Medicare: $48 Billion in Waste?

Opening Statement of July 28 Oversight Hearing of the Subcommittee on Government Organization, Efficiency and Finalcial Management - Chaired by Congressman Todd Platts

The purpose of today’s hearing is to continue this committee’s examination of improper payments made by the federal government.  In 2010, the government estimates that there was $48 billion in improper Medicare payments.  This figure represents over 38 percent of all identified improper payments made by the government in Fiscal Year 2010, and is likely only a partial accounting of Medicare’s total amount of improper payments. 

Medicare is considered a high risk program by the U.S. Government Accountability Office.  It is known to be susceptible to fraud, waste, and abuse.  Last year, the Medicare Fee-for-Service program reported more improper payments than any other federal program.  Many of these improper payments are a direct result of insufficient internal controls and financial management. 

The Centers for Medicare and Medicaid Services (CMS) process almost 5 million claims every day, relying on automated systems to identify improper claims.  Most claims are paid without any individual review of the claim or the medical records associated with it.  This leads to improper payments resulting from claims without sufficient documentation, insufficient or fraudulent documentation, incorrectly coded claims, or services that are not deemed reasonable or necessary. 

CMS has been making efforts to better identify and decrease the amount of improper payments in Medicare.  In 2009, CMS followed recommendations from the Office of the Inspector General to implement stricter and more thorough methodology to calculate payment error rates.  Using this new methodology, CMS identified more improper payments for 2009 and 2010. 

CMS is also working to calculate improper payments made through Medicare Part D, the prescription drug program.  CMS has not previously calculated improper payment numbers for Part D, and will do so for the first time in Fiscal Year 2011.  CMS also plans to increase its oversight of Part D by performing more audits, including on-site audits and face-to-face evaluations.  CMS has also announced that it will evaluate the fraud and abuse programs put in place by the third-party insurance companies that administer Part D.

CMS’s efforts to increase oversight are commendable.  However, more must be done to strengthen internal controls, especially in CMS’s contract management.  In 2006, CMS began using recovery audit contractors to identify and recover improper payments.  The recovery audit contractors have identified numerous vulnerabilities in CMS’s programs.  CMS has only taken steps to address about 40 percent of significant vulnerabilities.  

GAO has also found “pervasive deficiencies” in CMS’s contract management internal controls.  GAO issued nine recommendations to improve internal controls in 2009, but a year later, it found that CMS had only taken steps to address two of the recommendations.

Improper payments cost taxpayers billions of dollars each year.  This hearing is part of a continued effort by this committee to prevent improper payments and other instances of waste, fraud, and abuse in government.  I welcome the opportunity today to hear from our witnesses on CMS’s progress to identify and prevent improper payments in the Medicare program.