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HEALTH CARE FRAUD
HEARINGS
BEFORE THE
SUBCOMMITTEE ON
CRIME AND CRIMINAL JUSTICE
OF THE
COMMITTEE ON THE
JUDICIARY
HOUSE OP REPRESENTATIVES
ONE HUNDRED THIRD CONGRESS
FIRST SESSION
FEBRUARY 4 AND MAY 27, 1993
Serial No. 78
RECEIVED
BOSTON PUBLIC LIBRARY
•QV'ERNMENT DOCUMENTS DEPARTMENT
Printed for the use of the Committee on the Judiciary
U.S. GOVERNMENT PRINTING OFFICE
81-366 CC WASHINGTON : 1995
ForsalebytheU.S.GovernmentPrintingOffice
Superint. UofDocuments,CongressionalSalesOffice,Washington,DC 20402
ISBN 0-16-047322-5
HEALTH CARE FRAUD
HEARINGS
BEFORE THE
SUBCOMMITTEE ON
CRIME AND CRIMINAL JUSTICE
OF THE
COMMITTEE ON THE JUDICIAKY
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRD CONGRESS
FIRST SESSION
FEBRUARY 4 AND MAY 27, 1993
Serial No. 78
RECEIVED
APR 2003
1
BOSTON PUBLIC LIBRARY
5QVERNMENT DOCUMENTS DEPARTMENT
Printed for the use of the Committee on the Judiciary
U.S. GOVERNMENT PRINTING OFFICE
81-366 cc WASHINGTON : 1995
ForsalebytheU.S.GovernmentPrintingOffice
Superint :tofDocuments,CongressionalSalesOffice,Washington,DC 20402
ISBN 0-16-047322-5
COMMITTEE ON THE JUDICIARY
JACK BROOKS, Texas, Chairman
DON EDWARDS, California HAMILTON FISH, Jr., New York
JOHN CONYERS, JR., Michigan CARLOS J. MOORHEAD, California
ROMANO L. MAZZOLI, Kentucky HENRY J. HYDE, Illinois
WILLIAM J. HUGHES, New Jersey F. JAMES SENSENBRENNER, JR.,
MIKE SYNAR, Oklahoma Wisconsin
PATRICIA SCHROEDER, Colorado BILL MCCOLLUM, Florida
DAN GLICKMAN, Kansas GEORGE W. GEKAS, Pennsylvania
BARNEY FRANK, Massachusetts HOWARD COBLE, North Carolina
CHARLES E. SCHUMER, New York LAMAR S. SMITH, Texas
HOWARD L. BERMAN, California STEVEN SCHIFF, New Mexico
RICK BOUCHER, Virginia JIM RAMSTAD, Minnesota
JOHN BRYANT, Texas ELTON GALLEGLY, California
GEORGE E. SANGMEISTER, Illinois CHARLES T. CANADY, Florida
CRAIG A. WASHINGTON, Texas BOB INGLIS, South Carolina
JACK REED, Rhode Island BOB GOODLATTE, Virginia
JERROLD NADLER, New York
ROBERT C. SCOTT, Virginia
DAVID MANN, Ohio
MELV1N L. WATT, North Carolina
XAVIER BECERRA, California
Jonathan R. YarOWSKY, General Counsel
ROBERT H. BRJNK, Deputy General Counsel
ALAN F. COFFEY, Jr., Minority ChiefCounsel
Subcommittee on Crime and Criminal Justice
charles e SCHUMER, New York, Chairman
DON EDWARDS, California F. JAMES SENSENBRENNER, JR.,
JOHN CONYERS, Jr., Michigan Wisconsin
RAMANO L. MAZZOLI, Kentucky LAMAR S. SMITH, Texas
DAN GLICKMAN, Kansas STEVEN SCHIFF, New Mexico
GEORGE E. SANGMEISTER JIM RAMSTAD, Minnesota
CRAIG A. WASHINGTON, Tex GEORGE W. GEKAS, Pennsylvania
DAVID MANN, Ohio
Andrbw Fois, Counsel
DANIEL CUNNINGHAM, Assistant Counsel
DAVID YasSCY, Assistant Counsel
YLE NlRENBERG, Minority Counsel
-
(ID
'
CONTENTS
HEARINGS DATES
Page
FMeabyru2a7r,y149,931993 169J
OPENING STATEMENT
Schumer, Hon. Charles E., a Representative in Congress from the State
ofNewYork, andchairman, Subcommittee on Crime and CriminalJustice . 1
WITNESSES
Alderson, Susan, Carrollton, TX • •••••••• • 20
Hansen, Joyce L., director, claim support services, Northwestern National
HKoeoLninkfteez,,IRnTsauhyromamonacnsedCGLo..,,Eesxqe.c,uHtievnekedi&recAtsosro,ciMaatnesh,atWteasnt HCoelnltyewroofdoV,r'JCLVAi*ving, New J1o8«0
York, NY 216
Looney,James, Los Angeles, CA •:••—.••" •;••: *
Mahon, WilliamJ., executive director, National Health Care Anti-Fraud Asso-
ciation 149
Marr, William L., M.D., vice president and senior medical director, claims,
Mutual ofOmaha »••" •••••••• 10
Morey, Larry D., Deputy Inspector General for Investigations, Office ol In-
