administer the oath to you. Do you swear that the testimony you are about to give will be the truth, the whole truth, and nothing but the truth, so help you, God? Mr. Booth. I do. Senator Collins. Thank you, Mr. Booth. Mr. Booth, would you like to proceed with your statement? TESTIMONY OF CHARLES R. BOOTH,\1\ DIRECTOR, FINANCIAL SERVICES GROUP, HEALTH CARE FINANCING ADMINISTRATION Mr. Booth. Thank you, Madam Chairman. Madam Chairman and members of the Subcommittee, good morning. My name is Charles R. Booth. I am a career Federal employee and have worked for the Federal Government for 40 years. I am Director of the Financial Services Group, Office of Financial Management in the Health Care Financing Administration. In that position, I am responsible for the management of the agency's current administrative budget and spending. I have held this position since July 1977--1997, excuse me. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Booth appears in the Appendix on page 78. --------------------------------------------------------------------------- From 1984 through 1994, I was the Director of the Office of Payment Policy in the Bureau of Policy Development. In about 1988, the name of the office was changed from the Office of Reimbursement Policy and the name of the bureau was changed from the Bureau of Eligibility, Reimbursement, and Coverage, but the functions were essentially the same. I directed a staff to determine the administrative policies for reasonable cost reimbursement, reasonable charge payment, and payment under a variety of fee schedules as Congress enacted them over the years. In addition, when disputes arose about the meaning of various policy interpretations, my staff and I responded to those inquiries. Some of those disputes involved the Office of the General Counsel of Health and Human Services. I was the person they consulted about HCFA's views on whether to settle or appeal certain cases, including those that arose from decisions issued by the Provider Reimbursement Review Board. In November 1994, there was a reorganization within the Bureau of Policy Development and my role changed somewhat. I assumed more responsibilities for hospitals but no longer had the payment policy responsibility for physician services, home health agencies, or skilled nursing facilities. I held that position until July 1997. A dispute arose in the early 1990's between the Visiting Nurses Service of New York, VNS, and its fiscal intermediary, United Government Services. United Government Services had reviewed certain costs for this home health agency which it wanted to disallow. Because the consequences were very significant, United Government Services discussed them with members of my staff and me. Representatives from VNS also met with us. Those meetings occurred in the fall of 1993. There were also a variety of phone calls with United Government Services representatives and other phone calls with an attorney representing Visiting Nurses Services. Visiting Nurses clearly wanted to reach some compromise with United Government Services before any final decisions were made. United Government Services asked us in late February 1994 if HCFA was in agreement with its proposed action. After checking with Thomas Ault, who at the time was the Director of the Bureau of Policy Development and my immediate superior, we said we were. United Government Services issued its decisions, those are Notices of Program Reimbursement, at the end of February 1994. Within a few days, Mr. Ault directed me to find a way to settle this issue. He asked me to meet with representatives from Visiting Nurses Services to find some middle ground because the amount at issue was too great. He indicated this needed to be accomplished quickly. As a result, I met with representatives from Visiting Nurses Service and United Government Services on or about March 10, 1994, and we reached an agreement. The settlement agreement was drafted by United Government Services, was reviewed at length by Visiting Nurses Service, United Government Services, and me, and finally signed in April 1995. The main issue in this dispute was whether the length of time Visiting Nurses Services claimed for nurses aides' visits was reasonable. Visiting Nurses served a large Medicaid population as well as a large Medicare population. The aides provided services to the Medicaid population that went beyond those for which Medicare would normally pay. These included homemaker services such as food shopping. While the average length of the Medicare visit was a little over 3 hours, the average length of the Medicaid visit was about 12 hours. Visiting Nurses Services claimed that we should average all the aide visit time for all patients and that Medicare should pay the cost based on that average for aide visits provided for Medicare beneficiaries. United Government Services contended the aide visits for Medicaid beneficiaries were not like those provided to Medicare beneficiaries and that Medicare should pay only for the time the aides spent with Medicare patients, carving those out from the other visits. Costs for several years were at issue. United Government Services was proposing to disallow about $93 million. As a result of the settlement, Visiting Nurses Services paid the Government approximately $67 million. In late January 1996, Mr. Ault, still my immediate supervisor, gave me a note dated January 19, 1996, from Rick Langfelder to his boss, Maria Mitchell. Mr. Ault told me to look into it, contact Mr. Langfelder, find out what was going on. Mr. Langfelder worked for the New York Health and Hospitals Corporation, HHC, an agency of the New York City Government that operated several hospitals. It was not clear from the January 19 note what the issues were. I did contact Mr. Langfelder, met with him and others from HHC in February 1996. There were several issues HHC had with its fiscal intermediary, Empire Blue Cross, going back to the early 1980's. We discussed these issues again in May. However, by then, I had heard directly from Bruce Vladeck, the Administrator of the Health Care Financing Administration from May 1993 until September 1997. Dr. Vladeck inquired about what progress was being made to settle the issues raised by HHC. He was obviously disappointed by the lack of progress in settling these issues and expressed his strong desire to see more progress. I met again with Langfelder and the others from HHC at the HCFA regional office in New York. That meeting took place in June. Representatives from Empire also attended. I had called William Toby, the Regional Administrator in New York, to ask if we could use space in his office as I believed it would be better to meet there than at HHC. Tony Seubert attended the meeting for Mr. Toby. We discussed the issues and HHC's estimate of the value of those issues but made little progress toward resolution. Dr. Vladeck inquired about the status of the negotiation soon after the June meeting. He advised me that he needed to ``report to the 6th floor.'' I took that to mean the Department's Office of the Secretary, but Dr. Vladeck provided no further description. Parenthetically, it is common within the agency to refer to the 6th floor as meaning the Office of the Secretary. He was clearly not happy that very little progress had been made at the June meeting. I recall sending him an E-mail saying that I believed that if we moved quickly to settle the issues, we would end up paying more money. His reply was that he wanted it settled very quickly, that it was worth the extra money. I took this to be his clear direction to settle the issues. An agreement was reached in mid-August. That meeting was also at the regional office. Empire drafted the settlement agreement, which was reviewed by all the parties and signed in mid-September. The issues settled were worth approximately $200 million and Empire paid HHC approximately $130 million. In November 1996, I received a phone call from an analyst in the Office of Research and Demonstrations of the Health Care Financing Administration advising that Dr. Vladeck wanted me to look into a dispute between the Los Angeles County Hospitals and their fiscal intermediary, Blue Cross of California. I had a short discussion with Dr. Vladeck in late November or early December 1996, when he advised me that the time pressure was not quite so severe. It was very clear to me that this was a directive from Dr. Vladeck that he wanted this matter settled, as well. I contacted representatives from Los Angeles County, had discussions with representatives from Blue Cross of California, and reached a settlement agreement with county representatives in late February 1997. As with HHC, there were several issues in dispute. I drafted a settlement agreement along similar lines as the HHC agreement and sent it to representative from Los Angeles County, the fiscal intermediary, and the HCFA regional office in San Francisco. The agreement was revised somewhat and signed and Blue Cross paid Los Angeles County about $51 million. The value of the issues in dispute was about $73 million. I believed at the time and I believe now that I was acting under the express direction of Mr. Ault in the first instance and Dr. Vladeck in the latter two. I believed at the time the settlements were appropriate. I now know that I should not have agreed to or signed those settlements without the involvement of the Department's Office of General Counsel and agreement from the Department of Justice. At no time did I intend to violate any rules, regulations, or laws. I have spent 33 years of my 40-year career working for the Medicare program, and I have tried to work for the best interests of Medicare beneficiaries and the Medicare program during this period. Thank you. I will try to respond to any of your questions. Senator