NCPA - National Center for Policy Analysis

Medicare and Medicaid Fraud Is Costing Taxpayers Billions

June 6, 2012

Medicare and Medicaid fraud have become an extraordinarily lucrative business.  Though estimates vary widely on the exact figures, the opportunities to scam taxpayers are so substantial as to entice everyone from Nigerian mobs to New York crime families to participate.  This is likely due to the sheer vastness of the sums at stake, says Merrill Matthews, a resident scholar at the Institute for Policy Innovation.

  • Federal authorities announced on May 2 they had arrested 107 health care providers in several cities and charged them with cheating Medicare out of $452 million.
  • Similarly, federal officials charged 94 people in 2010 with making $251 million in phony claims.
  • When the Medicare Fraud Strike Force visited nearly 1,600 Miami businesses in 2007 that had billed Medicare for durable equipment, it found nearly a third of the businesses, 481, didn't even exist, yet they had billed Medicare for $237 million.

Aggregately, reliable information on fraudulent behavior nationwide is scarce, the obvious reason being that much of it goes unreported.  However, various estimates offered by members of the administration hint at its enormous scale.

  • Federal authorities boast of recovering $4.1 billion in 2011 from fraudulent activity, but spent millions of dollars to recover it.
  • In 2010 the Government Accountability Office (GAO) released a report claiming to have identified $48 billion in what it termed as "improper payments" (nearly 10 percent of the $500 billion in outlays for that year).
  • Others, including U.S. Attorney General Eric Holder, suggest that there is an estimated $60 to $90 billion in fraud in Medicare and a similar amount for Medicaid.

To address these issues, federal officials need to adopt policies that are better-tailored to preventing fraud.  To this end, lessons from private sector insurance providers can be instructive.

  • Though it is currently attempting to change methods, the Department of Health and Human Services has for years operated on a "pay and chase" model for stopping fraud.
  • Under this system, the department pays out most claims and only pursues wrongdoers after subsequent information is discovered.
  • Private sector businesses, on the other hand, employ pre-claims adjudication to limit fraudulent claims.
  • This offers a partial explanation for why private insurers lose an estimated 1 percent to 1.5 percent in fraud compared to an estimated 10 to 15 percent for Medicaid and Medicare.

Source: Merrill Matthews, "Medicare and Medicaid Fraud Is Costing Taxpayers Billions," Forbes, May 31, 2012.

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