Examining Healthcare Markets: Fraud and Competition

Well, good morning everybody, and uh thank you so much for joining us today uh with the uh Judiciary Committee in one of our field hearings that we've been discussing and talking about for some time. Uh, we know it's a uh broad topic uh that we will be uh examining today. But um, I think well worth our time and and effort, and I wanna thank the witnesses. Uh, we're gonna, we're gonna ask you to inter- we'll introduce you and then ask you for your opening statements momentarily. But I think um, with a field hearing, it would be um, it would be appropriate for us to have the members actually uh introduce themselves and then uh just briefly describe uh their districts. I know we have uh obviously members from North Carolina, so You can be as specific as you want when describing your district, down to the uh street and avenue if you want, so we so we know exactly where that district is, so we can start with Congressman Moore.

Well good morning. Uh it's good to be with everyone. I represent the fourteenth congressional district and that's that's a somewhere about a third of Mecklenburg County which is where we are so I guess my district's about four and a half miles from here, so as the crow flies. But glad to have you here, glad to have our our witnesses here, and uh really appreciate the uh subcommittee coming down and uh sure you'll find nothing but great southern hospitality here.

There you go.

Uh, ro- ro- ro- excuse me, let me get my mouth uh working correctly. Uh, Representative Russell Fry uh represent the coast of South Carolina. Uh, so a lot of the good folks that live here vacation r- routinely and frequently in Myrtle Beach South Carolina so it's good to be with you today.

I'm Representative Mark Harris. I represent

Uh, Scott Fitzgerald, I represent the fifth district in Wisconsin, which is the west suburbs of Milwaukee for the most part. Um, still a little bit of ag, lot of dairy farms, and uh also uh lot of small business and

Mm.

specifically light manufacturing. So.

I'm Harriet Hegeman and I represent the entire state of Wyoming. Uh and um probably one of the most rural states in the entire country. And as a result it's very difficult and very challenging to provide medical care. Uh having to travel long distances, um very big ag state, very big industry state, a lot of coal. oil and gas and other types of energy and development. And as a result, we can have some pretty severe injuries out in the middle of nowhere, and trying to get medical care and get them to a facility that can treat them. Oftentimes we can travel fifty, sixty, a hundred miles to get to a hospital. And so this is very near and dear to my heart because when uh we lose money and resources to fraud it's a state like mine and my constituents that are directly affected. So thank you for being here today.

Hi, Bob Under representing Missouri's third district. My district extends from St. Charles County where I live just a little west of St. Louis County into central Missouri. My background is I was in private practice as a uh physician and a clinical researcher for thirty years.

Very good. Well, because this is an official hearing, I will call uh the hearing to order. Today's hearing will examine the effects of mergers, certificate of need laws, regulations, vertical integration, and fraudulent insurance practices on health care access and affordability in the US. I think we can all agree that there is something wrong with the American health care system. The price of care is sky-high, in part because of the design of and rampant fraud occurring in the Obamacare insurance system. Obamacare promised affordable health care for everyday Americans, but it has not lived up to that promise. The price of Obamacare plans has increased at twice the rate of employer-sponsored plans. Instead of doing something about the artificially inflated prices, the Biden administration just handed out more subsidies. And because the Obamacare system does not trust Americans to make decisions about their own health care coverage, those subsidies go straight into the pockets of the insurance companies instead of the American people. Additionally, access to providers of care have never been more difficult. This is doubly true for Americans in rural parts of the country, where they often must drive hours to get to the nearest hospital. And while it's easy to blame doctors or hospitals for increasing prices, or shutting down operations in rural areas, in reality the situation is far more complicated. Federal and state regulations make some forms of head-to-head competition more difficult for certain hospitals and outright ban it for others. For example, physicians are largely prohibited from owning hospitals. Federal regulations make it so complicated for physicians to own hospitals, that it's nearly impossible for a group of doctors to open a small hospital in a rural area. In a similar uh vein, certificates of need laws require health care providers to get permission from a state government before they can open a new location or expand their existing capacity. This means that health care providers cannot quickly invest, in improving the healthcare infrastructure in a community. They must ask for permission from the government first, and the answer is often, no. Uh, there are also not enough doctors and nurses to care for American patients. As we will hear in testimony today, I believe, this shortage is not for a lack of willing and able students. It is a foundational structure of the American medical education system that is out of balance. More graduate medical education funding, used largely to fund residency programs for physicians, go to big cities, like New York and Boston. Programs in rural areas generally only get pennies on the dollar if they get anything at all. These are just a few of the issues that plague American's health care system. But we didn't just come to North Carolina to articulate the problems, we came to gather solutions. And North Carolina has redefined its health care industry through investments in cutting-edge tech and research hubs. as well as a statewide rural health transformation program. As a result, the state has received national rankings in health care innovation and quality. Its university health systems are also consistently ranked in the top percentile nationally each year. But at the same time, North Carolina ranks near the bottom in health care access according to at least one study by Forbes. As one of the most rural states in the nation, it faces severe shortages of nurses and physicians and despite multiple attempts by the Republican state legislature to repeal the state certificate of need law once and for all, the Democratic governor continues to oppose it. This morning we will hear what health programs have been a success here in North Carolina and uh which ones are ripe for reform and hopefully apply those to the states that we represent. I want to thank our witnesses for appearing here today and I look forward to hearing what each of you uh has to say. So we will move um We will move to the opening statements and first we're going to have uh Doctor Brian Blais, President of Paragon Health Institute. Doctor Blais.

