Medicare Waste, Fraud, and Abuse Means the System Needs Reform

Bureaucracy diminishes the program's effectiveness.



An office manager in Louisiana who billed Medicare for services that weren't needed or even provided was recently sentenced to four years in prison and ordered to pay $14.1 million in restitution. Twelve other defendants are awaiting sentencing for their roles in the $50 million scheme to defraud Medicare. The next day, a Detroit-area physician was sentenced to six years in prison and ordered to pay $2 million in restitution for his role in a $4.2 million Medicare fraud scheme.

Medicare is rife with fraud, and every year, billions of dollars are improperly paid out by the federal government's giant health care bureaucracy. According to the government's latest estimates, Medicare fee-for-service (parts A and B) made $46 billion in improper payments last year. And Medicare Advantage (Part C) and Medicare Prescription Drug Coverage (Part D) combined for another $15 billion in improper payments. Even more disturbing is the possibility that these numbers underestimate the annual losses to taxpayers from fraud and bureaucratic bungling. According to the work of Harvard University's Malcolm Sparrow, fraud could account for as much as 20 percent of total federal health care spending, which would be considerably higher than what the government's figures indicate.

One might think that government officials would try a little harder to reduce these embarrassing figures. Sadly, one would be wrong. That's because the Centers for Medicare & Medicaid Services is instead looking to gut its Recovery Audit Contractor program, which has been successful in recovering taxpayer dollars that otherwise would have been lost to improper payments. The RAC program is geared toward correcting improper payments instead of punishing perpetrators. It's tasked with finding both overpayments and underpayments, but because the system is already stacked toward handing out taxpayer money without accountability, overpayments are what the RACs typically find.

RACs are paid on a contingency fee basis at a rate negotiated when their contract is awarded. The auditors thus pay for themselves with the money they recoup instead of simply being handed a lump-sum check. That the RAC program has an incentive to reduce wasteful spending and save taxpayers money makes it fairly unusual among government initiatives. In 2014, RACs returned a net $2.2 billion to taxpayers. They did even better in 2013, when $3.7 billion was recovered. However, CMS scaled back certain audit activities and temporarily suspended the program for several months.

Medicare needs all the help it can get. The Medicare trust fund is persistently in the red, with almost half of its $600 billion budget financed through deficit spending. It is projected to be insolvent by 2030.

Despite all evidence pointing toward the need to expand the RAC program and recover even more lost taxpayer dollars, bureaucrats are set to greatly diminish the program's effectiveness in 2016. Rather than empower these fraud hunters, they are drastically reducing the number of paid claims that auditors can review every 45 days (from 2 percent down to just 0.5 percent). The new limits will make it that much harder for auditors—whose cost already amounts to just a drop in the bucket—to recoup taxpayer losses. Agency failure is routinely rewarded in Washington with bigger budgets and greater authority, but here success will not be.

Sen. Orrin Hatch, R-Utah, to his credit, recently authored a letter calling for CMS to account for the change and present a plan to undo the recent increases in improper Medicare payments. Unfortunately, the rest of Washington is either apathetic or in the pocket of health care providers who would prefer to keep the Medicare dollars flowing without those pesky auditors getting in the way.

Absent the major reforms that Medicare needs, programs such as RAC provide a modicum of accountability for an otherwise out-of-control and unaffordable welfare state. That's why the RAC program has been a persistent target of hospitals and other beneficiaries of wrongful payments. Congress could not only compel CMS to change course but also ensure that more auditors are commissioned to track down improper payments on behalf of taxpayers.

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  1. The puzzle to me is how Congress could pass up such low hanging fruit, to actually recover more in fraud restitution than their investigative expenses. To literally turn a profit in the name of fighting abuse — and be punished for that by reducing their budget.

    I do not believe that the fraud comes back in the form of campaign contributions because I don’t think Congress Critters are so dumb as to knowingly court fraudsters who expect such blatant payback; it’s one thing to take contributions form insurance companies and then ask their “advice”, quite another to take contributions from criminals whose advice is to stop investigating them.

    Could it be that Congress doesn’t like the embarrassment of admitting fraud exists? That does not compute either. The GAO and others have admitted to ginormous amounts of fraud. “Cut waste and fraud” is one of the most common and popular campaign promises — here is a golden opportunity to increase the budget for fighting fraud and recovering more than spent — such a fantastic campaign boast!

    I just do not understand it.

  2. From a practicing physician standpoint the recovery audit committees are a nightmare. It is much easier for them to find simple mistakes in billing then it is to find somebody who is actually trying to commit fraud. The billing process is incredibly complicated and it is extremely easy to miss code by accident or to get into a disagreement what code exactly applies. They come into your office and go through a small subsection of charts and get a percentage of “fraudulent bills” which are often this type of disagreement. They then multiply this percentage by every chart and ask for that money and triple damages. When you try to appeal you get to appeal to the same people who looked at your charts in the first place.

