Reducing Fraud, Waste and Abuse

Since its inception, fraud, waste and abuse have plagued Medicaid programs. For example, a 1993 investigative report of the Illinois Medicaid system by the Chicago Tribune found that:

• In one year, 71,064 Medicaid patients had more than 11 visits to a doctor's office (compared to a national average of six visits per year), while four patients had more than 300 visits in one year.
• In one day, one patient saw five doctors, made seven visits to a pharmacy and had 22 prescriptions filled with 663 pills.

The report also uncovered some "Medicaid mills," whose freely prescribed drugs, syringes and other medical products were bought with American tax dollars and sold on the street.

A decade ago, opportunities for reducing fraud nationwide appeared to be much larger. But in the intervening years, activity in this area has been minimal. Efforts to eliminate fraud, waste and abuse should be constantly reviewed to make sure they are up-to-date and cost-effective.

"Since its inception, Medicaid has been plagued by fraud, waste and abuse."

Fraud. Medicaid is especially vulnerable to fraud. It is a large program with a rapidly growing budget. It generates more than $1 billion in medical claims per year, nationwide. The General Accounting Office estimates that fraud and abuse may be a high as 10 percent of Medicaid spending.63

State Medicaid agencies claims data and other medical information could be used to identify fraud abuse, overuse and unnecessary care, but it seldom is. Most abuse is identified through tips or other unreliable means. The numerous jurisdictions having responsibility in a fraud case confounds detecting and prosecuting fraud.

In addition to the little chance of being caught, the penalties for fraud have been light. Perpetrators often have plea bargained or accepted pretrial diversion wherein their court records were sealed if they abided by court-approved probation for a short time. Financial penalties have been very light, even for providers who have billed into the millions. More than 50 percent of cases resulted in restitution of $5,000 or less, which the providers could easily pay. Where higher restitution has been set, actual collections have usually amounted to only a small percentage of the total.

Further, those convicted of fraud are usually free to re-offend. There apparently is little follow-up to ensure that the perpetrators of fraud are barred from the health care system. A major problem is that these individuals/groups relocate and become providers in new, unsuspecting states. Establishment of a state Medicaid-provider information exchange would be useful.64 The que tam provisions of current law that allow private citizens to obtain up to triple damages for any proven fraud also may be of use.

What, then, is legally required to prosecute and convict a perpetrator? First, the activity must be clearly illegal. Second, it must be persistent. Third, it must have significant impact. Aside from worker compensation-type fraud, very little recipient fraud exists. The difficulty of overcoming all three hurdles may explain why there are so few convictions. For example, in Texas, recipient fraud has exceeded 1 percent of claims only once. Provider fraud may be more prevalent, but it tends to be committed by small groups that move from area to area and state to state before routine audits identify them.

Abuse. With respect to fraud, clear legal standards must be met. The same is not true of abuse. All too frequently, "abuse" is defined as what someone finds offensive. For example, putting stainless steel caps on the baby teeth of a child is abuse to some. But according to the Medicaid rules, it is not.

Medicaid rules are very complex and can be less than clear. (Remember: The same kind of bureaucracy that develops income tax forms develops Medicaid rules and regulations.) One result is that many providers are unsure of what is required of them. The ensuing confusion and attendant publicity give rise to a popular conception that abuse is pervasive in Medicaid. However, Medicaid provider abuse is rarely proven and should not be expected to generate significant savings.

"The potential to reduce costs by controlling waste is significant."

Waste. The potential for reducing Medicaid costs through controlling waste is real and significant. Medical errors are more prevalent than anyone would like to admit, and the threat of tort liability makes it dangerous to be entirely candid when an error occurs. Some believe the reduction of errors may be the greatest opportunity for reducing health care costs.65 As noted above, evidence-based evaluation systems should be developed, starting with those procedures that generate the most spending. Done properly, disease management and care coordination can reduce costs and improve quality of care in ways acceptable to providers and patients alike. Major savings could be realized.

Also, as in the case of fraud detection, the introduction of MBAs would give Medicaid patients an economic incentive to detect and reduce some of the waste that occurs.