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.”"

Obama Wants More Spending on Failed Federal “Job Training” Programs that Teach Welfare Recipients and Young People Bad Habits

Great post by Hans Bader of the Competitive Enterprise Institute.

"In The Wall Street Journal, James Bovard, a former CEI Warren T. Brookes Journalism Fellow, takes aim at some of the billions in waste contained in President Obama’s recent “jobs” proposal, the “American Jobs Act,” which would fund proven government failures in the form of federal job “training.” Federal “job-training” programs, which Obama likes, are so dismally ineffective that they cause “significant earnings losses” for young people who participate in them, and result in participants ending up on food stamps at higher rates:

Last Thursday, President Obama proposed new federal jobs and job-training programs for youth and the long-term unemployed. The federal government has experimented with these programs for almost a half century. The record is one of failure and scandal.

In 1962, Congress passed the Manpower Development and Training Act (MDTA) . . . A decade after MDTA’s inception, GAO reported that it was failing to teach valuable job skills or place trainees in private jobs and was marred by an “overriding concern with filling available slots for a particular program,” regardless of what trainees actually needed.

Congress responded in 1973 by enacting the Comprehensive Employment and Training Act (CETA). . . CETA spent vastly more money. . .[such as] providing nude sculpture classes (where, as the Pharos-Tribune of Logansport, Ind., explained, “aspiring artists pawed each others bodies to recognize that they had ‘both male and female characteristics’”), and conducting door-to-door food-stamp recruiting campaigns.

Between 1961 and 1980, the feds spent tens of billions on federal job-training and employment programs. To what effect? A 1979 Washington Post investigation concluded, “Incredibly, the government has kept no meaningful statistics on the effectiveness of these programs—making the past 15 years’ effort almost worthless in terms of learning what works.” CETA hirees were often assigned to do whatever benefited the government agency or nonprofit that put them on the payroll, with no concern for the trainees’ development. An Urban Institute study of the mid-1980s concluded that participation in CETA programs resulted in “significant earnings losses for young men of all races and no significant effects for young women.”

After CETA became a laughingstock, Congress replaced it in 1982 with the Job Training Partnership Act. JTPA spent lavishly—to expand an Indiana circus museum, teach Washington taxi drivers to smile, provide foreign junkets for state and local politicians, and bankroll business relocations. . . young trainees were twice as likely to rely on food stamps after JTPA involvement than before since the “training” often included instructions on applying for an array of government benefits.

For years the Labor Department scorned the mandate in the 1982 legislation to speedily and thoroughly evaluate whether the programs actually benefitted trainees. Finally, in 1993, it released a study that showed participation in JTPA “actually reduced the earnings of male out-of-school youths.” Young males enrolled in JTPA programs had 10% lower earnings than a control group that never participated. . .

In his speech to Congress, Mr. Obama called for funding hundreds of thousands of summer jobs for teens, which he labeled “investing in low-income youth and adults.” Yet such programs have been blighting work ethics for decades.

The GAO warned in 1969 that many teens in federal summer jobs programs “regressed in their conception of what should reasonably be required in return for wages paid.” A decade later, it reported that most urban teens “were exposed to a worksite where good work habits were not learned or reinforced.” And in 1985, a National Academy of Science study found that government jobs and training programs isolated disadvantaged youth, thus making it harder for them to fit into the real job market.

The president also wants to increase federal anti-poverty spending, which already rewards lazy people who are not poor, while doing little or nothing to help struggling taxpayers who work hard.

Experts say that the $450 billion spending package President Obama submitted Monday, which he calls the “American Jobs Act,” will be ineffective at creating jobs, and even harmful in certain respects. The Associated Press said that Obama’s claim that his plan would not increase the national debt was false. Obama’s proposals are simply a recycled collection of bad ideas that twist language and logic and rely on deception. Even the seemingly rational parts of Obama’s proposal, such as infrastructure spending, are in fact harmful, since they contain boondoggles and pork designed to favor special interests. (Obama himself blocked useful infrastructure spending in the past for ideological reasons.) He is also pushing more fantasy “green jobs” schemes that will consume billions in tax money without actually creating jobs.

