of unbundling, where a physician was paid for two x-ray exams on the same date of service he is showing being paid for one-HCFA allowed $98, when they should only have allowed $75-$23 less.

Here is an example of fragmentation; an example of mutually exclusive procedures, and on and on and on and on-every one of them because of the problem that Senator Grassley spoke about in catching these.

Senator GLENN. Thank you.

Senator COLLINS. Thank you very much.

Senator HARKIN. Thank you very much, Madam Chairwoman. Senator COLLINS. Our second panel is a panel of law enforcement witnesses. The first witness is Michael Mangano, who is the principal deputy for the Office of Inspector General at the Department of Health and Human Services. In that capacity, he directs the day-to-day operations of the Office of the Inspector General and oversees reviews that provide the Secretary with independent findings and recommendations.

The second witness on this panel is Charles Owens, who is chief of the Financial Crimes Section for the Federal Bureau of Investigation. As chief of the Financial Crimes Section, Mr. Owens has the national management responsibility for all types of financial crimes investigations, including health care fraud, financial institutions fraud, and insurance fraud. He also serves as the national program manager for the White Collar Crime Program, the FBI's largest investigative program.

Pursuant to PSI Rule 6, all witnesses who testify before the Subcommittee are required to be sworn, so I would ask that you stand and take the oath at this time. Please raise your right hand.

Do you swear that the testimony that you will give before this Subcommittee is the truth, the whole truth, and nothing but the truth, so help you, God?

Mr. MANGANO. Yes.

Mr. OWENS. I do.

Senator COLLINS. I want to thank our witnesses for accommodating the Subcommittee's need to change the hearing from yesterday to today. I appreciate your willingness to accommodate us and assist us in this problem area.

I am going to ask you in the interest of time to confine your oral testimony to 10 minutes each. The lights will cue you. At 8 minutes, the yellow light will go on, telling you that you have 2 minutes remaining, and when the red light comes on, we will ask you to wrap up so there will be time for questions.

I want to emphasize that your full testimony will be included in the record as well as any other materials that you want to provide. Mr. Mangano, we will proceed with you at this time. Thank you.

TESTIMONY OF MICHAEL F. MANGANO,1 PRINCIPAL DEPUTY INSPECTOR GENERAL, U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES

Mr. MANGANO. Thank you very much, Madam Chairwoman.

I am very pleased to be here with you this morning to talk about some of the work that we have been carrying out in the Medicare

1 The prepared statement of Mr. Mangano appears on page 66.

area. Medicare no doubt is one of the most important social and health programs in this country. With expenditures exceeding $190 billion this year, it is no wonder that it is an inviting target for those who want to unfairly abuse that system for their own profit. As evidence of that, so far this year, we have completed 700 criminal and civil investigations that will return about $1 billion to the Medicare Trust Fund from those who have abused the program. We have also excluded about 980 health care providers who have been committing fraudulent or abusive practices in the program. In my testimony, I identify eight program areas that we think are most commonly abused today and a couple of management vulnerabilities that we think need to be closed off. But I will confine my remarks here this morning to four program areas that the Subcommittee seems to be most interested in with this hearing-home health, nursing homes, durable medical equipment, and hospital double billing.

With regard to home health services, this is probably one of the fastest growing areas of the Medicare program today, doubling the number of visits per episode per beneficiary in the last 6 years. From 1990 to 1996, the program increased from 36 visits per beneficiary to 76. Medicare paid for about 250 million visits by home health aides in the last year. The program's financial costs have really been sky-rocketing, from $3.5 billion in 1990 to almost $17 billion last year. The Congressional Budget office estimates that if we do not do anything to put the brakes on this program, it will be a $31 billion program by the year 2002. So action is clearly warranted.

We believe some of this increase reflects the aging of the population and technology increases. But unfortunately, I have to tell you here this morning that fraud and abuse are also clear culprits in some of the increases going on with this program.

