Some of the reasons for declining cases from the files we viewed include: "The witnesses are elderly. They make poor witnesses. They can't remember the exact nature of services they received."

"The witnesses are aged and senile. They are at a disadvantage in testifying against an articulate and well educated physician."

"The lawyers the physician has hired are strong and there is little likelihood we can win the case given the current nature of our proof."

"There is no way to disprove the diagnosis which prompted the doctor's treatment. We can't find anyone who will question his medical judgment."

"The medical profession is held in high esteem. To overcome a doctor's favorable image, in a passive crime such as this the case must be fairly aggravated, which is not shown in this case."

"There is no evidence the physician is continuing to engage in fraudulent practices."

CONCLUSIONS

I would like to close by offering a few conclusions:

(1) The Medicare program is light years ahead of Medicaid from the point of view of fiscal integrity. While a significant amount of fraud continues to haunt the Medicare program it exists, first, because there are too few people in the Medicare Program Integrity Unit to handle the massive caseload, and, second, because of the lack of responsiveness of the Federal Judiciary. By contrast the Medicaid program is, with the exception of the five States I have mentioned, completely without controls. As we stated many times, fraud in Medicaid is massive and widespread. We know this from actual experience.

(2) My estimate of fraud in the Medicare program would be about 10 percent of the entire program or $1.5 billion out of the $15 billion we spent last year. speaking specifically of physician fraud, we estimate that $300 million is ripped off by physicans each year out of the $3 billion paid them by Medicare.

(3) This massive amount of money, $300 million, is stolen by comparatively few physicians. About 10 percent of the 250,000 physicians who participate in the have been accused of fraud and abuse of the Medicare program over the past five years. Speaking more specifically, there have been 20,210 fraud cases investigated by the Program Integrity Unit of the Bureau of Health Insurance, about 49 percent or 9,907 involved physicians. Of the 19,084 abuse cases instituted by Medicare investigators, 73 percent or 13,931 cases involved physicians.

Using these numbers in yet another way, the 9,907 cases of physician fraud in the Medicare program represent only 4 percent of all doctors participating in that program. The 13,931 cases of abuse represent about 6 percent of all doctors participating in Medicare.

In short, the $300 million in fraud is perpetrated by only 4 percent of the medical profession and care should be used to make it clear that only this small minority are involved.

(4) If I had to summarize my presentation before you this morning in a couple of paragraphs, I would say the following. Everything I am about to say about Medicare goes double for Medicaid.

The chances that a physician will be caught cheating the Medicare program are very slim indeed, even given the good work of Medicare's Program Integrity Unit. The chances that a case will be developed are slimmer still; most of the existing cases relate to charging for services not rendered-that variety of fraud which is the easiest to prove. The odds that a case will be referred to the Justice Department for prosecution are extremely small (only 400 cases of physician fraud have been referred to Justice since 1969 or roughly 4 percent of all physicians' fraud cases). The chances of being found guilty are infinitesimal (since less than 11⁄2 percent of all accused in physicians' fraud cases have been found guilty). The chances of a physician going to jail for Medicare fraud are less than infinitesimal (only 15 doctors have served some time in jail as a consequence of Medicare fraud since the very beginning of the program ten years ago). The chances of having a license revoked or being terminated from the Medicare program are non-existent (we found only 2 physicians who had their licenses revoked and none have been terminated from the Medicare program since its beginning in 1965).

It is obvious that the great majority of physicians who are caught abusing the system are simply asked to pay back the money (or some portion of it) that they have stolen. Even those that are indicted on as many as 60 or 70 felony

counts' are allowed to plead guilty to one or two misdemeanor counts upon a promise to repay monies fraudulently obtained. In some cases minor fines are involved. Significantly, both these repayments and any fines leveled at the practitioner for fraudulent practices are almost invariably paid out of future Medicare earnings.

The long and the short of it is that the message that we have given physicians is, "Go ahead and steal. The worst thing that can happen to you is that you will be asked to pay some of the money back. The odds are you will never be caught. And if, by some accident, you are caught, you have had the use of all this money for several years." It is a strange sort of punishment—a government subsidized, interest free loan for physicians.

Under these conditions it is a bit curious to me that more physicians do not choose to cheat the system. Like the doctor I quoted when I began my remarks, the only thing they are afraid of is the Internal Revenue Service and, fortunately for them, the IRS has been singularly inactive when it comes to pursuing the leads referred to it by the Program Integrity Unit of the Bureau of Health Insurance.

