KICKBACKS NECESSARY TO SECURE BUSINESS

The report concludes that, at least in the States which come under investigation, kickbacks are widespread among labs specializing in medicaid business. In fact, it appears to be necessary to give a kickback in order to secure the business of physicians or clinics who specialize in the treatment of welfare patients.

The average kickback to physicians or medical center owners in Illinois was 30 percent of the monthly total the lab received for performing tests for medicaid patients. Kickbacks took several forms, including cash, furnishing supplies, business machines, care, or other gratuities, as well as paying part of a physician's payroll expenses. Most commonly it involved the supposed rental of a small space in a medical clinic.

The report concludes that it is apparent that the law passed by the Congress in 1972 prohibiting kickbacks and mandating a $10,000 fine and a year in jail upon conviction is not being enforced.

When I was confronted with an early draft of this report I was shocked by the conclusions that the staff reached in their work with Chicago's Better Government Association. I decided to go to that city and see things for myself, accompanied by Senator Pete V. Domenici, of New Mexico.

I saw the proliferation of so-called medical clinics spreading like mushrooms all over Chicago.

I saw their glaring signs beckoning medicaid patients to utilize health care services.

I visited a postage-stamp-size clinical laboratory which billed medicaid for almost $200,000 last year. There was little in the way of equipment and no lab technicians in evidence. While the owner assured us as to the quality of the work performed, I heard from the owner himself that he chose to send his wife's blood test to another laboratory.

I visited the sparkling new laboratory of Illinois Masonic Hospital and saw its sophisticated new machines-only to learn that the hospital could not obtain much medicaid lab business because of its refusal to offer kickbacks.

TESTS NOT ORDERED BY PHYSICIAN

I interviewed a physician who received over $100,000 from medicaid last year. I asked him to check nine lab invoices presented to medicaid for payment by D. J. Clinical Laboratory of Chicago against his records. The doctor told us that he had not ordered 55 percent of the $259 total in lab tests for which D. J. had billed the Illinois medicaid program on these nine invoices. This same doctor told us that he received a rebate of $1.000 per month from the laboratory in exchange for sending them all this medicaid business. The kickback was disguised as rent for a 6- by 8-foot room in the physician's office. The doctor's rent for the entire suite was $300 a month, and yet he received $1,000 per month for the "rental" of a 6 by 8

room.

Finally, I interviewed a man who owns two medical clinics which received about $300,000 in medicaid payments last year.

This man admitted sending all of the lab business to one company in Chicago. He told us he received a rebate of 50 percent of the amount medicaid paid for laboratory tests which physicians in his clinics ordered for welfare patients.

As a result the work of the staff and the BGA, as well as my own personal investigations, I am even more convinced that the medicaid program is rampant with fraud and abuse.

I renew my pledge to root out those who abuse the system in whatever quarter they may lie. It is my belief that eliminating fraud, abuse, waste, and inefficiency in the Federal health care programs may make it possible for us to move toward that balanced Federal budget that we all desire.

And it will, no doubt, improve the quality of health service to the poor and aged.

The Senator from Illinois, Senator Percy, is the ranking Republican member of this subcommittee. He has engaged in all of these efforts, he has done tremendous detailed work, and I am pleased that he is here this morning. I will ask him if he has an opening state

ment.

STATEMENT BY SENATOR CHARLES H. PERCY

Senator PERCY. Thank you very much, Mr. Chairman.

I would like to first comment on the rather unusual alliance that has been formed between this Senate subcommittee, a civic organization-the Better Government Association-and the media.

This is a technique that has been developed over a long period of very careful work.

The Better Government Association formed its Operation Watchdog almost a decade and a half ago. I had the privilege of serving as its founder and first chairman.

The Better Government Association at first only screened candidates for political office. We felt at that time there was need for an oversight operation that would look at what government was actually doing at the State and local level in Illinois. I know that there were charges at that time that the forestry department was padded with city workers who were not working. There were strong denials from the city of Chicago.