In audits that we have conducted across many of the States of this country, we found individual home health agencies guilty of violations of the law with 19 to 64 percent being the range of ineligible services that have been billed to Medicare. In reviews we have done on a statewide basis in four of the largest States in the country, we have found that the rate of improper payment tends to be around 40 percent. I think that was mentioned by either Senator Grassley or Senator Harkin. That is a very disturbing result. We think the vulnerabilities of the program are fourfold. One is the service is delivered at home; so there is very little supervision of this service. Two, there is no limit to the number of home health visits that a beneficiary can receive. Three, there is no beneficiary copayment, so there is not that natural break by the beneficiary to question the provider about whether additional home visits are really needed. And finally, I have to harken back to a Committee report here that was done in 1981, which focused on the cost-based nature of this benefit, which really prevents the home health agency from having any incentive to reduce their costs.

I want to give you an example of a recent case that we had in the District of Columbia that will give you a quick glimpse of what this process is like. The chart here on the right was used before a jury to explain how home health care visits were paid for. You have a couple of handouts which are copies of that chart as well

as a blow-up of the first two notices on the left. Basically, what happens is the home health care nurse goes out and delivers the service at site, come back and fills out, in this case, a time slip that goes back into their accounting office which pays that nurse for that visit. The form at the bottom is called a "Skilled Nursing Visit Report," and it gives the details on what was wrong with the patient, who he went to, all the details of it.1

Now, if this is a Medicare bill, those forms will go to the Medicare agency. The contractor for the District of Columbia was Independence Blue Cross. The contractor will pay that bill. If it is Medicaid, it goes into the Medicaid agency for the District, which was First Health Services Corporation. Then the District pays that bill. What we found in this particular case was that over 1,400 home visits lacked any documentation that a visit was made. That is, those first two sheets were not completed. You might be surprised to find out that some of those visits were to beneficiaries who were in hospitals, which would clearly be illegal. That home health care owner was fined $100,000 in restitution to the program and sent to jail for 2 years; his co-owner has fled sentencing.

The key here, we think, in home health is with the physician. The physician is really the gatekeeper of the system. Some of our audits have found that the physicians ordered home health care visits without even knowing the patients or examining those patients.

We think there are a few solutions to this problem. In order to protect the benefit and seal it off from some of these abusive practices, we think a couple of things have to happen. One, the law needs to be changed so the physician must be required to actually examine the patient and then do so on a periodic basis thereafter to ensure that the patient really needs those home health care benefits.

The second solution is very much in concert with the report that was completed by this Subcommittee in 1981. That is, we should increase focused reviews by the Medicare contractors to zero in on those providers that we think are most abusive, and we should do more periodic audits of their records.

And finally, a move to the prospective payment system will, we think, put some brakes on this process.

Nursing homes are also a fairly growing segment of the Medicare and Medicaid budgets, last year accounting for about $46 billion. Our chief concern here is a growing movement to cost-shift from Part A, which most people consider the nursing home bill, to Part B—that is, having service providers and product providers like durable medical equipment salesmen coming into the nursing homes and billing the Medicare program directly, not through the nursing home.

One of the consequences of this is that the beneficiary then has to pay a copayment. Just as a couple of examples of that, we found $17 million in mental health services being billed to the Medicare program that were inappropriate; that is 24 percent of all mental health services in a nursing home setting. We found psychological

1 Exhibit No. 4 appears on page 197 in the Appendix.

services being billed as group therapy when in fact they are really social events.

In this area, we think a prospective payment system is needed for Medicare Part A, and for those bills that fall outside of Part A, we think a consolidated bill ought to be put together and sent from the nursing home, not from the disparate service and equipment suppliers.

A lot of discussion occurred in the last panel on durable medical equipment. This really has become a nagging problem that consistently harms the Medicare program-services not delivered; products charged that were more expensive than the services that were provided; unbundling, that is, taking a piece of equipment apart and billing it separately so that the reimbursement is at a much higher rate; unnecessary services; excessive prices—you name it. Whenever we see a big spike-up in a particular product, that causes us to say something may be going wrong here; that causes us to get involved with doing our audits and investigations. Some of those products that we have spent a lot of time with over the years deal with incontinence supplies, lymphoedema pumps, poweroperated vehicles, seatlift chairs, orthotic body jackets, and the list goes on and on. This is a high-profit industry for a number of reasons, including ease of entry, and the safeguards are really not as strong as they need to be.