Uh Chairman Fitzgerald and members of the committee, thank you for the opportunity to testify. My name is Brian Blais, I am the founder and president paragon health institute paragon has spent the last several years documenting widespread improper enrollment in the affordable care acts two major two main coverage expansions we estimate that fourteen point three million people were improperly enrolled in the a c a exchanges or medicaid expansion in twenty twenty four about one third of total enrollment we estimate the federal cost at approximately sixty five billion dollars in that year alone. Improper enrollment includes people unaware of their enrollment, people with duplicate coverage, and people who do not meet income requirements.

Uh-huh.

Fraud flourishes when government programs combine enormous subsidies with weak verification and incentives to maximize federal payments. This is exactly what happened in the ACA exchanges. During the pandemic, Congress dramatically increased subsidies. For applicants who claimed low income, taxpayers covered the entire premium. That created powerful incentives for improper enrollment. Insurers benefited. They received the full premium from the federal government. An enrollee who pays nothing is particularly attractive because the plan does not have to offer any value for the person to remain enrolled. Brokers benefited. They received commissions for every month someone remained enrolled. Some brokers operating high-value high-volume enrollment operations earned six thousand dollars a day in commissions. In one operation, a customer service agent admitted that half of the people enrolled had no idea that they were being enrolled in coverage. Applicants can benefit from mis-stating their income because reporting income in that range qualifies them for the largest subsidies. This is all a recipe for abuse. We estimate five point one million improper exchange enrollees in twenty twenty four, which grew to six point five million in twenty twenty five. We also see evidence of phantom enrollment. The number of exchange enrollees who did not use their plan for anything tripled, from twenty twenty one to twenty twenty four. Thirty five percent of all exchange enrollees and forty percent of fully subsidized enrollees didn't use their plan a single time. Federal taxpayers likely sent insurers more than thirty-five billion dollars for people who never used their plan. At the request of this committee, the Government Accountability Office investigated the integrity of the exchanges. They found a complete mess. GAO investigators created twenty-four applications using fictitious identities. Twenty-three of the twenty-four obtained subsidized exchange coverage. While the problems of the exchanges are bad, they are worse in Medicaid. For traditional Medicaid populations, low-income children, pregnant women, seniors, and people with disabilities, the federal government contributes an average of a dollar thirty-three when the state spends one dollar of its own money. For the Obamacare expansion population, the federal government contributes nine dollars for every state dollar. Thus, Washington contributes roughly seven times more for an expansion enrollee than it does for a traditional enrollee. That creates a terrible incentive. If a state makes an eligibility mistake for an expansion enrollee, federal taxpayers bear at least ninety percent of the cost. And if someone who qualifies through traditional Medicaid is improperly classified as an expansion enrollee, which California uh exemplifies doing this, uh the state shifts substantial cost to Washington. Paragon estimates that nine point two million Medicaid expansion rolees forty-six percent of the expansion population were likely ineligible in twenty twenty four. The problem is not simply inadequate enforcement. It's a financing system that rewards states for getting eligibility wrong. Reducing improper enrollment, waste, fraud, and abuse in government health programs is vital to an affordability agenda. Fortunately, the one big beautiful bill contained a host of reforms that will reduce wasteful spending in Medicaid and Obamacare. These include more frequent eligibility checks, work requirements for able-bodied Obamacare expansion rolees, and steps to arrest the surge of corporate welfare in the program, by limiting the legal Medicaid money laundering apparatus that enables states to raise spending to powerful special interests with federal dollars. One other point. The main reason health care is increasingly unaffordable is high and rising hospital prices. Since two thousand, hospital prices have increased nearly three hundred percent. Hospital prices have risen three times as fast as inflation and twice as fast as worker wages. Government policy bears substantial responsibility for this. Medicare often pays more for the same outpatient service when it is delivered in a hospital-owned facility rather than an independent physician office. The three forty B program creates incentives for hospitals to acquire physician practices. Federal law restricts new physician-owned hospitals. Certificate of need laws, like the Chairman mentioned, restrict entry and competition. And Medicaid financing arrangements have directed enormous subsidies to hospital systems. These policies reward consolidation, restrict competition, and insulate hospitals from the market forces that force efficiency in other sectors of the economy. In my written testimony, I discussed reforms to reduce government subsidies and promote choice and competition in healthcare. Thank you. Appreciate the opportunity to be in North Carolina at this field hearing this morning and I look forward to your questions.