The simple techniques of having a camera go out and follow these crews to see where they were at what time, how they were using State or city equipment, if it was for their own personal usage, to see the amount of working time they were putting in-revealed the whole story once and for all. Someone said a picture is better than a thousand words. There was no disputing the facts that the camera revealed. Since then, various techniques have been used to simply provide public disclosure to put the spotlight on abuses.

EXPOSURE NECESSARY IN COMBATING FRAUD

We cannot investigate every single thing, but what we can do is spot check enough things so that with the help of the media, who have been extraordinarily cooperative, we can reveal things that will cause a cleanup. I think what has actually been done in nursing homes has been as a result of the exposure that the work of this

committee has given to regulations that were not adequate and regulations that were not being enforced. So I think that this new effort, carefully planned ahead of time by the subcommittee staff, under Val Halamandaris' direction, has proved remarkably successful.

There is no question but that there is a terrific ripoff of the public purse here. It is engaged in by professions that should be above that. They have a code of ethics that should be accepted. But the exploiters have moved in to take advantage of Federal programs in such a way that I do not see how, Mr. Chairman, it is going to be possible for this country to even act on national health insurance.

I think that what we are doing is simply demonstrating that we do not have the capability or the linkage between Government and the private sector that would enable us to move into a program the size of national health insurance. Only if we correct some of these abuses can this be anticipated.

We have here a program that should be administered carefully. The ones we investigated in the clinic setup in Rogers Park that was revealed on "60 Minutes" last night are in an area just a few blocks from where I spent my entire childhood.

The neighborhood in Rogers Park is now densely populated by the elderly. To have these people exploited, and the public exploited in this way, is reprehensible.

As our report indicated, in practical terms, it is possible for any medical testing laboratory, which is so inclined, to bill medicaid for a patient that a doctor has seen, for blood never drawn, for tests never performed, at a rate exceeding costs of four times-and twice the prevailing charge for private paying patients with the nearly absolute assurance they will not be caught and prosecuted; that is, until today.

I think we have changed all that. Certainly the State of Illinois has been moving very agressively in recent periods, and within recent weeks. There has been an admission by State officials that this investigation has caused them to perform in a way we expected the States to be doing all along.

We do not have Federal enforcement agencies out there; we do not have Federal enforcement officers. We depend on the States to do this, and it is not just the State of Illinois that has not been doing it, it is many, many other States.

NATIONWIDE PATTERN INDICATED

What we are revealing today is a pattern, not just in Illinois, or peculiar or unique to Illinois, it is a pattern that possibly can be developed, and has been developed in many, many other States. The purposes of these hearings is to alert the country once again that this particular aspect of the care of elderly patients is going to be in the spotlight and that these kinds of practices are going to be stamped out.

Just as I am pleased to report that we are making considerable progress now in nursing homes and in correcting the abuses in this area, which this subcommittee, under your leadership. Mr. Chairman, found some time ago, so too I feel that in this particular area, the

one revealed in the study released today, we can and will make progress. We warmly welcome the active participation of the distinguished Senator from New Mexico, Senator Domenici. He has gone with our chairman to see for himself in Chicago some of these abuses, and can report firsthand. The reports that were made to the Nation last night are not exaggerated; they are factual accounts of the ripoff occurring in this particular activity.

Senator Moss. Thank you, Senator, especially for pointing out that we need law enforcement. Our report has already been filed with the Justice Department here in Washington, and it has been sent also to the U.S. attorney and the State attorney in Illinois. We hope that they will now undertake prosecution for those who are guilty of violating the law.

I am pleased to have the Senator from New Mexico, my colleague, Senator Domenici, here, and I will ask him if he has any opening comments. He was in Chicago when I was there.

