In less than a decade, Medicare spending has more than doubled - from $70 billion in 1985 to $162 billion in 1994. Health care experts estimate that as much as 10 percent of the money goes to waste, fraud and abuse. Medicare is highly vulnerable to exploitation because its controls against fraud and abuse have not kept pace with health care's complicated financial arrangements.

• Some of Medicare's claims processing contractors — which are also private insurers - are investing in networks that provide health care services and bill Medicare.

• This means that some contractors are billing Medicare through their networks at the same time they are deciding whether the claims are appropriate.

The Health Care Financing Administration (HCFA) has made regulatory and administrative changes aimed at correcting flawed payment policies, weak billing controls and deficient program management. Still, HCFA fails to carefully manage its claims processing contractors, who are responsible for developing payment controls and carrying out antifraud and antiabuse activities. As examples of what happens:

• Medicare has been charged as much as $600 per hour for speech and occupational therapy, although therapists' salaries range from under $20 to $32 per hour.

• A company that was set up solely to bill Medicare was able to add about $135,000 in administrative charges in one year to the cost of therapies.

Medicare also loses money through its methodology for reimbursing health maintenance organizations (HMOs).

• HCFA's method of computing rates does not take into account the fact that HMOs tend to enroll beneficiaries who are healthier than those who remain in the fee-for-service sector.

• As a result, HCFA has paid HMOs from 6 percent to 28 percent more for beneficiaries' treatment than it would have cost in the fee-for-service sector.

By law, spending on Medicare benefits is not capped, but administrative spending, including the cost of fraud and abuse controls, has been since 1990. As a result, resources allocated to such controls declined by more than 20 percent between 1989 and 1993, while the number of claims increased. HCFA says its figures indicate that advanced antifraud and antiabuse systems could reduce Medicare program costs by as much as $11 for every dollar spent.

Source: "Medicare Claims," February 1995, U.S. General Accounting Office, P.O. Box 6015, Gaithersburg, MD 20884, (202) 512-6000.