spector General, U.S. DepartmentofHealth andHuman Services 48
Payne, Randy, Indianapolis, IN •»• •••••• • 214
Potts, Larry A., Assistant Director, Criminal Investigative Division, Federal ™
Bureau ofInvestigation ;•"••""••:
Schenken, Jerald R., M.D., member, board of trustees, American Medical
Association, accompanied by Hilary Lewis, J.D., division ofFederal legisla-
95
tion
Schrader^ Richard, acting commissioner, New York City Department of
ConsumerAffairs ••• •••— 258
Shikles, Janet L., Director, Health Financing and Policy Issues, Human Re-
sources Division, U.S. GeneralAccounting Office 62
Stephens, Richard, acting U.S. attorney, Northern District of Texas, Dallas,
TX, accompaniedby Candina Heath, assistant U.S. attorney 267
Wykoff, Randolph F., M.D., M.P.H., T.M., Director, Office ofAIDS Coordina-
tion, U.S. Food and DrugAdministration, accompanied byTerryVermillion,
Director, Office of Criminal Investigation; Michael Daniels, Director, Office
of Enforcement; and Robert Spiller, Associate Chief Counsel for Enforce-
ment 243
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARINGS
Alderson, Susan, Carrollton, TX: Prepared statement • 23
Conyers, Hon. John, Jr., a Representative in Congress from the State of
HaMniscehni,gaJno:ycPerepL.a,reddirsetctaotre,mecnltaim support services, Northwestern xNVa"tVi"onali
HeLnikfee,InRsauyramnocnedCoL..:,PErseqp.a,reHdenskteate&meAnstsociates, West Hollywoodr,"^C.A"i:""P^rle"-"
Koopnatrze,d sTthaotmeamesntG., executive director, Manhattan Center for L•iving, •N••e••w— 182
York, NY: Prepared statement 219
Looney,James, Los Angeles, CA: Prepared statement 1'
(HI)
IV
Page
Mahon, WilliamJ., executive director, National Health Care Anti-Fraud Asso-
ciation: Prepared statement ••••• • 154
Marr, William L., M.D., vice president and senior medical director, claims,
Mutual ofOmaha: Prepared statement »..» 13
Morey, Larry D., Deputy Inspector General for Investigations, Office of In-
spectorGeneral, U.S. Department ofHealth and Human Services:
Letterdated February 5, 1993, to Chairman Schumer 79
Preparedstatement •••• ••—• • 50
Potts, Larry A., Assistant Director, Criminal Investigative Division, Federal
Bureau ofInvestigation: Prepared statement 39
Ramstad, Hon. Jim, a Representative in Congress from the State of Min-
Scnheesnoktean:,PrJeepraarleddRs.,tatMe.mDe.n,tmember, board of trustees, American M••e••d••i•cal• 92
Association: Prepared statement -• 9?
Schrader, Richard, acting commissioner, New York City Department of
ShCiokiness,umJearneAtffLa.i,rsD:irPercetpoar,reHdesatlatthemFeinntancing and Policy Issues, •H••uman •R••e••-• 261
sources Division, U.S. General Accounting Office:
Letterdated March 8, 1993, to Chairman Schumer 82
Prepared statement ["'"a ; 65
Stark, Hon. Pete Fortney, a Representative in Congress from the State of
California: Prepared statement ...» •»•••• 136
Stephens, Richard, acting U.S. attorney, Northern District of Texas, Dallas,
TX: Prepared statement •»•»•- ••• 269
Wykoff, Randolph F., M.D., M.P.H., T.M., Director, Office ofAIDS Coordina-
tion, U.S. Food and DrugAdministration: Prepared statement 246
HEALTH CARE FRAUD
THURSDAY, FEBRUARY 4, 1993
House of Representatives,
Subcommittee on Crime and Criminal Justice,
Committee on the Judiciary,
Washington, DC.
The subcommittee met, pursuant to notice, at 10 a.m., in room
2226, Rayburn House Office Building, Hon. Charles E. Schumer
(chairman ofthe subcommittee) presiding.
Present: Representatives Charles E. Schumer, Don Edwards,
David Mann, F. James Sensenbrenner, Jr., George W. Gekas,
Lamar S. Smith, Steven Schiff, and Jim Ramstad.
