Medicare Thieves

Stealing from the government-run health care system is much easier—and potentially more lucrative—than dealing drugs.

(Page 3 of 3)

So is there a viable solution? In March, Rep. Cliff Stearns (R-Fla.) held a congressional hearing on the matter. In addition to Odelugo’s testimony, he heard from insurance industry representatives, Medicare administrators, the Office of the Inspector General, and the executive director of the National Health Care Fraud Administration. Each recommended a series of small fixes designed to ensure “program integrity,” the bureaucratic catchphrase of choice for finding ways to stop crooks from stealing taxpayer money. Many of the witnesses recommended increased communication between law enforcement, health care officials, and medical professionals. The specific solutions were mostly small and technical.

A CMS official, for example, highlighted the system’s recently implemented efforts to enhance oversight of the screening process for new applicants. But it’s hard to trust a bureaucracy so slow that it took more than three years to implement those changes following the GAO report that inspired them. As the director of the National Health Care Fraud Administration later pointed out, Medicare thieves “have proven themselves to be creative, nimble, and aggressive.” For the most part they’ve managed to stay ahead of both administrative fixes and law enforcement. “These people do nothing but recruit patients, get patient lists, find doctors, look on the Internet, find different scams,” Florida FBI agent Brian Waterman told CBS News in 2009. “There are entire groups and entire organizations of people that are dedicated to nothing but committing fraud, finding a better way to steal from Medicare.”

Rep. Stearns thinks the root of the problem lies in the easy-to-manipulate design of Medicare’s payment system. “Medicare is a fee-for-service program,” he tells me. “You perform a service and you get paid.” More payments mean more services and more fraud. It also creates opportunities for criminals. “It’s a pay-and-chase model,” Stearns says. “They pay out the money—and they go after it later, but they’re not checking on where it goes.” According to data released by Medicare, less than 3 percent of claims are reviewed before they are paid. 

It’s very different with private insurers, according to James Capretta, a senior fellow at the Ethics and Public Policy Center who served as associate director at the Office of Management and Budget from 2001 to 2004. “Do we think that there’s the same level of improper payment occurring on the private side?” he asks. “The answer is no. And the reason is that they have a revenue motive.”

Medicare is not the only organization in the world that processes millions of payments across the country every single day: Credit card companies and private insurers do much the same thing, and their rates of fraud and improper payment are considerably lower. “The credit card industry has over $2 trillion in transactions per year and is nearly the size of the health care sector,” Sen. Scott Brown (R-Mass.) said at another health care fraud hearing in March. “Yet credit card fraud is a fraction of one percent, and I’m shocked that the government can’t do it better.”

Stearns thinks it can. “Every credit card company in America does predictive computer modeling for credit card fraud,” he says. “None of that computer predicting modeling has been done for Medicare.” The trick is to create complex algorithms that crunch historical data on Medicare ID numbers and reimbursement requests, then match them with procedures. If the government builds up a big enough database of providers, procedures, and transactions, and cross-indexes those with related factors, it may be able to determine with some degree of accuracy which payments are bunk.

Republicans such as Stearns may have an ally in their quest to make the payment system more rigorous: the White House. During a health fraud prevention convention in Boston at the end of 2010, Secretary of Health and Human Services Kathleen Sebelius and Attorney General Eric Holder announced that the Obama administration planned to implement a predictive modeling pilot program. In June a CMS press release said Medicare payments would be run through a risk-prediction model beginning July 1, giving the federal government its first ever real-time review of payments. The press release touted predictive modeling as a “revolutionary new way to detect fraud and abuse.” If the results are good, the system will expand to Medicaid in 2015. 

Will it work? It’s too early to tell for sure. But in general, health care pilot programs run by federal bureaucrats have been notoriously unsuccessful. Nor have previous fraud fighting efforts had much effect: In July, the GAO released yet another report calling out inadequate anti-fraud efforts in Medicare and its sister program, Medicaid. By Cato Health Policy Director Michael Cannon’s count, it was GAO’s 159th such report. 

The Cost of Fighting Fraud

There are costs to fraud-fighting programs as well. One anti-fraud plan first sponsored by House Republicans is projected to cost about $930 million during the next decade. In itself, given the size of the problem, that’s a pittance. But the direct cost isn’t necessarily the biggest barrier for fraud fighters. “There would be some political problems with going after fraud,” says James Capretta, because “providers like to get prompt, no-questions-asked payment.” As a result, any such reform effort could provoke a revolt among the doctors, which would almost certainly be followed by a revolt among seniors when they are unable to find physicians to treat them.