The fact that wasteful federal “job-training” programs may actually increase the number of people on welfare and food stamps may not be a big concern to Obama. Thanks to Obama’s policies, a record 45.8 million people are now on food stamps, including some millionaires who are treated by the government as “poor” because their cash income is tax-exempt or modest. His $800 billion stimulus package largely repealed welfare reform."

Infrastructure projects often cost more than first forecast

See “Strategic Misrepresentation” by Rand Simberg of the Competitive Enterprise Institute.

"Over at National Review‘s The Corner, Mercatus’s Veronique de Rugy has a post on cost underestimates in infrastructure projects:

…here are some striking facts about government run public work projects. The most comprehensive study of cost overruns examines 20 nations spanning five continents. The authors find that:

■In 9 out of 10 transportation infrastructure projects, costs are underestimated.
■For rail projects, actual costs are on average 45%higher than estimated costs.
■For fixed-link projects (tunnels and bridges), actual costs are on average 34% higher than estimated costs
■For road projects, actual costs are on average 20%higher than estimated costs.
■For all project types, actual costs are on average 28% higher than estimated costs
■These same cost overruns exist in all public work projects

Remember the Capitol Hill Visitor Center? This ambitious three-floor underground facility, originally scheduled to open at the end of 2005, was delayed until 2008. The price tag leaped from an estimate of $265 million in 2000 to a final cost of $621 million.

How can we explain these cost overruns? The authors explain:

These cost underestimation cannot be explained by error and seems to be best explained by strategic misrepresentation, i.e., lying.

It happens in space transportation projects as well. On a cost-plus contract, the incentives are to low-ball the bid, and then get financially well with change orders. Before Constellation was canceled last year, the estimated costs for the Ares I rocket and Orion capsule had ballooned dramatically, and the schedule slipped far to the right (it was slipping more than a year per year). In fact, it tends to be even worse for NASA projects, because they’re not even projects that the public will ever use, so it doesn’t matter whether they ever actually succeed — the program, with the jobs it creates in the states and districts of the only representatives who care about it (and for only that reason) is its own justification. Reagan announced the space station program in 1984, with the intent to have it flying by 1992, for a cost of eight billion dollars. The first hardware flew in 1998, and it has now cost about a hundred billion (though to be fair, the original cost estimate didn’t include transportation costs of the Shuttle, which the latter number does). No one loses elections because launch systems don’t fly, but sometimes they are won by the jobs from the local contracts that the representative brings home.

Veronique also points out that it’s not just that costs are underestimated — demand is overestimated. This happens in space projects as well. The Shuttle’s per-flight cost estimates assumed that it was going to get all of the US launch business, and much overseas as well, giving it the high flight rate necessary to bring the average cost closer to the marginal cost, but many of the payloads never materialized, and many of them fled to other launch providers. What’s truly amazing about the Senate Launch System is that NASA is admitting that it will fly rarely, and cost billions per flight. But until the rest of the Congress starts to care, and stops deferring to the porkers on the space committees, the waste will continue."

Perhaps Robert Barro Did Make Sense On Growth In His NY Times Article

See What might be Robert Barro’s argument? by Tyler Cowen at Marginal Revolution.

"Paul Krugman, Brad DeLong, Justin Wolfers and others are not sure what is Robert Barro’s argument or model in his recent Op-Ed. I am puzzled by these responses, because, while I do not pretend to speak for Barro, I see at least one simple answer to these puzzlements.

Consider the following model. Sometimes growth slows down and afterwards it speeds up again. Temporary losses tend to be undone in future periods. For one thing the Solow model implies catch-up growth, furthermore cyclical losses may exhibit mean-reversion. There is in the meantime some depreciation of labor skills, from unemployment, but long-run output and welfare really does for the most part depend on the forces which govern economic growth. (Increases in the variance of consumption are not enough to overturn that emphasis.) That implies lower government spending in most areas of the economy, and it also implies lower taxation of capital, as supported by many empirical papers on growth including some by Barro himself.

That view may not be true (in my TGS book you will find some dissent from it but from another direction), but it’s hardly bizarre or economically illiterate. If some writers aren’t totally explicit, it could be they don’t have enough words and feel that a large enough part of their audience takes the emphasis on growth and its preconditions for granted.

We are once again witnessing the renaissance of old Keynesian economics as a theory of the long run not just the short run. The “New Old Keynesians” are of course entitled to their opinions, but given their minority status, it is strange when they find others difficult to comprehend."