Collins. Thank you, Mr. Booth. Mr. Booth, you just mentioned that you have been with the Medicare program since its inception, for more than 30 years. During that time, were there other occasions in which the Administrator of HCFA called you and directed you to settle cases like these three? Mr. Booth. No, Madam Chairman, there were not. Senator Collins. So---- Mr. Booth. May I say, there were other situations in which people came to see me saying the administrator sent them. I normally did not believe them. These were the only three where now--in the first instance, in VNS, I dealt only with Mr. Ault until after the agreement was made. In the second 2, I dealt with Dr. Vladeck directly. Senator Collins. In your deposition, you said that the request came from Mr. Ault but clearly he was acting at the behest of Mr. Vladeck, is that correct? Mr. Booth. I thought I said that was my belief. Senator Collins. OK. Mr. Booth. But Dr. Vladeck had no contact with me on the VNS matter until after the VNS matter had been settled. Senator Collins. But did on the other 2? Mr. Booth. But did on the other 2. Senator Collins. On those 2, those were the only times in your more than 30-year career when the direction clearly came from the administrator? Mr. Booth. Yes, but let me say that I was in the policy position from 1984 to basically July 1997. Those are the only times the administrator would have come to me under those circumstances. I had other responsibilities in other aspects of the program prior to that, so I think the characterization that--I mean, other administrators came to me to do other things, but not settlements. Senator Collins. Not settlements? And in your deposition, you said to the Subcommittee that these were clearly outside of our normal practice because of the way in which you were asked to do them. Do you stand by that statement? Mr. Booth. Yes, Madam Chairman, I do. Senator Collins. I would like to ask you some details about the HHC case and to flesh out the testimony that you have given us. Now, it is my understanding, based on your deposition and your testimony, that in the spring of 1996, Mr. Vladeck asked you to look into the outstanding Medicare appeals involving HHC and that he asked you to give him periodic status reports. Did he explain to you why he wanted status reports? Mr. Booth. Not at first. After about the second one, he said that he needed to report to the 6th floor. Senator Collins. And you have explained that that is where the Secretary's office is? Mr. Booth. Yes, Madam Chairman. Senator Collins. And in the common parlance of HCFA, when you refer to the 6th floor, you are referring to the Secretary's office? Mr. Booth. Normally, yes. Senator Collins. In July 1996, did Mr. Vladeck send you an E-mail commenting on the pace at which the negotiations were moving? Mr. Booth. I thought that E-mail was probably in June, but I would not dispute that it was June or July. Senator Collins. Did he express his hope or his opinion that the pace was too slow and he wanted you to pick up the pace of the negotiations? Mr. Booth. It was clear that he wanted the matter settled and he wanted it settled very quickly. Senator Collins. In response to the concerns that Mr. Vladeck expressed to you about the pace not being fast enough, did you advise him that if you rushed the process, it could end up costing HCFA and additional $8 to $10 million? Mr. Booth. Yes, Madam Chairman, I did. Senator Collins. And what did Mr. Vladeck reply when you expressed this concern that if you hurried the process, the Medicare trust fund could end up paying $8 to $10 million more money? Mr. Booth. I cannot remember the quote exactly, but the essence was that time was more important than money. Senator Collins. Did that exchange leave you with the impression that completing the settlement quickly was more important than the actual amount of the settlement, than trying to maximize the amount that the government would recover? Mr. Booth. Yes, but may I add that the government actually had the money. Senator Collins. Had the money, because it had been withheld. Mr. Booth. Right. In the cost settlements from 1983 through 1992, at least, and in some cases I think 1993, when the costs were settled and the Notices of Program Reimbursement were issued, the fiscal intermediary then took whatever money was owed, if there was money owed, based on the intermediary's assessment of the value of the issues. And so all the money that we were discussing during the settlement negotiations was in the Medicare trust fund. Senator Collins. And after Mr. Vladeck expressed concern to you about the speed of the negotiations, how long was it, approximately, before you reached an agreement with HHC, do you recall? Mr. Booth. The agreement was reached in mid-August---- Senator Collins. So it was within a few weeks? Mr. Booth. So within a few weeks, but three to six. Senator Collins. And as a result of the agreement, HCFA agreed to reimburse HHC or to pay HHC for roughly $130 million of the $155 million in dispute, is that correct? Mr. Booth. My recollection is that there was approximately $200 million in dispute, not 155. But we did agree to pay $130 million. Senator Collins. So what you are saying is the amount forgiven may be even more than I realized based on the GAO report, which was an estimate of $155 million? Your recollection is that the total amount in dispute may have been about $200 million, is that correct? Mr. Booth. Yes, but we paid 130 out of 200, not 130 out of 155. So we got a better deal than I think at least the GAO testimony this morning would have led me to believe. And I had given the GAO those numbers when I had met with them as early as May 1999. Senator Collins. Was the primary issue in dispute that HHC did not have the proof to document its claims for reimbursement of bad debts under Medicare? Mr. Booth. Yes. Senator Collins. And did this settlement with HHC essentially cut them a break by reimbursing the hospital for a percentage of the bad debt costs without HHC having to prove that they actually incurred the costs? Mr. Booth. No. Senator Collins. Tell me what the settlement did. Mr. Booth. It was clear that Medicare beneficiaries received both inpatient and outpatient services. When a Medicare beneficiary receives a service for which there is a deductible and the Medicare beneficiary is unable to pay that deductible or unwilling to pay that deductible, then there are some things that the provider, in this case, HHC, needs to do. They need to document whether or not the patient is indigent, and if the patient is not indigent, they are then required to send the patient at least two letters demanding payment of that deductible or coinsurance. What the issue was, was whether or not Health and Hospitals Corporation in this case, and LA County in the other, could actually produce proof that they had sent those letters or whether they had proof that they had asked the right questions to determine whether or not the patient was indigent. It was not, in my view, a question of whether or not the services had been rendered and the costs had been incurred. The intermediaries in both cases had paid interim payments for the bills as they were processed. That led me to believe, at least, based on my discussions with both of the intermediaries involved and with the providers, that the costs, indeed, had been incurred. It was the question of not being able to prove that all the documentation was available. Senator Collins. Mr. Booth, in your deposition, your sworn deposition before the Subcommittee staff, you said, quote, ``In a couple of areas, we allowed past poor practices to be carried into the future, and by basically not requiring documentation, we were giving them a break.'' Do you stand by that statement? Mr. Booth. Yes, Madam Chairman, I do. The practices were poor because they did not have all the documentation that the intermediary felt was necessary. Senator Collins. Do you feel that Mr. Vladeck pressured you to get the HHC deal done? Mr. Booth. Yes, Madam Chairman, I do. Senator Collins. Did you know that Mr. Vladeck, prior to becoming the Administrator of HCFA, served as a director of HHC? Mr. Booth. I do not know whether I knew that or not. I do not think it would have been relevant one way or the other. Senator Collins. Senator Levin. Senator Levin. Thank you, Madam Chairman. GAO has said that you told them that you knew at the time that the settlements were not in the government's best interest, is that true? Mr. Booth. No, sir. Senator Levin. Did you believe at the time that these settlements were in the government's best interest? Mr. Booth. Yes, sir, I did. Senator Levin. Did you hear the GAO testify today? Mr. Booth. Yes, Senator Levin, I did. Senator Levin. And you are telling us under oath that you deny that you ever told the GAO that you believed at the time that these settlements were not in the government's best interest, and in fact, you did believe at the time that they were in the government's best interest, is that correct? Mr. Booth. Yes, sir. I told them that, in retrospect, since I did not follow the procedure that I should have to get the Department of Justice lawyers involved, that in retrospect, there were certainly defects in the settlements. Secondly, I told them that I have never dealt with a settlement of any kind with--no matter who was involved or how many people were involved, that I was ever totally happy with. I still question whether I paid too much for my last car. And it is in that light that I question whether or not we got the best deal for the government. But I have done that with virtually every settlement I have ever been involved in. This is not different from that in terms of the substance of the settlement. Senator Levin. But I want to be real clear, because this is, it seems to