Medicare’s pervasive waste belies the argument that it’s more efficient than private providers; in 2010, the system made improper payments equal to nearly four times the total amount of all U.S. health insurer profits. But predictive modeling is only a small part of private-sector success; insurers also engage in extensive underwriting and human case-by-case review. Many doctors don’t look kindly on such bureaucratic intrusions. The Association of American Physicians & Surgeons, for example, has issued reports warning of the “negative impact” and “adverse side effects” of anti-fraud efforts, claiming they “have made it more difficult for patients to get care from the most honest and qualified physicians.” The real price of stepping up fraud prevention, they caution, may be paid by seniors who lose access to medical services. That’s a price few politicians are willing to pay. 

Weeding out fraud is an arduous, time-intensive process. And Medicare’s administrators, who are beholden to politicians who are in turn beholden to patient and provider constituents, may not have the stomach for it. It’s the classic political problem of diffuse costs and concentrated benefits. The cohorts that stand to benefit most from an inefficient system are also those with the loudest and most influential voices on the issue. It’s no accident that Medicare has evolved the way it has. 

No politician ever claims to like waste, fraud, and abuse. But powerful constituencies are invested in rejecting any meaningful change to a system that just so happens to enable such massive criminality. By guaranteeing speedy payments for the medical care of almost 50 million people, the government seems to be guaranteeing profits for health care crooks.

Peter Suderman is an associate editor at reason.

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • Grey Panther||

    Thank you Reason for finally writing too about the biggest problem with Medicare and Social Security. The problem is fraud! Doctors billing for patients that aren't really patients. People using expired social security numbers. These are the problems with the system. Fix this and Medicare and SS will provide like promised to you and me.

  • prolefeed||

    Well, that, and the "fixing the pyramid scheme" problem, and the "Congress spending all the surpluses on unrelated stuff" problem, and the ...

  • cw||

    Yeah, I have to agree: fraud is the least of my concerns with the whole Medicare program. How about trillions of dollars in unfunded liabilities?

  • T||

    Let's all leech off the state. Gee, the money's really great!

  • cw||

    So instead of reforming Medicare to fight fraud, the government just creates another agency "task force" to address it. Well, I guess that's more jobs, right?

  • DJF||

    Its not just fraud, its incompetence.

    My mother received some equipment from Medicare that she did not need, the equipment was brand new and unused but it took months of calling to finally get them to take it back and the people picking it up said that it would probably be sold for scrap because they don’t reuse equipment even when its not used.

  • Kroneborge||

    I think I see a new career move for me !

  • ||

    Scot Brown is "shocked" the government can't do better than private industry? Does he know nothing of history? Can he name one single thing the government does better than the private sector?

  • Untermensch||

    Employ people who wouldn’t be able to keep a job in the real world. It does that pretty well.

  • Apogee||

    And that's all it does well.

  • Brenna||

    Having once worked for the federal government, I can admit that you got me there. It does do that far too well. And the sad part is they all think they are above average and so much smarter than the rest of us.

  • daveInAustin||

    There's a simple solution: a lifetime and yearly cap on benefits. That would more closely align the interest of the patient with the interests of the taxpayer. Of course, the supposedly fiscally conservative tea-party would complain about death panels.

  • ||

    There's a simple solution: a lifetime and yearly cap on benefits.

    Couple that with immunity for any healthcare provider who refuses to provide care to a patient because they can't pay (or for any reason, really), and you've got something.

    Without immunity for refusing patients, these people will keep showing up and getting care even after they've busted their cap, and somebody else has to cover the bill.

  • Jim||

    Who cares about the fraud? While we're redistributing wealth, medicare fraud is better than putting them in jail, welfare or unemployment; there is no additional overhead!

  • ||

    It is the 'Tragedy of the Commons' transferred to health care. Why can't government do anything better than private industry? Because the motivations are totally different; duh.

  • ||

    when i worked in hospital admitting medicare was the most common patient they would come in with doctors orders for tests treatments or what not and we would have to pair the prognosis or diagnosis with the procedure. some patients came in without qualifying ailments so we asked questions until such time as we found one that worked and medicare got paid.

  • ||

    when i worked in hospital admitting medicare was the most common patient they would come in with doctors orders for tests treatments or what not and we would have to pair the prognosis or diagnosis with the procedure. some patients came in without qualifying ailments so we asked questions until such time as we found one that worked and medicare got paid.

  • ابراج اليوم||


  • ابراج اليوم||


  • Robert||

    Another countervailing factor not mentioned in the article is patient privacy. How do you check whether a patient actually exists or actually has gotten treatment unless you investigate actual people?

  • Medical Billing Chick||

    The problem is more about checking whether the people who supposedly own the companies exist. And Medicare does a terrible job of that, then makes honest providers pay for their incompetence.
    Last year they instituted a $50,000 bond requirement for most providers, even the ones who have been honestly doing business with Medicare for years. And what the hell is $50,000 going to cover? Do you think they have the resources to catch these fraudulent companies before they run off with $50,000, musch less $500,000? They don't. They're the government.