Raising taxes on the wealthy and businesses may not be a good way to pay for the proposed stimulus

See Obama's Job Plan: A Never-Never Bill by Megan McArdle.

"I was tenatively in favor of the jobs plan that Obama proposed last week. But that's before I realized that he has no intention of trying to get it passed:

The White House said Monday that President Obama wants to pay for his $447 billion jobs bill by raising taxes on the wealthy and businesses. Jack Lew, director of the Office of Management and Budget (OMB), said the tax hikes would pay for Obama's entire bill, which the administration is sending to Congress Monday evening.

The chief provision announced by Lew would be to limit itemized deductions for individuals who make more than $200,000 a year and families that make more than $250,000, something the Obama administration has previously pushed to do through its budget proposals. Lew told reporters at the White House press briefing that this would raise about $400 billion.

The administration would tax the income investment fund managers make, known as "carried interest," as regular income instead of as capital gains, which has a low 15 percent tax rate. This is another longstanding administration goal that has been resisted by Wall Street as well as some Democrats.

The administration estimates the capital gains change would provide $18 billion in revenue.

The administration also wants to eliminate tax breaks for the oil-and-gas sector, which would raise $40 billion, the administration said.

Another $3 billion would come from changing the way corporate jets depreciate. With a few other revenue increases, Lew indicated the total measures proposed by the administration would bring in $467 billion, $20 billion more than the cost of the bill.

It's worth noting that a deduction phase-out is actually worse than a marginal tax hike. Deduction phase-outs amplify other rate increases--depending on how they're structured, a deduction phase-out can actually mean that you make less money at $251,000 than $249,000.

But more importantly, paying for the bill with tax hikes--any tax hikes--is going to substantially reduce the stimulus this bill provides. Just as government spending boosts aggregate demand, tax hikes (yes, even on rich people), reduce aggregate demand. Providing stimulus through payroll tax cuts that are financed with tax hikes on other people is like trying to boost your household income by making your wife pay you to mow the lawn.

Yes, yes, I know--why should you believe me, when we all know that libertarians sell their souls to Satan Corporations in a secret ceremony involving Charles Koch, The Wealth of Nations, and a silver chalice full of Olde English malt liquor? Well, don't listen to me then--listen to that torrid old conservative shill, Christina Romer, former chair of Obama's Council of Economic Advisors:

This paper investigates the impact of changes in the level of taxation on economic activity. The paper uses the narrative record ñ presidential speeches, executive-branch documents, and Congressional reports ñ to identify the size, timing, and principal motivation for all major postwar tax policy actions. This narrative analysis allows us to separate revenue changes resulting from legislation from changes occurring for other reasons. It also allows us to further separate legislated changes into those taken for reasons related to prospective economic conditions, such as countercyclical actions and tax changes tied to changes in government spending, and those taken for more exogenous reasons, such as to reduce an inherited budget deficit or to promote long-run growth. We then examine the behavior of output following these more exogenous legislated changes. The resulting estimates indicate that tax increases are highly contractionary. The effects are strongly significant, highly robust, and much larger than those obtained using broader measures of tax changes. The large effect stems in considerable part from a powerful negative effect of tax increases on investment. We also find that legislated tax increases designed to reduce a persistent budget deficit appear to have much smaller output costs than other tax increases.

Of course, you can still argue that the bill will provide some stimulus, because maybe the stimulative multiplier on payroll tax cuts for the middle class is higher than the contractionary multiplier of tax hikes on the affluent. I might even agree with you. But why would you want a stimulus that relies on the delta between two fairly similar multipliers, when you could get much more stimulus by borrowing the money this year, and paying it back later, when we're richer? No matter how you look at it, unless these tax cuts happen well into the future, structuring the bill this way means that it will be much less stimulative than it could be.

If the president were serious about providing stimulus, he would pay attention to the work of his old CEA chair, and pay for the jobs bill by decreasing the growth rate of something-or-other in the future by 0.2%. This is also what he would do if he were serious about getting any part of it through Congress. Instead he is apparently sending them a less-stimulative bill designed to be maximally embarrassing to the GOP--which by definition means minimally politically viable.