Doctor Brian Miller. Doctor Miller is a practicing doctor at John Hopkins Hospital, an associate professor of medicine at John Hopkins University and a visiting fellow at the Hoover Institution. Doctor Miller.

Thank you, Chairman Fitzgerald, and distinguished members of the committee. I appreciate this opportunity to talk about hospital competition and more accurately consolidation. Uh, I'm practicing doctor. I also serve as Vice Chairman of the North Carolina State Health Plan, which is a nearly five billion dollar organization that covers three quarters of billion state employees, their families and retirees. I should note that here I'm in my cap- personal capacity and my views don't necessarily reflect those of, wait for it, Hopkins, Hoover, uh, the Medicare Payment Advisory Commission or the state health plan. So, that aside, I have sort of three comments and three primary points to make for you. The first is that, uh, hospital consolidation is bad, sounds sort of like Sesame Street, uh, but it is. Who is it bad for? It's bad for consumers, taxpayers, and employers. And why is that? Health systems have purchased basically mostly other hospitals and doctors. What does that mean? We've had over two thousand mergers in twenty-five years. That's a pretty big number. And nearly four-fifths of hospitals work, or sorry, four-fifths, I see I got confused, four-fifths of physicians work for hospitals or corporations. So there is an independent small business. Hospital mergers raise prices by seven to nine percent and out-of-state mergers, so when a in-state hospital merges with an out-of-state one, can raise prices by as much as seventeen percent. Higher prices for hospitals mean higher out-of-pocket costs and higher insurance premiums without clear additional value. Mergers are also bad for patients. You get higher prices and you lose, as my friends at the Department of Justice would say, non-price competition. Say, what's this mean in healthcare? What it means is that in a study of two hundred and forty-six hospitals that were part of mergers, there was no change in medical quality, like thirty day readmission or mortality. So this is a profound lack of economies of scale and systems design. Consumers also lose out on service delivery innovation. I think we can all agree that the consumer experience of care leaves something to be desired. It hasn't really changed much. An example being emergency room boarding crises,

Mm-hmm.

where patients are sort of stuck in the ER waiting for hospital admission. We've heard about that for actually probably about fifty years since my late father was practicing. And we've been told that if only there were more money, it would be solved. Well, we have shoveled trillions of dollars and it still hasn't been solved has not been solved. I'd posit that'd be solved if there were more competition. Hospital consolidation is also bad for workers. In fact, it is a textbook example of employer monopsony powers suppressing workers' wages, in this case, nurses. And then I would also posit that employed physicians who now represent, um, you know, about four-fifths of physicians are employed, are similarly stuck in an episode of the TV show Severance with no escape. Second point is that law and regulation got us where we are today. It's long, long list. So my colleague uh Doctor Blase mentioned the lack of site-neutral payment. So we have incentivized hospital physician consolidation as we pay more, and I kid you not, if a hospital owns a clinic and it is more than two hundred and fifty yards away from the primary hospital, purchased before twenty fifteen, or if it's on-site. That sort of nonsensical rule is just the sort of regulation that drives up costs. We've also made competition illegal unless the government gives you permission. Some thirty-five states still have certificate of need, where bureaucrats determine if a facility or even a capital purchase like an MRI machine is needed. Personally, I'd rather ask the radiologist or the surgeon if we need another MRI machine. Most importantly, uh, we have systematically destroyed rural health care as we have made small business and care delivery illegal through Starklaw. Starklaw is about physician self-referral. And we have banned it in Medicare, but we have allowed a twenty billion dollar a year corporation to engage in self-referral. If you look at a small town of,

Mm-hmm.