Also present: Andrew Fois, counsel; Dan Cunningham, assistant
counsel; Marie McGlone, assistant counsel; Lisa Lawler, secretary;
Lyle Nirenberg, minority counsel; Ray Smietanka, minority coun-
sel; and Mark Curtis, congressional fellow.
OPENING STATEMENT OF CHAIRMAN SCHUMER
Mr. Schumer. We will call this hearing to order.
First, the Chair has received a request to cover this hearing in
whole or in part by television broadcast, radio broadcast, still pho-
tography or other similar methods. In accordance with committee
rule 5 tne permission will be granted unless there is objection.
Without objection.
First, I would like to welcome everybody here. I apologize for
being a little late and for some of my Democratic colleagues who
are not here. The President was supposed to address the Demo-
cratic whip organization at 9 o'clock. I waited on the edge of my
seat. When he wasn't there at 5 of 10, I left. Some ofmy colleagues
are still over there sitting on the edge oftheir seats.
We will begin this morning not only an investigation ofthe issue
that is of vital importance to the health and well-being of the citi-
zens of our country, health care fraud, but today we also launch
the subcommittee's official business of the subcommittee in this,
the new 103d Congress.
First, I would like to welcome my colleagues, some of whom are
familiar faces around here and some of whom are new, to what I
hope will be a very productive session for the subcommittee. Be-
cause if you look at our areas ofjurisdiction we have a heck of a
lot ofwork to do.
In bringing the hearing to order, I am reminded of an experience
that befell Congressman Hancock of upstate New York. He was
scheduled to speak at a political rally that opened with band music,
and after the band played a couple of numbers the chairman
(1)
turned to the Congressman and said, do you want to speak now or
shall we let them enjoy themselves a while more?
There is no band here, so I guess we will have to start.
Few issues affect people quite so profoundly as the issue of
health care. But health care in America is in critical condition. Our
commitment to provide every American with decent health care has
been shaken in recent years by exploding costs that have already
priced 35 million people in this country out of basic health insur-
ance. More are added to their ranks each day. At nearly $700 bil-
lion, health care spending consumed more than 12 percent of our
GNP in 1991. By 1995, expenditures will exceed $1 trillion, rep-
resenting 15 percent ofnational output.
The diagnosis is in. Our national health care system is rife with
waste and abuse, and it is time to put the patient in intensive care.
First and foremost, we must take a surgeon's scalpel to the most
wasteful, inexcusable, and unconscionable cost of all, fraud. The
cancer offraud is depleting our already anemic health care system,
and by all indications it is spreading into virtually every organ of
the health care delivery system at a staggering rate.
The GAO estimates, for instance, that 10 percent of our total
health care expenditures, public and private, are lost to fraud and
abuse. That means we will lose a staggering $80 billion to fraud
this year alone. To put this hemorrhaging in perspective, our total
Medicare outlays in 1991 amounted to $110 billion. What we lose
to fraud and abuse could pay for well more than half of the entire
Medicare program which is one of the Federal Government's big-
gest expenditures.
Ifwe stop payment on $80 billion in fraud we could provide more
than $2,000 in health insurance for every American who currently
has no coverage.
But, of course, more than dollars are at stake here. Health care
fraud crimes are threatening the lives of millions of Americans,
subjecting them to unnecessary treatment, false diagnosis, adulter-
ated drugs, and causing them to forgo the treatments they might
desperately need. In an incalculable number of cases, patients are
placed in real danger so some con artist can make a fast buck. That
is the true cost ofhealth care fraud.
The scams these thieves use to victimize patients and their in-
surers are multiplying like bacteria on a July afternoon: Drug di-
version schemes, kickback arrangements, telemarketing operations,
rolling lab schemes, copayment waivers, prescription billing fraud.
Each of these represents a huge category of health care fraud. In
future weeks and months this subcommittee intends to explore as
many ofthem as we can.
Against this avalanche of fraud the Federal Government stands
ill-equipped, undermanned and overwhelmed. It is as ifwe sent out
Barney Fife to meet the terminator.
To illustrate, the number of investigators in the Office of the In-
spector General at HHS has stagnated in the past 5 years while
the responsibilities of that Office, as well as the size and complex-
ity of the Federal programs it oversees, have increased consider-
ably. This means, for example, the IG has fewer than two full-time
investigators devoted to health care fraud for all of southern Cali-
fornia, one ofthe Nation's most populous regions.
Even though they have evidence of massive fraud being commit-
ted in our health care system, the lack of resources is forcing our
law enforcement agents to subject cases to triage, whereby only the
largest and most clear-cut cases are ever pursued. Hundreds, per-
haps thousands of other cases that they already know about are
not even investigated, let alone prosecuted.
The real casualty here, of course, is the health of our people.
They are left virtually defenseless against latter day charlatans
and snake oil salesmen that are out to profit from the illness, mis-
fortune and insecurity ofothers.
