Medicare Thieves 2

Fixing Fraud

If fraud is so easy, why hasn’t the federal government instituted reforms? One reason is that the system is almost incomprehensibly large: This year Medicare is paying, on average, 4.4 million claims to 1.5 million providers every day. Truly fixing such an enormous system would require a wholesale overhaul. 

Another reason: For all its flaws, there are considerable benefits to the system’s current administrative ease of use, at least for the providers and patients who rely on it most. A system in which fraud is tougher to pull off is also one in which it is more difficult for legitimate providers to get paid. And the harder it is to get paid, the fewer doctors will want to participate in the system at all. The number of Medicare providers is already falling, and it is becoming harder for the rapidly growing senior population to find doctors. 

One of the biggest reasons doctors are dropping out is that Medicare pays considerably less for medicalservices than private insurers. The payment system’s instability has made the situation even worse: Thanks to a poorly designed payment formula introduced in the 1990s, doctors face major potential reimbursement cuts every year or so, even though the cuts are almost never implemented. If doctors are going to work for Medicare’s lower rates, they expect at least to be paid promptly and without hassle. Adding layers of anti-fraud procedures on top of the current process would annoy the providers that the system relies on to provide seniors with care.

Criminal enforcement in the form of the strike forces in Miami and elsewhere has helped bring attention to the problem. But the potential gains from such efforts are small relative to the likely size of the problem: Unearthing a few billion a year in fraud is impressive only until you remember that the abuse involved may total $60 billion or more. And even those victories come at a price: For the 2011 fiscal year, HHS budgeted a total of $1.7 billion for anti-fraud activities, a $250 million increase from the prior year.

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 theirrates 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.