say, five or ten thousand people, if you're a large health system, you do not have an incentive to build a two-physician practice and deploy capital. A physician does. Health systems, uh, typically do not invest in small micro-community hospitals. Physicians would, but it's illegal. And I would also posit Don't we want front-line workers to own the business? Because in contrast, lawyers are the only ones who can own law practices, but physicians cannot own a hospital and bill Medicare. But there are things that we can do. First of all, employers can use benefit design to drive competition. At the North Carolina State Health Plan, we are doing this ourselves, with a new preferred network for twenty twenty seven to give employees time travel back to twenty eleven and save on costs. We also have a no-cost collective surgical benefit. and pay for travel for patients. Competition authorities, like the FTC, can expand their competition policy advocacy and comment regularly on CMS, Medicare, and Medicaid rules. I expect that there are probably a lot of anti-competitive provisions, which CMS would benefit from. We can also add a managed care exception to Stark Stark law. Managed Medicare and Medicaid have utilization review to address induced demand. So, let's let them do that. Let's make small business great again. we need this innovation. And then, instead of the wrath of con, let's modulate the Medicaid FMAP or, say, Medicare inpatient-outpatient payment rates to create incentives for state legislatures to get rid of anti-competitive laws. There are more details in my written submitted testimony, and I look forward to your questions.

Thank you, Doctor. Uh, we now introduce Miss Martin, Miss Catherine Martin is Vice President of Health Affairs for the University of North Carolina System, she previously served as a Policy Advisor in the North Carolina General Assembly. Miss Martin.

Good morning, Chairman. Good morning, Chairman, and distinguished members of the Through my microphone?

I take your microphone.

Good morning, Chairman, and distinguished members of the committee. This fall, high up in the North Carolina mountains, Western Carolina University is launching a nurse-led clinic that offers primary and behavioral health care to residents of Haywood County. Patients of this clinic live in poverty. Most are elderly and suffer from chronic diseases like diabetes and cardiovascular conditions. Transportation is limited for them, making it increasingly difficult for some to travel to doctor's appointments or seek preventative care. Enter Western Carolina University's Catalyst Clinic, a bridge clinic that will bring much needed care directly to patients in Haywood County. Better still, the clinic will feature rural, interprofessional training for students in medicine, nursing, pharmacy and social work, among others. Western Carolina's Bridge Clinic is one of many innovative health care workforce initiatives I help support in my role as Vice President of Health Affairs for the University of North Carolina system. The UNC system, which includes sixteen public universities, a major academic health care system, two medical schools and twelve nursing schools is North Carolina's key producer of health care professionals. Our reach and our impact are a major reason why the North Carolina General Assembly has entrusted our state agency with ninety-one million dollars of flexible state funds to expand education and training rural for physicians, pharmacists, dentists, nurses and other core health care providers. It is an incredible privilege to also build upon the Rural Training Foundation our universities are already setting in motion across the system, and have for a very long time. As you know, North Carolina is the second most rural state in the nation, with one in three residents living in remote mountain or farming communities. By contrast, fewer than three percent of our state's physicians are practicing in those areas. The state also faces a large shortage of nurses, with twelve thousand five hundred vacancies forecasted over the next decade. Data show that state health care shortages are not due to lack of talent, hundreds of students graduate from North Carolina medical schools every year, but only a handful are matched into a rural residency program. That is because North Carolina doesn't have enough residencies in the places where doctors are needed most. We know that doctors are two to five times more likely to practice where they train, It follows then that if we need care in rural areas, then we need to establish residencies in the small towns and remote regions where we want physicians to settle and stay. By that same logic, we also need to train more pharmacists, dentists, nurses, and other critical health care providers and rural training tracks. With these dollars from the state legislature, that is exactly what the UNC system has set out to do. Alongside our universities and affiliates, We are working to place more health profession students and medical school graduates into rural areas by developing, expanding, and sustaining rural physician residency programs, clinical training programs, and interprofessional learning opportunities that allow students from various health care fields to treat and care for patients as a team. There are two major benefits to the structure of our fund at the UNC system that allows us to be successful so far. First, our state funding is flexible, operating under a definition of rural that is more relaxed compared to federal rules. This has helped us to build training opportunities in counties that have severe health care shortages but would otherwise have been excluded under the federal definition of rural. Second, our fund is designed for innovation, supporting more creative training tracks such as the Nurse-Led Catalyst Clinic, at Western Carolina University. Those opportunities are helping us to be more efficient. leveraging our faculty and resources to meet the needs of rural communities we already serve, while also allowing students to gain experience in areas where there are major health care shortages. This includes building new infrastructure for nursing programs. Thank you for this opportunity to give a brief overview of our work, and I look forward to answering any questions you may have. Thank you.

Uh, well, I wanna thank the the witnesses for their opening statements. Uh, we're gonna do this a little bit on a secret. so everything you've said so far we'll assume is truthful. Uh, but we're gonna swear you in now, okay? Uh, so would you please rise and raise your right hand. Do you swear or affirm under penalty of perjury that the testimony you are about to give is true and correct to the best of your knowledge information and belief? So help you God.

I do. I do.

