The Cost Of Medicare Fraud

See Medicare Thieves: Stealing from the government-run health care system is much easier—and potentially more lucrative—than dealing drugs by Peter Suderman of Reason.

"Between 2007 and early 2011, the federal government reports having won convictions against 990 individuals in fraud cases totaling $2.3 billion. In 2010, it recovered an additional $4 billion through collection of non-criminal penalties on health providers who improperly billed the government. But that’s just a fraction of the total problem.

According to a 2011 report from the Government Accountability Office, Medicare makes an estimated $48 billion in “improper payments” each year, an estimate that’s almost certainly lower than the actual amount since it doesn’t include bad payments within the prescription drug program. Some of that money, perhaps a lot of it, is fraud, but experts differ on exactly how much. On the very low end, the National Health Care Anti-Fraud Association has estimated that about 3 percent of all U.S. health care spending is fraud. Assuming fraud is distributed equally across payment systems, that would mean Medicare’s share is roughly $15 billion a year. But almost all analysts believe fraud is much more common in Medicare than in it is in payments by private insurers. Toward the high end, Sen. Tom Coburn (R-Okla.) once suggested the number could be as much as $80 billion a year. In March, the executive director of the National Health Care Fraud Association told members of Congress that total health care fraud losses likely range from $75 billion to $250 billion each year."

"For years, Florida’s league of health care fraudsters operated with minimal federal interference. They forged medical records, bought and sold patient ID numbers, billed for treatments not provided, and ran criminal enterprises out of fake storefronts. In 2006 investigators from the HHS inspector general’s office made unannounced visits to 1,581 Medicare suppliers in South Florida and found that more than one-third didn’t even maintain a business office at the address listed on Medicare’s payment files."

"Just how easy is Medicare fraud? According to Aghaegbuna Odelugo, who swindled Medicare out of nearly $10 million between 2005 and 2008, it’s “very easy”—arguably no more difficult than doing summer temp work at a call center. Earlier this year, Odelugo told Congress in written testimony that the “primary skill required to do it successfully is knowledge of basic data entry on a computer.” The only other important element “is the presence of so-called ‘marketers’ who recruit patients and often falsify patient data and prescription data. With these two essential ingredients, one possesses a recipe for fraud and abuse. The oven in which this recipe is prepared is the Medicare system."

"Medicare’s billing system is based on a hodgepodge of bureaucratic codes, one for each medical device or procedure. But the coding system is imprecise and contains significant overlap: Two nearly identical devices—say, a wheelchair and a variation on the same product with a slightly different safety strap—might be assigned two different codes. If one code is kicked back as ineligible for reimbursement, the scammer can easily submit the same claim under a different code for an essentially identical device. The same technique can be used to submit multiple claims for the same item, double-billing the government for the same service or product. Medicare’s billing system has long allowed providers to submit and resubmit claims with virtually no serious checks on their validity or patterns of misuse.

According to Odelugo, the process of billing for forged prescriptions is similarly easy. “A person engaging in this fraud will typically purchase a forged prescription from a marketer for a price determined by the amount the person anticipates earning,” he explained. “Usually this would be an amount of 15% to 20% of the anticipated profit.” The forger then submits the claim electronically, and Medicare responds as it is designed to: with a prompt payment.

Security surrounding the system is astonishingly lax. The “unique physician identification numbers” (UPINs) that doctors use to submit their claims are openly available to anyone on the Internet."

"Perhaps the biggest problem with Medicare’s billing system, however, is its pattern of excessive reimbursement rates, particularly for the category known as “durable medical equipment,” which encompasses medical devices, such as wheelchairs and oxygen tents, that assist patients living at home. These devices tend to be fairly inexpensive on the open market, but Medicare pays highly inflated rates for them. According to Odelugo, the reimbursements are “beyond exorbitant”—as much as 10 times the normal cost for knee braces, for example. “For anyone engaging in fraud,” he testified, “these numbers are too good to be true. It defies logic to believe that a system like Medicare can reimburse at these rates and not attract a great deal of fraud.”"