I want to give you one example of an abuse that really has sort of a happy ending that shows what we can do when we really put our effort to it. We have testified a number of times on incontinence supplies. These are supplies dealing with persons who have incontinence problems. In 1994, Medicare paid $260 million for these incontinence supplies. We found abuses in two areas-one, where persons were billing for urinary collection pouches at about $7.38 apiece, but actually delivering 33-cent diapers, which are never reimbursable in the Medicare program. We also found devices that were being billed that were not being billed in concert with a prosthetic device, like a catheter, and that is not covered by the Medicare program. So $260 million was billed in 1994.

Because of the reviews that we did, the investigations, which have brought back about $45 million-and I have to say the very prompt action of HCFA in instructing their carriers to pay a great deal more attention to those bills-we were able to reduce the incontinence bill that Medicare pays by $100 million in just 1 year. That is a dramatic drop, but it shows you the abuse that was going on in that system.

We think that one of the things that we can do to clean up this industry is to require surety bonds on the part of the salespersons. We think that there ought to be onsite visits at the beginning when suppliers apply to bill the Medicare program. We think that there ought to be some more generalized recommendations to deal with some of the systemic problems. We clearly endorse the recommendation of Senator Harkin that there ought to be more competitive bidding here and to increase the ability of Medicare to reduce a price when it becomes inherently unreasonable, when they are clearly paying too much money.

The last area I want to mention is the hospital double-billing. Medicare reimburses for inpatient care on the basis of the diag

nosis of the patient. That is the prospective payment system. All the services that are delivered to that patient for that inpatient stay are supposed to be included in that. One of the regulations they have is that any related nonphysician service delivered within 72 hours of that visit ought to be encompassed by that.

What we have found, though, is that a number of hospitals have been billing outside of that 3-day (72-hour) window, primarily for nonphysician outpatient services, and typically, laboratory services that get billed. In our reviews, we found about 4,600 hospitals that were billing this extra or duplicate bill for that. This is a problem that equated to about $100 million. We are now doing our fifth review. After the fourth review, we went back and told the industry that this billing practice was abusive, and even after Medicare had collected about $100 million, they were still doing it. We engaged with the Department of Justice and are pursuing these cases under the Civil False Claims Act. We believe we will recover about $100 million there.

Madam Chairwoman, I thank you for the opportunity once again, and I would be happy to answer any of your questions.

Senator COLLINS. Thank you very much.

I want to welcome Senator Durbin, who has joined us. I also want to explain that unfortunately, we are going to have votes all morning. Senator Glenn and I are going to switch off voting to try to keep the hearing going, since it is likely to be a busy day.

I am going to ask Mr. Owens to proceed now, and then we will question the whole panel after your testimony.

TESTIMONY OF CHARLES L. OWENS,1 CHIEF, FINANCIAL CRIMES SECTION, FEDERAL BUREAU OF INVESTIGATION Mr. OWENS. Thank you. I appreciate the opportunity to be here today representing the FBI in this important hearing.

As the Subcommittee is well aware, the FBI has identified health care fraud as a top priority in recent years and is increasingly devoting more resources to it and conducting more investigations. The Health Insurance Portability and Accountability Act of 1996, with dedicated funding for several years, a Federal health care offense, and other provisions was a shot in the arm to this effort. Federal law enforcement is in a better position to combat this serious financial crime problem today, and we greatly appreciate the support of Congress with the passage of this Act.

This appears to be chart day, and we too have brought some charts, although I think ours are the only ones that have a purple background. I would like to refer to them very briefly, and there is a total of five. I think they will give you a good summary of what the FBI is doing in our efforts to combat health care fraud.

The first chart, which is the one on the left, reflects the commitment of our agents to health care fraud investigations.2 Our real emphasis in this area began in 1992, at which time we were using approximately 112 agents to investigate health care fraud matters. And you can see that incrementally, we have increased that effort to the point where, at the end of the second quarter of this fiscal

1The prepared statement of Mr. Owens appears on page 77.

2 Exhibit No. 5 includes charts (a) through (e) appears on pages 200-204 in the Appendix.