Let the record reflect that the witnesses have answered in the affirmative. Thank you and please be seated. Um, so we will open uh the floor now for our five minutes of questioning from every member. And uh because we have a little bit of flexibility based on the amount of witnesses and members that are here, um if we have, if there's a second round or a follow-up question, we certainly will entertain that. So, and we will start um with Congressman Harris.

Well, thank you, Mister Chairman, uh for holding this field hearing and and thank you to all of our witnesses for your willingness to come and participate in this uh what I consider to be a critical critical conversation, not only to North Carolinians but to all Americans. And uh it's true, and I think the opening statement that this uh chairman led pointed out that North Carolina is leading the nation in addressing health care challenges, particularly in the rural health care space. Um I wanna take a moment just to highlight some of the important work being done. Currently North Carolina has one of the largest nursing shortages in the country, as was alluded to a moment ago. And NC NurseCast, that's based at UNC Chapel Hill, estimates that the state could have a shortage, as we've heard, of twelve thousand five hundred registered nurses and five thousand licensed practical nurses by twenty thirty three. And Ms. Martin, I I just wanna come to you first, if I may. Can you explain the impact of nursing shortages on both health care accessibility and cost for individuals that are living uh in rural parts of our state of North Carolina.

Mm-hmm. Thank you for the question, Congressman Harris. Um, I think that's a really important question. Nursing is the most trusted profession, um, one of the most trusted professions and has been for almost twenty-five years, and they are so critical to filling gaps in more rural counties of North Carolina. Um, the Shep Center has produced a primary care clinician index that has been established since twenty seventeen, and They've just recently updated it. And it really looks at primary care clinicians when you factor in what the ratio is for one primary care clinician for fifteen hundred population per county. Um, North Carolina counties have improved mostly and most of those county improvements is because of an influx of nurse practitioners or other advanced pr- practice providers that are choosing to practice in those um areas of the state.

I got you. So in twenty twenty-three, the state of North Carolina appropriated forty million dollars to help address the nursing workforce shortage. Utilizing twelve nursing schools, the UNC system has helped equip to address the shortages. And it's been reported that to date all twelve schools are on pace to produce a sixty percent increase of net new nurses to the state by twenty twenty-nine, twenty-thirty. And this amounts to a gross increase of seven hundred and seven nurses in the workforce, but a net increase of approximately five hundred and eighty nurses due to historic in-state retention factors. And these numbers far surpassed the state's legislative mandate which is fifty percent increase. Can you take a moment and talk about the UNC system offices work with the North Carolina General Assembly and what efforts have led to what I consider to be very successful results?

Yes, thank you for the question, Congressman Harris. Um, so this really dates back to twenty twenty one when the Shep Center was funded by our state's Board of Nursing to produce the NurseCast model. It's a very complex um supply demand model that looks at LPN's, RN's, by region of shortages, by Medicaid region um across the state uh from dating back to twenty twenty one through the next decade, through twenty thirty four. And that projected shortage or that baseline is twelve thousand five hundred. So in response to that model that was built, the legislature asked all of the nursing schools and the community college system with their associate programs of what it would take to increase nursing degrees by fifty percent. And in turn, um, we, the system office, received a forty million dollar appropriation. It was actually very flexible. It could be used for - to expand any healthcare related degree programs, but because of that data, we went all in on nursing. Um, so, as I mentioned before, twelve of our sixteen public universities have nursing programs. we issued a competitive RFP to really field what is actually needed, what core resources are needed to effectively expand capacity. Um, one of the biggest hurdles, I would say, to expand capacity is really clinical placements. Finding preceptors at hospitals and other, uh, clinical adjunct faculty to assist a university to effectively expand enrollment and admissions into their program. And so these are the resources that we're providing the schools and they're doing a tremendous job implementing them.

Thank you, Miss Martin.

Mm-hmm.

Mister Blase, um, I wanna move on for just a quick moment and uh thirty seconds we've got left. You've written that ACA's subsidy design discriminates against working families, particularly those with employer provided coverage. That interests me. Could you talk about why that is the case?

Yeah, thank you for that question. Um, it's a really important and underappreciated uh component of the ACA. If, mo- most people get their insurance through their employer. if you get your insurance through your employer, um, there is a tax benefit. Uh, the premium is not subject to federal income or payroll taxes, and for the typical family, for the typical individual, um, the amount of that benefit is about two thousand dollars, maybe a little more than two thousand dollars. The ACA, um, has the individual market, which it, uh, made much more expensive with a lot of regulation, and contains subsidies for people to afford that coverage. Um, the typical subsidy that somebody gets, um, when they purchase an ACA plan is about eight thousand dollars. So, it is about four times more benefit that the government is giving, um, for workers if they do not get coverage through their employer. Um, so it's a significant, um, discrimination and it's an incentive for small employers to stop offering coverage um and that is really um would be a detriment to the Thank you, sir.

