The Size and Scope of Fraud in Medicare

By Nicole Kaeding of Cato.

"Medicare spends more than $600 billion annually, but not all of that money is spent wisely.

Yesterday, I wrote about the Washington Post’s expose on motorized wheelchair fraud. Records suggest that 80 percent of motorized wheelchair claims are “improper,” amounting to billions in waste. Unfortunately for taxpayers, this is just the tip of the iceberg on Medicare fraud.

The Government Accountability Office estimated that Medicare’s “improper payments” amounted to $44 billion, or 8 percent of total expenditures, in 2012. GAO considers Medicare a “high risk” program for its “vulnerabilities to fraud, waste, abuse, and mismanagement.” GAO criticized Medicare for its inability to control the problem saying that Medicare “has yet to demonstrate sustained progress in lowering the rates [of improper payments].”

Other experts believe that GAO undercounts examples of fraud in Medicare. Malcolm Sparrow of Harvard University estimates that closer to 20 percent of claims–or $120 billion annually are improper.

Medicare’s lax oversight of its payment system perpetuates the issue. Millions of claims come in daily and are paid without review or analysis. Scammers know that Medicare payments will not be scrutinized; the chance of getting caught is quite low. Scammers simply adapt and continue finding ways to game the system.

Just yesterday, the Department of Justice announced that an individual in Louisiana was sentenced to prison for submitting “unnecessary or never provided” claims to Medicare. The federal government’s Medicare Fraud Strike Force “has charged nearly 1,900 defendants who have collectively billed the Medicare program for more than $6 billion” since 2007 illustrating just how widespread the issue is.

Even with the threat of prosecutions, scammers know that Medicare is slow to act.

According to John Warren, a former employee in Medicare’s anti-fraud office, Medicare is hesitant to deny claims. It risks denying coverage to a legitimate claim, creating a backlog and potential outrage. Even though the scam cost taxpayers billions, Warren told the Washington Post “looking back, I think we did pretty good.”

These various forces illustrate that Medicare will not be able to control the problem of fraud without serious reform. As my colleague Chris Edwards wrote in 2010,

Efforts to combat Medicare fraud frequently fail, and they can involve a vicious cycle. Cracking down on fraud may open new opportunities for fraud. And fighting fraud often involves new layers of complex regulations that may “discourage organizational innovation and market entry, and [ensnare] innocent providers.” To get out of the vicious cycle of government health care fraud, we should move toward a consumer-driven system where patients and providers would have strong incentives to be frugal with health care dollars and crack down on waste.

Medicare might have slowed the motorized wheelchair scam, but as long as the vulnerabilities in Medicare exist, scammers will surely try to benefit."