STATEMENT BY SENATOR PETE V. DOMENICI

Senator DOMENICI. Thank you, Mr. Chairman. If I appear to be tired, or if my voice sounds tired, it is only because I just got in on what we call the red-eye special, Senator Percy-that means I leave Albuquerque at 2:10 in the morning. I love to spend time in your great city of Chicago, but not at 4 in the morning, and not for 2 hours to wait for another plane. I was, however, pleased to visit the city of Chicago and tour some of the facilities during this recess.

I have a rather lengthy statement that enumerates, Mr. Chairman, the attention that was focused by this committee on the abuses in nursing homes, and I firmly believe that what we are doing today will cause the same kind of reforms in medicare and medicaid.

I think those hearings have served a very valuable purpose. We know those hearings have led to large numbers of indictments and, more indirectly, to expanded nursing home investigations in other States.

Preliminary investigations by the staff of this committee have indicated that fraud and abuse seems to be everywhere. Medicaid in particular has been a "sitting duck." In my opinion, neither HEW nor the States have been equipped to meet this problem, and recently, HEW had less than 10 investigators. The majority of the States have neither audited a single provider for medicaid fraud nor referred any cases of fraud to HEW and the Department of Justice. I understand, however, in the city of Chicago-perhaps you covered this, Senator Percy-our recent probe is the result of some local investigations, and apparently it will yield some further attack on this problem at the State level.

VISIT LEAVES LASTING IMPACT

What I am saying today, however, is that abuse and fraud in certain programs do not seem to be new for most of the people in this room. We have heard the stories with growing frequency. However, all of the talking in the world cannot equal the impact of one visit.

I recently had an opportunity to visit one of the poorer areas in Chicago, and what I saw troubled me greatly.

I saw the proliferation of medical clinics in dilapidated buildings all over the poverty area, where pornography shops now house more lucrative enterprises. Fancy signs attract the poor and elderly with promise of free care. The care may be free to the poor and aged who have medicaid cards, but it is not free to you and me and the other taxpayers of this country.

This year we will spend some $15 billion on this kind of care, and I for one am in favor of doing all we must. But I certainly am not in favor of what I saw there and what, I speculate, is the real tip of the iceberg.

I am disturbed by many aspects of the problem. For instance, the owner of a so-called medicaid mill may be renting an office space in a building. The building itself may be owned by another corporation, in which the clinic operator has an interest.

The second possible problem is that many clinics are not even owned by physicians, but rather by private entrepreneurs. The recent evidence is that businessmen not only share in the profits of the medical practice, but they also pressure the doctor into taking unnecessary tests to increase clinic revenues.

Yet another factor disturbs me. Most of the physicians working in the clinics are from foreign countries. Many do not have deep ties to the United States, or to any particular city. Many have centers in the clinic as a way to make some money in a hurry and return to their home country. In other cases, the overriding ambition is to open a medicaid clinic or mill of their own as soon as possible.

I am afraid many of these physicians are carrying the mistaken notion that kickbacks in medicaid are the norm of medical practice in the United States.

I am sure that many of them do not even know they are breaking the law when they request or receive a kickback. The possibility for kickbacks in these medicaid mills is endless.

Generally, one person rents the clinic for, let us say, $300 a month, and then subleases a tiny part of this space to a pharmacist who pays him $1,000 a month in rental. The payment is disguised as rent. It is certainly more than that, and I regret to say the example I have just given is not hypothetical.

We visited just such a place, with just such a rental arrangement in the city of Chicago. Senator Percy, when you were there the people operating at that late date last week were not reluctant to give us this kind of information. A person rented a store building for $300 a month. He remodeled it, and then he got $2,600 a month rent from people that served in that clinic as the captives of the basic doctor that operated.

"PING-PONGING" BECOMING GROWING PRACTICE

But there is yet another practice that is very offensive that is beginning to be called "ping-ponging," which describes the procedure where the welfare recipient will be seen by all of the practitioners in a clinic irrespective of need.