Do you have any notes back, Congresswoman from Wyoming?

Thank you. I do want the record to reflect that none of the Democrats have shown up for this hearing and have not uh invited a witness to address what I think are some incredibly important issues not only from the standpoint of providing medical care in this country but the waste fraud and abuse that we have been subjected to. uh over the um uh past several decades. Waste, fraud and abuse exist in nearly every sector across our country, ranging from public welfare programs to foreign aid, costing American taxpayers hundreds of billions of dollars, if not more. Health care is certainly no exception. The consequences of fraud in this industry, however, are disproportionate to others, given what is truly at stake. Every health care dollar lost to fraud is one that could have been spent to the benefit of American citizens whether by supporting direct access to care, researching diagnostics and treatments for life-threatening conditions, or acquiring new medical technologies to enable greater efficiencies. The National Healthcare Anti-Fraud Association estimates that financial losses originating from health care fraud are in the tens of billions of dollars each year with its conservative estimate placing losses at around three percent of total health care expenditures to give a few specific examples earlier this summer, the DOJ's twenty twenty-sixth National Healthcare Fraud take-down resulted in charges against four hundred and fifty-five defendants for their alleged participation in health care fraud and opioid abuse schemes involving over six point five billion dollars in false claims and significant patient harm. On September fourth, two men were sentenced to prison for their roles in a thirty-four point eight million dollar health care fraud conspiracy in which they billed Medicare for thousands of orthotic braces sent to beneficiaries who did not need them. Just last week, a man in California was sentenced to prison for his role in a healthcare fraud scheme in which nearly two hundred and seventy million dollars in fraudulent claims was submitted to the California Medicaid program. Doctor Blais, can you tell us more about the extent of the Medicaid fraud problem and how much it actually costs taxpayers each year?

It is extensive. And one of the main problems with Medicaid is that many states are complicit in the fraudulent spending. Um, for the Obamacare expansion population, the federal government covers ninety percent of the cost. So, um, a state, if it reduces ten dollars of fraud, would re- would need to send nine dollars back to the federal government. That gives states very bad incentives. Um, and so they often look the other way. on uh fraud and abusive schemes. In total, um we estimate that improper payments in um uh Medicaid exceeded one trillion dollars over the past decade.

One trillion dollars in ten years, just in this one program.

Yes.

Well, I uh there are a lot of things I'd love to talk with you about today, and hopefully we will have an opportunity to address some of this, but so much of the response to to the fraud that we see is reactive. Uh, dismantling fraud rings and charging perpetrators after the fact. And I think over the last nine months, not just in the medical field or in in the in in the the healthcare space, but what we've seen coming out of Minnesota and Maine and California and Illinois, just across the board, the nature of the the fraud is just astronomical. But what chal- what are the challenges that hinder us from addressing healthcare fraud more proactively? How do we stop this fraud from occurring in the first place? Is it completely revamping the incentive program for our states? Is it uh requiring additional you know, I I don't wanna just expand the bureaucracy, that doesn't help anything. How do we actually stop the fraud from occurring in the first place?

Yeah, so I it's a really important question, and certainly the prosecutions that we're seeing, that is a good use of uh government resources, but the reason we have so much health care waste and fraud is because of bad incentives. So let me give you two, um, policy recommendations. On Obamacare, the main fraud has been driven by zero premium plans. It has allowed brokers to sign people up without their consent. Um, the subsidy covers the full premium. So the subsidy goes to the health insurance company, and the broker gets a commission every month the individual is enrolled. So we estimate that there were three to four million people, um, that we call phantom enrollees, had no idea that they were covered in the program. Um, and they didn't use their plan obviously a single time. There should be a minimum premium payment. Uh, a minimum premium payment, which I think could be twenty-five dollars a month, uh, would get at a lot of that fraud. Um, on Medicaid, uh, the problem is that when states, the fundamental problem with Medicaid is the more the states spend, the more the federal government sends to states.

Right. Right.

So there should be limits on what the federal government um, sends to states. In the, um, intervening period, uh, the federal government should do aggressive audits of states and actually make recoveries um when those audits find fraudulent and improper spending.

OK. Well, up here, uh, we have Wisconsin and Wyoming both represented. I'm not sure about some of the other states. Neither of our states expanded Medicaid. Neither one of our states did that. And now I know that there is going to be a push pop- potentially in both of our states as well. But I think that your point about incentivizing states to be better stewards of the money or not getting the money in the first place are really good points. I might have an opportunity to ask additional questions, but thank you.