me, critical, whether or not you at the time believed that this settlement was in the best interest of the government. You are testifying here today under oath, I believed at the time the settlements were appropriate, is that correct? Mr. Booth. Yes, sir. Senator Levin. And you did not tell the GAO that, at the time, you did not believe that the settlements were appropriate, is that true? Mr. Booth. That is correct. Senator Levin. Did you intentionally not send these settlements to the Department of Justice or the Office of General Counsel at HCFA because if you had, they would have gone up in smoke? Mr. Booth. No, sir. Senator Levin. Did you hear GAO testify that that is what you told them? Mr. Booth. Yes, sir, and what I told them was that had I thought about sending them to the Department of Justice or involving the Office of General Counsel, that we would have probably lost a fair amount of time. I, frankly, did not consider sending them because of the pressure of time to settle them, and it is only in retrospect, when I thought about it, that I told them that had--I think the question they asked was, well had you sent them to Justice, what would have happened? I said, they may well have gone up in smoke. Senator Levin. But you did not think about sending them at the time and then decide at the time not to because at the time you felt that they would have been rejected? Mr. Booth. I did not think that, that is correct. Senator Levin. Now, did Dr. Vladeck tell you to settle for a specific amount in the HHC case? Mr. Booth. No, sir. Senator Levin. Did he tell you to settle for a specific amount in the LA County case? Mr. Booth. No, sir. Senator Levin. Did he tell you to settle for a specific amount in the Visiting Nurses case? Mr. Booth. No, sir. He did not tell me anything about the Visiting Nurses case. Senator Levin. I want to just make sure I understood what you have told us here this morning. You said there was not a question in your mind then or now as to whether the services were provided or whether the costs were incurred. The question was whether they could prove that the documentation was available for that proof, is that correct? Mr. Booth. In the two hospital cases, yes, sir. Senator Levin. In the two hospital cases, is that correct? Mr. Booth. Yes, sir. Senator Levin. So you do not question that the services were provided or the costs incurred. What was missing was the documentation and the availability of the documentation relative to those two issues, is that correct? Mr. Booth. On the bad debt issue for those two hospitals, or two groups of hospitals. Senator Levin. And you have clarified something which I earlier tried to clarify with a witness and I do not think I succeeded. Let me try again. There was in the hands of HCFA or its agent $200 million, approximately, that belonged to HHC-- excuse me, that was claimed by HHC, it did not belong to it-- that HHC claimed, is that correct, that had been withheld from HHC? Mr. Booth. Yes. They had filed appeals with the Provider Reimbursement Review Board claiming that we owed them approximately $200 million for the issues we settled. They had other cases before the Provider Reimbursement Review Board that New York Health and Hospitals Corporation either did not want to settle or we said were not worth what they thought they were worth and therefore we took them off the table. Senator Levin. But that money had been withheld from them, is that not correct, the $200 million? Mr. Booth. Yes, sir. Senator Levin. So when there was a settlement for a hundred and--what was the amount---- Mr. Booth. One-hundred-thirty million. Senator Levin [continuing]. $130 million. Then $130 million of money which had been withheld from HHC was then transferred to HHC, is that correct? Mr. Booth. Yes, sir. Senator Levin. So that in common parlance, there had been not an overpayment--I am not talking technically here. I am talking in common parlance. HHC claimed there had been an underpayment of $200 million and that was settled for $130 million, is that correct, just in common parlance? Mr. Booth. Yes, sir. Senator Levin. Now, does HHC have approximately 11 hospitals and three skilled nursing facilities, do you know? Does that sound about right? Mr. Booth. I do not know. It sounds about right. Senator Levin. All right. Does it sound about right that they service about 5 million outpatient visits a year? Mr. Booth. Yes. I think we talked about 4.5 million to 4.75 million at the time of the settlement. Senator Levin. All right. So let us round it off, 4 to 5 million outpatient visits a year. And the period of---- Mr. Booth. That is total. That is not just Medicare. Senator Levin. That is total? Mr. Booth. Right. Senator Levin. About how many of those visits would be involved in Medicare, in these claims, half of them, a third? Give us a rough idea, a million? Mr. Booth. I would guess 15 to 20 percent. Senator Levin. So maybe a million? Mr. Booth. I would say a little less than a million, but I would not---- Senator Levin. Say three-fourths of---- Mr. Booth [continuing]. I would not argue you. Senator Levin. All right. Take a million just for the sake of discussion. This period of time that the settlement covered was about 10 years, is that correct? Mr. Booth. Yes, sir. Senator Levin. And so there would have needed to be paper proof, if I understand this, documents, for services which had been provided and you feel were provided for something like a million outpatient Medicare visits per year for about 10 years, does that sound about right? Mr. Booth. Yes, sir, that is correct. Senator Levin. About 10 million documents? Mr. Booth. More or less. Senator Levin. Did anybody tell you to hide what you were doing? Mr. Booth. No, sir. Senator Levin. Did anybody tell you not to go to the General Counsel's office? Mr. Booth. No, sir. Senator Levin. Did anybody tell you not to go to the Department of Justice? Mr. Booth. No, sir. Senator Levin. Did anybody tell you to do anything illegal or unethical? Mr. Booth. No, sir. Mr. Booth. Were you aware of the regional employees' objections to the settlements? Mr. Booth. I was not aware of Mr. Seubert's objections to the settlement. I was aware of Mr. Ohl's objection to the settlement in early March, basically after the settlement agreement had been reached and everybody knew--not everybody, but at least LA County and the administrator knew what the settlement was. What we were dealing with at that point was the paperwork. Senator Levin. Thank you, Madam Chair. Senator Thompson. Chairman Thompson. Mr. Booth, you know Mr. Seubert, do you not? Mr. Booth. Yes, sir. Chairman Thompson. How long have you known him? Mr. Booth. At least 20 years. Chairman Thompson. Twenty years? You heard him testify a few minutes ago, did you not? Mr. Booth. Yes, sir. Chairman Thompson. He said, I do not know if he said it here or in our staff interviews, he said he took some advice that he got from you, fatherly advice from someone that he liked and respected so I assumed that you and he had known each other for some time. Now, you heard him testify that when you went to New York to talk about the HHC settlement, that he initially offered his assistance. Do you remember that? Mr. Booth. I do not quite remember it that way, but he certainly attended the meeting on behalf of the regional office. Chairman Thompson. You do not remember that he offered assistance? Mr. Booth. No, sir. Chairman Thompson. Do you recall his testimony a few moments ago that you told him that this settlement was one that he would be better off staying away from? Mr. Booth. Well, yes, sir, I do recall his testimony. I take issue with the characterizations, at least. Chairman Thompson. What do you remember about that conversation? Mr. Booth. I told him that I had been asked by Dr. Vladeck to settle this matter and that we would handle the substance of the settlement at the central office. There was certainly no intent on my part to warn him in any manner. Chairman Thompson. But you had been told by Dr. Vladeck to settle the case and that central office would handle it, is that what you are saying? Mr. Booth. Yes, sir. Chairman Thompson. But not that it would be best if he stayed away from it? That is a very nuanced kind of position, Mr. Booth. You have been consistent in that respect, anyway. GAO says that you told them that you felt like at the time you needed to go to the Justice Department. You say now that at the time you did not feel that way, but you do now. GAO said that you said if you had gone to the Justice Department for approval, it would have gone up in smoke. You said you did not say that, but you see in retrospect, or you told them that, in retrospect, if you had gone to the Justice Department, that it probably would have or may have gone up in smoke. You did not see anything wrong with the procedure at the time, but in retrospect, you now see something wrong with the procedure. You have been around for a long time. I am sure you have performed good service, and a lot of people, I guess, in your position have to be survivors. Now you find yourself here, having allowed yourself to be used by Mr. Vladeck the way you did in conflict in three material ways with not just one, but two GAO people who investigated this case. It is a sad situation. But even more incredible is the negotiated settlements that allowed health care entities to continue the practices that caused the overpayments in the first place. We are not just talking about the past here. We are talking about things that we are living under now. In the agreement with VNS, HCFA allowed VNS to add a specified number of hours to its Medicare average for all future years, regardless of the number of hours that services were actually rendered. In their agreement with HHC, HCFA allowed HHC to continue to bill for bad debts