  • ||

    The solution is simple: do away with it and let the market figure itself out with private insurers. The gov. should not be in the health care business.

  • Kronosaurus||

    This is an important topic and I am glad Reason is covering it. I question the premise though. Do we think fraud does not exist in the private sector? I absolutely hate going to the dentist for example, because they milk my insurance company. Auto repair shops practice the same shenanigans. Of course, as consumers we have some tools to fight back with and insurance companies can fight the fraud as well, but it exists.

    Just because our congressional reps. are captured by moneyed interests does not mean those same moneyed interests are not going to find ways to milk the system if it is privatized. Fraud is part of human nature (libertarians ought to know that) and the best we can do is to keep exposing it and fighting it. How about stop yelling about "socialized this and that" and start demanding accountability from medicare and helping it run better? Nope, libertarians won't go down that road because they benefit from the fraud. It just fuels their anti-government arguments. But remember, the same fraudsters will be active in the private industry. I would rather have some input through the democratic process than to trust that the corporations and "market competition" will take care of fraud. It ain't going to happen because even if you libertarians get rid of the government the fraudsters will just create more government in order to bilk it. That is the reality we have to deal with.

  • BigT||

    Govt is completely different because you can't go down the street and pick another govt. It is a monopoly. With the insurance cos, the investors and patients will punish them if they are insolvent or over-priced (the consequence of fraud), but with the govt nothing ever happens - except the taxpayers get screwed.

  • Medical Billing Chick||

    DJF-"My mother received some equipment from Medicare that she did not need"-
    someone must have ordered it for her- her physician, a discharge mgr at the hospital, a physical therapist? Companies can't just deliver equipment without an order. Did she sign for it? And it's not "from Medicare"- they may be paying for it, but it's through a medical equipment company. We get orders from doctors all the time, and then the patient refuses it at delivery or does as your mother did- accepts it, then later says she doesn't want it. A lot of times people decide they don't want it when they discover it's not "free", because Medicare only pays 80%, and they are responsible for 20%.
    If the equipment truly appeared out of nowhere, you should contact Medicare. But I would check with them concerning who ordered it first.

  • Dan||

    The bigger problem is the "all you can eat model" Medicare uses. Just print, print, print! Everything is free!

  • Dan||

    The picture is of an obese senior working on developing type 2 diabetes into type 1 while he surfs the net for seedy things. The senior also gets a special unlimited Verizon streaming plan paid for by the taxpayer. See, as seniors get more numerous, as a politian you want to keep them happy so they vote for you. America is truly sick.

  • ||

    The solution is to quit providing Durable medical goods including Power Chairs, Lift chairs, Diabetes meters, Nebuizers etc. If they purchase them on their own they may apply to Medicarefor reimbursement. Price to Medicare by these organizations is obscene.

  • ||

    Does anyone ever mention that we pay for this? I pay about $360.00 every 3 months and because I am pretty healthy for my age I do not feel that I am stealing from anyone when I need a prescription. My husband is retired military and his pay was never in the upper income bracket. He paid all of his life for his benefits, and pledged his life for the USNavy. Neither of us has had a free ride, as I paid for teacher retirement insurance all of my working life. Then something called FICA was taken out of my pay, which was taking from me for someone else! The real thieves are the slackers who pay NO income tax and get all of their stuff because the rest of us do pay.

  • ||


  • jason||

    Should the US do away with large corporations? Apparently it is incredibly easy to defraud stakeholders and the government of millions and millions of dollars through corporate scams too. These corporate thieves cost the American tax payer so much money. If there are laws in place along with enforcement agents designed to prevent these financial loses, and if that is supposed to be a reasonable response, then why is it insufficient when it comes to medicare?

    Taking care of any living thing, especially people, is expensive. No parent makes a profit by raising their children.

    Governments that extend health support to their citizens benefit by a healthier work force to move the economy. If a government wants to be strong, its people must be strong.

    Any corporation, that invests in its employees, and ensures that they are healthy and educated benefits from the strength of its work force. Those that fear losing that investment to other headhunting competitors are narrow minded.

    Healthy and educated people will do their best surrounded by others of the same. Everyone must have access to support the full expression of each other's capabilities. It is the same for countries.

  • ||

    Thanks for sharing excellent informations. Your site is so cool. I'm impressed by the details that you've on this web site. It reveals how nicely you perceive this subject. Bookmarked this website page, will come back for extra articles. You, my friend, ROCK! I found just the info I already searched all over the place and just couldn't come across. What an ideal web-site.we've got many new users here who recently got an Apple iPod touch or an


Get Reason's print or digital edition before it’s posted online

  • Progressive Puritans: From e-cigs to sex classifieds, the once transgressive left wants to criminalize fun.
  • Port Authoritarians: Chris Christie’s Bridgegate scandal
  • The Menace of Secret Government: Obama’s proposed intelligence reforms don’t safeguard civil liberties