Gentleman with yields back. Gentleman from South Carolina, Mister Fry is recognized for five minutes.

Thank you, Mister Chairman, and um much like Wyoming and um others, we, South Carolina has not expanded uh Medicaid. Um Doctor Blase, I think when I look at this So, I think, I'm gonna ask questions that I think are pretty rudimentary and easy for us in this room to understand, but for the people who might pay attention now or later to this hearing, what does the traditional Medicaid uh what what is who is covered under under traditional Medicaid?

Uh, there's four categories. Uh, low income children, uh, seniors who are uh low income, uh, people with disabilities on the SSI program, and pregnant, whatever.

And how much is the federal responsibility of a traditional Medicaid population?

On average, uh, the federal government covers about fifty-seven percent of the costs. So another way to think about that is they'd spend a dollar

Correct. The d- there's a, uh, I'm gonna, I'm gonna move fast cuz we got five minutes,

Yep.

but, so fifty-seven percent of the cost is borne by the federal government and the state picks up the other on average, I guess forty-three, is that correct?

Correct.

So there is at least some incentive by the state there to make sure that the dollars that they are spending are appropriate.

Correct.

Who is the expanded Medicaid population? We talk about states that have expanded Medicaid. Who does that cover?

It's able-bodied, working age, generally childless adults.

What is the federal reimbursement rate to states for that?

It's ninety percent.

So we cover, let me make sure I understand this for the people watching back home, we cover more, the federal government's responsibility for able-bodied adults is higher than the the people who the program was intended for.

It is much higher.

Isn't that really backwards?

I think it is federal discrimination against the most vulnerable. Yes.

Right, like, think about the the purpose of Medicaid, right? Why why it was created to begin with. And now we have these expanded populations. And so I think going back to what was talked about earlier, there's really a perverse incentive, um, by states to not really check, uh, verification, uh, to to check fraud in their in their states if they have an expanded population. Is that correct?

Yeah, I mean, the

Cuz there's no skin in the game, right? The state has has virtually zero uh, liability on their, uh, on their books because

Yeah, so one dollar,

it's only ten cents on every dollar.

one dollar of state spending generates nine dollars of federal spending, and states often develop financing gimmicks and schemes for that one dollar.

Correct.

So in

Let's talk about that for a second, actually. I want to go into that. What kind of schemes do you see? I know we covered some of those in the big, beautiful bill, uh, but what kind of schemes do you see where states, uh, uh, completely remove their financial, uh, liability to the expanded population?

Uh, the, the biggest one is called the provider tax. uh, it is not a tax, it is often developed by, say, a hospital system. The hospital system goes to the state, say, " Tax me a million dollars." Um, the state then takes that and spends that million dollars back on the hospital system. That is just an accounting gimmick, but what that does is allow the state to invoice the federal government for that million dollars. Um, so the state will get, for the expansion population, nine hundred thousand dollars for that Financial gimmick.

So it's like a shell game, right?

Yes, we call it money laundering, legalized money laundering.

Congress apparently authorized that before we were all here. Um, w- to go shifting real quick into into fraud into the en- enhanced premium tax credits. How much waste fraud, uh, abuse improper payments did you and your research find in those enhanced subsidies?

Probably, uh, about a quarter of total spending, so in twenty twenty five we estimated it at twenty seven billion dollars.

Twenty-seven billion dollars. Who was the, uh, i- as far as the, the fraud and the abuse that was in that system, who were the, who were the biggest culprits? I think you said earlier brokerage firms, uh, were, were a big bad actor in this?

Well, the insurance companies are the big beneficiary, because they get the premium paid by the federal taxpayer and then the brokers get a commission. So they have incentives to improperly enroll people cuz they're gonna get a cut of that monthly premium.

How widespread do you think that activity was?

Um.

From from the from the standpoint of the brokerage firms.

It was massive. It was really, in the state of Florida, my, my state that I live in now, I mean, we excel in health care fraud. And in Florida, we have five times as many people signed up in the lowest income category than are eligible.

What um what what is the specific fraud scheme that you saw that was particularly alarming?

Uh, so there were two. Um, uh. people uh these brokers would go to uh areas where uh there were low income individuals, homeless individuals, uh they would sign them up for an Obamacare plan um there were also social media scams where they would advertise cash and gift cards. They would get people to call a number, people would ask about their cash or gift card um uh they were told the first they had to sign up for health insurance so they got enrolled in Obamacare plans that way.