(5) The Department of Justice and the various United States Attorneys Offices (with the exception of the Southern District of New York and Middle District of Pennsylvania) have given Medicare cases absolutely the lowest priority. Since by definition, these cases involve the sick and elderly, time is of the essence. In such cases, justice delayed is truly justice denied. The great number of cases that are declined for prosecution each year largely result from the death or disability of crucial witnesses. Unfortunately, these cases languish in the offices of United States Attorneys for years. It is apparent that Medicare cases are not considered glamorous; that there is resentment in having to work with the elderly. It seems that before the bar of Justice, as in every other aspect of human life, the elderly are relegated to the rock bottom priority. Yet another measure of the effects of this delay is the fact that 320 civil fraud counts with a value of over one million dollars have been lost to the Medicare Trust fund by the running of the statute of limitations. Cases simply sit around until they expire. Undoubtedly, all this fraud and lost money has its effects in terms of higher Medicare costs and reduced Medicare coverage for the elderly.

Finally, a word should be added about the permissive judges who refuse to give physicians jail sentences in the face of 50 or 60 felony counts against them. As noted above, the average sentence in all fraud cases in Federal District Court is 20 months while Medicare convictions are statistically at zero. This situation can no longer be tolerated. Nor should we tolerate the curious twist of logic which sentences those who have been found guilty of defrauding the sick and the elderly to do several months community work with the sick and aged. There comes a certain point when physicians, like other lawbreakers, must be put in jail. To do otherwise (as we have been) is to make a mockery of the laws we have enacted and to ridicule the great majority of honest physicians who observe them.

RECOMMENDATIONS

(1) I recommend the immediate enactment of S. 3205. I feel that its central fraud and abuse unit is necessary now and will be even more important in the future. At the present time there is little exchange of information between Medicare and Medicaid. It is imperative that the Inspector General be given subpoena powers as well as access to all Medicare, Medicaid, and State files.

(2) The Internal Revenue Service should begin a systematic review of all Medicare and Medicaid providers whose billings exceed statistical norms. By law, State now report to IRS the names of all physicians making $500 or more from the Medicaid program. Similarly, the Postal Service should work out a cooperative agreement to work with Medicare and Medicaid personnel.

(3) The Department of Justice must undertake procedures to bring Medicare and Medicaid violators quickly before the bar of Justice.

Consideration should be given to expanding the number of United States Attorneys with the thought of designating a certain number of Assistants in each region to handle prosecution of Medicare and Medicaid cases.

(4) Medicaid forms should bear the warning that fraud of the program is a Federal crime because of the large share of funds coming from the Federal government. Many violators now contend that they do not violate Federal law by stealing from Medicaid.

Medicaid regulations now require the release to the public of the names of all physicians making more than $100,000 from that program. Inexplicably, Medical regulations prohibit a similar disclosure of the names of providers over $100,000. I believe this Committee should intervene to make the Medicare list available in view of the strong public interest and our desire to make Medicare and Medicaid consistent.

(6) In the nursing home context, I have several bills which I will not discuss at this point. I will have by staff sit down with the staff of this Committee and express my thoughts along these lines.

Senator TALMADGE. In opening the hearings today, I would like to remind witnesses once again, all presentations and testimony are limited to not more than 10 minutes as I have stated.

The full statement will be made a part of the record, and carefully reviewed.

The next witness is Mr. Edward Beddingfield, medical doctor, chairman of the council on legislation, the American Medical Association. Dr. Beddingfield, we are honored indeed to have you with us.

Your entire statement will be inserted into the record.

STATEMENT OF EDGAR T. BEDDINGFIELD, JR., M.D., CHAIRMAN, COUNCIL ON LEGISLATION, AMERICAN MEDICAL ASSOCIATION, ACCOMPANIED BY HARRY N. PETERSON, DIRECTOR, DEPARTMENT OF LEGISLATION, AMERICAN MEDICAL ASSOCIATION

Dr. BEDDINGFIELD. Mr. Chairman and members of the subcommittee. I am Edgar T. Beddingfield, Jr., M.D., a physician in the active practice of medicine in Wilson, N.C. I serve as chairman of the Council on Legislation of the American Medical Association, and I am pleased to present to this subcommittee the views of the association on the important legislation, S. 3205, before you. With me is Harry N. Peterson, the director of the AMA Department of Legislation.

At the outset I would like to state that this subcommittee is to be commended for these hearings on S. 3205 with its review of certain areas of the medicare and medicaid programs. Major amendments to these programs were adopted in 1972. Subsequent to that time only relatively limited hearings have been held concerning implementation and development of these programs. It is evident that there has been substantial dissatisfaction with major provisions of these laws as well as with regulations promulgated pursuant to the laws.