without any documentation to support those costs. In the case of LA County, HCFA did not require LA County to meet recordkeeping requirements generally required by Medicare. The impact of these provisions, of course, is immeasurable. It is, of course, sometimes pointed out that these people are serving deserving constituencies. I think other Medicare recipients who are being deprived of these monies are deserving constituents, too, and perhaps we are seeing an evolving of a new concept. We have heard about too big to fail. Now perhaps we are getting into a new concept, too mismanaged to fail. If the situation is bad enough and they are serving a deserving constituency, then we just circumvent the process if we can get by with it. So we have got a lot of work to do on this side of the table and I am sure that we will be all involved in this matter for some time to come. I want to thank the Chairman again for having these hearings. Senator Collins. Thank you, Senator. Mr. Booth, you may be excused. Mr. Booth. I am sorry, could I comment on a couple of things that Chairman Thompson said, because, first of all, in the Visiting Nurses Service, while there was the allowance of additional hours for some period of time, the Balanced Budget Act of 1997, which changed the nature of reimbursement for home health agencies, would have abrogated that agreement at that time. In the New York Health and Hospitals Corporation case, the agreement going forward was very distasteful to the people at New York Health and Hospitals Corporation. They not only--they had to prove their costs, but using the disproportionate share formula, which was a formula that was derived by the Congress to come up with a proxy for low-income patients, would or should have caused them to move rapidly to establish better recordkeeping so that they could prove all of their bad debt costs. I actually thought that was, while it was creative, unusual, unique--I hope unique--I do not think it was the worst deal that we could have made under the circumstances, given the necessity, in my view, to settle the matter. And there was assurance by the County Hospitals in Los Angeles that they had a system that would go into place in July 1997 for bad debts that would have allowed them to claim those costs properly and be reimbursed for them properly. I do not dispute the characterization that the Chairman has made, Chairman Thompson has made in the matter, but I did think it important for the completeness of the record to make that comment about the individual cases. Chairman Thompson. Well, you said something very interesting, though, that got right to the heart of it--given the necessity to settle the matter. All this, given the necessity to settle the matter. There was no necessity to settle the matter except for the direction of Mr. Vladeck. That is what all this is about. You cannot take an invalid concept and base anything that you might do after that on the compelling nature of the invalid concept. There was no necessity to settle any more than there was a necessity to settle any other case, this being one of the very, very few that the administrator personally gets involved in, the one that really is shocking to these other career people who take a look at it, and the one that you shepherded through. Now, I respect your need to protect yourself at this stage of the game, Mr. Booth, but that is all I have got to say about it. Senator Collins. Mr. Booth, you are excused. I am eager to get to---- Senator Levin. I am hoping, in light of that last comment, could I ask one question of Mr. Booth? Senator Collins. Senator Levin, your time had expired whereas Senator Thompson still had 3 minutes left on his, and I do want to try to conclude the hearing by 1 o'clock. If we have additional questions for Mr. Booth, we can put them in the record and I am sure that he will answer them. So, Mr. Booth, you are excused. Mr. Booth. Thank you, Madam Chairman. Senator Collins. Thank you for your testimony. Our final witness today is Bruce C. Vladeck. Mr. Vladeck is currently a professor at the Mount Sinai School of Medicine and a Senior Vice President for its health system. From May 1993 until September 1997, Mr. Vladeck served as the Administrator of the Health Care Financing Administration. HCFA compromised the three overpayment claims that are the subject of our hearing today during Mr. Vladeck's tenure as administrator. Pursuant to Rule 6, I will ask that you stand and be sworn in. Do you swear that the testimony that you are about to give the Subcommittee will be the truth, the whole truth, and nothing but the truth, so help you, God? Mr. Vladeck. I do. Senator Collins. Thank you. Mr. Vladeck, you can proceed with your statement. TESTIMONY OF BRUCE C. VLADECK,\1\ FORMER ADMINISTRATOR, HEALTH CARE FINANCING ADMINISTRATION Mr. Vladeck. Thank you very much, Chairman Collins, Chairman Thompson, Senator Levin. I am appearing at the invitation of the Subcommittee to discuss the process by which HCFA has negotiated and resolved disputes with Medicare providers. I have submitted a written statement to the Committee and I believe you have also received a letter from my counsel Mr. Anello,\2\ and I understand that both of those will be made part of the record for this hearing. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Vladeck appears in the Appendix on page 82. \2\ See Exhibit No. 19 which appears in the Appendix on page 124. --------------------------------------------------------------------------- Senator Collins. They will be. Mr. Vladeck. Thank you. From 1993 until 1997, it was my privilege to serve as Administrator of HCFA. I am proud of my service and proud of what my colleagues and I accomplished during that time. I certainly would not claim that I made no mistakes during my service, nor that the agency, which with very limited resources administers two of the largest and most complex programs of the Federal Government, was without flaw, but we made significant progress. The agency was in much stronger shape when I left than when I arrived, and most important, Medicare and Medicaid were in significantly better financial shape and working better to serve their beneficiaries. I understand the GAO and perhaps some members of this Subcommittee are questioning some of the settlements undertaken while I was administrator. I am here to answer questions about my role in those settlements and what I understood about the role of others. I also understand this Subcommittee's Chair may recommend changes in the law or changes in regulation to clarify the process by which disputes between HCFA and providers are resolved. If the objective of that effort is to provide greater certainty and a more expeditious and fair handling of disputes, I applaud your efforts and will assist you in whatever way I can. When I first appeared before the Senate Finance Committee for confirmation in May 1993, I acknowledged that HCFA was an agency that had long been criticized for being unresponsive to health care needs, an agency that was slow to heed problems in the health care system, and one that too often appeared focused on form over substance. As I approached the tasks of administrator, I resolved to be ever mindful of the impact of the agency on actual people. I sought to address charges of bureaucratic inertia that previously had been leveled against the agency. I repeatedly tried to convey the message, both inside the agency and without, that the primary responsibility of HCFA was to ensure that its beneficiaries had access to high-quality care when they needed it. The only ones who could actually provide that care were not Federal employees or insurance companies, but the doctors, hospitals, and other health care providers who were thus our partners in fulfilling our core missions to meet the basic health care needs of our most vulnerable populations, the poor, the disabled, and the elderly. We were fortunate at HCFA to have a staff of very talented, knowledgeable, and experienced officials, many of whom had been with HCFA since its creation. The settlement process was overseen skillfully and energetically by Charles Booth, from whom you just heard, a longtime employee of HCFA who had been involved with the program since its inception. He was capable, tough, and I understood then and believe today of the highest integrity. Mr. Booth, in turn, worked directly with HCFA employees in our central and regional offices and contractor employees throughout the country. I think it is important for the Subcommittee to have some sense of the scope of these activities. Medicare paid close to 40,000 providers each year on a cost-related basis. Each provider filed an annual cost report, triggering a process that included intermediary review and determination and not infrequently a series of appeals and dispute resolution procedures. The Subcommittee's letter of invitation and the GAO report asked that I address four specific payment disputes, but only three have been discussed today. As I testified in my deposition, I did not recall the details of any of the settlements because I was not involved in negotiating the settlements, nor was I advised at the time about the details of the negotiation. I did, however, press for timely resolution of those disputes. In Los Angeles County, we were facing a potential public health crisis precipitated by a change in Medicaid policy. We were faced with the very real prospect of closure of the Nation's largest public hospital, along with service reductions in a trauma system serving millions of people. I believed then and I believe now that lives were literally at stake. The New York City Health and Hospitals matter involved a potential disruption in services to the primary provider of care for low-income people in many parts of the city which neither the State