You can say that Obama has no choice, because the GOP is just so damn obstructive that they won't pass anything anyway. As it happens, I disagree--I don't think that he could have gotten the whole thing through, but the GOP would probably have given him a few pieces to avoid looking like total jerks, and while that might not have done too much for Obama's re-election chances, it probably would have meant a lot to the schmoes trying to make their mortgage payments in a tough economy.

But say it's true. If it is, I really wish that Obama hadn't wasted my Thursday evening, and that of 31 million other Americans, listening to a jobs plan that was only designed to produce one job--a second term for Barack Obama. I mean, I don't blame him, exactly. But I get a little pang when I realize that I could just as well have spent that time bleaching the grout in the master bath.

Update: I see from the comments that this was taken as primarily a complaint that Obama is raising taxes. Depending on how it's structured, it's a little bit of a complaint that he's raising taxes--you don't, I think, get all that much stimulus by pairing a temporary tax cut on the middle class with an even bigger permanent tax hike on corporations and high earners, though others may disagree."

But it's mostly half annoyance and half genuine disappointment, because if this is true, I think it means that Obama has given up on even trying to pass it; this is just political theater. Maybe you think he had no choice--I disagree, but I can see where others may differ. But either way, you have to be way more invested in Obama's re-election than I am to take much interest in pure political theater."

Davis-Bacon Rules Damage D.C.

Great post by Chris Edwards of Cato.

"The Washington Post reports on a Labor Department decision that applies pro-union Davis-Bacon rules to the CityCenter development in Washington D.C. The ruling could push up costs on the project by $20 million by forcing firms to pay artificially high wages.

The paper says that “area real estate developers and construction executives who have partnered with the District say the ruling, if upheld, is likely to inflate costs on a wide range of projects by as much as 15 percent.” In turn, that could have “unprecedented, significant [and] adverse citywide cost impact upon every economic development project in the District’s portfolio,” said a deputy mayor of the city. So while Democrats in Congress are demanding government action to fix the nation’s supposedly crumbling infrastructure, here the Obama administration has thrown up a new hurdle to investment.

Davis-Bacon rules usually apply to federally funded construction, thus pushing up the costs of public projects. Nationwide, economists at the Beacon Hill Institute found that Davis-Bacon rules cost federal taxpayers about $9 billion annually. For example, repairs to National Park facilities cost more than they should, thus reducing the amount of maintenance the agency can do within its budget. However, the D.C. ruling stretches the Davis-Bacon rules even further because CityCenter is a privately funded project.

In an essay at www.DownsizingGovernment.org, economist Charles Baird notes that passage of Davis-Bacon in 1931 was motivated by the faulty economic idea that the government should try to keep wages high during an economic downturn. But Baird describes another reason why Davis-Bacon was misguided from the start—the racist intentions of the bill’s supporters:

Congress wanted to keep black workers from competing for jobs that had hitherto been done by white unionized labor. The racist motivation behind the legislation is plain when reading the Congressional Record of the debate in 1931."

Hoover Had Big Deficits

See Who’s Benighted?, a great letter by Don Boudreaux of "Cafe Hayek."

"Here’s a letter to the Washington Post:

Steven Pearlstein alleges that a laughable mysticism drives those of us who “reject as thoroughly discredited all of Keynesian economics, including the efficacy of fiscal stimulus, preferring the budget-balancing economic policies that turned the 1929 stock market crash into the Great Depression” (“The magical world of voodoo ‘economists’,” Sept. 11).

Before guffawing at us oafs, Mr. Pearlstein should check his facts.

After running a budget surplus in 1930, Uncle Sam ran a budget deficit in 1931 of $462 million and a budget deficit in 1932 of $2.74 billion. Moreover, 1932′s budget deficit was four percent of GDP – a deficit-to-GDP ratio the size of which was not matched after 1946 until 1976, and which was exceeded by only three of FDR’s non-war-year budgets. For 1930-1932 as a whole, the U.S. government ran a net budget deficit of $2.46 billion.* Herbert Hoover’s deficit spending was so alarming that, during the 1932 presidential campaign, FDR emphasized his own commitment to reverse what then seemed to be unprecedented fiscal recklessness.

Of course, FDR broke that campaign pledge. He ran a budget deficit during every year of the greatly depressed 1930s – a fact that should cause Mr. Pearlstein to shed some of the arrogance with which he dismisses skeptics of Keynesian economics.

Sincerely,
Donald J. Boudreaux"