    For example to Bill a surgery that a resident assists with you have to be there for the critical portions of the case. They asked our hospital back for almost $1 million because we had trained the residents to dictate that the attending had been there for the entire case (when this was true as it always is at my hospital) and the high school dropout that they had reviewing charts felt that being there for the whole case didn’t necessarily mean that you were there for the “critical portions”. This took us six months and thousands of dollars to get reversed on appeal.

    The billing system is so complex that back in the late 90s RMS ran a test to see how well their own auditors could agree on what bill to put on different charts. They agreed only 85% of the time.

    1. It is much easier for them to find simple mistakes in billing then it is to find somebody who is actually trying to commit fraud. The billing process is incredibly complicated and it is extremely easy to miss code by accident or to get into a disagreement what code exactly applies.

      This is a good point and ties in directly to the article detailing the lack of the mens rea element in many federal laws and regulations. I wonder how much of the “fraud” in Medicare/Medicaid billing is the result of, as you say, coding mistakes and other innocent activity as opposed to criminal intent to defraud.

      1. I work in healthcare compliance and oversight of the clinical documentation/coding/billing cycles takes up at least 90% of my day. In the last two years I’ve been involved in exactly one investegation into potential fraud. The problem is proving the intent to defraud and that takes up a lot of time, espescially when you look at the bigger health systems and the volume of claims they make to CMS. It also depends on the type of fraud too(false claims vs. stark for example). The vast majority of the time when fraud investegations start is when the hospital nickel and dimed their way to tens of millions of dollars in overpayments…or there was a whistleblower.

        Having records of correcting little coding and billing errors is a way for hospitals and clinics to cover their ass in case CMS shows up with a warrant.

  3. So,I wonder.Is the percentage of fraud 5-10 %,as high or higher than a private corp would make in proffit? So much for top men.

  4. Get government out of the health insurance business as much as possible. Limit them to limited regulations and financial support for health insurance to those who need it.

    Obamacare, Medicaid, Medicare and VA hospitals should be phased out. People under these programs and those who are financially below the poverty level should be given a yearly amount that they could use to purchase health insurance.

    Keep the federal regulation stating that insurance companies have to cover pre-existing conditions as long as the person had previous insurance.
    Allow people to purchase insurance from any state. Deregulate state health insurance markets. Unhinge medical insurance from employers in the tax code.

    Getting government out and increasing competition in this way will lower health insurance costs. It cuts the bureaucracy costs, cuts the fraud costs and improves competition and quality of care.

    Why not do financial assistance for health insurance the same way we do financial assistance for food?

    1. As much as I hate the VA, I’m not sure about phasing them out completely – not without a *very* clear replacement process in place that maintains everything that the veterans are rated for (considering that when you get out/retire, you are given a disability category – where applicable – depending on service-related issues, etc) – over the rest of their life.

      Back in 2009 right after Obumbles came into office, one of the first projects the dems tried to pass (which nearly everybody has forgotten – and I can’t seem to dig up a link at the moment) – was to put a lifetime cap on disability benefits for vets. It was so low that in some cases – in cases of extreme trauma or related assistance costs – would have resulted in some vets expending their “lifetime” benefits in just a year.

      1. Reminds me of a 1932 cartoon titled “Buddies.” It showed a Washington federal trooper bayoneting one of the Bonus Marchers, who wanted only to redeem the paper promises made to them by the looter politicians that drafted them off to war. Like most inconvenient facts from the Depression, you have to look in those newspapers to find it.

  5. Obamacare will implode under its own bureaucratic inefficiency, indecipherable complexity and financial instability.

  6. Just as alcohol prohibition multiplied the price of the product, so the Harrison Tax act created a similar network of organized extortion in the medical profession. The few honest doctors who resisted were soon indicted and–like the horrified weapons test spectator in Atlas Shrugged–threatened with tearing up their work permits. Once countenancing extortion and blackmail in furtherance of the corruption wrought by prohibition became a prerequisite, the entire medical profession had to abandon scientific inquiry and give itself over to organized crime. No clearer example could be found to demonstrate that arbitrary power–the ability to coerce harmless individuals with life-threatening force–corrupts.

  7. High speed wobble = government programs.

  8. Google pay 97$ per hour my last pay check was $8500 working 1o hours a week online. My younger brother friend has been averaging 12k for months now and he works about 22 hours a week. I cant believe how easy it was once I tried it out.
    This is wha- I do…… ??????

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