The American people are clearly demanding change in our Na-
tion's health care. We in Congress must not only work with our
President to develop innovative, efficient ways to deliver health
care, but we also must ferret out and terminate the fraud that is
undermining the health and well-being ofour citizens.
We will consider many ideas to accomplish this goal, including a
national health care fraud data base to let Federal, State, and local
agencies exchange information on fraud and abuse, intergovern-
mental task forces to allow law enforcement agencies to pool re-
sources and jointly attack fraud, prohibition of kickbacks against
private insurers, and ensuring integrity of electronic media by
building fraud detection mechanisms into the processing system.
I plan to hold as many hearings as necessary to adequately con-
sider the causes of this fraud and find responsible solutions to it.
Today we begin our examination ofhealth care fraud. The doctor
is in. When we are through with our diagnosis, it is our intent to
fashion a legislative treatment to rid this wasteful malignancy from
our Nation's health care system.
I thank my colleagues for their indulgence.
Now I call on Mr. Smith ifhe wishes to say something.
Mr. Smith. Thank you, Mr. Chairman. I didn't know it was pos-
sible to use so many medical metaphors.
Mr. Schumer. It is easy.
Mr. Smith. It paints a grim picture. Thank you for your leader-
ship, and it is no surprise we are getting off to such a quick start
this year. I look forward to the initiative you have shown, and I
know that it will be very productive.
Seriously, there is a real interest in this subject matter today.
We are talking about a subject that probably has touched the lives
of millions of people in the United States in an adverse way, and
we certainly need to move to correct the problems that we have.
And I know the first in—dividuals whom we will hear testify, Dr.
Marr and Ms. Alderson I read their testimony last night, and
clearly these are examples that they are going to give us of com-
plete, unmitigated health care fraud of the kind that this commit-
tee needs to address. I am glad we are going to do so.
I think we need to remind ourselves that the challe—nge to this
committee is not just to hear how—bad the problem is I have a
hunch we are going to prove that but to move to find out what
we can do in the way of changing Federal laws or better enforcing
laws so as to try to help correct the problem.
Mr. Chairman, you mentioned something else earlier we are also
familiar with and that is that health care fraud today totals some-
thing on the order of $80 billion. I see that as having more rami-
/
fications than just the need to make sure that health care fraud
is brought to a stop. I see that as having implications when it
comes to reducing the deficit. Because if we do our jobs and if we
do eliminate the fraud and abuse that exists in government today,
whether in the health care area, could be defense, social services,
could be in any number of areas, clearly we will have also helped
the American economy and helped reduce the need and maybe even
eliminated the need to ever talk about raising taxes.
First of all, we need to eliminate the fraud and abuse that exists
in government.
Mr. Chairman, I have a quick question for you that you may be
able to answer for us. —
During the campaign on the campaign trail, President Clinton,
then Candidate Clinton, put out a campaign bible called Putting
People First, and he made a number of promises to the American
people on the general subject of crime and drugs. Among them, put
100,000 new police officers to work and expand community polic-
ing, that first-time nonviolent offenders serve out sentences in com-
munity boot camps, enact tough penalties for assaults against
women and children to deter domestic violence, increase Federal
funding for school-based and community drug education programs
and treatment clinics, and provide Federal matching funds for
crime prevention in hard-hit communities.
Mr. Chairman, have you heard from the President in regard to
those specific subjects? And, if so, when can we expect proposed
legislation from him in regard to those matters?
Mr. SCHUMER. I thank, Mr. Smith, and before I answer his ques-
tion, I want to welcome him to the committee. I have worked with
Mr. Smith, the gentleman from Texas, on the subject of immigra-
tion and many other issues. He is a conscientious, hard-working
and decent-minded Member. I am glad he is now on the
subcommittee. —
Now, to answer your question I wasn't going to just say that.
Mr. Smith. That sounded good for a start.
Mr. SCHUMER. We have had some preliminary discussions with
members of the transition team and the administration. I believe
it is their intent to deal with every one of those issues that you
mentioned.
As to when we will have a complete package, we don,t have an
answer for that yet. Obviously, the first focus of the administration
is on the economy. However, they have assured me that crime and
criminal justice is one oftheir highest priorities. They intend to de-
vote a great deal of attention to it, and I expect we will be working
closely with them to achieve those goals.
Mr. Smith. Thank you, Mr. Chairman.
Mr. SCHUMER. Any other opening statement?
The gentleman from New Mexico who is just an outstanding
member of this subcommittee, and I want to welcome him back
since he was not in during the welcoming shift.
Mr. Schifk. Thank you, Mr. Chairman.
I can't resist adding to Mr. Smith's comments that in my State
of New Mexico, a targeted State in the election—may not happen
again with only five electoral votes, but it was by both sides—the
Clinton campaign ran TV ads endorsing the death penalty. I hope