nor the city were seeking adequately to address. These disruptions would have closed clinics, created intolerable waits in emergency rooms, and led to the reduction of services for premature infants, for AIDS patients, and for the mentally ill. The Visiting Nurse Service dispute involved a conflict between the requirements imposed on providers by New York State and the services reimbursable by Medicare for dually eligible Medicare-Medicaid beneficiaries. These beneficiaries are among the frailest and most disabled of all Americans and should not have been caught up in a lacunas between two Federal programs. In each of these cases, I was advised and believed that our failure to act promptly could result in an intolerable reduction or loss of medical and health services to some of our most vulnerable citizens. But I left the specific negotiation and resolution of the matters to the good judgment of HCFA staff, who are better equipped than I to settle the matters. In each of the settlements that has been discussed today, no one on the senior staff expressed to me at the time any reservations as to whether the agreements were in the best interest of the United States. However, as the Administrator of HCFA, I bear ultimate management responsibility for those resolutions. Let me address at the outset and in the conclusion of my opening statement a number of concerns that have been raised here today. First, concerns have been raised about the fact that in three of the settlements, I received calls from providers and others about the need to expeditiously resolve outstanding reimbursement disputes. During the 4\1/2\ years I served as administrator, I received dozens of calls from providers, from members of Congress, from State officials, and others interested in the resolution of outstanding disputes of one kind or another. In each case, I sought to facilitate solutions by passing the matters on to the appropriate staff at HCFA and asking that they develop appropriate responses. I did not direct the staff to come up with a particular result and I did not get involved in reimbursement settlement negotiations. Second, concerns have been expressed that the three settlements did not involve HCFA's General Counsel or the Department of Justice. As I testified in my deposition, I frankly did not know whether or not they did go through General Counsel or DOJ, or for that matter, what their final resolution was. However, if I had thought about it at the time, my view would have been that DOJ logically would not have been the appropriate body to resolve any of the policy issues or principal concerns in these three settlements, a position, I understand, that is supported by material that has been made available to the Subcommittee both by HCFA and by the Department of Justice. These matters did not involve claims and litigation or litigation-related concerns which DOJ would be uniquely qualified to handle. In each of these cases, HCFA had the unique ability, and I believe responsibility, to consider the fundamental health care issues involved, to speed the resolution of outstanding reimbursement issues, and to free up funding that was critical to the provision of services. My job as administrator was to act on significant matters involving policy decisions. Also, as a matter of policy, I did not consult with the Department of Justice but did so only on advice of General Counsel. Third, concerns have been raised about whether the dollar value of three of the settlements was adequate because they involved amounts significantly less than the amounts originally asserted by the fiscal intermediaries. Although I was not involved in these specific negotiations, it is a fact that where a provider disputes an intermediary's determination of an amount owed, that amount is never final until there is an evaluation of the policy issues, either through a settlement with HCFA by the Provider Reimbursement Review Board after a hearing, by the Administrator of HCFA in the case of a review of a PRRB decision, or by a court where the administrator's decision is appealed. Indeed, even after an NPR is issued, providers are instructed that they should attempt to reach a resolution by way of settlement prior to an actual PRRB hearing. Where complex policy issues are involved, it is fair and accurate to say that the intermediary's number may be viewed as simply the intermediary's number and certainly is not considered a debt owed to the government. In the three settlements at issue, I do not believe the providers think they received sweetheart deals and the Subcommittee can ask the providers about that themselves. Fourth, it has been suggested that I may have had a conflict of interest in urging resolution of two of these matters because prior to service at HCFA, I twice served as an unpaid board member of the New York City Health and Hospitals Corporation and I may have served very briefly in an advisory role to a subsidiary research organization affiliated with the Visiting Nurse Service. I have been involved in public health issues for over 25 years and have served in numerous paid and unpaid positions and also worked in numerous unpaid efforts for which I held no formal position, all directed at the same objective of delivering health care services to the public, primarily to the poor and the elderly. Those remained my objectives when I became HCFA Administrator. It should not be a surprise that I have acquaintances and relationships throughout the health care community nationally, including providers. Indeed, I would argue that had I not had such relationships, I would not have been qualified to fill the position. But to suggest that because of prior unpaid service I had any personal interest as opposed to the public interest in mind when I acted on behalf of HCFA is outrageous and untrue and I believe no one who knows me would make that allegation. Finally, we have already discussed the issue of my being identified as a reluctant witness because I did not talk directly with the GAO investigator when he sought to interview me in the summer of 1999, and we already established the reasons for that, on advice of counsel. We have also made it clear that as of October of last year, we expressed a complete willingness to meet at any time with either the General Accounting Office or with Subcommittee staff, and I was not asked to actually meet with Subcommittee staff until February, when I arranged to appear voluntarily to give a deposition earlier this month. I answered fully at the time all the questions put to me to the best of my recollection, as I would happily have done in October or November or December. I am here to answer any additional questions the Subcommittee might have today and I appreciate the opportunity to do so. Thank you. Senator Collins. Mr. Vladeck, how did you first become aware of the dispute between HHC and HCFA? Mr. Vladeck. I am not sure. I was aware back to the time of my service at HHC that as a matter of course, HHC had always had a large number of reimbursement appeals on Medicare issues pending. The issues associated with the settlement in 1996, I became aware of sometime in the early part of 1996. Senator Collins. So as a result of your service on the board, you were aware that there had been ongoing disputes between HCFA and HHC on many payment issues, is that correct? Mr. Vladeck. That is correct. Senator Collins. But on the specific issue that we are reviewing today, did you first become aware as a result of a call from the Chairman of the Board of HHC? Mr. Vladeck. I do not believe so, but I really--my recollection is very fuzzy of how the process started. Senator Collins. In your deposition, you stated that you had a conversation with Maria Mitchell, the Chairman of the Board, in the spring of 1996. Mr. Vladeck. Yes, but I also said in my deposition that I did not recall in that conversation having discussed Medicare appeals issues. Senator Collins. Were you also contacted by union leaders who were concerned and were seeking Federal funds for HHC? Mr. Vladeck. I was not contacted directly by union leaders, but they had been in contact with some of my colleagues at the Department who informed me of those communications. Senator Collins. Did you personally meet with union leaders, AFSCME officials, at their headquarters in downtown Washington to discuss possible sources of Federal funding for HHC? Mr. Vladeck. Yes, I did. Senator Collins. Did you or anyone from the Secretary's office subsequently discuss the idea of using the Medicare reimbursement appeals process as a potential funding source for HHC? Mr. Vladeck. I would not characterize it that way, but we did talk about whether it would be possible to expedite any settlements in a way that would increase the cash flow into HHC, yes. Senator Collins. As I understand it, after deciding to explore this possible remedy for HHC's budget problems, you contacted Mr. Booth and told him that there was a fiscal crisis at HHC, is that correct? Mr. Vladeck. That is correct. Senator Collins. Did you ask him to look at the pending appeals to see what he could do about it to get some help to HHC? Mr. Vladeck. Well, I asked him to look at pending appeals to see how much of the backlog he could clear up, which I presumed would also provide some financial assistance, yes. Senator Collins. It is my understanding that you also asked Mr. Booth for periodic updates on his progress related to this matter, is that correct? Mr. Vladeck. That is correct. Senator Collins. And how often did he report to you? Mr. Vladeck. I do not recall. Senator Collins. In your deposition, you said that he reported to you every couple of weeks. Does that refresh your memory? Mr. Vladeck. I have no--that sounds reasonable to me. Senator Collins. Well, that is what you said under oath in your