Dissatisfaction has been voiced by providers and physicians, as evidenced by numerous lawsuits, by Congressmen, as well as by Medicare-Medicaid patients-the beneficiaries of those programs. It is indeed timely that this committee, through its hearings, review these programs as to issues in S. 3205.

However, Mr. Chairman, in considering any changes to medicare and medicaid, it is of paramount importance to consider possible effects upon patients in those programs, and it is equally important to measure the impact of program changes upon those who are not

Federal program beneficiaries-the private patients. We perceive in the amendments before this committee, as proposed in S. 3205, a very strong potential for a continued shifting of segments of health care costs to private patients-costs which are properly the obligation of the Federal program on behalf of its beneficiaries. When this shifting occurs, it not only has ramifications relating to availability of care for medicare-medicaid patients, but it also affects quality of care for all patients.

As to S. 3205, an overview of the modifications this bill would make indicates clearly that the major thrust is cost containment.

The American Medical Association fully supports measures which can properly contain costs so long as such measures do not impair the quality and availability of care for beneficiaries. The medicare and medicaid programs were intended to provide for their beneficiaries the same kind of care received by other segments of our population. Unless it is now the intent of Congress to alter the status of availability of care and quality of care for medicare and medicaid beneficiaries, it is imperative that any cost containment measures be imposed cautiously so as not to have unintended effects.

We are, of course, aware that Congress faces "hard decisions" in attempting to maintain these health programs at a high standard of quality care while struggling with a means to fund properly all of the obligations assumed by the Government, relating not only to these programs, but also to all other programs.

It must be recognized that the increased demands which have flowed from increased care made available through Government programs have added to the marked increase in total cost of these programs. It should additionally be recognized that health care costs are not immune from natural increases during a period of high inflation as we have been experiencing recently. And it must be recognized that increased expenditures resulting from increased services and resulting also from inflationary costs do not of themselves warrant the imposition of arbitrary cost controls.

We have submitted for your consideration a more detailed and extensive discussion on major provisions of S. 3205. We have indicated our support and our opposition-to provisions of the legislation. As to some provisions we have suggested amendments. We urge your careful examination of that statement. In the remaining portion of the brief period allotted us during these hearings for oral presentation, I will quickly summarize our recommendations with respect to elements of the bill.

ADMINISTRATION

Under the category of administrative reforms, we recommend that the sections relating to the establishment of a health care financing administration, an office of central fraud and abuse, and the appointment of an inspector general for health administration not be adopted. In our opinion, these provisions are unnecessary, because sufficient.

authority is provided in current law to accomplish the goals sought by these provisions. In fact current initiatives are now underway and are being pursued vigorously to accomplish the objectives. With respect to establishment of a separate health care financing administration, we recommend that overall direction of health care programs not be so divided.

We support the principle underlying the provisions establishing procedures for more timely and accurate determinations relative to eligibility and administrative procedures under medicaid. The provisions enabling States to verify medicaid services on a sample basis would also be beneficial.

Concerning the provisions relative to promulgation of regulations, we are firmly on record for modifications of the Administrative Procedures Act to correct abuses which have occurred in the promulgation of regulations. Modifications are needed in order to afford proper opportunity for all interested persons to have meaningful input into the regulation process. Following the promulgation of a proposed rule there should be a minimum comment period of 60 days, with additional time being provided thereafter for the assimilation of comments before the rule is published in final form.

We recommend for your consideration the elements of the proposal developed by the American Medical Association, S. 3358, which is now pending before the Congress. In that bill we addressed certain of the same issues involved in S. 3205. Our bill for administrative rulemaking reform, in addition to providing for an expanded comment period on proposed regulations, would in part also make modifications to require major policy statements, which often affect substantive provisions, such as benefits and eligibility, to be published in the Federal Register. Too often agencies will circumvent the Federal Register process by directives issued through guidelines or policy statements. Our reform proposal also covers many issues not addressed by S. 3205. As to the last item of proposed change in the section pertaining to administration, we recommend not only a continuation of HIBAC but also a strengthening of its role through proper independent staffing.

PROVIDER REIMBURSEMENT

S. 3205 provides a new methodology for determination of hospital reimbursement. We have strong concerns with respect to this proposal. It would, in effect, classify hospitals and create for each classification an average daily rate-for routine operating costs-which would determine reimbursement under the medicare program. In some respects this provision may ameliorate some of the problems which have developed in implementation of section 223 of Public Law 92-603, upon which similar methodology was imposed. However, we find this averaging of hospital costs to be undesirable. This method, even with the variances allowed in S. 3205, still retains the seeds for reduction of