Yeah we s- we sit in Charlotte where a man in in June was charged with defrauding the North Carolina Medicaid program of hundreds of thousands of dollars. This is part of the Justice Department's crackdown over the summer. Um, what what steps can Congress meaningfully take to eliminate this? It seems that the incentive right now is that, or or the the structure right now is that a claim is made on the system, a claim is paid, uh, that we find the fraud after the fact, and then that we chase it, hoping that there's some some dollars that we can recover. It seems to me that the more prudent step here would be to head that off on the front-end, What steps can Congress take to eliminate this practice?

So in Medicaid, most of those program decisions are made at the state level. What the federal government does is determine basically the broad rules of how states have to operate their programs, but then the financial structure. And what the Congress should do, and you started this in the one big beautiful bill. So you limited provider taxes, you limited a lot of corporate welfare through these state-directed payments, which were the payout from this scheme. Uh, Congress made significant steps. in the one big beautiful bill on Medicaid financing reform. I think the next big item for Congress is to, um, uh, get rid of Obamacare's ninety percent match rate. To come back to your first question,

Yeah.

it makes no sense for the federal government to discriminate against the most vulnerable, creates a host of bad incentives. Congress should equalize the reimbursement rates across all populations. Um, the ideal solution would be capped amounts. determine what the budget should be for the program, um, and then allocate that money across the states in an equitable manner. Uh, one of the questions that we didn't talk about is how inequitable federal financing, Medicaid financing is. There are some states like New York, um, that get magnitudes more spending, uh, because they've maximized the use of these gimmicks, um, and they just have really expansive welfare programs versus your state of South Carolina, which is much more fiscally responsible.

Thanks for sharing that, appreciate that. I'll note, share my my time's up and if there's appropriate time I may ask questions later. Thank you.

Gentleman Neal's back. Uh, gentleman from Missouri, Doctor Honder.

Well, thank you. Yeah, this topic we're exploring today is not only essential to the future of American healthcare but also the fiscal viability viability of our country. You know, as a physician over the past thirty years, I have I have witnessed, uh, in real time this incredible consolidation of our health care system. Um, now, you know, this comp- i- i- consolidation will happen when one competitor in a marketplace has a better product provides more convenient services, lower prices. Uh, the - i- i- the competitors will lose market share if someone's doing better than it, better, better than they are, witness the success of Walmart or Amazon in the real retail marketplace. But I would submit to you the consolidation we've seen the last twenty years is not someone building a better mouse trap. It is the direct result of government policies like we've been talking about here today. Um, those policies cumulatively have inexorably driven consolidation to the detriment of patience of taxpayers and employers, uh, and of course our national budget and national debt. You know, horizontal i- integration, um, eh, you know, you talked about this, Doctor Miller, um, but between - eh, b- between ninety-eight and twenty-seventeen, we have seen fifteen hundred hospital and healthcare system mergers. The ten largest health systems account for one in five hospital beds in the United States. Um, today, sixty percent of physicians work for hospitals or health systems. And in my region for primary care, it's more like ninety percent. Uh, the largest em- single employer of physicians in the United States is United Healthcare. Um, how did this all come about? A government policy. If you pay one competitor in a marketplace more than another, guess who's gonna win out? Um, the um, hospitals are paying more for the same services again, Doctor Miller, as you pointed out. Expansion of the three-forty-B program under Obamacare, further incentivized this consolidation. Um, and since two thousand and one, under the Medicare fee schedule, physicians have been, have seen a thirty-three percent decrease in real reimbursement, while hospitals get inflation adjustments. We hear about the doc's, doc fix from time to time in our budget debates. And of course, and of course hospital acquired practices are the most expensive place to get care. Um, and meanwhile we keep competitors out of the, uh, marketplace, Obamacare, uh, place severe restrictions on new or expansion of physician-owned hospitals. Uh, in many states, including my own, Missouri, uh, we have dysfunctional and archaic certificate of need, uh, laws that prevent competition in the healthcare marketplace. And, uh, there's a non-profit exemption in our antitrust laws. And since seventy-seven percent of hospitals in the US are either, either non-profits, so-called, or, uh, or government-owned, they, uh, they are all exempt. And then of course vertical, uh, vertical integration, um, where I think another, again, another side effect of Obamacare, the medical loss ratio in which insurers are required to spend eighty percent of their premium dollar on health care. Well, guess what you do? You buy or form your own PBM, overpay your PBM, and, uh, the, uh, that money that you're paying yourself counts toward your medical loss ra- ratio. An incredibly dysfunctional system, and I could go on. Um, what, um, I - I want to um, uh, uh, Doctor Blais, you know, the whole point of - of the Obamacare was allegedly to get more, quote, " get more people insured". I heard that from hospitals, universities, count- uh, countless times. Can you explain how - how Obamacare, both the - both the expan- the Medicaid expansion and the, uh, exchanges have, uh - ha- have displaced private - private insurance?