deposition. Mr. Vladeck. I do not disagree with that. Senator Collins. Why did you ask for these status reports? Mr. Vladeck. Well, I was receiving inquiries from various other folks in the Congressional delegation and the Department of Health and Human Services about the status of those discussions and I wanted to be able to report to them. Senator Collins. So you wanted to be able to report to whom in the Department? Mr. Vladeck. Well, most of my communications went through either John Monahan, who was Director of Intergovernmental Affairs, or Kevin Thurm, who I guess was still then the Chief of Staff of the Department. Senator Collins. For the Secretary of HHS? Mr. Vladeck. That is correct. Senator Collins. So you were essentially reporting to the Secretary, is that correct? Mr. Vladeck. Yes. Senator Collins. Did you convey to Mr. Booth that there ``time constraints and a need to move expeditiously'' on this matter? Mr. Vladeck. Yes, I did. Senator Collins. Mr. Booth testified today that he advised you that if he rushed the process, it would cost the government, cost the Medicare trust fund, an additional $8 to $10 million. Did you hear that testimony today? Mr. Vladeck. Yes, I did. Senator Collins. Do you dispute that testimony that---- Mr. Vladeck. I do not recall it, but I do not dispute it. I have always found Mr. Booth to be a very honest man. Senator Collins. And Mr. Booth said that your response was, in essence, that time was more important than money. Do you recall giving him that---- Mr. Vladeck. Again, I do not recall saying that directly, but I would not dispute it at all. Senator Collins. Mr. Booth also testified that he felt pressured by you to settle the HHC dispute, and he said in his deposition that HCFA ``could have struck a better deal had we not hurried.'' Mr. Vladeck. If I can make an analogy--in a medical analogy, sometimes when a patient is desperately ill, you administer a drug with side effects when if the patient were not so ill you would not have to accept the side effects. I thought holding out another 6 months to achieve an additional $5 or $10 million in settlements that had been pending for a decade, when doing so would have meant the closure of important public health services, was not an appropriate position for the agency and appropriate public policy. And so, yes, I believed then and I believe now that it was more important to keep those services available than it was to squeeze every last nickel out of those settlements. Senator Collins. Well, there are many other hospitals and home health agencies in my State and throughout the Nation that are also under very severe fiscal constraints and are having a very difficult time, are operating in the red. Why single out HHC for special treatment? Is that not unfair to other hospitals and other home health agencies that also have payment disputes with Medicare, that also are running in the red, that are also under tremendous pressure and that are also doing the very valuable work of serving our elderly and disabled citizens? Mr. Vladeck. I would hope as a matter of practice that HCFA would never have payment disputes pending that were 10 years old for any provider, yes, Senator. Senator Collins. I would agree with that, but why should this provider be moved to the head of the line? Mr. Vladeck. Because this provider came to our attention as one that had already issued layoff notices and at which the data would suggest served as poor and needy a population as any in the United States, except perhaps for that of the LA County Health Department. Senator Collins. All of us agree that the mission of Medicare is essential. None of us wants to see seniors or disabled people or the poor lose their access to services. But is it fair to give special treatment to one provider when hospitals all across the Nation are providing the kinds of services that you have just described? Mr. Vladeck. I never directed anyone, nor do I believe that what HHC received in this settlement was special treatment, as you are characterizing it. I do not think they got special treatment. Senator Collins. Well, we have heard from everyone who has testified today that this was an unusual situation. Mr. Booth says it was the only time in his more than 30 years that the administrator asked him to settle a matter. The lower-level HCFA officials from the regions have testified that they were shocked by the terms of the settlement. The GAO reviewed 96 settlements, every settlement over $100,000, and found that these three did, in fact, receive special treatment. So you are contesting that the standard process was followed in these three cases? Mr. Vladeck. No, I am saying the standard process was not acceptable in these three cases and it is not acceptable in many other cases and that is why we sought to change it, and that is why I, again, as I said in my statement, would be happy to work with the Subcommittee on making further changes in the process. Senator Collins. You mentioned that you served as a member of the board of directors of HHC. Could you tell us what years you served? Mr. Vladeck. I do not recall exactly without the documents in front of me, but I served, I believe, from approximately 1986 to approximately 1989, and then from sometime in 1991, I guess, until I resigned immediately before joining the Federal Government. Senator Collins. So you were on the board immediately prior to becoming the Administrator of HCFA, is that correct? Mr. Vladeck. That is correct. Senator Collins. I want to tell you what my concern is about the conflict of interest issue. The whole purpose of our ethics laws and regulations is to foster public confidence in the integrity and the impartiality of decisions made by government officials, and that is why the regulations include provisions that encourage public officials, if they have any doubt about how a reasonable person would pursue their actions, whether it would be perceived as a conflict of interest, whether or not it is an actual conflict of interest, but whether there is a perception of a lack of impartiality, there is a process set up that encourages public officials to avoid the appearance of a conflict by getting advice from the designated agency ethics official. Did you do that in this case? Did you consider doing it? Did you receive authorization from your agency ethics official to get so involved in a reimbursement dispute that involved a hospital on which you had sat on the board immediately prior to coming to HCFA? Mr. Vladeck. Madam Chairman, I believe Senator Levin has already entered into the record a document from the ethics office of the Department of Health and Human Services \1\ of which I was aware that made it quite explicit that any disqualification on my part on Health and Hospitals Corporation issues would last for 1 year after my appointment as administrator, in addition to which I do not believe the question has ever been raised before you have raised it implicitly right now in the course of all these investigations as to whether I consulted with anyone on the appropriateness of my working on this HHC issue. --------------------------------------------------------------------------- \1\ See Exhibit No. 35 which appears in the Appendix on page 268. --------------------------------------------------------------------------- Senator Collins. That is what I am asking. Mr. Vladeck. And the answer is, yes, I did. And the fact is that a year earlier, on an unrelated New York State policy matter, I had recused myself from working on an 1115 Medicaid waiver application from New York State because of the extent and nature of my involvements with many organizations--permit me to finish, please--in New York State prior to my appointment as administrator, and I was advised in writing by the HCFA ethics officer that my decision to recuse myself in that instance was not justified by the law, was not required, and was an excessive reaction to the issues of appearance. And while it did not speak specifically to the HHC issues, I understood that guidance in the context of the earlier ruling about New York to be pretty clear guidance on whether or not I should disqualify myself on New York State matters. Senator Collins. Senator Levin. Senator Levin. In each of the settlements which were discussed today, in any of them, did you direct anybody as to what the settlement should be, how much, whether it should be handled administratively, or whether it should be settled? Mr. Vladeck. No, sir. I did not make such directions. Senator Levin. So the details of any agreement or settlement were not ones that you in any way got involved in, is that correct? Mr. Vladeck. I first became aware of the details of each of these settlements on March 9 of this month when I gave a deposition to the Subcommittee. Senator Levin. So that when the GAO says that you instructed him, being Booth, to settle the hospitals' claims, your instruction was to do what, precisely? Mr. Vladeck. My instruction was a procedural one, and I believe in the case of my conversations with Mr. Ault in the VNS instance, which--where my memory is somewhat clearer, I was quite explicit, but I think it was implicit in my instructions to Mr. Booth, with whom I worked very closely over a number of years, that he was to use his best judgment on the substance of the matter, but that I wanted the process to come to closure as soon as possible. Senator Levin. Did anybody on your senior staff express to you opposition to the agreements as being not in the best interest of the United States at the time they were made? Mr. Vladeck. No, sir. Senator Levin. Did anybody inform you that there was a HCFA regional employee who had objected to the settlement with LA County? Mr. Vladeck. Not at the time, sir. Senator Levin. At the time. Did you know at the time that neither HCFA's