What a load of BS......
Fraud and Abuse in Federal Programs
by Chris Edwards and Tad DeHaven
August 2009
Introduction
Medicare and Medicaid
Housing Subsidies
Student Aid
Farm Subsidies
Other Programs
Conclusions
. . .
Medicare and Medicaid
Fraud in the two main federal health programs is huge, imposing costs on taxpayers at least in the tens of billions of dollars each year. As broad-based government programs, the massive size of Medicare and Medicaid makes them very difficult to police. Medicare, for example, processes 1.2 billion claims each year by computer, generally without human eyes checking them for accuracy.
Let’s look first at the fraud and abuse problems in Medicare. The Government Accountability Office estimates that there are about $17 billion of improper Medicare payments each year, including fraudulent and erroneous overpayments to health care providers. 4 That figure does not include the huge new prescription drug benefit, which is thought to be highly susceptible to abuse.
Other estimates of improper Medicare payments are higher. Malcolm Sparrow of Harvard University, a top specialist in health care fraud, argues that estimates by federal auditors do not measure all types of fraud. He believes that as much as 20 percent of federal health program budgets are consumed by fraud and abuse, which would be about $85 billion a year for Medicare.5
Sparrow says that criminals can rip off federal health care programs simply by carefully filling out and submitting the proper forms, and then the “claims will be paid in full and on time, without a hiccup, by a computer, and with no human involvement at all.”6 He argues that the abuses do not just stem from occasional overbillings by doctors, but involves organized looting of health care programs by criminals.
A perfect example of what Sparrow is talking about was reported by the Washington Post in 2008. A high-school dropout with a laptop computer was able to single-handedly cheat Medicare out of $105 million by electronically submitting 140,000 fraudulent claims over four years for equipment and services.7
There are many ways that Medicare gets ripped off: “Billing by health care providers for services not rendered, billing for products not delivered, misrepresenting services, unbundling services, billing for medically unnecessary services, duplicate billing, increasing units of service which are subject to a payment rate, falsifying cost reports resulting in increased payment to the health care provider, kickbacks, and on and on.”8 You can read about the different types of fraud on Medicare’s website.9
One area of rampant fraud is Medicare’s medical equipment subsidies.10 One scam is for doctors to steer patients into buying motorized wheelchairs that they don’t really need, but that Medicare pays for. Then the doctors receive kickbacks from wheelchair supply companies or other operatives. A 2008 report by Senate investigators found that 30 percent of medical equipment reimbursements that they examined appeared to be fraudulent.11
Another area of fraud is Medicare’s home health care benefits. Medicare pays for home visits by health professionals under certain limited conditions, but patients find ways to illegally get around those limits. In addition, criminal gangs have simply looted this program by submitting false claims.12 The costs of Medicare home health care coverage soared 44 percent over the last five years, and fraud appears to be an important cause of the increase.13 Auditors have been concerned about fraud in home health care for years, but the problem never seems to get solved.
The bigger Medicare gets, the more fraud there is. The newest subsidy—the $60 billion a year prescription drug benefit—is thought to be particularly susceptible to abuse.14 A physicians’ publication noted that the benefit was “staggeringly complicated and largely incomprehensible to the very population it was intended to help. It’s also ripe with opportunities for the dishonest and fraught with traps for the unwary. … The drug program’s very complexity is a source of fraud.”15
The Medicaid program also has a giant fraud and abuse problem. The GAO puts the cost of improper Medicaid payments at $33 billion, or about 10.5 percent of the program’s total spending.16 But if improper payments are 20 percent of the program’s cost, as Malcolm Sparrow thinks might be the case, that would be a $63 billion annual loss to taxpayers.17
New York’s Medicaid is especially fraud-ridden. The former chief investigator of the state’s Medicaid fraud office believes that about 10 percent of the state’s Medicaid budget is consumed by pure fraud, while another 20 to 30 percent is consumed by dubious spending that might not cross the line of being outright criminal.18
A 2005 investigation by the New York Times found remarkably brazen examples of fraud and abuse in New York’s Medicaid. The article noted that the program has “become so huge, so complex, and so lightly policed that it is easily exploited … the program has been misspending billions of dollars annually because of fraud, waste, and profiteering.”19 Here are some of the findings:
•A dentist stole more than $1 million from New York’s Medicaid by making claims for fictitious patients and procedures. She even had the chutzpah to make claims for 991 procedures supposedly performed in a single day.
•Medicaid’s subsidies for handicapped transportation are widely abused. The program pays $50 per trip for handicapped persons to go to doctor’s appointments, but investigators found that many people using the service were not handicapped and that many transportation companies were rigging the system to earn unjustified profits.
•Schools across the state charged Medicaid more than $1 billion for unneeded or unprovided special education activities as a way to bilk the state out of additional Medicaid grant money.
•Criminal gangs diverted Medicaid-covered muscle-building drugs that were intended for AIDS patients to bodybuilders.
Similar schemes to bilk federal health programs are routinely uncovered across the nation. Federal investigators say that they play “whack-a-mole” with organized criminals, because when they crack down on them in one area of the country, they move to a different area and continue bilking federal health programs.20
A classic type of fraud in both Medicare and Medicaid is double-billing. In one recent case, the University of Medicine and Dentistry of New Jersey double-billed Medicaid repeatedly over the years by directly submitting claims for outpatient physician services, even as doctors working in the hospital’s outpatient centers were submitting their own claims for exactly the same procedures.21
Another area of fraud is Medicaid’s long-term care benefits, which cover the costs of nursing homes and home care for the elderly poor. Medicaid pays about half of the costs of all long-term care in the nation. The program has complex rules for eligibility related to one’s income and financial assets. But nursing homes are expensive, and so the program creates incentives for middle- and higher-income families to try and qualify for it. Indeed, an industry of financial consultants helps seniors hide their income and assets so that they become eligible. This sort of abuse costs taxpayers about one-fifth of the program’s cost, or about $13 billion in 2009.22
One reason why Medicaid has high levels of fraud is that it is an open-ended “matching” program. The states administer the program and decide how much to spend, but the federal government pays more than half of the costs. That creates a disincentive for state officials to worry too much about fraud and abuse. Indeed, state governments themselves have a history of abusing Medicaid by creating schemes to improperly boost their receipt of federal matching dollars. The Washington Post rightly called these state schemes a “swindle,” but noted the political resistance to doing anything about it.23 One solution to these problems is to turn Medicaid into a block grant and freeze the amount of aid to each state. That would immediately give states a big incentive to cut all types of waste, fraud, and abuse.
In sum, the magnitude and complexity of federal health programs results in a huge and ongoing waste of taxpayer funds. Sparrow argues that health care fraud and abuse “might be as low as one hundred billion. More likely two or three. Possibly four or five” hundred billion.24 The Inspector General of the Department of Health and Human Service told Congress in 2009: “Although it is not possible to measure precisely the extent of fraud in Medicare and Medicaid, everywhere it looks the Office of Inspector General continues to find fraud against these programs.”25