General Counsel nor the Department of Justice were involved in the settlement? Mr. Vladeck. No, sir. Senator Levin. Are you aware of an administrative resolution of Medicare payment disputes document which apparently is an HHS or a HCFA document which we have now received which says basically that where the money has been withheld, that then it is not a government claim against the provider but a provider claim against the government? Mr. Vladeck. I became aware of that particular document during the hearing today, sir. Senator Levin. Would you explain to us the difference, because people sometimes, particularly GAO acts as though there was a claim against these hospitals. As a matter of fact, the hospitals had a significant claim against HCFA, is that not correct? Mr. Vladeck. That is my understanding, yes, sir. Senator Levin. Is it not correct that HCFA had withheld a significant amount of monies which the hospitals claimed? Mr. Vladeck. That is correct. Senator Levin. And in the case of New York, I believe that was around $200 million? Mr. Vladeck. That was the number I have heard today, yes, sir. Senator Levin. And that is money that New York claimed? Mr. Vladeck. That is correct. Senator Levin. And New York settled that with HCFA for $130 million? Mr. Vladeck. That is what I understand. Senator Levin. And that is claims, as I understand it, that had been in existence or had grown over a 10- or 11-year period, is that correct? Mr. Vladeck. That is correct. Senator Levin. And these were claims involving, do we know how many visits, how many Medicare outpatient visits? Mr. Vladeck. Well, again, the conversation and your interchange with Mr. Booth suggests it was many million, and that must have been---- Senator Levin. Does that sound about right to you---- Mr. Vladeck. Yes. Senator Levin [continuing]. For that sum of money? Mr. Vladeck. Yes. Senator Levin. As I said before, I have had my own frustrations with HCFA, trying to get information, answers to, what I consider to be reasonable questions. I have had a major dispute with HCFA recently over a decision that they made relative to a nursing home in my State. I think HCFA is all wet on the subject, and I have said so publicly and I am very critical of HCFA. I have been trying to get information about reimbursements from HCFA for a month, and I cannot get that information from HCFA. Members of Congress constantly are hopefully representing their constituents, and I want to read to you, something that one of our colleagues said, at the time of your confirmation. Senator Grassley in the Finance Committee asked you the following question. ``I wonder if you intend to make it a priority to reduce administrative hassles which providers in my State complain about endlessly, and maybe not just in my State, but I only know about my State.'' And your answer was that you would try to make the whole system user friendly for providers. Do you remember that question and that answer? Mr. Vladeck. I do not remember that particular interchange, but certainly the substance, I remember very well. Senator Levin. Do you believe it was important and is important for HCFA to be responsive to, in a fair way and in a timely way and in a non-bureaucratic way and in a reasonable way, to claims of providers, to dispose of them one way or the other? Do you believe that HCFA has a responsibility because of the beneficiaries who are really behind those providers? Mr. Vladeck. Yes, sir. Senator Levin. I just want to read into the record one paragraph about the Visiting Nurses Service matter, and that is the final paragraph of their statement they gave the Committee today. ``Contrary to the GAO report, the agreement with HCFA does not permit Visiting Nurses Services to add a specified number of hours to its Medicare average `regardless of the number of hours of service actually rendered.' Instead, the agreement caps the non-Medicare home health visits that can be included in the cost apportionment methodology as the lesser of the actual non-Medicare home health aide visit length or the actual Medicare home health visit length plus 1.63 hours.'' Are you familiar with that portion of the settlement? Mr. Vladeck. Again, that was contained in a document that was shown me in my deposition. I was not---- Senator Levin. Because the GAO treated that as some kind of a special treatment that was given to the Visiting Nurses by HCFA, never asks HCFA their position on the matter, does not tell us the Visiting Nurses' position on the matter, but we are just told by GAO, oh, they get special treatment. Do you consider that, from what you have heard today, to be an appropriate settlement? Mr. Vladeck. Senator, again, having seen the settlement for the first time only about 3 weeks ago and having been away from the issues for a number of years, I think that Mr. Booth and the people, Mr. Ault and the people he worked with on that settlement, did an excellent job. I think it is not only an eminently reasonable settlement but I think it is very good public policy. Senator Levin. Finally, overall, do you believe that your conduct in taking calls, taking comments, directing Mr. Booth to try to settle the outstanding cost reports, were proper? Mr. Vladeck. Yes, sir. Senator Levin. Thank you, Madam Chairman. Senator Thompson. Chairman Thompson. Thank you very much, Madam Chairman. Mr. Vladeck, you certainly accomplished your goal of becoming more user friendly, I think, with regard to three of these entities, anyway. I want to try to see if I can get this right. Mr. Booth testified that he worked out the details of these settlements the way he did because of the pressure he was receiving from you and that there could have been worse deals struck considering the circumstances and the pressure that was being applied. You heard him testify basically to that a few minutes ago, right? Mr. Vladeck. Yes, sir. Chairman Thompson. And your testimony is that you applied direction, or however you would characterize it, told him you wanted to get it settled, but you had nothing to do with the details of the settlement? Mr. Vladeck. That is correct. Chairman Thompson. So we have the perfect demilitarized zone where nobody is really responsible for both the decision to make this particular settlement and, in fact, carrying out the details of the settlement. Mr. Vladeck. Senator, may I say something in that regard? Again, I saw none of these three settlements prior to this month. I was not involved in the details of the negotiation. I was not aware of the substance of the negotiation. But having seen them within the last month and having had quite a lot of opportunity to think about them and to revisit the circumstances, I think all three of the settlements were reasonable, were in the best interests of the program and of the United States, and I think Mr. Booth and his staff should be commended for the creativity and thoroughness with which those settlements were negotiated. Chairman Thompson. Well, I understand your position, but you can also understand why one might conclude that you are not exactly a disinterested party in this, and we have heard the testimony of some people who I think are basically a disinterested party who have been with HCFA for a long time and they have their own assessments of it. Mr. Seubert said that, in the first place, HCFA's central office should not single-handedly settle anything that exceeds the amount specified in the FCCA and that HHC was not required to provide any documentation for the costs for which they were compensated. He also said he did not think that HCFA had the authority to agree to compensate HHC for bad debts into the future without requiring HHC to provide proof of the costs that they were claiming. So that is his analysis of it. Do you take issue with his view of that particular point? Mr. Vladeck. Yes, sir. Chairman Thompson. Ms. Ohl testified--we saw her E-mail with regard to the LA County situation--that because the agreement with LA County did not include a requirement that LA County keep sufficient records, HCFA was likely to be facing another settlement of this type in 8 to 10 years from now. She stated further that unless Medicare can get some agreement that LA County in the future will meet Medicare documentation requirements or not claim the costs, this is not a settlement where both parties realize some benefit. It is more of a grant and should be called that without the compromise being called a Medicare reimbursement settlement under the Medicare regulations. Do you take issue with her analysis on that case? Mr. Vladeck. Yes, sir. Chairman Thompson. If you were not involved in the details of the settlement of these cases, how can you make an assessment now as to how wise or unwise the settlements were? Mr. Vladeck. Well, as I said a few minutes ago, Mr. Chairman, I have had quite a lot of opportunity in the last month to review those documents and many associated documents and to talk to--to read the GAO report and to think about the history of this and so forth and I think I now have enough information to form an opinion on these. The issues raised that you just described are all issues that I am familiar with in generic terms that were policy issues that we dealt with quite frequently during my tenure. In each of the two instances I believe you just cited, the staff person took a position that was, in effect, a policy position where I disagreed at the time and still disagree with the policy view they were enunciating and I think I understand what the issues are and I disagree with their views. Chairman Thompson. Well, it does not seem to me like it is as much a matter of a policy issue. We have already heard testimony about the millions of documents that are involved in these cases. These are people who spent a long, long time dealing with the details and the merits of these cases and these claims. They have their opinions based upon that. You say that when it was all going on, you were not involved in the details. You just knew that these people were on hard times and these settlements had taken too long and you wanted them settled. So again, I ask you, in terms of sitting down and figuring out--have you gone through all these documents that we have been hearing much about? Mr. Vladeck. I believe I was shown 20-some-odd documents in my deposition and there have been a number of other documents shared with the Committee and with us and obviously I have had the GAO report for the last 24 hours, so I have seen quite a lot of paper around this. Chairman Thompson. The GAO report has been criticized because it did not get into the substance, so you did not learn much about the substance from that, did you? Mr. Vladeck. No, I did not. That is correct. Chairman Thompson. OK. I think that we can all sympathize with the notion of cutting red tape and moving settlements along, but the problem that many of us have, obviously, is that whether you are dealing in a court of law, whether you are dealing with an administrative process, a formal one or an informal one involving settlements, that there are procedures. That is why we call ourselves a Nation of laws and not of men. A person cannot look at a situation--even the President cannot look at a situation and say, I feel, based on whatever information I am getting or telephone calls I am receiving, there is an injustice and a problem out there, so I dictate that we cut a check for several million dollars of taxpayers' money, in effect, something like that. We cannot do that. We are talking about procedures here, and when you are talking about settling a case, whether we like it or not, we are talking about lawyers. We are talking about lawyers. We all know that they are involved in every aspect of our life, and we regret that in many respects, having been one once upon a time. When you are settling a case, you are talking about essentially the merits of the case on both sides, and there are always two sides, and you cannot do that, you cannot analyze the merits of any case or any matter unless you have someone who is trained, an objective person trained to analyze those merits and come to some determination. Maybe a bad lawyer will reach the wrong determination, but the American people can see that the right procedure is being followed and somebody is looking at it from a legal standpoint. Is this a decent deal? Maybe it is not the best, but is this a decent and fair deal for the taxpayers of the country? Do you not see the problem? Mr. Vladeck. Senator, I think it is unacceptable that these three settlements were not reviewed by HCFA's General Counsel. It is astonishing to me that they were not. I do not understand why they were not. I never had any knowledge that they were not until 3 weeks ago. I think that was a very serious violation of procedure and I think whatever steps need to be taken administratively to make sure it never happens again should be taken. It is inconceivable to me that I personally would have made a major decision involving such an issue when I was at the agency without consulting General Counsel. It was my understanding that as a matter of standard practice, General Counsel always was consulted in these negotiations. I was not aware, again, until 3 weeks ago, that General Counsel had not been consulted in these three incidences. I was astonished to learn it. I was shocked to learn it. I think it is very unfortunate and I think it should not be permitted to happen again. I agree with you entirely. Chairman Thompson. Whose responsibility do you think it was that counsel was not consulted? Mr. Vladeck. I believe it was Mr. Booth's responsibility. Chairman Thompson. Well, perhaps Mr. Booth will have an opinion on that that we can get at a later time. Thank you, Mr. Vladeck. Mr. Vladeck. Thank you, Senator. Senator Collins. Senator Levin, I am going to give you the opportunity to either have 3 more minutes of questions or if you want to make a concluding statement, whichever your preference is. Senator Levin. Well, just briefly, I think we have learned a lot this morning about HCFA procedures. It is obvious that a procedure was not followed here. The person who says that he should have followed it, Mr. Booth, said it was an innocent omission on his part. He was not directed by anybody not to go to the General Counsel's office. But the key question to me, in addition to that, is whether or not these settlements were in the best interest of the United States. That, to me, is the key question, and that question can only be answered, it seems to me, after listening to the providers as well as to the people who opposed this settlement. The GAO talked to people who opposed the settlement, did not ask--did not ask the providers their position on the substance of the settlement. So what is missing substantively here is the providers' side of the story and I think that is a real omission on the part of the GAO. We have an expert here who says that, based on his judgment, that those settlements were in the best interest of the United States from what he has seen, although he was not involved in the details. Mr. Booth says over and over again, and I think he is a highly credible witness, that he believed at the time they were in the best interest of the United States. We have situations here where hospitals had hundreds of millions of dollars withheld from payments that they claimed were owing to them, hundreds of millions of dollars, folks, in New York, and that was ultimately settled for $130 million. So this is not where HCFA was claiming that New York owed it money. This was a situation where, for years, there were festering claims that New York hospitals had against HCFA and finally were settled, $130 million of what turned out to be the hospitals' money that had been withheld by HCFA, and that fact is relevant. And so on the substance, it is obviously not for us to judge the substance of settlements. But the Visiting Nurses Services, in their letter, it seems to me, is powerfully eloquent about what a mistake it is not to get the other side of the story on the substance, and the GAO did reach a conclusion on the substance because they said that these claims would not have been successful had they been litigated. How they can reach that conclusion when they did not ask the providers for their side of the story on the substance is inexplicable to me. I think it was wrong and I would hope that all of the providers, after they have had an opportunity, which they have had for 24 hours now, to read the GAO report, would be offered the opportunity by our Chairman to submit any statements for the record that they might feel are appropriate. So this is an appropriate oversight issue on the process and I think there is no doubt that there are procedural omissions here which, if we can correct by law or regulation, we ought to correct. The General Counsel clearly should have been shown these settlements. She was not. If we can correct that, we ought to do it. But we should not, it seems to me, blend that issue with whether or not these were substantively excessive settlements without getting the providers, in two cases who had hundreds of millions or tens of millions of dollars tied up by HCFA, an opportunity to give us their side of the story. Thank you. Senator Collins. Thank you, Senator Levin. There is no doubt that HCFA's appeals process is cumbersome, it is expensive, it is complex, it is bureaucratic. Those facts argue for reform of the process to make it more customer friendly, to ensure that decisions are made more expeditiously. Those facts do not argue for subverting the process for three providers who were fortunate enough to have the administrator give personal attention to their overpayment disputes. When I began this hearing, I said that I was troubled by four findings by the GAO, findings that were substantiated by depositions taken by the Subcommittee staff. I remain very troubled by those four findings. First, it is absolutely clear that HCFA violated its own regulations, its own rules and procedures in the settlement of these three cases. Everyone agrees that there was no review by any government lawyer of the settlement of these claims. That is not in dispute. Most people agree, and HCFA's own regulations make very clear, that it was the rule and the custom of the Department to obtain the approval of the Department of Justice for the settlement of claims over $100,000. Similarly, HCFA's own regulations make very clear that an overpayment is considered a debt and thus is implicated by the Federal Claims Collection Act. Second, it is indisputable that the agreements contained highly unusual secrecy provisions. If HCFA felt so comfortable with the results of these settlements, why were they kept secret? Why were confidentiality provisions included so that other providers would not find out about the special treatment given these three providers? Third, it is indisputable, whatever his motive, that Mr. Vladeck, who was administrator at the time, did pressure subordinates to reach agreements. He did not dictate what should be in those agreements, but the record is replete, and even Mr. Booth under oath said today that he felt pressured to reach the agreements. And finally, there is no doubt that the agreements included provisions for special treatment that were not given to other health care providers, and I think that is unfair. The Subcommittee will continue to pursue this issue. I am looking at legislative solutions and I look forward to continuing to work with HCFA, with the GAO and other interested parties. This hearing is adjourned. 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